Half Yearly Report

RNS Number : 3914H

British Assets Trust PLC

16 May 2014

 



BRITISH ASSETS TRUST PLC

To:                   RNS

From:              British Assets Trust plc

Date:               16 May 2014

Half-Yearly Financial Report for the six months ended 31 March 2014

Highlights for the Period

·     Net asset value total return of 4.3 per cent

·     Share price total return of 5.7 per cent

·     Benchmark total return of 5.0 per cent

·     First and second interim dividends increased by 3.0 per cent

·     Continuing progress with changes to portfolio composition

Chairman's Statement

The Company's net asset value ('NAV') total return for the six month period ended 31 March 2014 was 4.3 per cent. This compares with a total return of 5.0 per cent from the composite benchmark index of 80 per cent FTSE All-Share Index and 20 per cent FTSE World (ex UK) Index. The share price total return for the period was 5.7 per cent and the discount to the net asset value (on an ex-income debt at market value basis) at the end of the period was 3.5 per cent. This performance has been achieved against a background of continuing portfolio change as described in more detail below. 

With the notable exception of Japan, developed market equities generated robust returns over the six month period as US and European economic expectations have remained sound and asset allocators have continued to favour US and European equities. This positive performance has been despite the generally still muted profit growth being reported by companies, particularly those with international operations in emerging markets where slower growth and weaker currencies are impacting sterling (and to a lesser extent US dollar and Euro) denominated results. Emerging equity markets were weak for the majority of the period, although there was some respite for the asset class towards the end of the period as US mutual fund outflows stabilised.

With this supportive backdrop, investor appetite for UK and European equities remained strong enough to absorb a large number of new issues in the form of IPOs, rights issues and share placings, including the sale of a further 7 per cent of Lloyds Banking Group by the UK Government.

The table below provides a breakdown of the estimated impact of significant investment decisions and expenses on the relative performance for the period.

Overall stock selection	-0.1%
Regional equity asset allocation	-0.3%
Corporate bonds allocation	-0.1%
Gearing (net of finance costs)	0.4%
Expenses	-0.4%

(Note: The above returns are calculated on a total return basis with net income reinvested. They show the estimated contributions to the Company's net asset value total return of 4.3 per cent relative to the benchmark index total return of 5.0 per cent. Contributions cannot be added together as they are calculated on a monthly geometric basis).

The main negative impact on relative performance was the Company's overweight exposure to emerging markets, which underperformed developed markets during the period.

Update on Changes to the Management of the Portfolio

As described in detail in the last Annual Report, since the change in investment manager in 2011, the Board had been reviewing the best way to meet the Company's objectives and, during 2013, it was decided to make changes to the investment approach such that the total number of holdings would be substantially reduced and managed as one portfolio rather than as several sub-portfolios as had previously been the case.

As previously explained, simplification of the portfolio in this way enables the Managers to give suitable prominence to their individual best ideas to reflect their levels of conviction in those ideas in a simple, timely and meaningful fashion. This revised approach will be consistent across all the Company's investments. It will also allow the Managers to enact top down strategy views in a more precise and effective manner.

During the period, the Managers continued with the implementation of changes to the portfolio and it is expected that the process will be complete by the end of the financial year. As at 31 March 2014, the portfolio comprised 114 equity investments (30 September 2013: 176, 31 March 2013: 343) and 101 corporate bond holdings (30 September 2013: 212, 31 March 2013: 272). The corporate bond holdings were spread across 49 issuers (30 September 2013: 124, 31 March 2013: 167). The thirty largest investments at the end of the period represented 61.2 per cent of the portfolio (30 September 2013: 54.1 per cent, 31 March 2013: 47.5 per cent).

The Board believes that these changes will result in improved long term performance for shareholders, whilst recognising that there may be higher levels of volatility in short term returns.

Earnings and Dividends

The Company's revenue earnings for the period were 3.2p per share (2013: 2.9p). A first quarterly interim dividend of 1.485p per share was paid on 11 April 2014 (2013: 1.442p) and the Board has declared a second interim dividend of 1.530p per share (2013: 1.4853p) which will be paid on 11 July 2014 to shareholders on the register on 13 June 2014. Each of these dividends represents an increase of 3.0 per cent compared to the previous year.

Gearing

As at 31 March 2014, the Company's level of gearing, net of cash, was 13.6 per cent. This was represented by 1.5 per cent of equity gearing and 12.1 per cent in corporate bonds.

The Company's borrowings comprise £60 million 6.25 per cent Bonds which are due for redemption in 2031, and a £50 million bank facility which matures in March 2016. £14.9 million of the bank facility was drawn down at the end of the period.

Alternative Investment Fund Managers' Directive ('AIFMD')

As previously reported,   the Company falls within the scope of the new AIFMD regulations which come into force in July 2014. The Board has decided to appoint a subsidiary of F&C Asset Management plc as the Company's AIFM, at no additional cost to the Company, and is required to appoint a depository which will result in an additional cost which the Board does not expect to be significant.

The Board expects all necessary arrangements to be in place prior to the effective date in July.

Outlook

The overall macroeconomic outlook remains positive, with global lead indicators suggesting that the industrial cycle continues to improve despite the uncertainties of the situation in the Ukraine and a slowdown in emerging markets. The market currently expects an end to the Federal Reserve's bond purchases in the US by the year end. In the UK, economic growth forecasts remain robust, allowing the normalisation of interest rates to begin with current market expectations for an initial rise in base rates in the first half of 2015.

The outlook for market dividend growth remains solid: pay-out ratios are unlikely to increase much further as corporate operating margins have largely recovered from cyclical lows and companies are beginning to reinvest profits to grow their businesses.

With this backdrop, companies are beginning to undertake takeover activity in earnest with significant transactions being proposed in the healthcare, information technology, industrials and resources sectors.

The momentum in the market therefore remains positive at this stage. We are conscious, however, that we are five years into the current equity bull market period and valuations are more stretched than they have recently been. The combination of these factors points to remaining invested at this stage, but with a gradual shift towards companies that are less sensitive to the economic cycle in developed markets, where relative valuations are becoming somewhat more attractive. The Managers will use this framework to shape the portfolio as they complete the implementation of the changes described above, in order to create a simplified, focused investment portfolio to achieve the Company's twin objectives of generating improved long term total returns above the composite benchmark and delivering dividend growth.

Lynn Ruddick

Chairman

Unaudited Income Statement

For the Six Months ended 31 March 2014

	Revenue	Capital	Total
	£'000	£'000	£'000
Gains on investments	-	9,940	9,940
Exchange differences	-	407	407
Income	10,847	-	10,847
Investment management fee	(353)	(655)	(1,008)
Other expenses	(292)	-	(292)
Net return before finance costs & tax	10,202	9,692	19,894
Finance Costs:
6.25% Bonds 2031	(664)	(1,232)	(1,896)
Bank borrowings	(69)	(129)	(198)
Return on ordinary activities before tax	9,469	8,331	17,800
Tax on ordinary activities	(173)	-	(173)
Return attributable to shareholders	9,296	8,331	17,627
Return per share (p) (see note 4)	3.2	2.9	6.1

The total column of this statement is the Profit and Loss Account of the Company.  The

supplementary revenue and capital columns are both prepared under guidance published

by the Association of Investment Companies.

Unaudited Income Statement

For the Six Months ended 31 March 2013

	Revenue	Capital	Total
	£'000	£'000	£'000
Gains on investments	-	50,956	50,956
Exchange differences	-	(507)	(507)
Income	9,893	-	9,893
Investment management fee	(326)	(605)	(931)
Other expenses	(321)	-	(321)
Net return before finance costs & tax	9,246	49,844	59,090
Finance Costs:
6.25% Bonds 2031	(664)	(1,232)	(1,896)
Bank borrowings	(62)	(116)	(178)
Return on ordinary activities before tax	8,520	48,496	57,016
Tax on ordinary activities	(132)	-	(132)
Return attributable to shareholders	8,388	48,496	56,884
Return per share (p) (see note 4)	2.9	16.6	19.5

Audited Income Statement

For the Year ended 30 September 2013

		Revenue £'000	Capital £'000	Total £'000
Gains on investments		-	41,028	41,028
Exchange differences		-	(154)	(154)
Income		22,382	-	22,382
Investment management fee		(671)	(1,246)	(1,917)
Other expenses		(870)	-	(870)
Net return before finance costs & tax		20,841	39,628	60,469
Finance Costs:
6.25% Bonds 2031		(1,322)	(2,454)	(3,776)
Bank borrowings		(143)	(266)	(409)
Return on ordinary activities before tax		19,376	36,908	56,284
Tax on ordinary activities		(359)	-	(359)
Return attributable to shareholders		19,017	36,908	55,925
Return per share (p) (see note 4)		6.6	12.7	19.3

Balance Sheet	Unaudited As At 31 March 2014	Audited As At 30 September 2013	Unaudited As At 31 March 2013
	£'000	£'000	£'000
Fixed assets
Investments at fair value through profit or loss	484,151	488,278	498,646
Current assets
Debtors	8,856	23,072	8,003
Cash at bank and on deposit	14,200	14,594	4,033
	23,056	37,666	12,036
Creditors:
Amounts falling due within one year	(21,318)	(48,072)	(23,390)
Net current assets/(liabilities)	1,738	(10,406)	(11,354)
Total assets less current liabilities	485,889	477,872	487,292
Creditors:  amounts falling due after more than one year:
6.25% Bonds 2031	(59,540)	(59,527)	(59,513)
Net assets	426,349	418,345	427,779
Capital and reserves
Called-up share capital	72,778	72,778	72,778
Capital redemption reserve	15,563	15,563	15,563
Capital reserve	304,768	296,437	308,025
Revenue reserve	33,240	33,567	31,413
Shareholders' funds	426,349	418,345	427,779
Net asset value per share (p) (see note 6)	147.3	144.5	147.8

Reconciliation of Movements in Shareholders' Funds

	Unaudited Six months ended	Unaudited Six months ended	Audited Year ended
	31 March	31 March	30 September
	2014	2013	2013
	£'000	£'000	£'000
Opening shareholders' funds	418,345	382,535	382,535
Return attributable to ordinary shareholders	17,627	56,884	55,925
Dividends paid	(9,623)	(9,397)	(17,872)
Share buy-backs	-	(2,243)	(2,243)
Closing shareholders' funds	426,349	427,779	418,345

Summarised Statement of Cash Flows

	Unaudited Six months ended	Unaudited Six months ended	Audited Year ended
	31 March	31 March	30 September
	2014	2013	2013
	£'000	£'000	£'000
Net cash inflow from operating activities	8,560	7,762	19,486
Servicing of finance	(2,080)	(2,073)	(4,172)
Capital expenditure and financial investment	12,891	(4,508)	97
Equity dividends paid	(9,623)	(9,397)	(17,872)
Net cash inflow/(outflow) before financing	9,748	(8,216)	(2,461)
Financing:
Revolving advance facility (repaid)/drawndown	(10,142)	(5)	5,015
Share buy-backs	-	(2,232)	(2,243)
(Decrease)/increase in cash	(394)	(10,453)	311

Reconciliation of net cash flow to movement in net debt
(Decrease)/increase in cash	(394)	(10,453)	311
Revolving advance facility repaid/(drawdown)	10,142	5	(5,015)
Exchange differences	(53)	(10)	(187)
Increase in 6.25% Bonds 2031 liability	(13)	(13)	(27)
Opening net debt	(69,886)	(64,968)	(64,968)
Closing net debt	(60,204)	(75,439)	(69,886)

Reconciliation of net return before finance costs and taxation to net cash inflow from operating activities
Net return before finance costs and taxation	19,894	59,090	60,469
Gains on investments	(9,940)	(50,956)	(41,028)
Exchange differences	(407)	507	154
Tax on investment income	(248)	(184)	(379)
Changes in working capital and other non-cash items	(739)	(695)	270
Net cash inflow from operating activities	8,560	7,762	19,486

Statement of Principal Risks and Uncertainties

The Company's assets consist mainly of listed securities and its principal risks are therefore market related.  The Company is also exposed to currency risk in respect of overseas markets in which it invests.  Other risks faced by the Company include investment and strategic, regulatory, operational and financial risks.  These risks, and the way in which they are managed, are described in more detail under the heading Principal Risks and Uncertainties and Risk Management within the Strategic Report in the Company's Annual Report for the year ended 30 September 2013.  These risks and uncertainties have not changed materially since the date of that report.

In addition to these risks, the Company is a Scottish registered company and the Board is mindful that there is uncertainty arising in relation to the referendum on Scottish Independence which is due to take place on 18 September 2014.  Such matters of uncertainty include jurisdiction and taxation of savings and pension plans, financial services regulation, investment trust status, currency and membership of the European Union.  The Board considers that, should the vote be in favour of independence, there will be a transitional period during which there will be an opportunity to assess the new situation and take any appropriate action.

With the exception of the referendum on Scottish independence, the Company's principal risks and uncertainties are not expected to change materially for the remaining six months of the Company's financial year.

Statement of Directors' Responsibilities in Respect of the Half-Yearly Financial Report

We confirm that to the best of our knowledge:

·     the financial statements have been prepared in accordance with the Statement 'Half-Yearly Financial Reports' issued by the UK Accounting Standards Board and give a true and fair view of the assets, liabilities, financial position and return of the Company;

·     the Chairman's Statement (constituting the Interim Management Report) together with the Statement of Principal Risks and Uncertainties above include a fair review of the information required by the Disclosure and Transparency Rules ("DTR") 4.2.7R, being an indication of important events that have occurred during the first six months of the financial year and their impact on the financial statements; and

·     the financial statements include a fair review of the information required by DTR 4.2.8R, being related party transactions that have taken place in the first six months of the financial year and that have materially affected the financial position or performance of the Company during the period, and any changes in the related party transactions described in the last Annual Report that could do so.

On behalf of the Board

Lynn Ruddick

Director

Notes:

1.   The unaudited interim results have been prepared on the basis of the accounting policies set out in the statutory accounts of the Company for the year ended 30 September 2013.

2.   The results for the first six months should not be taken as a guide to the results for the full year.

3.   The second interim dividend of 1.53p per Ordinary Share will be paid on 11 July 2014 to shareholders on the register on 13 June 2014. 

The last date for receipt of mandate instructions for those shareholders who wish to join the Dividend Reinvestment Plan is 20 June 2014.

4.   Return per share is based on a weighted average 289,412,282 Ordinary Shares in issue during the period (six month period to 31 March 2013 - 291,074,919 and year to 30 September 2013 - 290,245,981).

5.   No shares were bought back during the six months ended 31 March 2014. During the six months ended 31 March 2013 the Company bought back 1,700,000 Ordinary Shares to hold in treasury at a cost of £2,243,000.

6.   There were 289,412,282 Ordinary Shares in issue at 31 March 2014 (31 March 2013 and 30 September 2013 - same) excluding those shares held in treasury.   As at 31 March 2014 there were 1,700,000 shares held in treasury (31 March 2013 and 30 September 2013 - same).

7.   The Company's geographic exposure as a percentage of shareholders' funds at 31 March 2014 was as follows:

	31 March 2014	30 September 2013
UK	74.7	78.1
International Equities:
- Developed Americas	6.8	6.7
- Developed Europe	8.7	8.3
- Other Developed	2.5	1.2
- Emerging Markets	8.8	9.6
Corporate Bonds	12.1	12.8
Gearing*	(13.6)	(16.7)
	_____	____
	100.0	100.0

              * Comprising equity gearing of 1.5 per cent (30 September 2013 - 3.9 per cent) and 12.1 per cent in corporate bonds (30 September 2013 - 12.8 per cent)

8.   The Company's benchmark index is a composite of 80 per cent FTSE All-Share Index and 20 per cent FTSE World (ex UK) Index

9. The results for the half-year ended 31 March 2014, which have not been audited or reviewed by the Company's auditors, constitute non-statutory accounts within the meaning of Section 434 of the Companies Act 2006.  Statutory accounts for the year ended 30 September 2013, which received an unqualified audit report, have been lodged with the Registrar of Companies.  The Half-Yearly Financial Report is available at the Company's website address, www.british-assets.co.uk.

For further information please contact:

Phil Doel/Gordon Hay Smith

F&C Investment Business Limited

0207 628 8000

[e-mail]

 

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