RNS Number:2677S
Govett Asian Income & Growth Fnd Ld
19 November 2003
Govett Asian Income & Growth Fund Limited
Interim Report (Unaudited) 30th September 2003
REPORT
Chairman's Statement
In my last Chairman's statement I reported there were signs of an upturn in
global equity markets. I am pleased to report that this recovery is being
sustained and your Company has made some progress in terms of recovering
shareholder value. Total Assets (after current liabilities) of the Company as at
30th September were #18.94m compared to #17.28m at the end of March 2003,
representing an improvement of approximately 9.6%. The Net Assets per Ordinary
share rose by approximately 26.0% from 18.20p to 22.94p. Consequently the hurdle
rate required to return the original 100p subscription price has fallen slightly
to 23.1% from 23.2% as at 31st March 2003.
During the period under review a first interim dividend of 0.5p was declared for
the first quarter to 30th June and your Board has declared a second interim
dividend of 0.5p for the quarter to 30th September.
The investment portfolio produced a total return of 21.2% largely due to the
strong recovery in Asian markets. The Asian element of the portfolio provided a
return of 27.1%, the fixed income portfolio 5.1% and the investment funds
portfolio 49.1%. The interest rate swap liability fell during the period from
#711,000 to #527,000, due to changes in interest rate expectations. This
reduction in liability has contributed 0.47p to the increase in Net Assets per
Ordinary share. As at 14th November 2003 the interest rate swap liability had
fallen to #278,000.
A cash balance of between 11% and 20% of total assets was maintained throughout
the six months to 30th September 2003. In the early months Govett Investment
Management Limited ("Govett") and your Board were cautious about equity markets,
and held bonds and cash as a counterbalance to reduce the effect of gearing on
the overall value of the portfolio. Given the volatile nature of the early
stages of market recovery together with the highly geared structure of the
Company, your Board, with advice from Govett, decided that, prior to committing
more funds to the Asian equity portfolio, the percentage by which the Company's
gross assets could fall before breaching the loan covenant must be approximately
20% and that there should be an improved outlook for the equity markets. The
cash balance was reduced in September and #1.5m was invested into the growth
portfolio.
A substantial degree of investor confidence seems to have returned to global
stockmarkets. Govett believes the worst of the bear market has now passed and
that the Asian economies can sustain the recent positive momentum over the
longer term.
As at 17th November 2003 the loan covenant ratio was 206.2% with the specified
ratio of 166.4%. The percentage fall to breach was 22.4% for permitted
investments and 30.9% for specified investments.
The power to buy back shares was renewed at the Annual General Meeting on 1st
August 2003 and became effective on 15th August 2003. Any decision to use this
authority will have to be balanced with the interests of creditors (including
approval from the bank loan provider) and your Board's future dividend policy.
Following discussions with its advisers, your Board announced on 29th October
2003, its policy to invest no more than 15% of its gross assets in other UK
listed investment companies (including UK listed investment trusts).
Your Board announced on 4th November 2003 that it intended to appoint Gartmore
Investment Limited ("Gartmore") as Investment Manager of the Company. This
followed the announcement by Allied Irish Banks, p.l.c. of the intended sale of
certain of the management contracts of Govett to Gartmore Investment Management
p.l.c.
Gartmore was appointed Investment Manager on 17th November through the novation
of the Investment Management Agreement ("the agreement") between your Company
and Govett with no changes to the terms of the agreement and no costs or charges
to the Company.
The terms of the agreement required twelve months' notice to be given to the
manager. However, as stated in the last Report & Accounts, your Board served
protective notice on 13th June 2003 on Govett in respect of the agreement. This
protective notice will remain binding on Gartmore.
Gartmore, which has its headquarters in London, was established in 1969. It was
acquired in 2000 by Nationwide Mutual Insurance Company, a US based mutual
insurance company. As at 30th September 2003, the Gartmore group had
approximately #49 billion of funds under management, of which approximately #1
billion were in investment companies. Gartmore has considerable experience
managing portfolios across all areas and your Board believes that they have the
required expertise and credentials to manage the Company's portfolio
successfully.
Your Board announced on 20th June 2003 that it was considering all the strategic
options for the future of the Company. This review has been ongoing. However,
your Board has not as yet had the opportunity to discuss the strategic options
for the future of the Company in detail with Gartmore. Your Board will seek to
do this as soon as it is practicable.
Garth Milne
Chairman
19th November 2003
Statement of Operations for the six months to 30th September 2003 (unaudited)
Six months to 30 Year ended 31 March Six months to 30
September 2003 2003 September 2002
Unaudited Audited Unaudited
#000 #000 #000
Income
Dividends 341 919 646
Bond interest 157 354 198
Bank interest 27 106 66
Total income 525 1,379 910
Expenses
Management fee (88) (227) (149)
Administration fees (40) (102) (40)
Custodian fees (10) (60) (65)
Audit fee (12) (26) (12)
Directors' fees (28) (55) (28)
Brokers' fees (13) (25) (13)
Directors' and Officers' Insurance (26) (20) (7)
Interest payable (316) (1,111) (672)
Swap breakage costs - (698) (566)
Loan breakage costs - (7) (1)
Other expenses (25) (139) (58)
Total expenses (558) (2,470) (1,611)
Net loss before investment results (33) (1,091) (701)
Realised loss on sale of investments (2,737) (3,130) (2,336)
Realised loss on foreign currency (104) (367) (355)
Movement in unrealised loss on revaluation of 4,918 (10,686) (11,438)
investment
Net investment result 2,077 (14,183) (14,129)
Net gain / (loss) for the period 2,044 (15,274) (14,830)
Basic and diluted gain/(loss) per share (pence) 5.26 (39.32) (38.18)
Statement of Changes in Equity for the six months to 30th September 2003
(unaudited)
Six months to 30 Year ended 31 March Six months to 30
September 2003 2003 September 2002
Unaudited Audited Unaudited
#000 #000 #000
Net Assets at beginning of period 7,069 24,295 24,295
Net gain / (loss) for the period 2,044 (15,274) (14,830)
Dividends paid (388) (1,359) (971)
Realised loss on interest rate swap removed from
equity and reported in net loss for the year
- 698 -
Movement in net unrealised loss on revaluation of 184 (1,291) (579)
cash flow hedges
Net Assets at end of period 8,909 7,069 7,915
Balance Sheet 30th September 2003 (unaudited)
30 September 2003 31 March 2003 30 September 2002
Unaudited Audited Unaudited
#000 #000 #000
Non current assets
Available-for-sale investments 16,811 14,058 18,770
Current assets
Cash and cash equivalents 2,138 3,230 1,286
Debtors 740 277 274
2,878 3,507 1,560
Total assets 19,689 17,565 20,330
Current liabilities
Creditors (753) (285) (218)
Non current liabilities
Bank loan (9,500) (9,500) (11,500)
Interests rate swap liability (527) (711) (697)
(10,027) (10,211) (12,197)
Total liabilities (10,780) (10,496) (12,415)
Net assets 8,909 7,069 7,915
Represented by:
Share capital 9,710 9,710 9,710
Share premium - 27,727 27,727
Special reserve 27,727 - -
Reserves (excluding special reserve) (28,528) (30,368) (29,522)
Issued capital and reserves 8,909 7,069 7,915
Net asset value per Ordinary share (pence) 22.94 18.20 20.38
Statement of cash flow for the six months to 30th September 2003 (unaudited)
Six months to 30 Year ended 31 March Six months to 30
September 2003 2003 September 2002
Unaudited Audited Unaudited
#000 #000 #000
Operating activities
Dividends received 351 1,331 1,006
Bond interest received 189 370 245
Bank interest received 27 106 66
Expenses paid (196) (440) (256)
Management fee (81) (314) (224)
Swap breakage costs - (698) (566)
Loan breakage costs - (7) (1)
Loan interest paid (220) (1,012) (704)
Payments under interest rate swap agreement (96) (286) (193)
Net cash outflow from operating activities (26) (950) (627)
Investing activities
Purchase of investments (7,271) (34,861) (34,302)
Sale of investments 6,697 49,338 44,112
Net cash (outflow)/inflow from investing activities (574) 14,477 9,810
Financing activities
Repayment of bank loan - (16,390) (14,390)
Dividends paid (388) (1,359) (971)
Net cash outflow from financing activities (388) (17,749) (15,361)
Decrease in cash (988) (4,222) (6,178)
Cash and cash equivalents at start of period 3,230 7,819 7,819
Realised loss on foreign currency (104) (367) (355)
Cash and cash equivalents at period end 2,138 3,230 1,286
Notes to the Financial Statements
for the six months to 30th September 2003 (unaudited)
1.Statement of accounting policies
(a) Basis of preparation
The interim financial statements have been prepared in conformity with
International Accounting Standards and applicable requirements of Guernsey Law.
The financial statements have been prepared on a going concern basis under the
historical cost convention except for the measurement at fair value of
"available-for-sale" investments and derivative financial instruments.
(b) Segmental reporting
The Directors are of the opinion that the Company is engaged in a single segment
of business, being investment business. The Company invests in bonds and
investment funds listed in the UK and equities in Asia.
(c) Income recognition
Income derived from equity shares is taken into account on the ex-dividend date
and is shown net of withholding tax. Bond interest and short term deposit
interest is accounted for under the effective interest rate method.
(d) Expenses
All expenses are accounted for on an accruals basis.
(e) Taxation
The Company has been granted exemption under the Income Tax (Exempt Bodies)
(Guernsey) Ordinance 1989 from Guernsey Income Tax for the current year of
charge, and is charged an annual exemption fee of #600. The Directors intend to
conduct the Company's affairs such that it continues to remain eligible for
exemption.
Foreign withholding tax will be payable on income arising from certain
investments in the Asia Pacific equity portfolio.
(f) Cash and cash equivalents
Cash in hand and in banks and short term deposits which are held to maturity are
carried at cost. Cash and cash equivalents are defined as cash in hand, demand
deposits and short term, highly liquid investments readily convertible to known
amounts of cash and subject to insignificant risk of changes in value.
For the purposes of the Statement of cash flow, cash and cash equivalents
consist of cash in hand and deposits in banks.
(g) Investments
All investments are classified as "available-for-sale". Investments are
initially recognised at cost, being the fair value of the consideration given,
including transaction costs associated with the investment.
After initial recognition, investments are measured at fair value, with
unrealised gains and losses on investments and impairment of investments
recognised in the Statement of Operations. Realised gains and losses on
investments sold are calculated as the difference between sales proceeds and
cost, or if previously revalued the valuation as at the last balance sheet date.
For investments actively traded in organised financial markets, fair value is
generally determined by reference to Stock Exchange quoted market bid prices at
the close of business on the balance sheet date, without adjustment for
transaction costs necessary to realise the asset.
(h) Trade date accounting
All "regular way" purchases and sales of financial assets are recognised on the
"trade date", ie, the day that the entity commits to purchase or sell the asset.
Regular way purchases or sales are purchases or sales of financial assets that
require delivery of the asset within the time frame generally established by
regulation or convention in the market place.
(i) Foreign currency translation
Transactions denominated in foreign currencies are translated into Sterling at
the rate of exchange ruling on the date of the transaction. Foreign currency
monetary assets and liabilities are translated into Sterling at the rate ruling
on the balance sheet date. Gains and losses arising on revaluation of foreign
currency assets and liabilities are recorded in the Statement of Operations.
(j) Non-current liabilities
All loans and borrowings are initially recognised at cost, being the fair value
of the consideration received, less issue costs where applicable. After initial
recognition, all interest-bearing loans and borrowings are subsequently measured
at amortised cost. Amortised cost is calculated by taking into account any
discount or premium on settlement. The costs of arranging any interest bearing
loans are capitalised and amortised over the life of the loan.
(k) Derivative financial instruments
The Company uses an interest rate swap to hedge its risks associated with
interest rate fluctuations. It is the Company's policy not to trade in
derivative financial instruments. For the purposes of hedge accounting the
Company only has a cash flow hedge, which hedges exposure to variability in cash
flows that is either attributable to a particular risk associated with a
recognised asset or liability or a forecasted transaction.
In relation to cash flow hedges, which meet the conditions for special hedge
accounting, the portion of the gain or loss on the hedging instrument that is
determined to be an effective hedge is recognised directly in equity through the
Statement of Changes in Equity and any ineffective portion is recognised in the
Statement of Operations. The gains or losses that are recognised in equity are
transferred to the Statement of Operations in the same period in which the
hedged interest payments affect the net profit and loss.
Hedge accounting is discontinued when the hedging instrument expires or is sold,
terminated or exercised, or no longer qualifies for special hedge accounting. At
that point in time, any cumulative gain or loss on the hedging instrument
recognised in equity is kept in equity until the forecasted transaction occurs.
Where the hedged transaction is no longer expected to occur, the net cumulative
gain or loss recognised in equity is transferred to the Statement of Operations
for the year.
Fair value of derivatives
The fair value of the interest rate swap contract is estimated as the present
value of the expected future net interest cash flows, based on current and
expected future interest rates at the year end.
The financial information set out in this announcement does not constitute the
Group's statutory interim accounts for the six months ended 30th September 2003.
The unaudited interim accounts for the six months ended 30th September 2003 will
be finalised on the basis of the financial information presented by the
Directors in this preliminary announcement and will be delivered to the UK
Listing Authority and The Channel Islands Stock Exchange following approval.
By order of the Board
Collins Stewart Fund Management Limited,
2nd Floor, TSB House,
Le Truchot,
St. Peter Port,
Guernsey GY1 4AE
Registered in Guernsey no: 37924
This information is provided by RNS
The company news service from the London Stock Exchange
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