Final Results

RNS Number : 7231Y

City of London Investment Trust PLC

08 September 2009

 



8 September 2009

This announcement contains regulated information

THE CITY OF LONDON INVESTMENT TRUST PLC

Annual Financial Report for the year ended 30 June 2009

	30 June 2009	30 June 2008
Dividends per ordinary share	+6.2%	+12.6%
Revenue return per ordinary share	-2.8%	+16.7%
Total Returns:
Net asset value per ordinary share ("NAV") #	-20.9%	-18.3%
FTSE All-Share 4% Capped Index (benchmark) †	-20.1%	-14.0%
FTSE All-Share Index #	-20.5%	-13.0%
Ordinary share price #	-11.6%	-18.0%
UK Growth & Income Average NAV #	-20.7%	-20.8%

Sources:  # AIC Information Services Limited; † Thomson Financial, Datastream

CHAIRMAN'S STATEMENT

For the year ended 30 June 2009, City of London increased its dividend by 6.2% and added £2.0 million to its revenue reserve. This is the forty-third consecutive year that City of London has increased its dividend, the longest record of any investment trust. The net asset value total return declined by 20.9%, broadly in line with market trends.

Performance for the year to 30 June 2009

Earnings and dividends

Revenue return per share was 13.15p, a decrease of 2.8%. A write-back of VAT and associated interest, of which £1,366,000 was credited to the revenue account, helped offset some of the effect of the overall decline in dividends from UK companies. A fourth interim dividend of 3.08p was paid on 28 August 2009 making a total for the year of 12.32p, an increase of 6.2% over the previous year. 

In the previous two years, £4.7 million and £3.2 million respectively were added to the revenue reserve. The total revenue reserve is now £27.9 million, which compares with the cost of last year's dividend of £25.3 million. In the current year following dividend cuts by a number of companies in which we are invested, our income is expected to be lower than in 2008/09. Given the strength of the revenue reserve, however, the Board is able to maintain the minimum quarterly dividend of 3.08p per share.  The quarterly rate will next be considered when the third interim dividend is declared in March 2010, by which time the Board will be able to assess better the trend in income performance of the portfolio.

Net asset value total return

For any funds that have an income requirement and tend to concentrate on companies that create cash flow and steadily increase their dividends, this has been a difficult 12 months. Relative to the index, it has been a year of two halves. In the first half, the net asset value total return outperformed by 6.4 percentage points as a result of the defensive bias in the portfolio. In the second half, low yielding cyclical stocks led the market, especially the large mining sector.  

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THE CITY OF LONDON INVESTMENT TRUST PLC

Annual Financial Report for the year ended 30 June 2009

Chairman's Statement (continued)

In addition, many investors funded the rights issues from companies with weak balance sheets by selling some of their defensive holdings that had held up relatively well. Over the year, City of London's net asset value total return had a negative total return of 20.9%, slightly underperforming the index, which had a negative total return of 20.1%, and the average performance of the UK Growth & Income sector, which had a negative total return of 20.7%.

Overall, City of London's stock selection made a positive contribution of 1.9% with a significantly below average exposure to the bank sector helping. On the other hand, City of London's gearing, which was maintained in a range of between 9.0% and 12.4% during the year, detracted from return by 2.65%. Gearing can enhance returns in a rising equity market but this was not the direction of the market in this 12 month period.

City of London's share price performed better than its net asset value, with the result that the discount to net asset value (with debt at par value) narrowed over the year from 13.2% to 3.2%.

Performance for the five years to 30 June 2009

Earnings and dividends

The Company's annual dividend has grown by 47.9% over the last five years from 8.33p to 12.32p and revenue reserves have increased from 5.10p to 13.36p per share.

Net asset value total return

Shareholders' net asset value total return has increased by 12.8% over the last five years, which compares with 7.9% for the average of the UK Growth & Income investment trust sector. Over this period, shares with above average yield underperformed the indices, with the FTSE All-Share 4% Capped Index returning 19.8% and the FTSE All-Share Index 16.3%.

Expenses

The total expense ratio ('TER'), which is the investment management fee and other non-interest expenses as a percentage of shareholder funds, was 0.4% which is very competitive compared with other investment trusts and with other actively managed equity funds.

With effect from 1 July 2009 we are introducing new performance fee arrangements to align the Manager's remuneration more closely with the long term interests of shareholders and the Company's investment objective. Further details are given under the note on Related Party Transactions.

Outlook

As anticipated in my half year statement, many companies have cut or passed their dividends since January 2009. This has an impact on the range of companies that our Manager can prudently include in the portfolio because our priority is to invest in quality companies with good dividend payment potential. Current valuations of many of these companies are attractive by historic standards as are their dividend yields.  

Our shares are on a prospective yield of 5.5% (as at the end of August) and offer excellent value relative to bank deposit rates and Government gilts. After two serious bear markets in the past 10 years, we believe that the portfolio offers good longer term potential for income and capital growth.  

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THE CITY OF LONDON INVESTMENT TRUST PLC

Annual Financial Report for the year ended 30 June 2009

Chairman's Statement (continued)

Board

Due to increasing business commitments in the United States, Angus Russell resigned from the Board on 30 June 2009. We would like to thank Angus for his contribution and input during the six years he served as a director. We were delighted that David Brief joined the Board on 1 January 2009.  

Annual general meeting

Shareholders are invited to the annual general meeting on Thursday 15 October 2009 at 201 Bishopsgate, London EC2M 3AE. The meeting will start at 3pm and will include a presentation from the Portfolio Manager.  

Simon de Zoete

8 September 2009

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THE CITY OF LONDON INVESTMENT TRUST PLC

Annual Financial Report for the year ended 30 June 2009

PRINCIPAL RISKS AND UNCERTAINTIES

The Board has drawn up a matrix of risks facing the Company and has put in place a schedule of investment limits and restrictions, appropriate to the Company's investment objective and policy, in order to mitigate these risks as far as practicable.  The principal risks which have been identified and the steps taken by the Board to mitigate these are as follows:

• Portfolio and market
  Although the Company invests almost entirely in securities that are quoted on recognised markets, share prices may move rapidly. The companies in which investments are made may operate unsuccessfully, or fail entirely.  A fall in the market value of the Company's portfolio would have an adverse effect on shareholders' funds. The Board reviews the portfolio each month and mitigates this risk through diversification of investments in the portfolio.
  

• Investment activity and performance
  An inappropriate investment strategy (for example, in terms of asset allocation or the level of gearing) may result in underperformance against the Company's benchmark.  The Board monitors investment performance at each Board meeting and regularly reviews the extent of its borrowings.  
  

• Tax and regulatory risks
  A breach of Section 842 of the Income and Corporation Taxes Act 1988 could lead to a loss of investment trust status, resulting in capital gains realised within the portfolio being subject to corporation tax.  A breach of the UKLA Listing Rules could result in suspension of the Company's shares, while a breach of the Companies Acts 1985 and 2006 could lead to criminal proceedings, or financial or reputational damage.  The Company must also ensure compliance with the listing rules of the New Zealand Stock Exchange.  
  

The Manager has contracted to provide investment, company secretarial, administration and accounting services through qualified professionals.  The Board receives internal control reports produced by the Manager on a quarterly basis, which confirm regulatory compliance.  

• Financial
  By its nature as an investment trust, the Company's business activities are exposed to market risk (including market price risk, currency risk and interest rate risk), liquidity risk, and credit and counterparty risk. Details of these risks and how they are managed are contained in the notes to the financial statements in the annual report.
  

• Operational
  Disruption to, or failure of, the Manager's accounting, dealing or payment systems or custody records could prevent the accurate reporting and monitoring of the Company's financial position. The Company is also exposed to the operational risk that one or more of its suppliers may not provide the required level of service. The Board monitors the services provided by the Manager and its other suppliers. 

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THE CITY OF LONDON INVESTMENT TRUST PLC

Annual Financial Report for the year ended 30 June 2009

RELATED PARTY TRANSACTIONS 

Investment management, accounting, company secretarial and administration services and custody services are provided to the Company by wholly-owned subsidiary companies of Henderson Global Investors (Holdings) plc ("Henderson" or the "Manager") and by BNP Paribas Securities Services. These are the only related party arrangements currently in place.  Other than fees payable by the Company in the ordinary course of business, there have been no material transactions with these related parties affecting the financial position or performance of the Company during the year under review.

Revised performance fee arrangements with effect from 1 July 2009

From 1 July 2009 base management fees will be calculated based on net assets and not gross assets as this ensures that there is no financial incentive for the Manager to take on gearing, other than to enhance performance. To ensure that the Manager continues to receive a broadly equivalent fee in cash terms, the fee rate will be increased to a flat 0.35% (currently 0.30% of gross assets up to £400m and 0.25% thereafter) .

Under the current arrangements Henderson is able to earn a performance fee by outperforming the FTSE All-Share Index capped at 4%. Recent developments in the make up of the index, however, together with the fact that many prominent companies have reduced or cancelled their dividend payments, means that in the Board's view it has become necessary to review the appropriateness of the index as the basis for calculating the Manager's remuneration. The Board has concluded that the index is no longer the best means of aligning the Manager's performance with the long term interests of shareholders and the Company's investment objective.

Accordingly, the Board has decided to adopt the AIC UK Growth & Income size weighted average net asset value total return as the basis for measuring whether a performance fee should be paid to the Manager. The investment trusts in this sector have a similar income and capital growth objective. It is the Board's view that investors seeking income and capital growth from UK equities will judge a trust based principally on its performance relative to this peer group. It is therefore appropriate for the performance of the Manager to be measured against its peers for performance fee purposes.

In making this change, the Board believes that three year performance should be measured rather than one year as this will smooth out short term positive or negative performance and only reward consistent outperformance.  For the year to 30 June 2010, the performance fee will be calculated on the performance of the Company for the period from 1 July 2007 to 30 June 2010.

In addition, a hurdle rate of 15% is being introduced so the Manager is not rewarded for average performance. This means that a performance fee will only be paid if City of London's net asset value total return is at least 15% better than the sector. The performance fee payable will be 15% of the cash value of the outperformance above the hurdle rate subject to an overall cap on total fees paid in any one year of 0.55% of average net assets. 

The adjustment factor, which enhances or reduces any performance fee payable where the share price total return has been more than 10% positive or negative, has been doubled. This will further strengthen the link between the reward to the Manager for outperformance and shareholder interests. The absolute cap of total fees payable in any one year will therefore be 0.63% of average net assets.

These new fee arrangements will maintain the Company's position of having one of the lowest base management fees and one of the lowest total expense ratios in the AIC UK Growth & Income Sector.

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THE CITY OF LONDON INVESTMENT TRUST PLC

Annual Financial Report for the year ended 30 June 2009

STATEMENT OF DIRECTORS' RESPONSIBILITIES

In accordance with Disclosure and Transparency Rule 4.1.12, each of the directors confirms that, to the best of their knowledge: 

• the financial statements, which have been prepared in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law), give a true and fair view of the assets, liabilities, financial position and loss of the Company; and
  
• the Report of the Directors in the Annual 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. 

Signed on behalf of the Board of Directors

S M de Zoete

Chairman

8 September 2009

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THE CITY OF LONDON INVESTMENT TRUST PLC

Annual Financial Report for the year ended 30 June 2009

PORTFOLIO MANAGER'S REPORT

Investment background

The year under review was dominated by the crisis in global banking and its effect on markets and the economy.  

In September 2008, short term liquidity in the wholesale money markets became extremely scarce causing Lehman Brothers to file for bankruptcy and a number of other large financial institutions to be bailed out by government actions including AIG, Washington Mutual, Fortis, HBOS and Bradford & Bingley. In October 2008, the US government had to rescue Citigroup and the UK government announced a substantial capital injection into Royal Bank of Scotland and the soon to be merged LloydsTSB/HBOS. In January, the UK government had to provide a second package of support for RBS and Lloyds/HBOS which included government guarantees on asset backed securities and partial indemnities against further losses.

Given the troubles in the credit markets, companies found it increasingly difficult to obtain debt funding. Banks were unwilling to lend, even at much higher margins than in recent years. As a result, in the first half of 2009, there were a large number of raisings of new equity from companies including the two biggest ever on the London Stock Exchange from HSBC (£12 billion) and Rio Tinto (£9 billion). In addition, there were many dividend cuts and omissions from indebted companies.

The failings of the banks had a serious effect on economic activity and there was a significant policy response from the authorities. In addition to supporting various banks and other financial institutions, interest rates were cut to unprecedentedly low levels. In the UK, base rates, which were 5% in July 2008, were cut all the way down to 0.5% by March 2009. To counter the negative effect of a falling money supply, the Bank of England embarked on a programme of quantitative easing whereby it bought UK government bonds and some corporate bonds. The UK government allowed its budget deficit to rise dramatically so that public spending could offset the sharp decline in private sector demand.

The cuts in interest rates, quantitative easing and increased government spending took place against an improved trend in inflation. The oil price fell from $140 a barrel in July 2008 to a low of below $40 a barrel at the end of 2008 before climbing back to about $70 a barrel by 30 June 2009. Similar moves were seen in other key commodities. Despite the sharp fall in sterling against the Euro and the US dollar, inflation trended downwards in the UK economy given weak domestic demand, rising unemployment and subdued pay settlements.

Gearing at the start of the financial year was 10.1% and was maintained in a fairly tight range of between 9.0% and 12.4% to end the period at 10.1%. Overall, gearing had a negative impact of 2.65% on performance over the year. Gearing can enhance returns in rising markets and was maintained over the year because of our view of the longer term attractions of the stocks in the portfolio which were not recognised through share price gains in this reporting period.

Performance of higher yielding shares compared with lower yielding shares

Lower yielding shares underperformed in the first half of the period under review before recovering to end the year only slightly behind higher yielding shares. The principal cause of this swing in performance was the low yielding Mining sector. Overall, City of London's stock selection was positive when compared with the benchmark (the FTSE 4% Capped Index). The two sectors producing the most positive contribution for relative return compared with the FTSE 4% Capped Index were due to below average market exposure in Banks and Mining. The two sectors with the most negative contributions were below average market exposure to Pharmaceuticals and above average exposure to Real Estate.

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THE CITY OF LONDON INVESTMENT TRUST PLC

Annual Financial Report for the year ended 30 June 2009

PORTFOLIO MANAGER'S REPORT (continued)

Portfolio review

In the Banks sector, the largest holding throughout the year was HSBC. Although HSBC suffered significant losses from its US operations, it continued to benefit from its very strong deposit base and its Far Eastern and Emerging markets operations (around half of the Bank's total business) held up relatively well.

The holdings in Royal Bank of Scotland and HBOS were both sold when the scale of their losses emerged and they became dependent on UK government support with little prospect of paying a dividend. Although it was very regrettable to have held any shares in either RBS or HBOS, our holdings were significantly below the market average and were sold well above the prices to which both banks subsequently fell.  

We were very disappointed by Lloyds' acquisition of HBOS and voted against it and subsequently sold our holding. Lloyds had been relatively conservatively managed in recent years and had no exposure to US sub-prime debt. The board of Lloyds underestimated the problems at HBOS having not had enough time to conduct the necessary amount of due diligence.

A large holding was maintained in Barclays by switching out of the ordinary shares on favourable terms into a 9.75% convertible into ordinary shares in June 2009 that the bank issued in its October 2008 fund raising. The bank also raised new equity from sovereign wealth fund investors rather than the UK government. Although it had been a bumpy ride, the 9.75% Barclays convertible was showing a large profit by June 2009 with Barclays Capital, the investment bank, trading very well in the first half of 2009.

A new holding was purchased in Standard Chartered, which is domiciled in the UK but operates in Asia Pacific, the Middle East and Africa. The holding was purchased after Standard Chartered's equity rights issue to strengthen its balance sheet when the shares were undervalued relative to its growth prospects.

The reduced availability of mortgages had a marked effect on the UK Housebuilding sector. With house prices falling and the volume of transactions sharply down, the outlook for homebuilders seemed bleak and the holdings in Bovis and Persimmon were sold. The commercial property market faced the steepest falling values on record. As a result, the leading real estate investment trusts had to raise new equity. The rights were taken up in Land Securities (London offices and retail property) and Segro (industrial property), financed by selling Hammerson and Liberty International.

Given the banks' reduced willingness or inability to lend, a number of companies with a level of debt that in previous years would have seemed supportable, faced problems with refinancing their debt. As a result, such companies often needed to raise new equity and cut dividends. Throughout the year, the portfolio's exposure to such companies was reduced through sales that led to a reduction in the number of holdings from 103 to 89.

Favoured areas for new investment were those few sectors with resilient demand for their products and services. Demand for healthcare products and services is relatively steady in a recession although there are pressures from state or private insurance funding. Exposure to the Pharmaceutical sector was increased from 5.3% to 8.1% of the portfolio, partly through significant additions to the holding in AstraZeneca, which was bought on an undemanding rating given its profitability and cash flow. Profits were taken in low-yielding Shire. The underweight position in the Pharmaceutical sector during the first part of the year was costly in terms of performance relative to the index but by the end of the period we had moved to a position in line with the benchmark index.

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THE CITY OF LONDON INVESTMENT TRUST PLC

Annual Financial Report for the year ended 30 June 2009

PORTFOLIO MANAGER'S REPORT (continued)

Demand for utility services remains relatively constant through the economic cycle although companies' profitability can be affected by regulatory settlements. Exposure to the Gas, Water & Multiutilities sector was increased through the purchase of Centrica, owner of the British Gas energy supply business, whose competitiveness was improved by the lower UK gas price. A new holding was also purchased in Rotork, world leader in the manufacture of actuators, devices which can reliability switch valves on and off. Its key customers are in the oil and gas, power generation and water industries where capital expenditure is likely to grow on long term investment programmes.

Demand for telecommunication services has historically held up in downturns although profitability can be adversely affected by price cuts. Unfortunately, BT proved to be a major disappointment with a profit warning from its global information technology services division. In addition, its pension fund deficit concerned investors. Given the substantial cut in BT's dividend, the holding was sold and replaced with France Telecom and Swisscom, which have less competitive domestic fixed line markets, and, unlike BT, own mobile telecommunications operations.

In the Media sector, a new holding was purchased in Thomson-Reuters. Over half of its sales are in the relatively non cyclical areas of law, tax, accountancy, science and healthcare. Sales in the financial division are under pressure but weaker profits in this area are being offset by cost cutting. The company is listed in the UK and Canada and the holding was bought in London on a discount of over 20% to the Canadian line.

The Mining sector is particularly sensitive to global economic activity with commodity prices moving sharply in either direction. A significantly below average position relative to the benchmark was maintained in this volatile sector. This contributed positively to performance over the year with the sector collapsing in the first half and then recovering some of its losses in the second half. Anglo American passed its dividend due to high indebtedness and a downturn in profitability, so the stock was sold.

The portfolio's overweight position in the Oil & Gas sector had a negative capital effect with the oil price falling sharply from its all time high in July 2008. On the other hand, the oil stocks held in the portfolio all produced high dividend yields with dividends enhanced by the rise in the US dollar.

Finally, strong performance was achieved by some of the consumer goods companies. British American Tobacco rose from second largest to become the largest holding in the portfolio without any new investment. Diageo and Britvic, in the Beverages sector, were also notable outperformers.

Outlook

By the end of June 2010, the UK will have had a general election. Whoever forms the next government will have the unpleasant task of raising taxes and cutting public spending because the current budget deficit is unsustainably high. The outlook for domestic demand appears to be poor in the UK with unemployment likely to rise further. The USA and various European countries face similar problems to the UK. The best prospect for economic growth probably lies in China and various emerging markets.

The largest seven holdings in the portfolio are all multinationals which are not dependent on the UK or any other single country. Overall, the portfolio retains a strongly defensive bias. Companies with relatively high visibility of profits and dividends are favoured. BP and Royal Dutch Shell are the second and third largest holdings in the portfolio. They should continue to benefit from the growing demand for oil (and gasoline) from China and other emerging markets and the positive effect of this demand on the oil price. Both companies seem committed to at least maintaining their dividends.  

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THE CITY OF LONDON INVESTMENT TRUST PLC

Annual Financial Report for the year ended 30 June 2009

PORTFOLIO MANAGER'S REPORT (continued)

The outlook for dividends from the other largest holdings in the portfolio is as follows. Consumer goods companies British American Tobacco and Diageo are likely to continue growing their dividends based on resilient demand for their products in global markets. Strong and reliable cashflow underpins the dividends at GlaxoSmithKline and AstraZeneca. Vodafone's dividend has scope to improve in the medium term when it starts to receive dividends from its valuable 45% stake in Verizon Wireless in the USA. Utilities Scottish & Southern Energy and National Grid have predominantly regulated revenues and both have objectives of dividend growth in real terms. We would expect HSBC's dividend to be secure from its reduced level and Tesco should continue to grow its dividend with substantial scope to grow in services in the UK and food retailing overseas.

In contrast to the healthy outlook for profits and dividends from our largest holdings, many companies in economically sensitive industries have cut or omitted their dividends. While investors are prone to get excited about the long term recovery potential in cyclical stocks, the outlook is still very unclear in many industries. We will continue to monitor the cyclical sectors closely for tangible evidence of recovery in revenues and profits. For the time being, the portfolio is strongly biased towards defensive stocks where we can be confident that profits will be made and dividends paid.

Job Curtis

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THE CITY OF LONDON INVESTMENT TRUST PLC

Annual Financial Report for the year ended 30 June 2009

Top 40 Investments

as at 30 June 2009

The 40 largest investments, representing 80.8% of the portfolio (convertibles and all classes of equity in any one company being treated as one investment), are listed below.  The stock marked * was not in the top ten last year. The stock which was in the top ten last year but not this year was BT.  

	Market Value 2009			Market Value 2009
	£'000			£'000
British American Tobacco	29,278		Britvic	5,859
BP	28,190		Reckitt Benckiser	5,532
Royal Dutch Shell	24,416		Pearson	5,181
GlaxoSmithKline	24,041		Smith News	4,558
Vodafone	23,440		Croda	4,001
Diageo	23,095		Greene King	3,713
HSBC	20,854		Amlin	3,627
Scottish & Southern Energy	15,092		Pennon	3,621
Tesco *	14,144		Severn Trent	3,610
National Grid	13,687		Deutsche Telekom	3,580
Barclays	12,924		Rexam	3,556
AstraZeneca	11,216		Statoil	3,282
BHP Billiton	10,912		Hiscox	3,265
ENI	10,700		United Utilities	3,264
Unilever	9,968		Morrison (WM) Supermarkets	3,193
Land Securities	7,540		Legal & General	3,123
Aviva	7,171		Kingfisher	3,112
BAE Systems	6,770		RWE	3,111
Cadbury	6,630		IMI	2,962
Reed Elsevier	5,876		France Telecom	2,958

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THE CITY OF LONDON INVESTMENT TRUST PLC

Annual Financial Report for the year ended 30 June 2009

Audited Income Statement 

for the year ended 30 June 2009

	Year ended 30 June 2009			Year ended 30 June 2008
	Revenue Return £'000	Capital Return £'000	Total £'000	Revenue Return £'000	Capital Return £'000	Total  £'000
Losses on investments held at fair value through profit or loss	-	(140,426)	(140,426)	-	(149,375)	(149,375)
Income from investments held at fair value through profit or loss (note 2)	28,374	-	28,374	30,162	-	30,162
Other interest receivable and similar income (note 3)	977	-	977	265	-	265
	---------	-----------	-----------	---------	-----------	------------
Gross revenue and capital losses	29,351	(140,426)	(111,075)	30,427	(149,375)	(118,948)
Management fee	(436)	(1,018)	(1,454)	(577)	(1,346)	(1,923)
Write-back of VAT	538	410	948	428	1,213	1,641
Other administrative expenses	(535)	-	(535)	(484)	-	(484)
	---------	-----------	-----------	---------	-----------	------------
Net return/(loss) on ordinary activities before finance charges and taxation	28,918	(141,034)	(112,116)	29,794	(149,508)	(119,714)
Finance charges	(1,510)	(3,157)	(4,667)	(1,547)	(3,217)	(4,764)
	---------	-----------	-----------	---------	-----------	------------
Net return/(loss) on ordinary activities before taxation	27,408	(144,191)	(116,783)	28,247	(152,725)	(124,478)
Taxation on net return/(loss) on  ordinary activities	(126)	-	(126)	(179)	-	(179)
	---------	-----------	-----------	---------	------------	------------
Net return/(loss) on ordinary activities after taxation	27,282	(144,191)	(116,909)	28,068	(152,725)	(124,657)
	=====	=======	======	=====	=======	=======
Loss per ordinary share - basic (note 4)	13.15p	(69.49)p	(56.34)p	13.53p	(73.63)p	(60.10)p
	=====	======	======	=====	======	======

The total columns of this statement represent the Income Statement of the Company. All revenue and capital items derive from continuing operations. No operations were acquired or discontinued during the year. The Company has no recognised gains or losses other than those recognised in the Income Statement. 

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THE CITY OF LONDON INVESTMENT TRUST PLC

Annual Financial Report for the year ended 30 June 2009

Audited Reconciliation of Movements in Shareholders' Funds

for the years ended 30 June 2009 and 30 June 2008

	Called up share  capital	Share premium  account	Other capital  reserves	Revenue  reserve	Total
Year ended 30 June 2009	£'000	£'000	£'000	£'000	£'000
At 30 June 2008	51,894	35,309	455,638	25,879	568,720
Net (loss)/return on ordinary activities after taxation	-	-	(144,191)	27,282	(116,909)
Buy-back of 50,000 ordinary shares	-	-	(110)	-	(110)
Sale of 358,090 shares out of treasury	-	-	670	-	670
Issue of 945,000 new ordinary shares	236	1,621	-	-	1,857
Issue expenses incurred	-	(37)	-	-	(37)
Dividends paid (see note 6)	-	-	-	(25,309)	(25,309)
	---------	---------	---------	---------	----------
At 30 June 2009	52,130	36,893	312,007	27,852	428,882
	=====	=====	======	=====	======
	Called up share capital	Share premium  account	Other capital  reserves	Revenue  reserve	Total
Year ended 30 June 2008	£'000	£'000	£'000	£'000	£'000
At 30 June 2007	51,983	35,309	610,191	21,174	718,657
Net (loss)/return on ordinary activities after taxation	-	-	(152,725)	28,068	(124,657)
Buy-back of 663,262 ordinary shares	(89)	-	(1,828)	-	(1,917)
Dividends paid  (see note 6)	-	-	-	(23,363)	(23,363)
	--------	--------	----------	--------	----------
At 30 June 2008	51,894	35,309	455,638	25,879	568,720
	=====	=====	======	=====	======

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THE CITY OF LONDON INVESTMENT TRUST PLC

Annual Financial Report for the year ended 30 June 2009

Audited Balance Sheet

at 30 June 2009

	2009	2008
	£'000	£'000
Investments held at fair value through profit or loss
Listed at market value in the United Kingdom	439,741	593,791
Listed at market value overseas	32,552	32,553
Investment in subsidiary undertakings	378	378
	----------	----------
	472,671	626,722
	----------	----------
Current assets
Debtors	7,167	5,828
Cash at bank	750	350
	----------	----------
	7,917	6,178
	----------	----------
Creditors: amounts falling due within one year	(4,307)	(16,781)
	----------	----------
Net current assets /(liabilities)	3,610	(10,603)
	----------	----------
Total assets less current liabilities	476,281	616,119
Creditors: amounts falling due after more than one year	(47,399)	(47,399)
	----------	----------
Total net assets	428,882	568,720
	======	======
Capital and reserves
Called up share capital	52,130	51,894
Share premium account	36,893	35,309
Other capital reserves	312,007	455,638
Revenue reserve	27,852	25,879
	----------	----------
Shareholders' funds	428,882	568,720
	======	======
Net asset value per ordinary share (note 5)	205.68p	274.39p
	======	======

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  - 15 -

THE CITY OF LONDON INVESTMENT TRUST PLC

Annual Financial Report for the year ended 30 June 2009

Audited Cash Flow Statement

for the year ended 30 June 2009

	Year ended 30 June 2009		Year ended  30 June 2008
	£'000	£'000	£'000	£'000
Net cash inflow from operating activities		28,416		27,017
Servicing of finance
Debenture interest paid	(4,265)		(4,265)
Bank and loan interest paid	(259)		(317)
Dividends paid on preference and preferred ordinary stocks	(157)		(178)
	----------		----------
Net cash outflow from servicing of finance		(4,681)		(4,760)
Taxation
Withholding tax recovered	2		16
	----------		----------
Net tax recovered		2		16
Financial investment
Purchases of investments	(68,380)		(84,242)
Sales of investments	79,913		65,848
	----------		---------
Net cash inflow/(outflow) from financial investment		11,533		(18,394)
Equity dividends paid		(25,309)		(23,363)
Management of liquid resources
Cash withdrawn from deposit	-		8,201
	----------		----------
Net cash inflow from liquid resources		-		8,201
		----------		----------
Net cash inflow/(outflow) before financing		9,961		(11,283)
Financing
Proceeds from issue of ordinary shares	2,527		-
Expenses paid in respect of issue of shares	(37)		-
Repurchase of preference shares	-		(455)
(Decrease)/increase in loans	(11,956)		13,956
Repurchase of ordinary shares	(110)		(1,920)
	---------		----------
Net cash (outflow)/inflow from financing		(9,576)		11,581
		---------		----------
Increase in cash		385		298
		=====		=====

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- 16 -

THE CITY OF LONDON INVESTMENT TRUST PLC

Annual Financial Report for the year ended 30 June 2009

Notes to the financial statements

1.	Accounting policies
	Basis of accounting
	The financial statements have been prepared on the basis of the accounting policies used for the Company's accounts for the previous year. The financial statements are prepared in accordance with United Kingdom Generally Accepted Accounting Practice and with the Statement of Recommended Practice ("the SORP") for investment trusts issued by the Association of Investment Companies in January 2009.  All of the Company's operations are of a continuing nature.
2.	Income from investments held at fair value through profit or loss
			2009	2008
			£'000	£'000
	Franked UK dividends:
	Listed		24,806	27,790
	Listed - special dividends		70	261
			---------	---------
			24,876	28,051
			---------	---------
	Unfranked - listed investments:
	Interest from UK convertibles		426	-
	Dividend income - overseas investments		2,739	2,005
	Special dividends		77	106
	Stock dividends		256	-
			---------	---------
			3,498	2,111
			---------	---------
			28,374	30,162
			=====	=====
3.	Other interest receivable and similar income
		2009		2008
		£'000		£'000
	Bank interest	7		161
	Underwriting commission (allocated to revenue)*	106		70
	Stock lending	36		34
	Interest on VAT refund	828		-
		------		------
		977		265
		====		====
	* The Company was not required to take up any shares in respect of its underwriting commitments in this or the previous financial year.
4.	Loss per ordinary share - basic
	The loss per ordinary share is based on the net loss attributable to the ordinary shares of £116,909,000 (2008: loss of £124,657,000) and on 207,522,950 ordinary shares (2008: 207,428,815), being the weighted average number of ordinary shares in issue during the year.

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  - 17 -

THE CITY OF LONDON INVESTMENT TRUST PLC

Annual Financial Report for the year ended 30 June 2009

Notes to the financial statements (continued)

4.	Loss per ordinary share - basic (continued)
	The loss per ordinary share can be further analysed between revenue and capital, as below:
		Year ended  30 June 2009				Year ended  30 June 2008
		£'000				£'000
	Net revenue return	27,282				28,068
	Net capital loss	(144,191)				(152,725)
		------------				----------
	Net total loss	(116,909)				(124,657)
		=======				======
	Weighted average number of ordinary shares in issue during the year	207,522,950				207,428,815
	Revenue return per ordinary share	13.15p				13.53p
	Capital loss per ordinary share	(69.49)p				(73.63)p
		----------				---------
	Total loss per ordinary share	(56.34)p				(60.10)p
		======				=====
	The Company does not have any dilutive securities.
5.	Net asset value per ordinary share
	The net asset value per ordinary share is based on the net assets attributable to the ordinary shares of £428,882,000 (2008: £568,720,000) and on 208,519,868 (2008: 207,266,778) shares in issue on 30 June 2009.
6.	Dividends paid on the ordinary shares
			Record date		Payment date		2009 £'000	2008 £'000
	Fourth interim dividend (2.62p) for the year ended 30 June 2007		27 Jul 2007		31 Aug 2007		-	5,446
	First interim dividend (2.84p) for the year ended 30 June 2008		26 Oct 2007		30 Nov 2007		-	5,895
	Second interim dividend (2.84p) for the year ended 30 June 2008		25 Jan 2008		28 Feb 2008		-	5,887
	Third interim dividend (2.96p) for the year ended 30 June 2008		25 Apr 2008		30 May 2008		-	6,135
	Fourth interim dividend (2.96p) for the year ended 30 June 2008		25 Jul 2008		29 Aug 2008		6,134	-
	First interim dividend (3.08p) for the year ended 30 June 2009		24 Oct 2008		28 Nov 2008		6,382	-
	Second interim dividend (3.08p) for the year ended 30 June 2009		23 Jan 2009		27 Feb 2009		6,382	-
	Third interim dividend (3.08p) for the year ended 30 June 2009		24 Apr 2009		29 May 2009		6,411	-
							--------	---------
							25,309	23,363
							=====	=====

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- 18 -

THE CITY OF LONDON INVESTMENT TRUST PLC

Annual Financial Report for the ear ended 30 June 2009

Notes to the financial statements (continued)

7. Issued share capital 

During the year the Company repurchased 50,000 ordinary shares at a total cost of £110,000 which were held in treasury.  The Company subsequently sold all 358,090 ordinary shares which out of treasury with total proceeds of £670,000 and allotted a further 945,000 ordinary shares for total proceeds of £1,857,000.  At 30 June 2009 there were 208,519,868 ordinary shares of 25p in issue (2008: 207,226,778).

8.  Dividends paid

A fourth interim dividend of 3.08p per ordinary share of 25p (2008: 2.96p) in respect of the year ended 30 June 2009 was paid on 28 August 2009 to shareholders on the register on 24 July 2009 for a total consideration of £6,422,000.

2009 Annual financial statements

The figures and financial information for the year ended 30 June 2009 are extracted from the Company's annual financial statements for that period and do not constitute statutory accounts.  The Company's annual financial statements for the year to 30 June 2009 have been audited but have not yet been delivered to the Registrar of Companies. The auditors' report on the 2009 annual financial statements was unqualified, did not include a reference to any matter to which the auditors drew attention without qualifying the report, and did not contain any statements under section 498 the Companies Act 2006.

2008 Financial information

The figures and financial information for the year ended 30 June 2008 are compiled from an extract of the published accounts for that year and do not constitute statutory accounts. Those accounts have been delivered to the Registrar of Companies and included the report of the auditors which was unqualified and did not contain a statement under either section 237(2) or section 237(3) of the Companies Act 1985.

Annual report and financial statements

The annual report and financial statements will be posted to shareholders on 15 September 2009 and will be available on the Company's website (www.cityinvestmenttrust.com) or in hard copy format from the Company's registered office,  201 Bishopsgate, London, EC2M 3AE. 

The Annual General Meeting will be held at the registered office on Thursday 15 October 2009 at 3.00pm.

- ENDS -

For further information please contact:

Job Curtis 

Portfolio Manager, The City of London Investment Trust plc

Telephone: [phone]

James de Sausmarez

Head of Investment Trusts, Henderson Global Investors

Telephone: [phone]

Sarah Gibbons-Cook

Investor Relations and PR Manager, Henderson Global Investors

Telephone: [phone]

 

END

 

 

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