Interim Results

RNS Number : 6216V

Glasgow Income Trust PLC

30 May 2008

 



News Release

30 May 2008

Glasgow Income Trust plc

Interim Results for the six months to 31 March 2008

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.

	31 March  2008	30 September 2007	% Change
Equity Shareholders' funds (£'000)	94,105	115,077	-18.2
Net asset value per share	77.17p	94.37p	-18.2
Share price (mid-market)	65.75p	91.50p	-28.1
Discount to net asset value{A}	13.5%	1.1%
Dividend yield	8.0%	5.7%

{A}     Based on IFRS net asset value excluding dividend adjustment of 1.138p (30 September 2007 - 1.8865p), net income re-invested. 

• For the six month period to 31 March 2008 the total return on net assets was -15.5%, lower than the return of -10.2% on the Company's benchmark.

• The discount widened from 1.1% at 30 September 2007 to 13.5% as at 31 March 2008 resulting in the total return to a shareholder in the period being -25.6%.

• First and second interim dividends of 2007/2008 financial year amounted to 2.276p, an increase of 3% compared to the same period in the previous year. 

• The yield on the Company's shares of 8.0% as at 31 March 2008 compared to 3.8% on the FTSE All-Share Index, the Company's benchmark.

• 100,000 shares bought back on 3 April 2008 at a discount of approximately 15%. Discount currently stands at c9%.

For further information please contact:

Kenny Harper

Aberdeen Asset Managers Limited

0131 528 4000

Glasgow Income Trust plc

Interim Board Report as at 31 March 2008

Background

Against a background of increasing stock market volatility caused by the global credit crisis this has been a very difficult time for the Company. Over the six month period to 31 March 2008, the FTSE All-Share Index, the Company's benchmark, fell by 10.2%. This total index figure disguises some major deviations in sector performance; for example mining stocks were +2.5% and banks were 
-15.6%. As an income trust we are to some degree effectively restricted from full index weighting in low yielding sectors such as mining. This in part explains the underperformance but our overexposure to banks and the consumer services sector has also been damaging. 

The Company's gearing is invested in fixed interest stocks, predominantly of investment grade. This makes a significant contribution to the high level of dividends paid by the Trust

While the Company's income and dividend paying capacity were thereby protected during the period there was also a detrimental impact on capital caused by investors increased aversion to risk. This resulted in a widening of corporate bond spreads with a consequent reduction in the market value of the portfolio of bonds and preference shares. 

Investment Returns

Given all the factors referred to above, the net asset value total return of the Company was -15.5% in the six months period, 5.3 percentage points behind that of the benchmark. 

For 7 years our shares have predominantly traded at a premium to NAV. However, in an environment of continuing unease, there was a significant deterioration in the rating of the Company's shares in the period which resulted in the discount widening from 1.1% to 13.5% thereby exacerbating the poor performance. Taken together with the poor NAV performance explained above, all these elements resulted in a total return to shareholders of -25.6%.

The fact that many other investment trusts suffered similarly over the period is of little consolation and we are especially concerned that our very good performance over the last five years has been eroded in such a short period. 

Gearing

Action was taken during the period to limit the downside risk by reducing the gearing. The net sale of £16.3 million of equities resulted in an equity gearing of nil at the period end. The investment in bonds which assists the income generation, produced a total gearing of 46.3% down from 49%.

Share Buybacks

As mentioned previously the discount on the Company's shares widened significantly in the period, from 1.1% to 13.5%. In order to try to manage the widening discount, on 3 April 2008 the Company bought back 100,000 shares at 65.5p, a discount of approximately 15%. The discount at the time of writing has narrowed to 9%. The Board will continue to monitor the discount level and take appropriate action if thought necessary.

Dividends

There is some cheer in this gloomy scenario. The income account remains sufficiently healthy for the Board to be able to increase the dividend. The first and second interim dividends in relation to the 2007/08 financial year totalled 2.276p compared to 2.21p in the same period last year, an increase of 3.0%. As at 31 March 2008 this resulted in a dividend yield of 8.0%, significantly ahead of the 3.8% yield on the FTSE All-Share Index, the Company's benchmark and the FTSE 350 Higher Yield Index which yielded 5.3% on the same date.  

Investment Manager

It has also been a time of change in relation to the investment management of the Company. As explained in the Annual Report, Aberdeen Asset Managers ("Aberdeen") acquired Glasgow Investment Managers Limited ("Glasgow") on 24 August 2007 and, following a settling in period, there has been a change in the individuals managing our portfolio. Susan Anderson, who has been involved with the Company since 1996 will provide continuity of management. In addition we welcome David Boyle who will co-manage the portfolio with Susan. David works in Aberdeen's Pan European equity team having joined Aberdeen in 2003. In this time he has gained considerable experience in managing UK equity portfolios.

AIC/JP Morgan Claverhouse VAT Case

As referred to in the Annual Report, the decision made by the European Court of Justice ("ECJ") on the case brought by the AIC and JP Morgan Claverhouse against Her Majesty's Revenue and Customs ("HMRC") will result in the Company not being subject to VAT on its management fees going forward. In addition the Company should be able to recover at least some of the VAT suffered in the past. The Board is currently in discussion with the Managers on this issue, and a number of legal and procedural matters still require to be resolved. In addition a recent decision by the House of Lords to allow potentially such claims to go back to 1990 has further added to the complexity of calculating any repayment due. Given these uncertainties no asset is yet being recognised in the financial statements.

Outlook

Financial markets around the world are currently dominated by the global credit crunch, with its possible consequences for the economy as a whole. Recent intervention by Central Banks to ease the crisis both through the availability of funds to financial institutions and the cutting of interest rates is expected to continue in the current year.  

In the UK, the Bank of England has recently reduced interest rates to 5% but inflationary pressures in the form of higher energy, food and metal prices has meant that interest rates have not been cut as aggressively as in the United States. However, as global growth slows, inflation worries should begin to ease allowing scope for further cuts in the medium term. Although the UK economy is slowing down, this slow down is concentrated in areas where there are well recognised excesses such as the housing market. 

It is extremely important that we recover our performance and the task is to position our portfolio to benefit from an upturn in the stockmarket. As the outlook is for continuing volatility this will be a particular challenge but one which the Board and Managers are committed to achieving. 

In relation to the dividend, the Board would expect that the dividend paid for the 2007/2008 financial year to be higher than the previous year. 

Principal Risks and Uncertainties

The principal risks and uncertainties faced by the Company fall into four broad categories: (i) market risk, (ii) interest rate risk, (iii) credit risk and (iv) liquidity risk. Information on each of these areas is given in the Directors' Report within the Annual Report and Accounts for the year ended 30 September 2007.

Directors' Responsibility Statement

The Directors are responsible for preparing this 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 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 and 4.2.8R of the FSA's Disclosure and Transparency Rules.

The half yearly report includes a fair review of the information required on material transactions with related parties and changes since the Annual Report.

The Interim Report will be mailed to shareholders on 6 June 2008. Copies may be obtained from the Managers, Aberdeen Asset Managers Limited, 40 Princes Street, Edinburgh EH2 2BY after that date.

For and on behalf of the Board of Glasgow Income Trust plc

R G Hanna

Chairman

Consolidated Income Statement

for the half year ended 31 March 2008

	Six months ended
	31 March 2008
	(unaudited)
	Revenue	Capital	Total
	£'000	£'000	£'000
(Losses)/gains on held-at-fair-value investments	-	(17,445)	(17,445)
Fair value movement in zero coupon finance derivatives	-	(2,603)	(2,603)
Revenue
Dividend income	1,997	-	1,997
Interest income from investments	1,207	-	1,207
Deposit interest	202	-	202
Traded options	297	-	297
Other income	6	-	6
(Losses)/gains of dealing subsidiary	(41)	-	(41)
	_________	_________	_________
	3,668	(20,048)	(16,380)
Expenses	_________	_________	_________
Investment management fees	(195)	(195)	(390)
Other administrative expenses	(159)	-	(159)
Finance costs of borrowing	(10)	(10)	(20)
	_________	_________	_________
Profit before taxation	3,304	(20,253)	(16,949)
Taxation	(393)	59	(334)
	_________	_________	_________
Profit/(loss) attributable to equity holders of the Company	2,911	(20,194)	(17,283)
	_________	_________	_________
Earnings per Ordinary share (pence):	2.39	(16.56)	(14.17)
	_________	_________	_________

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.

Note: The financial information contained within this interim report does not constitute statutory accounts as defined in section 240 of the Companies Act 1985. The financial information for the year ended 30 September 2007 has been extracted from the statutory accounts. Those accounts have been filed with the Registrar of Companies and contain an unqualified Auditors' Report and do not contain a statement under sections 237(2) or (3) of the Companies Act.

Consolidated Income Statement

(Continued)

	Six months ended			Year ended
	31 March 2007			30 September 2007
	(unaudited)			(audited)
	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000
(Losses)/gains on held-at-fair-value investments	-	12,499	12,499	-	2,645	2,645
Fair value movement in zero coupon finance derivatives	-	(802)	(802)	-	(2,455)	(2,455)
Revenue
Dividend income	1,896	-	1,896	4,818	-	4,818
Interest income from investments	1,024	-	1,024	2,169	-	2,169
Deposit interest	108	-	108	119	-	119
Traded options	170	-	170	690	-	690
Other income	-	-	-	1	-	1
(Losses)/gains of dealing subsidiary	16	-	16	(52)	-	(52)
	_______	_______	_______	_______	_______	_______
	3,214	11,697	14,911	7,745	190	7,935
Expenses	_______	_______	_______	_______	_______	_______
Investment management fees	(252)	(252)	(504)	(519)	(519)	(1,038)
Other administrative expenses	(92)	-	(92)	(227)	-	(227)
Finance costs of borrowing	(10)	(10)	(20)	(79)	(79)	(158)
	_______	_______	_______	_______	_______	_______
Profit before taxation	2,860	11,435	14,295	6,920	(408)	6,512
Taxation	(310)	81	(229)	(589)	179	(410)
	_______	_______	_______	_______	_______	_______
Profit/(loss) attributable to equity holders of the Company	2,550	11,516	14,066	6,331	(229)	6,102
	_______	_______	_______	_______	_______	_______
Earnings per Ordinary share (pence):	2.49	11.23	13.72	5.44	(0.20)	5.24
	_______	_______	_______	_______	_______	_______

Consolidated Balance Sheet as at 31 March 2008

	As at   31 March  2008 (unaudited) £'000	As at   31 March  2007 (unaudited) £'000	As at   30 September  2007 (audited) £'000
Non-current assets
Ordinary shares	92,678	130,834	122,306
Convertibles	1,920	4,227	2,194
Corporate bonds	33,414	40,249	35,339
Other fixed interest	9,704	10,141	11,576
	___________	___________	___________
Securities at fair value	137,716	185,451	171,415
Zero coupon finance derivatives at fair value	27,332	21,862	31,862
	___________	___________	___________
	165,048	207,313	203,277
Current assets	___________	___________	___________
Trade and other receivables	-	-	12
Accrued income and prepayments	2,019	2,222	2,202
Investments of dealing subsidiary	544	745	673
Cash and cash equivalents	15,231	575	138
	___________	___________	___________
Total current assets	17,794	3,542	3,025
	___________	___________	___________
Total assets	182,842	210,855	206,302
	___________	___________	___________
Current liabilities
Trade and other payables	(575)	(672)	(714)
Short-term borrowings	-	(6,000)	(422)
	___________	___________	___________
Total current liabilities	(575)	(6,672)	(1,136)
	___________	___________	___________
Non-current liabilities
Zero coupon finance derivatives at fair value	(88,162)	(78,437)	(90,089)
	___________	___________	___________
Total liabilities	(88,737)	(85,109)	(91,225)
	___________	___________	___________
Net assets	94,105	125,746	115,077
	___________	___________	___________
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	53,213	53,205
Special reserve	5,000	5,000	5,000
Retained earnings:
Realised capital reserve	18,360	18,892	17,097
Unrealised capital reserve	(15,787)	15,620	5,670
Revenue reserve	2,842	2,535	3,619
	___________	___________	___________
	___________	___________	___________
Net asset value per Ordinary share (pence)	77.17	103.12	94.37
	___________	___________	___________

Consolidated Statement of Changes in Equity 

for the half year ended 31 March 2008 

Six months ended 31 March 2008 (unaudited)
		Share		Capital	Capital
	Share	Premium	Special	reserve -	reserve -	Revenue
	Capital	Account	Reserve	Realised	Unrealised	Reserve	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Balance at 30 September 2007	30,486	53,205	5,000	17,097	5,670	3,619	115,077
Revenue profits for the period	-	-	-	-	-	2,911	2,911
Capital profits/(losses) for the period	-	-	-	1,263	(21,457)	-	(20,194)
Equity dividends	-	-	-	-	-	(3,688)	(3,688)
Share issue expense	-	(1)	-	-	-	-	(1)
	_________	_________	_________	_________	_________	_________	_________
Balance at 31 March 2008	30,486	53,204	5,000	18,360	(15,787)	2,842	94,105
	_________	_________	_________	_________	_________	_________	_________
Six months ended 31 March 2007 (unaudited)
		Share		Capital	Capital
	Share	Premium	Special	reserve -	reserve -	Revenue
	Capital	Account	Reserve	Realised	Unrealised	Reserve	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Balance at 30 September 2006	23,496	32,715	5,000	9,080	13,916	2,801	87,008
Revenue profits for the period	-	-	-	-	-	2,550	2,550
Capital profits for the period	-	-	-	9,812	1,704	-	11,516
Equity dividends	-	-	-	-	-	(2,816)	(2,816)
Issue of share capital	6,990	20,498	-	-	-	-	27,488
	_________	_________	_________	_________	_________	_________	_________
Balance at 31 March 2007	30,486	53,213	5,000	18,892	15,620	2,535	125,746
	_________	_________	_________	_________	_________	_________	_________
Year ended 30 September 2007 (audited)
		Share		Capital	Capital
	Share	Premium	Special	reserve -	reserve -	Revenue
	Capital	Account	Reserve	Realised	Unrealised	Reserve	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Balance at 30 September 2006	23,496	32,715	5,000	9,080	13,916	2,801	87,008
Revenue profits for the year	-	-	-	-	-	6,331	6,331
Capital profits/(losses) for the year	-	-	-	8,017	(8,246)	-	(229)
Equity dividends	-	-	-	-	-	(5,513)	(5,513)
Issue of share capital	6,990	20,490	-	-	-	-	27,480
	_________	_________	_________	_________	_________	_________	_________
Balance at 30 September 2007	30,486	53,205	5,000	17,097	5,670	3,619	115,077
	_________	_________	_________	_________	_________	_________	_________

Consolidated Cash Flow Statement

for the half year ended 31 March 2008

	Six months ended 31 March 2008 £'000 (unaudited)	Six months ended 31 March 2007 £'000 (unaudited)	Year ended 30 September 2007 £'000 (audited)
Cash flows from operating activities
Investment income received	3,398	2,596	6,776
Deposit interest received	149	107	120
Dealing subsidiary receipts	88	-	-
Other cash receipts	178	256	834
Administrative expenses paid	(686)	(531)	(1,213)
	_________	_________	_________
Cash generated from operations	3,127	2,428	6,517
Interest paid	(10)	(20)	(151)
Taxation	(252)	(183)	(426)
	_________	_________	_________
Net cash inflows from operating activities	2,865	2,225	5,940
	_________	_________	_________
Cash flows from investing activities
Purchases of investments	(7,085)	(101,599)	(160,450)
Sales of investments	23,424	54,460	117,443
Zero coupon finance	-	15,127	15,126
	_________	_________	_________
Net cash inflow/(outflow) from investing activities	16,339	(32,012)	(27,881)
	_________	_________	_________
Net cash inflow/(outflow) before financing	19,204	(29,787)	(21,941)
Financing activities
Proceeds of issue of shares	-	27,476	27,468
Expenses of share issue	(1)	-	-
Dividends paid	(3,688)	(2,816)	(5,513)
	_________	_________	_________
Net cash (outflow)/inflow from financing activities	(3,689)	24,660	21,955
	_________	_________	_________
Net increase/(decrease) in cash and cash equivalents	15,515	(5,127)	14
Cash and cash equivalents at the start of the period	(284)	(298)	(298)
	_________	_________	_________
Cash and cash equivalents at the end of the period	15,231	(5,425)	(284)
	_________	_________	_________
Cash and cash equivalents comprise:
Cash and cash equivalents	15,231	575	138
Short term borrowings	-	(6,000)	(422)
	_________	_________	_________
	15,231	(5,425)	(284)
	_________	_________	_________

Distribution of Assets and Liabilities

	Valuation at					Valuation at
	30 September				Appreciation/	31 March
	2007		Purchases	Sales	(depreciation)	2008
	£'000	%	£'000	£'000	£'000	£'000	%
Listed investments
Ordinary shares	122,306	106.3	4,959	(21,300)	(8,287)	92,678	98.5
Convertibles	2,194	1.9	-	-	(274)	1,920	2.0
Corporate bonds	35,339	30.7	2,126	(2,112)	(1,939)	33,414	35.5
Other fixed interest	11,576	10.1	-	-	(1,872)	9,704	10.3
	_________	_________	_________	_________	_________	_________	_________
	171,415	149.0	7,085	(23,412)	(12,372)	137,716	146.3
	_________	_________	_________	_________	_________	_________	_________
Other non current assets	31,862	27.7				27,332	29.0
Current assets	3,025	2.6				17,794	18.9
Current liabilities	(1,136)	(1.0)				(575)	(0.6)
Non current liabilities	(90,089)	(78.3)				(88,162)	(93.6)
	_________	_________				_________	_________
Net assets	115,077	100.0				94,105	100.0
	_________	_________				_________	_________
Net asset value per share	94.37p					77.17p
	_________					_________

 

END

 

 

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