Investment Co. Regulatory News (INV)

22 Nov 2007 07:01

Investment Company PLC22 November 2007 The Investment Company plc Unaudited Interim ResultsFor the Six Month Period ended 30 September 2007 Chairman's Statement One of the latest obligations of the Listing Agreement obliges all companies toissue quarterly trading statements, however brief. Accordingly in July weissued the following statement. "Further rises in short term interest rates have recently been reflected in asimilar movement at the long end of the bond market. As a result liquid issuesof preference shares have seen market prices ease a little. Our portfolio isvirtually unaffected since we have a large spread of individually illiquidholdings. Nevertheless we are unlikely to see capital appreciation in the shortterm outside of redemptions or similar corporate activity." Since that time there has been turmoil in the credit markets which has clearlycaught a lot of people by surprise, not least the Governor of the Bank ofEngland. The (virtually) unprecedented drying up of interbank credit and the reluctanceof the Bank of England to recognise its duty as "Lender of Last Resort", tolend, created the only run on a British bank (apart from that on stage in MaryPoppins) for more than a century. Perhaps not surprisingly these events causedfixed interest securities of all sorts to be marked down as a precautionarymeasure and quotations of most preference shares by the end of September werelower by up to 10% or 15% in the less marketable issues. In the eight weekssince then, prices of regularly traded preference shares have recovered to someextent but as many of the shares that we hold do not trade for weeks on end,sometimes months, market makers have been in no hurry to re-adjust upwardsquotations at which we valued our portfolio at 30 September. Your company is fairly highly geared although the actual portfolio consists ofmainly ungeared securities. Our ordinary shareholders' assets rank afterapproximately £5 million worth of preference shareholders' assets and £3.66million worth of 5% loan notes held by the former shareholders of New CenturionTrust. It is not difficult to see therefore that a modest decline in the grossvalue of our portfolio has a significant impact at least temporarily on theasset value attributable to the ordinary shares. The fall of £581,440 in thevalue of our overall assets translates to a fall of 30.6p in the assetsattributable to each of the 1,899,891 ordinary shares in issue. Among our top 20 holdings as listed in the Report & Accounts of 31 March 2007 wehave seen four very satisfactory developments. Our third largest holding valuedat about £1 million consisted of two preference shares in the Whitbread HotelCompany. We were approached during the period and invited to consent to ascheme designed to retire all three classes of preference shares in that companyvia a Court Approved capital reduction at prices based on discounting eachshare's future cash flows at the same net yield. Our consent was necessary forsuch a scheme to proceed in respect of the two classes of shares in which weheld 46% and 33% respectively. Only last February we had sold a 20% interest inthe third issue. We were unable to agree that this proposal was satisfactory and the Whitbreadboard has therefore resolved to repay the capital, which does not require ourconsent, under the terms of the Articles. The result of this is that we willget a very much higher price for our 4.5% issue, the larger holding, than wasproposed under their original suggestion. The 6.5% issue will be redeemed at afractionally lower price than the first proposal set, while the 7% issue, wherewe sold our holding at 123p in February last year, will be redeemed at asignificantly lower price even though the directors have felt generous enough toadd an ex gratia 5p to the 100p redemption value. This is the first mostsatisfactory news. Secondly our fifth largest holding of Equitable Life Finance 8% bonds wererepaid at par in August. During Equitable's troubles buyers of the bond weremuch mocked in the press since it was naively assumed that the enterprise wouldnot be able to fulfil its obligations to bond holders as a result of the courtcase going against the Society with regard to bonuses from the with-profitspool. Fortunately our advisers were better informed and stood aloof from theconsensus. Although we were not so fortunate as to buy the bonds at £25% towhich they fell at one time, we did nevertheless make a profit of 63% on ourinvestment on which we had enjoyed a running yield of 13% throughout the severalyears that we held the stock. Further down the list in 18th place is our stake in Hawtin preference which paidoff 3 years arrears at the end of June resulting in a very welcome boost to ourrevenue account. Finally our 19th largest holding Courtaulds Clothing Brandspreference shares were repaid at 105p in May on satisfactory terms. While conflicting views are held about the immediate likelihood of reductions ininterest rates competing with inflationary expectations, we are comforted by theextent of the liquidity arising from these recent and forthcoming redemptions.We are also pleased at the improvement in the revenue account brought about bythe receipt of arrears and deemed distributions arising from redemptions at apremium. We are conscious of the costs of running this small listed company but are sadthat the only reduction I have to report is consequent upon the retirementannounced today of our colleague Charles Marsh from the board for familyreasons. Amongst the most experienced people in the City of London in thepreference share market Charles has been a much valued member of the board theselast few years and we thank him for his contribution. Your directors have declared a maintained interim dividend of 4p which will bepaid to ordinary shareholders on the register on 14 December 2007. The ordinaryshares will be marked ex dividend on 12 December 2007 and the dividend will bepaid on 14 January 2008. Sir David Thomson Bt. Registered office:Chairman 3rd Floor, Salisbury House London Wall21 November 2007 London EC2M 5QS Consolidated Income StatementFor six months ended 30 September 2007 Notes Half-year to Half-year to Year to 30 September 30 September 31 March 2007 2006 2007 (unaudited) (unaudited) (audited) £ £ £ Total income 517,728 449,944 911,902Administrative expenses (190,886) (184,539) (379,775)Loan note interest (91,425) (91,425) (182,850)Other interest payable - (76) (76) Net revenue before taxation 235,417 173,904 349,201Taxation - - - Net revenue after taxation 235,417 173,904 349,201Dividends: Participating preference 4 (174,818) (174,818) (437,045)Dividends: Ordinary 4 (94,995) (96,370) (173,465) Transfer from reserves (34,396) (97,284) (261,309) Earnings/(loss) per 50p OrdinaryShareBasic and diluted 3 1.67p (0.03)p (2.41)p Net asset value per 50p Ordinary 246.05p 276.74p 273.77pShare All the Company's operations arecontinuing. Consolidated Statement of Changes in EquityFor six months ended 30 September 2007 Capital Redemption Issued Share Own Shares Revaluation Capital Revenue Capital Premium Held Reserve Reserve Reserve Account Total £ £ £ £ £ £ £ £ Balance at 4,319,881 1,019,246 (2,919,861) 671,500 860,636 4,630,228 1,241,016 9,822,64630 Septemberand 1October 2005 Buy in of - - - - - - - -own shares Realised - - - - - 943,331 - 943,331capitalgains Movement in - - - - (93,598) - - (93,598)unrealisedappreciation ofinvestments Retained - - - - - - (216,043) (216,043)loss for theperiod Balance at 4,319,881 1,019,246 (2,919,861) 671,500 767,038 5,573,559 1,024,973 10,456,33631 March2006 and 1April 06 Realised - - - - - 46,715 - 46,715capitalgains Movement in - - - - (77,075) - - (77,075)unrealisedappreciation ofinvestments Retained - - - - - - (97,284) (97,284)loss for theperiod Balance at 4,319,881 1,019,246 (2,919,861) 671,500 689,963 5,620,274 927,689 10,328,69230 September2006 and 1October 2006 Buy in of (3,750) - - 3,750 - - (16,669) (16,669)own shares Realised - - - - - 293 - 293capitalgains Movement in - - - - 102,609 - - 102,609unrealisedappreciation ofinvestments Retained - - - - - - (164,025) (164,025)loss for theperiod Balance at 4,316,131 1,019,246 (2,919,861) 675,250 792,572 5,620,567 746,995 10,250,90031 March2007 and 1April 2007 Buy in of (10,000) - - 10,000 - - (45,361) (45,361)own shares Realised - - - - - 440,307 - 440,307capitalgains Movement in - - - - (941,990) - - (941,990)unrealisedappreciation ofinvestments Retained - - - - - - (34,396) (34,396)loss for theperiod Balance at 4,306,131 1,019,246 (2,919,861) 685,250 (149,418) 6,060,874 667,238 9,669,46030 September2007 Consolidated Balance SheetAt 30 September 2007 30 September 30 September 31 March 2007 2006 2007 (Unaudited) (Unaudited) (Audited) £ £ £Non current assetsInvestments at cost 12,691,592 12,575,979 12,828,016Unrealised (depreciation)/ (202,153) 718,727 775,390appreciation Portfolio investments at market 12,489,439 13,294,706 13,603,406value Current assetsTrade and other receivables 155,082 41,524 81,184Investments 147,260 43,723 84,756Cash and bank balances 900,190 927,200 465,558 1,202,532 1,012,447 631,498 Current liabilitiesDividends payable 174,818 174,818 174,818Trade and other payables 190,689 146,639 152,182 365,507 321,457 327,000 Net current assets 837,025 690,990 304,498Non-current liabilitiesInterest bearing liabilities (3,657,004) (3,657,004) (3,657,004) Net assets 9,669,460 10,328,692 10,250,900 Capital and reservesIssued capital 4,306,131 4,319,881 4,316,131Share premium 1,019,246 1,019,246 1,019,246Own shares held (2,919,861) (2,919,861) (2,919,861)Capital redemption reserve 685,250 671,500 675,250Revaluation reserve (149,418) 689,963 792,572Capital reserve 6,060,874 5,620,274 5,620,567Revenue reserves 667,238 927,689 746,995 Shareholders' funds 9,669,460 10,328,692 10,250,900 Consolidated Cash Flow StatementFor the six months ended 30 September 2007 Notes Half-year to Half-year to Year to 30 September 30 September 31 March 2007 2006 2007 (unaudited) (unaudited) (audited) £ £ £Operating activitiesCash received from investments 403,061 348,687 746,953Interest received 128,992 98,937 142,705Sundry income - - -Cash paid to and on behalf of (50,285) (86,129) (172,344)employeesOther cash payments (111,335) (113,825) (210,645)UK corporation tax paid - - - Net cash inflow from operating 370,433 247,670 506,669activitiesFinancing activitiesBank interest - (76) (76)Loan note interest paid (91,425) (91,425) (182,850)Non-equity dividends paid (174,818) (174,818) (437,045) Net cash outflow from returns on (266,243) (266,319) (619,971)investments and servicing offinance Investing activitiesPurchase of investments (963,433) (1,202,698) (1,881,481)Further payment in respect ofpurchase of subsidiaries - - -Purchase of own shares 5 (45,361) - (16,669)Sale of investments 1,430,072 1,193,653 1,596,874 Net cash (outflow)/inflow fromcapital expenditure and financialinvestment 421,278 (9,045) (301,276) Equity dividends paid (90,836) (94,068) (168,826) Net increase/(decrease) in cash andcash equivalents 6 434,632 (121,762) (583,404) Notes to the Interim Report 1 Financial information The financial information above does not constitute statutory accounts withinthe meaning of Section 240 of the Companies Act 1985. Statutory accounts for theyear ended 31st March 2007 have been delivered to the Registrar of Companies andcontain an audit report in accordance with Section 285 which was unqualified. The interim financial information has not been audited or reviewed by theCompany's auditors. 2 Accounting policies These financial statements have been prepared in accordance with InternationalAccounting Standards (IAS) issued by the International Accounting StandardsBoard (IASB) except for the departure from the requirement in IAS 32 (FinancialInstruments: Disclosure and Presentation) as detailed below, and in accordancewith the Interpretations of International Accounting Standards issued by theStanding Interpretations Committee of the IASB. The board has concluded that complying with IAS 32 in respect of the company'spreference shares would be so misleading in the circumstances that it wouldconflict with the objective of financial statements set out in the IASB'sframework. The entity has therefore departed from the requirement in IAS 32 totreat the preference shares as a debt instrument. The preference shares havebeen included as an equity instrument in the consolidated and parent companybalance sheets in order to achieve a fair presentation. The board believes thatthe treatment required by IAS 32 would not fairly present the substance of thepreference shares which is that of permanent capital in the company withparticipation in the future income and gains arising therein. With thisdeparture, the Board has concluded that the financial statements present fairlythe entity's financial position, financial performance and cash flows. Thedeparture has no impact on the Net asset value per ordinary share calculation oron the calculation of Earnings per share. These financial statements have been prepared under the historical costconvention, except for Portfolio Investments which are stated at market value.The following are the key accounting policies extracts relating to the financialinformation presented: (a) Taxation Income tax expense represents the sum of the tax currently payable and deferredtax. Current tax The tax currently payable is based on taxable profit for the period. Taxableprofit differs from profit as reported in the income statement because itexcludes items of income or expense that are taxable or deductible in otherperiods and it further excludes items that are never taxable or deductible. TheGroup's liability for current tax is calculated using tax rates that have beenenacted or substantively enacted by the balance sheet date. Deferred tax Deferred tax is recognised on differences between the carrying amounts of assetsand liabilities in the financial statements and the corresponding tax bases usedin the computation of taxable profit, and is accounted for using the balancesheet liability method. Deferred tax liabilities are generally recognised forall taxable temporary differences, and deferred tax assets are generallyrecognised for all deductible temporary differences to the extent that it isprobable that taxable profits will be available against which those deductibletemporary differences can be utilised. Such assets and liabilities are notrecognised if the temporary difference arises from goodwill or from the initialrecognition (other than in a business combination) of other assets andliabilities in a transaction that affects neither the taxable profit nor theaccounting profit. Deferred tax liabilities are recognised for taxable temporary differencesassociated with investments in subsidiaries and associates, and interests injoint ventures, except where the Group is able to control the reversal of thetemporary difference and it is probable that the temporary difference will notreverse in the foreseeable future. Deferred tax assets arising from deductibletemporary differences associated with such investments and interests are only recognised to the extent that it is probable that there willbe sufficient taxable profits against which to utilise the benefits of thetemporary differences and they are expected to reverse in the foreseeablefuture. The carrying amount of deferred tax assets is reviewed at each balance sheetdate and reduced to the extent that it is no longer probable that sufficienttaxable profits will be available to allow all or part of the asset to berecovered. Deferred tax assets and liabilities are measured at the tax rates that areexpected to apply in the period in which the liability is settled or the assetrealised, based on tax rates (and tax laws) that have been enacted orsubstantively enacted by the balance sheet date. The measurement of deferred taxliabilities and assets reflects the tax consequences that would follow from themanner in which the Group expects, at the reporting date, to recover or settlethe carrying amount of its assets and liabilities. Deferred tax assets and liabilities are offset when there is a legallyenforceable right to set off current tax assets against current tax liabilitiesand when they relate to income taxes levied by the same taxation authority andthe Group intends to settle its current tax assets and liabilities on a netbasis. Current and deferred tax for the period Current and deferred tax are recognised as an expense or income in profit orloss, except when they relate to items credited or debited directly to equity,in which case the tax is also recognised directly in equity, or where they arisefrom the initial accounting for a business combination. In the case of abusiness combination, the tax effect is taken into account in calculatinggoodwill or determining the excess of the acquirer's interest in the net fairvalue of the acquiree's identifiable assets, liabilities and contingentliabilities over cost. (b) Preference shares The participating preference shares entitle the holders, in priority to thepayment of any dividend to the holders of all or any other shares in the capitalof the company, to a fixed net cash cumulative dividend at the rate of 7p pershare per annum. In addition, holders are entitled to a participating dividendat the rate of 25% of any dividends paid on the Ordinary Shares in excess of 2pper share for any year, subject to a maximum participating dividend in respectof any year of 3p net per share. On any return of capital holders are entitled to the payment of a premium whichshall be the greater of either the sum of 50p per share or a sum equal to theaverage mid-market price at which the said shares have been quoted on the LondonStock Exchange during the six months immediately preceding the commencement ofsuch return of capital, after the deduction of the nominal amount of the capitalpaid up or credited as paid up on the Participating Preference Shares.. Theshares also confer voting rights in certain circumstances. (e) Dividends Ordinary dividends are accounted for in the period in which they are declared inaccordance with IAS 10. Preference dividends have two dividend elements, thefixed net cash cumulative dividend and the participating dividend. The participating dividend element is accounted for in the period in which thedividend is declared and is treated in the same way as the Ordinary dividendupon which its calculation is based. The fixed net cash cumulative element accrues evenly on a daily basis throughoutthe period. The dividend payable on 1 October 2007 has therefore been treated asa charge against revenue for the period to 30 September 2007. (d) Investments IAS 39 requires investment funds to measure assets listed on a recognised StockExchange at current bid prices whereas under UK GAAP these assets had beenpreviously measured at current middle market prices. The directors are of the opinion that the bid valuation is 1% lower than the midvaluation due to the nature of the assets concerned and this treatment isreflected in the investment valuation at the year end. All investments held as non-current assets are shown in the balance sheet atvaluation and all purchase and sale of investments are accounted for at tradedate. The difference between book cost and valuation is taken to the revaluationreserve. Profits and losses on the realisation of investments held asnon-current assets are taken to capital reserve. 3 Earnings per share Half-year to Half-year to Year to 30 September 30 September 31 March 2007 2006 2007 (unaudited) (unaudited) (audited) £ £Revenue after taxation 235,417 173,904 349,201Participating preference dividend (174,818) (174,818) (437,045) 60,599 (914) (87,844) The calculation of basic earnings per share is basedon the following:Weighted average number of 3,624,599 3,644,956 3,643,415Ordinary Shares of 50p each Earnings/(loss) per share 1.67p (0.03)p (2.41)p As the Company has no options or warrants in issue, basic and diluted loss pershare are the same. Adjusted earnings per share is based on the following: Weighted average number of 3,624,599 3,644,956 3,643,415Ordinary Shares of 50p each Shares reclassified as non voting (1,717,565) (1,717,565) (1,717,565)shares 1,907,034 1,927,391 1,925,850 Earnings/(loss) per share 3.18p (0.05)p (4.56)p 4 Dividends payable Half-year to Half-year to Year to 30 September 30 September 31 March 2007 2006 2007 (unaudited) (unaudited) (audited) £ £ £Interim Dividends declared oraccrued Participating preference shares - - 262,227 Final dividends declared or accrued Participating preference shares 174,818 174,818 174,818 Ordinary shares 94,995 96,370 173,465 269,813 271,188 348,283 Total dividends 269,813 271,188 610,510 5 Buy in of own shares Half-year to Half-year to Year to 30 September 30 September 31 March 2007 2006 2007 (unaudited) (unaudited) (audited) £ £ £Buy in of 7,500 ordinary shares of - - 16,66950p each Buy in of 20,000 ordinary shares of 45,361 - -50p each 45,361 - 16,669 6 Analysis of net debt At Cash flow At 30 September (unaudited) 1 April 2007 2007 (unaudited) (audited) £ £ £Bank overdraft - - - Cash at bank 900,190 434,632 465,558 900,190 434,632 465,558 Long term debt (3,657,004) - (3,657,004) (2,756,814) 434,632 (3,191,446) This information is provided by RNS The company news service from the London Stock Exchange