Interim Results
City of London Investment Trust PLC
10 February 2006
10 February 2006
THE CITY OF LONDON INVESTMENT TRUST PLC
UNAUDITED INTERIM RESULTS FOR THE HALF YEAR ENDED
31 DECEMBER 2005
Total Returns Six Months to
31 December 2005
Net asset value per ordinary share * +12.5%
FTSE 4% capped Index # (Benchmark) +14.4%
NAV underperformance -1.9%
Ordinary share price* +11.4%
Sources: * AITC Services Limited # Thomson Financial, Datastream
Extracts from the Chairman's Statement
Performance
The UK equity market performed strongly during the second six months of 2005.
It produced a total return, as measured by our benchmark, the FTSE All-Share
Index - adjusted for a maximum 4% cap for any single stock, of 14.4%. This
compares with a total return of 12.8% for the benchmark that we have previously
used, the FTSE All-Share Index.
UK economic growth slowed down with the housing market levelling off and
consumer spending under pressure from higher utility bills and the effect of the
rise in mortgage rates earlier in the year. With the improvement in the outlook
for inflation, the Bank of England decided to cut its interest rate from 4.75%
to 4.5%. Yields on long dated British Government bonds fell from 4.2% to 4.0%,
a new low of recent years.
An important market factor has been takeover activity with bids for UK companies
emanating from both overseas companies and also from private equity
organisations. The low interest rate environment facilitated the debt financing
of these deals.
City of London's net asset value total return of 12.5% over the period was
positive despite being behind our new benchmark. Our performance relative to
the benchmark suffered from being underweight in lower yielding stocks, not all
of which were deemed suitable for the portfolio given our income objective.
In addition, we did not hold O2, which was bid for by Telefonica of Spain, the
largest takeover situation during the six months. On the other hand, we did
benefit from bids for our holdings of BPB, P&O and PD Ports. Overall, our net
asset value total return was better than the average of the AITC Growth & Income
sector of 11.5% and the FTSE 350 High Yield Index of 9.8%.
Dividends
The Board continues to recognise the importance of dividend income to
shareholders. A second interim dividend of 2.28p was declared on 8 December and
will be paid on 28 February. As noted in my Chairman's Statement in September,
the third interim dividend will be announced in March.
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Page 2 of 10
THE CITY OF LONDON INVESTMENT TRUST PLC
Unaudited Interim Results for the half year ended 31 December 2005
This year will be the fortieth consecutive year that City of London has paid an
increased dividend to shareholders. This is a record which we believe cannot be
bettered by any other investment trust.
Expenses
The management fee declined significantly compared with the same period last
year. A performance fee was not accrued because our managers underperformed the
benchmark over the period. Total expenses, excluding interest payable but
including the management fee and other administrative expenses, were 0.21% of
net assets at 31 December 2005. This remains a very competitive rate compared
with most other equity savings vehicles.
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 investment. Investments can be made directly and shares can be
purchased through the City of London Alliance Trust Pension, the Henderson
Investment Trust Share Plan and the Henderson ISA.
Outlook
The UK equity market should continue to experience the positive effect of
corporate takeovers given the open system for control of companies compared with
most other countries. As a result, the UK is an attractive hunting ground for
overseas companies. In addition, the current low level of bond yields enables
private equity houses to finance takeovers cheaply.
Although the level of consumer debt and the probability of rising taxes in the
UK remain a concern, recent indications of inflation have been encouraging with
wage increases moderating. It may therefore be possible for interest rates to
be cut, improving the prospects for UK consumer demand. In addition, many UK
companies will continue to benefit from growth overseas, especially in emerging
markets.
We continue to believe that the UK equity market is relatively attractive on
most valuation criteria given the alternatives now available in overseas
equities, fixed interest, cash or property. In particular, the dividend yield
for the UK equity market is now 2.9% with high single digit dividend growth
expected.
S M de Zoete
10 February 2006
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THE CITY OF LONDON INVESTMENT TRUST PLC
Unaudited Interim Results for the half year ended 31 December 2005
INCOME STATEMENT
for the half year ended 31 December 2005
(Unaudited) (Unaudited and restated)+ (Audited and restated)+
Half year ended Half year ended Year ended
31 December 2005 31 December 2004 30 June 2005
Revenue Capital Revenue Capital Revenue Capital
Return Return Total Return Return Total Return Return Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
--------- -------- -------- --------- -------- -------- -------- -------- --------
Gains on investments held
at fair - 57,579 57,579 - 48,987 48,987 - 83,809 83,809
value through profit or
loss
Income from investments
held at 9,374 - 9,374 8,250 - 8,250 20,581 - 20,581
fair value through
profit or loss
Other interest receivable
and
similar income 358 - 358 286 - 286 596 - 596
-------- -------- -------- -------- -------- -------- -------- -------- --------
Gross revenue and capital
gains 9,732 57,579 67,311 8,536 48,987 57,523 21,177 83,809 104,986
Management fee (note 4) (295) (688) (983) (256) (597) (853) (528) (1,231) (1,759)
Performance fee (note 5) - - - - (1,318) (1,318) - (1,372) (1,372)
Other administrative (252) - (252) (271) - (271) (505) - (505)
expenses
-------- -------- -------- -------- -------- -------- -------- -------- --------
Net return on ordinary
activities before finance
costs and taxation 9,185 56,891 66,076 8,009 47,072 55,081 20,144 81,206 101,350
Finance costs (729) (1,493) (2,222) (735) (1,493) (2,228) (1,464) (2,986) (4,450)
-------- -------- -------- -------- -------- -------- -------- -------- --------
Net return on ordinary
activities before taxation 8,456 55,398 63,854 7,274 45,579 52,853 18,680 78,220 96,900
Taxation on net return on (28) - (28) (34) - (34) (175) (19) (194)
ordinary activities
-------- -------- -------- -------- -------- -------- -------- -------- --------
Net return on ordinary
activities after taxation 8,428 55,398 63,826 7,240 45,579 52,819 18,505 78,201 96,706
===== ===== ===== ===== ===== ===== ===== ===== =====
Return per ordinary share 4.04p 26.58p 30.62p 3.47p 21.86p 25.33p 8.88p 37.51p 46.39p
(note 3)
The total columns of this statement represent the Profit and Loss accounts of
the Company.
Dividends per ordinary share paid in each period can be found on the
Reconciliation in Movements in Shareholders' Funds. The dividends declared in
respect of the half year ended 31 December 2005 can be found in note 7.
+ Restated (see note 2)
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THE CITY OF LONDON INVESTMENT TRUST PLC
Unaudited Interim Results for the half year ended 31 December 2005
Reconciliation of Movements in Shareholder's funds
Share Capital
Premium Redemption
Share Account Reserve Capital Revenue
Capital Reserve Reserve Total
£000's £000's £000's £000's £000's £000's
-------- -------- -------- -------- -------- --------
At 30 June 2004 (as previously stated) 54,539 35,309 1,461 354,591 10,698 456,598
Add fourth interim dividend (2.12p per
share) for year ended 30 June 2004 paid 31
August 2004 - - - - 4,427 4,427
Reclassification of preference and
preferred ordinary stock (2,086) - - - - (2,086)
-------- -------- -------- -------- -------- --------
At 30 June 2004 (as restated) 52,453 35,309 1,461 354,591 15,125 458,939
Shares bought back and cancelled (350) - 350 (2,597) - (2,597)
Net return on ordinary activities - - - 78,201 18,505 96,706
Preference stock buyback - - 198 (198) - -
Fourth interim dividend (2.12p per share)
for year ended 30 June 2004 paid - - - - (4,427) (4,427)
Three interim dividends (of 2.12p each per
share) for year ended 30 June 2005 paid - - - - (13,255) (13,255)
Write back of dividends over 12 years old - - - - 78 78
-------- -------- -------- -------- -------- --------
At 30 June 2005 (as restated) 52,103 35,309 2,009 429,997 16,026 535,444
Net return on ordinary activities - - - 55,398 8,428 63,826
Fourth interim dividend (of 2.26p per
share) for year ended 30 June 2005 paid 31
August2005 - - - - (4,710) (4,710)
First interim dividend for year ended 30
June 2006 (2.28p per share) paid 30 November
2005 - - - - (4,752) (4,752)
-------- -------- -------- -------- -------- ----------
At 31 December 2005 52,103 35,309 2,009 485,395 14,992 589,808
===== ====== ====== ====== ====== ======
The transaction costs incurred on the acquisition and disposal of investments
are included within the Capital Reserve and amounted to £389,000 for the half
year ended 31 December 2005 (half year ended 31 December 2004: £106,000; year
ended 30 June 2005: £347,000).
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THE CITY OF LONDON INVESTMENT TRUST PLC
Unaudited Interim Results for the half year ended 31 December 2005
Balance Sheet
as at 31 December 2005
(Unaudited and (Audited and
(Unaudited) restated)+ restated)+
31 December 31 December 30 June
2005 2004 2005
£'000 £'000 £'000
------------- ------------- -------------
Investments held at fair value through profit or
loss
Listed at market value in the United Kingdom 613,327 517,344 549,511
Listed at market value overseas 21,035 21,137 21,394
Shares in subsidiary undertakings 377 347 347
---------- ---------- ----------
Fixed asset investments 634,739 538,828 571,252
---------- ---------- ----------
Current assets
Debtors 2,048 1,832 2,653
Bank balances and short term deposits 4,166 11,553 13,526
-------- -------- ----------
6,214 13,385 16,179
Creditors: amounts falling due within one year (3,257) (3,811) (4,099)
---------- ---------- ----------
Net current assets 2,957 9,574 12,080
---------- ---------- ----------
Total assets less current liabilities 637,696 548,402 583,332
Creditors: amounts falling due after more than one
year (47,888) (48,086) (47,888)
---------- ---------- ----------
Total net assets 589,808 500,316 535,444
---------- ---------- ----------
Capital and reserves
Called-up share capital 52,103 52,103 52,103
Share premium account 35,309 35,309 35,309
Capital redemption reserve 2,009 1,811 2,009
Other capital reserves 485,395 397,573 429,997
Revenue reserve 14,992 13,520 16,026
---------- ---------- ----------
Total shareholders' funds 589,808 500,316 535,444
====== ====== ======
Net asset value per ordinary share (note 6) 283.00p 240.06p 256.91p
+ Restated (see note 2)
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THE CITY OF LONDON INVESTMENT TRUST PLC
Unaudited Interim Results for the half year ended 31 December 2005
Cash Flow Statement
for the half year ended 31 December 2005
(Unaudited) (Unaudited) (Audited)
Half year ended Half year ended Year ended
31 December 2005 31 December 2004 30 June 2005
£'000 £'000 £'000
----------- ----------- -----------
Net cash inflow from operating activities 7,987 7,470 18,094
Net cash outflow from servicing of finance (2,222) (2,227) (4,456)
Total tax recovered - 40 84
Net cash (outflow)/inflow from financial investment (5,631) 9,787 12,325
Equity dividends paid (9,462) (8,845) (17,604)
Cash withdrawn from/(placed on) deposit 8,505 (10,533) (12,125)
--------- --------- ----------
Net cash outflow before financing (823) (4,308) (3,682)
Net cash outflow from financing - (2,597) (2,796)
--------- --------- ----------
Decrease in cash (823) (6,905) (6,478)
======= ======= ======
Reconciliation of operating revenue to net cash inflow
from operating activities
Net revenue before interest payable and taxation 9,185 8,009 20,144
Decrease/(increase) in accrued income 587 554 (229)
(Decrease)/increase in other creditors (1,035) 874 1,032
Management charge and performance fee taken to other
capital reserves (688) (1,915) (2,603)
Overseas withholding tax (37) (52) (250)
Scrip dividends included in investment income (25) - -
-------- -------- ----------
Net cash inflow from operating activities 7,987 7,470 18,094
====== ====== ======
Reconciliation of net cash flow to movement in net
debt
Decrease in cash as above (823) (6,905) (6,478)
Decrease in debt - - 198
Net cash (inflow)/outflow from movement in liquid
resources (8,505) 10,533 12,125
Exchange movements (32) (3) (49)
Net debt at the beginning of the period* (34,362) (40,158) (40,158)
---------- ---------- ----------
Net debt at the end of the period* (43,722) (36,533) (34,362)
====== ====== ======
Represented by:
Cash at bank and short term deposits 4,166 11,553 13,526
Debt falling due after more than one year* (47,888) (48,086) (47,888)
---------- ---------- ----------
(43,722) (36,533) (34,362)
====== ====== ======
* Preference stocks are now classified as debt (see note 1(c))
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THE CITY OF LONDON INVESTMENT TRUST PLC
Unaudited Interim Results for the half year ended 31 December 2005
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 and with the
Statement of Recommended Practice 'Financial Statements of
Investment Trust 01Companies' ("SORP"0 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 2005
have been applied with the following exceptions:
(a) Investments - Prior to 1 July 2005, listed investments were valued
at middle market prices. Following the introduction of FRS 26 -
Financial instruments: Recognition and Measurement, listed
investments are now valued at fair value deemed to be bid market
prices. Unlisted investments continue to be valued by the directors
taking into account the information available on the investee
company and funds held by the company. The effect of this change is
to decrease the value of listed investments at 31 December 2005 and
decrease net return on ordinary activities after taxation for the
six months ended 31 December 2005 by £10,000. Comparatives have not
been restated.
(b) Under FRS21 - Events after the Balance Sheet Date - ordinary
dividends should not be accrued in the accounts unless they have
been paid before the Balance Sheet date. Ordinary dividends are
therefore recognised in the period in which they are paid. As a
result of this change the accounts for the half year ended 31
December 2004 and year ended 30 June 2005 have been restated
as per note 2 below.
(c) Under FRS25 - Financial Instruments: Disclosure and Presentation -
preference and preferred ordinary stocks are now classified as debt
(previously included within Capital and Reserves as non-equity
interests). As a result of this reclassification, the dividends
associated with the preference and preferred ordinary stocks are
charged fully to the Company's Revenue account within finance costs.
The accounts for the half year ended 31 December 2004 and year ended
30 June 2005 have been restated as per note 2 below.
2. Restatement in respect of final dividend, preference and preferred
ordinary stocks
Income Statement (formerly Statement of Total Return) The Income
Statement no longer reflects payment of ordinary dividends, these
are now shown in the Reconciliation of Movements in Shareholders'
Funds during the period in which they are paid. Any gain or loss in
respect of repurchase of preference stock is included within the
Income Statement. The Income Statement for the year ended 30 June
2005 and the half year ended 31 December 2004 have been restated
accordingly.
Balance Sheets
31 December 2004 30 June 2005
£'000 £'000
Net Assets as previously stated 497,984 532,622
Add back 2nd interim dividend for year ended 30
June 2005 paid on 28 February 2005 (2.12p per
share) 4,418 -
Add back 4th interim dividend for year ended 30
June 2005 paid on 31 August 2005 (2.26p per
share) - 4,710
Deduct preference and preferred ordinary stock reclassified as
debt (2,086) (1,888)
Restated Net Assets 500,316 535,444
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Page 8 of 10
THE CITY OF LONDON INVESTMENT TRUST PLC
Unaudited Interim Results for the half year ended 31 December 2005
3. Return per ordinary shares
(Unaudited) (Unaudited)
Half year ended Half year ended
31 December 31 December (Audited)
2005 2004 Year ended
30 June 2005
£'000 £'000 £'000
The return per ordinary share is based on the
following figures:
Revenue return 8,428 7,240 18,505
Capital return 55,398 45,579 78,201
63,826 52,819 96,706
Weighted average number of ordinary shares in issue 208,413,762 208,550,718 208,482,803
Revenue return per ordinary share 4.04p 3.47p 8.88p
Capital return per ordinary share 26.58p 21.86p 37.51p
30.62p 25.33p 46.39p
4. Expenses Charged to capital
The Company charges to capital 70% of its finance costs (excluding
preference and preferred ordinary stock dividends) and base management
fee. Performance fees are allocated between capital and revenue based
on the outperformance attributable to capital and revenue respectively.
All other expenses are charged wholly to revenue. Expenses which are
incidental to the purchase or sale of a fixed asset investment are
included in the cost or deducted from the proceeds of sale investment.
5. Performance Fee
No performance fee has been accrued for the six months ended 31
December 2005.
6. 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 £589,808,000 (31 December 2004:
£500,316,000 as restated; 30 June 2005: £535,444,000 as restated) and
on 208,413,762 ordinary shares (31 December 2004: 208,413,762; 30 June
2005: 208,413,762) being the number of ordinary shares in issue at the
end of the period.
7. Interim Dividend
A first interim dividend of 2.28p was paid on 30 November 2005. The
second interim dividend of 2.28p will be paid on 28 February 2006 to
shareholders on the register on 27 January 2006.
8. Accounts for the year ended 30 June 2005
The figures and financial information for the year ended 30 June 2005
(as restated) are an extract from the latest published accounts of the
Company and do not constitute statutory accounts for that year. 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 either section 237(2) of 237(3) of the Companies
Act 1985.
9. Copies of the Company's interim report for the half year ended 31
December 2005 will be posted to shareholders in February 2006 and will
be available thereafter from the Secretary at the Registered Office,
4 Broadgate, London, EC2M 2DA.
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THE CITY OF LONDON INVESTMENT TRUST PLC
Unaudited Interim Results for the half year ended 31 December 2005
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 2005 31 December 2005
£'000 £'000
BP 37,140 United Utilities 5,033
HSBC 32,655 +PD Ports 4,953
GlaxoSmithKline 27,911 Johnston Press 4,888
British American Tobacco 24,700 Scottish & Newcastle 4,865
Barclays 21,385 Rodamco Europe 4,830
Diageo 21,062 Britvic 4,809
Lloyds TSB 19,052 ENI 4,425
Royal Dutch Shell 18,580 IMI 4,276
BT Group 17,820 Tomkins 4,197
HBOS 15,888 BOC Group 4,193
Land Securities 14,967 Kingfisher 4,152
Tesco 13,260 Cadbury Schweppes 4,121
Vodafone Group 12,550 Gallaher Group 3,949
Royal Bank of Scotland 11,846 Liberty International 3,922
National Grid Transco 11,370 Prudential 3,850
Rio Tinto 11,284 Reckitt Benckiser 3,840
Aviva 11,280 Severn Trent 3,794
Scottish & Southern Energy 10,140 Boots Group 3,721
Anglo American 9,895 Greene King 3,713
Bovis Homes 7,970 Smiths Group 3,661
Scottish Power 7,881 Hammerson 3,577
Wolseley 7,350 Croda International 3,457
Unilever 6,543 Pennon Group 3,264
BAA 6,270 Persimmon 3,145
Legal & General 6,100 GUS 3,106
Slough Estates 5,985 Rank Group 3,057
BAE Systems 5,726 France Telecom 2,882
BHP Billiton 5,697 AstraZeneca 2,829
Imperial Tobacco 5,645 Next 2,763
Reed Elsevier 5,460 Wereldhave 2,736
These investments total £529,420,000 or 83.46% of the portfolio.
+ includes convertibles
Sector Analysis of Portfolio as at 31 December 2005
%
Resources 14.4
Basic Industries 6.0
General Industrials 4.2
Cyclical Consumer Goods 0.4
Non-Cyclical Consumer Goods 19.4
Cyclical Services 13.9
Non-Cyclical Services 7.6
Utilities 6.7
Financials 27.4
Total 100.0
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Page 10 of 10
THE CITY OF LONDON INVESTMENT TRUST PLC
Unaudited Interim Results for the half year ended 31 December 2005
For further information please contact :
Job Curtis
Portfolio Manager, The City of London Investment Trust plc
Telephone: 020 7818 4367
or
James de Sausmarez
Head of Investment Trusts, Henderson Global Investors
Telephone: 020 7818 3349
- ENDS -
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