Half Yearly Report

RNS Number : 9826R

Securities Trust of Scotland PLC

11 November 2011

 



Securities Trust of Scotland plc

Half-yearly financial report

Six months to 30 September 2011

A copy of the half yearly financial report has been submitted to the National Storage Mechanism and will shortly be available for inspection at: www.Hemscott.com/nsm.do

A copy of this half-yearly financial report can be shortly downloaded at www.securitiestrust.com

Financial summary

Total returns‡	Six months ended 30 September 2011	Six months ended 30 September 2010
Net asset value per share	(6.0%)	2.5%
Benchmark*	(5.4%)	0.2%
Share price	(1.7%)	2.8%

Key data	As at 30 September 2011	As at 31 March 2011	% change
Net asset value per share	109.02p	117.35p	(7.1)
FTSE All-Share Index	2,654.38	3,067.73	(13.47)
MSCI World High Dividend Yield Index	511.66	559.36	(8.5)
Share price	104.00p	108.00p	(3.7)
Discount	4.60%	7.97%

 

Income	Six months ended 30 September 2011	Six months ended 30 September 2010
Revenue return per share	3.17p	2.48p

Total expense ratio	Six months ended 30 September 2011	Year ended 31 March 2011	Six months ended 30 September 2010
As a percentage of shareholders' funds
Excluding performance fee	0.8%	0.7%	0.7%
Including performance fee	1.1%	1.1%	1.0%

Annual total returns with dividends reinvested over 12 month periods to 30 September

	2011	2010	2009	2008	2007
Securities Trust of Scotland share price	9.4%	15.8%	6.9%	(30.4%)	10.7%
Benchmark*	2.6%	12.5%	10.8%	(22.3%)	12.2%
Securities Trust of Scotland net asset value per share	3.3%	14.6%	6.6%	(28.8%)	10.6%

‡ The combined effect of any dividends paid, together with the rise or fall in the share price, net asset value or benchmark.

* Prior to 1 August 2011, the Trust's benchmark was the FTSE All-Share index and the MSCI World High Dividend Yield index thereafter.

Source: Martin Currie Investment Management Limited

INTERIM MANAGEMENT REPORT

Chairman's statement

Welcome to our latest report, the first since shareholders overwhelmingly endorsed the move to a global equity income portfolio on 19 July. This meant that, from 1 August, Securities Trust of Scotland became the first equity income investment trust to be managed against a fully global benchmark. In choosing a global approach, shareholders have recognised the greater choice and higher potential returns offered by international equities.

Alan Porter, a global equity income specialist at Martin Currie, became the new manager, replacing UK-specialist Ross Watson, who had managed Securities Trust of Scotland since 2005. I would like to place on record the board's thanks to Ross for his skill and commitment during his tenure as manager.

In his review, Alan Porter discusses the transition to the global portfolio, which is now complete. He also discusses the renewed turbulence in global bond and equity markets and why he favours a defensive approach - for now.

Performance

The six months to 30 September includes the transition to the new strategy and benchmark. In the tables below we show the total return performance of Securities Trust of Scotland against both the old and new benchmarks, together with a blended index of the FTSE All-Share index prior to 1 August and the MSCI World High Dividend Yield index thereafter.

Securities Trust of Scotland
Share price total return	(1.7%)
Net asset value per share total return	(6.0%)
Benchmarks
FTSE All-Share Index	(11.8%)
MSCI World High Dividend Yield Index	(6.0%)
Blended Index	(5.4%)

The figures show the degree to which shareholders in Securities Trust of Scotland have been protected from the full impact of the fall in equity markets over the past six months. The strong relative outperformance of the share price reflects a significant narrowing of the discount from 8.0% to 4.6% during the period under review, evidence of the positive reaction from investors and advisers to the new global approach, although it is still early days.

The outperformance of the blended benchmark also shows that the timing of the portfolio transition was advantageous, with the MSCI World High Dividend Yield index significantly outperforming the FTSE All-Share index following the change of benchmark.

The following chart illustrates the three-year returns to 30 September. Despite the recent volatility in markets, these are still strongly positive, reflecting the recovery in equity markets that followed the global financial crisis of 2008.

Performance in perspective (three years)

Securities Trust share price	+35.5%
Securities Trust NAV per share	+25.2%
Benchmark	+27.9%

Source: Martin Currie Investment Management Limited.  Total return with net income reinvested over three years to 30 September 2011.  Prior to 1 August 2011 the company's benchmark was the FTSE All-Share index and the MSCI World High Dividend Yield index thereafter.

Revenues and dividends

The revenue return per share for the six months to 30 September was 3.17p, a rise of 28% compared with the six months to 30 September 2010. As longstanding shareholders will recall, revenues in the equivalent period last year suffered due to the suspension of dividends by BP.

A first interim dividend payment of 1.15p per share for the financial year to 31 March 2012 has already been declared and paid on 1 September to shareholders who were on the register on 19 August 2011. Your board has also declared a second interim dividend of 1.15p per share, also unchanged year-on-year. This will be paid on 15 December 2011 to shareholders who were on the register on 25 November 2011. At 30 September the company's shares offered a yield of 4.5%, compared to 4.3% at the start of the reporting period.

Borrowing

Securities Trust of Scotland has a simple capital structure with no long-term debt. At present the company is 10% geared, lower than the maximum of 15% but reflecting the positive outlook for global income and growth stocks.

Outlook

While many companies are in good financial shape, it is the health of the countries in which they are listed that is causing most concern. Unlike the 2008 financial crisis, when the taxpayers of the developed economies bailed out ailing companies, investors are now concerned about the solvency of countries themselves. What equity markets need now is decisive political leadership in Europe and the US to help generate positive, sustainable economic news to build on companies' healthy balance sheets and restore investors' confidence.

Meanwhile, interest rates remain at very low levels. In such an environment, many investments have limited appeal to income-seeking investors. We believe that, as a globally diversified, high-yielding investment company, Securities Trust of Scotland offers a compelling proposition for high and growing income with long-term capital growth.

Neil Donaldson

Chairman

11 November 2011

Management of principal risks

The board has drawn up a risk matrix, which identifies the key risks to the company. These key risks fall under the following categories and the implementation of specific mitigating measures and procedures has taken place in order to reduce the probability and impact of each risk to the greatest extent possible.

Loss of s1158-1159 status - In order to qualify as an investment trust, the company must comply with s1158-1159 of the Corporation Taxes Act 2010.  S1158-1159 qualification criteria are continually monitored by Martin Currie.

Operational disruption at the manager's premises - Martin Currie has in place a full disaster recovery and business continuity plan which facilitates continued operation of the business should the manager's premises be subject to operational disruption. The plan, including a full staff call chain test, was last tested in December 2010 with successful results. The manager maintains a fully operational off-site disaster recovery centre for use by key staff during any disruption.

Regulatory, accounting/ internal control breach - The company must comply with the Companies Act 2006 and the UKLA Rules. The board relies on the services of its company secretary and its professional advisers to ensure compliance.

Loss of investment team or portfolio manager - The manager takes steps to reduce the likelihood of such an event by ensuring appropriate succession planning and the adoption of a team based approach, as well as special efforts to retain key personnel.

Failure to manage the discount - The board regularly discusses discount policy and has set parameters for the manager and the company's broker to follow.

Investment underperformance - The board manages the risk of investment underperformance by diversification of investments and through a set of investment restrictions and guidelines that are monitored and reported on by the manager.

The board monitors the implementation and results of the investment process with the manager, who attends all board meetings, and reviews data that show statistical measures of the company's risk profile.

Market and country risk - The company's investments are subject to normal market fluctuations and the risks inherent in the purchase, holdings or selling of securities. It is the board's policy to hold an appropriate spread of investments in the portfolio in order to reduce the risk arising from factors specific to a particular sector or country.

Interest rate risk - From time to time the company finances its operations through bank borrowings. The amount of such borrowings will not exceed 15% of the company's total assets.

Currency risk - The board regularly monitors the impact of the currency rate risk. The manager's approach is to take into account the related currency issues when considering the investment case of any stock.  Currency exposures within the portfolio and those relating to dividend income are monitored on a regular basis to check that they remain appropriate.

Counterparty risk - Martin Currie monitors counterparty relationships on behalf of the board. This process includes identifying major counterparties, mapping exposure and analysing the risks through Martin Currie's risk, compliance, dealing, operations and middle office teams. The aim is to enable the board to determine an appropriate level of counterparty risk exposure, and to diversify or mitigate this, as required. This process is subject to continual monitoring and review with any recommendations being made to the board.

Major regulatory change- In response to the 2007/2008 financial crisis, the European Commission produced a draft Alternative Investment Fund Managers Directive.  The directive was aimed at hedge funds and private equity funds but investment trusts fall within its scope. 

Following intense lobbying, the worst outcomes suggested by the initial proposals have been avoided.  The board continues to monitor developments in the legislation to ensure the company can comply with any new requirements.

Liquidity Test Failure- In order to retain its place in the FTSE All-Share index, the company must satisfy the liquidity test criteria set by FTSE at each annual review.  The liquidity of the company is monitored by the manager and the company's broker with a report being reviewed by the board regularly.

Directors' responsibility

In accordance with Chapter 4 of the Disclosure and Transparency Rules, and to the best of their knowledge, each director of Securities Trust of Scotland, confirms that the financial statements have been prepared in accordance with the applicable set of accounting standards and give a true and fair view of the assets, liabilities, financial position and net return of the company. Furthermore, each director certifies that the interim management report includes an indication of important events that have occurred during the first six months of the financial year, and their impact on the financial statements, together with a description of the principal risks and uncertainties that the company faces. In addition, each director of Securities Trust of Scotland confirms that there have been no related party transactions during the six months to 30 September 2011.

By order of the board

Neil Donaldson

Chairman

Edinburgh 11 November 2011

 

Manager's Review

This is my first report since becoming manager of Securities Trust of Scotland on 1 August. With more and more companies around the world paying attractive dividends, I believe shareholders will be well served by a global portfolio, which combines the benefits of diversification with access to the best high-yielding companies, wherever they are based.

It has been a particularly volatile period for equity and bond markets. Over the six months to the end of September global equity markets fell by around 15% in sterling terms, a significant correction following the sharp recovery that followed the post-financial crisis lows of March 2009. The reason for this correction is the loss of confidence in the sustainability of the economic recovery, which now dominates investors' thinking.

A consequence of this uncertainty is that the more economically sensitive sectors performed most poorly, with materials, industrials, energy and financials all falling by more than 20%. Conversely information technology, consumer, healthcare and utilities stocks fell by much less. In a regional context Japan and North America outperformed, while Asia, Europe and emerging markets underperformed.

In the US the inability of policy-makers to agree how to address the budget deficit created an impasse, with the looming 2012 presidential election providing an unhelpful obstruction to effective decision-making. To exacerbate the problems the credit rating agency Standard & Poor's downgraded the US government's credit rating from its top 'AAA' rating. Economic statistics released over the six months only confirmed the weak economic situation.

In Europe concerns mounted over the solvency of Portugal, Italy, Ireland, Greece and Spain, collectively known as the 'PIIGS'. The prevarication of policymakers and the lack of any workable solutions to the debt issues heightened investors' fears. Even the existence of the euro in its current form has been called into question. Dealing with the issue has not been easy, given the number of countries involved and a lack of a single eurozone wide fiscal policy.

Sentiment elsewhere has deteriorated too as China and other emerging markets experienced inflationary pressures and signs of overheating leading to tightening policy and further capital controls.

If there is one thing investors hate it is uncertainty, and we have had plenty of this over the past six months. This has resulted in a 'flight to safety' in global financial markets. Government debt yields in the UK, US and Germany fell, evidence of strong demand for bonds, while the US dollar and gold rose.

Portfolio review

The key changes in the portfolio followed the introduction of the new strategy on 1 August. In the six weeks following this date I transitioned the portfolio from a UK equity fund to a global fund, with the UK exposure falling from 100% to around 30%.

In terms of categories the portfolio is underweight cyclical stocks, reflecting my concerns about the global economic outlook. Those that we do own include Seadrill, the Norwegian oil driller which has the youngest and most modern fleet of rigs in the world. With oil prices remaining high, Seadrill has the ability to operate in deep waters around the world, while the amount it charges per day to rent a rig is close to historic peak levels, indicating that demand remains buoyant. Another cyclical stock we own is Watsco, the largest distributor of heating, ventilation and air conditioning equipment in the US. Watsco will benefit from the ageing of its installed base and emission legislation that will encourage new efficient equipment to be installed.

Our main positioning in the portfolio is to be overweight in what I call 'medium-growth' stocks. These are solid and relatively low-risk companies with forecast dividend growth of 3-7% per annum. Here we find plenty of good quality franchises, exhibiting growth and strong balance sheets and trading at attractive valuations. An example is Pearson, the education company, which is benefiting from the continued importance being put on education as a means to secure employment and higher earnings around the world. Pearson is the global leader in its field and is benefitting from increasing emerging market demand and a move from analogue to digital services. Heinz is another medium-growth stock which has enjoyed 23 consecutive quarters of organic sales growth, spanning one of the most difficult periods for consumer spending we have ever seen. The company's strength is its ability to leverage its leading brands around the world.

Outlook

I am close to being bullish on global equity markets and therefore positioning the portfolio less defensively. But I don't believe it is quite yet time to do so. So we remain underweight in cyclical stocks and overweight in medium growth stocks. This means that 'quality' remains our focus, particularly companies with strong balance sheets and solid franchises. We remain purposely neutral in terms of the portfolio's sensitivity to macroeconomic factors.

Our outlook is informed by looking at several factors, including the global economic environment, the relative value available in other asset classes, risk appetite among investors and equity market valuations.

The macro-economic backdrop is clearly dominating equity markets and remains unsupportive. Recent data releases linked to house prices, employment data or confidence show little or no improvement after a strong initial recovery from the depths of early 2009.

At the microeconomic level most companies have strong balance sheets and healthy cash flow. However the companies we have been meeting seem unwilling to commit funds to capital expenditure projects or acquisitions. While this is likely to provide positive returns to shareholders in the form of dividends and buybacks it does have implications for the sources of future growth.

One clear positive for equity markets in general is the lack of yield available on government bonds, corporate bonds and cash. The case could be made, however, that government bond yields are structurally low because of quantitative easing, which may prove to be a temporary phenomenon.

Perhaps the biggest positive for equity markets is the fear that continues to preoccupy most investors' minds. Fund manager cash positions are historically high, a positive sign for the contrarian investor.

Finally, while short-term valuations may look attractive, I believe many earnings estimates have still to be cut further. So longer term valuations are probably fair.

What equity markets desperately need is some sustainable positive economic news. This, I believe, would allow markets to resume a positive trend. But until then, I am comfortable with a relatively safe approach.

Alan Porter

11 November 2011

Portfolio summary
Portfolio distribution
By asset class	As at 30 September 2011	As at 31 March 2011
	%	%
Equities	105	110
Fixed interest	1	3
Cash	4	-
Less borrowings	(10)	(13)
	100	100
By sector (excluding cash and fixed interest)	As at 30 September 2011	As at 31 March 2011
	%	%
Healthcare	20	7
Consumer services	15	7
Financials	15	23
Telecommunications	13	7
Consumer goods	11	12
Utilities	9	5
Oil and gas	7	14
Industrials	7	14
Basic materials	2	9
Technology	1	2
	100	100

Largest holdings
	As at 30 September 2011	As at 30 September 2011	As at 31  March 2011	As at 31 March 2011
	Market value	% of total	Market value	% of total
	£000	portfolio	£000	portfolio
AT&T	4,770	4.13	-	-
Royal Dutch Shell	4,744	4.11	9,829	7.49
Pfizer	4,358	3.77	-	-
Vodafone	4,214	3.65	7,139	5.44
Novartis	4,061	3.52	-	-
GlaxoSmithKline	3,804	3.29	5,461	4.16
AstraZeneca	3,670	3.18	3,664	2.79
Abbot Laboratories	3,609	3.12	-	-
McDonalds	3,431	2.97	-	-
Philip Morris	3,374	2.92	-	-

By region

(excluding cash and fixed interest)

	As at 30 September 2011 (%)	As at 31 March 2011 (%)
United Kingdom	30	100
Continental Europe	21	-
North America	41	-
Pacific ex Japan	6	-
Japan	3	-
Emerging markets	2	-

Unaudited income statement

		Six months to 30 September 2011			Six months to 30 September 2010
		Revenue	Capital	Total	Revenue	Capital	Total
	Note	£000	£000	£000	£000	£000	£000
(Losses)/gains on investments	6	-	(8,655)	(8,655)	-	299	299
Currency gains		19	73	92	37	-	37
Income	3	3,663	-	3,663	2,824	-	2,824
Investment management fee		(50)	(93)	(143)	(46)	(85)	(131)
Performance fee		-	(372)	(372)	-	(303)	(303)
Other expenses		(286)	-	(286)	(250)	-	(250)
Net return before finance costs and taxation		3,346	(9,047)	(5,701)	2,565	(89)	2,476
Finance Costs		(68)	(127)	(195)	(68)	(126)	(194)
Net return on ordinary activities before taxation		3,278	(9,174)	(5,896)	2,497	(215)	2,282
Taxation on ordinary activities	5	(95)	-	(95)	-	-	-
Return attributable to ordinary redeemable shareholders		3,183	(9,174)	(5,991)	2,497	(215)	2,282
Return per ordinary redeemable share	2	3.17p	(9.15p)	(5.98p)	2.48p	(0.21p)	2.27p

Unaudited income statement

		(Audited)
		Year to
		31 March 2011
		Revenue	Capital	Total
	Note	£000	£000	£000
(losses)/gains on investments	6	-	9,143	9,143
Currency gains		55	7	62
Income	3	5,111	-	5,111
Investment management fee		(99)	(184)	(283)
Performance fee		-	(474)	(474)
Other expenses		(482)	-	(482)
Net return before finance costs and taxation		4,585	8,492	13,077
Finance costs		(139)	(258)	(397)
Net return on ordinary activities before taxation		4,446	8,234	12,680
Taxation on ordinary activities	5	-	-	-
Return attributable to ordinary redeemable shareholders		4,446	8,234	12,680
Return per ordinary redeemable share	2	4.41p	8.17p	12.58p

The total columns of this statement are the profit and loss accounts of the company. 

The revenue and capital items are presented in accordance with the Association of Investment Companies (AIC) SORP.

All revenue and capital items in the above statement derive from continuing operations.

No operations were acquired or discontinued in the period.

A Statement of total recognised gains and losses is not required as all gains and losses of the company have been reflected in the above statement.

Unaudited balance sheet

		As at 30 September 2011		As at 30 September 2010		(Audited) As at 31 March 2011
	Note	£000	£000	£000	£000	£000	£000
Non-current assets
Investments at fair value through profit or loss
Listed on Exchanges in the UK			34,987		122,141		131,289
Listed on Exchanges abroad			80,514		339		-
	6		115,501		122,480		131,289
Current assets
Loans and receivables	7	726		680		1,279
Cash at bank		4,330		1,699		134
		5,056		2,379		1,413
Creditors
Amounts falling due within one year	8	(11,250)		(14,728)		(15,048)
Net current liabilities			(6,194)		(12,349)		(13,635)
Net assets			109,307		110,131		117,654
Capital and reserves
Called up ordinary share capital			1,003		1,008		1,003
Capital redemption reserve			78		73		78
Special distributable capital reserve			109,411		109,968		109,411
Capital reserve			(4,301)		(3,576)		4,873
Revenue reserve			3,116		2,658		2,289
			109,307		110,131		117,654
Net asset value per ordinary redeemable share	2		109.02p		109.28p		117.35p

Unaudited statement of cash flow

		Six months to				Six months to				(Audited) Year to
		30 September 2011				30 September 2010				31 March 2011
	Note	£000		£000		£000		£000		£000		£000
Net cash inflow from operating activities	9			2,663				2,576				4,410
Servicing of finance
Finance costs				(232)				(194)				(362)
Taxation
Overseas withholding tax suffered				(95)				-				-
Taxation recovered				-				-				30
Capital expenditure and financial investment
Payments to acquire investments		(90,929)				(6,733)				(16,210)
Receipts from disposal of investments		98,345				7,917				16,932
Net cash inflow from investing activities				7,416				1,184				722
Equity dividends paid	4			(2,356)				(2,368)				(4,686)
Net cash inflow before use of liquid resources and financing					7,396				1,198			114
Financing
Repurchase of ordinary share capital		-				-				(481)
Net movement in short-term borrowings		(3,200)				200				200
Net cash (outflow)/inflow from financing				(3,200)				200				(281)
Increase/(decrease) in cash for the period				4,196				1,398				(167)
Reconciliation of net cash flow to movements in net debt
Increase/(decrease) in cash as above		4,196				1,398				(167)
Repayment/(drawdown) of short term borrowings		3,200				(200)				(200)
Change in net debt resulting from cash flows				7,396				1,198				(367)
Opening net debt				(14,066)				(13,699)				(13,699)
Closing net debt				(6,670)				(12,501)				(14,066)

 

 

Unaudited reconciliation of movements in shareholders' funds

		Called up ordinary share capital	Capital redemption reserve		Special distributable capital reserve			Capital reserve			Revenue Reserve			Total
For the six months to 30 September 2011	Note	£000	£000		£000			£000			£000			£000
As at 31 March 2011		1,003	78		109,411			4,873			2,289			117,654
Return attributable to shareholders		-	-		-			(9,174)			3,183			(5,991)
Dividends paid	4	-	-		-			-			(2,356)			(2,356)
Balance at 30 September 2011		1,003	78		109,411			(4,301)			3,116			109,307
For the six months to 30 September 2010
As at 31 March 2010		1,008	73			109,968			(3,361)			2,529			110,217
Return attributable to shareholders		-	-			-			(215)			2,497			2,282
Dividends paid	4	-	-			-			-			(2,368)			(2,368)
Balance at 30 September 2010		1,008	73			109,968			(3,576)			2,658			110,131
For the year ended 31 March 2011 (Audited)
As at 31 March 2010		1,008	73	109,968			(3,361)			2,529			110,217
Return attributable to shareholders		-	-	-			8,234			4,446			12,680
Ordinary shares bought back during the year		(5)	5	(557)			-			-			(557)
Dividends paid	4	-	-	-			-			(4,686)			(4,686)
Balance at 31 March 2011		1,003	78	109,411			4,873			2,289			117,654

The revenue reserve represents the amount of the company's reserves distributable by way of dividend.

Notes to the Financial Statements

1 Accounting policies

(a)  The financial statements have been prepared in accordance with applicable UK Accounting Standards and with the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' issued in January 2009. They have also been prepared on the assumption that approval as an investment trust will continue to be granted.

Dividends - In accordance with FRS 21: 'Events after the balance sheet date', dividends are included in the financial statements in the period in which they are paid.

Functional currency - In accordance with FRS 23: 'The effects of changes in foreign currency', the company is required to nominate a functional currency, being the currency in which the company predominately operates. The board has determined that sterling is the company's functional currency, which is also the currency in which these financial statements are prepared.

(b)  Income from equity investments is determined on the date on which the investments are quoted ex-dividend, or where no ex-dividend date is quoted, when the company's right to receive payment is established. Income from fixed interest securities is recognised on an effective yield basis. UK dividends received are accounted for at the amount receivable and are not grossed up for any tax credit. Other income includes any taxes deducted at source. Gains and losses arising from the translation of income denominated in foreign currencies are recognised in the revenue reserve. Scrip dividends are treated as unfranked investment income; any excess in value of shares received over the amount of the cash dividend is recognised in capital reserves. Income from underwriting commission and traded options is recognised as earned.

(c)  Interest receivable and payable and management expenses are treated on an accruals basis.

(d)  The management fee and interest costs are allocated 65% to capital and 35% to revenue in accordance with the board's expected long-term split of returns in the form of capital gains and income, respectively. The performance fee is wholly allocated to capital.

(e)  Gains and losses on realisation of investments and changes in the fair value of investments which are readily convertible to cash, without accepting adverse terms, together with exchange adjustments to overseas currencies are taken to capital reserve.

(f)   Foreign currencies are translated at the rates of exchange ruling on the balance sheet date. Investments are recognised initially as at the trade date of a transaction. Subsequent to this, the disposal of an investment is accounted for once again as at the trade date of a transaction.

(g)  Revenue received and interest paid in foreign currencies is translated at the rates of exchange ruling on the transaction date. Any exchange differences relating to revenue items are taken to the revenue account.

(h)  The company's investments are classified as 'financial assets at fair value through profit or loss' and are therefore valued at bid price. Gains and losses arising from changes in fair value are included in the capital return for the period.

(i)   All financial assets and liabilities are recognised in the financial statements.

(j)   Deferred tax is recorded in accordance with Financial Reporting Standard 19 (Deferred Tax). Deferred tax is provided on all timing differences that have originated but not reversed by the balance sheet date. A deferred tax asset is only recognised to the extent that it is regarded as recoverable. Due to the company's status as an investment trust company, and the intention to continue meeting the conditions required to obtain approval in the foreseeable future, the company has not provided for deferred tax on any capital gains and losses arising on the revaluation or disposal of investments.

(k)  Transaction costs incurred on the purchase and disposal of investments are recognised as a capital item in the income statement.

(l)   Share buybacks are funded through the capital reserve.

(m) The company uses derivative financial instruments to manage the risk associated with foreign currency fluctuations arising on dividends received in currencies other than sterling. This is achieved by the use of forward foreign currency contracts. The company does not hold or issue derivative financial instruments for speculative purposes. Derivative financial instruments are recognised initially at fair value on the contract date and subsequently remeasured to the fair value at each reporting date. The resulting gain or loss being is recognised as revenue or capital in the income statement depending on the nature and motive of each derivative transaction. Derivative financial instruments with a positive fair value are recognised as financial assets and derivative financial instruments with a negative fair value are recognised as financial liabilities. A derivative is presented as a non-current asset or a non-current liability if the remaining maturity of the instrument is more than 12 months and it is not expected to be realised or settled within 12 months.

2. 

	Six months to 30 September 2011	Six months to 30 September 2010	Year to 31 March 2011
Revenue returns and net asset value
Revenue Return
Revenue return attributable to ordinary redeemable shareholders	£3,183,000	£2,497,000	£4,446,000
Average number of shares in issue during the period	100,259,771	100,776,771	100,768,215
Revenue return per ordinary redeemable share	3.17p	2.48p	4.41p
Capital return
Capital return attributable to ordinary redeemable shareholders	(£9,174,000)	(£215,000)	£8,234,000
Average number of shares in issue during the period	100,259,771	100,776,771	100,768,215
Capital return per ordinary redeemable share	(9.15p)	(0.21p)	8.17p
Total return
Total return per ordinary redeemable share	(5.98p)	2.27p	12.58p

Net asset value per share
Net assets attributable to shareholders	£109,307,000	£110,131,000	£117,654,000
Number of shares in issue at period end	100,259,771	100,776,771	100,259,771
Net asset value per share including income	109.02p	109.28p	117.35p
Exclusion of undistributed current period revenue	(2.02p)	(1.33p)	(0.96p)
Net asset value per share excluding income	107.00p	107.95p	116.39p

3.

	Six months to 30 September 2011 £000	Six months to 30 September 2010 £000	Year to 31 March 2011 £000
Income
From listed investments
UK equities	2,523	2,414	4,530
UK fixed interest and convertibles	93	93	185
Overseas equities and unfranked income	1,034	269	290
UK corporate bond interest	10	38	76
	3,660	2,814	5,081
Other income
Interest on deposits	3	2	3
Underwriting commission	-	8	27
	3,663	2,824	5,111

4. Dividends

	Six months to 30 September 2011 £000	Six months to 30 September 2010 £000	Year to 31 March 2011 £000
Year ended 31 March 2010 - fourth interim dividend of 1.20p	-	1,209	1,209
Year ended 31 March 2011 - first interim dividend of 1.15p	-	1,159	1,159
Year ended 31 March 2011 - second interim dividend of 1.15p	-	-	1,159
Year ended 31 March 2011 - third interim dividend of 1.15p	-	-	1,159
Year ended 31 March 2011 - fourth interim dividend of 1.20p	1,203	-	-
Year ended 31 March 2012 - first interim dividend of 1.15p	1,153	-	-
	2,356	2,368	4,686

5. Taxation on ordinary activities

	Six months to 30 September 2011			Six months to 30 September 2010			Year to 31 March 2011
	Revenue	Capital	Total	Revenue	Capital	Total	Revenue	Capital	Total
	£000	£000	£000	£000	£000	£000	£000	£000	£000
Foreign Withholding Tax	95	-	95	-	-	-	-	-	-

6.

Investments	As at 30 September 2011 £000	As at 30 September 2010 £000	As at 31 March 2011 £000
Fair value through profit or loss
Opening valuation	131,289	123,509	123,509
Opening investment gains	(20,145)	(12,268)	(12,268)
Opening cost	111,144	111,241	111,241
Add: additions at cost	90,856	4,701	14,178
Less: disposal proceeds received	(97,989)	(6,029)	(15,541)
Realised gains on disposal	12,952	1,509	1,266
Closing cost	116,963	111,422	111,144
Closing investment holding (losses)/gains	(1,462)	11,058	20,145
Closing valuation	115,501	122,480	131,289
Gains/(losses) on investments
Gains on realisation of investments at fair value	12,952	1,509	1,266
Movement in investment holding gains and losses	(21,607)	(1,210)	7,877
	(8,655)	299	9,143

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 and losses on investments in the income statement.  The total costs were as follows:

	Six months to 30 September 2011 £000	Six months to 30 September 2010 £000	Year to 31 March 2011 £000
Acquisitions	79	17	65
Disposals	56	5	16
	135	22	81

7.

	As at 30 September 2011 £000	As at 30 September 2010 £000	As at 31 March 2011 £000
Loans and receivables
Dividends receivable	555	603	701
Interest accrued	1	30	30
Due from brokers	141	-	497
Tax recoverable	8	32	7
Financial assets held for trading derivatives that are not designated in hedge accounting relationships:
Forward foreign currency contracts	8	-	28
Other debtors	13	15	16
	726	680	1,279

8.

	As at 30 September 2011 £000	As at 30 September 2010 £000	As at 31 March 2011 £000
Creditors - amounts falling due within one year
Interest accrued	22	24	59
Due to brokers	-	-	73
Sterling bank loan	11,000	14,200	14,200
Financial liabilities held for trading derivatives that are not designated in hedge accounting relationships:
Forward foreign currency contracts	-	3	8
Other creditors	228	501	708
	11,250	14,728	15,048

The company has an £11,000,000 loan facility with National Australia Bank which expires on 30 September 2012. Under this agreement £11,000,000 was drawn at 30 September 2011 at a rate of 2.0572% with a maturity date of 30 December 2011.

The fair value of the sterling loan is not materially different from its carrying value. The interest rate is set at each roll-over date at LIBOR plus a margin.

Performance fee

Martin Currie is entitled to a performance-related investment management fee calculated in respect of each financial year to 31 March (the measurement period) and payable in arrears. The fee is 0.15% of net assets for each percentage point by which the percentage performance of the company's ex-income net asset value per share, adjusted for share buybacks, exceeds the percentage capital return of the FTSE All-Share index over the relevant measurement period.

If the net asset value per share falls in a measurement period, the share of any out-performance is reduced by 50%. The fee is subject to a cap of 0.75% of the year end net assets.

In addition to the above a peer group performance fee of 0.25% of year end net assets may also be earned.

The performance fee is wholly allocated to capital. Martin Currie earned, and have been paid,  a performance fee of £372,000 for the period from 1 April 2011 to 31 July 2011. For the eight month period from 1 August 2011 until 31 March 2012, Martin Currie have waived the right to receive any performance fee.

Included in other creditors is a performance fee of £nil (30 September 2010: £303,000, 31 March 2011: £474,000).

9.

Reconciliation of net return before finance costs and taxation to net cash inflow from operating activities	Six months to 30 September 2011 £000	Six months to 30 September 2010 £000	Year to 31 March 2011 £000
Net return before finance costs and taxation	(5,701)	2,476	13,077
Decrease in accrued income and other debtors	198	272	145
(Decrease)/increase in creditors	(488)	122	331
Net losses/(gain) on investments	8,655	(299)	(9,143)
Taxation withheld from income on investments	(1)	5	-
Net cash inflow from operating activities	2,663	2,576	4,410

10.

	As at 31 March 2011 £000	Cash flow £000	30 September 2011 £000
Analysis of net debt
Cash at bank	134	4,196	4,330
Bank borrowings - sterling loan	(14,200)	3,200	(11,000)
Net debt	(14,066)	7,396	(6,670)

11 Interim report

The financial information contained in this half-yearly financial report does not constitute statutory accounts as defined in s434 - 436 of the Companies Act 2006. The financial information for the six months ended 30 September 2011 and 30 September 2010 has not been audited.

The information for the year ended 31 March 2011 has been extracted from the latest published audited financial statements which have been filed with the Registrar of Companies. The report of the auditors on those accounts contained no qualification or statement under s498 (2), (3) or (4) of the Companies Act 2006.

 

END

 

 

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