RNS Number:4305P
Govett Enhanced Income Inv TrustPLC
04 September 2003
GOVETT ENHANCED INCOME INVESTMENT TRUST
INTERIM REPORT 30 JUNE 2003
CHAIRMAN'S STATEMENT
Markets continued to be volatile during the half year. After heavy falls in the
first quarter, the subsequent rally left the FTSE All-Share up 6.3% in the six
months ending 30th June 2003.
The Group's total resources increased from #71 million as at 31 December 2002 to
#74 million at 30 June 2003 (before allowing for payment of the two interim
dividends at a cost of #1.8 million), an uplift of 4.5% over the six months.
However the net asset value of the Ordinary shares fell from 3.43 pence per
share at 31 December to 2.44 pence at 30 June, as result of funding the interim
dividends partly from revenue reserves. The net asset value of the Zero Dividend
Preference shares rose 3.9%, from 112.61 pence per share to 117.00 pence, over
the period. However this is less than the accrued capital entitlement at 30th
June 2003 of 138.7 pence. Details of the performance of the portfolio are given
in the Manager's Report.
On 30th April a first interim dividend of 2p was declared which was paid on 30th
May 2003. The Board declared a second interim dividend of 2p which was paid on
29th August. No ZDP buybacks were executed during the period.
We have reviewed the Company's investment portfolio as at 30th June 2003 to
determine where the reduction in value, which has occurred since the Company's
launch, should be deemed to be permanent and treated as realised. The investment
portfolio contains a number of split capital trusts which have suffered
significant falls in value; in some cases the shares have been suspended or put
into liquidation. At the last year end we identified investments which had been
suspended or placed into liquidation with a book cost of #7.9 million which we
believed had suffered a "permanent diminution in value" of that amount. At that
time, the #7.9 million of book cost was transferred from unrealised to realised
capital reserves, in accordance with the requirements of the Companies Act 1985.
Since then, we have identified further investments with a book cost of #13.3
million which we believe have suffered a "permanent diminution in value" of some
#10.4 million. In accordance with our accounting policy we have been valuing
these investments at mid market value. To date the difference in writing down
the value from book cost has been charged to the unrealised capital reserve.
However we now consider that this loss on these investments is permanent and
accordingly have transferred an amount of #10.4 million from unrealised to
realised capital reserves.
While this transfer does not have any effect on the Company's net asset value,
it may have implications for the payment of future dividends by the Company. The
Companies Act lays down criteria that must be met before dividend payments can
be made and it is possible that the Company could fail this test over the coming
year. However, as Ordinary Shareholders should be aware, in the eventual winding
up of the Company, the balance remaining on the revenue reserve is reserved for
Ordinary Shareholders in accordance with the terms of the agreements between the
Company and its subsidiary.
The board is very conscious of the fact that a continuation vote for the parent
company is due on 31st March 2004. It has therefore decided to extend the
current financial year by three months to 31st March 2004. It has therefor
decided to extend the current financial year by three months to 31st March 2004.
This should help the Company to reduce costs. As the continuation date
approaches, the Board is continuing to consider all appropriate strategies to
protect the value of the equity portfolio. We shall be writing to shareholders
nearer the time of the vote.
With the management of many companies focusing more on efficiency and cost
control, and with many large write-downs having taken place in prior periods,
reported corporate profits are beginning to look healthier. Deflation has become
less of a concern to the markets, which has major implication for asset
allocators as bonds appear less attractive in an inflationary environment.
Global equity markets have recovered dramatically since the end of the war in
Iraq. In the short term a period of consolidation may be due. However increasing
evidence of economic recovery, particularly in the US, has boosted investor
confidence in the belief that the current level of equity markets provides good
value.
Jonathan Carr
Chairman
4 September 2003
Statement of Total Return (incorporating the revenue account*)
For the period ended 30th June 2003
Six months ended 30 June 2003 Six months ended 30 June 2002 Year ended 31 December 2002
Revenue Capital Total Revenue Capital Total Revenue Capital Total
#000s #000s #000s #000s #000s #000s #000s #000s #000s
Profits/(Losses) on - 2,347 2,347 - (6,610) (6,610) - (20,784) (20,784)
investments
Income from investments 1,892 - 1,892 2,759 - 2,759 4,506 - 4,506
Other income 77 - 77 54 - 54 187 - 187
Management fees (174) (174) (348) (244) (244) (488) (402) (402) (804)
Other expenses (103) (2) (105) (140) 2 (138) (228) - (228)
Net return/(loss) 1,692 2,171 3,863 2,429 (6,852) (4,423) 4,063 (21,186) (17,123)
before finance costs
and taxation
Interest payable (335) (335) (670) (335) (335) (670) (676) (676) (1,352)
Return/(loss) on 1,357 1,836 3,193 2,094 (7,187) (5,093) 3,387 (21,862) (18,475)
ordinary activities
before taxation
Tax on ordinary (3) 3 - (23) 10 (13) (126) 128 2
activities
Return/(loss) on 1,354 1,839 3,193 2,071 (7,177) (5,106) 3,261 (21,734) (18,473)
ordinary activities
after tax before
minority interest
Non-equity minority - (1,839) (1,839) - (2,107) (2,107) - 6,034 6,034
interest
Return for the period 1,354 - 1,354 2,071 (9,284) (7,213) 3,261 (15,700) (12,439)
Dividends in respect of (1,814) - (1,814) (907) - (907) (2,721) - (2,721)
equity shares
Transfer to/(from) (460) - (460) 1,164 (9,284) (8,120) 540 (15,700) (15,160)
reserves
As at 30th June 2003 2.99 - 2.99 4.57 (20.47) (15.90) 7.19 (34.62) (27.43)
Return/(loss) per
ordinary share for the
period (in pence)
*The Revenue column represents the Revenue Account of the Company.
The revenue and capital items in the above statement derive from continuing
operations. There were no recognised gains and losses other than presented
above.
Balance Sheets as at 30th June 2003
30th June 30th June 30th June 30th June 31st December 31st December
2003 2003 2002 2002 2002 2002
Group Company Group Company Group Company
#000s #000s #000s #000s #000s #000s
Investments at valuation 68,674 68,674 85,609 85,609 67,933 67,933
Current assets
Stockmarket settlements - - 338 338 - -
Debtors 710 710 921 921 509 509
Cash at bank 5,305 5,241 3,129 3,042 3,796 3,719
6,015 5,951 4,388 4,301 4,305 4,228
Creditors: amounts falling due
within one year
Bank loan (22,677) (22,677) - - - -
Cumulative subordinated - (41,706) - - - -
unsecured loan notes 2004
Provision for redemption of Zero - (6,337) - - - -
Dividend Preference shares of
subsidiary
Stockmarket settlements (1,207) (1,207) - - - -
Accruals (237) (229) (415) (364) (372) (303)
Dividend payable (907) (907) - - (907) (907)
(25,028) (73,063) (415) (364) (1,279) (1,210)
Net current (liabilities)/ (19,013) (67,112) 3,973 3,937 3,026 3,018
assets
Total assets less current 49,661 1,562 89,582 89,546 70,959 70,951
liabilities
Creditors: amounts falling due
after one year
Bank loan - - (22,677) (22,677) (22,677) (22,677)
Cumulative subordinated - - - (45,240) - (41,768)
unsecured loan notes 2004
Provision for redemption of Zero - - - (12,639) - (4,498)
Dividend Preference shares of
subsidiary
- - (22,677) (80,556) (22,677) (68,943)
Net assets 49,661 1,562 66,905 8,990 48,282 2,008
FINANCED BY
Share capital 454 454 454 454 454 454
Special capital reserve 41,271 41,271 41,271 41,271 41,271 41,271
Capital reserve - realised (40,395) (40,395) (19,139) (19,139) (22,106) (22,106)
Capital reserve - unrealised (876) (876) (15,716) (15,716) (19,165) (19,165)
Revenue reserve 989 1,108 2,073 2,120 1,449 1,554
Total shareholders' funds 1,443 1,562 8,943 8,990 1,903 2,008
Minority interest - non-equity 48,218 - 57,962 - 46,379 -
Zero Dividend Pref shares
49,661 1,562 65,905 8,990 48,282 2,008
Net asset value per share 2.44p 2.44p 19.72p 19.82p 3.43p 3.43p
Zero Dividend Preference shares 117.00p - 127.80p - 112.61p -
of subsidiary
Consolidated Cashflow Statement for the period ended 30 June 2003
30 June 30 June 31 December
2003 2002 2002
#000s #000s #000s
Operating activities
Investment income received 1,772 2,810 4,899
Deposit interest received 73 54 185
Management fees paid (341) (472) (859)
Other cash payments (269) (143) (239)
Net cash inflow from operating activities 1,235 2,249 3,986
Servicing of finance
Interest paid (670) (670) (1,352)
Taxation
UK tax recovered - 163 367
Capital expenditure and investment activities
Purchase of investments (1,725) (20,371) (29,328)
Sale of investments 4,484 17,239 29,982
Net cash inflow/(outflow) from investment activities 2,759 (3,132) 654
Financing
Purchase of Zero Dividend Preference shares - - (3,472)
in subsidiary
Equity dividends
Dividends paid (1,814) (2,009) (2,916)
(Decrease) / increase in cash 1,510 (3,399) (2,733)
The Company's interim report and accounts will be sent to shareholders in
September 2003. Copies will be made available to the public at the registered
office of the Company, Shackleton House, 4 Battle Bridge Lane, London SE1 2HR.
The Balance Sheet as at 31 December 2002, Statement of Total Return and Cashflow
Statement for the period then ended are an abridged version of the Company's
full statutory accounts for the year ended 31 December 2002, which have been
filed with the Registrar of Companies; the auditors' opinion on those accounts
was unqualified.
Shackleton House By order of the Board
4 Battle Bridge Lane Govett Secretaries Limited
London Secretary
SE1 2HR 4 September 2003
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