Half Yearly Report

RNS Number : 9945D

British Empire Sec & Gen Tst PLC

23 May 2012

 



BRITISH EMPIRE SECURITIES AND GENERAL TRUST PLC

Announcement of un-audited results for the half year ended 31 March 2012

Objective   

The investment objective of the Company is to achieve capital growth through a focused portfolio of investments, particularly in companies whose shares stand at a discount to estimated underlying net asset value.

Financial Highlights

At		At
31 March 2012		30 September 2011	% change
Capital Return
Net assets	£761.92m	£740.39m	2.9
Net asset value per Share	475.96p	462.51p	2.9
Share price (mid market)	423.60p	422.60p	0.2
Discount	11.00%	8.63%	-
	Six months to	Six months to
	31 March 2012	31 March 2011
Revenue Earnings and Dividends
Revenue earnings per share	4.40p	1.29p
Interim dividend per share	2.00p	2.00p

	Six months to		Year to
	31 March 2012		30 September 2011
Performance Comparison
British Empire Securities and General Trust plc (NAV total return)		5.69%	(10.31)%
Morgan Stanley Capital International World Index  (£ adjusted total return)		17.33%	(2.73)%
Morningstar Investment Trust Global Growth Index (total return) *		13.17%	(4.61)%

* The Morningstar Investment Trust Global Growth Index (total return basis) is subject to revision and the Index percentages are therefore also subject to revision.

Chairman's Statement

The six month period under review from 1 October 2011 to 31 March 2012 saw an increase in net asset value of 5.7%. This represents an underperformance against our benchmark index (the Morningstar Investment Trust Global Growth Index) which was up by 13.2%. Since the half-year end, the market has reacted badly to continuing political uncertainty in Europe and the net asset value has fallen by 6.8% as against a fall in the benchmark index of 8.1% as at close of business on 18 May 2012. (All figures are on a total return basis).

The Manager continues to focus on companies which typically are valued in the markets at a discount to net asset value; the overall discount level in the portfolio stood at approximately 35% at the end of March. As explained in the Manager's Report, we are cautious that equity markets may be volatile and so liquidity at the half-year end increased to 16.5% compared to 12.1% at the last year end. In the market turmoil following the year end, further caution has been necessary and liquidity has increased further, to some 18%.

Over the six months, the discount to net asset value has continued to oscillate between 5% and 11%. Given current volatile markets, the Board continues to keep the level of discount, and the possibility of share buy backs, under review.

The interim dividend is being maintained at 2.0p per share. This interim dividend is unusually well covered, given the special dividend which the company has received from Orkla, which contributed some 3.6p per share to our earnings. Without the Orkla special dividend, the interim dividend was uncovered - as it was last year at the half-year end - but it is well covered by other dividends received since the half-year end.

Since the Company's Annual General Meeting, we have appointed two new directors, Nigel Rich CBE and Susan Noble. Nigel Rich is chairman of Segro plc and a non-executive director of a number of companies. He has extensive experience of the Far East from his executive career as managing director of Hong Kong Land and Jardine Matheson. Susan Noble was a director and Senior European Portfolio manager at Robert Fleming Asset Management, and afterwards the Head of European Equities and Head of Global Equities at Goldman Sachs Asset Management. She has extensive experience of European Equity investment and currently also is a member of the Finance Committee of two charitable organisations.

As I said in the Company's last annual report, this remains a difficult time for investors. Whilst your manager continues to build an excellent store of value in the company's investments, the net asset value only improved modestly from September 2011 to the end of March and, as continuing political turmoil took its toll, had lost these gains by the time of writing this report. Your Board believes that this store of value will become apparent over time and, while closely monitoring the investment portfolio, continues to support the manager in an investment approach which has weathered previous periods of underperformance and demonstrated its merits over the long term.

Strone Macpherson

Chairman

23 May 2012

Investment Manager's Report

For the first six months of the financial year, the Company's net asset value per share rose 5.7% compared with gains of 13.2% for the Morningstar Global Growth Investment Trust Index and 17.3% for the MSCI World Index (£) (all figures are on a total return basis).

The largest positive contributors during the period were Aker +1.7%, Investor AB 'A' +1.1%, Jardine Strategic Holdings +0.7%, MI Developments +0.5%, Amerisur Holdings +0.5%.

The largest detractors from performance were Vivendi -1.3% and Kinross Gold -0.6%.

Over the ten year period to 31 March 2012, the Company's net asset value per share rose 158.5% compared with gains of 79.9% for the Morningstar Global Growth Investment Trust Index and 49.1% for the MSCI World Index (£) (all figures are on a total return basis).

As at 31 March 2012, the geographical profile of the portfolio was as follows: Continental Europe 38.8%, UK 5.7%, Asia Pacific 22.4%, Canada 11.0%, Japan 2.8%, EMEA 3.2% and liquidity 16.1%. (based on country of listing except for London listed Japanese funds which are classified as Japan).

The discount on the Company's shares was 11% as of 31 March 2012.

Equity markets performed well over the 6 months to 31 March 2012. The upward movement in indices was based on an over-sold starting position, combined with reduced fears of a European debt crisis and slightly stronger US economic growth. The pattern looks remarkably similar to that of last year and sentiment is likely to remain fragile for some time. Investors have not had a lot of conviction in the rally and therefore collective vehicles such as family-controlled holding companies and conglomerates, which are longer-term investments by nature, have remained on wide discounts. The persistence of wide discounts has not helped our relative performance, which was poor during the period but provides the scope for future uplifts as and when discounts revert to more normal levels.

We regard the level of the underlying discount as a good indicator of fundamental value and, as of today, on average discounts are almost as wide as they have ever been. For this reason, the fundamental value in our portfolio has rarely been more attractive. Not only are discounts wide and underlying valuation multiples low but many companies are performing well on an earnings basis and passing on increasing dividends to us as shareholders. The income which we receive from our holdings has increased strongly in recent years, indicating that the underlying businesses are growing profitably. In due course, we expect this to lead to improvements in share prices.

Vivendi was an exception to the positive trend on dividends. Earnings for 2011 rose 9.4% and were an all-time high for the company. Despite this positive result, the prospect of higher taxes and increasing competition in the French mobile telecom sector caused the company to cut its dividend. This has unfortunately overshadowed the attractions of a company that trades on 6X earnings and with a dividend yield, even after the reduction, of 8%. We estimate that the company trades on a discount of 42% to the sum-of-its-parts. Value could be created via either a breakup of the company or a sale of some of its assets followed by a buyback of shares.

At the time of writing, equity markets are falling as a result of the destabilising prospects of a Greek default and/or eurozone exit. The Company's holding in cash and short-dated bonds has risen as we have sold some positions in the previous period of strong market conditions. Cash and cash equivalents now amount to 18% of the gross portfolio. With very low yields in an historical context, neither cash nor government bonds are attractive compared with equities over the long term and our cash is held for deployment into new equity investments as opportunities arise. We judge European equities to be good value but it is clear they could fall further in the short-term based on political events. Our exposure to Continental Europe was 38.8% of the portfolio but it is worth pointing out that 42.7% of this amount was listed outside the eurozone in Norway and Sweden. In the eurozone listed companies, most of our holdings are investment holding companies that have underlying exposures that are international in nature with broad geographic and currency diversification.

We will continue to seek good value opportunities but, in the short term, are cautious of market volatility, as explained above.

We have remained true to our investment style and do not intend to change now. Since 1985, when AVI took over the management of the Company, there have been periods when our style of investing has gone out of favour and during which we have suffered underperformance. By remaining true to a style and process that have been proven to work over the long term, and by focusing on fundamental valuations, we believe that we stand the best chance of generating superior long term returns.

John Pennink

Asset Value Investors Limited

23 May 2012

Consolidated Statement of Comprehensive Income

	For the six months to 31 March 2012 (unaudited)			For the six months to 31 March 2011 (unaudited)			For the year to 30 September 2011 (audited)
	Revenue	Capital		Revenue	Capital		Revenue	Capital
	return	return	Total	return	return	Total	return	return	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Income
Investment income (note 2)	9,805	-	9,805	5,091	-	5,091	25,929	-	25,929
Gains/(losses) on investments held at fair value	-	29,969	29,969	-	55,647	55,647	-	(91,472)	(91,472)
Unclaimed distribution	-	52	52	-	-	-	-	-	-
(Losses)/gains on Equities Index Stock 2013 held at fair value	-	-	-	-	(340)	(340)	-	145	145
Exchange losses on currency balances	-	(823)	(823)	-	(591)	(591)	-	(1,639)	(1,639)
	9,805	29,198	39,003	5,091	54,716	59,807	25,929	(92,966)	(67,037)
Expenses
Investment    management fee	(1,100)	(1,100)	(2,200)	(1,235)	(1,235)	(2,470)	(2,471)	(2,471)	(4,942)
Performance fee	-	-	-	-	-	-	-	-	-
Back VAT on management and performance fees	-	-	-	111	69	180	111	69	180
Other expenses (including irrecoverable VAT)	(597)	(4)	(601)	(531)	-	(531)	(1,194)	-	(1,194)
Profit before finance costs and  taxation	8,108	28,094	36,202	3,436	53,550	56,986	22,375	(95,368)	(72,993)
Finance costs	(730)	(4)	(734)	(1,154)	(4)	(1,158)	(2,116)	(7)	(2,123)
Profit/(loss) before taxation	7,378	28,090	35,468	2,282	53,546	55,828	20,259	(95,375)	(75,116)
Taxation	(324)	-	(324)	(214)	-	(214)	(1,854)	11	(1,843)
Profit/(loss) for the period	7,054	28,090	35,144	2,068	53,546	55,614	18,405	(95,364)	(76,959)
Earnings per Ordinary Share  (note 3)	4.40p	17.55p	21.95p	1.29p	33.45p	34.74p	11.50p	59.57p	(48.07)p

The Company did not have any income or expense that is not included in profit for the period. Accordingly, the "Profit for the period" is also the "Total Comprehensive Income for the period", as defined in IAS 1 (revised) and no separate Statement of Comprehensive Income has been presented.

The total column of this statement is the profit and loss account of the Group. The revenue return and capital return columns are supplementary to this and are prepared under the guidance published by the Association of Investment Companies.

All items in the above statement derive from continuing operations.

All income is attributable to the equity holders of British Empire Securities and General Trust plc. There are no minority interests.

Consolidated Statement of Changes in Equity

For the six months to 31 March 2011 (unaudited)

	Ordinary	Capital
	share	redemption	Share	Capital	Merger	Revenue
	capital	reserve	premium	reserve	reserve	reserve	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Balance at 30 September 2010	16,008	2,927	28,078	716,302	41,406	24,949	829,670
Total comprehensive income for the period	-	-	-	53,546	-	2,068	55,614
Ordinary dividend paid	-	-	-	-	-	(9,125)	(9,125)
Balance at 31 March 2011	16,008	2,927	28,078	769,848	41,406	17,892	876,159

For the year ended 30 September 2011 (audited)

	Ordinary	Capital
	share	redemption	Share	Capital	Merger	Revenue
	capital	reserve	premium	reserve	reserve	reserve	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Balance at 30 September 2010	16,008	2,927	28,078	716,302	41,406	24,949	829,670
Total comprehensive income for the period	-	-	-	(95,364)	-	18,405	(76,959)
Ordinary dividend paid	-	-	-	-	-	(12,326)	(12,326)
Balance at 30 September 2011	16,008	2,927	28,078	620,938	41,406	31,028	740,385

For the six months to 31 March 2012 (unaudited)

	Ordinary	Capital
	share	redemption	Share	Capital	Merger	Revenue
	capital	reserve	premium	reserve	reserve	reserve	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Balance at 30 September 2011	16,008	2,927	28,078	620,938	41,406	31,028	740,385
Total comprehensive income for the period	-	-	-	28,090	-	7,054	35,144
Ordinary dividend paid	-	-	-	-	-	(10,406)	(10,406)
Special dividend paid	-	-	-	-	-	(3,201)	(3,201)
Balance at 31 March 2012	16,008	2,927	28,078	649,028	41,406	24,475	761,922

Consolidated Balance Sheet

	At 31 March 2012 (unaudited) £'000		At 31 March 2011 (unaudited) £'000	At 30 September 2011 (audited) £'000
Non-current assets
Investments held at fair value through profit or loss		773,307	893,312	756,871
Current assets
Sales for future settlement		5,593	872	-
Other receivables		5,685	3,010	3,820
Cash and cash equivalents		1	11,010	5,662
		11,279	14,892	9,482
Total assets		784,586	908,204	766,353
Current liabilities
Purchases for future settlement		-	(145)	-
Other payables		(903)	(1,178)	(4,223)
103/8 per cent Debenture Stock 2011		-	(8,484)	-
Bank overdraft		(12)	-	-
		(915)	(9,807)	(4,223)
Total assets less current liabilities		783,671	898,397	762,130
Non-current liabilities
8 1/8 per cent Debenture Stock 2023		(14,918)	(14,911)	(14,914)
Equities Index Stock 2013 held at fair value through profit or loss		(6,795)	(7,280)	(6,795)
Provision for deferred tax		(36)	(47)	(36)
Net assets		761,922	876,159	740,385

Equity attributable to equity Shareholders
Ordinary Share capital	16,008	16,008	16,008
Capital redemption reserve	2,927	2,927	2,927
Share premium	28,078	28,078	28,078
Capital reserve	649,028	769,848	620,938
Merger reserve	41,406	41,406	41,406
Revenue reserve	24,475	17,892	31,028
Total equity	761,922	876,159	740,385
Net asset value per Ordinary Share - basic (note 6)	475.96p	547.33p	462.51p
Number of Ordinary Shares in issue	160,080,089	160,080,089	160,080,089

Consolidated Cash Flow Statement

Six months to 31 March 2012 (unaudited) £'000		Six months to  31 March 2011 (unaudited) £'000	Year to 30 September 2011(audited) £'000
Net cash inflow from operating activities
Profit/(loss) before taxation	35,468	55,828	(75,116)
Losses/(gains) on Equities Index Stock 2013 held at fair value	-	340	(145)
Realised exchange losses on currency balances	823	591	1,639
(Gains)/losses on investments held at fair value through profit or loss	(29,969)	(55,647)	91,472
Purchases of investments	(254,805)	(384,938)	(626,817)
Sales of investments	259,644	399,375	634,405
Increase in other receivables	(1,463)	(529)	(219)
Decrease in creditors	(62)	(106)	(319)
Taxation	(883)	(8)	(2,612)
Amortisation of Debenture issue expenses	4	4	7
Net cash inflow from operating activities	8,757	14,910	22,295
Financing activities
Dividends paid	(13,607)	(9,125)	(12,326)
Buyback of Equities Index Stock 2013	-	(204)	(204)
Redemption of 103/8 per cent Debenture Stock 2011	-	-	(8,484)
Cash outflow from financing activities	(13,607)	(9,329)	(21,014)
(Decrease)/increase in cash and cash equivalents	(4,850)	5,581	1,281
Exchange movements	(823)	(591)	(1,639)
Change in cash and cash equivalents	(5,673)	4,990	(358)
Cash and cash equivalents at beginning of period	5,662	6,020	6,020
Cash and cash equivalents at end of period	(11)	11,010	5,662

Notes to the Financial Statements

1.   Significant accounting policies

The financial statements of the Group have been prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union. The accounting policies and methods of computation followed in these half year financial statements are consistent with the most recent annual financial statements for the year ended 30 September 2011.

The factors which have an impact on Going Concern are set out in the Going Concern section of the Director's Report in the Company's Annual Report and Accounts to 30 September 2011. At 31 March 2012 there have been no significant changes to these factors. Accordingly, the Directors believe that it is appropriate to continue to adopt the Going Concern basis in preparing the interim accounts.

The half year financial statements have been prepared in accordance with International Accounting Standard 34 "Interim Financial Reporting".

These financial statements are presented in sterling as this is the currency of the primary economic environment in which the Group operates.

2.   Income

	31 March	31 March	30 September
	2012	2011	2011
	£'000	£'000	£'000
Income from investments
Listed investments	9,796	4,973	25,788
Other income
Deposit interest	9	118	11
Interest received re VAT refunds on management fees	-	-	130
Total income	9,805	5,091	25,929

3.   Earnings per Ordinary Share

	31 March	31 March	30 September
	2012	2011	2011
Total earnings per Ordinary Share
Total profit/(loss)	£35,144,000	£55,614,000	£(76,959,006)
Weighted average number of Ordinary Shares in issue during the period	160,080,089	160,080,089	160,080,089
Total earnings per Ordinary Share	21.95p	34.74p	(48.07)p

The total earnings per Ordinary Share detailed above can be further analysed between revenue and capital as below:
Revenue earnings per Ordinary Share
Revenue profit	£7,054,000	£2,068,000	£18,405,000
Weighted average number of Ordinary Shares in issue during the period	160,080,089	160,080,089	160,080,089
Revenue earnings per Ordinary share	4.40p	1.29p	11.50p
Capital earnings per Ordinary Share
Capital profit/(loss)	£28,090,000	£53,546,000	£(95,364,000)
Weighted average number of Ordinary Shares in issue during the period	160,080,089	160,080,089	160,080,089
Capital earnings per Ordinary Share	17.55p	33.45p	(59.57)p

4. Comparative information

The financial information contained in this half year 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 2012 and 31 March 2011 have not been audited.

The information for the year ended 30 September 2011 has been extracted from the latest published audited financial statements. The audited financial statements for the year ended 30 September 2011 have been filed with the Registrar of Companies. The report of the auditors on those accounts contained no qualification or reference to any matters to which the auditors drew attention by way of emphasis without qualifying the audit report or statement under Section 498(2) or (3) of the Companies Act 2006.

5.   Retained earnings

The table below shows the movement in the retained earnings analysed between revenue and capital items.

	Revenue		Capital	Total
	£'000		£'000	£'000
At 30 September 2011	31,028		620,938	651,966
Movement during the period:
Total comprehensive income for the period		7,054	28,090	35,144
Ordinary dividend paid: Ordinary Shares		(10,406)	-	(10,406)
Special dividend paid: Ordinary Shares		(3,201)	-	(3,201)
At 31 March 2012		24,475	649,028	673,503

6.   Net asset value per Ordinary Share

The net asset value per Ordinary Share is based on net assets of £761,922,000 (31 March 2011: £876,159,000; 30 September 2011: £740,385,000) and on 160,080,089 (31 March 2011: 160,080,089, 30 September 2011: 160,080,089) Ordinary Shares, being the number of Ordinary Shares in issue at the period ends.

7.   Equities Index Unsecured Loan Stock 2013

The Company did not buy back any units of Equities Index Unsecured Loan Stock 2013 for cancellation during the period.

8.   Dividends

During the period the Company paid a final dividend of 6.50p per Ordinary Share and a special dividend of 2.00p per Ordinary Share for the year ended 30 September 2011 on 6 January 2012 to Ordinary Shareholders on the register at 9 December 2011 (ex-dividend 7 December 2011).

The interim dividend of 2.00p per Ordinary Share for the year ending 30 September 2012 will be paid on 15 June 2012 to Ordinary Shareholders on the register at the close of business on 1 June 2012 (ex-dividend 30 May 2012).

9.   Contingent assets

While most of the Back VAT has now been recovered, the Company will continue to examine methods to recover further Back VAT, and interest, but does not anticipate any further significant recovery in the near term.

10.  Principal financial risks

The principal financial risks which the Company faces include exposure to:

- Market price risk

- Foreign Currency risk

- Interest rate risk

- Liquidity risk

- Credit risk

Further details of the Company's management of these risks and exposure to them is set out in Note 18 to the Company's Annual Report & Accounts for the year ended 30 September 2011, as issued on 11 November 2011. There have been no changes to the management of or exposure to these risks since that date.

11.  Related party transactions

The Company has related party transactions with Asset Value Investors Limited. Management fees for the period amounted to £2,200,000 (six months to 31 March 2011: £2,470,000; year ended 30 September 2011: £4,942,000) and the performance fees for the period amounted to £nil (six months to 31 March 2011: £nil; year ended 30 September 2011: £nil).

At the half year end, the following amounts were outstanding in respect of management fees: £367,000 (half year end 31 March 2011: £412,000; year ended 30 September 2011: £412,000) and performance fees: £nil (half year end 31 March 2011: £nil; year ended 30 September 2011: £nil).

12.  Interim Management Report

There have been no changes to the related party disclosures set out in the Annual Report of the Company for the year ended 30 September 2011, except as above.

The Directors consider that the Chairman's Statement, the Investment Manager's Report, the above statement on related party disclosures and the Directors' Responsibility Statement below, together constitute the Interim Management Report of the Company for the half year to 31 March 2012 and satisfy the requirements of the FSA's Disclosure Rules and Transparency Rules (DTR) 4.2.3 to 4.2.11.

13.  Responsibility Statement

The Directors of the Company (Mr Strone Macpherson (Chairman), Mr Steven Bates, Mrs Rosamund Blomfield-Smith, Mrs Susan Noble, Mr Nigel Rich and Mr Andrew Robson) being the responsible persons, confirm to the best of their knowledge that:

a) the condensed set of financial statements, which has been prepared in accordance with IAS34, gives a true and fair view of the assets, liabilities, financial position and profit of the Company for the period ended 31 March 2012;

b) the Interim Management Report includes a fair review, under the FSA's Disclosure and Transparency rules DTR 4.2.7R, of important events that have occurred during the first six months of the financial year, and their impact on the condensed set of financial statements, and a description of the principal risks and uncertainties for the remaining six months of the financial year; and

c) the Interim Management Report includes a fair review of the information concerning related parties transactions as required by DTR 4.2.8R.

14.  Copies of the Half Year Report

Printed copies of this Half Year Report will be sent to shareholders shortly.  Additional copies may be obtained from the Corporate Secretary - Phoenix Administration Services Limited, Springfield Lodge, Colchester Road, Chelmsford, Essex CM2 5PW.  A copy of the Half Year Report can be viewed and downloaded from the Company's website www.british-empire.co.uk .

Phoenix Administration Services Limited

23 May 2012

The content of the Company's web-pages and the content of any website or pages which may be accessed through hyperlinks on the Company's web-pages is neither incorporated into nor forms part of the above announcement.

 

END

 

 

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