Half Yearly Report

RNS Number : 9736M

City of London Investment Trust PLC

09 February 2009

 



   9 February 2009

THE CITY OF LONDON INVESTMENT TRUST PLC

Unaudited Results for the Half Year Ended 31 December 2008

This announcement contains regulated information

Total Returns	Six Months to 31 December 2008
Net asset value per ordinary share *	-16.1%
FTSE All-Share 4% Capped Index # (Benchmark)	-22.5%
NAV outperformance	6.4%
Ordinary share price *	-9.5%
FTSE All-Share Index #	-21.1%
Average UK Growth & Income Investment Trust NAV * †	-17.4 %
Sources:  * AIC Information Services Limited               # Thomson Financial, Datastream               † size weighted average

INTERIM MANAGEMENT REPORT

Performance 

Earnings and Dividends

Earnings per share rose by 10.9%, an increase that included the benefit of the fall in sterling for the profits and dividends of our companies with overseas interests. As has already been announced, the minimum dividend increase for the year will be 6.2%.  Our shares currently yield 5.9% on the forecast for the current year, which compares very favourably with interest rates being paid on savings accounts. Shareholders should also derive comfort in these uncertain times from the fact that we have built up revenue reserves of some £26m.  

Net Asset Value Total Return

The six months to 31 December 2008 were marked by unprecedented conditions in financial markets. The banking crisis, the lack of credit availability and the de-leveraging of banks and hedge funds have led to markedly changed market conditions for companies and those that invest in them. The credit crunch, which has come upon us so rapidly, has brought about a sharp fall in economic activity in the UK and overseas. This is starkly evidenced by the collapse of commodity prices and the worldwide drop in interest rates. 

City of London had a relatively low exposure to the mining sector, which fell sharply. We also benefited from an underweight position in banks and so we avoided the worst of the bank sector's fall. A further positive factor was the relatively strong performance of the large consumer staples holdings in British American Tobacco and Diageo. Although City of London's net asset value total return was a negative 16.1%, this was 6.4 percentage points better than the total return of the FTSE All-Share 4% Capped Index which was a negative 22.5%.  City of London also outperformed the AIC UK Growth & Income sector average by 1.3 percentage points.  The share price total return was a negative 9.5%, which was better than the net asset value total return, reflecting a narrowing of our discount. 

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THE CITY OF LONDON INVESTMENT TRUST PLC

Unaudited Results for the Half Year Ended 31 December 2008

INTERIM MANAGEMENT REPORT (continued)

Material Events and Transactions during the Period

Our gearing increased very slightly from 10.1% as at 30 June 2008 to 10.5% as at 31 December 2008. Exposure to the bank sector was significantly reduced with sales of all holdings in Royal Bank of Scotland and HBOS and a majority of the holding in LloydsTSB. A new holding in the emerging markets bank Standard Chartered was purchased. Other new holdings bought were all companies with profits predominantly from overseas markets: Rotork, in the engineering sector, Thomson-Reuters, in the media sector and Victrex, in the chemicals sector.  Holdings in companies that our Manager considered unlikely to pay a dividend were sold.

Expenses

As a result of the outperformance achieved during the period relative to the benchmark, a performance fee of £227,000 has been accrued. This has been charged 89% to capital and 11% to revenue to reflect from where the outperformance has been derived. However, outperformance needs to be maintained through to 30 June 2009 for any performance fee to be payable.

The Total Expense Ratio (TER), which is the investment management fee and other non-interest expenses as a percentage of shareholders' funds, remains low compared with most other equity savings products. The TER for the six months is equivalent to a full year's rate of approximately 0.54% of net assets.

VAT On Fund Management Fees

A further VAT reclaim of £234,000 has been recognised on top of the £1,641,000 included in our last financial year. In addition, estimated interest of £275,000 has been recognised in the Income Statement.

Outlook for the six months to 30 June 2009

Shareholders will recall that in the annual accounts to June 2008 I referred to the likelihood of high volatility and sector performance disparity. These conditions may well continue for some time and we now know that businesses will have to operate in an environment that will be materially different to anything that we have seen in the recent past. Companies and financial institutions will no longer be able to operate with substantially leveraged balance sheets, and private individuals will be offered limited credit facilities. Put simply, the world has changed.  Markets, however, look forward and some of the problems are already discounted. Equities are at historically low levels and selectively do offer opportunities.  

Many companies will conserve cash by reducing their dividend distributions. We recognise that income is very important to our shareholders and we have set as a priority for our Manager to ensure that sector and stock selection takes into account the need to protect our income flow and reflects the longer term impact of the credit crunch.  We have increased our dividend in every year for the last 42 years and that is a track record that we aim to extend into the future.

S M de Zoete

Chairman

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THE CITY OF LONDON INVESTMENT TRUST PLC

Unaudited Results for the Half Year Ended 31 December 2008

  INCOME STATEMENT 

  for the half year ended 31 December 2008

	(Unaudited) Half year ended  31 December 2008			(Unaudited) Half year ended  31 December 2007			(Audited) Year ended  30 June 2008
	Revenue Return	Capital  Return	Total	Revenue Return	Capital  Return	Total	Revenue Return	Capital  Return	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Losses on investments held at fair value through profit or loss	-	(103,187)	(103,187)	-	(30,338)	(30,338)	-	(149,375)	(149,375)
Income from investments held at fair value through profit or loss	13,674	-	13,674	12,412	-	12,412	30,162	-	30,162
Other interest receivable and similar income (note 7)	424	-	424	142	-	142	265	-	265
	--------	--------	--------	--------	--------	--------	--------	--------	--------
Gross revenue and capital loss	14,098	(103,187)	(89,089)	12,554	(30,338)	(17,784)	30,427	(149,375)	(118,948)
	--------	----------	----------	--------	--------	--------	--------	----------	----------
Management fees	(233)	(544)	(777)	(306)	(715)	(1,021)	(577)	(1,346)	(1,923)
Performance fee	(25)	(202)	(227)	-	-	-	-	-	-
Write back of VAT (note 7)	53	181	234	428	1,213	1,641	428	1,213	1,641
Other administrative expenses	(251)	-	(251)	(275)	-	(275)	(484)	-	(484)
	--------	--------	--------	--------	--------	--------	--------	--------	--------
Net return/(loss) on ordinary activities before finance costs and taxation	13,642	(103,752)	(90,110)	12,401	(29,840)	(17,439)	29,794	(149,508)	(119,714)
Finance costs	(789)	(1,656)	(2,445)	(745)	(1,529)	(2,274)	(1,547)	(3,217)	(4,764)
	--------	--------	--------	--------	--------	--------	--------	--------	--------
Net return/(loss) on ordinary activities before taxation	12,853	(105,408)	(92,555)	11,656	(31,369)	(19,713)	28,247	(152,725)	(124,478)
Taxation on net return on ordinary activities	(5)	-	(5)	(47)	-	(47)	(179)	-	(179)
	--------	--------	--------	--------	--------	--------	--------	--------	--------
Net return/(loss) on ordinary activities after taxation	12,848	(105,408)	(92,560)	11,609	(31,369)	(19,760)	28,068	(152,725)	(124,657)
	=====	=====	=====	=====	=====	=====	=====	======	======
Return/(loss) per ordinary share - basic (note 2)	6.20p	(50.87p)	(44.67p)	5.59p	(15.11p)	(9.52p)	13.53p	(73.63p)	(60.10p)
	=====	=====	=====	=====	=====	=====	=====	======	======

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 and the Reconciliation of Movements in Shareholders' Funds.

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THE CITY OF LONDON INVESTMENT TRUST PLC

Unaudited Results for the Half Year ended 31 December 2008

Reconciliation of Movements in Shareholders' Funds

for the half years ended 31 December 2008 and 2007 and year ended 30 June 2008

Half year ended 31 December 2008 (unaudited)	Called-up share capital £'000	Share premium  account £'000	Other capital reserves £'000	Revenue reserve £'000	Total  £'000
At 30 June 2008	51,894	35,309	455,638	25,879	568,720
Net (loss)/return on ordinary activities after taxation	-	-	(105,408)	12,848	(92,560)
Buy-back of 50,000 ordinary shares	-	-	(110)	-	(110)
Fourth interim dividend (2.96p per share) for year ended 30 June 2008 paid 29 August 2008	-	-	-	(6,134)	(6,134)
First interim dividend (3.08p per share) for year ended 30 June 2009 paid 28 November 2008	-	-	-	(6,382)	(6,382)
	--------	--------	--------	--------	--------
At 31 December 2008	51,894	35,309	350,120	26,211	463,534
	=====	=====	=====	=====	=====
	Called-up  share capital	Share premium account	Other capital reserves	Revenue reserve	Total
Half year ended 31 December 2007 (unaudited)	£'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	-	-	(31,369)	11,609	(19,760)
Buy-back of 579,369 ordinary shares	(89)	-	(1,591)	-	(1,680)
Fourth interim dividend (2.62p per share) for year ended 30 June 2007 paid 31 August 2007	-	-	-	(5,446)	(5,446)
First interim dividend (2.84p per share) for year ended 30 June 2008 paid 30 November 2007	-	-	-	(5,895)	(5,895)
	--------	--------	---------	--------	--------
At 31 December 2007	51,894	35,309	577,231	21,442	685,876
	=====	=====	======	=====	=====
	Called-up  share capital	Share premium account	Other capital reserves	Revenue reserve	Total
Year ended 30 June 2008 (audited)	£'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)
Fourth interim dividend (2.62p per share) for year ended 30 June 2007 paid 31 August 2007	-	-	-	(5,446)	(5,446)
First and second interim dividends (2.84p each per share) for year ended 30 June 2008 paid 30 November 2007 and 28 February 2008	-	-	-	(11,782)	(11,782)
Third interim dividend (2.96p per share) for year ended 30 June 2008 paid 30 May 2008	-	-	-	(6,135)	(6,135)
	--------	--------	--------	--------	----------
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

Unaudited Results for the Half Year ended 31 December 2008

Balance Sheet

at 31 December 2008

	(Unaudited) 31 December 2008 £'000	(Unaudited) 31 December 2007 £'000	(Audited) 30 June 2008 £'000
Investments held at fair value through profit or loss
Listed at market value in the United Kingdom	485,528	708,457	593,791
Listed at market value overseas	26,468	26,631	32,553
Shares in subsidiary undertakings	378	378	378
	----------	----------	----------
	512,374	735,466	626,722
	----------	----------	----------
Current assets
Debtors	5,490	4,479	5,828
Bank balances and short term deposits	2,602	3,853	350
	--------	--------	----------
	8,092	8,332	6,178
	--------	--------	----------
Creditors: amounts falling due within one year	(9,533)	(10,034)	(16,781)
	----------	----------	----------
Net current liabilities	(1,441)	(1,702)	(10,603)
	----------	----------	----------
Total assets less current liabilities	510,933	733,764	616,119
Creditors: amounts falling due after more than one year	(47,399)	(47,888)	(47,399)
	----------	----------	----------
Total net assets	463,534	685,876	568,720
	======	======	======
Capital and reserves
Called-up share capital (note 3)	51,894	51,894	51,894
Share premium account	35,309	35,309	35,309
Other capital reserves	350,120	577,231	455,638
Revenue reserve	26,211	21,442	25,879
	----------	----------	----------
Shareholders' funds	463,534	685,876	568,720
	======	======	======
Net asset value per ordinary share (note 4)	223.70p	330.78p	274.39p
	======	======	======

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THE CITY OF LONDON INVESTMENT TRUST PLC

Unaudited Results for the Half Year ended 31 December 2008

Cash Flow Statement

for the half year ended 31 December 2008

	(Unaudited) Half year ended 31 December 2008 £'000	(Unaudited) Half year ended 31 December 2007 £'000	(Audited) Year ended 30 June 2008 £'000
Net cash inflow from operating activities	13,312	11,810	27,017
Net cash outflow from servicing of finance	(2,451)	(2,255)	(4,760)
Total tax recovered	-	8	16
Net cash inflow/(outflow) from financial investment	11,025	(8,453)	(18,394)
Equity dividends paid	(12,516)	(11,341)	(23,363)
Cash withdrawn from deposit	-	8,201	8,201
Net cash (outflow)/inflow from financing	(7,053)	5,817	11,581
	---------	---------	----------
Increase in cash	2,317	3,787	298
	=====	=====	======
Reconciliation of operating revenue to net cash inflow from operating activities
Total loss before finance costs and taxation	(90,110)	(17,439)	(119,714)
Add: capital loss before finance costs and taxation	103,752	29,840	149,508
	-----------	-----------	-----------
Net revenue return before finance costs and taxation	13,642	12,401	29,794
Decrease/(increase) in accrued income	664	771	(477)
Increase in other debtors	(233)	(1,641)	(1,641)
Increase/(decrease) in other creditors	152	(97)	(163)
Expenses (charged)/credited to other capital reserves	(565)	498	(133)
Overseas withholding tax	(93)	(122)	(363)
Stock dividends included in investment income	(255)	-	-
	--------	--------	----------
Net cash inflow from operating activities	13,312	11,810	27,017
	=====	=====	======
Reconciliation of net cash inflow to movement in net debt
Increase in cash as above	2,317	3,787	298
Cash outflow/(inflow) from movement in loans	6,943	(7,500)	(13,501)
Net cash inflow from movement in liquid resources	-	(8,201)	(8,201)
Non cash movement	-	-	34
Exchange movements	(65)	(1)	(15)
Net debt at beginning of the period	(61,005)	(39,620)	(39,620)
	----------	----------	----------
Net debt at end of the period	(51,810)	(51,535)	(61,005)
	======	======	======
Represented by:
Cash at bank and short term deposits less bank overdrafts	2,602	3,853	350
Debt falling due within one year	(7,013)	(7,500)	(13,956)
Debt falling due after more than one year	(47,399)	(47,888)	(47,399)
	----------	----------	----------
	(51,810)	(51,535)	(61,005)
	======	======	======

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THE CITY OF LONDON INVESTMENT TRUST PLC

Unaudited Results for the Half Year ended 31 December 2008

Notes

1.		Accounting policies
		The accounts have been prepared under the historical cost convention, modified to include the revaluation of investments and in accordance with applicable Accounting Standards, pronouncements on interim reporting issued by the Accounting Standards Board and the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies' ("SORP" dated January 2003, revised December 2005). All of the Company's operations are of a continuing nature.
		The same accounting policies used for the year ended 30 June 2008 have been applied.
2.		Return per ordinary share
			(Unaudited) Half year ended  31 December 2008 £'000		(Unaudited) Half year ended  31 December 2007 £'000		(Audited) Year ended 30 June 2008 £'000
		The return/(loss) per ordinary share is based on the following figures:
		Revenue return	12,848		11,609		28,068
		Capital loss	(105,408)		(31,369)		(152,725)
			----------		----------		----------
		Total	(92,560)		(19,760)		(124,657)
			======		======		======
		Weighted average number of ordinary shares in issue for each period	207,220,603		207,586,314		207,428,815
		Revenue return per ordinary share	6.20p		5.59p		13.53p
		Capital loss per ordinary share	(50.87p)		(15.11p)		(73.63p)
			----------		----------		----------
		Total	(44.67p)		(9.52p)		(60.10p)
			======		======		======
		The Company does not have any dilutive securities.
3.		Called up share capital
		During the half year ended 31 December 2008 50,000 ordinary shares were bought back for a total consideration of £110,000 and are being held in treasury (half year ended 31 December 2007: 579,369 ordinary shares were bought back for a total consideration of £1,680,000; year ended 30 June 2008: 663,262 ordinary shares were bought back for a total consideration of £1,917,000). The number of ordinary shares in issue at 31 December 2008 was 207,574,868, of which 358,090 shares were held in treasury.
4.		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  £463,534,000 (31 December 2007: £685,876,000; 30 June 2008: £568,720,000) and on 207,216,778 ordinary shares (31 December 2007: 207,350,671; 30 June 2008: 207,266,778) being the number of ordinary shares in issue at the end of each period. Treasury shares are excluded for the purposes of calculating the net asset value per ordinary share.
5.		Transaction costs
		Purchase transaction costs for the half year ended 31 December 2008 were £115,000 (half year ended 31 December 2007: £281,000; year ended 30 June 2008: £449,000). These comprise mainly stamp duty and commissions. Sale transaction costs for the half year ended 31 December 2008 were £61,000 (half year ended 31 December 2007: £65,000; year ended 30 June 2008: £103,000).

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THE CITY OF LONDON INVESTMENT TRUST PLC

Unaudited Results for the Half Year ended 31 December 2008

6.		Interim dividends
		A first interim dividend of 3.08p was paid on 28 November 2008. The second interim dividend of 3.08p (declared on 4 December 2008) will be paid on 27 February 2009 to shareholders on the register on 23 January 2009.
7.		VAT on management fees
		In 2004 the Association of Investment Companies (the "AIC"), together with JPMorgan Claverhouse Investment Trust plc, launched a case against HM Revenue & Customs ("HMRC") to challenge whether the Value Added Tax ("VAT") should have been charged on fees paid for management services provided to investment trust companies. On 28 June 2007 the European Court of Justice delivered its judgement on the case in favour of the AIC. Since then HMRC has accepted that the provision of investment management services to investment trust companies is VAT exempt and has acknowledged its liability to pay claims in respect of VAT borne by investment companies. VAT has not been applied to investment management fees invoiced in respect of periods since June 2007.  Since the end of the half year, the Manager has reached agreement with HMRC in respect of VAT charged to the Company in respect of investment management services from 1 October 2000 to 30 June 2007. This has resulted in the Company receiving an amount of £1,875,000 in respect of the above period, of which £1,641,000 was written back in the accounts for the year ended 30 June 2008. Accordingly, an additional £234,000 has been recognised as recoverable in the Income Statement for the six months to 31 December 2008. The £1,875,000 represents all the VAT borne by the Company in the period from 1 October 2000 to 30 June 2007. The Company will also receive from the Manager any interest paid by HMRC on the amounts recovered.  Accordingly an amount of £275,000 has been included in the Income Statement. The Company expects to be able to reclaim VAT paid in respect of the period from 1 January 1990 to 4 December 1996, following the judgement of the House of Lords in a case concerning the time limits applicable to VAT claims. However, the Board considers that it is premature to incorporate an estimate of repayment at this stage. There is also a possibility of recovering VAT paid in the period from December 1996 to September 2000, but it is too early to predict the outcome of claims for this period.
8.		Related party transactions  Details of related parties are contained in the annual report. There have been no material transactions with our related parties affecting the financial position or performance of the Company during the six months.
9.		Financial information
		The financial information contained in this half year report does not constitute statutory accounts as defined in section 434 of the Companies Act 2006. The financial information for the half years ended 31 December 2008 and 31 December 2007 has not been audited or reviewed by the Company's auditors.
		The figures and financial information for the year ended 30 June 2008 have been extracted from the latest published audited accounts of the Company. These 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 section 237(2) or 237(3) of the Companies Act 1985.
10.		Half year report
		A copy of the Company's report for the half year ended 31 December 2008 will be posted to shareholders in February 2009 and will be available on our website (www.cityinvestmenttrust.com) from 23 February 2009. Copies can also be requested thereafter from the Secretary at the Registered Office, 201 Bishopsgate, London EC2M 3AE.

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THE CITY OF LONDON INVESTMENT TRUST PLC

Unaudited Results for the Half Year ended 31 December 2008

Largest Investments

The 60 largest investments, convertibles and all classes of equity in any one company being treated as one investment, were as follows:

Market value 31 December 2008 £'000			Market value 31 December 2008 £'000
British American Tobacco	31,500		United Utilities	4,115
BP	31,034		Severn Trent	3,953
GlaxoSmithKline	28,901		Croda	3,896
Vodafone	27,800		Hiscox	3,835
Royal Dutch Shell	27,616		Morrison (W) Supermarkets	3,783
Diageo	25,467		Pennon	3,733
HSBC	23,832		Shire	3,289
National Grid	17,100		Rio Tinto	3,204
Scottish & Southern Energy	15,213		StatoilHydro	3,111
Tesco	14,400		Provident Financial	2,838
ENI	11,906		Arriva	2,707
Unilever	11,053		Smiths	2,655
BT	10,478		IMI	2,582
Land Securities	9,578		G4S	2,563
BHP Billiton	9,058		Kingfisher	2,498
Barclays (including convertible)	8,733		Spirax-Sarco Engineering	2,497
Aviva	8,190		British Sky Broadcasting	2,400
Cadbury	7,750		Smiths News	2,395
AstraZeneca	7,579		Greene King	2,370
BAE Systems	7,535		Rolls-Royce	2,349
Anglo American	6,571		Admiral	2,275
Reed Elsevier	6,564		Thomson-Reuters	2,265
Britvic	5,549		RWE	2,138
Pearson	5,449		Tate & Lyle	2,004
Reckitt Benckiser	5,156		Rotork	1,979
Rexam	4,388		De La Rue	1,951
Amlin	4,290		Halfords	1,946
Legal & General	4,224		Halma	1,924
Deutsche Telekom	4,149		Standard Life	1,919
Novartis	4,133		Johnson Matthey	1,916

These investments total £466,286,000 or 91.1% of the portfolio.

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THE CITY OF LONDON INVESTMENT TRUST PLC

Unaudited Results for the Half Year ended 31 December 2008

Sector Analysis of Portfolio as at 31 December 2008

	%
Oil & Gas	14.6
Basic Materials	5.3
Industrials	9.4
Consumer Goods	18.0
Health Care	8.6
Consumer Services	11.0
Telecommunications	8.3
Utilities	9.0
Financials	15.5
Technology	0.3
	--------
Total	100.0
	=====

Directors' Responsibility Statement

The Directors confirm that, to the best of their knowledge:

a)         the condensed set of financial statements has been prepared in accordance with the Accounting Standards Board’s statement “Half-Yearly Financial Reports”;

 

b)         this report includes a fair review of the information required by Disclosure and Transparency Rule 4.2.7R (indication of important events during the first six months and description of principal risks and uncertainties for the remaining six months of the year); and

 

c)         this report includes a fair review of the information required by Disclosure and Transparency Rule 4.2.8R (disclosure of related party transactions and changes therein).

S M de Zoete, Chairman

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]

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