12 December 2003
EDINBURGH LEVERAGED INCOME TRUST PLC
PRELIMINARY RESULTS FOR THE 18 MONTHS TO 31 AUGUST 2003
Edinburgh Leveraged Income Trust and its subsidiary ELIT Zeros 2008 plc, managed
by Edinburgh Fund Managers, is akin to a split capital investment trust but with
no fixed life for the ordinary shares.
For further information please contact:
Rod MacRae, Tel: 0131 313 1000
Director - Edinburgh Fund Managers plc
David Binnie, Tel: 0131 313 1000
Investment Manager - Edinburgh Fund Managers plc
Please note that past performance is not necessarily a guide to the future and
that the value of investments and the income from them may fall as well as rise.
Investors may not get back the amount they originally invested.
EDINBURGH LEVERAGED INCOME TRUST PLC
Chairman's Statement
Overall this has been another very difficult period for the Company, as for many
other split capital investment trusts. During the period the bank covenants
were breached and the value of the Company's assets fell below its liabilities.
Since then the Company has continued to be managed with the support of the bank.
No dividends have been paid to shareholders.
However it has been a period of contrasting fortunes. In March this year, with
equity markets in disarray around the world, the board took the decision to
extend the accounting period by six months. We felt that with much uncertainty
over the valuation of our portfolio at such a time and the consequent increase
in costs of an audit it was in shareholders interests to defer an audit.
Since then markets have rallied strongly, with the FTSE All Share Index rising
by 17.4% over the 6 months to 31 August 2003. The shares of many split capital
trusts have demonstrated the benefits of gearing and have risen strongly during
the 6 month period. The deficit of assets to liabilities has been reduced to
�2.2m at the end of August and is currently �1.7m.
Review of the period
The economic background was generally unhelpful for much of the period. The
world economy was sluggish at best and slow to respond to the low level of
interest rates. As a result corporate profits have been under pressure.
Geopolitical uncertainty was another major feature of the period as the growing
prospect of war in Iraq unsettled investors and helped drive equity prices even
lower.
Many of these issues have improved dramatically in recent months. The war in
Iraq was quickly over and economic and corporate data have, for the most part,
improved markedly in recent months. Recent figures suggest that economic
recovery is well underway in the US and even in Europe the news is more
encouraging than for some time. All of this is providing some support for the
market rally since March.
Performance
The investment background was adverse for most of the period with the All Share
Index falling more than 35% to the low point in March 2003 although the
subsequent rally reduced the overall decline for the 18 month period to 16.3%.
The performance of the split capital market was much worse and many split caps
were de-listed while others reduced or cancelled dividends. During the period
under review the company reduced bank borrowings from �27.4m to �8.7m. Total
assets less current liabilities (excluding bank loan) over the 18 month period
fell from �53.0m to �6.5m as at 31 August 2003.
Banking covenants
The Board announced in July 2002 that the Company was in breach of its assets to
bank loan covenant ratio. In addition the assets of the Company had fallen to
less than 50% of its paid up share capital and so, in accordance with section
142 of the Companies Act, the directors convened an extraordinary general
meeting in August 2002. The company entered into an agreement with Bank of
Scotland to pursue a strategy which the bank supported. Under this strategy the
company decided to sell the remainder of its small capital portfolio and to
repay the bank the majority of its cash balances. The running costs of the
Company were reduced substantially and Edinburgh Fund Managers and the Directors
agreed to waive in full their management and secretarial fees and directors'
fees, respectively, for the foreseeable future. Interest and other costs of the
Company are being charged 100% to income. This strategy was explained to
shareholders at the extraordinary general meeting.
The Board, in conjunction with the Manager, has continued to work closely with
the Company's bankers, who remain supportive, to resolve the company's issues.
This strategy has been developed over the course of the period and most recently
the bank has confirmed that, barring any significant deterioration in markets,
it does not intend to call for the repayment of the loan for the period to mid-
December 2004 and has revised the loan repayment terms and total expenditure
limits and has given scope for the reinvestment of surplus cash into higher
quality investment trusts.
I would like to pay tribute to the supportive and constructive attitude of the
bank throughout our many discussions.
The manager
On 24 October 2003 our investment manager, Edinburgh Fund Managers plc, was
acquired by Aberdeen Asset Management PLC. The board is pleased to see a
resolution of the uncertainty and has had assurances that the support provided
to the Company will continue.
The Board and the Annual general meeting
Sadly I have to report the death of Roger Hulett in November after a brave
battle with illness. As well as a lifetime's knowledge of the investment trust
sector, Roger brought to the Board a common sense approach and a sense of
humour. We will miss him.
The annual general meeting will be held on 30 March 2004 and a notice of the
business to be conducted at the meeting is included at the end of this report.
Outlook
The economic situation, though not without risk, appears to be improving. A
world-wide economic recovery is getting under way. If the geopolitical situation
also remains relatively stable then the background for equity markets should be
attractive. Accordingly the prospects for the stronger split capital investment
trusts, which make up the bulk of the Company's remaining portfolio, should
improve. However these remain highly geared investments and they can be expected
to perform badly in the event of any fall in the broad stock market.
While the situation of the Trust has improved markedly from the dark days during
the last 18 months, I have to stress that shareholders should not count on any
recovery of their capital. Despite our best efforts on their behalf, this
remains unlikely.
Richard Martin
Chairman
GROUP STATEMENT OF TOTAL RETURN (audited)
18 months to 31 August 2003
Revenue Capital Total
�'000 �'000 �'000
Realised loss on investments - (15,734) (15,734)
Movement in unrealised depreciation - (12,492) (12,492)
______ ______ ______
Total capital losses on investments - (28,226) (28,226)
Investment income 2,342 - 2,342
Interest receivable 230 - 230
Other income 1 - 1
Investment management fee (30) - (30)
Administrative expenses (258) - (258)
______ ______ ______
Net return before finance costs and 2,285 (28,226) (25,941)
taxation
Interest payable (1,232) (663) (1,895)
______ ______ ______
Return on ordinary activities before 1,053 (28,889) (27,836)
taxation
Taxation - - -
______ ______ ______
Return on ordinary activities after 1,053 (28,889) (27,836)
taxation
Non-equity minority interests - (1,292) (1,292)
______ ______ ______
Return attributable to members of the
parent company 1,053 (30,181) (29,128)
Dividends and appropriations in
respect of convertible income shares (23) - (23)
______ ______ ______
Return attributable to equity 1,030 (30,181) (29,151)
shareholders
Dividends in respect of equity shares - - -
______ ______ ______
Transfer to/(from) reserves 1,030 (30,181) (29,151)
______ ______ ______
Basic return per ordinary share 2.18p (64.01p) (61.83p)
______ ______ ______
Adjusted return per ordinary share 1.01p (64.01p) (63.00p)
______ ______ ______
The revenue account of this statement represents the profit and loss account of
the group.
All revenue and capital items in the above statement derive from continuing operations.
GROUP STATEMENT OF TOTAL RETURN (audited)
Period 3 January 2001 to 28 February 2002
Revenue Capital Total
�'000 �'000 �'000
Realised loss on investments - (2,588) (2,588)
Movement in unrealised depreciation - (27,230) (27,230)
______ ______ ______
Total capital losses on investments - (29,818) (29,818)
Loss on sale of UK Treasury Bill - (10) (10)
Investment income 6,000 - 6,000
Interest receivable 301 - 301
Other income 8 - 8
Investment management fee (207) (384) (591)
Administrative expenses (284) - (284)
______ ______ ______
Net return before finance costs and
taxation 5,818 (30,212) (24,394)
Interest payable (632) (1,173) (1,805)
______ ______ ______
Return on ordinary activities before
taxation 5,186 (31,385) (26,199)
Taxation (313) 313 -
______ ______ ______
Return on ordinary activities after
taxation 4,873 (31,072) (26,199)
Non-equity minority interests - (1,560) (1,560)
______ ______ ______
Return attributable to members of the
parent company 4,873 (32,632) (27,759)
Dividends and appropriations in respect
of convertible income shares (15) - (15)
______ ______ ______
Return attributable to equity
shareholders 4,858 (32,632) (27,774)
Dividends in respect of equity shares (3,631) - (3,631)
______ ______ ______
Transfer to/(from) reserves 1,227 (32,632) (31,405)
______ ______ ______
Basic return per ordinary share 10.30p (69.21p) (58.91p)
______ ______ ______
Adjusted return per ordinary share 9.52p (69.21p) (59.69p)
______ ______ ______
The revenue column of this statement represents the profit and loss account of
the group.
All revenue and capital items in the above statement derive from continuing
operations.
BALANCE SHEET (audited)
As at 31 August 2003 As at 28 February 2002
Group Company Group Company
�'000 �'000 �'000 �'000
Fixed Assets
Investments 4,416 4,367 48,132 48,083
Investment in subsidiary - - - -
______ ______ ______ ______
4,416 4,367 48,132 48,083
Current Assets
Debtors 119 145 496 501
Cash and short term deposits 2,118 342 2,488 2,483
AAA money market funds - - 3,000 3,000
______ ______ ______ ______
2,237 487 5,984 5,984
Creditors: Amounts falling due 8,895 17,764 1,090 10,370
within one year
______ ______ ______ ______
Net Current (6,658) (17,277) 4,894 (4,386)
Assets/(Liabilities)
______ ______ ______ ______
(2,242) (12,910) 53,026 43,697
Creditors: Amounts falling due
after more than one year - - 27,432 27,432
______ ______ ______ ______
(2,242) (12,910) 25,594 16,265
______ ______ ______ ______
Capital And Reserves
Ordinary share capital 472 472 472 472
Convertible income shares 86 86 86 86
Special reserve 47,468 47,468 47,468 47,468
Capital reserve - realised (23,091) (23,091) (5,402) (5,402)
Capital reserve - unrealised (39,722) (39,721) (27,230) (27,229)
Revenue reserve 1,910 1,876 857 870
______ ______ ______ ______
(12,877) (12,910) 16,251 16,265
______ ______ ______ ______
Non-Equity Minority Interests 10,635 9,343
______ ______
(2,242) 25,594
______ ______
Equity Shareholders' Funds (14,522) 14,051
Adjusted net asset value per
equity share (27.31p) 34.47p
Convertible Income 1,645 2,200
Shareholders' Funds
Adjusted net asset value per
convertible income share - -
GROUP CASHFLOW STATEMENT (audited)
18 months to Period 3 January 2001
31 August 2003 to
28 February 2002
�000 �000 �000 �000
Net cash inflow from operating
activities 2,533 5,158
Servicing of finance
Interest paid (1,500) (1,370)
Loan Breakage costs (663) -
Non-equity dividends paid - (192)
______ ______
Net cash outflow from servicing
of finance (2,163) (1,562)
Financial investment
Purchase of investments (354) (100,763)
Sale of investments 15,789 22,868
______ ______
Net cash inflow from financial
investment 15,435 (77,895)
Management of liquid resources 3,000 11,611
Equity dividends paid (428) (3,396)
______ ______
Net cash inflow before financing 18,377 (66,084)
Financing
Issue of preference shares to
minority shareholders - 36
Issue of ordinary share capital - 45,402
Expenses of share issue - (1,298)
Loan repayable on 3 March 2008 - 27,432
Repayment of borrowings (18,747) -
______ ______
Net cash outflow from financing (18,747) 71,572
______ ______
Decrease in cash (370) 5,488
______ ______
Notes:
1. The accounts are prepared in accordance with the Statement of Recommended
Practice "Financial Statements of Investment Trust Companies". The same
accounting policies have been applied throughout the period.
2. There will be no interim dividend payable per ordinary share. There will be
no interim dividend payable per convertible income share.
3. The investments include �4,367,000 of holdings of highly geared split capital
investment trusts. These are carried in the financial statements at mid market
value in accordance with the company's accounting policies. The market for such
shares is very illiquid and the prices at which the securities could be realised
is uncertain. Solely as an indication, the equivalent bid prices from these
holdings at the balance sheet date was �3,443,000, approximately 21% lower than
mid market prices.
4. The statement of total return and the balance sheet set out above do not
represent full statutory accounts in accordance with Section 240 of the
Companies Act 1985.
5. Full statutory accounts for the period to 28 February 2002 were submitted
with Companies House on 28 May 2002.
6. The annual report will be posted to shareholders in December 2003 and copies
will be available at the registered office of the company - Donaldson House, 97
Haymarket Terrace, Edinburgh EH12 5HD.
for Edinburgh Leveraged Income Trust plc,
Edinburgh Fund Managers plc, SECRETARY
END