Annual Financial Report
Keystone Investment Trust plc
Annual Financial Report Announcement
for the Year Ended 30 September 2012
FINANCIAL INFORMATION AND PERFORMANCE STATISTICS
Performance Statistics
AT AT
30 September 30 September %
2012 2011 CHANGE
Assets
Net assets attributable to ordinary 182,803 164,253 +11.3
shareholders (£'000)
2012 2011
% CHANGE % CHANGE
Total Return (capital growth with
income reinvested)
Net asset value (`NAV') per share:
  - debt at par +15.8 +5.0
  - debt at fair value +14.0 +4.4
Share price (mid-market) +21.0 +0.8
FTSE All-Share Index +17.2 -4.4
Source: Thomson Reuters Datastream and Morningstar
AT AT
30 September 30 September %
2012 2011 CHANGE
Capital Return
NAV per share:
  - debt at par 1367.4p 1228.6p +11.3
  - debt at fair value 1310.3p 1196.3p +9.5
Share price 1318.0p 1135.5p +16.1
FTSE All-Share Index 2998.9 2654.4 +13.0
Discount/(premium) of share price to
net asset
  value per share:
  - debt at par 3.6% 7.6%
  - debt at fair value (0.6)% 5.1%
Gearing  - gross 17.4% 19.4%
- net 8.5% 9.0%
FOR THE YEAR TO 30 SEPTEMBER
2012 2011
Revenue
Net revenue available for ordinary 6,566 6,085
shareholders (£'000)
Revenue return per ordinary share 49.1p 45.5p +7.9
Dividends per ordinary share - 1st 18.0p 17.5p
interim
- 2nd interim/final 30.5p 29.0p
- total 48.5p 46.5p +4.3
Ongoing charges:
  Excluding performance fee 0.95% 0.99%
  Performance fee 0.19% -
Ten Year Historical Record
Revenue Net Assets Net
Asset
Year Gross Earnings Dividends Attributable Value Share Ongoing Net
ended To Per
30 Revenue Per Per Share Shareholders Share Price Charges Gearing
September Share (3)
£'000 p p £'000 p p % %
2003 4,524 24.9 25.5 95,564 714.8 651.0 1.03  6.0
2004 5,659 32.2 30.0 111,224 832.0 754.0 1.26 12.9
2005 5,737 32.2(1) 31.5 143,415(1)1072.8(1)963.0 1.14 11.3
2006 6,477 37.3 35.0 166,739 1247.2 1102.0 1.09 16.7
2007 7,099 41.6 40.0 179,197 1340.4 1190.0 1.07 13.4
2008 8,159 50.4 44.0 144,908 1083.9 940.0 0.90 -
2009 8,263 57.4 56.6(2) 150,252 1123.9 1008.0 0.89  4.9
2010 6,864 40.6 45.5 162,154 1212.9 1170.0 0.92  7.5
2011 7,391 45.5 46.5 164,253 1228.6 1135.5 0.99  9.0
2012 7,901 49.1 48.5 182,803 1367.4 1318.0 0.95  8.5
(1) Restated for new UK Accounting Standards.
(2) Includes a special dividend of 11.1p per share.
(3) All calculations exclude performance fees.
.
CHAIRMAN'S STATEMENT
In the year to 30 September 2012, the total return to the holders of the
Company's ordinary shares, based on the share price with dividends reinvested,
was +21.0% and the total return on the net asset value per share (with debt at
par value) was +15.8%. In comparison, the total return of the Company's
benchmark, the FTSE All-Share Total Return Index, was +17.2%.
The Company's long term performance continues to be very strong with 3 year and
5 year net asset value per share (with debt at par value) total returns of
+39.6% and +24.7%, respectively, compared with +26.1% and +8.7% for the FTSE
All-Share Total Return Index. Our investment management agreement with Invesco
provides that a performance related fee is payable when the annualised 3-year
return exceeds by more than 2% that of the benchmark, so in light of the 3 year
performance achieved to date we have provided for a performance fee of £322,000
in this year's financial Statements. The final performance fee payable will be
determined by returns for the 3 years to 31 December 2012.
The price of the Company's ordinary shares, relative to their net asset value
(with debt at fair value), moved to a premium of 0.6% at the year end from a
discount of 5.1% at the end of September 2011. I am pleased to report that the
demand for the Company's shares that generated this premium also allowed us to
issue 75,000 new ordinary shares after the year end. This is a welcome
occurrence and we will be seeking to renew our powers to issue new shares at
the forthcoming AGM.
Revenue and Dividends
Consistent with our Manager's continuing focus on investing in companies that
can maintain and increase dividends, gross income in the year increased to £
7,901,000, from £7,391,000 last year, giving a revenue return, after tax, of
49.1p per ordinary share (2011: 45.5p). Whilst the primary objective of the
Company is long-term growth of capital, the Board will continue to pay
attention to the importance of dividends to the Company's shareholders.
The Board has declared a second interim dividend, in lieu of a final, of 30.5p
per share (2011: 29p), giving a total dividend for the year of 48.5p per share
(2011: 46.5p). The dividend will be paid on 14 December 2012 to shareholders on
the register on 23 November 2012.
Gearing
When used successfully, gearing should enhance the returns to shareholders. The
Board takes responsibility for the Company's gearing strategy and sets
parameters within which the fund manager operates. The Company's borrowings, in
the form of long-term debentures, amount to £32 million. The net gearing of the
Company is determined by the extent to which these borrowings are invested in
shares. The Board currently requires that the Manager must make no net
purchases which would take equity exposure above 110% of net assets, and must
make sales if, as a result of market movements, equity exposure goes higher
than 115% of net assets. It is up to the investment manager to decide on equity
exposure subject to those limits.
The Board has also authorised in the past some exposure to corporate bonds,
which is not treated as equity exposure for the purposes of the gearing limits.
The maximum limit on corporate bond investments is £12 million. At the year
end, bonds held by the Company amounted to only £0.5 million or 0.3% of total
investments.
The Board
On 1 November 2012, the Board appointed Ian Armfield as a new director of the
Company. He has an accounting background and was an audit partner at
PricewaterhouseCoopers for 20 years, where his specialisation was financial
services. David Adams has decided that he will retire from the Board at the
conclusion of the forthcoming AGM, after 15 years of very good and much
appreciated service to the Company. It is intended that Mr Armfield will
succeed him as Audit Committee Chairman in January.
Outlook
The figures above together with the evident demand for the Company's shares
reflect the continued success of our Manager's investment approach. With the
continuing challenging and uncertain economic background and volatile equity
markets we remain convinced that this approach is appropriate and are confident
that it will enable the Company to continue to fulfil its investment objective
to provide shareholders with long-term growth of capital.
Annual General Meeting
The Notice of the Annual General Meeting of the Company, which is to be held on
22 January 2013, is on pages 51 to 57 and a summary of the resolutions is set
out in the Report of the Directors on pages 27 and 28 of the Annual Financial
Report. The business of the meeting this time includes one non-routine special
resolution: to adopt new Articles of Association. This has been prompted by the
introduction of new investment trust tax rules, which came into effect for the
Company on 1 October 2012 and which, amongst other things, no longer prohibit
investment trust companies from distributing capital profits by way of
dividend. As well as enabling the Company to take advantage of the added
flexibility allowed by the new tax rules the opportunity has been taken to
update the articles generally to reflect current law and best practice. The
Directors have no current intention to distribute capital profits as dividends.
The Directors recommend that shareholders vote in favour of all the
resolutions, as they intend to do themselves.
Beatrice Hollond
Chairman
20 November 2012
.
MANAGER'S REPORT
Market Review
A strong performance by the UK stock market over the past 12 months was
characterised by periods of high volatility, as market sentiment swung between
pessimism on the global economic outlook, driven by the slowdown in the Chinese
economy, and optimism following each new policy initiative from the central
bankers including the Bank of England. However, the period was also noteworthy
for a growing number of profit downgrades from companies, particularly within
the industrial cyclical part of the market.
The last few months of the period saw a sustained rally in the market following
a more comprehensive policy statement from Mario Draghi, President of the ECB,
on stabilising the Eurozone sovereign debt crisis, as well as the additional
and unlimited monetary stimulus announced by US Federal Reserve Chairman, Ben
Bernanke. However, the year ended with a further warning from the International
Monetary Fund that it would cut its forecast for global economic growth, while
civil unrest in Spain and Greece highlighted the challenges facing governments
intent on imposing further austerity.
Portfolio Strategy & Review
The Company's net asset value (debt at par), including reinvested dividends,
returned 15.8% over the 12 months to the end of September 2012, compared to a
total return of 17.2% from the FTSE All-Share index.
The Company's focus on investing in companies with a track record of dependable
earnings and dividend growth saw it delivering double digit absolute returns
over the period. However, in an environment where investors had typically
discovered a renewed appetite for risk, the underweight stance in some of the
more cyclical sectors, notably banks, led to the Company's returns marginally
lagging those of its benchmark.
Positive contributions to performance came from a collection of the Company's
largest investments, in particular from the holding in BT Group. The company
announced that it had agreed a reduction plan for its pension scheme deficit -
allowing the company greater flexibility to increase future returns to
shareholders. BT also announced deals for a range of exclusive TV rights for
Premier League Football and then Premiership Rugby - further evidence of its
strategic ambition to build its BT Vision content portfolio and benefit from
on-going digital media convergence and the roll-out of the fibre network.
The Company is heavily invested in the pharmaceutical sector, including the
Swiss companies Roche and new holding in the portfolio of the past year,
Novartis. In common with their UK counterparts, these companies have the
ability to deliver growth in earnings and dividends in challenging environments
and have an undeservedly low valuation. They also offer the opportunity to
diversify the portfolio outside the UK market into better quality businesses
listed overseas, which has been a benefit to the portfolio
Shares in BAE Systems had performed strongly in the months before the company
confirmed that it was in early stage talks with EADS regarding a merger. The
deal did not look particularly beneficial to shareholders and, after an initial
spike higher, BAE Systems' share price retreated to the level it stood at
immediately before the announcement. Since the period end the two companies
have confirmed that merger negotiations have been terminated.
There were also some significant contributions to the Company's performance
from a number of the "mid-cap" stocks in the portfolio. Provident Financial
announced a positive trading update, notably in its fast growing credit card
business, Babcock said both civil and military markets remained strong, while
Beazley and Amlin each announced a return to profits on the back of a more
benign claims environment.
A negative impact on performance came from the holding in Homeserve, which
announced that the Financial Services Authority was investigating "certain
historic issues" relating to sales and marketing practices in its UK business.
The company has since provided reassurance that it is continuing to grow its
international businesses and is making progress in the UK in refocusing that
business. The Manager took advantage of the share price weakness to increase
the Company's holding in the shares.
There was disappointing news on the investment in Chemring, which announced
that unexpected delays in customer orders would hit full year revenues and
profits. However, towards the end of the period the company announced that it
had received a "highly preliminary expression of interest" from private equity
firm Carlyle Group in relation to a possible offer. The holding in Thomas Cook
also detracted from the Company's performance, as the company warned that it
was facing a challenging trading environment particularly in the key trading
period at the beginning of the calendar year. This resulted in the perception
that it would breach banking covenants on its significant level of existing
debt. The company has since reassured investors with more positive trading news
and a complete change in the senior management roles, and the Manager again
used the fall in the share price as an opportunity to add to the holding.
With overall views on the market and the wider economy largely unaltered
portfolio activity was relatively limited, but reflected the view that value
had increasingly appeared in the mid-cap range of the stock market. The holding
in International Power was the subject of an agreed cash bid from GDF Suez and
the holding in Tesco was sold. New investments were made in Carnival, Filtrona,
Lancashire Holdings, Novartis, Reed Elsevier, Regus and Thomas Cook.
Outlook
The stock market's rise in the past year, fuelled by monetary stimulus and
central bank policy initiatives, has occurred despite reductions in the
forecasts of company earnings for the current financial year due to renewed
weakness in the key economics of the US, China and the Eurozone. Equity
valuations are therefore no longer as compellingly cheap as they were at the
beginning of the year, and it is expected that stock markets may now track
sideways for a while.
However, within the market as a whole, there is still a subset of stocks that
look attractively valued, particularly for investors seeking income. Indeed
with the yield on offer from equities currently well above that from bonds or
cash - a situation last witnessed in the 1950s - and earnings growth under
pressure, income is likely to provide a higher percentage of stock market total
return.
The investment strategy being followed is to focus on companies with reliable
cashflow and sustainable dividend growth, operating in less cyclical and more
defensive industries. Overlaying this is balance sheet strength, with an
associated ability to access the credit markets for funding. The valuations of
such companies do not reflect their ability to deliver earnings and dividend
growth in a continued challenging economic environment.
Mark Barnett
Investment Manager
20 November 2012
.
REPORT OF THE DIRECTORS
Principal Risks and Uncertainties
Investment Objective
There is no guarantee that the Company's investment objective will be achieved
or will provide the returns sought by the Company.
The Board has established guidelines to ensure that the investment policy that
has been approved is pursued by the Manager.
Market Risk
The majority of the Company's investments are traded on the London Stock
Exchange. The principal risk for investors in the Company is of a significant
fall in the markets and/or a prolonged period of decline in the markets
relative to other forms of investment. The value of investments held within the
portfolio is influenced by many factors including the general health of the
economy in the UK, interest rates, inflation, government policies, industry
conditions, political events, tax laws, environmental laws, and by changing
investor demand. In addition, there is the risk that the European policy makers
fail to maintain the current fragile market confidence by not implementing an
effective and lasting solution to the Eurozone crisis. Such factors are out of
the control of the Board and the Manager and may give rise to high levels of
volatility in the prices of investments held by the Company.
Investment Risk
The investment process employed by the Manager combines top down assessment of
economic and market conditions with stock selection. Fundamental analysis forms
the basis of the Company's stock selection process, with an emphasis on sound
balance sheets, good cash flows, the ability to pay and sustain dividends, good
asset bases and market conditions. The process is complemented by constant
assessment of market valuations. It is important to have a sense of a company's
realistic valuation which, to some extent, will be independent of the price at
which the company currently trades in the market. Overall, the investment
process is aiming to achieve absolute returns through a genuinely active fund
management approach. This can therefore result in a portfolio which looks
substantially different from the index.
Risk management is an integral part of the investment management process. The
Manager effectively controls risk by ensuring that the Company's portfolio is
always appropriately diversified. In depth and continual analysis of the
fundamentals of all holdings gives the Manager a full understanding of all the
financial risks associated with any particular security.
Past performance of the Company is not necessarily indicative of future
performance.
A fuller discussion of economic and market conditions and prospects for future
performance of the Portfolio are included in the Chairman's Statement and the
Manager's Report on pages 5 to 8 of the Annual Financial Report.
Foreign Exchange Risk
The Company has some non-sterling denominated investments and is therefore
subject to foreign exchange risk. The foreign currency exposure of the Company
is monitored by the Manager on a daily basis and foreign currency contracts are
used to hedge exposure in accordance with guidelines set by the Board.
Shares
The ordinary shares of the Company may trade at a discount to its NAV. As at 30
September 2012, the Company's shares traded at a premium of 0.6% (debt at fair
value) and during the year they traded at an average discount of 4.6%.
The value of an investment in the Company and the income derived from that
investment may go down as well as up and an investor may not get back the
amount invested.
While it is the intention of the Directors to pay dividends to ordinary
shareholders twice a year, the ability to do so will depend upon the level of
income received from securities and the timing of receipt of such income by the
Company. Accordingly, the amount of the dividends paid to ordinary shareholders
may fluctuate. Any change in the tax or accounting treatment of dividends or
other investment income received by the Company may also affect the level of
dividend paid.
Bond Holdings
Fixed interest securities are subject to credit, liquidity, duration and
interest rate risks. Adverse changes in the financial position of an issuer or
in general economic conditions may impair the ability of the issuer to make
payments of principal and interest or may cause the liquidation or insolvency
of an issuer.
Gearing
Gearing levels may change from time to time in accordance with the Manager's
and the Board's assessment of risk and reward. Whilst the use of borrowings by
the Company should enhance total return where the return on the Company's
underlying securities is rising and exceeds the cost of borrowing, it will have
the opposite effect where the underlying return is falling. As at 30 September
2012, net gearing stood at 8.5%.
Regulatory
The Company is subject to various laws and regulations by virtue of its status
as a public limited company and as an investment company. A loss of investment
trust status could lead to the Company being subject to capital gains tax on
the profits arising from the sale of its investments. A serious breach of other
regulatory rules might lead to suspension from the Stock Exchange. Other
control failures, either by the Manager or any other of the Company's service
providers, might result in operational or reputational problems, erroneous
disclosures or loss of assets through fraud, as well as breaches of
regulations.
The Manager reviews the level of compliance with tax and other financial
regulatory requirements on a daily basis. All transactions, income and
expenditure are reported to the Board. The Board regularly considers all risks,
the measures in place to control them and the possibility of any other risks
that could arise. The Board ensures that satisfactory assurances are received
from service providers. The Manager's Compliance Officer produces regular
reports for review by the Company's Audit Committee.
Reliance on Third Party Service Providers
The Company has no employees and the Directors have all been appointed on a
non-executive basis. The Company is reliant upon the performance of third party
service providers for its executive function. In particular, the Manager
performs services which are integral to the operation of the Company. Failure
by any service provider to carry out its obligations to the Company in
accordance with the terms of its appointment could have a materially
detrimental impact on the operation of the Company and could affect the ability
of the Company to successfully pursue its investment policy.
The Manager may be exposed to reputational risks. In particular, the Manager
may be exposed to the risk that litigation, misconduct, operational failures,
negative publicity and press speculation, whether or not it is valid, will harm
its reputation. Any damage to the reputation of the Manager could result in
potential counterparties and third parties being unwilling to deal with the
Manager and by extension the Company. This could have an adverse impact on the
ability of the Company to pursue its investment policy successfully. The
Company's main service providers are listed on page 13 of the Annual Financial
Report.
.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
IN RESPECT OF THE PREPARATION OF FINANCIAL STATEMENTS
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 that law the Directors have elected to prepare financial
statements in accordance with United Kingdom Generally Accepted Accounting
Practice (United Kingdom Accounting Standards) and applicable law. Under
company law, the Directors must not approve the financial statements unless
they are satisfied that they give a true and fair view of the state of affairs
of the Company and of the net return 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 judgments 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 which 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 company law.
They are also responsible for safeguarding the assets of the Company and hence
for taking reasonable steps for the prevention and detection of 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.
The Directors of the Company, each confirm to the best of their knowledge that:
• the financial statements, which have been prepared in accordance with
applicable accounting standards, give a true and fair view of the assets,
liabilities, financial position and net return of the Company;
• the 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; and
• they consider that the annual financial report taken as a whole, is fair,
balanced and understandable and provides the information necessary for
shareholders to assess the Company's performance, business model and strategy.
Beatrice Hollond
Chairman
Signed on behalf of the Board of Directors
20 November 2012
INVESTMENTS BY SECTOR
AT 30 SEPTEMBER 2012
UK listed ordinary shares unless stated otherwise
MARKET
VALUE % OF
SECTOR/COMPANY £'000 PORTFOLIO
Basic Materials
Halosource 174 0.1
UK Coal 108 0.1
282 0.2
Consumer Goods
Imperial Tobacco 10,763 5.4
British American Tobacco 9,969 5.0
Reynolds American - US Common stock 9,862 4.9
Reckitt Benckiser 6,309 3.2
Tate & Lyle 1,610 0.8
38,513 19.3
Consumer Services
Ladbrokes 3,746 1.9
Compass 3,397 1.7
Carnival 3,047 1.5
Brown (N) 2,066 1.0
Reed Elsevier 1,775 0.9
Wm Morrison Supermarkets 1,700 0.9
Thomas Cook 859 0.4
Hibu 19 -
Mirada 2 -
16,611 8.3
Financials
Hiscox 5,170 2.6
Provident Financial 4,707 2.3
Amlin 4,283 2.1
Beazley 3,763 1.9
A J Bell - Unquoted 3,300 1.6
Workspace 2,154 1.1
Lancashire 1,665 0.8
Doric Nimrod Air Two - Preference shares 1,456 0.7
Imperial Innovation - Convertible `B' shares - 702 } 0.6
Unquoted
- Ordinary shares 488 }
Impax Asian Environmental Markets
  - Ordinary shares 1,123 } 0.6
  - Subscription shares 3 }
Damille Investments II 1,122 0.6
Impax Environmental Markets 890 0.4
Fusion IP 852 0.4
Damille Investments 748 0.4
Altus Resource 572 0.3
Macau Property Opportunities Fund 455 0.2
Helphire 12 -
33,465 16.6
Health Care
GlaxoSmithKline 8,013 4.0
Roche - Swiss Common Stock 7,980 4.0
AstraZeneca 7,621 3.8
Novartis - Swiss Common Stock 6,593 3.3
BTG 3,308 1.7
Napo Pharmaceuticals - Unquoted 2,698 1.3
Vectura 1,160 0.6
Lombard Medical Technologies 970 0.5
PuriCore 403 0.2
XCounter AB - Swedish Common Stock 402 0.2
XTL Biopharmaceutical - US ADR (10 Ord Shares) 106 0.1
39,254 19.7
MARKET
VALUE % OF
SECTOR/COMPANY £'000 PORTFOLIO
Industrials
BAE Systems 6,750 3.4
Capita 4,945 2.5
Babcock International 4,939 2.5
Serco 3,199 1.6
Rentokil Initial 3,177 1.6
Homeserve 1,786 0.9
Chemring 1,600 0.8
Filtrona 1,318 0.7
Regus 1,066 0.5
Nexeon - Series `B' shares - Unquoted 497 } 0.4
- Preference `C' shares - Unquoted 400 }
- Ordinary shares - Unquoted 4 }
29,681 14.9
Oil & Gas
BG 7,299 3.7
7,299 3.7
Telecommunications
BT 11,365 5.7
Vodafone 4,735 2.4
KCOM 4,116 2.1
TalkTalk Telecom 3,152 1.6
23,368 11.8
Utilities
Centrica 3,750 1.9
Drax 3,501 1.8
SSE 2,599 1.3
Barclays Bank - Nuclear Power Notes 28 436 0.2
Feb 2019(1)
10,286 5.2
Total Equity Investments 198,759 99.7
Fixed Interest
PuriCore Convertible Notes 6% 31 Dec 375 0.2
2013 - Unquoted
Ecofin Water & Power Opportunities 6% 125 0.1
31 Jul 2016
500 0.3
Total Investments 199,259 100.0
(1) Contingent Value Rights (`CVR') referred to as Nuclear Power Notes (`NPN')
were offered by EDF as a partial alternative to its cash bid for British Energy
(`BE'). The NPNs were issued by Barclays Bank. The CVRs participate in BE's
existing business.
INCOME STATEMENT
FOR THE YEAR ENDED 30 SEPTEMBER
2012 2011
REVENUE CAPITAL TOTAL REVENUE CAPITAL TOTAL
NOTES £'000 £'000 £'000 £'000 £'000 £'000
Gains on investments - 21,056 21,056 - 4,930 4,930
Gains/(losses) on - 11 11 - (6) (6)
certificates of deposit
Foreign exchange gains/ - 84 84 - (295) (295)
(losses)
Income 2 7,901 32 7,933 7,391 - 7,391
Investment management fees 3 (321) (1,285) (1,606) (312) (935) (1,247)
Other expenses (316) - (316) (323) - (323)
Net return before finance 7,264 19,898 27,162 6,756 3,694 10,450
costs and taxation
Finance costs (560) (1,643) (2,203) (559) (1,641) (2,200)
Return on ordinary 6,704 18,255 24,959 6,197 2,053 8,250
activities before tax
Tax on ordinary activities (138) - (138) (112) - (112)
Net return on ordinary 6,566 18,255 24,821 6,085 2,053 8,138
activities after tax for
the financial year
Return per ordinary share
Basic 5 49.1p 136.6p 185.7p 45.5p 15.4p 60.9p
The total column of this statement represents the Company's profit and loss
account, prepared in accordance with the accounting policies detailed in note 1
to the financial statements. 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 total 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 30 SEPTEMBER
CAPITAL
SHARE SHARE REDEMPTION CAPITAL REVENUE
CAPITAL PREMIUM RESERVE RESERVE RESERVE TOTAL
£'000 £'000 £'000 £'000 £'000 £'000
Balance at 30 September 2010 6,685 1,258 466 145,580 8,165 162,154
Dividends paid - note 4 - - - - (6,039) (6,039)
Net return on ordinary - - - 2,053 6,085 8,138
activities
Balance at 30 September 2011 6,685 1,258 466 147,633 8,211 164,253
Dividends paid - note 4 - - - - (6,271) (6,271)
Net return on ordinary - - - 18,255 6,566 24,821
activities
Balance at 30 September 2012 6,685 1,258 466 165,888 8,506 182,803
BALANCE SHEET
AT 30 SEPTEMBER
2012 2011
NOTES £'000 £'000
Fixed assets
  Investments held at fair value through 199,259 179,393
profit or loss
Current assets
  Certificates of deposit - 13,000
  Debtors 985 1,380
  Cash and cash funds 15,934 3,441
16,919 17,821
Creditors: amounts falling due within (1,158) (1,089)
one year
Net current assets 15,761 16,732
Total assets less current liabilities 215,020 196,125
Creditors: amounts falling due after (31,895) (31,872)
more than one year
Provisions (322) -
Net assets 182,803 164,253
Capital and reserves
Called up share capital 6 6,685 6,685
Share premium 1,258 1,258
Capital redemption reserve 466 466
Capital reserve 165,888 147,633
Revenue reserve 8,506 8,211
Shareholders' funds 182,803 164,253
Net asset value per ordinary share
Basic 7 1367.4p 1228.6p
These financial statements were approved and authorised for issue by the Board
of Directors on 20 November 2012.
Signed on behalf of the Board of Directors
Beatrice Hollond
Chairman
CASH FLOW STATEMENT
FOR THE YEAR ENDED 30 SEPTEMBER
2012 2011
NOTES £'000 £'000
Cash inflow from operating activities 8(a) 6,421 5,205
Servicing of finance 8(b) (2,180) (2,179)
Capital expenditure and financial investment 8(b) 14,523 14,935
Net equity dividends paid 4 (6,271) (6,039)
Net cash inflow before management of liquid resources 12,493 11,922
and financing
Management of liquid resources 8(b) (15,000) -
(Decrease)/increase in cash (2,507) 11,922
Reconciliation of net cash flow to movement in net debt
(Decrease)/increase in cash (2,507) 11,922
Cashflow from movement in liquid resources 15,000 -
Debenture stock non-cash movement (23) (21)
Movement in net debt in the year 12,470 11,901
Net debt at beginning of the year (28,431) (40,332)
Net debt at end of the year 8(c) (15,961) (28,431)
.
NOTES TO THE FINANCIAL STATEMENTS
1. Accounting Policies
The principal accounting policies have been applied consistently throughout the
year and the preceding year.
(a) Basis of Preparation
(i) 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.
(ii) Functional and presentation currency
The financial statements are presented in sterling, which is the Company's
functional and presentation currency and the currency in which the Company's
share capital and expenses, as well as a majority of its assets and
liabilities, are denominated.
2. Income
2012 2011
£'000 £'000
Income from investments
UK dividends 6,760 6,463
Overseas dividends 982 752
UK unfranked investment income - interest 128 174
Scrip dividends 23 -
7,893 7,389
Other income
Deposit interest 8 2
Total income 7,901 7,391
A special dividend of £32,000 (2011: nil) has been recognised in capital.
3. Investment Management and Performance-related Fees
2012 2011
REVENUE CAPITAL TOTAL REVENUE CAPITAL TOTAL
£'000 £'000 £'000 £'000 £'000 £'000
Investment management fee 321 963 1,284 312 935 1,247
Performance-related fee - 322 322 - - -
321 1,285 1,606 312 935 1,247
Details of the management agreement are disclosed in the Annual Financial
Report. The performance-related fee is based on a calendar year basis; a
performance-related fee of £322,000 has been provided for the year ended 31
December 2012 (31 December 2011 and 31 December 2010: none). At 30 September
2012, investment management fees of £347,000 (2011: £301,000) were accrued.
4. Dividends
2012 2011
£'000 £'000
Dividends on equity shares paid and recognised in
the year:
Final dividend for 2011 of 29p (2010: 28p) 3,877 3,743
1st interim dividend for 2012 of 18p (2011: 17.5p) 2,406 2,340
Return of unclaimed dividends from previous years (12) (44)
6,271 6,039
2012 2011
£'000 £'000
Dividends on equity shares payable in respect of the
year:
1st interim paid 18p per ordinary share (2011: 2,406 2,340
17.5p)
2nd interim dividend of 30.5p per ordinary share 4,100 3,877
(2011: final: 29p)
6,506 6,217
5. Return per Ordinary Share
Basic revenue, capital and total return per ordinary share is based on each of
the returns on ordinary activities after taxation and on 13,368,799 (2011:
13,368,799) shares being the number of ordinary shares in issue throughout the
year.
6. Called up share capital
2012 2011
NUMBER £'000 NUMBER £'000
Authorised
Ordinary shares of 50p each 20,000,000 10,000 20,000,000 10,000
Allotted, called-up and fully
paid:
Ordinary shares of 50p each 13,368,799 6,685 13,368,799 6,685
The ordinary shares are fully participating and on a poll carry one vote per £1
nominal held.
Subsequent to the year end 75,000 ordinary shares of 50p each were issued at an
average price of 1341.7p.
7. Net Asset Value per Ordinary Share
The net asset value per ordinary share and the net assets attributable at the
year end were as follows:
NET ASSET VALUE NET ASSETS
PER SHARE ATTRIBUTABLE
2012 2011 2012 2011
PENCE PENCE £'000 £'000
Ordinary shares
- Basic 1367.4 1228.6 182,803 164,253
Net asset value per ordinary share is based on net assets at the year end and
on 13,368,799 (2011: 13,368,799) ordinary shares, being the number of ordinary
shares in issue at the year end.
8. Notes to the Cash Flow Statement
(a) Reconciliation of Operating Profit to Operating Cash Flows
2012 2011
£'000 £'000
Total return before finance costs and taxation 27,162 10,450
Adjustment for gains on investments and (21,067) (4,924)
certificates of deposit
Cash inflow/(outflow) from forward currency 86 (71)
contracts
Scrip dividends (23) -
Decrease/(increase) in debtors 13 (149)
Increase in creditors and provisions 388 11
Tax on overseas dividends (138) (112)
Net cash inflow from operating activities 6,421 5,205
(b) Analysis of Cash Flow for Headings Netted in the Cash Flow Statement
2012 2011
£'000 £'000
Servicing of finance
Preference dividends paid (12) (12)
Bank interest paid - -
Interest paid on debenture stocks (2,168) (2,167)
Net cash outflow from servicing of finance (2,180) (2,179)
Capital expenditure and financial investment
Purchase of investments* (40,333) (42,031)
Sale of investments 41,845 41,972
Purchase of certificates of deposit (83,000) (62,020)
Sale of certificates of deposit 96,011 77,014
Net cash inflow from capital expenditure and 14,523 14,935
financial investments
Management of liquid resources
Cash movement on cash funds and short term (15,000) -
deposits
Net cash outflow from management of liquid (15,000) -
resources
*Excludes scrip dividends received as income.
(c) Analysis of changes in net debt
DEBENTURE
STOCK
1 OCTOBER CASH NON-CASH 30 SEPTEMBER
2011 FLOW MOVEMENT 2012
£'000 £'000 £'000 £'000
Cash 3,441 (2,507) - 934
Cash funds and short term - 15,000 - 15,000
deposits
Debentures (31,622) - (23) (31,645)
5% Cumulative preference (250) - - (250)
shares
Net debt (28,431) 12,493 (23) (15,961)
9. Related Party Transactions and Transactions with the Manager
Under United Kingdom Generally Accepted Accounting Practice (UK Accounting
Standards and applicable law), the Company has identified no related parties
and there have been no related party transactions during the year. Invesco
Asset Management Limited (`IAML'), a wholly owned subsidiary of Invesco
Limited, acts as Manager, Company Secretary and Administrator to the Company.
Details of IAML's services and fees are disclosed in the Annual Financial
Report and management fees payable to IAML are shown in note 3.
This announcement does not constitute the Company's statutory accounts. It is
an abridged version of the audited Annual Financial Report of the Company for
the year ended 30 September 2012. The opinion of the auditors on the 2012
Annual Financial Report is unqualified, and the auditors have not drawn
attention to any matter, nor have they sought to make a statement under section
498 of the Companies Act 2006. Information relating to the year ended 30
September 2011 is taken from the audited Annual Financial Report for that year
which has been delivered to the Registrar of Companies. The Annual Financial
Report for 2012 will be delivered to the Registrar in due course.
The audited Annual Financial Report will be posted to shareholders shortly. It
will also shortly be available from Invesco Perpetual on the following website:
http://www.invescoperpetual.co.uk/investmenttrusts
Copies may also be obtained during normal business hours from the Company's
Registered Office, 30 Finsbury Square, London EC2A 1AG.
The Annual General Meeting will be held at Invesco Perpetual's offices in 43-45
Portman Square, London W1H 6LY, on Tuesday 22 January 2013 at 11.00am.
By order of the Board
Invesco Asset Management Limited, Secretaries
20 November 2012
ND
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