TIDMSCIN
RNS Number : 6118R
Scottish Investment Trust PLC
18 June 2018
The Scottish Investment Trust PLC
Results for the six months to 30 April 2018
Highlights
-- Share price total return +1.7%
-- NAV total return +1.8%
-- Quarterly dividends of 5.0p per share
-- High conviction, global contrarian investment approach
-- Award for reinvigorated investor communication
The Scottish Investment Trust PLC invests internationally and is
independently managed. Its objective is to provide investors, over
the longer term, with above-average returns through a diversified
portfolio of international equities and to achieve dividend growth
ahead of UK inflation. Today it announces its results for the six
months to 30 April 2018. It is categorised as a global trust by the
Association of Investment Companies.
Chairman's Statement
Performance
I am pleased to report another period of positive total returns
over the six months to 30 April 2018.
The share price total return was +1.7% and the net asset value
per share (NAV) total return (with borrowings at market value) was
+1.8%.
The Company does not have a formal benchmark but, by way of
comparison, the sterling total return of the international MSCI All
Country World Index (ACWI) was -0.1% while the UK based MSCI UK All
Cap Index total return was +2.2%.
Investment approach
The investment management industry is rapidly changing.
Investors increasingly seek investment offerings that are either
genuinely distinct and active in their approach or low cost passive
offerings through which stockmarket indices can be tracked.
The high conviction, global contrarian investment approach
adopted by Alasdair McKinnon and his team clearly differentiates
the Company from our global investment trust peers and passive
investment products.
The approach aims to profit by investing in carefully selected,
but unfashionable, companies which we believe are undervalued as
they are overlooked by other investors who prefer the comfort of
investing with the crowd. The portfolio is constructed without
reference to any benchmark or stockmarket index and we do not
expect the Company's portfolio return to match any particular index
return over any defined period. Our contrarian approach aims to
deliver above-average returns over the longer term, by which we
mean at least five years.
Change is afoot
Those who have read my previous Chairman's Statements will
likely be familiar with the changes at The Scottish in recent
years. The goal of those changes is to continue to provide an
attractive, low cost investment vehicle for our shareholders, who
are mainly, and increasingly, individuals.
Among the key changes in recent years have been the introduction
of our high conviction, global contrarian investment approach and
the restructuring of our operations to deliver a more efficient and
cost effective structure. Alongside our annual results, we
announced a significant change to our dividend policy to which I
refer below. We continue to reinvigorate our approach to investor
communications as this is an important expression of our
differentiation and engages investors with our distinctive
investment style. By communicating our key messages, we aim to
stimulate additional demand for the Company's shares to help manage
the discount to NAV. It was pleasing that our continuing work on
investor communications was recognised by The Association of
Investment Companies when we received the Best PR Campaign Award in
May 2018.
As contrarian investors, the management team generates
interesting and thought provoking content, which is shared on our
website. We want to engage regularly with investors and are mindful
of the changing way in which media is consumed in this digital age.
With that in mind, we are building a presence on social media.
Dividend policy and dividend
Last year there was a step change increase in the total regular
dividend to 20.0p per share (a 48% increase from the 13.5p paid in
the previous financial year) as well as the announcement of a shift
to quarterly dividend payments. I outlined the full rationale for
these changes in my last statement but, in summary, investors now
have a clearer indication of the income that they can expect to
receive from their investment while gaining a more regular income
stream. Following this step change increase, the Company has one of
the highest stated dividend yields among its global investment
trust peers.
The contrarian style does not explicitly target higher yielding
investments but is expected to generate a higher than average level
of income through an investment cycle. If there are occasions when
the portfolio does not generate a sufficient level of income to
cover the requirements of the regular dividend, the Board considers
that it would be appropriate to utilise the Company's healthy
revenue reserve.
The Board's previously announced target is to declare three
quarterly interim dividends of 5.0p in the year to 31 October 2018
and to recommend a final dividend of at least 5.0p for approval by
shareholders at the Annual General Meeting in 2019. The first
quarterly dividend payment of 5.0p was made in May 2018 and the
second and third quarterly dividends will be paid in August and
November 2018, respectively. The final dividend will be reviewed in
accordance with the Board's desire to continue the long track
record of annual dividend increases and the aim of the Company to
provide dividend growth ahead of UK inflation over the longer
term.
Discount and share buybacks
The Company follows a policy that aims, in normal market
conditions, to maintain the discount to NAV (with borrowings at
market value) at or below 9%. The average discount over the first
half of the year was 8.3%.
During the period, 0.9m shares were purchased for cancellation
at an average discount of 9.2% and a cost of GBP7.2m. In the same
period last year 12.8m shares were purchased, although this
included the exit of Aviva from the share register who were
generally selling investment trust holdings inherited from the
takeover of other investment companies. Excluding the Aviva
transaction, 1.4m shares were purchased in the same period last
year.
Update to expense and interest allocation policy
The Board has reviewed the allocation of both eligible expenses
and interest between capital and revenue, in large part due to the
very different cost structure in place since the recent
reorganisation and the adoption of the new investment approach.
It was therefore decided that with effect from the current
financial year, the Company will allocate 65% of both eligible
expenses and interest to capital, with the remaining 35% of each
allocated to revenue. This compares with the previous 50%/50%.
Expenses not eligible to be charged to capital will be wholly
charged to revenue.
If this new allocation policy had been in place in the last
financial year, the net effect would have resulted in a small
increase to net income per share of 0.7p to 23.7p.
Gearing
Gearing ended the period largely unchanged at 5%.
Board composition
Hamish Buchan retired as a non-executive director at the AGM in
February 2018. I would like to reiterate our thanks to Hamish for
his outstanding contribution over the last fourteen years. As
previously noted, there is no current intention to replace Hamish
as the Board considers that its membership will continue to ensure
that the appropriate balance of skills, experience, independence
and knowledge will be achieved.
Outlook
I have previously discussed the bewilderment with which the
establishment greeted the Brexit vote, the election of
Donald Trump and the unexpected result in the UK 'snap' general
election. There was perhaps an element of a 'Marie Antoinette'
thought process that failed to appreciate that large sections of
the population felt trapped in a disadvantaged economic
situation.
Politicians around the world seem to have got the message that
if they wish to gain or retain a grip on power, the benefits of
economic growth must fall to a greater proportion of the
population. With President Trump in the vanguard, governments are
dropping ambitions to balance budgets as fiscal largesse is always
popular with the recipients. Much comment has been made about the
jump in US 10 year bond yields to over 3%. Some are fearful that
the breach of this arbitrary number represents a loss of confidence
in the government's finances and the start of an inflationary
cycle.
Perhaps more significant for the short term prospects of markets
is the increase in the US 2 year Treasury Note yield to 2.5%,
prompted by the anticipated trajectory of interest rate increases
from the US Federal Reserve. Given that this rate was near zero
around five years ago, it does not seem an unreasonable rate of
return at which to 'park' money that would previously have been
forced into other asset classes in search of a return.
As ever, there are a number of potential flashpoints that could
potentially destabilise markets, or indeed boost them if
satisfactorily resolved. US relations with North Korea and Iran
appear to have moved in opposite directions but US relations with
China are probably most important to the global economy. Closer to
home, the Brexit negotiations continue to make noisy but slow
progress.
The Board is pleased with the progress made to transform the
investment approach, to increase the regular dividend and to
improve the profile of the Company. It believes that the Company is
differentiated, cost competitive and an attractive investment
vehicle focused on delivering above-average returns and dividend
growth over the longer term.
James Will
Chairman
15 June 2018
Manager's Review
It's déjà vu all over again
Even though the late Lawrence 'Yogi' Berra was an outstanding
baseball player, he is possibly best known for his 'Yogisms' -
apparently nonsensical comments attributed to him that contain a
cryptic life truth. After all, who can disagree that "the future
ain't what it used to be" and "you can observe a lot by watching".
However, this review is titled with the Yogism that reflects the
resigned inevitability of watching a re-run of a situation you've
already experienced.
Shareholders who have read my previous Manager's Reviews will be
aware that a simple philosophy underpins our approach to
investment. At the core of this philosophy is a recognition that
investors are not, in aggregate, dispassionate calculating machines
but instead retain human emotions.
As humans, we have many differing emotions, desires and
motivations but one apparent constant, which is maintained across
cultures and geographies, is a desire to be part of the group. This
crowding instinct has been a great benefit to humanity and living
standards are unquestionably far higher than if we operated as
individuals. Working as a group allows division of labour,
specialisation and economies of scale.
However, we believe that this crowding instinct does not
usefully translate into financial markets as the crowd is
inherently a momentum beast. Crowds naturally gravitate towards
what has recently been successful and shun what has recently been
unsuccessful. The crowd voice, which is always alluring, is driven
by individuals who seek to align themselves with success and
disavow failure.
In financial markets, chasing momentum works. Until it doesn't.
By the time an investment has performed sufficiently well (or
badly) for it to become an accepted wisdom, conditions are ripe for
the trend to change. It is this momentum mentality which creates
the business cycle and the numerous bubbles (and subsequent busts)
which have bedevilled investment markets.
We do not attempt to follow investment fashions and instead seek
investments in which we can foresee long term upside. We actively
seek unpopular areas because this is where the balance between risk
and reward can be most favourable. Rather than perpetual trends we
believe in cycles, which brings us neatly back to the déjà vu
referenced in the title.
Investors currently exhibit remarkably low levels of scepticism
about 'hot' investment themes, particularly in the technology area,
which mentally transports us back to the late 1990s when similar
enthusiasm reigned (it didn't last).
The collapse of Long-Term Capital Management (LTCM) in 1998 and
the subsequent Central Bank response, arguably, created the
conditions for the dotcom bubble. Following the bailout of LTCM,
the investment mood swiftly became feverish, with the best
performing investments defined by their elevator pitch (a simple
conceptual story with grand visions) and eyeballs (the gathering of
unprofitable user views). Sales of IT hardware and services boomed
both to salve the impending 'Millennium Bug' and due to an
increased desire for personal computers. Those companies that had
benefited from this trend became valued as if the good times would
never end.
Things are different today, but in some ways they are the same.
Once again, investors are excited by concept investments even if
the most speculative of them all, the cryptocurrencies, have
already disillusioned their fan club. Investors continue to reward
the new 'eyeball' metric which, these days, is instead unprofitable
user growth. Internet shopping, food delivery, ride hailing
services, music and video streaming, to name just some, are all
subsidised at the point of use by investors. Meanwhile, investors
show scant concern that the premium smartphone boom has peaked and
have only recently started to consider that companies operating in
the 'Wild West' space of internet advertising may be about to meet
the posse (courtesy of the Facebook data scandal).
The Portfolio (the interim period)
Our holdings in two 'ugly duckling' retailers produced the
biggest gains over the period. Tesco (+GBP7.7m) performed strongly
as the acquisition of Booker was approved and focus has returned to
the company's progress in rebuilding profitability. US department
store operator Macy's (+GBP7.7m) reported encouraging results which
suggested that measures to reinvigorate flagging sales were gaining
some traction. However, emphasising that patience is required with
turnaround situations, Marks & Spencer (-GBP3.7m) declined
during the period as the new turnaround-expert Chairman, Archie
Norman, appeared to 'kitchen-sink' potential bad news. We continue
to believe the company has a great brand which can be revived.
Our holdings in commodity companies were mostly a source of
positive returns as enthusiasm returned to these areas
(particularly oil) late in the period under review. The biggest
gain came from BHP Billiton (+GBP3.0m) driven by recovering
operations, a scope for asset sales and the presence of an activist
investor. Our holding in Royal Dutch Shell (+GBP2.5m) also made a
material gain as it became clearer to the wider market that the
company is in a very strong position having bought BG Group at the
cycle low. Australian gold miner Newcrest Mining (-GBP3.1m) was
impacted by a production issue which was subsequently resolved.
Mexican cement producer Cemex (-GBP3.8m) was hampered by a
combination of headwinds and we sold our holding after the period
end due to the changing political climate in Mexico.
Dutch bank ING (-GBP2.8m) produced a loss over the period but
remains well placed to benefit from restructuring efforts, a more
stable regulatory environment and a potential increase in interest
rates.
Pharmaceutical company GlaxoSmithKline (+GBP2.6m) reassured
investors about the sustainability of the dividend after opting to
buy Novartis's share of their consumer healthcare joint venture
rather than pursuing a more ambitious acquisition. The new CEO is
determined to better commercialise the company's gargantuan R&D
efforts.
Conversely, our holding in Rentokil Initial (-GBP3.8m) was a
loser from a stronger pound following optimism regarding a workable
Brexit. Other investors fretted about the translation of
predominantly overseas revenues into a resurgent sterling. That
said, the loss was more of a timing issue as the share price has
performed very strongly since our initial purchase as the business
has transformed from being an unloved and underperforming
conglomerate.
An honourable mention must also be made for Australian-based
global wine producer, Treasury Wine Estates (+GBP1.8m), which was
for a long time our largest investment, as we sold the balance of
our holding during the period. This has been an exceptional
investment, providing a total return of +GBP39m over the period we
held the shares. The company has transformed in the three years
since we invested and that progress is now more widely recognised.
While we continue to believe that the company's prospects remain
promising, this is now reflected in the share price and we consider
that the balance of risk and reward is no longer as favourable.
Outlook
In my last review, I noted that there were signs of complacency
with regard to investor attitude to risk, with symptoms of excess
in cryptocurrency get-rich-quick schemes and the investor
infatuation with technology stocks which were considered to have
bullet-proof prospects. The cryptocurrencies, such as Bitcoin,
boomed further (it was the topic of conversation over Christmas)
but unravelled spectacularly in January. A cryptocurrency may seem
irrelevant to an equity investor but they represent a proxy for the
ease of financial conditions and a willingness to suspend disbelief
in search of a speculative return.
The data scandal involving Facebook and Cambridge Analytica
shook the entire technology matrix. Expectations remain too high in
this area and the threats from politicians, regulators and
disrupted incumbents continue to be brushed off. We have minimal
exposure to this area.
Oil stocks have been generally unpopular since the oil price
crash of 2014. Expectations remain low but have increased recently
as the oil price has risen. We continue to think that the balance
between risk and reward in this area remains favourable.
If one of the main contributing factors to the financial crisis
of 2008/9 was excessive debt, 10 years of cheap money has not aided
this situation as debts have increased. The time-tested solution to
an excessive debt burden has been either default or currency
debasement (inflation), with the latter infinitely more palatable.
It's unlikely that the recent rise in bond yields represents a
tipping point but we continue to monitor this.
Generally speaking, the spread of valuations across the market
is wide and we continue to identify opportunities that we believe
will generate good long-term returns for shareholders.
As I have previously noted, as contrarian investors we actively
seek unfashionable and unpopular investments that we believe can
recover. This is where we find the best balance between risk
(expectations are low) and reward (things can get better). Our
investment approach is designed to anticipate and benefit from
change and we will continue to seek out opportunities with
potential to profit the long-term investor.
Alasdair McKinnon
Manager
15 June 2018
For further information, please contact: 0131 225 7781
Our Approach
To apply our approach, we divide the stocks in which we invest
into three categories.
First, we have those that we describe as ugly ducklings -
unloved shares that most investors shun. These companies have
endured an extended period of poor operating performance and, for
the majority, the near-term outlook continues to appear
uninspiring. However, we see their out-of-favour status as an
opportunity and can foresee the circumstances in which these
investments will surprise on the upside.
The second category consists of companies where change is afoot.
These companies have also endured a long period of poor operating
performance but have recently demonstrated that their prospects
have significantly improved. However, other investors continue to
overlook this change for historical reasons.
In our third category, more to come, we have investments that
are more generally recognised as good businesses with decent
prospects. However, we see an opportunity as we believe there is
scope for further improvement that is not yet fully recognised.
Financial Summary
30 April 31 October Change Total return
2018 2017 % %
NAV with borrowings at market value 916.1p 924.4p (0.9) +1.8
NAV with borrowings at amortised cost 944.4p 956.8p (1.3) +1.3
Ex-income NAV with borrowings at market
value 910.2p 904.8p +0.6
Ex-income NAV with borrowings at amortised
cost 938.4p 937.2p +0.1
Share price 833.0p 843.0p (1.2) +1.7
Discount to NAV with borrowings at
market value 9.1% 8.8%
MSCI ACWI (1.0) (0.1)
MSCI UK All Cap Index +0.3 +2.2
-------------------------------------------- ----------- ------------- --------- -------------
GBP'000 GBP'000
-------------------------------------------- ----------- ------------- --------- -------------
Equity investments 778,120 801,302
Net current assets 49,186 43,897
-------------------------------------------- ----------- ------------- --------- -------------
Total assets 827,306 845,199
-------------------------------------------- ----------- ------------- --------- -------------
Long-term borrowings at amortised
cost (83,783) (83,737)
Pension liability (1,091) (1,091)
-------------------------------------------- ----------- ------------- --------- -------------
Shareholders' funds 742,432 760,371
-------------------------------------------- ----------- ------------- --------- -------------
Six months Six months
to 30 April to 30
2018 April Change
GBP'000 2017 %
GBP'000
----------------------------------- ------------- ----------- ---------
Earnings per share 10.89p 9.28p +17.4
Dividends per share * 10.00p 5.50p
UK Consumer Prices Index - annual
inflation +2.4
* The current period includes two quarterly interim dividends
compared to one semi-annual interim dividend in the same period
last year.
List of Investments
As at 30 April 2018
Listed equities
Market Cumulative Market Cumulative
value weight value weight
Holding Country GBP'000 % Holding Country GBP'000 %
------------------- ------------- -------- ----------- ------------------- -------------- --------- -----------
Royal Bank of
Tesco UK 35,614 Scotland UK 8,103
Rentokil Initial UK 30,352 Adecco Switzerland 7,615
Standard Chartered UK 28,398 BT UK 7,186
GlaxoSmithKline UK 28,132 IBM US 6,946
Royal Dutch Shell UK 26,270 Bank of Ireland Ireland 6,669
ING Netherlands 26,102 Baker Hughes US 6,659
TGS NOPEC
Newcrest Mining Australia 26,080 Geophysical Norway 6,555
Suncor Energy Canada 25,562 General Electric US 5,853
Diamond Offshore
Gap US 24,914 Drilling US 5,742
Sumitomo Mitsui
Financial Japan 22,053 35.1 BorgWarner US 4,156 99.0
------------------- ------------- -------- ----------- ------------------- -------------- --------- -----------
Pfizer US 21,556 Tourmaline Oil Canada 3,058
Marks & Spencer UK 21,298 Freehold Royalties Canada 2,397
Macy's US 21,129 Greggs UK 1,171
------------------- -------------- --------- -----------
Total listed
BHP Billiton UK 21,006 equities 776,720 99.8
------------------- ------------------------- -----------
SAP Germany 19,763
Newmont Mining US 19,021
BNP Paribas France 18,021
Exxon Mobil US 17,837
Target US 17,444
RSA Insurance UK 15,911 59.9
------------------- ------------- -------- -----------
Total France 15,512 Unlisted
Citigroup US 14,845
Market Cumulative
Chevron US 14,533 value weight
Pepsico US 14,435 Holding GBP'000 %
------------------- -------------- --------- -----------
Hong Heritable property and
China Mobile Kong 14,307 subsidiary 1,400
British Land UK 14,194 Total unlisted 1,400 0.2
------------------- -------------- --------- -----------
United Utilities UK 14,154
Roche Switzerland 13,715
National Oilwell
Varco US 12,659
------------------- ------------------------- -----------
Vinci France 12,163 78.0 Total equities 778,120 100.0
------------------- ------------- -------- ----------- ------------------- ------------------------- -----------
Sony Japan 11,391
BASF Germany 11,246
KDDI Japan 10,628
Verizon
Communications US 10,229
Nintendo Japan 9,617
Bank of Kyoto Japan 9,547
Intesa SanPaolo Italy 9,249
East Japan Railway Japan 9,044
Citizens Financial US 8,404
Hess US 8,275 90.6
------------------- ------------- -------- -----------
Distribution of Assets
Distribution of Total Assets
30 April 2018 31 October 2017
By Sector % %
---------------------------- -------------- ----------------
Energy 17.5 15.2
Materials 9.4 8.4
Industrials 7.9 10.0
Consumer Discretionary 12.3 8.6
Consumer Staples 6.0 11.8
Health Care 7.7 8.5
Financials 20.4 19.2
Information Technology 4.4 4.5
Telecommunication Services 5.1 5.2
Utilities 1.7 1.9
Real Estate 1.7 1.5
Net current assets 5.9 5.2
---------------------------- -------------- ----------------
Total assets 100.0 100.0
---------------------------- -------------- ----------------
30 April 2018 31 October 2017
By Region % %
------------------------- -------------- ----------------
UK 30.6 28.6
Europe (ex UK) 17.7 17.9
North America 32.1 26.5
Latin America - 3.0
Japan 8.8 8.2
Asia Pacific (ex Japan) 4.9 10.6
Net current assets 5.9 5.2
------------------------- -------------- ----------------
Total assets 100.0 100.0
------------------------- -------------- ----------------
Allocation of Shareholders' Funds
30 April
2018
%
------------------------------ ---------
Total equities 104.8
------------------------------ ---------
Net current assets 6.6
Borrowings at amortised cost (11.3)
------------------------------ ---------
Pension liability (0.1)
------------------------------ ---------
Shareholders' funds 100.0
------------------------------ ---------
Income Statement
Six months to 30 April Six months to 30 April Year to 31 October 2017
2018 2017
(unaudited) (unaudited) (audited)
Revenue Capital Total Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------------------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Net gains on investments
held at
fair value
through profit and loss - 2,644 2,644 - 11,592 11,592 - 50,816 50,816
Net losses on currencies - (883) (883) - (531) (531) - (1,185) (1,185)
Income 11,246 - 11,246 11,474 - 11,474 25,898 - 25,898
Expenses (1,042) (198)* (1,240) (959) (666) (1,625) (2,075) (1,442) (3,517)
---------------------------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Net Return before Finance
Costs
and Taxation 10,204 1,563 11,767 10,515 10,395 20,910 23,823 48,189 72,012
Interest payable (866) (1,608) (2,474) (1,237) (1,237) (2,474) (2,474) (2,475) (4,949)
---------------------------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Return on Ordinary
Activities before
Tax 9,338 (45) 9,293 9,278 9,158 18,436 21,349 45,714 67,063
Tax on ordinary activities (763) - (763) (704) - (704) (1,252) - (1,252)
---------------------------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Return attributable to
Shareholders 8,575 (45) 8,530 8,574 9,158 17,732 20,097 45,714 65,811
Return per share (basic and
fully
diluted) 10.89p (0.05)p 10.84p 9.28p 9.92p 19.20p 23.06p 52.46p 75.52p
---------------------------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Weighted average number of
shares
in issue 78,725,835 92,338,349 87,144,760
---------------------------- ------------------ -------- ------------------ -------- ------------------ --------
GBP'000 GBP'000 GBP'000
---------------------------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Dividends payable 7,853 4,543 19,873
Income comprises:
Dividends 11,095 11,418 25,705
Interest 151 56 193
---------------------------- -------- -------- -------- -------- -------- -------- -------- -------- --------
11,246 11,474 25,898
---------------------------- -------- -------- -------- -------- -------- -------- -------- -------- --------
* Includes a refund of previously paid expenses.
Balance Sheet
As at As at As at
30 April 31 October 30 April 2017
2018 2017
(unaudited) (audited) (unaudited)
GBP'000 GBP'000 GBP'000
------------------------------------------ ------------- ------------ ----------------
Fixed Assets
Investments 778,120 801,302 793,139
------------------------------------------ ------------- ------------ ----------------
Current Assets
Debtors 10,327 2,113 2,788
Cash 15,071 5,240 20,118
Cash equivalents 42,061 37,696 20,425
------------------------------------------ ------------- ------------ ----------------
67,459 45,049 43,331
Creditors: liabilities falling
due within one year (18,273) (1,152) (343)
Net Current Assets 49,186 43,897 42,988
Total Assets less Current Liabilities 827,306 845,199 836,127
------------------------------------------ ------------- ------------ ----------------
Creditors: liabilities falling due after
more than one year
Long-term borrowings at amortised
cost (83,783) (83,737) (83,690)
Provisions for Liabilities
Pension liability (1,091) (1,091) (3,272)
------------------------------------------ ------------- ------------ ----------------
Net Assets 742,432 760,371 749,165
------------------------------------------ ------------- ------------ ----------------
Capital and Reserves
Called-up share capital 19,655 19,867 20,893
Share premium account 39,922 39,922 39,922
Capital redemption reserve 51,206 50,994 49,968
Capital reserve 586,231 593,484 590,335
Revenue reserve 45,418 56,104 48,047
------------------------------------------ ------------- ------------ ----------------
Shareholders' Funds 742,432 760,371 749,165
------------------------------------------ ------------- ------------ ----------------
Net Asset Value per share with
borrowings at amortised cost 944.4p 956.8p 896.4p
------------------------------------------ ------------- ------------ ----------------
Number of shares in issue at
period end 78,619,069 79,468,458 83,571,793
------------------------------------------ ------------- ------------ ----------------
Statement of Comprehensive Income
Six months to Six months to Year to
30 April 2018 30 April 2017 31 October 2017
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
Total comprehensive
income for the period 8,530 17,732 67,637
------------------------ --------------- --------------- -----------------
Total comprehensive
income per share 10.84p 19.20p 77.61p
------------------------ --------------- --------------- -----------------
Statement of Changes in Equity
Six months to Six months to Year to
30 April 2018 30 April 2017 31 October 2017
(unaudited) (unaudited) (audited)
GBP'000 GBP,'000 GBP'000
Opening shareholders'
funds 760,371 849,017 849,017
Total comprehensive
income 8,530 17,732 67,637
Dividend payments (19,261) (16,552) (21,095)
Aviva share buyback - (90,255) (90,255)
Regular share buybacks (7,208) (10,777) (44,933)
------------------------ --------------- --------------- -----------------
Closing shareholders'
funds 742,432 749,165 760,371
------------------------ --------------- --------------- -----------------
Cash Flow Statement
Six months Six months Year to
to to
30 April 30 April 31 October
2018 2017 2017
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
Operating activities
Net revenue before finance costs and
taxation 10,204 10,515 23,823
Expenses charged to capital (198) (666) (1,442)
(Increase)/decrease in accrued income (1,731) (399) 226
(Decrease)/increase in other payables (354) (186) 47
Decrease/(increase) in other receivables 89 (20) (3)
Adjustment for pension funding - - (355)
Tax on investment income (801) (813) (1,327)
Cash flows from operating activities 7,209 8,431 20,969
-------------------------------------------- ------------- ------------- ------------
Investing activities
Purchases of investments (58,513) (53,911) (131,714)
Disposals of investments 95,010 165,302 273,474
Cash flows from investing activities 36,497 111,391 141,760
-------------------------------------------- ------------- ------------- ------------
Cash flows before financing activities 43,706 119,822 162,729
-------------------------------------------- ------------- ------------- ------------
Financing activities
Dividends paid (19,261) (16,552) (21,095)
Aviva share buyback - (90,255) (90,255)
Regular share buybacks (7,821) (10,948) (44,490)
Interest paid (2,428) (2,428) (4,857)
-------------------------------------------- ------------- ------------- ------------
Cash flows from financing activities (29,510) (120,183) (160,697)
-------------------------------------------- ------------- ------------- ------------
Net movement in cash and cash equivalents 14,196 (361) 2,032
-------------------------------------------- ------------- ------------- ------------
Cash and cash equivalents at the beginning
of period 42,936 40,904 40,904
-------------------------------------------- ------------- ------------- ------------
Cash and cash equivalents at the end
of period 57,132 40,543 42,936
-------------------------------------------- ------------- ------------- ------------
Notes
The condensed set of Financial Statements for the six months to
30 April 2018 has been prepared in accordance with FRS 104 'Interim
Financial Reporting' and the AIC's Statement of Recommended
Practice issued in November 2014 and updated in January 2017 and
March 2018, and has not been audited or reviewed by the Auditor
pursuant to the Auditing Practices Board Guidance on 'Review of
Interim Financial Information'. The condensed set of Financial
Statements for the six months to 30 April 2018 has been prepared on
the basis of the same accounting policies as set out in the
Company's Annual Report and Accounts for the year ended 31 October
2017.
It is the opinion of the Directors that, as most of the
Company's assets are readily realisable and exceed its liabilities,
it is expected that the Company will continue in operational
existence for the foreseeable future.
The information contained in the Interim Report does not
constitute statutory accounts as defined in sections
434-436 of the Companies Act 2006. Where applicable, the figures
have been extracted from the Annual Report and Accounts for the
year ended 31 October 2017 which has been filed with the Registrar
of Companies and which contains an unqualified report from the
Auditor. The financial information for the six months ended 30
April 2018 and 30 April 2017 has not been audited.
The second quarterly interim dividend will be paid on 3 August
2018 to shareholders registered at 6 July 2018, with an ex dividend
date of 5 July 2018.
The first quarterly interim dividend of GBP3,931,000 was paid on
11 May 2018.
Equity investments include the unlisted portfolio of GBP1.4m (31
October 2017: GBP1.4m).
The weighted average number of shares in issue during the
half-year was 78,725,835 (2017: 92,338,349) and this figure has
been used in calculating the return per share shown in the income
statement. The net asset value per share at 30 April 2018 has been
calculated using the number of shares in issue on that date which
was 78,619,069
(31 October 2017: 83,571,793).
Analysis of Changes in Net Debt
31 October Non-cash 30 April
2017 Cash flows Movements 2018
GBP'000 GBP'000 GBP'000 GBP'000
------------------------- ----------- ------------- ----------- ---------
Cash 5,240 9,831 - 15,071
Short-term deposits 37,696 4,365 - 42,061
Long-term borrowings at
par (83,737) - (46) (83,783)
------------------------- ----------- ------------- ----------- ---------
(40,801) 14,196 (46) (26,651)
------------------------- ----------- ------------- ----------- ---------
Principal risks and uncertainties
The principal risks and uncertainties facing the business are
strategic, investment portfolio and performance, financial,
operational and tax, legal and regulatory. These are listed on page
15 of the 2017 Annual Report and Accounts and they are unchanged
from that year. An explanation of these risks and how they are
managed is set out in Note 17 on pages 59 to 64 of the 2017 Annual
Report and Accounts.
Responsibility statement
The Board of Directors confirms that to the best of its
knowledge:
a) the condensed set of Financial Statements has been prepared
on a going concern basis and in accordance with Financial Reporting
Standard 104 and gives a true and fair view of the assets,
liabilities, financial position and return of the Company;
b) the Interim Report includes a fair review of the information
required by Disclosure Guidance and Transparency Rule 4.2.7R
(indication of important events during the first six months, 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 year); and
c) the Interim Report includes a fair review of the information
required by Disclosure Guidance and Transparency Rule 4.2.8R
(disclosure of related party transactions and changes therein);
For and on behalf of the board,
James Will
Chairman
15 June 2018
Glossary
Borrowings at amortised cost is the nominal value of the
Company's borrowings less any unamortised issue expenses.
Borrowings at market value is the Company's estimate of the
'fair value' of its borrowings. The current estimated fair value of
the Company's borrowings is based on the redemption yield of the
relevant existing reference gilt plus a margin derived from the
spread of BBB UK corporate bond yields (15 years+) over UK gilt
yields (15 years+). The reference gilt for the secured bonds is the
6% UK Treasury Stock 2028 and the reference gilt for the perpetual
debenture stocks is the longest-dated UK Treasury stock listed in
the Financial Times.
Discount is the difference between the market price of a share
and the NAV, expressed as a percentage of the NAV.
Ex-income NAV is the NAV excluding current year revenue.
Gearing is the true geared position of the Company: borrowings
less cash and equivalents expressed as a percentage of
shareholders' funds.
Gross gearing is the geared position if all the borrowings were
invested in equities: borrowings expressed as a percentage of
shareholders' funds.
NAV is net asset value per share after deducting borrowings at
par or market value, as stated.
NAV total return is the measure of how the Company's NAV has
performed over a period of time, taking into account both capital
returns and entitlement to dividends declared by the Company.
Share price total return is the measure of how the Company's
share price has performed over a period of time, taking into
account both capital returns and entitlement to dividends declared
by the Company.
Total assets means total assets less current liabilities.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
IR LLFESRRIELIT
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