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Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
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Royal Lon Tst | LSE:RLU | London | Ordinary Share | GB0030794050 | ORD 1P |
Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|---|---|
0.00 | 0.00% | 19.00 | 0.00 | 01:00:00 |
Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
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0 | 0 | N/A | 0 |
RNS Number:4440F Royal London UK Eqty&Income Tst PLC 19 November 2004 ROYAL LONDON UK EQUITY & INCOME TRUST PLC Preliminary results for the year ended 31 August 2004 (All references to "Group" include the Company's subsidiary, Royal London UK Equity & Income Securities plc) Chairman's Statement After the sharp recovery in world equity markets seen in the second half of its last financial year, it was only to be expected that your Group's third year of operation would be one of consolidation. The recovery in the equity markets was stalled by a combination of events including rising interest rates on both sides of the Atlantic, unsettling events in the Middle East and an ever-increasing oil price. Against this background your Group's total assets rose by 5.5% during the year under review. Your Investment Manager comments in detail on the performance of the individual components of the portfolio in their report. There has been no change in the structure of your Company this year and it has continued to operate within its covenant agreements: the current loan to value ratio is 50.4%, with total borrowings of #50 million. Following the success of last year's buy-back of Zero Dividend Preference ("ZDP") shares issued by the Company's subsidiary, Royal London UK Equity & Income Securities plc, your Board agreed to continue the buy-back programme when suitable opportunities occurred. Unfortunately, liquidity in the shares has been limited and during the year under review, the Company purchased a total of 385,000 ZDP shares at a cost of #399,000 (excluding associated costs). These ZDP shares are currently being held as an investment with the intention of cancelling them at a later date. Nevertheless the buy-back programme as a whole has enhanced the net asset value of the Group by #3.5 million. At the date of this report there remain 13,424,100 ZDP shares in issue. Your Group is still not in a position to declare or pay a dividend due to its inability to meet the requirements of Section 265 of the Companies Act 1985 as the Group's assets remain less then 1.5 times its liabilities. Many of the investments in the income portfolio have suffered significant falls in value with some having been suspended or put into liquidation. At the year-end, a review of the income portfolio was undertaken by your Board and investments with an aggregate book cost of #16,018,000 were identified as having suffered a permanent diminution in value. Such diminution has been agreed to amount to #16,012,000. This amount has now been written-off as a realised capital loss, having previously been recognised as an unrealised capital loss and included in the published net asset value statements as such. At 31 August 2004 the breakdown of the Group's assets was as follows: Market-value % #000 UK Equity Portfolio 61,508 61.2 Income Portfolio 5,653 5.6 UK Bond Portfolio 27,531 27.4 Cash (net current assets) 5,864 5.8 -------------- ------------ 100,556 100.0 ========== ========== Source: BNP Paribas Fund Services UK Limited As the year progressed your Board became increasingly aware of the fact that following the catastrophic events in the split-capital sector during the first two years of your Company's existence, income generation was going to be a long-term problem. It was gradually becoming apparent that it was unlikely that your Group would generate sufficient income to satisfy expectations of ordinary shareholders even when it became legally possible to pay dividends as a result of the dramatic constriction of the income-producing base of the portfolio. Your Board considered carefully and at length where future returns for the ordinary shares were most likely to be generated and came to the conclusion that they could only realistically come from capital return rather than by income in the form of dividends. These conclusions have been arrived at in conjunction with your Group's Investment Manager, which will be making future investment decisions in light of these conclusions. At the same time your Board is renegotiating the investment management fee with Royal London Asset Management Limited. Details of this will be announced to the market shortly. Looking to the future, the outlook for markets remains uncertain. Interest rates are not expected to rise much further however and equity markets, after quite a long period of relatively little progress, are showing encouraging signs of moving forward as I write. Your Group, with its high level of gearing, is well positioned to be a major beneficiary of any upward movement. Jonathan Carr Chairman 19 November 2004 ROYAL LONDON UK EQUITY & INCOME TRUST PLC for the year ended 31 August 2004 Investment Manager's Report Summary The focus of markets over the past year has been on whether demand in the US is strong enough to support a sustainable recovery. While US GDP growth has been running at a faster pace than at any time in the past 20 years, recent data has turned weaker. Rising oil prices have acted as a tax on household incomes leading to a slow-down in consumer expenditure. Over the past year, equity markets have out-performed bond markets. Robust corporate earnings and strong economic data have propelled equities higher, while rising interest rates have acted as a dampener on bond markets. Economic and market background UK growth continued its upward trend during the period under review. Latest available data shows that strong consumption and government spending, as well as a pick-up in business investment, helped underpin robust growth. Having lowered interest rates to 3.5%, their lowest level in almost half a century, in November, the Bank of England decided to increase the base rate by 0.25%, the first rise in almost four years. With growth in the UK picking up, and credit growth strong, the Bank believed that a modest increase in interest rates was necessary in order to keep prospective inflation in line with the target of 2.0%. As above-trend growth persisted in the UK, the Bank became increasingly worried about the build-up of consumer debt and house price inflation, and rates were increased in February, May, June and August, ending the period at 4.75%. Towards the end of the period, it became apparent that the 1.25% rise in interest rates was beginning to have an effect. Retail sales slowed as higher interest rates began to deter high street spending, and data released by the Royal Institution of Chartered Surveyors showed that the property market was also responding to higher interest rates as house price inflation slowed. During the year to 31 August 2004, UK corporate bonds marginally out-performed government bonds. Collateralised debt was the strongest performing sector, while more economically sensitive names performed well on the back of growing economic confidence and the ongoing search for yield. While demand for corporate bonds remained strong for most of the period, the first two months of 2004 saw credit spreads widen as investors began to look to invest funds in alternative assets. This, however, proved to be a passing phenomenon, and spreads began to tighten as investors chased limited stock. Growth portfolio The FTSE All-Share Index advanced by 7.2% during the year. The market was strong during the Company's first half but fell away in the run up to the year-end. These moves very much reflect the changing outlook for global economic growth. During the final months of 2003 the fundamental background for stockmarkets had started to look a lot better then earlier in the year. There was growing optimism over the strength of the global economic recovery after two disappointing years thanks to expansionary policies in both the USA and China. OECD lead indicators had picked up, while company results and accompanying outlook statements, both here and in the USA, were supportive of further market strength. However, as 2004 unfolded, the market's advance started to stall as evidence of the recovery, especially in the USA, became increasingly patchy. The market was also unsettled by events in the Middle East, the spiralling oil price, the prospect of rising interest rates earlier than had been anticipated and the lack of any further upgrades to company profits. The portfolio performed well over the year. The key sectors were Mining, Oil & Gas, Tobacco, Utilities, Leisure and Property, by no means a homogenous list but indicative of much of the uncertainty that surrounded the market. Mining and Oil stocks reflected the high price of commodities, while the defensive qualities of Utilities and Tobacco were increasingly recognised by investors. In addition, Utilities enjoyed a favourable regulatory review. The Property sector came back into favour, mainly on the back of a strong London office market. The portfolio was well represented in all these sectors. The portfolio has continued to have an above average income yield. In addition to favourable sector exposure, certain individual investments made significant contributions to performance during the year. Among the larger FTSE100 companies Xstrata, BHP Billiton, Reckitt Benckiser, Tesco, Severn Trent, HSBC, Barclays, Scottish & Southern and British American Tobacco all outperformed the market by over 10%. There were also excellent contributions from investments in the mid-cap area, for example: William Hill, Carpetright, Headlam and Hammerson. Trading activity during the year increased exposure to the Mining, Building, Engineering and Media sectors. Sources of funds were Food Producers, Beverages and Utilities. New investments include Trinity Mirror, Stanley Leisure, BPB, Carnival and a range of house building companies: Crest Nicholson, Redrow and Persimmon. Bond portfolio The main characteristics of the bond portfolio were retained during the year. A high exposure to unrated bonds, a bias towards higher yielding investment grade debt, and a substantial investment in financials, property, collateralised debt and consumer cyclical stocks continued to be the prime characteristics of the portfolio. Earlier in the year the portfolio was broadened and the unit size of holdings was reduced in order to limit credit risk within the fund. During the period, the fund maintained a long duration position, a reflection of the high weighting in 15+ year bonds. Exposure to these securities provided positive momentum to the portfolio's performance, as did the high exposure to BBB-rated bonds, which performed well during the year. The Company also benefited from a high exposure to unrated debt. The secured characteristics of many of these securities proved beneficial to performance, especially during periods of credit spread widening. Income portfolio During the year, there was an improvement in the valuation of a number of the securities in the income portfolio. This primarily reflected the recovery in the UK equity market. However, the sharp decline in equity markets since the launch of the Company, and the subsequent de-leveraging of many of the holdings, has permanently reduced the value of the portfolio. During the year, trading activity within the income portfolio was relatively low. Several trusts held within the portfolio were liquidated, while one of the largest holdings was subject to an unsuccessful bid. It is likely that in the medium-term the exposure of the overall fund to investment companies will remain relatively low. Performance Excluding the effects of gearing, the Company's investments produced a total return of +10.8%, outperforming the composite benchmark return of +9.7%. When gearing was included the return appreciated to +18.4%. At the asset class level, the UK equity portfolio return of +12.3% outperformed the FTSE All-Share return of +10.8%. The bond portfolio return of +6.5% also outperformed its benchmark, the Barclays Non-Gilt over Ten Year Index's return of +4.3%. The income portfolio appreciated in value over the financial year, showing a return of +15.8%, which lagged its benchmark return of +18.3%. Investment outlook Within the UK, continued economic expansion points to a marginal increase in interest rates over the next 12 months. This should lead to a slight increase in yields as economic growth diminishes expectations for bond markets. We continue to be more optimistic on the outlook for UK equities relative to bonds. Although a tight labour market and rising cost pressures from increasing commodity prices and rising interest rates will put pressure on corporate profitability, valuations remain supportive for UK equities. Royal London Asset Management Limited Investment Manager 19 November 2004 GROUP STATEMENT OF TOTAL RETURN (incorporating the revenue account) for the year ended 31 August 2004 For year ended 31 August 2004 Revenue Capital Total #'000 #'000 #'000 Total capital gains from investments - 5,366 5,366 Income from fixed asset investments 4,941 - 4,941 Other interest receivable and similar income 180 - 180 ------------ ------------ ------------ Gross revenue and capital gains 5,121 5,366 10,487 Investment management fee (457) (685) (1,142) Other administrative expenses (434) - (434) ------------ ------------ ------------ Net return on ordinary activities before interest 4,230 4,681 8,911 payable and taxation Interest payable (1,307) (1,961) (3,268) ------------ ------------ ------------ Net return on ordinary activities before taxation 2,923 2,720 5,643 Taxation on net loss on ordinary activities (1) - (1) ------------ ------------ ------------ Net return on ordinary activities after taxation 2,922 2,720 5,642 Provision for redemption of ZDP shares in subsidiary - (1,363) (1,363) Gain on repurchase and cancellation of ZDP shares - - - Gain on repurchase of ZDP shares - 70 70 ------------ ------------ ------------ 2,922 1,427 4,349 ------------ ------------ ------------ Dividends and appropriations attributable to annuity shareholders Dividends on annuity shares: Appropriation of dividend attributable to annuity (2,550) - (2,550) shareholders of 8.50p ------------ ------------ ------------ Net return attributable to ordinary shareholders 372 1,427 1,799 Dividends on Ordinary shares - - - ------------ ------------ ------------ Transfer to reserves 372 1,427 1,799 ======= ======= ======= Pence Pence Pence Return per ordinary share (Note 2) 0.53 2.04 2.57 Return per annuity share (Note 2) 8.50 - 8.50 Return per ZDP share in the subsidiary (Note 2) - 10.34 10.34 The revenue column of this statement represents the revenue account of the Group. No operations were acquired or discontinued during the year. All revenue and capital items in the above statement derive from continuing operations. GROUP STATEMENT OF TOTAL RETURN (incorporating the revenue account) for the year ended 31 August 2004 (CONTINUED) For year ended 31 August 2003 Revenue Capital Total #'000 #'000 #'000 Total capital losses from investments - (4,585) (4,585) Income from fixed asset investments 5,133 - 5,133 Other interest receivable and similar income 100 - 100 ------------ ------------ ------------ Gross revenue and capital gains/(losses) 5,233 (4,585) 648 Investment management fee (422) (633) (1,055) Other administrative expenses (369) - (369) ------------ ------------ ------------ Net return/(loss) on ordinary activities before 4,442 (5,218) (776) interest payable and taxation Interest payable (1,775) (2,663) (4,438) ------------ ------------ ------------ Net return/(loss) on ordinary activities before 2,667 (7,881) (5,214) taxation Taxation on net return/(loss) on ordinary activities - - - ------------ ------------ ------------ Net return/(loss) on ordinary activities after 2,667 (7,881) (5,214) taxation Provision for redemption of ZDP shares in subsidiary - (1,396) (1,396) Gain on repurchase and cancellation of ZDP shares - 3,426 3,426 Gain on repurchase of ZDP shares - - - ------------ ------------ ------------ 2,667 (5,851) (3,184) ------------ ------------ ------------ Dividends and appropriations attributable to annuity shareholders Dividends on annuity shares: Appropriation of dividend attributable to annuity (2,550) - (2,550) shareholders of 8.50p ------------ ------------ ------------ Net return/(loss) attributable to ordinary 117 (5,851) (5,734) shareholders Dividends on Ordinary shares - - - ------------ ------------ ------------ Transfer to/(from) reserves 117 (5,851) (5,734) ======= ======= ======= Pence Pence Pence Return/(loss) per ordinary share (Note 2) 0.17 (8.36) (8.19) Return per annuity share (Note 2) 8.50 - 8.50 Return per ZDP share in the subsidiary (Note 2) - 9.47 9.47 The revenue column of this statement represents the revenue account of the Group. No operations were acquired or discontinued during the year. All revenue and capital items in the above statement derive from continuing operations. BALANCE SHEETS at 31 August 2004 Group Company Group Company 2004 2004 2003 2003 #'000 #'000 #'000 #'000 Fixed asset investments Listed investments 94,692 94,692 86,849 86,849 Subsidiary undertaking - 3,333 - 4,227 -------------- -------------- -------------- -------------- 94,692 98,025 86,849 91,076 -------------- -------------- -------------- -------------- Current assets Debtors and prepayments 1,189 1,189 1,563 1,563 Cash at bank 5,721 5,713 8,987 8,979 -------------- -------------- -------------- -------------- 6,910 6,902 10,550 10,542 Creditors: amounts falling due within one (1,046) (1,046) (2,086) (2,086) year -------------- -------------- -------------- -------------- Net current assets 5,864 5,856 8,464 8,456 -------------- -------------- -------------- -------------- Total assets less current liabilities 100,556 103,881 95,313 99,532 Creditors: amounts falling due after more (50,000) (70,042) (50,000) (70,042) than one year -------------- -------------- -------------- -------------- Total net assets 50,556 33,839 45,313 29,490 ========= ======== ======== ======== Capital and reserves Called-up share capital 1,000 1,000 1,000 1,000 Share premium 94,500 94,500 94,500 94,500 Capital reserve - realised (38,091) (40,975) (12,027) (16,204) Capital reserve - unrealised (32,196) (29,312) (59,687) (55,510) Revenue reserve 8,626 8,626 5,704 5,704 -------------- -------------- -------------- -------------- Shareholders' funds 33,839 33,839 29,490 29,490 Minority interest - ZDP shares 16,717 - 15,823 - -------------- -------------- -------------- -------------- 50,556 33,839 45,313 29,490 ======== ======== ======== ======== Attributable to annuity shareholders 28,975 28,975 26,425 26,425 (non-equity) Attributable to ordinary shareholders 4,864 4,864 3,065 3,065 (equity) -------------- -------------- -------------- -------------- 33,839 33,839 29,490 29,490 ======== ======== ======== ======== Net asset value per: Pence Pence Pence Pence Annuity share (Note 3) 96.58 96.58 88.08 88.08 Ordinary share (Note 3) 6.95 6.95 4.38 4.38 ZDP share in subsidiary (Note 3) 128.21 - 117.87 - Approved by the Board of Directors on 19 November 2004. Jonathan Carr Chairman GROUP CASH FLOW STATEMENT for the year ended 31 August 2004 For the year For the year ended 31 August 2004 ended 31 August 2003 #'000 #'000 #'000 #'000 Net cash inflow from operating activities 3,459 4,021 Servicing Finance Interest paid (3,277) (4,759) Financial Investment Acquisition of investments (19,733) (14,556) Sale of investments 16,684 36,445 ---------------- --------------- Net cash (outflow)/inflow from financial (3,049) 21,889 investment Equity dividends paid - - -------------- -------------- Net cash (outflow)/inflow before financing (2,867) 21,151 Financing Purchase of ZDP shares issued by subsidiary (399) (3,826) Issue expenses paid - (443) Loan drawn down - - Loan repayment - (20,000) -------------------- ------------------ Net cash outflow from financing (399) (24,269) -------------- -------------- Decrease in cash (3,266) (3,118) ======== ======== Reconciliation of net cash flow to movement in net debt Decrease in cash as above (3,266) (3,118) Net cash outflow from loans repaid - 20,000 --------------- --------------- (3,266) 16,882 Net debt at start of year (41,013) (57,895) --------------- --------------- Net debt at end of year (44,279) (41,013) ========= ========= NOTES TO THE ACCOUNTS for the year ended 31 August 2004 1. Accounting policies a. Basis of accounting The accounts are prepared on the historical cost basis of accounting, modified to include the revaluation of fixed asset investments and in accordance with applicable accounting standards and with the Statement of Recommended Practice - Financial Statements of Investment Trust Companies (the "SORP") dated January 2003. All of the Company's operations are of a continuing nature. b. Group accounts The Group accounts consolidate the accounts of the Company and its wholly owned subsidiary Royal London UK Equity & Income Securities Plc. The revenue account is only presented in consolidated form as provided by Section 230 of the Companies Act 1985. Net revenue after taxation of the Company for the year amounted to #2,922,000 (2003: #2,667,000). c. Dividends on annuity shares In accordance with FRS4, all dividends relating to non-equity shares are charged to the Statement of Total Return as they accrue, irrespective of whether the Company has sufficient distributable reserves and passes the requirements of Section 265 of the Companies Act 1985 at the time that the dividend falls due. An amount equal to dividends due but not paid is included within the amount of shareholders' funds attributable to non-equity shares. As soon as the Company has sufficient distributable reserves, the accrued dividends will be transferred out of reserves to creditors and the dividend will then be paid. 2. Return/(loss) per share Return/(loss) per ordinary share Revenue return per ordinary share is calculated by dividing the net revenue return on ordinary activities after taxation for the year of #372,000 (2003: #117,000) by the number of ordinary shares in issue throughout the year of 70,000,000 (2003: 70,000,000). Capital gain per ordinary share is calculated by dividing the net capital gain on ordinary activities after taxation for the year of #1,427,000 (2003: loss #5,851,000) by the number of ordinary shares in issue throughout the year of 70,000,000 (2003: 70,000,000). Return per annuity share Revenue return per annuity share is calculated by dividing the total amount attributable to the annuity shareholders of #2,550,000 (2003: #2,550,000) by the number of annuity shares in issue throughout the year of 30,000,000 (2003: 30,000,000). Return per ZDP share in the subsidiary Capital return per ZDP share is calculated by dividing the predetermined growth in capital entitlement per the Articles of Association of #1,363,000 (2003: #1,396,000) by the weighted average number of ZDP shares in issue for the year ended 31 August 2004 of 13,197,366 (2003: 14,741,705). 3. Net asset value per share Net asset value per ordinary share Net asset value per ordinary share is calculated in accordance with the Articles of Association, which is consistent with FRS 4, and is based on net assets attributable to ordinary shares of #4,864,000 (2003: #3,065,000) and 70,000,000 (2003: 70,000,000) ordinary shares in issue at 31 August 2004. The movement during the period of the assets attributable to the ordinary shares was as follows: 2004 2003 #'000 #'000 Net assets attributable to ordinary shareholders at start of period 3,065 8,799 Total net gain/(loss) on ordinary activities after taxation for the year 1,799 (5,734) Dividends - - --------------- --------------- Net assets attributable to ordinary shareholders at end of period 4,864 3,065 ========= ========= 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 #28,975,000 (including arrears of annuity dividends) (2003: #26,425,000) and 30,000,000 (2003: 30,000,000) annuity shares in issue at 31 August 2004. The movement during the period of the assets attributable to the annuity shares was as follows: 2004 2003 #'000 #'000 At start of period 26,425 23,875 Dividend attributable to annuity shareholders* 2,550 2,550 --------------- --------------- Net assets attributable to annuity shareholders at end of period 28,975 26,425 ========= ========= 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 #16,717,000 (2003: #15,823,000) and 13,039,100 (2003:13,424,100) ZDP shares in issue outside the Group at 31 August 2004. The movement during the period of the assets attributable to the ZDP shares was as follows: 2004 2003 #'000 #'000 Net assets attributable to ZDP shareholders at start of period 15,823 21,679 ZDP shares cancelled - (7,252) ZDP shares purchased at attributable net asset value* (469) - --------------- --------------- Net asset value remaining after buy-backs 15,354 14,427 Capital return for the period 1,363 1,396 --------------- --------------- Net assets attributable to ZDP shareholders at end of period 16,717 15,823 ========= ========= *Represents the net asset value of the shares purchased at the transaction date. 4. Annual General Meeting The Annual General Meeting of Royal London UK Equity & Income Trust plc will be held on Wednesday, 15 December 2004 at 12 noon. 5. Accounts The above financial information for the year ended 31 August 2004 does not constitute statutory accounts as defined in Section 240 of the Companies Act 1985. The comparative financial information is based on statutory accounts for the year ended 31 August 2003. The preliminary results are prepared on the same basis as set out in the previous year's annual accounts. These accounts, upon which the auditors issued an unqualified opinion, have been delivered to the Registrar of Companies. The audit report for the statutory accounts for the year ended 31 August 2004 has yet to be signed and delivered to the Registrar of Companies. BNP Paribas Secretarial Services Limited 19 November 2004 This information is provided by RNS The company news service from the London Stock Exchange END FR FFAFDUSLSEDF
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