M&G Income Investment Company Limited
Third Quarter Results Announcement
15 September 2008
Performance during the period
The Company's revenue earnings per Package Unit were 4.76p. In respect of the
review period, the Company declared six monthly dividends of 0.18p and three
monthly dividends of 0.2p per Ordinary Share (0.36p and 0.4p per Package Unit)
bringing the total to 1.68p per Ordinary Share (3.36p per Package Unit). This
represents an increase of 9.8% on the amounts declared at the same stage last
year. On a net asset value (NAV) basis, each Package Unit produced a negative
total return of 28.1% over the nine months to 31 July 2008. This was below the
negative 18.2% total return on the FTSE All-Share Index over the same period.
At the period end the Package Unit market price was at a 5.5% discount to the
NAV and on a mid-market price basis each Package Unit produced a total return
of -25.6%.
The weak market in combination with the negative impact of gearing from both
debt and Zero Dividend shares and the underperformance of high yield and
mid-cap stocks resulted in this disappointing relative result. This trend has
been a feature throughout the last nine months. To mitigate some of these
factors, the Company has repaid the Loan facility with Royal Bank of Scotland
International and closed the related interest-rate swap. In view of the
Company's imminent winding up, the majority of the Company's holding in M&G
High Yield Corporate Bond Fund has been redeemed in favour of short dated
Gilts. The Company's equity exposure has also been reduced through selected
sales but, in order for the Company to benefit from any recovery in the equity
market, a relatively full weighting in blue chip stocks with strong balance
sheets has been retained.
While the equity market has been preoccupied with the global banking credit
crisis and risks to the world economy, dividend growth and corporate results
have been generally positive with the exception of some banks and consumer
related stocks. There were relatively few bright spots with British Energy the
best performer, up 37% following the approach from EDF.
Recommended proposals for the winding-up and reconstruction of the Company
The Company was launched in October 2001 with a planned winding-up date of 31
October 2008. Accordingly, on 11 September 2008, the Board announced
recommended proposals for the reconstruction and voluntary liquidation of the
Company. Under the proposals Shareholders and Package Unitholders will be able
to roll over some or all of their investment in a tax neutral manner by
electing to receive securities in M&G High Income Investment Trust p.l.c. and
certain other rollover funds, or to realise their investment for cash payable
to them in the liquidation of the Company. Details of the proposals and the
actions to be taken by Shareholders and Package Unitholders are set out in the
Company's circular dated 11 September 2008.
Income Statement (unaudited)
2008 2007
Revenue Capital Total Revenue Capital Total
for the three months ended 31 July �'000 �'000 �'000 �'000 �'000 �'000
Net losses on investments - (22,750) (22,750) - (9,445) (9,445)
Gain on closure of interest rate swap - 47 47 - - -
Income 2,603 - 2,603 2,495 - 2,495
Investment management fee (277) (184) (461) (343) (229) (572)
Other expenses (82) - (82) (73) - (73)
Loss before finance costs and taxation 2,244 (22,887) (20,643) 2,079 (9,674) (7,595)
Finance costs: Appropriations - (2,426) (2,426) - (2,268) (2,268)
Finance costs: Dividends (1,580) - (1,580) (1,401) - (1,401)
Interest payable and similar charges (162) (110) (272) (222) (149) (371)
Loss on ordinary activities before taxation 502 (25,422) (24,920) 456 (12,091) (11,635)
Taxation - - - - - -
Loss for the period 502 (25,422) (24,920) 456 (12,091) (11,635)
Return per Zero Dividend Share - 1.03p 1.03p - 0.96p 0.96p
Earnings / return per Ordinary Share 0.76p (9.33)p (8.57)p 0.68p (4.40)p (3.72)p
Earnings / return per Package Unit 1.52p (17.63)p (16.11)p 1.36p (7.84)p (6.48)p
2008 2007
Revenue Capital Total Revenue Capital Total
for the nine months ended 31 July �'000 �'000 �'000 �'000 �'000 �'000
Net (losses) / gains on investments - (50,051) (50,051) - 3,134 3,134
Gain on closure of interest rate swap - 47 47 - - -
Income 8,185 - 8,185 7,975 - 7,975
Investment management fee (836) (557) (1,393) (1,011) (674) (1,685)
Other expenses (247) - (247) (216) - (216)
(Loss) / Profit before finance costs and taxation 7,102 (50,561) (43,459) 6,748 2,460 9,208
Finance costs: Appropriations - (7,105) (7,105) - (6,610) (6,610)
Finance costs: Dividends (6,956) - (6,956) (6,632) - (6,632)
Interest payable and similar charges (600) (400) (1,000) (659) (440) (1,099)
Loss on ordinary activities before taxation (454) (58,066) (58,520) (543) (4,590) (5,133)
Taxation - - - - - -
Loss for the period (454) (58,066) (58,520) (543) (4,590) (5,133)
Return per Zero Dividend Share - 3.02p 3.02p - 2.79p 2.79p
Earnings / return per Ordinary Share 2.38p (21.29)p (18.91)p 2.21p (1.67)p 0.54p
Earnings / return per Package Unit 4.76p (39.56)p (34.80)p 4.42p (0.55)p 3.87p
The total column of this statement is the profit and loss account of the Company
prepared in accordance with IFRS. The supplementary revenue and capital columns are
both prepared under guidance from the Association of Investment Companies.
All items in the above statement derive from continuing operations. No operations
were acquired or discontinued during the period.
Each class of the Company's shares meets the definition of a liability and therefore
the Company has no equity shares. The profit / (loss) for the period is attributable
to the Ordinary Shareholders. There are no minority interests.
Statement Of Movements In Net Assets Attributable To Shareholders (unaudited)
2008 2007
for the nine months ended 31 July �'000 �'000
Loss for the period (58,520) (5,133)
Add finance costs: Appropriations 7,105 6,610
Net movement in fair value of swap (196) 248
Repurchase of Zero Dividend Shares (including related costs) (987) -
Repurchase of Package Units (including related costs) (231) (239)
Net movement in net assets attributable to shareholders (52,829) 1,486
Opening net assets attributable to shareholders (all non-equity) 225,869 218,353
Closing net assets attributable to shareholders (all non-equity) 173,040 219,839
Balance Sheet (unaudited)
31.07.2008 31.07.2007 31.10.2007
as at �'000 �'000 �'000
Non-current assets
Portfolio of investments 163,332 242,477 247,473
Current assets
Debtors 2,193 1,405 2,941
Cash at bank and short-term deposits 7,675 1,200 1,465
9,868 2,605 4,406
Total assets 173,200 245,082 251,879
Current liabilities (160) (556) (26,010)
Total assets less current liabilities 173,040 244,526 225,869
Non-current liabilities - (24,687) -
Net assets attributable to shareholders (all non-equity) 173,040 219,839 225,869
Net Assets Attributable To Shareholders (unaudited)
31.07.2008 31.07.2007 31.10.2007
as at �'000 �'000 �'000
Zero Dividend Shareholders 129,773 121,995 123,789
Ordinary Shareholders 43,267 97,844 102,080
Net assets attributable to shareholders (all non-equity) 173,040 219,839 225,869
Net Asset Values Applicable to Each Class of Shareholding (unaudited)
as at 31 July 2008 2007
Net asset value per Zero Dividend Shareholders 55.55p 51.55p
Net asset value per Ordinary Shareholders 15.88p 35.59p
Net asset value per Package Unit 87.31p 122.73p
Cash Flow Statement (unaudited)
2008 2007
for the nine months ended 31 July �'000 �'000
Operating activities
Loss on ordinary activities before taxation (58,520) (5,133)
Adjustments for:
Finance costs: Appropriations 7,105 6,610
Finance costs: Dividends 6,956 6,632
Interest payable and similar charges 1,000 1,099
Effective interest adjustments 78 123
Stock dividends (152) (412)
Investments held at fair value through profit or loss:
Net losses / (gains) on investments 50,051 (3,134)
Capital distributions 603 185
Purchases of investments (49,546) (47,022)
Sales of investments 83,476 48,575
Increase in other receivables (212) (101)
Increase / (decrease) in other payables 28 (27)
Net cash inflow from operating activities before servicing of finance 40,867 7,395
Financing activities
Dividends paid (non-equity) (7,352) (6,691)
Repurchase of package units (231) (239)
Repurchase of Zero Dividend Preference Shares (987) -
Interest paid on bank loan (1,087) (1,087)
Repayment of bank loan (25,000) -
Net cash used in financing activities (34,657) (8,017)
Net increase / (decrease) in cash and cash equivalents 6,210 (622)
Cash and cash equivalents at the start of the period 1,465 1,822
Cash and cash equivalents at the end of the period 7,675 1,200
Basis of accounting: These financial statements have been prepared in accordance
with International Financial Reporting Standards (IFRS), comprising standards and
interpretations approved by the International Accounting Standards Board (IASB) and
interpretations issued by the International Financial Reporting Interpretations
Committee (IFRIC) of the IASB. The financial statements are presented in pounds
sterling and have been prepared on a going concern basis under the historical cost
convention except for the measurement of investments at fair value.
The FSA Handbook has been amended to implement the Transparency Obligations
Directive (Disclosure and Transparency Rules) Instrument 2006 and as a result the
Company is now required to prepare its financial statements under IFRS. Previously
the financial statements were prepared in accordance with United Kingdom Generally
Accepted Accounting Practice (UK GAAP) including the Statement of Recommended
Practice: 'Financial Statements of Investment Trust Companies' (SORP) issued by the
Association of Investment Companies in December 2005.
First time adoption of IFRS: These are the first financial statements of the Company
to be prepared in accordance with IFRS. The date of transition to IFRS for the
Company is 1 November 2007. The adoption of IFRS and the retrospective application
of the IFRS accounting polices to the opening balance sheet as at 1 November 2007
and all subsequent periods has not resulted in any changes to the opening or closing
balance sheet or income statement. Presentational changes have been made to the cash
flow statement to reanalyse Dividends paid to Ordinary Shareholders and Bank
interest paid as financing activities; and capital distributions, purchases of
investments and sales of investments as operating activities.
Kleinwort Benson (Channel Islands) Fund Services Limited
Company Secretary
15 September 2008
END
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