Final Results
Keystone Investment Trust plc
Unaudited Preliminary Announcement of Final Results
for the Year ended 30 September 2006
Chairman's Statement
In the year to 30 September 2006, the Company's share price provided a total
return of 18.5%. The total return of the net asset value per share was 19.7%.
In the same period, the total return of the Company's benchmark for the purpose
of performance measurement, the FTSE All-Share Total Return Index, was 14.7%.
All these figures are with income reinvested. The discount of the share price
relative to net asset value per share widened from 10.2% at the end of
September 2005 to 11.6% at 30 September 2006.
Performance 6 months One year Since
appointment of
current
Manager on 1
January 2003
Share Price Total Return 6.4% 18.5% 144.6%
NAV Total Return per share 3.8% 19.7% 121.8%
FTSE All-Share Total Return 1.7% 14.7% 83.0%
Index
Source: Fundamental Data
Invesco Asset Management started managing the Company's portfolio in January
2003 and so now have nearly 3 years under their belt. The investment manager
has done an excellent job. He has had the advantage of a rising market, but has
far outpaced it. The performance of the Company's shares since January 2003 is
the result mainly of strong stock selection; and also of the fact that the
shares now trade at a much smaller discount to net asset value than they did,
this being a reflection of the market's positive view about the Manager.
Gearing and investment guidelines
The Company's borrowings, in the form of long-term debentures, amount to £40
million. At the year end £12 million was held in cash and certificates of
deposit in order to keep the effective gearing to a level which the Board
regards as sufficiently cautious.
Equity exposure increased during the year from 113% of net assets to 117%. The
Board sets limits for this exposure and regularly reviews them. The present
position is that the Manager must make no net purchases if equity exposure is
more than 120% of net assets, and has to make sales if, as a result of market
movements, equity exposure goes higher than 122.5% of net assets. It is up to
the investment manager to decide on exposure subject to those limits.
Up to £4 million may also be held in corporate bonds. During the year under
review, no such bonds were held.
Dividends
The Company's objective is long-term growth of capital. We know, however, that
the level of the Company's dividends is important to many of its shareholders.
The Board has declared a final dividend of 21.0p per share (last year 18.5p),
giving a total dividend for the year of 35.0p per share, compared with 31.5p
last year. Earnings per share in this year were 37.3p (2005: 32.2p). The
dividend will be paid on 22 December 2006 to shareholders on the Register on 24
November 2006.
Expenses
The Company's total expenses, excluding performance fees, were 1.0% of average
net assets in the year ended 30 September 2006. Including performance fees -
which, of course, are only payable because the Manager's performance has been
good - the total expense ratio was 1.8%.
Reporting
We try to report intelligibly and thoroughly to shareholders. This annual
report is much longer than previous years' because of increased regulatory and
statutory reporting requirements. This represents also a higher cost to
shareholders. In order to mitigate this increase in costs we have decided in
future to provide a shortened version of the interim report. However,
shareholders should feel assured that we will still provide all the information
that investors need.
The Manager
During the year the Board reviewed all aspects of the service provided by the
Manager and the terms of the Manager's appointment. We are satisfied with the
service and the current terms of appointment.
Special Business at the Annual General Meeting (AGM)
As special business of the AGM, the Board will ask shareholders to renew the
Board's authority to allot up to an aggregate nominal amount of £334,200 new
ordinary shares, this being 5% of the Company's issued ordinary share capital,
whilst disapplying pre-emption rights. This authority, set out in Resolution
10, will expire at the AGM in 2007.
Resolution 11 seeks the renewal of the Board's authority to purchase up to
2,000,000 of the Company's own shares, this being 14.99% of the issued ordinary
share capital. Again, this authority will expire at the AGM in 2007.
The Directors have carefully considered all the resolutions proposed in the
Notice to the AGM and consider them all to be in the best interest of
shareholders. The Directors recommend that shareholders vote in favour of each
resolution.
Outlook
We believe the Company is well suited to providing, for the investor with the
appropriate long-term outlook, strong returns from its portfolio of equities.
No manager, however excellent, does well all the time, but we are as confident
as we were when we appointed Invesco Asset Management that we have an
investment manager who, in the long term, will fulfil the Company's objectives.
My fellow Directors and I look forward to seeing investors at the AGM of the
Company on 21 December 2006, where there will be an opportunity to meet and
question the investment manager.
Richard Oldfield
Chairman
16 November 2006
Income Statement (Unaudited)
for the year ended 30 September
2006 2005 Restated*
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Gains on investments - 26,355 26,355 - 35,123 35,123
Loss on certificates of - (27) (27) - - -
deposit
Foreign exchange gains/ - 753 753 - (78) (78)
(losses)
Special dividends - - - - 21 21
Income 6,477 - 6,477 5,737 - 5,737
Investment management fees (329) (2,118) (2,447) (275) (2,968) (3,243)
Other expenses (295) - (295) (285) - (285)
Net return before finance
5,853 24,963 30,816 5,177 32,098 37,275
costs and taxation
Finance costs (771) (2,278) (3,049) (771) (2,278) (3,049)
Return on ordinary activities 5,082 22,685 27,767 4,406 29,820 34,226
before tax
Tax on ordinary activities (98) - (98) (91) - (91)
Return on ordinary activities 4,984 22,685 27,669 4,315 29,820 34,135
after tax for the
financial year
Return per ordinary share 37.3p 169.7p 207.0p 32.2p 223.1p 255.3p
Basic
*Restated for new UK Accounting Standards.
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 both prepared under guidance published by the
Association of Investment Companies (formerly known as Association of
Investment Trust 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' Fund (Unaudited)
for the year ended 30 September
Called Share Capital Capital Capital
up
Share Premium Redemption Reserve- Reserve- Revenue
Capital Account Reserve Realised Unrealised Reserve Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000
Balance as at 1
October 2004
(as previously 6,685 1,258 466 85,664 13,697 3,454 111,224
stated)
Adjustments for
investments at - - - - (284) - (284)
fair value (1)
Adjustments to
debenture
cost amortised on - - 58 - 20 78
effective basis(2)
Add final dividend - - - - - 2,307 2,307
for 2004(3)
Restated balance as 6,685 1,258 466 85,722 13,413 5,781 113,325
at 1 October 2004
Final dividend for - - - - - (2,307) (2,307)
2004(3)
Net return on
ordinary
activities - - - 10,442 19,378 4,315 34,135
Interim dividend - - - - - (1,738) (1,738)
paid in 2005
Restated balance as 6,685 1,258 466 96,164 32,791 6,051 143,415
at 30 September
2005
Final dividend for - - - - - (2,473) (2,473)
2005(4)
Interim dividend - - - - - (1,872) (1,872)
paid in 2006
Net return on
ordinary activities
per the Income - - - 14,762 7,923 4,984 27,669
Statement
Balance as at 30 6,685 1,258 466 110,926 40,714 6,690 166,739
September 2006
*Restated for new UK Accounting Standards.
(1) Investments have been valued at bid price. Previously these were valued at
mid-market price.
(2) Debentures are recognised at amortised cost on an effective interest basis
(previously at amortised cost on a straight line basis).
(3) The final proposed dividend for the year ended 30 September 2004 was
declared and paid in the year ended
30 September 2005.
(4) The final proposed dividend for the year ended 30 September 2005 was
declared and paid in the year ended
30 September 2006.
Balance Sheet (Unaudited)
as at 30 September
2006 2005
Restated*
£'000 £'000
Fixed assets
Investments held at fair value 195,162 162,050
through profit or loss
Current assets
Certificates of deposit 9,970 -
Debtors 3,382 595
Cash and cash funds 1,950 23,667
15,302 24,262
Creditors: amounts falling due (3,126) (2,230)
within one year
Net current assets 12,176 22,032
Total assets less current 207,338 184,082
liabilities
Creditors: amounts falling due
after
more than one year (39,784) (39,770)
Provisions (815) (897)
Net assets 166,739 143,415
Capital and reserves
Called up share capital 6,685 6,685
Share premium account 1,258 1,258
Capital redemption reserve 466 466
Other reserves:
Capital reserves - realised 110,926 96,164
Capital reserves - unrealised 40,714 32,791
Revenue reserve 6,690 6,051
Shareholders' funds 166,739 143,415
Net asset value per ordinary share
Basic 1,247.2p 1,072.8p
*Restated for new UK Accounting Standards.
Cash Flow Statement (Unaudited)
for the year ended 30 September
2006 2005
Restated
*
£'000 £'000
Cash inflow from operating activities 2,694 3,359
Servicing of finance (3,033) (3,033)
Capital expenditure and financial (17,741) 3,303
investment
Equity dividends paid (4,345) (4,045)
Net cash outflow before management of
liquid resources
and financing (22,425) (416)
Management of liquid resources 21,717 287
Decrease in cash (708) (129)
Reconciliation of net cash flow to
movement in net debt
Decrease in cash (708) (129)
Cashflow from movement in liquid resources (21,717) (287)
Exchange movements 757 (51)
Debenture stock non-cash movement (14) (14)
Movement in net debt in the year (21,682) (481)
Net debt at beginning of year (16,152) (15,671)
Net debt at end of year (37,834) (16,152)
*Restated for new UK Accounting Standards
Notes to the Preliminary Announcement
1. Accounting policies
A summary of the principal accounting policies, all of which have been applied
consistently throughout the year, is set out below.
(a) Basis of Preparation
The financial statements have been prepared in accordance with United Kingdom
Generally Accepted Accounting Practice ("UK GAAP") and with the Statement of
Recommended Practice ("SORP") "Financial Statements of Investment Trust
Companies", issued by the Association of Investment Companies in December 2005.
Effects of changes in new UK Accounting Standards have been disclosed below and
restatements to prior year balance are shown in note 8.
(b) Investments
Investments, including certificates of deposit, are recognised on the date they
are traded and are classified as fair value through profit or loss. As the
Company's business is investing in financial assets with a view to profiting
from their total return in the form of interest, dividends or increases in fair
value, listed equities and fixed income securities are designated as fair value
through profit or loss on initial recognition.
Certificates of deposits are shown as current asset investments as they have a
maturity date of less than one year.
Financial assets designated as at fair value through profit or loss, are
measured at subsequent reporting dates at fair value, which is the bid price.
Previously these were valued at mid prices. Comparatives have been restated to
reflect this change as disclosed in note 8.
(c) Finance costs
Finance costs are accounted for on an accruals basis. The finance costs of debt
are allocated 75% to capital reserve - realised and 25% to the revenue account.
Debentures are recognised at amortised cost using the effective interest
method. Previously debentures were recognised at amortised cost using the
straight line method. Comparatives have been restated to reflect these changes
as disclosed in note 8.
The 5% cumulative preference shares are now classified as a liability and
therefore the dividends payable on these shares are classified as finance
costs. Comparatives have been restated to reflect these changes as disclosed in
note 8.
(d) Dividends
Following the introduction of FRS21 "Events after the Balance Sheet Date",
dividends are not recognised in the accounts unless there is an obligation to
pay at the balance sheet date. As a result the final dividend proposed for the
year ended 30 September 2006 is disclosed in note 4.
2. Income
2006 2005
£'000 £'000
Income from investments
UK dividends 5,049 3,979
Overseas dividends 672 593
STIC interest 274 692
UK unfranked investment income - interest 121 34
6,116 5,298
Other income
Deposit interest 361 423
Underwriting commission - 16
361 439
Total income 6,477 5,737
Special dividends of nil (2005: £21,000) were in relation to dividends received
in lieu of capital distributions.
3. Investment management fees
2006 2005
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Investment management 280 839 1,119 234 701 935
fee
Performance-related
fee
relating to:
31 December 2004 - - - - 1,062 1,062
31 December 2005 - 270 270 - - -
Provision for
performance-
related fee relating
to:
31 December 2005 - - - - 763 763
31 December 2006 - 693 693 - - -
Irrecoverable VAT 49 316 365 41 442 483
thereon
329 2,118 2,447 275 2,968 3,243
Details of the management agreement are disclosed in the Report of the
Directors in the Annual Report and Accounts. Performance-related fees are based
on a calendar year.
4. Dividends
2006 2005
£'000 £'000
Dividends on equity shares paid in the year:
Final dividend for 2005 of 18.50p (2004: 2,473 2,307
17.25p)
Interim dividend for 2006 of 14.00p (2005: 1,872 1,738
13.00p)
4,345 4,045
We set out below the total dividend payable in respect of the financial year,
which is the basis on which the requirements of Section 842 Income and
Corporation Taxes Act 1988 are considered.
2006 2005
£'000 £'000
Dividends on equity shares in respect
of the year:
Interim paid 14.00p per ordinary 1,872 1,738
share (2005: 13.00p)
Final dividend of 21.00p per ordinary 2,807 2,473
share (2005: 18.50p)
4,679 4,211
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 (2005:
13,368,799) shares being the number of shares in issue throughout the year.
6. 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
2006 2005 2006 2005
Restated Restated
* *
pence pence £'000 £'000
Ordinary shares
- Basic 1,247.2p 1,072.8p 166,739 143,415
*Restated for new UK Accounting Standards
7. Notes to the cash flow statement
(a) Reconciliation of operating profit to operating cash flows
2006 2005
Restated
*
£'000 £'000
Total return before finance costs and 30,816 37,275
taxation
Adjustment for gains on investments and (26,328) (35,123)
certificates of deposit
Adjustment for exchange gains/losses (753) 78
(Increase)/decrease in debtors (261) 320
(Increase)/decrease in creditors and (682) 900
provisions
Tax on unfranked investment income (98) (91)
Net cash inflow from operating activities 2,694 3,359
*Restated for new UK Accounting Standards
8. Restatement of balances for effects of new UK Accounting Standards
(a) Balance Sheet as at 30 September 2005
Previously
Reported Restated
As at As at
30 30
September September
2005 Adjustments 2005
£'000 £'000 £'000
Investments i 162,519 (469) 162,050
Current Assets 24,262 - 24,262
Creditors: less than
one year
Bank overdraft (49) - (49)
Amounts due to (424) - (424)
brokers
Unrealised loss on (31) - (31)
forward currency
contracts
Proposed dividend ii (2,473) 2,473 -
Accruals (1,075) - (1,075)
Performance related (651) - (651)
fee deferred
(4,703) 2,473 (2,230)
Total assets less 182,078 2,004 184,082
current liabilities
Creditors: more than
one year
Debentures iii (39,606) 86 (39,520)
Cumulative preference iv - (250) (250)
shares
(39,606) (164) (39,770)
Provisions (897) - (897)
Net assets 141,575 1,840 143,415
Capital and reserves
Share capital 6,685 - 6,685
Share premium 1,258 - 1,258
Capital redemption 466 - 466
reserve
Capital - realised iii 96,100 64 96,164
Capital - unrealised i 33,260 (469) 32,791
Revenue reserve ii, 3,556 2,495 6,051
iii
Equity Shareholders' 141,325 2,090 143,415
funds
Cumulative preference iv 250 (250) -
shares
Total Shareholders' 141,575 1,840 143,415
funds
Net asset value per 1057.1p 15.7p 1072.8p
ordinary share
Restatement of balances for effects of new UK Accounting Standards (continued)
(b) Balance Sheet as at 30 September 2004
Previously
reported Restated
as at as at
30 30
September September
2004 Adjustments 2004
£'000 £'000 £'000
Investments i 130,559 (284) 130,275
Current Assets 25,248 - 25,248
Creditors: less than one
year
Amounts due to brokers (716) - (716)
Unrealised forward (3) - (3)
currency losses
Amounts due to (1) - (1)
subsidiary
Proposed dividend ii (2,307) 2,307 -
Accruals and deferred (1,031) - (1,031)
income
(4,058) 2,307 (1,751)
Total assets less current 151,749 2,023 153,772
liabilities
Creditors: more than one
year
Debentures iii (39,584) 78 (39,506)
Cumulative preference iv - (250) (250)
shares
Performance related fee (408) - (408)
deferred
(39,992) (172) (40,164)
Provisions (283) - (283)
Net assets 111,474 1,851 113,325
Capital and reserves
Share capital 6,685 - 6,685
Share premium 1,258 - 1,258
Capital redemption 466 - 466
reserve
Capital - realised iii 85,664 59 85,723
Capital - unrealised i 13,697 (284) 13,413
Revenue reserve ii, 3,454 2,326 5,780
iii
Equity Shareholders' 111,224 2,101 113,325
funds
Cumulative preference iv 250 (250) -
shares
Total Shareholders' funds 111,474 1,851 113,325
Net asset value per 832.0p 15.7p 847.7p
ordinary share
(c) Income Statement for the year ended 30 September 2005
2005
Note £'000
Revenue return (as previously reported) 4,313
Capital return (as previously reported) 29,999
Total return 34,312
Adjustment for revaluation of investments
to fair value:
- for 30 September 2004 i 284
- for 30 September 2005 i (469)
Adjustment to debenture interest on iii 8
effective interest basis
Total return (restated) 34,135
Notes
i Listed investments are classified as held at fair value through profit or
loss, being the bid price. Previously these were carried at mid-market price.
ii Dividends are not recognised until they are approved by or paid to
shareholders, thus no provision is made for proposed dividends and these are
added back to revenue reserves.
iii Debentures, being interest bearing liabilities, are carried at amortised
cost under the effective interest method. Previously these were recognised at
amortised cost but using the straight line method.
iv Cumulative preference shares are recognised as a liability. Previously these
were recognised as non-equity share capital.
The financial information set out above does not constitute the Company's
statutory accounts for the year ended 30 September 2006 or 2005. Except as
detailed in note 1 and 8, the financial information for 2005 is derived from
the statutory accounts for 2005 which have been delivered to the Registrar of
Companies. The auditors have reported on the 2005 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 2006 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 Annual 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.
A final dividend of 21.0p per share is recommended for payment on 22 December
2006 to shareholders on the register of members on 24 November 2006.
The Annual General Meeting will be held at the Company's Registered Office on
Thursday, 21 December 2006 at 11.00am.
By order of the Board
INVESCO Asset Management Limited
16 November 2006
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