Interim Results

Murray Income Trust PLC 12 February 2008 Murray Income Trust PLC Results for the half year ended 31 December 2007 The Directors of Murray Income Trust PLC report the unaudited results for the half year ended 31 December 2007. Key Facts • Murray Income's Net Asset Value total return for the six months to 31 December 2007 was -4.5%. • Shareholder total return for the period was -5.8%. • Second and third interim dividends of 5.25p each, representing an increase of 5% over the comparable prior 6-month period, will be paid on 18 April 2008 and 18 July 2008 respectively. Interim Board Report Performance The UK equity market fell over the six month period to 31 December 2007, with a negative Net Asset Value total return for the Company of 4.5%. This compares with the benchmark, the FTSE All-Share Index, which fell by 2.1%. The share price declined by 5.8% on a total return basis, and stood at 642p on 31 December 2007, which reflected a marginal increase in the discount to net asset value at which the shares trade. Background The key theme during the half year has been the evolution of sub-prime concerns emanating from the United States and their impact on credit markets and economic growth. Memorable images of savers queuing up to withdraw their deposits from the Northern Rock were the public manifestation of heightened LIBOR rates and reduced inter-bank lending. At a time when housing demand was slowing given prior interest rate rises, the reduced availability of credit only served to accelerate this weakness. Although the decision by the Fed to cut rates by 50bp in September helped to provide a temporary fillip to the equity market driven by cyclical plays, the appetite of investors for risk declined steadily throughout the remainder of the period. However, demand from emerging markets remained strong helping both oil and certain commodity prices reach record levels. UK macroeconomic newsflow began to reflect a more difficult environment towards the end of the period with July's interest rate rise reversed in December as the Monetary Policy Committee (MPC) focused on short-term financial stability rather than price stability. CPI inflation has fallen from 2.4% in July to 2.1% in December. However, food and oil prices remain elevated, tempering the MPC's ability to reduce rates aggressively. Although unemployment remains historically low, indicators have started to reflect a slowdown in the economy, with recent retail sales and manufacturing output data supporting a reduction in economic growth at a time when Government finances are beginning to come under pressure. Performance of the Company was affected by short-term style factors, as companies with strong earnings and price momentum led performance tables, while those companies with higher yields underperformed. The names that had been the subject of takeover speculation tended to underperform as widening credit spreads made debt-financed takeover activity less likely. However, merger and acquisition activity did not evaporate completely, with the Company itself benefiting from bids for Kelda, Resolution, Scottish & Newcastle and Emap. From a size perspective, mid- and smaller-cap companies underperformed, the reversal of a well-established trend, explainable as a function of their greater domestic earnings focus. Activity During the period, a number of new holdings were added to the portfolio. We introduced a position in Daily Mail and General Trust, given its attractive business to business operations and appealing valuation, as well as Close Brothers, due to its diversified earnings base and attractive dividend yield. These were partly funded through the sale of Mitchells & Butlers following a strong performance over the last couple of years and a stretched valuation. We continued the process of recycling capital from some of the stronger-performing companies, including British American Tobacco, Standard Chartered and Rio Tinto, into more attractively-valued companies such as AstraZeneca, GKN and Tomkins. Weakness in consumer-related investments, such as Kesa and Ladbrokes, provided the opportunity to increase our exposure, while our view that property-related holdings had been oversold prompted further purchases of SEGRO, Barratt Developments and Wolseley. We sold Mondi and International Personal Finance which off from Anglo American and Provident Financial. Towards the end of the period, we sold Kelda and Resolution following the bids for both companies, and reinvested the proceeds in a new holding in Tesco, given its longer-term growth prospects, and Whitbread, now predominantly a budget hotel company with significant asset backing. Gearing At the end of the interim period, the Company's gearing stood at 7.3%. This increase, compared to 5.7% at the end of the last financial year, is due to a small increase in borrowings during the market fall in August, and a fall in the value of the Company's assets. Treasury Shares At the Annual General Meeting held in October 2007, Shareholders renewed the authority for the Company to hold shares bought back by it as Treasury shares, rather than cancel them immediately. During the period from 1 July to 31 December 2007, 224,250 Ordinary shares were bought back and held in Treasury. As of 31 January 2008, the total number of Ordinary shares bought back and held in Treasury was 1,724,800. To date, no shares have been re-issued from Treasury. Dividends A first interim dividend of 5.25p was paid on 18 January 2008 to Shareholders on the register at the close of business on 14 December 2007. A second interim dividend of 5.25p will be paid on 18 April 2008 to Shareholders on the register at the close of business on 14 March 2008. The third interim dividend of 5.25p will be paid on 18 July 2008 to Shareholders on the register at the close of business on 13 June 2008. Outlook At the time of writing, the UK equity market has fallen by over 10% since the start of the new calendar year and by over 15% from the peak last June. At certain stages during the period, the market appeared overvalued, in our view, prompting the purchase of some portfolio protection for the Company, from which it has benefited since the start of the year. On a medium-term basis, it does seem that valuations overall now look more reasonable, with the market having already factored in significant earnings downgrades in a number of high-profile, domestically-oriented cyclical sectors, coupled with liquidity support from sovereign wealth funds, companies and central banks. However, the ultimate level of sub-prime losses, and the extent to which this will lead to slower economic activity, remains opaque, and this uncertainty is likely to lead to continued levels of market volatility. VAT on Management Fees HM Revenue and Customs, on 5 November 2007, accepted the European Court of Justice ruling in the case brought by JPMorgan Claverhouse Investment Trust against them. Consequently, the Company has not been subject to VAT on its investment management fees from that date. It is also probable that at least some of the VAT suffered in the past on such fees will be recoverable. Appropriate steps have been taken to protect the Company's position in this respect. The Board is in discussion with the Manager on this issue, and a number of legal and procedural matters need to be resolved. No asset is as yet, therefore, being recognised. Risks and uncertainties The Board has identified a number of key risks that affect its business: • Resource risk - the Company relies on services provided by third parties, including, in particular, the Manager, to whom responsibility for the management of the Company has been delegated under an investment management agreement (the 'Agreement'). The terms of the Agreement cover the scope of the duties and obligations expected of the Manager. The Board reviews the performance of the Manager on a regular basis, and their compliance with the Agreement formally on an annual basis. • Investment objective - the objective of the Company is to achieve a high and growing income combined with capital growth. As a consequence, the investment portfolio may not always match that of the stockmarket as a whole, with a consequential impact on Shareholder returns. The Board's aim is to maximise absolute returns to Shareholders while managing risk by ensuring an appropriate diversification of stocks and sectors. • Investment policy and gearing - a major risk affecting the Company is inappropriate sector and stock selection, leading to under-performance relative to the Company's benchmark index and peer group. In addition, the use of borrowing facilities to invest in markets may have a negative impact if markets fall. To mitigate these risks, the Manager operates within investment guidelines and agreed levels of borrowing. Performance against the benchmark index and the peer group is regularly monitored. During the period, an element of portfolio protection was put in place by the purchase of put options. • Discount volatility - investment trust shares tend to trade at discounts to their underlying net asset values, which can fluctuate considerably. To seek to minimise the impact of such fluctuations, the Company has operated a share buy-back programme for a number of years. • Regulatory risk - the Company operates in a complex regulatory environment and faces a number of related risks. A breach of Section 842 of the Income and Corporation Taxes Act 1988 could result in the Company being subject to capital gains tax on the sale of its investments. Serious breach of other regulations, such as the UKLA Listing Rules and the Companies Acts, could lead to suspension from the Stock Exchange and reputational damage. The Board receives monthly compliance reports from the Manager to monitor compliance with regulations. Directors' Responsibility Statement The Directors are responsible for preparing the half-yearly financial report, in accordance with applicable law and regulations. The Directors confirm that, to the best of their knowledge: • the condensed set of financial statements within the half-yearly financial report has been prepared in accordance with the Accounting Standards Board's statement 'Half-Yearly Financial Reports'; and • the Interim Board Report includes a fair review of the information required by 4.2.7R (indication of important events during the first six months of the year) and 4.2.8R (disclosure of related party transactions and changes therein) of the FSA's Disclosure and Transparency Rules. The half-yearly financial report for the six months to 31 December 2007 comprises the Interim Board Report, the Directors' Responsibility Statement and a condensed set of financial statements, and has not been audited or reviewed by the auditors pursuant to the Auditing Practices Board guidance on Review of Interim Financial Information. By order of the Board Aberdeen Asset Management PLC Secretary 12 February 2008 MURRAY INCOME TRUST PLC INCOME STATEMENT (UNAUDITED) Six months ended 31 December 2007 Revenue Capital Total Notes £'000 £'000 £'000 Realised gains on investments - 21,308 21,308 Unrealised (losses) /gains on investments - (51,694) (51,694) Investment income 3 9,228 - 9,228 Interest receivable 122 - 122 Investment management fees (701) (701) (1,402) Administrative expenses (453) - (453) __________ __________ __________ Net return before finance costs and taxation 8,196 (31,087) (22,891) Finance costs (565) (565) (1,130) __________ __________ __________ Return on ordinary activities before and after 7,631 (31,652) (24,021) taxation __________ __________ __________ Return per Ordinary share (pence): 11.7 (48.7) (37.0) __________ __________ __________ The total column of this statement represents the profit and loss account of the Company. The Company had no recognised gains or losses other than those recognised in the Income Statement. All revenue and capital items in the above statement derive from continuing operations. Ordinary dividends on equity shares (£'000) 2 9,272 - 9,272 __________ __________ __________ The above dividend information does not form part of the Income Statement. MURRAY INCOME TRUST PLC INCOME STATEMENT (UNAUDITED) Six months ended 31 December 2006 Revenue Capital Total Notes £'000 £'000 £'000 Realised gains on investments - 12,526 12,526 Unrealised (losses) /gains on investments - 31,325 31,325 Investment income 3 7,448 - 7,448 Interest receivable 43 - 43 Investment management fees (741) (741) (1,482) Administrative expenses (400) - (400) __________ __________ __________ Net return before finance costs and taxation 6,350 43,110 49,460 Finance costs (345) (345) (690) __________ __________ __________ Return on ordinary activities before and after 6,005 42,765 48,770 taxation __________ __________ __________ Return per Ordinary share (pence): 9.2 65.6 74.8 __________ __________ __________ The total column of this statement represents the profit and loss account of the Company. The Company had no recognised gains or losses other than those recognised in the Income Statement. All revenue and capital items in the above statement derive from continuing operations. Ordinary dividends on equity shares (£'000) 2 7,956 - 7,956 __________ __________ __________ The above dividend information does not form part of the Income Statement. MURRAY INCOME TRUST PLC INCOME STATEMENT (UNAUDITED) Year ended 30 June 2007 Revenue Capital Total Notes £'000 £'000 £'000 Realised gains on investments - 39,826 39,826 Unrealised (losses) /gains on investments - 27,674 27,674 Investment income 3 19,147 - 19,147 Interest receivable 104 - 104 Investment management fees (1,532) (1,532) (3,064) Administrative expenses (860) - (860) __________ __________ __________ Net return before finance costs and taxation 16,859 65,968 82,827 Finance costs (765) (765) (1,530) __________ __________ __________ Return on ordinary activities before and after 16,094 65,203 81,297 taxation __________ __________ __________ Return per Ordinary share (pence): 24.7 100.0 124.7 __________ __________ __________ The total column of this statement represents the profit and loss account of the Company. The Company had no recognised gains or losses other than those recognised in the Income Statement. All revenue and capital items in the above statement derive from continuing operations. Ordinary dividends on equity shares (£'000) 2 14,476 - 14,476 __________ __________ __________ The above dividend information does not form part of the Income Statement. MURRAY INCOME TRUST PLC BALANCE SHEET (UNAUDITED) As at As at As at 31 December 31 December 30 June 2007 2006 2007 Notes £'000 £'000 £'000 Non-current assets Investments at fair value through profit 516,051 519,445 543,269 or loss Current assets Debtors 2,358 1,672 8,292 Cash and short-term deposits 11,063 1,299 2,073 __________ __________ __________ 13,421 2,971 10,365 Creditors: amounts falling due within one (6,645) (333) (1,017) year __________ __________ __________ Net current assets 6,776 2,638 9,348 __________ __________ __________ Total assets less current liabilities 522,827 522,083 552,617 Creditors: amounts falling due after more than one year Bank loan (35,000) (25,000) (30,000) __________ __________ __________ Net assets 487,827 497,083 522,617 __________ __________ __________ Capital and reserves Called-up share capital 16,604 16,604 16,604 Share premium account 7,955 7,955 7,955 Capital redemption reserve 4,997 4,997 4,997 Capital reserve - realised 339,186 295,025 320,641 Capital reserve - unrealised 97,842 153,187 149,536 Revenue reserve 21,243 19,315 22,884 __________ __________ __________ Equity Shareholders' funds 487,827 497,083 522,617 __________ __________ __________ Net asset value per Ordinary share 5 751.5 762.4 802.3 (pence): __________ __________ __________ MURRAY INCOME TRUST PLC Reconciliation of Movement in Shareholders' Funds (Unaudited) Six months ended 31 December 2007 Share Capital Capital Capital Share premium redemption reserve - reserve - Revenue Capital account reserve realised unrealised reserve Total £'000 £'000 £'000 £'000 £'000 £'000 £'000 Balance at 30 June 2007 16,604 7,955 4,997 320,641 149,536 22,884 522,617 Repurchase of own shares - - - (1,497) - - (1,497) Return on ordinary activities - - - 20,042 (51,694) 7,631 (24,021) after taxation Dividends paid - - - - - (9,272) (9,272) ________ ___________ ___________ ___________ ___________ ___________ __________ Balance at 31 December 2007 16,604 7,955 4,997 339,186 97,842 21,243 487,827 ________ ___________ ___________ ___________ ___________ ___________ __________ Six months ended 31 December 2006 Share Capital Capital Capital Share premium redemption reserve - reserve - Revenue capital account reserve realised unrealised reserve Total £'000 £'000 £'000 £'000 £'000 £'000 £'000 Balance at 30 June 2006 16,604 7,955 4,997 284,030 121,862 21,266 456,714 Repurchase of own shares - - - (445) - - (445) Return on ordinary activities - - - 11,440 31,325 6,005 48,770 after taxation Dividends paid - - - - - (7,956) (7,956) ________ ___________ ___________ ___________ ___________ ___________ __________ Balance at 31 December 2006 16,604 7,955 4,997 295,025 153,187 19,315 497,083 ________ ___________ ___________ ___________ ___________ ___________ __________ Year ended 30 June 2007 Share Capital Capital Capital Share premium redemption reserve - reserve - Revenue capital account reserve realised unrealised reserve Total £'000 £'000 £'000 £'000 £'000 £'000 £'000 Balance at 30 June 2006 16,604 7,955 4,997 284,030 121,862 21,266 456,714 Repurchase of own shares - - - (918) - - (918) Return on ordinary activities - - - 37,529 27,674 16,094 81,297 after taxation Dividends paid - - - - - (14,476) (14,476) ________ ___________ ___________ ___________ ___________ ___________ __________ Balance at 30 June 2007 16,604 7,955 4,997 320,641 149,536 22,884 522,617 ________ ___________ ___________ ___________ ___________ ___________ __________ MURRAY INCOME TRUST PLC CASH FLOW STATEMENT (UNAUDITED) Six months Six months Year ended ended ended 31 December 31 December 30 June 2007 2006 2007 £'000 £'000 £'000 Net return before finance costs and taxation (22,891) 49,460 82,827 Adjustments for: Realised gains on investments (21,308) (12,526) (39,826) Unrealised losses/(gains) on investments 51,694 (31,325) (27,674) Decrease/(increase) in accrued income 594 225 (1,065) Increase in prepayments (19) (35) (6) Increase/(decrease) in accruals 41 (297) (117) _____________ _____________ _____________ Net cash inflow from operating activities 8,111 5,502 14,139 Servicing of finance Interest paid (880) (678) (1,525) _____________ _____________ _____________ Net cash outflow from servicing of finance (880) (678) (1,525) Financial investment Purchases of investments (62,868) (37,797) (96,057) Sales of investments 70,120 42,573 95,810 _____________ _____________ _____________ Net cash inflow/(outflow) from financial 7,252 4,776 (247) investment Equity dividends paid (9,272) (7,956) (14,476) Management of liquid resources Cash drawn/(placed) on short-term deposit 400 - (1,600) _____________ _____________ _____________ Net cash inflow/(outflow) before financing 5,611 1,644 (3,709) Financing Drawdown of loans 5,000 - 5,000 Purchase of own shares (1,221) (445) (918) _____________ _____________ _____________ Net cash inflow/(outflow) from financing 3,779 (445) 4,082 _____________ _____________ _____________ Net increase in cash 9,390 1,199 373 _____________ _____________ _____________ Notes to the Financial Statements 1. Accounting policies (a) Basis of accounting The accounts have been prepared under the historical cost convention, as modified to include the revaluation of investments and in accordance with applicable UK Accounting Standards, with pronouncements on half-yearly reporting issued by the Accounting Standards Board and with the Statement of Recommended Practice for 'Financial Statements of Investment Trust Companies' (December 2005). They have also been prepared on the assumption that approval as an investment trust will continue to be granted. The financial statements and the net asset value per share figures have been prepared in accordance with UK Generally Accepted Accounting Practice (UK GAAP). The interim accounts have been prepared using the same accounting policies as the preceding annual accounts. (b) Dividends payable Dividends are recognised in the period in which they are paid. 2. Ordinary dividends Ordinary dividends paid on equity shares deducted from reserves: Six months Six months Year ended ended ended 31 December 31 December 2006 30 June 2007 2007 £'000 £'000 £'000 2006 third interim dividend - 4.70p - 3,066 3,066 2006 final dividend - 7.50p - 4,890 4,890 2007 first interim dividend - 5.00p - - 3,260 2007 second interim dividend - 5.00p - - 3,260 2007 third interim dividend - 5.00p 3,257 - - 2007 final dividend - 9.25p 6,015 - - _____________ _____________ ____________ 9,272 7,956 14,476 _____________ _____________ ____________ Six months ended Six months ended Year ended 31 December 2007 31 December 2006 30 June 2007 3. Investment income £'000 £'000 £'000 UK dividend income 8,480 7,295 18,238 Bond interest 748 153 909 _____________ _____________ ____________ 9,228 7,448 19,147 _____________ _____________ ____________ Six months ended Six months ended Year ended 31 December 2007 31 December 2006 30 June 2007 4. Return per share p p p Revenue return 11.7 9.2 24.7 Capital return (48.7) 65.6 100.0 _____________ _____________ ____________ Total return (37.0) 74.8 124.7 _____________ _____________ ____________ The figures are based on the following attributable assets: Six months ended Six months ended Year ended 31 December 2007 31 December 2006 30 June 2007 £'000 £'000 £'000 Revenue return 7,631 6,005 16,094 Capital return (31,652) 42,765 65,203 _____________ _____________ ____________ Total return (24,021) 48,770 81,297 _____________ _____________ ____________ Weighted average number of Ordinary shares in 65,035,750 65,205,621 65,194,984 issue _____________ _____________ ____________ As at As at As at 5. Net asset value per share 31 December 2007 31 December 2006 30 June 2007 Attributable net assets (£'000) 487,827 497,083 522,617 Number of Ordinary shares in issue 64,914,658 65,202,958 65,138,908 Net asset value per Ordinary share (p) 751.5 762.4 802.3 6. Transaction costs During the period, expenses were incurred in acquiring or disposing of investments classified as fair value through profit or loss. These have been expensed through capital and are included within gains on investment in the Income Statement. The total costs were as follows: Six months ended Six months ended Year ended 31 December 2007 31 December 2006 30 June 2007 £'000 £'000 £'000 Purchases 413 222 502 Sales 65 57 116 _____________ _____________ ____________ 478 279 618 7. The financial information in this report comprises non-statutory accounts within the meaning of Section 240 of the Companies Act 1985. The financial information for the half years to 31 December 2007 and 31 December 2006 has not been audited or reviewed by the Company's auditors. The financial information for the year ended 30 June 2007 has been extracted from published audited accounts that have been delivered to the Registrar of Companies and on which the report of the auditors was unqualified under Section 235 of the Companies Act 1985. 8. Copies of the Company's report for the half year ended 31 December 2007 will be posted to shareholders in February 2008 and will be available thereafter from the Company's website: www.murray-income.co.uk and from the Secretary at the Registered Office, 40 Princes Street, Edinburgh EH2 2BY. INVESTMENT PORTFOLIO AS AT 31 DECEMBER 2007 Valuation Total assets Investment Sector £'000 % Royal Dutch Shell Oil & Gas Producers 28,842 5.5 BP Oil & Gas Producers 26,322 5.0 HSBC Banks 22,945 4.4 GlaxoSmithKline Pharmaceuticals & Biotechnology 16,627 3.2 Royal Bank of Scotland Banks 16,246 3.1 British American Tobacco Tobacco 15,720 3.0 Barclays Banks 14,520 2.8 Vodafone Mobile Telecommunications 14,132 2.7 National Grid Gas, Water & Multi-utilities 13,552 2.6 Centrica Gas, Water & Multi-utilities 13,252 2.5 ___________ ___________ Top ten investments 182,158 34.8 ___________ ___________ Lloyds TSB Banks 12,744 2.5 Aviva Life Insurance 12,450 2.4 Rio Tinto Mining 12,229 2.4 AstraZeneca Pharmaceuticals & Biotechnology 11,902 2.3 BT Fixed Line Telecommunications 11,575 2.2 Morrison Food & Drug Retailers 10,948 2.1 Anglo American Mining 10,780 2.1 Unilever Food Producers 10,584 2.0 AMEC Support Services 9,810 1.9 SEGRO Real Estate 9,633 1.9 ___________ ___________ Top twenty investments 294,813 56.6 ___________ ___________ Arriva Travel & Leisure 9,620 1.8 Ladbrokes Travel & Leisure 9,471 1.8 Imperial Tobacco Tobacco 9,221 1.8 Friends Provident Life Insurance 9,191 1.8 Associated British Foods Food Producers 9,112 1.7 Land Securities Group Real Estate 9,036 1.7 Premier Foods Food Producers 8,804 1.7 GKN Automobiles & Parts 8,133 1.6 Daily Mail & General Trust 'A' Media 7,958 1.5 Ord Cobham Aerospace Defence 7,921 1.5 ___________ ___________ Top thirty investments 383,280 73.5 ___________ ___________ Venture Production Oil & Gas Producers 7,849 1.5 Emap Media 7,480 1.4 Standard Chartered Banks 7,468 1.4 Wolseley Support Services 7,346 1.4 Kesa Electricals General Retailers 6,893 1.3 Scottish & Newcastle Beverages 6,636 1.3 Weir Group Industrial Engineering 6,476 1.2 Tomkins General Industrials 6,291 1.2 Millennium & Copthorne Hotels Travel & Leisure 5,923 1.1 HMV Group General Retailers 5,825 1.1 ___________ ___________ Top forty investments 451,467 86.4 ___________ ___________ Mothercare General Retailers 5,823 1.1 Close Bros Group General Financial 5,700 1.1 Provident Financial General Financial 5,584 1.1 British American Tobacco Reverse Tobacco 5,521 1.1 Convertible Whitbread Travel & Leisure 5,460 1.0 Citigroup Global Certificate Mobile Telecommunications 5,372 1.0 Vodafone Tesco Food & Drug Retailers 5,250 1.0 Aga Foodservice Group Household Goods 5,234 1.0 Barratt Developments Household Goods 5,011 1.0 BBA Aviation Industrial Transportation 4,823 0.9 ___________ ___________ Top fifty investments 505,245 96.7 ___________ ___________ Citigroup Global Certificate BT Fixed Line Telecommunications 4,579 0.9 Aberforth Smaller Companies Trust Equity Investment Instrument 4,404 0.8 FTSE 100 Index Flex Put Expiry 18 Traded options 1,823 0.3 /04/08 ___________ ___________ Total investments 516,051 98.7 ___________ ___________ Net current assets 6,776 1.3 ___________ ___________ Total assets 522,827 100.0 This information is provided by RNS The company news service from the London Stock Exchange

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