Annual Financial Report
The Edinburgh Investment Trust plc
Annual Financial Report Announcement
for the Year Ended 31 March 2010
FINANCIAL INFORMATION AND PERFORMANCE STATISTICS
(1)Source: Thomson Datastream
At At
31 March 31 March %
2010 2009 CHANGE
Capital Return
Net asset value (`NAV') per share:
- debt at par 422.41p 326.99p +29.2
- debt at market value 398.92p 293.56p +35.9
FTSE All-Share Index 2910.19 1984.17 +46.7
Share price(1) 396.30p 292.50p +35.5
Discount:
- debt at par 6.2% 10.5%
- debt at market value 0.7% 0.4%
Gearing:
- actual gearing 24.1% 31.2%
- potential gearing 24.2% 31.2%
FOR THE YEAR TO 31 MARCH %
2010 2009 CHANGE
Revenue Return
Revenue return per share 19.8p 21.0p -5.7
Retail Price Index(1) +4.4% -0.4%
Dividends:
- first interim 4.75p 4.75p
- second interim 4.75p 4.75p
- third interim 4.75p 4.75p
- final proposed 6.35p 6.15p
20.60p 20.40p +1.0
FOR THE YEAR TO 31 MARCH 2010 2009
% %
CHANGE CHANGE
Total Return (capital growth with income
reinvested)
NAV per share:
- debt at par +38.0 -27.8
- debt at market value +46.0 -31.5
FTSE All-Share Index(1) +52.3 -29.3
Share price(1) +45.7 -23.5
Total Expense Ratio
- excluding performance fee 0.7% 0.5%
- including performance fee 0.7% 0.9%
CHAIRMAN'S STATEMENT
Introduction
It is now more than eighteen months since management of the Company's
investments was transferred to Invesco Perpetual (`Invesco') where Neil
Woodford is the manager with prime responsibility for the portfolio. At the
time of transfer to Invesco I advised shareholders that Mr Woodford's approach
was to work to a longer time horizon than most of his competitors and to invest
in stocks and sectors compatible with his view on future economic trends. Mr
Woodford and his colleagues at Invesco have for some time taken the stance, of
which the Board continues to be supportive, that expectations of recovery in UK
and global economies are premature and that the most appropriate investments
are defensive ones. Accordingly the Company's portfolio consists of companies
which the Manager believes will be resilient to further economic stress and
have good potential to sustain earnings and dividends.
The UK Equity Market
Investor optimism in future trends in global economies drove equity markets
higher, and the UK equity market performed very strongly in the year to 31
March 2010, albeit the rate of growth was much less in the second half of the
year than it was in the first. Over the year as a whole the FTSE-All Share
Index (`the Index') rose by 46.7%, with particular strength seen in stocks and
sectors most exposed to potential recovery in the economic cycle.
Company Performance
Capital: The Company's defensive portfolio positioning, as at the interim
stage, was at variance with the market's broad direction. Although the
Company's Net Asset Value (`NAV') achieved a good absolute performance,
increasing over the year by 35.9% (debt at market value) and 29.2% (debt at
par) this was significantly weaker than the 46.7% growth in the benchmark
Index. The Manager used virtually all the Company's gearing throughout the
year: this added to returns in the strong market environment. On the other hand
year-end NAV was reduced by about 1% due to early payment of the third interim
dividend.
Income: The defensive nature of the portfolio has been reflected in a flow of
dividends within the portfolio only marginally less than in the previous year -
this compares with a fall in dividends of 15% in the same period from the
constituents of the Index, as a whole.
Shareholders' Return: The Company's share price rose during the year by 35.5%;
the discount to NAV (debt at market value) being negligible at both the
beginning and end of the year under review. Total return - combining capital
growth and income - in the year to 31 March was 46% (debt at market value) or
38% (debt at par). The equivalent return from the Index was 52.3%.
Company Dividend
The Board is recommending a final dividend of 6.35 pence per share which, if
approved by shareholders, will be paid on 30 July 2010 to shareholders on the
Company's register on 18 June 2010. If this dividend is approved by
shareholders, total payments in the year to 31 March 2010 will be 20.6 pence
per share - an increase of 1% from last year. This is obviously less than the
4.4% increase in RPI in the equivalent period. This year's payment, if
endorsed, is marginally more than the Company's net earnings per share and will
involve the transfer of about £1.53m from Revenue Reserves. The Board believes
that this transfer (which represents 4% of the total available such reserves)
is fully justifiable given its confidence in the portfolio's future capacity
for dividend payments.
VAT
I informed shareholders a year ago that following the Investment Trust
movement's successful challenge to HMRC, the Company had received repayment of
VAT due from its previous manager, Fidelity International. I also explained
that similar payments were due for the periods 1990-96 and 2001-02 from
Aberdeen Asset Management (successors to Edinburgh Fund Managers). I am pleased
to report that the Company has now received £963,000 in respect of the later
period - this sum has been allocated to capital and income in the same
proportion as originally made. A further small interest payment for 2001-02
remains due, as does a potentially larger sum from 1990-96, representing both
VAT and interest. It is likely to be some time until this matter is fully
resolved.
Board Composition
The Board has been unchanged now for a number of years, and whilst this
stability continues to be beneficial following the change in Manager, the need
is recognised to plan for recruitment of fresh blood. As regards my own
position, I have agreed with colleagues that subject to shareholder endorsement
at this year's Annual General Meeting, I shall serve one further year and
retire after the Annual Meeting in 2011. Richard Barfield, Senior Independent
Director, will lead the process to identify and recruit my successor in good
time to ensure a smooth transition.
Outlook
Since the Company's year-end on 31 March, increasing concerns about a number of
economies in the EU and elsewhere have precipitated widespread falls in global
equity markets. Within the UK, the new Government is committed to cut public
spending more quickly than was earlier anticipated, with clear implications for
the domestic economy. Against this background, the Manager sees no reason to
change the positioning of his investments which he believes have the capacity
to demonstrate earnings and dividend growth, even in an adverse climate. The
Board accepts that the underlying portfolio with its defensive stance and high
stock and sector concentration may lag the Index in the event that economic
recovery is stronger than expected. On the other hand, the Company's
investments should provide resilience in the face of weak economies, and in the
long term they have considerable potential to outperform.
Scott Dobbie
Chairman
20 May 2010
INVESTMENT MANAGER'S REPORT
Market Review
Following the turbulence that characterised the early months of 2009, the UK
equity market experienced a sustained recovery in the twelve months to 31 March
2010 and provided a total return of 52.3% based on the FTSE All-Share Index.
The abrupt turnaround in equity market performance was based on evidence that
the extraordinary measures adopted by governments and central banks had
successfully arrested the downward spiral in the global economy. The rally was
given further impetus by stabilisation in the financial sector, where balance
sheet repair is an ongoing theme. As equity markets quickly embraced an
expectation of rapid and sustainable economic recovery, appetite for risk
assets rebounded sharply. In this environment, lower quality companies and
those most closely aligned to the economic cycle led the UK market higher.
Having cut interest rates to a record low of 0.5% in March of last year, the
Bank of England maintained rates at this level throughout the period under
review. March of 2009 also saw the commencement of `Quantitative Easing' (`QE')
through which the central bank purchased gilts and, to a lesser extent,
corporate bonds to inject liquidity into the financial system. An initial
allocation of £150billion was later extended to £200billion as UK authorities
sought to use all policy tools at their disposal to support the economy.
Economic performance was weak throughout the year with the domestic economy
only emerging from recession in the final quarter of 2009. While the final
three months of the year saw growth of 0.4% compared to the previous quarter,
year-on-year comparisons showed that output had contracted by more than 3%.
Manufacturing and service sector activity gradually improved, with sterling's
weakness boosting the competitiveness of British exporters. However,
unemployment remained elevated and despite the efforts of QE there were no
tangible signs of credit growth in the economy.
Portfolio Strategy and Review
The Company's net asset value, including reinvested dividends, rose by 46.0%
during the period, compared to a rise of 52.3% (total return) for the FTSE
All-Share Index. The underperformance relative to the benchmark index was a
reflection of the polarisation that has become increasingly evident in the UK
market. The companies that have led the rally have mostly been those in
cyclically orientated sectors as the market has continued to discount a strong
and sustainable recovery. The Manager retains his conviction that economic
growth in the UK will disappoint consensus expectations and he believes that a
prolonged period of muted growth is likely. Despite the disappointing relative
performance seen in the period, the Manager has been greatly encouraged by the
operational performance of the companies that constitute a large part of the
Company's investments. These businesses have been able to maintain profit and
dividend growth and while this has yet to be fully reflected in share price
terms, the Manager is confident that this will be corrected as the economic
challenges that remain become clearer. The Manager's decision to utilise the
gearing facility available during a period of strongly rising markets was
beneficial to performance. The preference for quality growth companies, able to
maintain and grow their dividends, in a period when a number of businesses were
forced to reduce or suspend their payouts, helped the Company to continue to
provide a robust level of income.
With the share prices of the Manager's favoured companies trading on valuations
that in some cases are among the lowest he has seen, there were a number of
additions to existing holdings. These included GlaxoSmithKline, Reynolds
American, Capita and BAE Systems. In addition, new positions were introduced in
WM Morrison Supermarkets and Swiss pharmaceutical group Roche.
The Manager believes that Morrison Supermarkets is trading on an undemanding
rating. This holding has been added as he believes that the group's value
proposition is well suited to today's market environment. The company has been
able to deliver robust like-for-like sales growth and an optimisation plan has
improved operating margins. The Manager believes the company remains poised to
deliver considerable dividend growth in future years through new store openings
in the south of England, better performance from the recently acquired Co-Op
stores and from further cost savings.
Much like the UK pharmaceutical businesses that form part of the portfolio, the
Manager believes that Roche is undervalued. In his view, the company has a
strong diagnostics business and has a good portfolio of on-market drugs. This
includes some biologics, which are more difficult for generic manufacturers to
replicate and this reduces the threat of patent expiries. The company has a
well regarded management team and the combination of a strong drug pipeline and
a high quality portfolio of existing drugs give the Manager confidence in the
outlook for the stock.
The most notable disposals were from the oil and gas sector. The Manager sold
positions in oil majors BP and Royal Dutch Shell, as well as a position in the
oil services group Amec. The principal rationale for these sales was the
Manager's concern that these companies may not be able to maintain dividend
payments. While the oil price has been strong in recent months, the Manager's
expectation that economic growth globally, as well as in the UK, is likely to
disappoint could lead to weakness in the price of oil in the years ahead. This
would put pressure on revenues for oil companies at a time when they continue
to face huge capital expenditure demands. As such, the Manager believes that
dividends are at risk and with other investment opportunities offering what he
believes are better valuations and greater earnings visibility, he chose to
re-allocate these funds into other areas of the market.
The representation in Reed Elsevier was sold, as the Manager's level of
conviction in the company's ability to improve returns diminished during the
period. The holding of Rexam was sold as disappointing trading performance,
combined with the announcement of a rights issue, reduced the Manager's
conviction in the outlook for the company.
Outlook
The Manager believes that the UK economy continues to face a number of
challenges over the coming years. Having seen a dramatic rise in the UK's
debts, he believes uncertainty about how quickly the budget deficit can be
brought under control is likely to remain an issue for the foreseeable future.
With ratings agencies watching developments in the UK very closely, the Manager
believes that markets are likely to remain concerned about the security of the
UK's AAA sovereign debt rating. As a part of the measures to bring the fiscal
situation under control, the Manager anticipates cuts in government spending
and public sector job losses, both of which would have negative consequences
for near-term growth prospects. The Manager believes that the legacy of the
financial crisis will also present a headwind for economic growth. The banking
sector has made some progress in improving balance sheet strength, but in the
Manager's view this process has further to run. As a result, credit growth in
the UK is likely to remain slow and this is compounded by a lack of demand from
the corporate and consumer sectors which continue to deleverage. Against this
backdrop, the Manager expects domestic economic growth to be weak for an
extended period as the imbalances that still exist in the economy are slowly
corrected.
In contrast to his cautious outlook for the economy, the Manager remains upbeat
about the opportunities available in selected areas of the UK market. In his
view, the fundamental strengths of these companies have been overlooked in a
largely momentum driven environment and this has presented the opportunity to
invest in high quality businesses at very attractive levels. In the Manager's
view, this combination leaves the Company well positioned to achieve its
investment goals over the medium to long-term.
Neil Woodford
Investment Manager
20 May 2010
INVESTMENTS IN ORDER OF VALUATION
at 31 MARCH 2010
UK listed and ordinary shares unless stated otherwise
AIM Alternative Investment Market
Market
Value % of
INVESTMENT SECTOR £'000 Portfolio
AstraZeneca Pharmaceuticals & 85,766 8.4
Biotechnology
GlaxoSmithKline Pharmaceuticals & 85,241 8.3
Biotechnology
British American Tobacco 76,040 7.4
Tobacco
Vodafone Mobile Telecommunications 58,588 5.7
Reynolds American - Tobacco 54,843 5.4
US common stock
BG Oil & Gas Producers 52,248 5.1
Imperial Tobacco Tobacco 52,060 5.1
Tesco Food & Drug Retailers 48,485 4.8
BT Fixed Line 44,280 4.3
Telecommunications
National Grid Gas & Water 43,638 4.3
Multiutilities
Ten Top Holdings 601,189 58.8
Altria - US common Tobacco 33,682 3.3
stock
Reckitt Benckiser Household Goods 33,269 3.3
BAE Systems Aerospace & Defence 31,814 3.1
Rolls Royce Aerospace & Defence 28,688 2.8
Capita Support Services 26,826 2.6
Centrica Gas & Water 23,751 2.3
Multiutilities
Scottish & Southern Electricity 22,108 2.2
Energy
International Power Electricity 15,849 1.6
Tate & Lyle Food Producers 15,115 1.5
Drax Electricity 14,966 1.5
Twenty Top Holdings 847,257 83.0
United Utilities Gas & Water 14,318 1.4
Multiutilities
Roche - Swiss Pharmaceuticals & 13,582 1.3
common stock Biotechnology
Amlin Non-life Insurance 13,503 1.3
Severn Trent Gas & Water 10,613 1.0
Multiutilities
Morrisson (W) Food & Drug Retailers 10,562 1.0
Supermarkets
Provident Financial General Financial 10,413 1.0
Sage Software & Computer 10,011 1.0
Services
Pennon Gas & Water 9,455 0.9
Multiutilities
Hiscox Non-life Insurance 8,944 0.9
Northumbrian Water Gas & Water 8,327 0.8
Multiutilities
Thirty Top Holdings 956,985 93.6
Bunzl Support Services 8,172 0.8
Yell Media 8,164 0.8
Catlin Non-life Insurance 8,054 0.8
Raven Russia(AIM) - Real Estate 4,226
Preference
- ordinary 2,842
- warrants 860
7,928 0.8
Homeserve Support Services 7,568 0.8
Barclays Bank -
Nuclear Power Notes
28 February 2019 Electricity 5,134 0.5
(1)
BTG Pharmaceuticals & 4,414 0.4
Biotechnology
Stobart Industrial Transportation 3,298 0.3
Mecom Media 2,642 0.3
Climate Exchange Financial Services 2,338 0.2
(AIM)
Forty Top Holdings 1,014,697 99.3
Burford Capital Equity Investment 1,936 0.2
(AIM) Instruments
Proximagen Pharmaceuticals & 1,890 0.2
Neuroscience(AIM) Biotechnology
Paypoint Support Services 1,490 0.2
Helphire Financial Services 1,376 0.1
Eurovestech(AIM) Financial Services 342 0.0
ENI Lasmo Oil & Gas Producers 126 0.0
Total Holdings 1,021,857 100.0
(1) Contingent Value Rights (`CVRs') referred to as Nuclear Power Notes
(`NPNs') were offered by EDF as a partial cash alternative to its cash bid for
British Energy (`BE'). The NPNs were issued by Barclays Bank. The CVRs
participate in BE's existing business.
Related Party Transactions
Invesco Asset Management Limited (`IAML'), a wholly owned subsidiary of Invesco
Limited, is Manager, Company Secretary and Administrator to the Company.
Details of management fees payable to IAML, together with details of Directors'
interests, are disclosed in the Report of the Directors in the annual financial
report. There are no other related party transactions.
PRINCIPAL RISKS AND UNCERTAINTIES
The Company's key long-term investment objectives are an increase in the
capital net asset value per share by more than the growth in the FTSE All-Share
Index (the `benchmark ' or `index') and growth in dividends by more than the
RPI. The principal risks and uncertainties of the Company are an integral
consideration when assessing the operations in place to monitor these
objectives, including the performance of the portfolio, share price and
dividends. The Board is ultimately responsible for the risk control systems but
the day to day operation and monitoring is delegated to the Manager.
Market Risk
The uncertainty over future equity market price movements is an inherent part
of the rationale for the Company's existence. The Company's assets principally
consist of quoted securities. The prices of these securities and the income
derived from them are influenced by many factors such as general economic
conditions, interest rates, inflation, political events, and government
policies as well as by supply and demand reflecting investor sentiment. Such
factors are outside the control of the Board and Manager
and may give rise to high levels of volatility in the prices of investments
held by the Company. The asset value and price of the Company's shares and its
earnings and dividends may consequently also experience volatility and may
decline.
Investment Performance Risk
The Board sets performance objectives and it delegates the investment
management process to the Manager. The achievement of the Company's performance
objectives relative to the market requires active management of the portfolio
of assets and securities. The Manager's approach is to construct a portfolio
which is compatible with the Manager's view of future trends in the UK and
global economies. The Manager is a long term investor, prepared to take
substantial positions in securities and sectors which may well be out of
fashion, but which the Manager believes will have potential for material
increases in earnings and, in due course, dividends and share prices. Strategy,
asset allocation and stock selection decisions by the Manager can lead to
underperformance of the benchmark index and/or income targets. The Manager's
style may result in a concentrated portfolio with significant overweight or
underweight positions in individual stocks or sectors compared to the index and
consequently the Company's performance may deviate significantly, possibly for
extended periods, from that of the benchmark index. However the Board and
Manager believe that the investment process and policy outlined above should,
over the long term, meet the Company's objectives of capital growth in excess
of the benchmark index and real dividend growth.
Investment selection is delegated to the Manager. The Manager manages the
portfolio and the Board does not specify asset allocations. Information on the
Company's performance against the benchmark and peer group is provided to the
Board on a quarterly basis. The Manager is responsible for monitoring the
portfolio selected and seeks to ensure that individual stocks meet an
acceptable risk-reward profile. A review of performance risk and how it relates
to the Company's objectives is undertaken annually.
Gearing Risk
The Company has the ability to invest up to £200 million from its Debenture
Stocks in the equity market. The principal gearing risk is that the level of
gearing may have an adverse impact on performance. Secondary risks relate to
whether the cost of gearing is too high and whether the length of gearing is
appropriate. The Manager has full discretion over the amount of cash from the
Company's Debenture Stocks to be invested in the equity market whilst the
issuance, repurchase or restructuring of debt are for the Board to decide.
Information related to gearing is provided to the Directors as part of the
Board papers. The Board regularly reviews the level of gearing. Additionally,
the Board keeps under review the cost of buying back debt.
Income/Dividend Risk
The Company is subject to the risk that income generation from its investments
fails to reach the level of income required to meet its objectives.
The Board monitors this risk through the review of detailed income forecasts
and comparison against budget. These are contained within the Board papers. The
Board considers the level of income at each meeting.
Share Price Risk
There is a risk that the Company's prospects and NAV may not be fully reflected
in the share price from time to time.
The share price is monitored on a daily basis. The Board is empowered to
repurchase shares within agreed parameters. The discount at which the shares
trade to NAV can be influenced by share repurchases. The Company has not
repurchased shares in the last year.
Control Systems Risk
The Board delegates a number of specific risk control activities to the Manager
including:
• best practice standards in fund management operations; and
• financial controls;
• meeting regulatory requirements;
• the management of the relationship with the Custodian in respect of the
custody and security of the Company's assets;
• the management of the relationship with the Registrar.
Consequently in respect of these activities the Company is dependent on the
Manager's control systems and those of its Custodian and Registrars, both of
which are monitored by the Manager in the context of safeguarding the Company's
assets and interests. There is a risk that the Manager fails to ensure that
these controls are performed in a satisfactory manner.
A risk-based programme of internal audits is carried out by the Manager
regularly to test the controls environment. An internal controls report
providing an assessment of these risks is prepared by the Manager and
considered by the Audit Committee, and is formally reported to and considered
by the Board.
Other Risks
The Company may be exposed to other business and strategic risks in the future,
including fiscal, legal or regulatory changes, and the perceived impact of the
designated Investment Manager ceasing to be involved with the Company.
The instruments in which the Company's cash positions are invested are reviewed
by the Board to ensure liquidity and concentration risks are adequately
managed. Where an Invesco Group vehicle is utilised, it is assessed for
suitability against other similar investment options.
The Company is subject to laws and regulations by virtue of its status as an
investment trust and is required to comply with certain regulatory requirements
that are applicable to listed closed-ended investment companies. The Company is
subject to the continuing obligations imposed by the UK Listing Authority on
all companies whose shares are listed on the Official List. A breach of section
842 of the Income and Corporation Taxes Act 1988 (`s842 ICTA') could lead to
the Company being subject to capital gains tax on the sale of the investments
in the Company's portfolio. A serious breach of other regulatory rules may lead
to suspension from listing on the Stock Exchange or a qualified Audit Report.
The Manager reviews the level of compliance with s842 ICTA and other financial
and regulatory requirements on a daily basis.
There is an ongoing process for the Board to consider these other risks. In
addition, the composition of the Board is regularly reviewed to ensure the
membership offers sufficient knowledge and experience to assess and anticipate
these risks, as far as possible.
STATEMENT OF DIRECTORS' RESPONSIBILITES
in respect of the preparation of the annual financial report
The Directors are responsible for preparing the annual financial report in
accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each
financial year. Under the law the Directors have elected to prepare financial
statements in accordance with applicable law and UK Accounting Standards
(United Kingdom Generally Accepted Accounting Practice). Under company law, the
Directors must not approve the accounts unless they are satisfied that they
give a true and fair view of the state of affairs of the Company and of the
profit or loss of the Company for that period.
In preparing these financial statements, the Directors are required to:
• select suitable accounting policies and then apply them consistently;
• make judgements and estimates that are reasonable and prudent;
• state whether applicable UK Accounting Standards have been followed, subject
to any material departures disclosed and explained in the financial statements;
and
• prepare the financial statements on the going concern basis unless it is
inappropriate to presume that the company will continue in business.
The Directors are responsible for keeping adequate accounting records that are
sufficient to show and explain the Company's transactions and disclose with
reasonable accuracy at any time the financial position of the Company and which
enable them to ensure that the financial statements comply with the Companies
Act 2006. They have general responsibility for taking such steps as are
reasonably open to them to safeguard the assets of the Company and to prevent
and detect fraud and other irregularities.
Under applicable law and regulations, the Directors are also responsible for
preparing a Directors' Report, a Directors' Remuneration Report and a Corporate
Governance Statement that comply with that law and those regulations.
In so far as each of the Directors is aware:
• there is no relevant audit information of which the Company's auditors are
unaware; and
• the Directors have taken all steps that they ought to have taken to make
themselves aware of any relevant audit information and to establish that the
auditors are aware of that information.
The Directors of the Company each confirm to the best of their knowledge, that:
• the financial statements, prepared in accordance with the applicable set of
accounting standards, give a true and fair view of the assets, liabilities,
financial position and profit of the Company; and
• this annual financial report includes a fair review of the development and
performance of the business and the position of the Company together with a
description of the principal risks and uncertainties that it faces.
Scott Dobbie
Chairman
Signed on behalf of the Board of Directors
28 May 2010
INCOME STATEMENT
FOR THE YEAR ENDED 31 MARCH
2010 2009
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Gains/(losses) on - 212,356 212,356 - (274,429) (274,429)
investments
Foreign exchange - (187) (187) - (4) (4)
losses
Income 46,958 - 46,958 48,241 - 48,241
Investment management (1,224) (2,855) (4,079) (994) (5,739) (6,733)
fee
VAT recovered on
management
fees 289 674 963 591 1,378 1,969
Other expenses (697) (6) (703) (725) (58) (783)
Net return before
finance
costs and taxation 45,326 209,982 255,308 47,113 (278,852) (231,739)
Finance costs (5,850) (13,652) (19,502) (5,850) (13,651) (19,501)
Return on ordinary
activities
before tax 39,476 196,330 235,806 41,263 (292,503) (251,240)
Tax on ordinary (809) - (809) (134) - (134)
activities
Return on ordinary
activities
after tax for the 38,667 196,330 234,997 41,129 (292,503) (251,374)
financial year
Return per ordinary
share
Basic 19.8p 100.6p 120.4p 21.0p (149.5)p (128.5)p
The total column of this statement represents the Company's profit and loss
account, prepared in accordance with UK Accounting Standards. The supplementary
revenue and capital columns are presented for information purposes in
accordance with the Statement of Recommended Practice issued by the Association
of Investment Companies. All items in the above statement derive from
continuing operations and the Company has no other gains or losses therefore no
statement of recognised gains or losses is presented. No operations were
acquired or discontinued in the year.
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
FOR THE YEAR ENDED 31 MARCH
Capital
Share Share Redemption Capital Revenue
Capital Premium Reserve Reserve Reserve Total
£'000 £'000 £'000 £'000 £'000 £'000
Balance at 31 49,574 6,639 23,881 807,375 57,569 945,038
March 2008
Dividends paid - - - - - (39,062) (39,062)
note 5
Net return on - - - (292,503) 41,129 (251,374)
ordinary
activities
Repurchase of (795) - 795 (13,202) - (13,202)
shares
Balance at 31 48,779 6,639 24,676 501,670 59,636 641,400
March 2009
Dividends paid - - - - - (49,072) (49,072)
note 5
Net return on - - - 196,330 38,667 234,997
ordinary
activities
Balance at 31 48,779 6,639 24,676 698,000 49,231 827,325
March 2010
BALANCE SHEET
FOR THE YEAR ENDED 31 MARCH
2010 2009
£'000 £'000
Fixed assets
Investments held at fair value 1,021,857 839,462
through profit or loss
Current assets
Debtors 7,233 5,698
Cash and cash funds 231 5
7,464 5,703
Creditors: amounts falling due within (3,426) (5,447)
one year
Net current assets 4,038 256
Total assets less current liabilities 1,025,895 839,718
Creditors: amounts falling due after (196,859) (196,607)
more than one year
Provision (1,711) (1,711)
Net assets 827,325 641,400
Capital and reserves
Share capital 48,779 48,779
Share premium 6,639 6,639
Capital redemption reserve 24,676 24,676
Capital reserve 698,000 501,670
Revenue reserve 49,231 59,636
Shareholders' funds 827,325 641,400
Net asset value per ordinary share
Basic 422.41p 326.99p
CASH FLOW STATEMENT
FOR THE YEAR ENDED 31 MARCH
2010 2009
£'000 £'000
Cash inflow from operating activities 37,919 48,455
Servicing of finance (19,250) (19,250)
Capital expenditure and financial 30,816 (52,386)
investment
Equity dividends paid (49,072) (39,062)
Net cash inflow/(outflow) before
management of
liquid resources and financing 413 (62,243)
Management of liquid resources - 52,601
Financing - (15,793)
Increase/(decrease) in cash 413 (25,435)
Reconciliation of net cash flow to
movement in net debt
Increase/(decrease) in cash 413 (25,435)
Cashflow from movement in liquid - (52,601)
resources
Exchange movements (187) (4)
Debenture stock non-cash movement (252) (251)
Movement in net debt in the year (26) (78,291)
Net debt at beginning of year (196,602) (118,311)
Net debt at end of year (196,628) (196,602)
NOTES TO THE FINANCIAL STATEMENTS
1. Principal Accounting Policies
The principal accounting policies adopted in the preparation of these financial
statements are set out below. These policies have been consistently applied
during the year and the preceding year, unless otherwise stated.
(a) Basis of preparation
Accounting Standards Applied
The financial statements have been prepared in accordance with applicable
United Kingdom Accounting Standards and with the Statement of Recommended
Practice (`SORP') `Financial Statements of Investment Trust Companies and
Venture Capital Trusts', issued by the Association of Investment Companies in
January 2009. The financial statements are also prepared on a going concern
basis. The disclosures on going concern in the Report of the Directors on page
26 of the 2010 annual financial report form part of the financial statements.
2. Income
2010 2009
£'000 £'000
Income from listed investments
UK dividends 38,795 42,307
Scrip dividends 870 1,269
Overseas dividends 5,936 1,883
Income from money market funds 7 1,416
UK unfranked investment income - interest 1,190 116
46,798 46,991
Other income
Deposit interest 1 854
Interest on VAT recovered on management fees - 251
(note 3)
Underwriting commission 111 118
Sundry income 48 27
Total income 46,958 48,241
3. Investment Management Fees
2010 2009
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Investment management 1,224 2,855 4,079 994 2,317 3,311
fee
Performance fee - - - - 3,422 3,422
1,224 2,855 4,079 994 5,739 6,733
Details of the investment management agreement are can be found on page 23 in
the Report of the Directors in the annual financial report. At 31 March 2010
investment management fees of £387,000 (2009: £589,000) were accrued. No
performance fee is due for the year ended 31 March 2010 (2009: £3,422,000). At
31 March 2010 no performance fee was accrued (2009: £1,711,000) and the
provision for the unpaid 2009 performance fee remains at £1,711,000.
An amount of £963,000 has been recognised in these accounts in respect of VAT
recovered on management fees paid to a previous manager, Aberdeen Asset
Management (`Aberdeen'). The recovered VAT has been credited £289,000 to
revenue and £674,000 to capital, in the same proportion as originally charged
to the income statement. Additional amounts of VAT should be received from
Aberdeen, however, as the amounts and timings of receipts are unknown, these
have not been accrued in the financial statements.
For the year ended 31 March 2009 an amount of £1,969,000 was recognised in
respect of VAT recovered on management fees from another previous manager,
Fidelity Investments International. That amount was credited £591,000 to
revenue and £1,378,000 to capital. Interest recovered thereon of £251,000 was
credited to revenue.
4. Return per Ordinary Share
The basic, capital and total returns per ordinary share are based on each
return on ordinary shares after tax and on 195,116,734 (2009: 195,657,784)
ordinary shares, being the weighted average number of shares in issue during
the year.
5. Dividends
2010 2009
pence £'000 pence £'000
Dividends paid and recognised in the
year:
Third interim paid in respect of 4.75 9,268 4.75 9,441
previous year
Final paid in respect of previous year 6.15 12,000 5.65 11,085
First interim paid 4.75 9,268 4.75 9,268
Second interim paid 4.75 9,268 4.75 9,268
Third interim paid 4.75 9,268 - -
25.15 49,072 19.90 39,062
Dividends on shares payable in respect
of
the year:
First interim 4.75 9,268 4.75 9,268
Second interim 4.75 9,268 4.75 9,268
Third interim 4.75 9,268 4.75 9,268
Proposed final 6.35 12,390 6.15 12,000
20.60 40,194 20.40 39,804
The proposed final dividend is subject to approval by Ordinary Shareholders at
the AGM.
6. Share Capital
2010 2009
Number £'000 Number £'000
Authorised
Ordinary shares of 25p each 316,099,929 79,025 316,099,929 79,025
Allotted, called-up and fully paid
Ordinary shares of 25p each 195,116,734 48,779 195,116,734 48,779
7. Net Asset Value (`NAV') per Ordinary Share
(a) NAV - debt at par
The shareholders' funds in the balance sheet are accounted for in accordance
with accounting standards, however, this does not reflect the rights of
shareholders on a return of assets under the Articles of Association. These
rights are reflected in the net assets with debt at par and the corresponding
NAV per share. A reconciliation between the two sets of figures follows:
2010 2009
NAV Shareholders' NAV Shareholders'
per share Funds Per share Funds
PENCE £'000 PENCE £'000
Shareholders' funds 424.02 827,325 328.73 641,400
Less: Unamortised discount
and
expenses arising from
debenture
issue (1.61) (3,141) (1.74) (3,393)
NAV - debt at par 422.41 824,184 326.99 638,007
(b) NAV - debt at market value
The market value of the debenture stocks is determined by reference to the
daily closing price. This is the Bloomberg closing price, subject to review
against other data providers to ensure consistency between data providers and
against the reference gilts.
The net asset value per share adjusted to include the debenture stocks at
market value rather than at par is as follows:
2010 2009
NAV Shareholders' NAV Shareholders'
per share Funds Per share Funds
PENCE £'000 PENCE £'000
NAV - debt at par 422.41 824,184 326.99 638,007
Debt at par 102.50 200,000 102.50 200,000
Debt at market value
- 11 ½ % Debenture Stock (64.65) (126,136) (69.73) (136,054)
2014
- 7 ¾ % Debenture Stock (61.34) (119,690) (66.20) (129,170)
2022
NAV - debt at market value 398.92 778,358 293.56 572,783
The number of ordinary shares in issue at the year end was 195,116,734 (2009:
195,116,734).
This annual financial report announcement is not the Company's statutory
accounts. The statutory accounts for the year ended 31 March 2009 have been
delivered to the Registrar of Companies. The statutory accounts for the year
ended 31 March 2009 and for the year ended 31 March 2010 received an audit
report which was unqualified, did not include a reference to any matters to
which the auditors drew attention by way of emphasis without qualifying the
report. The statutory accounts for the financial year ended 31 March 2010 have
been approved and audited but have not been filed.
The audited annual financial report will be available to shareholders shortly.
Copies may be obtained during normal business hours from the Company's
Registered Office, Quartermile One, 15 Lauriston Place, Edinburgh EH3 9EP or
the Company's website at www.invescoperpetual.co.uk/investmenttrusts.
The Annual General Meeting will be held on 23 July 2010 at 10.30 am at the
Weston Link, National Galleries of Scotland, Princes Street, Edinburgh.
By order of the Board
Invesco Asset Management Limited
28 May 2010
Contacts:
Tim Mitchell
Tel - 020 7065 3182
Andrew Watkins
Tel - 020 7065 4023
Carolyn Ladd
Tel - 020 7065 3526
Thursday, 9th January 2025
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