Interim Results

City of London Investment Trust PLC 08 February 2008 8 February 2008 THE CITY OF LONDON INVESTMENT TRUST PLC Unaudited Results for the Half Year Ended 31 December 2007 Six Months to Total Returns 31 December 2007 Net asset value per ordinary share * -2.6% FTSE All-Share 4% Capped Index # (Benchmark) -2.3% NAV underperformance 0.3% Ordinary share price * -5.5% FTSE All-Share Index # -2.1% Average UK Growth & Income Investment Trust * + -5.5% Sources: * AIC Services Limited # Thomson Financial, Datastream + size weighted average INTERIM MANAGEMENT REPORT Performance The six months to 31 December 2007 in financial markets were dominated by the problems of the banking sector and their effects on the wider economy. In general, sectors that were considered vulnerable to weakening consumer expenditure, such as general retailing, performed poorly. On the other hand, sectors benefiting from the strong growth in the economies of emerging markets, such as mining, produced better returns. City of London's net asset value total return was a negative 2.6% for the six month period. This was slightly behind our benchmark, the FTSE All-Share 4% Capped Index, which was a negative 2.3%, but ahead of the average for our sector (UK Growth & Income Investment Trust) which was a negative 5.5%. Strong performers within the portfolio were those companies considered to have businesses relatively resilient to weakening consumer demand, such as British American Tobacco or Scottish & Southern Energy. On the other hand, low exposure to the low dividend yielding mining sector was the principal cause of underperformance relative to the benchmark. Dividends The Board continues to recognise the importance of dividend income to shareholders. A second interim dividend of 2.84p was declared on 13 December 2007 and will be paid on 28 February 2008. As has already been announced, the minimum dividend increase for the year will be 10.3% and the quarterly rate will next be considered in March. VAT on Fund Management Fees In June 2007, the European Court of Justice delivered a favourable decision in a long running case on whether management fees paid by Investment Trust companies should be exempt from VAT. Since then, HM Revenue & Customs ("HMRC") has confirmed that it will be withdrawing from defending the appeal and that all future fund management fees will be exempt from VAT. This will lead to a further reduction in City of London's competitive total expense ratio which was 0.42% in the Company's last financial year. - MORE - Page 2 of 10 THE CITY OF LONDON INVESTMENT TRUST PLC Unaudited Results for the Half Year Ended 31 December 2007 INTERIM MANAGEMENT REPORT (continued) In addition, individual trusts will be able to reclaim some of the VAT paid in previous years. However, HMRC has indicated that it may take a year or more before refunds are agreed. We have included in these accounts only the amount that we estimate is virtually certain to be recovered. Further details are shown in note 7 on page 8. Material Events or Transactions during the period Gearing rose from 5.5% (at 30 June 2007) to 7.2% (at 31 December 2007) partly as a result of market movements and partly due to net investment of £7.1 million. Our manager mainly added to existing holdings but new holdings were purchased in the German telephone utility, Deutsche Telekom, in the food retailer, W Morrison, and in Sage, the software and services company. Some profits were taken in the strongly performing mining and tobacco sectors as well as in Scottish & Newcastle whose shares rose as a result of a takeover approach. In addition, the holding in Mitchells & Butler was sold in the summer and ahead of the subsequent steep fall in its share price. The discount to net asset value rose during the period from 12.6% to 15.3% (with debt at par value). We took advantage of the weakness in City's share price to buy back 579,369 shares, 224,197 of which are being held in treasury. Related Party Transactions Details of related party transactions are contained in the annual report. There have been no material transactions with our related parties during the six month period. Savings City of London sets out to be an attractive and straight forward long-term savings vehicle and seeks to be one of the leading candidates for regular savings and investments. Investments can be made through the Itshenderson products (the Share Plan and ISA) or the Alliance Trust Savings (including for pensions). Outlook (including principal risks and uncertainties) for the six months to 30 June 2008 Looking ahead, there are serious uncertainties for both growth and inflation. Companies dependent on consumer demand will face continuing pressure given the high level of consumer indebtedness and a slowdown in the housing market. The extent to which interest rates can be cut will be limited by inflationary pressures. The capacity of the banks to absorb bad debt losses and the knock-on effect of the credit crunch are being monitored closely. Share prices, however, react in anticipation of events and the stockmarket has fallen significantly from the levels of the summer. In terms of valuation measures, the UK equity market looks historically cheap relative to government bonds. In addition, there is continuing takeover interest in UK companies from overseas companies. After the market decline of the first few weeks of 2008, investment value is emerging and our manager will continue to take advantage of opportunities when long term value arises. S M de Zoete Chairman 8 February 2008 - MORE - Page 3 of 10 THE CITY OF LONDON INVESTMENT TRUST PLC Unaudited Results for the Half Year ended 31 December 2007 INCOME STATEMENT for the half year ended 31 December 2007 (Unaudited) (Unaudited) (Audited) Half year ended Half year ended Year ended 31 December 2007 31 December 2006 30 June 2007 Revenue Capital Revenue Capital Revenue Capital Return Return Total Return Return Total Return Return Total £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 (Losses)/ gains on investments held at fair value through profit or loss - (30,338) (30,338) - 79,689 79,689 - 107,437 107,437 Income from investments held at fair value through profit or loss 12,412 - 12,412 11,158 - 11,158 26,734 - 26,734 Other interest receivable and similar income 142 - 142 125 - 125 249 - 249 -------- -------- -------- -------- -------- -------- -------- -------- -------- Gross revenue and capital (losses)/gains 12,554 (30,338) (17,784) 11,283 79,689 90,972 26,983 107,437 134,420 -------- ---------- ---------- -------- -------- -------- -------- ---------- ---------- Management fees (306) (715) (1,021) (333) (777) (1,110) (684) (1,596) (2,280) Performance fee - - - (68) (497) (565) - - - Write back of VAT (note 7) 428 1,213 1,641 - - - - - - Other administrative expenses (275) - (275) (247) - (247) (497) - (497) -------- -------- -------- -------- -------- -------- -------- -------- -------- Net return/(loss) on ordinary activities before finance costs and taxation 12,401 (29,840) (17,439) 10,635 78,415 89,050 25,802 105,841 131,643 Finance costs (745) (1,529) (2,274) (735) (1,507) (2,242) (1,465) (3,002) (4,467) -------- -------- -------- -------- -------- -------- -------- -------- -------- Net return/(loss) on ordinary activities before taxation 11,656 (31,369) (19,713) 9,900 76,908 86,808 24,337 102,839 127,176 Taxation on net return on ordinary activities (47) - (47) (61) - (61) (190) - (190) -------- -------- -------- -------- -------- -------- -------- -------- -------- Net return/(loss) on ordinary activities after taxation 11,609 (31,369) (19,760) 9,839 76,908 86,747 24,147 102,839 126,986 ===== ===== ===== ===== ===== ===== ===== ====== ====== Return/(loss) per ordinary share - basic (note 2) 5.59p (15.11p) (9.52p) 4.72p 36.90p 41.62p 11.59p 49.34p 60.93p ===== ===== ===== ===== ===== ===== ===== ====== ====== 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. - MORE - Page 4 of 10 THE CITY OF LONDON INVESTMENT TRUST PLC Unaudited Results for the Half Year ended 31 December 2007 Reconciliation of Movements in Shareholders' Funds for the half years ended 31 December 2007 and 2006 and year ended 30 June 2007 Called-up Share Other Share Premium Capital Revenue Capital Account Reserves Reserve Total £'000 £'000 £'000 £'000 £'000 Half year ended 31 December 2007 (unaudited) 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 Other Share Premium Capital Revenue Capital Account Reserves Reserve Total Half year ended 31 December 2006 (unaudited) £'000 £'000 £'000 £'000 £'000 At 30 June 2006 52,103 35,309 508,695 18,032 614,139 Net return on ordinary activities after taxation - - 76,908 9,839 86,747 Fourth interim dividend (2.40p per share) for year ended 30 June 2006 paid 31 August 2006 - - - (5,002) (5,002) First interim dividend (2.53p per share) for year ended 30 June 2007 paid 30 November 2006 - - - (5,273) (5,273) -------- -------- --------- -------- -------- At 31 December 2006 52,103 35,309 585,603 17,596 690,611 ===== ===== ====== ===== ===== Called-up Share Other Share Premium Capital Revenue Capital Account Reserves Reserve Total Year ended 30 June 2007 (audited) £'000 £'000 £'000 £'000 £'000 At 30 June 2006 52,103 35,309 508,695 18,032 614,139 Net return on ordinary activities after taxation - - 102,839 24,147 126,986 Buy-back of 483,722 ordinary shares (120) - (1,343) - (1,463) Fourth interim dividend (2.40p per share) for year ended 30 June 2006 paid 31 August 2006 - - - (5,002) (5,002) First and second interim dividends (2.53p each per share) for year ended 30 June 2007 paid 30 November 2006 and 28 February 2007 - - - (10,547) (10,547) Third interim dividend (2.62p per share) for year ended 30 June 2007 paid 31 May 2007 - - - (5,459) (5,459) Write back of dividends over 12 years old - - - 3 3 -------- -------- -------- -------- ---------- At 30 June 2007 51,983 35,309 610,191 21,174 718,657 ===== ====== ====== ====== ====== - MORE - Page 5 of 10 THE CITY OF LONDON INVESTMENT TRUST PLC Unaudited Results for the Half Year ended 31 December 2007 Balance Sheet as at 31 December 2007 (Unaudited) (Unaudited) (Audited) 31 December 31 December 30 June 2007 2006 2007 £'000 £'000 £'000 Investments held at fair value through profit or loss Listed at market value in the United Kingdom 708,457 702,942 734,390 Listed at market value overseas 26,631 34,447 23,899 Shares in subsidiary undertakings 378 377 378 ---------- ---------- ---------- 735,466 737,766 758,667 ---------- ---------- ---------- Current assets Debtors 4,479 3,816 3,542 Bank balances and short term deposits 3,853 4 8,268 -------- -------- ---------- 8,332 3,820 11,810 -------- -------- ---------- Creditors: amounts falling due within one year (10,034) (3,087) (3,932) ---------- ---------- ---------- Net current (liabilities)/assets (1,702) 733 7,878 ---------- ---------- ---------- Total assets less current liabilities 733,764 738,499 766,545 Creditors: amounts falling due after more than one year (47,888) (47,888) (47,888) ---------- ---------- ---------- Total net assets 685,876 690,611 718,657 ====== ====== ====== Capital and reserves Called-up share capital 51,894 52,103 51,983 Share premium account 35,309 35,309 35,309 Other capital reserves 577,231 585,603 610,191 Revenue reserve 21,442 17,596 21,174 ---------- ---------- ---------- Shareholders' funds 685,876 690,611 718,657 ====== ====== ====== Net asset value per ordinary share (note 4) 330.78p 331.37p 345.62p - MORE - Page 6 of 10 THE CITY OF LONDON INVESTMENT TRUST PLC Unaudited Results for the Half Year ended 31 December 2007 Cash Flow Statement for the half year ended 31 December 2007 (Unaudited) (Unaudited) (Audited) Half year ended Half year ended Year ended 31 December 2007 31 December 2006 30 June 2007 £'000 £'000 £'000 Net cash inflow from operating activities 11,810 10,394 23,421 Net cash outflow from servicing of finance (2,255) (2,242) (4,467) Total tax recovered 8 - 39 Net cash (outflow)/inflow from financial investment (8,453) (4,290) 5,315 Equity dividends paid (11,341) (10,275) (21,005) Cash withdrawn from/(placed on) deposit 8,201 6,301 (1,900) Net cash inflow/(outflow) from financing 5,817 - (1,460) --------- --------- ---------- Increase/(decrease) in cash 3,787 (112) (57) ===== ===== ====== Reconciliation of operating revenue to net cash inflow from operating activities Total (loss)/return before finance costs and taxation (17,439) 89,050 131,643 Less: capital loss/(return) before finance costs and taxation 29,840 (78,415) (105,841) ----------- ----------- ----------- Net revenue return before finance costs and taxation 12,401 10,635 25,802 Decrease/(increase) in accrued income 771 485 (652) Increase in other debtors (1,641) - - (Decrease)/increase in other creditors (97) 618 74 Expenses charged to other capital reserves 498 (1,274) (1,596) Overseas withholding tax (122) (70) (207) -------- -------- ---------- Net cash inflow from operating activities 11,810 10,394 23,421 ===== ===== ====== Reconciliation of net cash outflow to movement in net debt Increase/(decrease) in cash as above 3,787 (112) (57) Cash inflow from increase in loans (7,500) - - Net cash (inflow)/outflow from movement in liquid resources (8,201) (6,301) 1,900 Exchange movements (1) (8) 10 Net debt at the beginning of the period (39,620) (41,473) (41,473) ---------- ---------- ---------- Net debt at the end of the period (51,535) (47,894) (39,620) ====== ====== ====== Represented by: Cash at bank and short term deposits less bank overdrafts 3,853 (6) 8,268 Debt falling due within one year (7,500) - - Debt falling due after more than one year (47,888) (47,888) (47,888) ---------- ---------- ---------- (51,535) (47,894) (39,620) ====== ====== ====== - MORE - Page 7 of 10 THE CITY OF LONDON INVESTMENT TRUST PLC Unaudited Results for the Half Year ended 31 December 2007 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 2007 have been applied. 2. Return per ordinary share (Unaudited) (Unaudited) (Audited) Half year Half year Year ended ended ended 31 December 31 December 30 June 2007 2006 2007 £'000 £'000 £'000 The return per ordinary share is based on the following figures: Revenue return 11,609 9,839 24,147 Capital (loss)/ return (31,369) 76,908 102,839 ---------- ---------- ---------- Total (19,760) 86,747 126,986 ====== ====== ====== Weighted average number of ordinary shares in issue for each period 207,586,314 208,413,762 208,399,576 Revenue return per ordinary share 5.59p 4.72p 11.59p Capital (loss)/return per ordinary share (15.11p) 36.90p 49.34p ---------- ---------- ---------- Total (9.52p) 41.62p 60.93p ====== ====== ====== The Company does not have any dilutive securities. 3. Called up share capital During the half year ended 31 December 2007, the Company bought back 579,369 ordinary shares for a total consideration of £1,680,000 (half year ended 31 December 2006: no change; year ended 30 June 2007: 483,722 ordinary shares bought back for total consideration of £1,463,000). The number of ordinary shares in issue at 31 December 2007 was 207,574,868, of which 224,197 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 £685,876,000 (31 December 2006: £690,611,000; 30 June 2007: £718,657,000) and on 207,350,671 ordinary shares (31 December 2006: 208,413,762; 30 June 2007: 207,930,040) 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 2007 were £281,000 (half year ended 31 December 2006: £304,000; year ended 30 June 2007: £599,000). These comprise mainly stamp duty and commissions. Sale transaction costs for the half year ended 31 December 2007 were £65,000 (half year ended 31 December 2006: £69,000; year ended 30 June 2007: £162,000). - MORE - Page 8 of 10 THE CITY OF LONDON INVESTMENT TRUST PLC Unaudited Results for the Half Year ended 31 December 2007 6. Interim dividend A first interim dividend of 2.84p was paid on 30 November 2007. The second interim dividend of 2.84p (declared on 13 December 2007) will be paid on 28 February 2008 to shareholders who are on the register at 25 January 2008. 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 Value Added Tax ("VAT ") should be 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. The manager (Henderson Global Investors Limited) will now be able to reclaim from HMRC the amount of VAT charged to the Company in respect of investment management services from 1 October 2000 to 30 June 2007, to the extent that such VAT was paid by the manager to HMRC. VAT has not been applied to investment management fees invoiced since June 2007. Accordingly, VAT borne by the Company on investment management fees invoiced in the period from 1 October 2000 to 30 June 2007 has been written back, in accordance with an agreement reached between the manager and the Company. An amount of £1,641,000 has been recognised, reflecting the extent to which recovery by the Company is considered to be certain. The write back has been allocated between revenue return and capital return according to the allocation of the amounts originally paid. The Company may be able to recover further amounts of the VAT charged on investment management fees back to 1990, in particular in respect of the period from 1 January 1990 to 4 December 1996 (following the decision of the House of Lords in the Fleming / Conde Nast case). However, the Board considers that currently there are too many uncertainties for any reasonable estimate to be calculated of the amounts potentially recoverable during that period. The Company will receive from the manager any interest paid by HMRC on the amounts eventually recovered. 8. Financial information The financial information contained in this half year report does not constitute statutory accounts as defined in section 240 of the Companies Act 1985. The financial information for the half years ended 31 December 2007 and 31 December 2006 has not been audited or reviewed by the Company's auditors. The figures and financial information for the year ended 30 June 2007 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. 9. Half year report Copies of the Company's report for the half year ended 31 December 2007 will be posted to shareholders in February 2008 and will be available thereafter from the Secretary at the Registered Office, 4 Broadgate, London, EC2M 2DA. - MORE - Page 9 of 10 THE CITY OF LONDON INVESTMENT TRUST PLC Unaudited Results for the Half Year ended 31 December 2007 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 Market value 31 December 2007 31 December 2007 £'000 £'000 Vodafone 37,560 Reckitt Benckiser 5,828 BP 36,285 Pearson 5,490 British American Tobacco 34,386 Rexam 5,231 Royal Dutch Shell 31,350 Pennon 5,059 HSBC 30,312 Severn Trent 5,036 Diageo 28,620 Fortum 4,526 GlaxoSmithKline 26,859 Weir 4,452 BT 22,638 Deutsche Telekom 4,416 National Grid 21,684 Croda International 4,358 Scottish & Southern Energy 20,475 Liberty International 4,308 Lloyds TSB 20,060 Imperial Tobacco 4,068 Barclays 19,757 Greene King 4,000 Tesco 19,090 Statoil 3,907 Royal Bank of Scotland 17,760 National Express 3,726 Land Securities 15,060 Wolseley 3,710 Anglo American 13,915 Premier Foods 3,546 ENI 13,783 Amlin 3,447 Aviva 13,460 IMI 3,347 Unilever 13,230 Meggitt 3,328 Rio Tinto 12,761 Admiral 3,300 Cadbury Schweppes 12,420 Johnson Matthey 3,292 HBOS 11,760 De La Rue 3,281 BHP Billiton 10,822 GKN 3,243 Reed Elsevier 10,193 Kazakhmys 3,242 BAE Systems 9,960 Hiscox 3,232 Scottish & Newcastle 7,415 Morrison (W) Supermarkets 3,220 Britvic 7,266 BBA 3,079 Legal & General 7,183 G4S 3,059 United Utilities 6,426 Kingfisher 3,058 Bovis Homes 6,160 Smiths 3,039 These investments total £655,478,000 or 89.2% of the portfolio. - MORE - Page 10 of 10 THE CITY OF LONDON INVESTMENT TRUST PLC Unaudited Results for the Half Year ended 31 December 2007 Sector Analysis of Portfolio as at 31 December 2007 % Oil & Gas 11.6 Basic Materials 6.8 Industrials 8.9 Consumer Goods 18.1 Health Care 4.0 Consumer Services 10.5 Telecommunications 8.8 Utilities 8.6 Financials 22.4 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) the interim management 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) the interim management 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 8 February 2008 For further information please contact : Job Curtis Portfolio Manager, The City of London Investment Trust plc Telephone: 020 7818 4367 James de Sausmarez Head of Investment Trusts, Henderson Global Investors Telephone: 020 7818 3349 Sarah Gibbons-Cook Investor Relations and PR Manager, Henderson Global Investors Telephone: 020 7818 3198 - ENDS - This information is provided by RNS The company news service from the London Stock Exchange

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