Edinburgh Investment Trust PLC — Interim / Quarterly Report 2014

Nov 13, 2014

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EDINBURGH INVESTMENT TRUST PLC - Half-yearly Report

PR Newswire

London, November 13

                  The Edinburgh Investment Trust plc                         Half-Yearly Financial report                        six months to 30 September 2014FINANCIAL INFORMATION AND PERFORMANCE STATISTICSThe Edinburgh Investment Trust plc (the \`Company') is a UK investment trustlisted on the London Stock Exchange, which invests primarily in UK securities.Investment Objective of the CompanyThe Company invests primarily in UK securities with the long term objective ofachieving:1. an increase of the Net Asset Value per share by more than the growth in theFTSE All-Share Index; and2. growth in dividends per share by more than the rate of UK inflation.Performance Statisticsfor the six months to 30 September 2014Total Return (capital growth with income      % CHANGEreinvested)Net asset value (NAV) total return(1)  - debt at par                                   +5.0  - debt at market value                          +4.8Share price total return(1)                       +4.6FTSE All-Share Index total return(1)              +1.2                                                    AT           AT                                          30 SEPTEMBER     31 MARCH           %                                                  2014         2014      CHANGECapital ReturnNAV- debt at par                                  643.65p      628.18p        +2.5- debt at market value                         627.66p      613.25p        +2.3Share price(1)                                  607.5p       594.0p        +2.3FTSE All-Share Index(1)                        3533.93      3555.59        -0.6Discount:- debt at par                                     5.6%         5.4%- debt at market value                            3.2%         3.1%Gearing (at par):- gross gearing(2)                               15.9%        16.3%- net gearing(3)                                 15.7%        15.7%                                                                             %for the six months to 30 september               2014        2013       CHANGERevenue Return                                  12.8p       12.1p         +5.8Revenue return per shareFirst interim dividend(4)                        5.0p        5.0p            -Retail Price Index(1)                            1.1%        1.3%Notes: 1. Source: Thomson Reuters Datastream.2. Gross gearing: borrowings ÷ shareholders' funds.3. Net gearing: borrowings less cash and investments in money market funds ÷shareholders' funds.4. Dividends declared in respect of the financial year..INTERIM MANAGEMENT REPORT INCORPORATING THE CHAIRMAN'S STATEMENTDear Shareholder,The strong UK equity performance of the last two years to 31 March 2014 did notcontinue into the current six month reporting period to 30 September 2014. TheFTSE All Share Index at the end of the six month period remained largelyunchanged from its starting position, weighed down by concerns about earningsgrowth, the end of quantitative easing in the US and slower growth in China.However, against this backdrop, and in Mark Barnett's first full period asportfolio manager, I am pleased to be able to report reassuring investmentperformance against benchmark and the peer group. This performance and theconditions on both the economic and market fronts are detailed below and in theportfolio manager's report.PerformanceThe Company produced a net asset value (NAV) total return for the six months to30 September 2014 of 5.0% (debt at par) and 4.8% (debt at market), whichcompares with a total return of 1.2% for the FTSE All-Share Index, theCompany's benchmark. The share price total return (share price with dividendsreinvested) for the period was 4.6%. The portfolio continues to be concentratedin a relatively small number of sectors and its overweight or underweightpositions in various sectors can be material drivers of the Company's relativeinvestment performance.The Company's share price at 30 September 2014 was 607.5p, an increase of 2.3%from the year end share price of 594.0p. The shares traded at a discount of5.6% to NAV (debt at par) at 30 September 2014, marginally widening from thediscount at the Company's year end of 5.4%. At 11 November 2014, the latestpractical date to signing this report, the NAV was 663.4p, the share price was636.0p and the resultant discount was 4.1% (debt at par) and 1.5% (debt atmarket value).Management FeesAs reported to shareholders in the Annual Financial Report, the Company'smanagement fees were renegotiated in January 2014. With effect from 1 April2014, the management fee comprises a flat rate fee of 0.55% (previously 0.6%)per annum of market capitalisation with no performance fee.Borrowings and GearingFollowing an extensive review, the Company put in place a 364 day £100 millionrevolving credit facility with Bank of New York Mellon. This facility was usedto repay the Company's £100 million 11½% debenture which matured on 30 June2014. From this date until the present time, the portfolio manager has chosento draw down £100 million from the new facility. The savings from the decreasein borrowing costs are substantial, being £2.5 million for the three monthssince 30 June and, if interest rates remain around their current levels untilthe Company's year end of March 2014, the saving for the year will be circa £7.5 million.The Company continues to have a £100 million 7¾% debenture which matures in2022. Combined with the new credit facility and using current interest rates,the weighted average cost of £200 million borrowings has reduced significantlyfrom 9.625% pa to 4.5% pa.The mixture of fixed debt and floating credit facility gives increasedflexibility to the portfolio manager with respect to the gearing of theportfolio. Overall, gearing must be within the 25% net assets limit agreed byshareholders at the AGM and I reiterate the statement made in the 2014 annualreport: that there is no intention at present to increase borrowings to thislimit. At 30 September 2014, the Company's gross gearing had fallen to 15.9%(NAV with debt at par), a slight decrease from 16.3% at the Company's year end.DividendThe Board declares an unchanged first interim dividend of 5.0 pence per sharewhich will be paid on 28 November 2014 to shareholders on the register on 21November 2014. Shares will be quoted ex-dividend on 20 November 2014.Alternative Investment Fund Managers Directive (AIFMD)As previously announced on 22 July 2014, the Company has entered intoarrangements necessary to ensure compliance with the AIFMD. The Board hasappointed Invesco Fund Managers Limited (IFML) as the Company's AlternativeInvestment Fund Manager and BNY Mellon Trust & Depositary (UK) Limited to actas the Company's depositary. It is not expected or intended that these newarrangements will result in any change to the way the Company's assets areinvested.OutlookThe portfolio manager report discusses a number of global macro-economic andgeopolitical issues which highlight the uncertain nature of, and a challengingbackdrop for financial markets. Additionally, the forthcoming UK generalelection and uncertainties around the UK's relationship with Europe, furthercomplicates the picture. October saw the return of increased volatility in thefinancial markets and this may well continue to be a feature of the future forsome time. However it is important to stress, as I have done in previousChairman's statements, that the Manager's unchanged investment approach which,with its emphasis on value driven long term investment growth, should provideresilience in periods of market weakness whilst still providing the opportunityfor creating growth in shareholder value over the longer term.125th Anniversary BookletThose shareholders who attended the 125th Annual General Meeting in July willhave received a booklet setting out the 125 year history of the Company. A copyof this booklet will be sent to shareholders with this half-yearly report. Ihope you enjoy reading it, and that the next 125 years are as rewarding forshareholders as the first 125 years.Jim PettigrewChairman13 November 2014MANAGER'S REPORTMarket ReviewThe six month period under review saw the UK equity market, as measured by theFTSE All-Share Index, rise by 1.2% (total return). In this period the marketmoved broadly sideways as the valuation re-rating, which had been in progressfor the previous two years, was halted as a result of concerns over futureprofit growth caused by earnings disappointments and the impending end to theQuantitative Easing (QE) programme in the US. Furthermore, rising geopoliticalrisk, the Ebola outbreak and the prospect of UK domestic elections began toaffect the previously stable backdrop for the market. Added to this fears overChina's slowing growth rate and a weakening European economy became morerelevant concerns.Earnings momentum was persistently negative throughout 2013 and the first halfof 2014, particularly within the FTSE 100. This led to a steady and broadlybased expansion of forward-based valuation multiples, as prices rose muchquicker than earnings. Evidence that some share prices were not supported by arealistic assessment of underlying prospects came in the three months to 30September 2014 as a series of high profile profits warnings, most notably inthe food retailing, construction and mining sectors, resulted in somesignificant share price falls.On the positive front, inflation remains subdued and although wage growthappears weak, the price of non-discretionary items such as petrol and food hasfallen, thereby relieving some of the upward pressure on interest rates.Government bond yields have been supportive of equities over the period and the30 year US government bond recently fell below 3%, suggesting that the marketviews the longer term outlook for global inflation as subdued. However, fallinginflation and declining bond yields led to fears of global deflation, which inturn could lead to unwelcome pressure on company balance sheets and profitmargins, hampering global economic recovery.Portfolio Strategy and ReviewThe Company's net asset value, including reinvested dividends, rose by 5.0%(debt at par) and 4.8% (debt at market value) during the period under review,compared with a rise of 1.2% (total return) by the FTSE All-Share Index.The Company's outperformance over the six month period reflected some strongcontributions from across the portfolio, but most notably in the Tobaccosector. The most significant positive contributions came from the holdings inAstraZeneca, BAE Systems, Altria Group, Reynolds American and Imperial Tobacco.AstraZeneca continued to grow its drugs pipeline in 2014, with the chiefexecutive commenting post the company's half year results in July that\`significant progress' had been made and that there was \`visible momentum'across their cardiovascular, diabetes and respiratory franchises, as well asstrong growth in the emerging markets. The attractions of AstraZeneca'spipeline were highlighted in April when Pfizer made a bid for the company whichwas subsequently rebuffed by the AstraZeneca board.BAE Systems' share price rose amid growing instability in the Middle East andthe ongoing implementation of its £1 billion share repurchase programme, andfollowing the resolution of the Saudi contract negotiation. Altria Group, theUS tobacco holding company which has a stake in SABMilller, saw its share pricerise strongly, when the latter became the subject of takeover speculation.Meanwhile, Reynolds American and Imperial Tobacco have seen their share pricesrise following merger and acquisition activity, whereby both companies areawaiting final US government approval for their planned acquisitions ofLorillard brands.Amongst the detractors to performance over the period were Thomas Cook Group,GlaxoSmithKline and Drax Group. Thomas Cook Group saw its share price declinesharply when it failed to match last year's sales growth and more latterly inreaction to fears that the Ebola outbreak would negatively affect bookings.GlaxoSmithKline was impacted by what it described as intensifying competitionand pricing pressure in the US respiratory market. Finally, the share price ofDrax Group retreated on news that its plea to have a proposed power plantsubsidy reinstated had been rejected by the UK's Court of Appeal.Amongst the new investments the holding in Game Digital, a retailer of videogames and consoles from shops and online, was a notable performer during theperiod, its share price having risen sharply post its stock market flotation inJune.In terms of portfolio activity, new investments comprised Game Digital andFriends Life and disposals included Sanofi, Paypoint and Catlin Group.OutlookThe outlook for the UK equity market is likely to be more volatile for theforeseeable future. The key issues which will continue to overshadow theperformance of the equity market remain the interplay between growing investorpessimism on the global economic outlook and the ability of policymakers tocreate the conditions to reinvigorate growth prospects where necessary. Therecent performance of the Eurozone and Chinese economies in particular isconcerning. Weaker than expected growth in these areas, and the deflationaryforces which are exported, will undoubtedly have an impact on other developedeconomies such as the US and the UK which have been performing relatively wellin 2014. The overall background for revenue growth is likely to remain subduedinto 2015 and will give rise to further profit warnings which have been afeature of the recent newsflow in the market.The influence of the UK and the US central banks in this environment isbecoming weaker as their two main policy levers, interest rates and liquidity,have been fully exploited for a number of years. Their last remaining optionnow is to use speeches and policy guidance to influence the behaviour ofeconomies and market participants. But this power also has its limitations asmarkets grow tired and sceptical of unfulfilled promises. It is certainly thecase that policymakers are keen to change the current policy stance which hassurvived largely unchanged since 2008. However, any change in monetary policy,be it through the tapering of QE or a move in short-term interest ratesprovides another headwind for the markets in the near future. Given the recenteconomic news it is likely that the anticipated increase in rates in the US andUK will be deferred until mid 2015 as there is very little sign of inflationpressure in these economies, despite rapidly falling levels of unemployment.The political backdrop both domestically and internationally is the final issuewhich has taken on more relevance in the recent past but which is likely toremain an important influence for the next twelve months. The changes in thepolitical agenda ahead of the UK general election in May 2015 are likely to beanother source of uncertainty for the UK stockmarket.Moments of market weakness in recent weeks are symptomatic of some of theseconcerns. It is true that equities continue to look attractive relative toother asset classes, but in some cases absolute valuations still look elevatedwhere share prices do not appropriately anticipate the risk to earnings andcash-flows. The portfolio strategy is therefore largely unchanged. I put a highprice on the companies in the market which offer visibility of revenues,profits and cash-flows in this low growth world and which are managed for theprincipal purpose of delivering shareholder value in the form of a sustainableand growing dividend.Mark BarnettPortfolio Manager13 November 2014.Total Returns to 30 September 2014                          6 MONTHS   1 YEAR  2 YEARS  3 YEARS  5 YEARS 10 YEARSNAV (debt at par) (%)          5.0     13.0     37.9     61.4    106.6    155.7NAV (debt at market            4.8     13.9     42.5     68.1    120.5    173.8value) (%)Share Price (%)                4.6      5.4     27.4     53.7    117.1    205.0FTSE All-Share Index (%)       1.2      6.1     26.2     47.9     59.2    120.2Source: Thomson Reuters Datastream.Principal Risks and UncertaintiesThe principal risk factors relating to the Company can be summarised asfollows:• Market Risks - a fall in the stock market as a whole will affect theperformance of the portfolio, as well as the performance of individualportfolio investments; it also includes interest rate and currency risks;• Investment Performance Risk - this is the stock specific risk that the stockselection process may not achieve the Company's published objectives;• Gearing and Borrowing Risk - in addition to the debenture in issue, theCompany may also borrow money for investment purposes. If the investments fallin value, the level of gearing will have an adverse impact on performance. Ifborrowing facilities could not be renewed, the Company might have to sellinvestments to repay any borrowings it has;• Income/Dividend Risk - investment income may fail to reach the level requiredto meet the Company's income objective;• Share Price Risk - the Company's prospects and NAV may not be fully reflectedin the share price;• Control System Risk - the Board relies on the effectiveness of the Manager'scontrol systems which include control activities in fund management operations,financial controls, meeting regulatory requirements and managing relations withthird parties;• Reliance on Third Party Providers Risk - the Company has no employees, so isreliant upon the performance of third party service providers for it tofunction, particularly the Manager, custodian and registrar; and• Other Risks - the Company may be affected by other risks such as business andstrategic risks, and the perceived impact of the designated Investment Managerceasing to be involved with the Company.A detailed explanation of these principal risks and uncertainties can be foundon pages 10 to 13 of the 2014 annual financial report, which is available onthe Manager's website at www.invescoperpetual.co.uk/investmenttrusts.In the view of the Board, these principal risks and uncertainties aresubstantially unchanged from the previous year end and are as much applicableto the remaining six months of the financial year, as they were to the sixmonths under review. The risk associated with failure of the custodian ismitigated by the appointment, during the period, of a depositary. Thedepositary is ultimately responsible for safekeeping of the Company's assetsand is strictly liable for the recovery of these in the event of loss.As highlighted in the annual financial report, the Manager's style may resultin a concentrated portfolio. In addition, the Manager manages other portfoliosholding many of the same stocks as the Company which reflects the Manager'shigh conviction style of investment management. This could potentially increaseliquidity risk under certain scenarios and market conditions.Going ConcernThe financial statements have been prepared on a going concern basis. TheDirectors consider this is the appropriate basis as the Company has adequateresources to continue in operational existence for the foreseeable future beingat least 12 months after the date of approval of these half year financialstatements. In considering this, the Directors took into account thediversified portfolio of readily realisable securities which can be used tomeet funding commitments, and the ability of the Company to meet all itsliabilities and ongoing expenses from its assets and revenue.­Related Party Transactions and Transactions with the ManagerUnder United Kingdom Generally Accepted Accounting Practice (UK AccountingStandards and applicable law), the Company has identified the Directors asrelated parties. No other related parties or related party transactions havebeen identified during the period.With effect from 22 July 2014, Invesco Fund Managers Limited (IFML), a whollyowned subsidiary of Invesco Limited and associate company of Invesco AssetManagement Limited (IAML), was appointed as Manager. Prior to 22 July 2014,IAML carried out these functions and continues to do so under delegatedauthority of IFML. Details of the basis of fees payable to the Manager remainunchanged and are as shown in the 2014 annual financial report which isavailable on the Manager's website.DIRECTORS' RESPONSIBILITY STATEMENTin respect of the preparation of the half-yearly financial reportThe Directors are responsible for preparing the half-yearly financial reportusing accounting policies consistent with applicable law and UK AccountingStandards.The Directors confirm that to the best of their knowledge:- the condensed set of financial statements contained within the half-yearlyfinancial report have been prepared in accordance with the Accounting StandardsBoard's Statement \`Half-Yearly Financial Reports';- the interim management report includes a fair review of the informationrequired by 4.2.7R and 4.2.8R of the FCA's Disclosure and Transparency Rules;and- the interim management report includes a fair review of the informationrequired on related party transactions.Signed on behalf of the Board of Directors.Jim PettigrewChairman13 November 2014INVESTMENTS IN ORDER OF VALUATIONat 30 September 2014UK listed and ordinary shares unless stated otherwise.AIM Investments quoted on AIM.INVESTMENT                SECTOR                              MARKET       % OF                                                               VALUE  PORTFOLIO                                                               £'000British American Tobacco  Tobacco                             74,481        5.1Roche - Swiss common      Pharmaceuticals &                   74,113        5.1stock                     BiotechnologyAstraZeneca               Pharmaceuticals &                   71,963        5.0                          BiotechnologyImperial Tobacco          Tobacco                             69,898        4.8Reynolds American - US    Tobacco                             67,296        4.7common stockBT Group                  Fixed Line Telecommunications       66,393        4.6BAE Systems               Aerospace & Defence                 64,366        4.4GlaxoSmithKline           Pharmaceuticals &                   49,351        3.4                          BiotechnologyReckitt Benckiser         Household Goods & Home              47,627        3.3                          ConstructionAltria - US common stock  Tobacco                             41,776        2.9Ten Top Holdings                                             627,264       43.3SSE                       Electricity                         40,409        2.8Rolls-Royce               Aerospace & Defence                 38,767        2.7BP                        Oil & Gas Producers                 37,764        2.6Provident Financial       Financial Services                  36,292        2.5Capita                    Support Services                    33,262        2.3Reed Elsevier             Media                               32,978        2.3Legal & General           Life Insurance                      31,979        2.2Babcock International     Support Services                    30,764        2.1Novartis - Swiss common   Pharmaceuticals &                   30,165        2.1stock                     BiotechnologyBTG                       Pharmaceuticals &                   29,497        2.0                          BiotechnologyTwenty Top Holdings                                          969,141       66.9Drax                      Electricity                         28,506        2.0Compass                   Travel & Leisure                    28,427        2.0Hiscox                    Non-life Insurance                  27,465        1.9G4S                       Support Services                    26,464        1.8Smith & Nephew            Healthcare Equipment &              23,992        1.7                          ServicesLondon Stock Exchange     Financial Services                  23,677        1.6GAME Digital              General Retailers                   23,600        1.6Amlin                     Non-life Insurance                  23,257        1.6Derwent London            Real Estate Investment Trusts       23,215        1.6Shaftesbury               Real Estate Investment Trusts       22,555        1.6Thirty Top Holdings                                        1,220,299       84.3Centrica                  Gas & Water Multiutilities          22,110        1.5Thomas Cook               Travel & Leisure                    18,361        1.3Beazley                   Non-life Insurance                  17,355        1.2Rentokil Initial          Support Services                    17,067        1.2Lancashire                Non-life Insurance                  14,707        1.0NewRiver RetailAIM        Real Estate Investment Trusts       14,583        1.0KCOM                      Fixed Line Telecommunications       14,064        1.0Raven Russia - Preference Real Estate Investment &             9,324                          ServicesRaven Russia - Ordinary                                        4,100                                                              13,424        0.9Friends Life              Life Insurance                      13,413        0.9IP Group                  Financial Services                  12,626        0.9Forty Top Holdings                                         1,378,009       95.2N Brown                   General Retailers                   11,839        0.8HomeServe                 Support Services                    11,656        0.8CLS                       Real Estate Investment &            11,121        0.8                          ServicesVectura                   Pharmaceuticals &                    8,131        0.6                          BiotechnologySerco                     Support Services                     7,736        0.5Burford CapitalAIM        Investment Instruments               5,148        0.4Stobart                   Industrial Transportation            5,143        0.4Chemring                  Aerospace & Defence                  3,534        0.3Barclays Bank - Nuclear   Investment Instruments               1,863        0.1Power  Notes 28 Feb 2019ReddeAIM                  Financial Services                   1,744        0.1Fifty Top Holdings                                         1,445,924      100.0Eurovestech - Unquoted    Financial Services                     492          -Proximagen - Rights       Pharmaceuticals &                      378          -                          Biotechnology  12 Sept 2017 - UnquotedTotal Holdings (52)                                        1,446,794      100.0.CONDENSED INCOME STATEMENT                          SIX MONTHS TO 30         SIX MONTHS TO 30           YEAR                           SEPTEMBER 2014           SEPTEMBER 2013           ENDED                             (Unaudited)              (Unaudited)         31 March                                                                              2013                                                                         (audited)                       REVENUE CAPITAL   TOTAL  REVENUE  CAPITAL    TOTAL    TOTAL                         £'000   £'000   £'000   £'000    £'000    £'000     £'000Gains on investments         -  38,713  38,713       -   41,484   27,646   112,468Foreign exchange             -    (14)    (14)       -      169      169       154profitsIncome  UK dividends -        22,478       -  22,478  23,101        -   23,101    40,502ordinary  UK dividends -         1,700       -   1,700   1,092       22    1,114     3,463special  Overseas dividends -   4,420       -   4,420   3,732        -    3,732    10,125ordinary  Overseas dividends -       -       -       -       -        -        -       311special  Scrip dividends          550       -     550     572        -      572       969  Income from money          2       -       2       3        -       36        11market funds  Underwriting and           -       -       -       1        -        1         1other income                        29,150  38,699  67,849  28,501   41,675   70,176   168,004Operating costsInvestment management    (979) (2,284) (3,263) (1,038)  (2,422)  (3,460)   (6,947)fee - note 2Performance fee - note 2      -       -       -       - (11,688) (11,688)   (4,826)Other expenses           (434)       -   (434)   (395)      (1)    (396)     (787)Net return before       27,737  36,415  64,152  27,068   27,632   54,632   155,444finance costs andtaxationFinance costs - note 2 (2,176) (5,076) (7,252) (2,925)  (6,826)  (9,751)  (19,501)Return on ordinary      25,561  31,339  56,900  24,143   20,738   44,881   135,943activities before taxTax on ordinary          (502)       -   (502)   (523)        -    (523)   (1,417)activities - note 3Return on ordinary      25,059  31,339  56,398  23,611   20,738   44,349   134,526activities after taxReturn per ordinary      12.8p   16.1p   28.9p   12.1p    10.6p    22.7p     69.0pshare - note 4The total column of this statement represents the Company's profit and lossaccount, prepared in accordance with UK Accounting Standards. The supplementaryrevenue and capital columns are presented for information purposes inaccordance with the Statement of Recommended Practice issued by the Associationof Investment Companies. All items in the above statement derive fromcontinuing operations and the Company has no other gains or losses therefore nostatement of recognised gains or losses is presented. No operations wereacquired or discontinued in the period..CONDENSED RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS                                               CAPITAL                              SHARE   SHARE REDEMPTION   CAPITAL  REVENUE                            CAPITAL PREMIUM    RESERVE   RESERVE  RESERVE     TOTAL                              £'000   £'000      £'000     £'000    £'000     £'000For the six months ended 30September 2014(Unaudited)At 31 MARCH 2014             48,779   6,639     24,676 1,086,473   61,244 1,227,811Dividends paid - note 5           -       -          -         - (26,341)  (26,341)Net return on ordinary            -       -          -    31,339   25,059    56,398activitiesAt 30 SEPTEMBER 2014         48,779   6,639     24,676 1,117,812   59,962 1,257,868For the year ended 31 March2014 (Audited)At 31 MARCH 2013             48,779   6,639     24,676   997,171   60,481 1,137,746Dividends paid - note 5           -       -          -         - (44,461)  (44,461)Net return on ordinary            -       -          -    89,302   45,224   134,526activitiesAt 31 MARCH 2014             48,779   6,639     24,676 1,086,473   61,244 1,227,811For the six months ended 30September 2013(Unaudited)At 31 MARCH 2013             48,779   6,639     24,676   997,171   60,481 1,137,746Dividends paid - note 5           -       -          -         - (24,948)  (24,948)Net return on ordinary            -       -          -    20,738   23,611    44,349activitiesAt 30 SEPTEMBER 2013         48,779   6,639     24,676 1,017,909   59,144 1,157,147.CONDENSED BALANCE SHEETRegistered number SC1836                                                      AT           AT        AT                                            30 SEPTEMBER 30 SEPTEMBER  31 MARCH                                                    2014         2013      2014                                             (UNAUDITED)  (UNAUDITED) (AUDITED)                                                   £'000        £'000     £'000Fixed assets  Investments at fair value through profit     1,446,794    1,366,062 1,420,220or lossCurrent assets  Amounts due from brokers                         1,454            -         -  Prepayments and accrued income                   4,579        4,770     8,842  Tax recoverable                                    752          833     1,658  Cash and cash funds                              3,073        2,067     7,025                                                   9,858        7,670    17,525Creditors: amounts falling due within oneyear  Amounts due to brokers                               -      (3,532)   (3,596)  Accruals                                         (792)      (3,624)   (3,646)  Performance fee payable                              -            -   (4,826)  111/2% Debenture Stock 30 Jun 2014                   -    (100,000) (100,000)  Bank loan                                    (100,000)            -         -                                               (100,792)    (107,156) (112,068)Net current assets/(liabilities)                (90,934)     (99,486)  (94,543)Total assets less current liabilities          1,355,860    1,266,576 1,325,677Creditors: amounts falling due after more       (97,992)     (97,741)  (97,866)than one year  7 3⁄4% Debenture Stock 30 Sep 2022Provision for performance fee                          -     (11,688)         -Net assets                                     1,257,868    1,157,147 1,227,811Capital and reservesShare capital                                     48,779       48,779    48,779Share premium                                      6,639        6,639     6,639Capital redemption reserve                        24,676       24,676    24,676Capital reserve                                1,117,812    1,017,909 1,086,473Revenue reserve                                   59,962       59,144    61,244Shareholders' funds                            1,257,868    1,157,147 1,227,811Net asset value per ordinary share  Basic - note 6                                 643.65p      591.89p   628.18p.CONDENSED CASH FLOW STATEMENT                                              SIX MONTHS  SIX MONTHS YEAR ENDED                                                      TO          TO   31 MARCH                                            30 SEPTEMBER 30 SEPTEMBER      2014                                                    2014        2013                                             (UNAUDITED) (UNAUDITED)  (AUDITED)                                                   £'000       £'000      £'000Net return before finance costs and taxation      64,152      54,632    155,444Scrip dividends                                    (550)       (572)      (969)Gains on investments                            (38,713)    (41,484)  (112,468)Cash inflow from forward currency contracts            -         617        617Decrease/(increase) in debtors                     5,169       3,190    (1,707)(Decrease)/increase in creditors and             (4,860)         228    (6,612)provisionsOverseas tax paid                                  (502)       (532)    (1,417)Net cash inflow from operating activities         24,696      16,079     32,888Servicing of finance                             (9,946)     (9,625)   (19,250)Financial investment  Purchase of investments                      (120,531)    (58,415)  (407,259)  Sale of investments                            128,170      78,889    445,020Net equity dividends paid - note 5              (26,341)    (24,948)   (44,461)Net cash (outflow)/inflow before management      (3,952)       1,980      6,938of liquid resources and financingFinancing  Bank loan drawn down                           100,000           -          -  Repayment of Debenture Stock 30 June 2014    (100,000)           -          -Net cash inflow/(outflow) from management of       6,800           -    (6,800)liquid resourcesIncrease in cash                                   2,848       1,980        138  Cashflow from movement in liquid resources     (6,800)           -      6,800  Debenture stock non-cash movement                (126)       (126)      (251)Net debt at beginning of period                (190,841)   (197,528)  (197,528)Net debt at end of period                      (194,919)   (195,674)  (190,841)Analysis of changes in net debt:Brought forward:  Cash and cash funds                              7,025          87         87  Debenture stock                              (197,866)   (197,615)  (197,615)Net debt brought forward                       (190,841)   (197,528)  (197,528)Movements in the period:  Cash (outflow)/inflow from cash and cash       (3,952)       1,980      6,938funds  Cash inflow from bank loan drawn down          100,000           -          -  Cash outflow from repayment of Debenture     (100,000)           -          -Stock 30 June 2014  Debenture stock non-cash movement                (126)       (126)      (251)Net debt carried forward                       (194,919)   (195,674)  (190,841).NOTES TO THE CONDENSED FINANCIAL STATEMENTS1. Basis of preparationThese condensed financial statements of the Company have been prepared usingthe same accounting policies as those adopted in the 2014 annual financialreport, which are consistent with applicable United Kingdom AccountingStandards, and with the Statement of Recommended Practice \`Financial Statementsof Investment Trust Companies and Venture Capital Trusts'. These financialstatements are prepared on a going concern basis.2. Management fees and finance costsAs reported in the 2014 annual financial report, the management feearrangements were amended. From 1 April 2014 the fees changed to a flat fee of0.55% (previously 0.6%) per annum of market capitalisation with no performancefee. Investment management fee and finance costs are allocated 30% to revenueand 70% to capital.3. TaxOwing to the Company's status as an investment company no tax liability ariseson capital gains. The tax charge represents withholding tax suffered onoverseas income.A deferred tax asset is not recognised in respect of surplus managementexpenses since the Directors believe that there will be no taxable profits inthe future against which these can be offset.4. Return per ordinary shareThe basic revenue, capital and total returns per share are based on the returnsafter tax and the average number of shares in issue during the period asfollows:                                            SIX MONTHS    SIX MONTHS                                                    TO            TO   YEAR ENDED                                           30 SEPTEMBER 30 SEPTEMBER    31 MARCH                                                   2014        2013         2014                                            (UNAUDITED) (UNAUDITED)     (AUDITED)                                                  £'000       £'000       £'000Returns after tax:Revenue                                          25,059      23,611      45,224Capital                                          31,339      20,738      89,302Total return after tax                           56,398      44,349     134,526Weighted average number of shares in issue  195,116,734 195,116,734 195,116,734during the period5. Dividends                                SIX MONTHS TO      SIX MONTHS TO   YEAR ENDED                                 30 SEPTEMBER      30 SEPTEMBER     31 MARCH                                     2014              2013           2014                                 (UNAUDITED)        (UNAUDITED)     (AUDITED)                                  PENCE     £'000   PENCE   £'000  PENCE  £'000Dividends paid:Third interim                       5.0     9,756     5.0   9,756    5.0  9,756Final                               8.5    16,585     7.8  15,219    7.8 15,219First interim                         -         -       -       -    5.0  9,756Second interim                        -         -       -       -    5.0  9,756Return of unclaimed                   -         -       -    (27)      -   (26)dividends from previousyears                                   13.5    26,341    12.8  24,948   22.8 44,461A first interim dividend of 5p (2013: 5p) for the year ended 31 March 2015,will be paid on 28 November 2014 to shareholders on the register on 21 November2014.6. Net asset value (NAV) per ordinary share(a) Debt at parThe shareholders' funds in the balance sheet are accounted for in accordancewith accounting standards, however, this does not reflect the rights ofshareholders on a return of assets under the Articles of Association. Theserights are reflected in the net assets with debt at par and the correspondingNAV per share.                                            30 SEPTEMBER 30 SEPTEMBER  31 MARCH                                                    2014         2013      2014                                             (UNAUDITED)  (UNAUDITED) (AUDITED)                                                   PENCE        PENCE     PENCENAV per ordinary share                            644.68       593.05    629.27Less: unamortised discount and expenses           (1.03)       (1.16)    (1.09)arising from debenture issueNAV - debt at par                                 643.65       591.89    628.18(b) Debt at market value                                            30 SEPTEMBER 30 SEPTEMBER  31 MARCH                                                    2014         2013      2014                                             (UNAUDITED)  (UNAUDITED) (AUDITED)                                                   PENCE        PENCE     PENCENAV - debt at par                                 643.65       591.89    628.18Debenture debt at par                              51.25       102.50    102.50Debenture debt at market value                   (67.24)     (121.07)  (117.43)NAV - debt at market value                        627.66       573.32    613.257. Share capital                                                     30          30                                              SEPTEMBER   SEPTEMBER    31 MARCH                                                   2014        2013        2014                                            (UNAUDITED) (UNAUDITED)   (AUDITED)Allotted, called-up and fully paidNumber of ordinary shares of 25p each       195,116,734 195,116,734 195,116,7348. It is the intention of the Directors to conduct the affairs of the Companyso that it satisfies the conditions for approval as an investment trust companywithin the meaning of section 1158 of the Corporation Tax Act 2010.9. The financial information contained in this half-yearly financial report,which has not been audited, does not constitute statutory accounts as definedin section 434 of the Companies Act 2006. The financial information for thehalf years ended 30 September 2014 and 2013 has not been audited. The figuresand financial information for the year ended 31 March 2014 are extracted andabridged from the latest published accounts and do not constitute the statutoryaccounts for that year. Those accounts have been delivered to the Register ofCompanies and included the Report of the Independent Auditors, which wasunqualified.By order of the BoardInvesco Asset Management LimitedCompany Secretary13 November 2014INDEPENDENT REVIEW REPORTIntroductionWe have been engaged by the Company to review the condensed set of financialstatements in the half-yearly financial report for the six months ended 30September 2014 which comprises the condensed income statement, condensedreconciliation of movements in shareholders' funds, condensed balance sheet,condensed cash flow statement and the related explanatory notes. We have readthe other information contained in the half-yearly financial report andconsidered whether it contains any apparent misstatements or materialinconsistencies with the information in the condensed set of financialstatements.This report is made solely to the Company in accordance with the terms of ourengagement to assist the Company in meeting the requirements of the Disclosureand Transparency Rules (the \`DTR') of the UK's Financial Conduct Authority (the\`UK FCA'). Our review has been undertaken so that we might state to the Companythose matters we are required to state to it in this report and for no otherpurpose. To the fullest extent permitted by law, we do not accept or assumeresponsibility to anyone other than the Company for our review work, for thisreport, or for the conclusions we have reached.Directors' ResponsibilitiesThe half-yearly report is the responsibility of, and has been approved by, theDirectors. The Directors are responsible for preparing the half-yearlyfinancial report in accordance with the DTR of the UK FCA. As disclosed in note1, the annual financial statements of the Company are prepared in accordancewith UK Accounting Standards and applicable law (UK Generally AcceptedAccounting Practice). The condensed set of financial statements included inthis half-yearly financial report has been prepared in accordance with theStatement \`Half-Yearly Financial Reports' as issued by the UK AccountingStandards Board.Our ResponsibilityOur responsibility is to express to the Company a conclusion on the condensedset of financial statements in the half-yearly financial report based on ourreview.Scope of ReviewWe conducted our review in accordance with International Standard on ReviewEngagements (UK and Ireland) 2410 \`Review of Interim Financial InformationPerformed by the Independent Auditor of the Entity' issued by the AuditingPractices Board for use in the UK. A review of interim financial informationconsists of making enquiries, primarily of persons responsible for financialand accounting matters, and applying analytical and other review procedures. Areview is substantially less in scope than an audit conducted in accordancewith International Standards on Auditing (UK and Ireland) and consequently doesnot enable us to obtain assurance that we would become aware of all significantmatters that might be identified in an audit. Accordingly, we do not express anaudit opinion.ConclusionBased on our review, nothing has come to our attention that causes us tobelieve that the condensed set of financial statements in the half-yearlyfinancial report for the six months ended 30 September 2014 is not prepared, inall material respects, in accordance with the Statement \`Half-Yearly FinancialReports' as issued by the UK Accounting Standards Board and the DTR of the UKFCA.Catherine Burnetfor and on behalf of KPMG LLPChartered AccountantsLondon13 November 2014