Final Results
Keystone Investment Trust plc
Unaudited Preliminary Announcement of Final Results
for the Year ended 30 September 2004
Chairman's Statement
The Company reached its half-century on 17 September 2004. Its fiftieth year
was good. Over the year to 30 September 2004, the Company's share price
provided a total return (with dividends reinvested) of 20.8%, while the total
return of the net asset value per share was 20.9%. In the same period, the
return of the Company's benchmark for the purpose of performance measurement,
the FTSE All-Share Total Return Index, was 15.7%. The Manager's stock selection
has been good. The discount of the share price relative to net asset value per
share was 9.4% at the end of September 2004.
Performance 6 months One Year
Share Price Total Return +5.2% +20.8%
NAV Total Return per share +2.3% +20.9%
FTSE All-Share Total Return Index +5.1% +15.7%
It is also worth highlighting the performance of the Company since the present
Manager was appointed on 1 January 2003:
Performance Since 1 January 2003
Share Price Total Return +56.8%
NAV Total Return per share +41.7%
FTSE All-Share Total Return Index +27.9%
The performance of the share price over this period of 1 ¾ years reflects both
strong stock selection by the Manager and an improved perception of the Company
which has led to a decline in the discount.
Borrowings and effective gearing
The Company's borrowings, in the form of long-term debentures, amount to £40
million. Some of the proceeds of these borrowings have been balanced by cash
deposits in order to reduce the level of effective gearing. Some other
investment trusts have recently bought back their long-term debentures, which
appear surplus to requirements. If we could do this on attractive terms, we
would, but otherwise not: we will not buy back debentures if doing so is more
painful for shareholders than keeping them.
Equity exposure increased during the year from 110.3% of net assets to 116.1%.
The effective gearing limits set by the Board are that the Manager must make no
net purchases if equity exposure is more than 115% of net assets, and must make
sales if, as a result of market movements, equity exposure exceeds 120% of net
assets. It remains up to the Manager to decide where the portfolio should be
positioned subject to those limits.
During 2003 the Board decided that equity exposure could be supplemented by a
corporate bond portfolio of up to £15 million in order to improve the total
return on the Company's net assets with limited risk. Such corporate bonds also
generated higher levels of income than cash or equities, but that was not an
explicit objective. These corporate bonds performed well. The Board has now
reduced the maximum size of this bond portfolio to £4 million. Including fixed
interest securities effective gearing rose from 116.3% on 30 September 2003 to
117.4% on 30 September 2004.
Dividends
The Company's objective is long-term growth of capital. The Board recognises,
however, that dividends are important to many shareholders and are generally
appreciated by all. The Board has declared a final dividend of 17.25p per
share, giving a total dividend for the year of 30.0p per share, compared with
25.5p last year. Earnings per share in this year were 32.2p. The Company is
this year in a position to pay a higher dividend, equal to the highest ever
paid, wholly out of income earned, having in the last two years had to draw
partly on its revenue reserves.
Expenses
The Company's total expenses, excluding performance fees, were 1.2% of average
net assets in the last year. Including performance fees, the total expense
ratio was 1.8%. This higher ratio reflects the Manager's strong performance.
Outlook
As the Manager points out in the Annual Report and Accounts, there are many
companies which appear currently undervalued. There is also plenty of gloom
among forecasters, usually a good sign because it means that investors, if
their actions reflect that gloom, have cash reserves. The Outlook section of an
investment trust chairman's statement should always be treated with scepticism.
We are optimistic that the Company has the right Manager, working within the
right circumstances, to provide a good return to shareholders over the coming
year.
Richard Oldfield
Chairman
11 November 2004
Statement of Total Return (incorporating the revenue account)
for the year ended 30 September
2004 2003
(unaudited)
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Gains on - 17,901 17,901 - 20,876 20,876
investments
Foreign exchange - 898 898 - 251 251
gains
Special dividends - 216 216 - - -
Income 5,659 - 5,659 4,524 - 4,524
Investment (248) (1,359) (1,607) (152) (1,351) (1,503)
management fee
Other expenses (255) - (255) (233) - (233)
Net return before
finance
costs and taxation 5,156 17,656 22,812 4,139 19,776 23,915
Finance costs (761) (2,283) (3,044) (761) (2,283) (3,044)
Return on ordinary
activities
Before tax 4,395 15,373 19,768 3,378 17,493 20,871
Tax on ordinary (85) - (85) (42) - (42)
activities
Return on ordinary
activities
after tax for the 4,310 15,373 19,683 3,336 17,493 20,829
financial year
Dividends in
respect of
non-equity shares (12) - (12) (12) - (12)
Return attributable
to equity
shareholders 4,298 15,373 19,671 3,324 17,493 20,817
Dividends in
respect of
ordinary shares (4,011) - (4,011) (3,409) - (3,409)
Transfer to/(from) 287 15,373 15,660 (85) 17,493 17,408
reserves
Return per ordinary
share
Basic 32.2p 115.0p 147.2p 24.9p 130.8p 155.7p
Dividend per 30.0p - 30.0p 25.5p - 25.5p
ordinary share
The revenue column of this statement is the profit and loss account of the
Company. All revenue
and capital items in the above statement derive from continuing operations. No
operations were
acquired or discontinued in the year.
Reconciliation of Movement in Shareholders' Funds
for the year ended 30 September
2004 2003
(unaudited)
£'000 £'000
Revenue return for the year 287 (85)
Capital return for the year 15,373 17,493
Net movement in Shareholders' funds 15,660 17,408
Opening Shareholders' funds 95,814 78,406
Closing Shareholders' funds 111,474 95,814
Balance Sheet
as at 30 September
2004 2003
(unaudited)
£'000 £'000
Fixed assets
Investments 130,559 111,292
Current assets
Debtors 1,163 1,328
Cash 24,085 28,395
25,248 29,723
Creditors: amounts falling due within one (4,058) (4,745)
year
Net current assets 21,190 24,978
Total assets less current liabilities 151,749 136,270
Creditors: amounts falling due after
more than one year (39,992) (39,562)
Provisions for liabilities and charges (283) (894)
Net assets 111,474 95,814
Capital and reserves
Called up share capital 6,685 6,685
Share premium account 1,258 1,258
Other reserves:
Capital reserves - realised 85,664 76,173
Capital reserves - unrealised 13,697 7,815
Capital redemption reserve 466 466
Revenue reserve 3,454 3,167
Equity Shareholders' funds 111,224 95,564
Non-equity interests:
Cumulative preference shares 250 250
Total Shareholders' funds 111,474 95,814
Net asset value per ordinary share
Basic 832.0p 714.8p
Cash Flow Statement
for the year ended 30 September
2004 2003
(unaudited)
£'000 £'000
Cash inflow from operating activities 3,523 3,423
Servicing of finance (3,033) (3,032)
Taxation - (51)
Capital expenditure and financial investment (1,958) 1,195
Equity dividends paid (3,977) (3,409)
Net cash outflow before management of liquid
resources
and financing (5,445) (1,874)
Management of liquid resources (4,399) 4,933
(Decrease)/increase in cash (9,844) 3,059
Reconciliation of net cash flow to movement in
net debt
(Decrease)/increase in cash (9,844) 3,059
Cash outflow from movement in liquid resources 4,399 (4,933)
Exchange movements 1,135 39
Debenture stock non-cash movement (22) (22)
Movement in net debt in the year (4,332) (1,857)
Net debt at beginning of year (11,167) (9,310)
Net debt at end of year (15,499) (11,167)
Notes to the Financial Statements
1. Income
2004 2003
£'000 £'000
Income from listed investments
UK dividends 3,701 2,732
Dividend from subsidiary 129 -
Overseas dividends 575 283
STIC Interest 592 588
UK unfranked investment income - 225 440
interest
5,222 4,043
Other income
Deposit interest 427 481
Underwriting commission 10 -
437 481
Total income 5,659 4,524
2. Investment management fee
2004 2003
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Investment management 195 584 779 124 374 498
fee
Profit realisation fee 1 4 5 - - -
on unquoted portfolio
Performance-related - 282 282 - 761 761
fee relating to 31
December 2003 and
recognised during the
period
Provision for - 240 240 - - -
performance-related
fee relating to 31
December 2004
Irrecoverable VAT 52 249 301 28 216 244
thereon
248 1,359 1,607 152 1,351 1,503
Details of the management agreement are disclosed in the Directors' Report in
the Annual Report and Accounts.
There is a profit realisation fee arrangement of 10% for the direct unlisted
portfolio. The profit realisation fee is allocated between capital and revenue
in proportion to the receipt of capital or income on the realisation of the
unlisted investments.
3. Expenses
2004 2003
Revenue Revenue
£'000 £'000
Directors' fees 59 49
Auditors' remuneration:
- statutory audit 18 17
- audit related regulatory reporting 5 6
- further assurance services - 2
- tax compliance services 8 9
- tax advisory services - 4
- other services - 6
Other expenses 165 140
255 233
4. Finance costs
2004 2003
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Interest payable on
borrowings
repayable as follows:
Debentures stock
repayable after
5 years 761 2,283 3,044 761 2,283 3,044
761 2,283 3,044 761 2,283 3,044
5. Taxation
(a) Current tax charge
2004 2003
Revenue Revenue
£'000 £'000
Overseas tax 85 42
(b) Reconciliation of current tax charge
2004 2003
£'000 £'000
Revenue on ordinary activities before taxation 4,395 3,378
UK Corporation Tax rate of 30% (2003: 30%) 1,319 1,013
Effect of:
- UK dividends which are not taxable (1,149) (820)
- Excess expenses for the year carried forward 783 939
- Tax deductible expenses allocated to capital (958) (1,090)
- Overseas tax 85 42
- Expenses not deductible for tax purposes 7 -
- Overseas dividends taxed on receipt (2) (42)
Current tax charge for the period 85 42
(c) Factors that may affect future tax changes
The Company has excess expenses of £23,161,000 (2003: £20,560,000) that are
available to offset future taxable revenue. A deferred tax asset has not been
recognised in respect of these expenses since they are recoverable only to the
extent that the Company has sufficient future taxable revenue.
6. Dividends
2004 2003
£'000 £'000
Dividends on preference shares
2.50% paid on 31 March (2003: 2.50%) 6 6
2.50% paid on 30 September (2003: 2.50%) 6 6
12 12
Dividends on equity shares
Interim paid 12.75p per ordinary share (2003: 8.5p) 1,704 1,136
Proposed dividend of 17.25p per ordinary share 2,307 2,273
(2003: 17.0p)
4,011 3,409
The Directors declared an early interim dividend of 12.75p per ordinary share
in respect of the year ended 30 September 2004, which was paid on 2 April 2004.
This enabled holders of shares through ISAs and PEPs to take advantage of their
tax credits for one final time as recovery of those tax credits has now been
absolished.
7. Return per ordinary share
Basic revenue return per ordinary share is based on the net revenue on ordinary
activities after taxation and on 13,368,799 (2003: 13,368,799) shares being the
number of shares in issue throughout the year.
Basic capital return per ordinary share is based on the net capital gains on
ordinary activities after taxation and on 13,368,799 (2003: 13,368,799) shares
being the number of shares in issue throughout the year.
8. Notes to the cash flow statement
(a) Reconciliation of operating profit to operating cash flows
2004 2003
£'000 £'000
Net revenue before finance costs and taxation 5,156 4,139
Increase in debtors (90) (287)
Decrease/(increase) in creditors and provisions (186) 964
Investment management fee charged to capital (1,359) (1,351)
Special dividends received 216 -
Profits from subsidiary undertaking (129) -
Tax on unfranked investment income (85) (42)
Net cash inflow from operating activities 3,523 3,423
(b) Analysis of changes in net debt
Debenture
stock 30
1 Exchange non-cash September
October
2003 Cash movements movement 2004
flow
£'000 £'000 £'000 £'000 £'000
Cash 42 (1,046) 1,135 - 131
Cash funds and short 28,353 (4,399) - - 23,954
term deposits
Debt due after five (39,562) - - (22) (39,584)
years - Debentures
Net debt (11,167) (5,445) 1,135 (22) (15,499)
The financial information set out above does not constitute the Company's
statutory accounts for the year ended 30 September 2004 or 2003. The financial
information for 2003 is derived from the statutory accounts for 2003 which have
been delivered to the Registrar of Companies. The auditors have reported on the
2003 statutory accounts and their report was unqualified and did not contain a
statement under s237(2) or (3) of the Companies Act 1985. The statutory
accounts for 2004 will be finalised on the basis of the information presented
by the Directors in this preliminary announcement and will be delivered to the
Registrar of Companies following the Company's annual general meeting.
The preliminary announcement is prepared on the same basis as set out in the
previous year's accounts. The audit report on the full financial statements is
yet to be signed.
The audited Report and Accounts will be posted to shareholders shortly. Copies
may 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 the Company's Registered Office on
Tuesday, 21 December 2004 at 11.00 am.
A final dividend of 17.25p per share is recommended for payment on 24 December
2004 to shareholders on the register of members on 26 November 2004.
By order of the Board
INVESCO Asset Management Limited, Secretaries
11 November 2004
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