RNS Number:3858T
Royal London UK Eqty&Income Tst PLC
29 April 2008
ROYAL LONDON UK EQUITY & INCOME TRUST PLC
Preliminary announcement of unaudited interim results for the half year ended 29
February 2008
Financial Summary
(Unaudited) (Audited)
As at As at
29 February 31 August
2008 2007 Change
Total assets (#'000) 120,352 125,754 -4.3%
Net asset value (per share articles
basis)
Ordinary share 33.4p 41.6p -19.7%
Annuity share (capital entitlement) 75.0p 75.0p 0.0%
Zero Dividend Preference share 171.9p 164.9p 4.2%
======= ======= =========
Indices
FTSE All-Share Index 160.2 171.4 -6.5%
Barclays Non-Gilt Over 10 Year Index 139.4 141.1 -1.2%
AIC SCI Composite Index1 95.2 105.0 -9.3%
======= ======= =========
Mid-market price
Ordinary share 18.0p 24.8p -27.4%
Zero Dividend Preference share 171.8p 164.8p 4.2%
======= ======= =========
1 The AIC SCI Composite Index comprises 75% Ordinary shares and 25% Income
shares.
Chairman's Statement
The six months under review, from 1 September 2007 to 29 February 2008, have
been very difficult for investors worldwide. The symptoms of the global 'credit
crunch' have spread around the world, starting with difficulties in the United
States sub-prime mortgage market, leading to fears of recession in North America
and infecting both equity and fixed interest markets around the globe. Against
this depressing background it is no great surprise that your Company's assets
have declined sharply - the net asset value falling from 41.6p to 33.4p during
the period.
Turning to the individual portfolios within the fund, the equity portfolio fell
by 5.1% compared to a fall of 6.5% in the FTSE All-Share Index and the bond
portfolio fell by 6.1% compared to a decline of 1.2% in the Barclays Non-Gilt
Over 10 Year Index. One of the major detractors to the bond portfolio's
performance was the high weighting in financial bonds. The income portfolio
fell by 10.9% compared to a decrease of 9.3% in the AIC SCI Composite Index. At
the time of writing, there has been some recovery in markets.
There has been no change to the capital structure of your Company over the
period. The Company's geared nature has been unhelpful in the face of declining
markets.
The breakdown of the Group's assets as at 29 February 2008 was as follows:
Market value Market value
asset allocation % asset exposure %
#'000 #'000
Growth portfolio 83,036 69.0 56,603 47.1
Bond portfolio 18,445 15.3 18,445 15.3
Income portfolio 3,872 3.2 3,872 3.2
------------ ------------ --------------- ---------------
Total portfolio 105,353 87.5 78,920 65.6
Cash (current assets) 14,999 12.5 41,432 34.4
------------ ------------ --------------- ---------------
120,352 100.0 120,352 100.0
------------ ------------ --------------- ---------------
Your Investment Manager has continued to execute derivative strategies within
your portfolio. The number of futures contracts outstanding was reduced over
the period since the year end. Futures contracts were bought back during
periods of equity market weakness to allow the equity portfolio to benefit from
subsequent recoveries. Call options were sold in early January to generate
premium income. Whilst some options were bought back in the market to permit
the sale of the underlying equities, the majority expired unexercised on 20
March 2008. The option strategy has generated significant income over the
period with no capital cost to the fund. The use of derivatives has successfully
mitigated the severity of equity market falls on a proportion of the equity
portfolio over the period. It should be noted that the same strategy has the
potential to reduce the degree to which the portfolio may benefit from a strong
recovery in equity markets.
After the close of the interim period your Company received two payments from
Royal London Asset Management ("RLAM") in respect of a refund of VAT totalling
#1,138,000. This comprised a payment of #989,000, which was paid on 14 March
2008, being the refund that RLAM received from Her Majesty's Revenue and Customs
("HMRC"). Secondly, RLAM obtained an amount of #149,000 from HMRC on the
Company's behalf in relation to statutory interest. This amount was paid to the
Company on 15 April 2008. RLAM have agreed to make a gross repayment of VAT and
a further #81,000 will be paid across to the Company shortly. I am very pleased
that RLAM has both been able to obtain recovery of the refund and statutory
interest from HMRC so quickly and has agreed to pay the difference between the
HMRC refund and the gross VAT charged back to the Company.
The economic situation has deteriorated in the first quarter of 2008 and this
has been reflected in lower growth forecasts. Your Company's Investment Manager
envisages retaining a defensive stance, selling futures into market rallies,
whilst increasing exposure to equities by repurchasing outstanding futures
contracts on a tactical basis after episodes of equity weakness.
Jonathan Carr
Chairman
29 April 2008
Condensed Consolidated Income Statement
For the half year ended 29 February 2008
(Unaudited) (Unaudited) (Audited)
For the half year ended For the half year ended For the year ended
29 February 2008 28 February 2007 31 August 2007
Revenue Capital Revenue Capital Revenue Capital
return return return return return return
#'000 Total #'000 #'000 Total #'000 #'000 Total
#'000 #'000 #'000 #'000
Note
Income from 1,850 - 1,850 1,756 - 1,756 4,879 - 4,879
investments
held at
fair value
through
profit or
loss
Other income 784 - 784 72 - 72 337 - 337
---------- --------- --------- -------- -------- -------- ---------- --------- ---------
Total revenue 2,634 - 2,634 1,828 - 1,828 5,216 - 5,216
---------- --------- --------- -------- -------- -------- ---------- --------- ---------
(Losses)/gains - (4,328) (4,328) - 6,798 6,798 - 8,331 8,331
on investments
held at fair
value through
profit or loss
Exchange - 15 15 - - - - (6) (6)
gains/
(losses)
---------- ---------- --------- -------- --------- --------- --------- ---------- ----------
Total income 2,634 (4,313) (1,679) 1,828 6,798 8,626 5,216 8,325 13,541
---------- ---------- ---------- -------- -------- --------- --------- --------- ----------
Expenses
Management fees (184) (275) (459) (212) (319) (531) (437) (656) (1,093)
Write back of 5 428 642 1,070 - - - - - -
VAT
Movement in - 157 157 - (66) (66) - (78) (78)
performance fee
provision
Other expenses (218) - (218) (200) - (200) (400) - (400)
---------- --------- --------- -------- -------- -------- -------- -------- ----------
26 524 550 (412) (385) (797) (837) (734) (1,571)
---------- --------- --------- -------- -------- -------- -------- -------- ---------
Profit/(loss) 2,660 (3,789) (1,129) 1,416 6,413 7,829 4,379 7,591 11,970
before finance
costs and tax
---------- ---------- ---------- -------- --------- -------- --------- --------- ---------
Finance costs
Interest payable (646) (968) (1,614) (645) (967) (1,612) (1,303) (1,954) (3,257)
Annuity share (1,275) - (1,275) (1,275) - (1,275) (2,550) - (2,550)
appropriations
Provision for - (916) (916) - (841) (841) - (1,730) (1,730)
redemption of
ZDP shares in
subsidiary
---------- --------- ---------- ---------- --------- --------- ---------- ---------- ----------
(1,921) (1,884) (3,805) (1,920) (1,808) (3,728) (3,853) (3,684) (7,537)
---------- --------- ---------- ---------- --------- --------- ---------- ---------- ----------
Profit/(loss) 739 (5,673) (4,934) (504) 4,605 4,101 526 3,907 4,433
before tax
Taxation (1) - (1) - - - (3) - (3)
---------- --------- ---------- --------- -------- ---------- --------- --------- ---------
Net profit/(loss) 738 (5,673) (4,935) (504) 4,605 4,101 523 3,907 4,430
====== ====== ====== ===== ===== ====== ===== ===== =====
Articles basis
Earnings per 2 1.05p (8.10p) (7.05p) (0.72p) 6.58p 5.86p 0.75p 5.58p 6.33p
Ordinary share
====== ====== ====== ===== ===== ====== ===== ===== =====
Earnings per 2 4.25p - 4.25p 4.25p - 4.25p 8.50p - 8.50p
Annuity share
====== ====== ====== ===== ===== ====== ===== ===== =====
Earnings per 2 - 7.03p 7.03p - 6.45p 6.45p - 13.27p 13.27p
ZDP share
in subsidiary ====== ====== ====== ===== ===== ====== ===== ===== =====
The total column represents the Income Statement of the Group, prepared in
accordance with IFRS. The revenue and capital return columns are supplementary
to this and prepared under guidance published by the Association of Investment
Companies.
All the items in the above statement derive from continuing operations.
No operations were acquired or discontinued during the year.
Condensed Consolidated Statement of Changes in Equity
for the half year ended 29 February 2008
Ordinary
called up
share Share Other
capital premium Hedging capital Revenue
account reserve reserves reserve Total
#'000 #'000 #'000 #'000 #'000 #'000
For the half year ended 29 February 2008
(unaudited)
At 31 August 2007 700 72,300 394 (44,948) 673 29,119
Net (loss)/profit from ordinary activities - - - (5,673) 738 (4,935)
after tax
Special dividend of 0.75p paid to Ordinary - - - - (525) (525)
shareholders
Movement in fair value of interest rate swap - - (248) - - (248)
--------- ---------- ---------- ----------- --------- -----------
At 29 February 2008 700 72,300 146 (50,621) 886 23,411
===== ====== ====== ====== ===== ======
For the half year ended 28 February 2007
(unaudited)
Ordinary
called up Share Other
share premium Hedging capital Revenue
capital account reserve reserves reserve Total
#'000 #'000 #'000 #'000 #'000 #'000
At 31 August 2006 700 72,300 (473) (48,855) 850 24,522
Net profit/(loss) from ordinary activities - - - 4,605 (504) 4,101
after tax
Special dividend of 1.00p paid to Ordinary - - - - (700) (700)
shareholders
Movement in fair value of interest rate swap - - 504 - - 504
--------- ---------- ---------- ------------ --------- -----------
At 28 February 2007 700 72,300 31 (44,250) (354) 28,427
===== ====== ====== ======= ===== ======
For the year ended 31 August 2007
(audited)
Ordinary
called up Share Other
share premium Hedging capital Revenue
capital account reserve reserves reserve Total
#'000 #'000 #'000 #'000 #'000 #'000
At 31 August 2006 700 72,300 (473) (48,855) 850 24,522
Net profit from ordinary activities after - - - 3,907 523 4,430
tax
Special dividend of 1.00p paid to Ordinary - - - - (700) (700)
shareholders
Movement in fair value of interest rate - - 867 - - 867
swap
--------- ---------- --------- ------------ ---------- ------------
At 31 August 2007 700 72,300 394 (44,948) 673 29,119
===== ====== ===== ======= ====== =======
Condensed Consolidated Balance Sheet
at 29 February 2008
(Unaudited) (Unaudited) (Audited)
Group Company Group Company Group Company
29 February 29 February 28 February 28 February 31 August 31 August
2008 2008 2007 2007 2007 2007
Note #'000 #'000 #'000 #'000 #'000 #'000
Non-current assets
Listed investments 104,703 104,703 121,268 121,268 118,429 118,429
designated as held
at fair value
through profit or
loss
Unlisted 650 650 - - 650 650
investments
designated as held
at fair value
through profit or
loss
Subsidiary - 50 - 50 - 50
undertakings held
at fair value
through profit or
loss
----------- ----------- ----------- ----------- ----------- -----------
105,353 105,403 121,268 121,318 119,079 119,129
====== ====== ====== ====== ====== ======
Current assets
Cash and cash 11,043 11,035 3,387 3,379 5,129 5,121
equivalents
Other receivables 3,956 3,956 1,513 1,513 1,546 1,546
----------- ------------ ----------- ----------- ----------- ------------
14,999 14,991 4,900 4,892 6,675 6,667
====== ======= ====== ====== ====== =======
Total assets 120,352 120,394 126,168 126,210 125,754 125,796
====== ======= ====== ====== ====== =======
Current
liabilities
Annuity dividends (638) (638) (1,275) (1,275) (638) (638)
payable
Bank loan (50,000) (50,000) - - - -
Zero Dividend (22,413) - - - - -
Preference shares
Provision for (340) (340) - - - -
performance fee
Intercompany loan - (22,455) - - - -
Other payables (1,050) (1,050) (2,873) (2,873) (1,503) (1,503)
------------ ------------ ----------- ----------- ------------ ------------
(74,441) (74,483) (4,148) (4,148) (2,141) (2,141)
======= ======= ====== ====== ====== =======
Total assets less 45,911 45,911 122,020 122,062 123,613 123,655
current
liabilities ======= ======= ====== ====== ====== =======
Non-current
liabilities
Annuity shares (22,500) (22,500) (22,500) (22,500) (22,500) (22,500)
Bank loan - - (50,000) (50,000) (50,000) (50,000)
Intercompany loan - - - (20,650) - (21,539)
Zero Dividend - - (20,608) - (21,497) -
Preference shares
Provision for - - (485) (485) (497) (497)
performance fee
----------- ----------- ------------ ----------- ----------- -----------
(22,500) (22,500) (93,593) (93,635) (94,494) (94,536)
====== ====== ======= ======= ====== ======
Net assets 23,411 23,411 28,427 28,427 29,119 29,119
====== ====== ======= ======= ====== ======
Capital and
reserves
Ordinary called up 700 700 700 700 700 700
share capital
Share premium 72,300 72,300 72,300 72,300 72,300 72,300
account
Hedging reserve 146 146 31 31 394 394
Other capital (50,621) (50,621) (44,250) (44,250) (44,948) (44,948)
reserves
Revenue reserve 886 886 (354) (354) 673 673
----------- ------------ ----------- ------------ ------------ ------------
Total equity 23,411 23,411 28,427 28,427 29,119 29,119
======= ======= ====== ======= ======= =======
Net asset value
per (articles
basis)
Ordinary share 3 33.44p 33.44p 40.61p 40.61p 41.60p 41.60p
======= ======= ====== ====== ======= =======
Annuity share 3 75.00p 75.00p 79.25p 79.25p 75.00p 75.00p
(including
dividend arrears) ======= ======= ====== ====== ======= =======
ZDP share in 3 171.89p - 158.05p - 164.87p -
subsidiary
======= ======= ====== ====== ======= =======
Approved by the Board of Directors on 29 April 2008
Jonathan Carr
Chairman
Condensed Consolidated Cash Flow Statement
for the half year ended 29 February 2008
(Unaudited) (Unaudited) (Audited)
Half year ended Half year ended Year ended
29 February 28 February 31 August
2008 2007 2007
#'000 #'000 #'000
Operating Activities
(Loss)/profit before tax (4,934) 4,101 4,433
Add back finance costs 3,805 3,728 7,537
Loss/(gain) on investments held at fair value 4,313 (6,798) (8,325)
through profit or loss
Net sales of investments held at fair value through 7,458 1,791 5,636
profit or loss
(Increase)/decrease in receivables (808) 352 (117)
Decrease in amounts due from brokers - 48 807
Increase/(decrease) in amounts due to brokers - 812 (916)
(Decrease)/increase in other payables (340) 103 364
(Decrease)/increase in performance fee provision (157) 66 78
----------- ------------ -----------
Net cash inflow from operating activities before 9,337 4,203 9,497
interest and taxation
----------- ------------ -----------
Interest paid (1,630) (1,630) (3,257)
Annuity dividends paid (1,275) (638) (2,550)
Tax deducted from overseas income (8) (1) (8)
----------- ------------ ------------
Net cash inflow from operating activities 6,424 1,934 3,682
----------- ------------ ------------
Financing
Equity dividends paid (525) (700) (700)
----------- ------------ ------------
Net cash outflow from financing (525) (700) (700)
----------- ------------ ------------
Increase in cash and cash equivalents 5,899 1,234 2,982
Cash and cash equivalents at start of period 5,129 2,153 2,153
Exchange movements 15 - (6)
----------- ------------ ------------
Cash and cash equivalents at end of period 11,043 3,387 5,129
======= ====== ======
Notes to the Condensed Consolidated Financial Statements
for the half year ended 29 February 2008
1. ACCOUNTING POLICIES
Basis of preparation
The interim Financial Statements have been prepared on the basis of the
accounting policies set out in the Group's Financial Statements for the year
ended 31 August 2007 and in accordance with IAS 34.
The condensed set of Financial Statements has not been audited or reviewed by
the Company's Auditors.
The taxation charge for the period is based on foreign tax suffered.
2. EARNINGS PER SHARE (ARTICLES BASIS)
(Unaudited) (Unaudited) (Audited)
Half year ended 29 February Half year ended 28 February Year ended 31 August
2008 2007 2007
Revenue Capital Revenue Capital Revenue Capital
Return return Total return return Total return return Total
#'000 #'000 #'000 #'000 #'000 #'000 #'000 #'000 #'000
Ordinary share 738 (5,673) (4,935) (504) 4,605 4,101 523 3,907 4,430
Annuity share 1,275 - 1,275 1,275 - 1,275 2,550 - 2,550
ZDP share in - 916 916 - 841 841 - 1,730 1,730
subsidiary
The weighted average number of Ordinary shares, Annuity shares and ZDP shares in
subsidiary were 70,000,000, 30,000,000 and 13,039,100 respectively for each
period.
3. NET ASSET VALUE PER SHARE (ARTICLES BASIS)
a) Net asset value per Ordinary share
Net asset value per Ordinary share is calculated in accordance with the Articles
of Association and is based on net assets attributable to Ordinary shares of
#23,411,000 (28 February 2007: #28,427,000 and 31 August 2007: #29,119,000) and
70,000,000 (28 February 2007 and 31 August 2007: 70,000,000) Ordinary shares in
issue.
At At At
29 February 28 February 31 August
2008 2007 2007
#'000 #'000 #'000
Net assets attributable to Ordinary shareholders at start of period 29,119 24,522 24,522
Total net (loss)/profit on ordinary activities after taxation for (4,935) 4,101 4,430
the period
Special dividend paid to Ordinary shareholders (525) (700) (700)
Movement in fair value of interest rate swap (248) 504 867
------------ ----------- ----------
Net assets attributable to Ordinary shareholders at end of period 23,411 28,427 29,119
======= ====== ======
b) Net asset value per Annuity share
Net asset value per Annuity share is calculated in accordance with the Articles
of Association and is based on net assets attributable to Annuity shares of
#22,500,000 (28 February 2007: #23,775,000 and 31 August 2007: #22,500,000) and
on 30,000,000 (28 February 2007 and 31 August 2007: 30,000,000) Annuity shares
in issue.
At At At
29 February 28 February 31 August
2008 2007 2007
#'000 #'000 #'000
Net assets attributable to Annuity shareholders at start of period 22,500 22,500 22,500
Current year Annuity dividends paid and accrued (1,275) - (2,550)
Dividend attributable to Annuity shareholders 1,275 1,275 2,550
------------ ---------- -----------
Net assets attributable to Annuity shareholders at end of period 22,500 23,775 22,500
======= ====== =======
c) Net asset value per ZDP share in the subsidiary
Net asset value per ZDP share is calculated in accordance with the Articles of
Association and is based on net assets attributable to ZDP shares of #22,413,000
(28 February 2007: #20,608,000 and 31 August 2007: #21,497,000) and 13,039,100
(28 February 2007 and 31 August 2007: 13,039,100) ZDP shares in issue.
At At At
29 February 28 February 31 August
2008 2007 2007
#'000 #'000 #'000
Net assets attributable to ZDP shareholders at start of period 21,497 19,767 19,767
Capital return for the period 916 841 1,730
------------ ---------- ----------
Net assets attributable to ZDP shareholders at end of period 22,413 20,608 21,497
======= ====== ======
4. TRANSACTION COSTS INCLUDED WITHIN CAPITAL RESERVES ON THE PURCHASE AND SALE OF INVESTMENTS
Half year Half year Year
ended ended ended
29 February 28 February 31 August
2008 2007 2007
#'000 #'000 #'000
Purchase of Investments 293 160 430
Sale of Investments 84 55 147
------------ ---------- ----------
377 215 577
======= ====== ======
5. VAT ON MANAGEMENT FEES
In 2004 the Association of Investment Companies (the "AIC"), together with
JPMorgan Claverhouse Investment Trust plc, launched a case against HM Revenue &
Customs ("HMRC") to challenge whether Value Added Tax ("VAT") should be charged
on fees paid for management services provided to investment trust companies. On
28 June 2007 the European Court of Justice delivered its judgment on the case in
favour of the AIC. Since then, HMRC has accepted that the provision of
investment management services to investment trust companies is VAT exempt and
has acknowledged its liability to pay claims in respect of VAT borne by
investment companies. The Investment Manager (Royal London Asset Management
Limited) has been able to reclaim from HMRC the amount of VAT charged to the
Company in respect of investment management services from launch to 30 June
2007. VAT has not been applied to investment management fees invoiced since
June 2007.
An amount of #1,070,000 in respect of the VAT reclaim from the Investment
Manager for the period since launch to 30 June 2007 has been written back and
allocated between revenue return and capital return according to the allocation
of the amounts originally paid. In addition, interest of #149,000 has also been
recovered from HMRC.
6. RELATED PARTY TRANSACTIONS
Details of related party transactions are contained in the last annual report.
There have been no material transactions with these related parties affecting
the financial position or performance of the Company during the first six months
of our financial year.
7. 2007 ACCOUNTS
The figures and financial information for the year ended 31 August 2007 have
been extracted from the latest published accounts of the Group and do not
constitute statutory accounts for that year. Those accounts have been delivered
to the Registrar of Companies and include the report from the Auditors which was
unqualified and did not contain a statement under either Section 237(2) or 237
(3) of the Companies Act 1985.
The interim report will be issued to shareholders in early May 2008 and further
copies will be available from the company's Registered Office, 55 Moorgate,
London, EC2R 6PA.
Directors Responsibility Statement
In respect of the Interim Report and Accounts for the six months ended 29
February 2008
The Directors confirm that, to the best of their knowledge:
* the Financial Statements contained within the Interim Report and
Accounts have been prepared in accordance with IAS 34;
* the Chairman's Statement includes a fair review of the information
required by 4.2.7R and 4.2.8R of the FSA's Disclosure and Transparency Rules.
For further information please contact
Royal London Asset Management Limited
Tel: 0207 5066500
29 APRIL 2008
This information is provided by RNS
The company news service from the London Stock Exchange
END
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