Annual Financial Report

RNS Number : 5997N

Lindsell Train Investment Trust PLC

14 June 2010

THE LINDSELL TRAIN INVESTMENT TRUST PLC
Announcement of Results for the Year to 31 March 2010
Objective of the Company

To maximise long-term total returns with a minimum objective to maintain the real purchasing power of Sterling capital, as measured by the annual average yield on the UK 2.5% Consolidated Loan Stock.

Financial highlights

Performance comparisons 1 April 2009 - 31 March 2010

Middle market share price per Ordinary Share #	+35.4%
Net asset value per Ordinary Share ^	+ 37.0%
Benchmark*	+ 4.7%
MSCI World Index (Sterling)	+ 40.3%
UK RPI Inflation (all items)	+ 4.4%

^ The net asset value at 31 March 2010 has been adjusted to include the final dividend for the year to 31 March 2009 of £3.65 per Ordinary Share paid on 7 August 2009, and the interim dividend for the year to 31 March 2010 of £3.65 per Ordinary share paid on 26 March 2010.
* The index of the annual average yield on the UK 2.5% Consolidated Loan Stock between the relevant dates.
# Calculated on a total return basis

Chairman's Statement

World stock markets continue their rollercoaster ride. After losing a quarter of their value in the year to March 2009 world equity markets have recovered to register a 40% gain (MSCI World index in Sterling) in the year to March 2010. This volatility makes it a challenging prospect for even the most experienced investor to eke out long-term investment returns for Sterling capital. I am happy to say that our Manager has navigated such perilous times with some aplomb. In the year to March 2009 the fall in net asset value ('NAV') was restricted to 6% and in the latest year the gain in NAV nearly matched the index at 37%, making for a two year return of 29% versus a return of 9% for world equity markets.

The performance of the Company's benchmark, which has exceeded the Government's measure of inflation (the retail price index) since the Company began by 4.9% per annum presented undemanding competition in the year to March 2010 as markets recovered but was still well exceeded by the performance of the NAV over the two years. Since inception the Company's NAV recorded an annualised return of 9.0%, some 4.1% higher than the benchmark.

Perhaps more impressive was that this year's positive performance was achieved with less than a full 'look through' weighting to equities, which averaged just under 85%, approximately. It was a combination of recession proof performances from the likes of AG Barr (up 53%), Pearson (up 48%) and Unilever (up 47%), a holding that was substantially increased in the summer of 2009; corporate activity such as the acquisition of Cadbury by Kraft; and big recoveries in the share prices of the few of our holdings that had declined significantly during the bear market - like the Lloyds Preference shares (up 78%) and eBay (up 115%). There were some disappointments: Nintendo's share price recovered only marginally (up 10%) as profits faltered and Reed Elsevier's and Marstons' prices were held back by the need to raise capital through rights issues to reduce the burden of over-leveraged balance sheets. The Company took up their rights to new shares in both cases.

The Company continues to maintain a 7.7% holding in government bonds. Whilst this proved a drag on performance in the year to March 2010, the deflationary consequences of excessive debt may well offer a chance to sell the positions at new high prices if such concerns affect markets again. Should this occur we would expect to use such an opportunity to further add to our equity holdings. Although adding further to equities might sound counterintuitive given the risks that abound we think the current policy mix of excessive government deficits, minimal short-term interest rates and loose monetary policy makes the relative attraction of conservatively financed durable businesses stand out over almost all other financial assets.

The Lindsell Train Japan and Media funds rose in value by 18% and 43% respectively in the year to March 2010. With the Japan fund averaging only 50% net long exposure to the market it underperformed the market index that advanced 35%. The Global Media fund underperformed the FTSE Global Media Index that rose 64% over the period, but this should be put in the context of eight and a half years' cumulative outperformance since the fund started, of 77% versus the sector's -14%.

The Company's 25% holding in Lindsell Train Limited ('LTL') continues to have an important influence on performance. Its value increased by 75% over the year 2009, reflecting a 76% increase in funds under management to £836m of which £233m was newly raised funds. LTL's profits declined because of the absence of performance fees that last year contributed to 55% of revenues. LTL continues to focus on managing investment mandates in UK, Japan and Global equity as its three core areas of expertise and has recently taken on additional recruitment in administration and marketing to prepare for future growth. Investment performance, while not universally good, is strong or at least satisfactory in most areas and, as track records lengthen, the credibility of the business is enhanced.

The Company declared an interim dividend of £3.65 in March prior to the imposition of higher personal tax rates by the UK government. As a result we plan to pay no final dividend, a dividend that would have normally been paid in August. This year's interim dividend was the same as the final dividend paid in respect of the prior year.

The hangover from the debt driven investment and consumption boom of the first decade of the 21^st century lingers on and casts shadows over the future outlook for markets. We are resigned to the likelihood of the volatility of the last two years continuing but hope that the select number of businesses that your Company owns have the characteristics that will help protect and hopefully grow your capital in the future.

R M Swire

Chairman

14 June 2010

Investment Manager's Report

As 2010 progresses we find there are three investment issues or opportunities that dominate our thinking and inform the disposition of the portfolio.

First, we are absolutely as one with the consensus amongst investors that argues the following - in the succinct words of Sir John Templeton - "Government deficits always end in inflation". We too are concerned that somewhere out there, sooner or later, there is a ruinous monetary inflation hovering. However - when? And how much of the threat is already baked into asset prices?

Our sense is that investors are already flighty about inflation and, possibly, complacent about the sustainability of the economic recovery and this keeps us content to hold on to our remaining fixed interest assets for the time being. Simply stated, the scope for a spike in government bond prices, if economic growth stutters, is very marked. But if one eventuates we will sell.

Next, at the turn of the year we were struck by three apparently random developments in the, very broadly defined, Media industry. Like many we were awed by the visual effects delivered by Avatar, then awed by its inexorable and swift progress towards becoming the biggest-grossing movie of all time. Then, as Nintendo investors, we were struck by the fact that in December 2009 that company broke the all-time record for monthly sales of a gaming device in the USA. Not once but twice, both its Wii and DS systems separately smashed the previous record set by Playstation 2. Last, we watch the business progress made by Skype - now 30% owned by eBay - with similar amazement. From nowhere five years ago, Skype is now by far the largest provider of cross-border communications in the world, with forecast usage of 53 billion minutes in 2010 out of a total 406 billion.

These three phenomena all arise, lest anyone forget, during the deepest consumer recession for decades. What they illustrate, in our opinion, is that the meeting point of the Media/Technology and Telecommunications industries is still a locus of ferment and growth. The way people choose to communicate, to access news and information and to be entertained is changing rapidly, with serious ramifications for many industries. Owners of content or knowhow are advantaged - witness Nintendo's share price rally in 2010 on its surprise announcement of a 3D-enabled hand-held gaming device. Meanwhile the telecom majors must be quaking at the implications for their profit margins that Skype's "power of the free" represents.

Sticking to this theme, Alan Greenspan noted in his book Age of Turbulence that US GDP in 2006 was 7x greater than 1946, after adjusting for inflation, however:

"The weight of the inputs of materials required to produce the 2006 output is only modestly greater than was required to produce the 1946 output. This meant that almost all of the real value-added increases in our output reflect the embodiment of ideas."

We think that investors' maniacal focus today on government deficits, or, even worse, tomorrow's copper price, runs the risk of missing out on the value creation that results from this "embodiment of ideas" and that we see at work, for instance, in Reed Elsevier's embedding of its digitised content into the workflows of its legal customers. We say - Invest in Technology not coal.

Finally, the dust is settling on the Cadbury/Kraft combination. This was a significant event for your company and for Lindsell Train Limited in general. However, it is important to put it into perspective. Kraft's move was a response to Mars' 2008 merger with Wrigley and of a piece with that year's other epochal combination, the alliance between Inbev and Anheuser Busch. Consumer branded goods companies (and others) around the world are combining, in an attempt to create global rather than regional champions. In addition, they are combining in order to create the economies of scale which will allow them to address the opportunity offered by Emerging Market consumers - a multi-decade, but very expensive opportunity.

Cadbury/Kraft is just another staging post in the process and has already been superseded for your portfolio by the combination of Heineken and Femsa, strengthening Heineken's presence in Latin America. We welcome this transaction and expect many more.

N Train

Investment Manager, Lindsell Train Limited

14 June 2010

Income Statement
	Year ended	Year ended
	31 March 2010	31 March 2009

	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000

Gains/(losses) on investments	-	10,546	10,546	-	(4,053)	(4,053)
Exchange (losses)/gains on currency balances	-	(9)	(9)	-	37	37
(Losses)/gains on forward currency contracts	-	(217)	(217)	-	1,334	1,334
Income	1,324	-	1,324	1,420	-	1,420
Investment management fees	(460)	-	(460)	(162)	-	(162)
Other expenses	(197)	(1)	(198)	(177)	(1)	(178)

Net return/(loss) before finance costs and tax	667	10,319	10,986	1,081	(2,683)	(1,602)

Interest payable and similar charges	(6)	-	(6)	(109)	-	(109)

Return/(loss) on ordinary activities before tax	661	10,319	10,980	972	(2,683)	(1,711)
Tax on ordinary activities	(16)	-	(16)	(16)	-	(16)

Return/(loss) on ordinary activities after tax for the financial year	645	10,319	10,964	956	(2,683)	(1,727)

Return/(loss) per Ordinary Share	£3.22	£51.60	£54.82	£4.78	£(13.42)	£8.64

- All revenue and capital items in the above statement derive from continuing operations.

- The total columns of this statement represent the profit and loss accounts of the Company. The revenue and capital return columns are supplementary to this

and are prepared under the guidance published by the Association of Investment Companies.

- A Statement of Total Recognised Gains and Losses is not required as all gains and losses of the Company have been reflected in the above statement.

- No operations were acquired or discontinued during the year.

Reconciliation of Movements in Shareholders' Funds for the years ended 31 March 2009 and 31 March 2010
	Share capital £'000	Special reserve £'000	Capital reserve £'000	Revenue reserve £'000	Total £'000

For the year ended 31 March 2010
At 31 March 2009	150	19,850	7,928	1,712	29,640
Return on ordinary activities after tax for the financial year	-	-	10,319	645	10,964
Dividends paid	-	-	-	(1,460)	(1,460)
At 31 March 2010	150	19,850	18,247	897	39,144


For the year ended 31 March 2009
At 31 March 2008	150	19,850	10,611	1,176	31,787
Return on ordinary activities after tax for the financial year	-	-	(2,683)	956	(1,727)
Dividends paid	-	-	-	(420)	(420)
At 31 March 2009	150	19,850	7,928	1,712	29,640

Balance Sheet as at 31 March
		March 2010	31 March 2009

	£'000	£'000	£'000	£'000
Fixed assets
Investments held at fair value through profit or loss		38,550		29,485

Current assets
Debtors	4,367		4,850
Cash at bank	1,267		380
	5,634		5,230

Creditors: amounts falling due within one year	(5,040)		(5,075)
Net current assets		594		155
Net assets		39,144		29,640


Capital and reserves
Called up share capital		150		150
Special reserve		19,850		19,850
		20,000		20,000
Capital reserve		18,247		7,928
Revenue reserve		897		1,712
Equity shareholders' funds		39,144		29,640

Net asset value per Ordinary Share		£195.72		£148.20

Cash Flow Statement for the years ended 31 March

	2010	2009

	£'000	£'000

Net cash inflow from operating activities	743	2,688
Servicing of finance	(6)	(139)
Taxation	(13)	(17)
Financial investment	1,481	2,239
Net cash inflow before financing	2,205	4,771
Equity dividends paid	(1,460)	(420)
Increase in cash in the year	745	4,351


Reconciliation of net cash flow to movement in net funds
Increase in cash in the year	745	4,351
Exchange movements	(9)	37
Opening net funds/(debt)	52	(4,336)

Closing net funds	788	52

Notes

1. Basis of accounting and comparative information

These financial statements have been prepared on the historical basis of accounting, except for the measurement at fair value of investments. The financial statements have been prepared in accordance with UK Generally Accepted Accounting Practice (UK GAAP), the AIC Statement of Recommended Practice 'Financial Statements of Investment Trust Companies' dated January 2009. All of the Company's operations are of a continuing nature.

The accounting policies are consistent with the policies set out in the Annual Report of the Company for the year to 31 March 2009.

The statutory accounts for the year ended 31 March 2010 have been finalised on the basis of the financial information presented by the Directors in this announcement and will be delivered to the Registrar of Companies following the Company's Annual General Meeting.

The statutory accounts for the year ended 31 March 2009, have been delivered to the Registrar of Companies and received an audit report which was unqualified, did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying the report, and did not contain statements under s498(2) and 498(3) of the Companies Act 2006.

2. Net Asset Value per Ordinary Share

The net asset value per Ordinary Share and the net asset value at the year end calculated in accordance with the Articles of Association were as follows:

	Net asset value per share attributable		Net asset value attributable
	2010	2009	2010	2009
	£	£	£'000	£'000
	195.72	148.20	39,144	29,640


The movements during the year of the assets attributable to each Ordinary Share were as follows:				Ordinary Shares
				£'000
Total net assets attributable at beginning of year				29,640
Total recognised gains for the year				10,964
Dividends paid during the year				(1,460)
Total net assets attributable at end of year				39,144

The net asset value per Ordinary Share is based on net assets of £39,144,000 (2009: £29,640,000) and on 200,000 Ordinary Shares (2009: 200,000), being the number of Ordinary Shares in issue at the year end.

3. Income

Dividends are credited to the revenue column of the Income Statement on an ex-dividend basis. Where an ex-dividend date is not available, dividends received on or before the year end are treated as revenue for the year. The fixed return on a debt security is recognised on a time apportionment basis so as to reflect the effective interest rate on the debt security.

	2010	2009
	£'000	£'000
Income from investments
Overseas dividends	169	174
Overseas stock dividends	27	171
Overseas fixed interest income	4	71
UK dividends	958	853
UK fixed interest income	166	134
	1,324	1,403
Other income
Deposit interest	-	17

Total income comprises
Dividends	1,154	1,198
Interest	170	222
	1,324	1,420

4. Return per Ordinary Share

Total return per Ordinary share:

The calculation of the total return per Ordinary Share is based on total return on ordinary activities after taxation of £10,964,000 (2009: £1,727,000) divided by 200,000 Ordinary Shares (2009: 200,000) being the weighted average number of Ordinary Shares in issue during the year.

The total return per Ordinary Share detailed above can be further analysed between revenue and capital as below:

Revenue return per Ordinary Share:

The calculation of revenue return per Ordinary Share is based on net revenue on ordinary activities after taxation of £645,000 (2009: £956,000) divided by 200,000 Ordinary Shares (2009: 200,000) being the weighted average number of Ordinary Shares in issue during the year.

Capital return per Ordinary Share:

The calculation of the capital return per Ordinary Share is based on net capital loss for the financial year of £10,319,000 (2009: £(2,683,000)) divided by 200,000 Ordinary Shares (2009: 200,000) being the weighted average number of Ordinary Shares in issue during the year.

5. Status

It is the intention of the Directors to conduct the affairs of the Company so that it continues to satisfy the conditions for approval as an investment trust company set out in section 1159 of the Corporation Tax Act 2010 in order to gain exemption from United Kingdom taxation on capital gains. However, such approval is only given retrospectively in respect of each reporting period of the Company. HM Revenue & Customs ("HMRC") approval has been received for the year ended 31 March 2009 but this does not preclude HMRC from opening a subsequent enquiry into the Company's tax return.

6. Dividend

The Directors paid an interim dividend of 365p (2009: final dividend 365p) per Ordinary Share on 26 March 2010. The Directors are not proposing the payment of a final dividend for the year to 31 March 2010.

7. Investment Policy

The investment policy of the Company is to invest:

- in a wide range of financial assets including equities, unquoted equities, bonds, funds, cash and other financial instruments globally with no limitations on the markets and sectors in which investment may be made, although there may be a bias towards Sterling assets, consistent with a Sterling-denominated investment objective. The Directors expect that the flexibility implicit in these powers will assist in the achievement of the absolute returns that the investment objective requires;

- in Lindsell Train managed fund products, subject to Board approval, up to 25% of its gross assets;

- to retain a holding, currently 25%, in Lindsell Train Limited in order to benefit from the growth of the business of the Company's Investment Manager.

Diversification

The Company expects to invest in a concentrated portfolio of securities with the number of equity investments averaging fifteen companies. The Company will not make investments for the purpose of exercising control or management and will not invest in securities of or lend to any one company (or other members of its group) more than 15% by value of its gross assets. The Company will not invest more than 15% of gross assets in other closed-ended investment funds.

Gearing

The Directors' policy is to permit borrowings up to 50% of the net asset value of the Company in order to enhance returns where and to the extent that this is considered appropriate.

Dividends

The Directors' policy is to pay annual dividends consistent with retaining the maximum permitted earnings in accordance with investment trust regulations.

8. Principal risks

Non-financial risks to which the Company is exposed include market, economic and regulatory factors, and loss of services by third party suppliers.

The price of shares is subject to the interaction of supply and demand, market and economic influences, net asset value per share and the general perception of investors. The share price will fluctuate and the Company cannot guarantee that it will appreciate in value. The Company's activities are conducted within operational and regulatory environments and could be materially impacted by failure of systems at third party service providers, a loss of key member(s) of the investment management team, breach of section 1159 of the Corporation Tax Act 2010 or breach of the UKLA Listing Rules.

Interest rate risk

The Company is only exposed to significant interest rate risk through its overdraft facility with Morgan Stanley & Co. International plc ("MSI"). Borrowing varied throughout the year as part of a Board endorsed policy. Borrowings at the year end consisted of €224,00 and JPY39,674,000 with a Sterling equivalent of £199,000 and £280,000 respectively.

Derivative exposure

As at 31 March 2010 there was one open forward currency contract increasing the exposure to the US Dollar by USD6,300,000 against Sterling of £4,206,000 which matured on 17 April 2010.

Counterparty risk

Morgan Stanley & Co. International plc ("MSI"), a wholly owned subsidiary of Morgan Stanley & Co. ("MS"), is the principal clearing broker and custodian to the Company. Under the agreement with MSI, MSI is able to pledge or use up to 140% of any gross borrowings that the Company has with MSI. MSI provides custody for the Company's securities (also through its network of sub-custodians) in keeping with FSA rules, with the assets held in segregated client accounts and separately distinguishable from MSI's own propriety assets. However, pledged or used securities may be co-mingled with MSI's assets and thus in the event of MSI's bankruptcy, the Company could be ranked as a general creditor to MSI. The Directors view this as a significant counterparty risk. To avoid this eventuality the Company eliminated its borrowings from MSI in 2008 to prevent MSI pledging any of the Company's securities to third parties.

9. Availability of financial statements

The financial information in this Announcement does not constitute the statutory accounts of the Company for the year ended 31 March 2010 nor for the year ended 31 March 2009 as defined in the Companies Act but is derived from those accounts. The Annual Report & Accounts of the Company for the year ended 31 March 2010 can be viewed and downloaded from the website of the Company's Investment Manager by visiting www.lindselltrain.com/p/fLTIT1.htm and going to the bottom of the page. Hard copies of the Annual Report & Accounts for the year to 31 March 2010 will be posted to shareholders shortly, and further copies will be available from the Registered Office of the Company.

10. Director's Confirmation Statement

The Directors of the Company (Rhoderick Swire (Chairman), Donald Adamson, Dominic Caldecott, Michael Lindsell and Michael Mackenzie) as the persons responsible within the Company, hereby confirm to the best of their knowledge:

a)	that the financial statements in the Announcement of which this Statement forms part have been prepared in accordance with applicable UK accounting standards and give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company; and
b)	the Management Report, which comprises the Chairman's Statement, Investment Manager's Report and notes 7 & 8 above includes a fair review of the development and performance of the business and position of the Company, together with the principal risks and uncertainties which the Company faces.