Half Yearly Report

RNS Number : 4872S

Glasgow Income Trust PLC

19 May 2009

 



18 May 2009

GLASGOW INCOME TRUST PLC

INTERIM RESULTS FOR THE SIX MONTHS TO 31 MARCH 2009

The principal objective of Glasgow Income Trust plc is to provide shareholders with a high level of income and to obtain growth in both income and capital over the longer term.

INTERIM BOARD REPORT AS AT 31 MARCH 2009

Background

In the six months to 31 March 2009, investment markets were dominated by the global financial crisis. The impact of the unfolding global banking crisis fed into a slowing economic environment causing the UK to enter recession in the fourth quarter of 2008. After contracting by 1.6% in the last quarter of the year, the economic position deteriorated further in the first quarter of 2009 when GDP declined by 1.9%. One of the few positive developments was the reduction in CPI inflation from a peak of 5.2% last year to 2.9% in March 2009 as oil and other raw material prices fell.

The weaker environment was reflected in company results which have been subject to profits downgrades, dividend cuts and a number of rights issues. In this very difficult environment, it was hardly surprising that stock markets proved volatile. Over the six months under review, our benchmark, the FTSE All Share index, declined by 18.3%. Fixed income was not immune and UK corporate bonds and preference shares were weak over the period. The only positive returns came from gilts and cash at 9.4% and 1.1% respectively.

Performance

It is very disappointing to report that for the interim period, the total return on net assets was -41% compared to the benchmark return on the FTSE All Share index of -18.3%. Performance was adversely affected by a combination of poor UK stock selection, negative returns from corporate bonds and preference shares which were weighted towards financials, and the impact of the geared structure in declining markets.

In addition, the significant reduction in interest rates during the period resulted in the accelerated recognition of ZCF finance cost giving a charge to capital of £4.3 million compared to £2.6 million in the same period last year. Contrary to the objective of the gearing structure this was not offset by an increase in the value of the bond portfolio as the global credit crisis delivered a dramatic increase in credit spreads of corporate bonds with the attendant reduction in their market value.

Negative sentiment towards trusts with gearing impacted the share price performance and this was evidenced by a widening in the Company's discount to net assets. Over the six months, the discount increased from 2.1% to 24.5% and this contributed to a share price total return of -54.6%. Since the period end, the share price has recovered and the discount has narrowed to approximately 7.5%. The recovery in valuations has contributed to the recent improvement in net assets.

As reported in the last Annual Report, the Board and its advisors have been developing an appropriate long term strategy for the Company. The equity portfolio has been significantly restructured in the last year, with reductions made to smaller company exposure and new investments focused on larger more liquid companies. The Manager has also had to raise cash throughout the period to meet collateral requirements, offset gearing and repay ZCF. It is fair to say that these conditions have been disruptive for performance.  

Gearing

Last year, your Company raised cash to offset gearing and meet higher collateral requirements. As announced at the time of the final results in November 2008, the Company repaid £5.4 million of its ZCF when it matured in December. Since then, interest rates have fallen to very low levels and it made sense to reduce the Company's ZCF exposure again in March from cash resources. This left a balance of £38.2 million outstanding at the period end.

The Board, together with the Manager and advisors, has devoted considerable time in modelling a variety of options to identify a sustainable long term structure while supporting an above average yield and a lower risk profile. As a result, the Board recently instructed the Manager to raise more cash in anticipation of a third reduction in the gearing from 63% to approximately 40%. After implementation, the majority of the Company's structural gearing would not need to be re-financed until April 2011. The Company's only method of financing is ZCF and it has no bank borrowings.

Dividends

The first and second interim dividends were reduced to 0.75p per share. The Board announces its intention that in the current year, the third and fourth interim payments will also be 0.75p per share making a total dividend of 3p per share for the year ending 30 September 2009 compared to 5.3p in 2008.

AIC/JP Morgan Claverhouse VAT Case

I am pleased to report that we have recognised the sum of £349,000 in these accounts which is split equally between revenue and capital in accordance with our accounting policy. This represents settlement of the VAT paid on management fees between 2004 and 2007. 

Continuation Vote

At the AGM on 19 December 2008, shareholders voted in favour of continuation. The Board gave an undertaking that if the continuation vote was passed, a second continuation vote would be offered to shareholders by the date of the next AGM. It remains the Board's intention to hold the continuation vote as soon as the strategy review has been finalised, which is likely to be before the next AGM.

Outlook

Market sentiment has improved recently, although it may be too soon to say whether we have seen the worst. 

The Board's priority is to complete the strategy review as soon as possible and to present what it hopes will be an attractive proposition to shareholders including an opportunity to recover from this period of underperformance.

R G Hanna

Chairman

18 May 2009

Principal Risks and Uncertainties

The main risks the Company faces from its financial instruments are (i) market price risk (comprising interest rate risk and other price risk), (ii) liquidity risk and (iii) credit risk. The Company has no exposure to foreign currency risk as it does not hold any foreign currency assets and has no exposure to foreign currency liabilities. The Company's gearing comprises the zero coupon finance raised in the derivatives market. The final liability of the zero coupon finance is pre-determined at the outset of each tranche of zero coupon finance. The Company's ability to continue as a going concern is dependent on shareholders approving a continuation vote which the Directors have undertaken to put to shareholders at or prior to the next AGM. Information on each of these areas is found in the Directors' Report within the Annual Report and Accounts for the year ended 30 September 2008.

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 interim financial statements contained within the half yearly financial report have been prepared in accordance with IFRS 34; and,

-    the Interim Board Report includes a fair review of the information required by 4.2.7R and 4.2.8R of the FSA's Disclosure and Transparency Rules.

The half yearly financial report for the six months to 31 March 2009 comprises the Interim Board Report, the Directors' Responsibility Statement and a condensed set of financial statements.

For and on behalf of the Board 

R G Hanna

Chairman

18 May 2009

  GROUP INCOME STATEMENT

FOR THE HALF YEAR ENDED 31 MARCH 2009

	Six months ended
	31 March 2009
	(unaudited)
	Revenue	Capital	Total
	£'000	£'000	£'000
Losses on held-at-fair-value investments	-	(25,128)	(25,128)
Revenue
Dividend income	1,341	-	1,341
Interest income from investments	991	-	991
Deposit interest	211	-	211
AAA money market funds interest	43	-	43
Traded options	460	-	460
Other income	18	-	18
Losses of dealing subsidiary	-	-	-
	_________	_________	_________
	3,064	(25,128)	(22,064)
	_________	_________	_________
Expenses
Investment management fees	(83)	(83)	(166)
VAT recoverable on investment management fees	175	175	350
Other administrative expenses	(127)	-	(127)
Finance costs of borrowing	-	-	-
Zero Coupon Finance Costs	-	(4,347)	(4,347)
	_________	_________	_________
Profit/(loss) before taxation	3,029	(29,383)	(26,354)
Taxation	(504)	(26)	(530)
	_________	_________	_________
Profit/(loss) attributable to equity holders of the Company	2,525	(29,409)	(26,884)
	_________	_________	_________
Earnings per Ordinary share (pence)	2.08	(24.22)	(22.14)
	_________	_________	_________

The total column of this statement represents the Income Statement of the Group, prepared in accordance with International Financial Reporting Standards ("IFRS"). The revenue return and capital return columns are supplementary to this and are prepared under guidance published by the Association of Investment Companies.  All items in the above statement derive from continuing operations.

  GROUP INCOME STATEMENT

(CONTINUED)

	Six months ended			Year ended
	31 March 2008			30 September 2008
	(unaudited)			(audited)
	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Losses on held-at-fair-value investments	-	(17,445)	(17,445)	-	(42,684)	(42,684)
Revenue
Dividend income	1,997	-	1,997	4,540	-	4,540
Interest income from investments	1,207	-	1,207	2,502	-	2,502
Deposit interest	202	-	202	451	-	451
AAA money market funds interest	-	-	-	145	-	145
Traded options	297	-	297	673	-	673
Other income	6	-	6	58	-	83
Losses of dealing subsidiary	(41)	-	(41)	(26)	-	(26)
	________	________	________	________	________	________
	3,668	(17,445)	(13,777)	8,343	(42,659)	(34,316)
	________	________	________	________	________	________
Expenses
Investment management fees	(195)	(195)	(390)	(351)	(351)	(702)
VAT recoverable on investment management fees	-	-	-	-	-	-
Other administrative expenses	(159)	-	(159)	(287)	-	(287)
Finance costs of borrowing	(10)	(10)	(20)	(11)	(11)	(22)
Zero Coupon Finance Costs	-	(2,603)	(2,603)	-	(4,108)	(4,108)
	________	________	________	________	________	________
Profit/(loss) before taxation	3,304	(20,253)	(16,949)	7,694	(47,129)	(39,435)
Taxation	(393)	59	(334)	(904)	105	(799)
	________	________	________	________	________	________
Profit/(loss) attributable to equity holders of the Company	2,911	(20,194)	(17,283)	6,790	(47,024)	(40,234)
	________	________	________	________	________	________
Earnings per Ordinary share (pence)	2.39	(16.56)	(14.17)	5.58	(38.62)	(33.04)
	________	________	________	________	________	________

  GROUP BALANCE SHEET AS AT 31 MARCH 2009

	As at	As at	As at
	31 March	31 March	30 September
	2009	2008	2008
	(unaudited)	(unaudited)	(audited)
	£'000	£'000	£'000
Non-current assets
Ordinary shares	41,316	92,678	71,202
Convertibles	455	1,920	1,890
Corporate bonds	17,821	33,414	29,075
Other fixed interest	2,390	9,704	9,941
	_________	_________	_________
Securities at fair value	61,982	137,716	112,108
Zero coupon finance derivatives at fair value	12,279	27,332	21,715
	_________	_________	_________
	74,261	165,048	133,823
	_________	_________	_________
Current assets
Trade and other receivables	697	-	298
Accrued income and prepayments	1,091	2,019	1,755
Investments of dealing subsidiary	-	544	-
AAA money market funds	-	-	6,338
Cash and cash equivalents	13,086	15,231	10,730
Zero coupon finance derivatives at fair value	13,702	-	27
	_________	_________	_________
Total current assets	28,576	17,794	19,148
	_________	_________	_________
Total assets	102,837	182,842	152,971
Current liabilities
Trade and other payables	(658)	(575)	(851)
Short-term borrowings	-	-	-
Zero coupon finance derivatives at fair value	(35,498)	-	(5,360)
	_________	_________	_________
Total current liabilities	(36,156)	(575)	(6,211)
	_________	_________	_________
Non-current liabilities
Zero coupon finance derivatives at fair value	(28,723)	(88,162)	(78,717)
	_________	_________	_________
Total liabilities	(64,879)	(88,737)	(84,928)
	_________	_________	_________
Net assets	37,958	94,105	68,043
	_________	_________	_________
Issued capital and reserves attributable to equity holders of the parent
Called-up share capital	30,486	30,486	30,486
Share premium account	53,204	53,204	53,204
Special reserve	4,658	5,000	4,658
Capital reserve	(53,666)	2,573	(24,257)
Revenue reserve	3,276	2,842	3,952
	_________	_________	_________
	37,958	94,105	68,043
	_________	_________	_________
Net asset value per Ordinary share (pence)	31.26	77.17	56.04
	_________	_________	_________

  GROUP STATEMENT OF CHANGES IN EQUITY 

FOR THE HALF YEAR ENDED 31 MARCH 2009 

Six months ended 31 March 2009 (unaudited)
		Share
	Share	Premium	Special	Capital	Revenue
	Capital	Account	Reserve	Reserve	Reserve	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Balance at 30 September 2008	30,486	53,204	4,658	(24,257)	3,952	68,043
(Loss)/profit after tax	-	-	-	(29,409)	2,525	(26,884)
Equity dividends	-	-	-	-	(3,201)	(3,201)
	_________	_________	_________	_________	_________	_________
Balance at 31 March 2009	30,486	53,204	4,658	(53,666)	3,276	37,958
	_________	_________	_________	_________	_________	_________
Six months ended 31 March 2008 (unaudited)
		Share
	Share	Premium	Special	Capital	Revenue
	Capital	Account	Reserve	Reserve	Reserve	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Balance at 30 September 2007	30,486	53,205	5,000	22,767	3,619	115,077
(Loss)/profit after tax	-	-	-	(20,194)	2,911	(17,283)
Equity dividends	-	-	-	-	(3,688)	(3,688)
Share issue expense	-	(1)	-	-	-	(1)
	_________	_________	_________	_________	_________	_________
Balance at 31 March 2008	30,486	53,204	5,000	2,573	2,842	94,105
	_________	_________	_________	_________	_________	_________
Year ended 30 September 2008 (audited)
		Share
	Share	Premium	Special	Capital	Revenue
	Capital	Account	Reserve	Reserve	Reserve	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Balance at 30 September 2007	30,486	53,205	5,000	22,767	3,619	115,077
(Loss)/profit after tax	-	-	-	(47,024)	6,790	(40,234)
Equity dividends	-	-	-	-	(6,457)	(6,457)
Share issue expense	-	(1)	-	-	-	(1)
Shares bought back	-	-	(342)	-	-	(342)
	_________	_________	_________	_________	_________	_________
Balance at 30 September 2008	30,486	53,204	4,658	(24,257)	3,952	68,043
	_________	_________	_________	_________	_________	_________

  CONSOLIDATED CASH FLOW STATEMENT

FOR THE HALF YEAR ENDED 31 MARCH 2008

	Six months	Six months	Year
	ended	ended	ended
	31 March	31 March	30 September
	2009	2008	2008
	£'000	£'000	£'000
Cash flows from operating activities
Investment income received	2,950	3,398	7,552
Deposit interest received	296	149	547
Dealing subsidiary receipts	-	88	673
Other cash receipts	549	178	591
Administrative expenses paid	(570)	(686)	(1,111)
	_________	_________	_________
Cash generated from operations	3,225	3,127	8,252
Interest paid	-	(10)	(22)
Taxation	(429)	(252)	(625)
	_________	_________	_________
Net cash inflows from operating activities	2,796	2,865	7,605
	_________	_________	_________
Cash flows from investing activities
Purchases of investments	(13,301)	(7,085)	(44,163)
Sales of investments	38,166	23,424	60,710
Zero coupon finance	(28,442)	-	-
	_________	_________	_________
Net cash (outflow)/inflow from investing activities	(3,577)	16,339	16,547
	_________	_________	_________
Net cash (outflow)/inflow before financing	(781)	19,204	24,152
Financing activities
Proceeds of issue of shares	-	-	(1)
Expenses of share issue	-	(1)	(342)
Dividends paid	(3,201)	(3,688)	(6,457)
	_________	_________	_________
Net cash (outflow)/inflow before management liquid resources	(3,982)	15,515	17,352
Management of liquid resources
Purchase of AAA money market funds	(1,141)	-	(18,843)
Sale of AAA money market funds	7,479	-	12,505
	_________	_________	_________
Net cash inflow/(outflow) from management of liquid resources	6,338	-	(6,338)
Net increase in cash and short term deposits	2,356	15,515	11,014
Cash and short term deposits at the start of the period	10,730	(284)	(284)
	_________	_________	_________
Cash and short term deposits at the end of the period	13,086	15,231	10,730
	_________	_________	_________

DISTRIBUTION OF ASSETS AND LIABILITIES

	Valuation at					Valuation at
	30 September				Appreciation/	31 March
	2008		Purchases	Sales	(depreciation)	2009
	£'000	%	£'000	£'000	£'000	£'000	%
Listed investments
Ordinary shares	71,202	104.6	8,438	(18,364)	(19,960)	41,316	108.8
Convertibles	1,890	2.8	500	(1,873)	(62)	455	1.2
Corporate bonds	29,075	42.7	4,265	(11,241)	(4,278)	17,821	47.0
Other fixed interest	9,941	14.6	-	(6,723)	(828)	2,390	6.3
	_________	_________	_________	_________	_________	_________	_________
	112,108	164.7	13,203	(38,201)	(25,128)	61,982	163.3
	_________	_________	_________	_________	_________	_________	_________
Other non current assets	21,715	31.9				12,279	32.3
Current assets	19,148	28.1				28,576	75.3
Current liabilities	(6,211)	(9.1)				(36,156)	(95.3)
Non current liabilities	(78,717)	(115.6)				(28,723)	(75.6)
	_________	_________				_________	_________
Net assets	68,043	100.0				37,958	100.0
	_________	_________				_________	_________
Net asset value per share	56.04p					31.26p
	_________					_________

NOTES TO THE ACCOUNTS
1.     Accounting policies
	(a)	Basis of accounting
		The Group's financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) 34 - 'Interim Financial Reporting', as adopted by the International Accounting Standards Board (IASB), and interpretations issued by the International Financial Reporting Interpretations Committee of the IASB (IFRIC). They have also been prepared using the same accounting policies applied for the year ended 30 September 2008 financial statements, which received an unqualified audit report.
	(b)	Dividends payable  Dividends are recognised in the period in which they are paid.

2.	Taxation
	The taxation expense reflected in the Income Statement is based on management's best estimate of the weighted average annual income tax rate expected for the full financial year. The estimated average annual tax rate used for the year to 30 September 2009 is 28%, taking into consideration the reduction in the corporation tax rate from 30% to 28% from 1 April 2008.

3.	The following table shows the revenue for each period less the dividends declared in respect of the financial period to which they relate.
		Six months ended	Six months ended	Year ended
		31 March 2009	31 March 2008	30 September 2008
		£'000	£'000	£'000
	Revenue	2,525	2,911	6,790
	Dividends declared	(1,821){A}	(2,775){B}	(6,447){C}
		_____________	_____________	_____________
		704	136	343
		_____________	_____________	_____________
	{A}     Dividends declared relate to first two interim dividends (both 0.75p each) declared in respect of the financial year 2008/09.  {B}     Dividends declared relate to first two interim dividends (both 1.138p each) declared in respect of the financial year 2007/08.  {C}     Dividends declared relate to the four interim dividends declared in respect of the financial year 2007/08 totalling 5.301p.

		Six months ended	Six months ended	Year  ended
		31 March  2009	31 March  2008	30 September 2008
4.	(Loss)/return and net asset value per share	P	P	p
	Revenue return	2.08	2.39	5.58
	Capital return	(24.22)	(16.56)	(38.62)
		_____________	_____________	____________
	Total return	(22.14)	(14.17)	(33.04)
		_____________	_____________	____________
	The figures above are based on the following attributable assets:
		£'000	£'000	£'000
	Revenue return	2,525	2,911	6,790
	Capital return	(29,409)	(20,194)	(47,024)
		_____________	_____________	____________
	Total return	(26,884)	(17,283)	(40,234)
	Weighted average number of Ordinary shares in issue	121,413,532	121,942,517	121,767,858
		_____________	_____________	____________
	The net asset value per share is based on net assets attributable to Shareholders of £37,958,000 (31 March 2008 - £94,105,000; 30 September 2008 - £68,043,000) and on 121,413,532 (31 March 2008- 121,942,517 and 30 September 2008 - 121,413,532) Ordinary shares in issue at the period end.

5.	Transaction costs  During the period expenses were incurred in acquiring or disposing of investments classified as fair value though profit or loss. These have been expensed through capital and are included within losses on investments in the Consolidated Income Statement. The total costs were as follows:
		Six months ended	Six months ended	Year ended
		31 March 2009	31 March 2008	30 September 2008
		£'000	£'000	£'000
	Purchases	45	9	192
	Sales	27	28	72
		_____________	_____________	_____________
		72	37	264
		_____________	_____________	_____________

6.

Publication of non-statutory accounts  The financial information contained in this Interim Report does not constitute statutory accounts as defined in Section 434 of the Companies Act 2006. The financial information for the six months ended 31 March 2009 and 31 March 2008 has not been audited. The information for the year ended 30 September 2008 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 Section 498 (2), (3) or (4) of the Companies Act 2006.

7.    The Half Yearly Report was approved by the Board on 18 May 2009.

8.    This Half Yearly Financial Report will shortly be available on the Company's website (www.glasgowincometrust.co.uk) and will be posted to shareholders in June 2009.

For Glasgow Income Trust plc

Aberdeen Asset Management PLC

Secretaries

18 May 2009

 

END

 

 

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