Final Results

RNS Number : 2784T

Monks Investment Trust PLC

03 June 2009

 



THE MONKS INVESTMENT TRUST PLC

Results for the year to 30 April 2009

Monks' net asset value (NAV) per share fell by 34% over the year, in contrast to a 21% fall in the comparative index, the FTSE World Index. The share price fell by 32% over the same period. Earnings and dividend per share were considerably higher. Over the past five years the share price has risen by 37%, net asset value per share by 25%, and the comparative index by 8%.

	After a very poor period in September and October, performance stabilised in the second half when NAV rose by 8% and the Index by 4%.   The results reflected the almost unprecedented contraction in economic activity within a very short period of time after the failure of Lehman Brothers.  Over the period Monks has been a net buyer of bonds and a net seller of equities. The sales of equities involved some repositioning of the portfolio to reflect a bleaker economic outlook. Bonds accounted for 20.6% of total assets at 30 April 2009. The amount held as net liquid assets (£95.7m) has remained largely unchanged in absolute terms since April 2008.
	Earnings per share were 6.97p (4.53p) and a final dividend of 5.00p (3.20p) is being recommended to bring the total to 6.00p (3.70p). The investment aim is capital growth rather than income and the Board has indicated that it would be unwise to project the earnings for this year into the future.
	Based on current valuations, optimism about prospective returns from equities and selected bonds has to be tempered by the prospect of falling earnings, dividend cuts and heavy issuance of new shares and government bonds. Also the combination of measures taken to arrest the rate of economic contraction in the developed world may be creating new problems of unsustainably large budget deficits and accelerating inflation in future. Some of the Emerging Markets, such as China and Brazil, appear better placed than the United Kingdom or many other developed economies in this context.

Monks, with total assets of £760 million, invests internationally in order to achieve capital growth. Monks is managed by Baillie Gifford & Co, the independent Edinburgh based fund management group with around £45 billion under management and advice at 1 June 2009.

Past performance is not a guide to future performance. The value of an investment and any income from it is not guaranteed and may go down as well as up and investors may not get back the amount invested. You should view your investment as long term. The Company has borrowed money to make further investment (sometimes known as gearing). The risk is that when this money is repaid by the Company, the value of the investments may not be enough to cover the borrowing and interest costs, and the Company will make a loss. If the Company's investments fall in value, any borrowings will increase the amount of this loss. The Company can buy back and cancel its own shares. The risks from borrowing, referred to above, are increased when the Company buys back and cancels its shares.

You can find up to date performance information about Monks on the Baillie Gifford website at www.monksinvestmenttrust.co.uk.

3 June 2009

- ends -

For further information please contact:

Gerald Smith, Manager    

The Monks Investment Trust PLC      0131 275 2000

Robert O'Riordan       0131 275 3181

Baillie Gifford & Co    07730 412007

Roland Cross, Director

Broadgate Marketing                            020 7726 6111

THE MONKS INVESTMENT TRUST PLC

CHAIRMAN'S STATEMENT

Performance

In the year to 30 April 2009 net asset value per share, with borrowings at fair value, fell by 34.0% and the FTSE World Index in sterling terms fell by 20.8%. Performance stabilised in the second half after a very poor period in September and October, during which the net asset value fell by approximately 36% while the comparative index fell by 20%. In the first half of the Company's year net asset value per share fell by 38.9% and the index fell by 23.6%. In the second half, net asset value per share rose by 7.9% and the index rose by 3.6%. The share price ended the year at 236.5p, 32.0% lower than at the end of the previous year. The performance in the last year has eroded a good part of the gains of previous years, but over the five years to 30 April 2009 the net asset value has still risen by 25.2% and the share price by 36.7% while the comparative index has only risen by 8.0%. Performance over the year was clearly disappointing and came about despite the elimination of effective gearing and the steps taken to reduce exposure to overstretched consumers and excessively leveraged and imprudent lenders during the previous year.

In very broad terms, the explanation is that stock selection was influenced by, what turned out to be, an inaccurate view of the world; namely that while the financial systems of many countries were in a critical condition and over-indebted consumers in countries such as the United States and the United Kingdom would need to start saving more and spending less, a catastrophic failure of the banking system would be prevented and growth elsewhere in the world would support demand for goods and services in general and for energy in particular. The failure of Lehman Brothers in September 2008 demonstrated that one at least of these assumptions was incorrect, as the global financial system suffered something akin to a heart attack. This seizure rapidly affected those areas of economic activity most heavily reliant on the provision of credit, including global trade as well as the purchases of homes and consumer goods such as motor vehicles. The result was an almost unprecedented contraction in real economic activity within a very short period, a collapse in share prices and a breakdown of many parts of the market for corporate bonds and similar securities. Our portfolio was incorrectly positioned for these moves and the poor performance in September and October was the result. The Managers' Report in the Annual Report contains more detail on the individual investments that had the greatest positive and negative impact on performance.

Earnings and Dividend

Earnings per share were 6.97p compared with 4.53p last year, an increase of 53.9%, mainly as a result of increased income from bonds and shares and reduced management fees. Earnings this year and last include the recovery of VAT paid in previous years: further information is included in note 3 below. Excluding the impact of the recovery of VAT from both periods, earnings per share were 6.50p and the increase over the previous year was 53.7%.

Monks invests with the aim of achieving capital growth rather than income and all costs are charged to the Revenue Account. As a result, earnings may fluctuate considerably from year to year and the Board takes this into account in recommending dividends. Earnings in the year to 30 April 2009 benefited from an unusually high level of income from bonds and increased dividend payments from a number of holdings, reflecting the fact that many of the companies in which we invest were highly profitable despite the deterioration in the global economic background. Given the general economic downturn and the restricted availability of credit, dividend cuts have to be expected and income from bonds with coupons linked to short term interest rates is also falling, as official interest rates have been cut and short term rates charged by banks to each other have also declined. The Board feels it would therefore be unwise to project the earnings for last year into the future. Owing to a large increase in income at the half year stage, it was clear that an increase in the dividend for the full year would be necessary to maintain the Company's status as an investment trust and in the light of this the Board decided to increase the interim dividend to 1.00p from 0.50p. The Board is now recommending a final dividend of 5.00p compared with 3.20p for the previous year. If approved, this will make the total dividend for the year 6.00p, an increase of 62.2% from the 3.70p paid last year.

For the Company's year to 30 April 2010 the Board will consider the payment of a second interim dividend in April.

Investment Activity

During the year we made a number of changes to the portfolio as events unfolded. Net sales of equities of £59.3m were offset by £72.5m of net purchases of bonds. There was a small decline in the amount in net current assets (mainly consisting of cash) but these remain in excess of the fair value of outstanding debt. At the year end, equities as a percentage of shareholders' funds were 74% and equities and bonds together were 98%. While both shares and bonds have fallen in price during the last year, and both fell rapidly in the immediate aftermath of the collapse of Lehman Brothers, the market for corporate bonds of various types, including convertible bonds, has for most of the year seemed to be pricing in a more disastrous outcome in terms of company failures than has been reflected in the price of many equities and, as a consequence, we have been net buyers of bonds and net sellers of equities. The sales of equities involved repositioning the portfolio to reflect a much bleaker outlook for investment spending than we had previously expected. We have, however, maintained a large position in oil service companies as, despite evidence of falling capital spending in the oil and gas industry, many of the companies we hold have relatively secure revenues based on contracts and order backlogs and the decline rate of existing oil and gas fields means that investment can only be postponed. We have, however, made some changes in this area to reflect the more difficult environment for pricing.

An extreme period in financial markets is likely to throw up opportunities to make investments at attractive prices owing to the presence of forced sellers and the absence of buyers. We have made a number of opportunistic investments of this sort, some of which are explained in more detail in the Managers' Portfolio Review. Not all of these have been successful, most notably we made some purchases of bank shares with very mixed results, but some have already generated attractive returns and we have a number of others which look promising.

Discount and buybacks

The discount (at fair value) narrowed from 10.0% to 7.3% over the course of the year. The Board considers the level of discount and has authorised the repurchase of shares when this will be of benefit to continuing shareholders as well as being in the interest of those shareholders who may not have the luxury of choosing the optimum time to sell some or all of their shares.

During the year to 30 April 2009 £2.0m was spent on the repurchase of 535,000 shares. Since the power to buy back shares was first granted in 1999, 124.3m shares have been bought back and cancelled, representing 32% of the share capital at the start of that period. The Board will continue to buy back shares if suitable opportunities appear.

Outlook

Forecasting financial market returns over short time periods is difficult, and it is made more difficult than usual by the uncertain economic outlook, but based on current valuations there is some cause for optimism about prospective returns from equities and selected corporate bonds. This optimism has, however, to be tempered by the prospect of falling earnings, dividend cuts and heavy issuance of new shares and government bonds.

Central Banks around the world have cut interest rates to extremely low levels and begun to print money in order to stabilise their banking systems. Banks and insurance companies have also been recapitalised with taxpayers' money and deposits and borrowings have been guaranteed by governments. While bad debts continue to rise and it remains to be seen whether in all cases the amount of new capital injected will provide a sufficient cushion against future losses, these measures have helped to restore some stability and confidence in the banking system. Banks have become more willing to lend to each other and runs on banks have been averted. The ability and willingness of banks to lend varies greatly around the world and with governments now influencing lending decisions in favour of domestic borrowers this may well become an increasingly important determinant of relative economic success. In this context some of the Emerging Markets, such as China and Brazil appear better placed than the United Kingdom or many other developed economies. Many governments are also engaged on fiscal stimulus programmes at a time when tax revenues are falling and as a result government bond issuance is increasing at an unusually rapid rate. 

This combination of measures appears to have helped to arrest the rate of economic contraction in much of the developed world and to have mitigated the impact of declining exports on the Chinese economy. They may, however, be creating new problems of unsustainably large budget deficits and accelerating inflation in the future. 

AGM

At the Annual General Meeting the Company is putting forward resolutions to amend the Company's Memorandum and Articles of Association. Further information in respect of these resolutions can be found in the Directors' Report in the Annual Report.

I hope shareholders will come to the Annual General Meeting, which will be held on 4 August 2009 at 11.00am at the RSA. Our manager will give a short presentation and there will be an opportunity to ask questions.

THE MONKS INVESTMENT TRUST PLC

The following is the unaudited preliminary statement for the year to 30 April 2009 which was approved by the Board on 2 June 2009. The Directors of The Monks Investment Trust PLC are recommending to the Annual General Meeting of the Company to be held on 4 August 2009 the payment of a final dividend of 5.00p (3.20p  last year) per ordinary share, making a total of 6.00p (3.70p last year) per ordinary share for the year ended 30 April 2009.

INCOME STATEMENT

(unaudited)

	For the year ended 30 April 2009				For the year ended 30 April 2008
	Revenue £'000	Capital £'000	Total £'000		Revenue £'000	Capital £'000	Total  £'000
(Losses)/gains on investments	-	(361,428)	(361,428)		-	118,594	118,594
Currency gains/(losses)	-	6,011	6,011		-	(67)	(67)
Income (note 2)	33,949	-	33,949		28,735	-	28,735
Investment management fee	(3,637)	-	(3,637)		(5,248)	-	(5,248)
Recoverable VAT (note 3)	1,738	-	1,738		1,164	-	1,164
Other administrative expenses	(914)	-	(914)		(1,018)	-	(1,018)
Net return before finance costs and taxation	31,136	(355,417)	(324,281)		23,633	118,527	142,160
Finance costs of borrowings	(6,982)	-	(6,982)		(7,872)	-	(7,872)
Net return on ordinary activities before taxation	24,154	(355,417)	(331,263)		15,761	118,527	134,288
Tax on ordinary activities	(5,770)	-	(5,770)		(3,476)	-	(3,476)
Net return on ordinary activities after taxation	18,384	(355,417)	(337,033)		12,285	118,527	130,812
Net return per ordinary share (note 4)	6.97p	(134.79p)	(127.82p)		4.53p	43.68p	48.21p
Dividends paid and proposed per ordinary share (note 5)	6.00p				3.70p

   The total column of the Income Statement is the profit and loss account of the Company.

All revenue and capital items in this statement derive from continuing operations.

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.

THE MONKS INVESTMENT TRUST PLC

SUMMARISED BALANCE SHEET

at 30 April 2009

(unaudited)

		30 April 2009		30 April 2008
		£'000		£'000
Fixed assets
Investments		664,627		1,011,054
Current assets
Debtors		9,438		17,245
Cash and deposits		98,958		88,016
		108,396		105,261
Creditors
Amounts falling due within one year		(11,895)		(4,997)
Net current assets		96,501		100,264
Total assets less current liabilities		761,128		1,111,318
Creditors
Amounts falling due after more than one year (note 6)		(79,549)		(79,516)
Provisions for liabilities and charges
Deferred taxation		(823)		(950)
Total net assets		680,756		1,030,852
Capital and Reserves
Called-up share capital		13,182		13,209
Share premium		11,100		11,100
Capital redemption reserve		6,216		6,189
Capital reserve - realised		616,368		695,683
Capital reserve - unrealised		(4,881)		273,211
Revenue reserve		38,771		31,460
Equity shareholders' funds		680,756		1,030,852
Net asset value per ordinary share		255.0p		386.5p
(after deducting borrowings at fair value)
Net asset value per ordinary share		258.0p		390.0p
(after deducting borrowings at par)
Ordinary shares in issue (note 7)		263,644,859		264,179,859

THE MONKS INVESTMENT TRUST PLC

RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS

(unaudited)

For the year ended 30 April 2009

	Share capital £'000	Share premium £'000	Capital redemption reserve £'000	Capital reserve - realised £'000	Capital reserve - unrealised £'000	Revenue reserve £'000	Total shareholders' funds £'000
Shareholders' funds at 1 May 2008	13,209	11,100	6,189	695,683	273,211	31,460	1,030,852
Net return on ordinary activities after taxation	-	-	-	(77,325)	(278,092)	18,384	(337,033)
Shares purchased for cancellation	(27)	-	27	(1,990)	-	-	(1,990)
Dividends paid during the year	-	-	-	-	-	(11,073)	(11,073)
Shareholders' funds at 30 April 2009	13,182	11,100	6,216	616,368	(4,881)	38,771	680,756

For the year ended 30 April 2008

	Share capital £'000	Share premium £'000	Capital redemption reserve £'000	Capital reserve - realised £'000	Capital reserve - unrealised £'000	Revenue reserve £'000	Total shareholders' funds £'000
Shareholders' funds at 1 May 2007	14,033	11,100	5,365	632,275	272,795	27,869	963,437
Net return on ordinary activities after taxation	-	-	-	118,111	416	12,285	130,812
Shares purchased for cancellation	(824)	-	824	(54,703)	-	-	(54,703)
Dividends paid during the year	-	-	-	-	-	(8,694)	(8,694)
Shareholders' funds at 30 April 2008	13,209	11,100	6,189	695,683	273,211	31,460	1,030,852

  THE MONKS INVESTMENT TRUST PLC

SUMMARISED CASH FLOW STATEMENT (unaudited)
	For the year ended 30 April 2009			For the year ended 30 April 2008
	£'000	£'000			£'000	£'000
Net cash inflow from operating activities		29,056				21,486
Net cash outflow from servicing of finance		(6,950)				(8,222)
Taxation
Corporation tax paid	(3,458)				-
Overseas tax incurred	(1,114)				(1,080)
Income tax refunded/(incurred)	41				(82)
Total tax paid		(4,531)				(1,162)
Financial investment
Acquisitions of investments	(414,273)				(454,078)
Disposals of investments	414,692				564,380
Forward currency contracts	-				130
Currency gains	2,117				3,171
Net cash inflow from financial investment		2,536				113,603
Equity dividends paid		(11,073)				(8,694)
Net cash inflow before use of liquid resources and financing		9,038				117,011
Liquid resources
Decrease in short term deposits	19,638				11,555
Net cash inflow from use of liquid resources		19,638				11,555
Financing
Shares purchased for cancellation	(1,990)				(54,706)
Bank loans repaid	-				(81,216)
Net cash outflow from financing		(1,990)				(135,922)
Increase/(decrease) in cash		26,686				(7,356)
Reconciliation of net cash flow to movement in net funds
Increase/(decrease) in cash in the year		26,686				(7,356)
Decrease in short term deposits		(19,638)				(11,555)
Net cash outflow from bank loans		-				81,216
Exchange movement on short term deposits		3,894				8,477
Exchange movement on bank loans		-				(11,758)
Other non-cash changes		(33)				(32)
Movement in net funds in the year		10,909				58,992
Net funds/(debt) at 1 May		8,500				(50,492)
Net funds at 30 April		19,409				8,500
Reconciliation of net return before finance costs and taxation to net cash inflow from operating activities
Net return before finance costs and taxation		(324,281)				142,160
Losses/(gains) on investments		361,428				(118,594)
Currency (gains)/losses		(6,011)				67
Amortisation of fixed interest book cost		(1,855)				(632)
Increase in accrued income		(922)				(411)
Increase in debtors		1,089				(1,111)
Increase in creditors		(392)				7
Net cash inflow from operating activities		29,056				21,486

THE MONKS INVESTMENT TRUST PLC

DISTRIBUTION OF ASSETS

at 30 April 2009

(unaudited)

				30 April 2009 %		30 April 2008 %
Equities:	United Kingdom			7.8		10.3
	Continental Europe			10.8		17.5
	North America			21.2		19.2
	Japan			3.6		6.3
	Asia Pacific			11.4		15.5
	Other Emerging Markets			12.0		12.7
				66.8		81.5
Bonds:		United  Kingdom		6.3		5.2
Overseas				14.3		4.4
Net liquid assets				12.6		8.9
Total assets (before deduction of borrowings)				100.0		100.0

THE MONKS INVESTMENT TRUST PLC

THIRTY LARGEST EQUITY HOLDINGS  at 30 April 2009 (unaudited)
Name		Region		Business	2009					2008
					Value £'000		% of total assets		Value £'000
Baillie Gifford Pacific Fund	Asia Pacific		Investment fund			54,593		7.2			79,956
OGX Petroleo E Gas    Participa	Other Emerging Markets		Oil and gas exploration and production			30,726		4.0			-
Petrobras	Other Emerging Markets		Integrated oil			22,071		2.9			56,229
Goldman Sachs	North America		Diversified banking			13,376		1.8			-
Diamond Offshore Drilling	North America		Offshore drilling			11,197		1.5			17,722
Transocean	North America		Offshore drilling contractor			11,015		1.4			-
Aggreko	United Kingdom		Temporary power units			10,290		1.4			10,504
Nestle	Continental Europe		Food and consumer products			10,262		1.3			11,164
Schlumberger	North America		Oilfield services			10,141		1.3			32,962
Cameron International	North America		Oilfield equipment    manufacturer			9,428		1.2			15,712
Berkshire Hathaway	North America		Insurance			9,086		1.2			3,080
National Oilwell Varco	North America		Drilling equipment    manufacturer			8,934		1.2			25,708
Canon	Japan		Copiers/printers and cameras			8,470		1.1			10,516
Seadrill	Continental Europe		Contract drilling services			8,469		1.1			17,654
Kellog	North America		Food manufacturer			8,281		1.1			-
Alstom	Continental Europe		Power generation and    transport equipment			8,148		1.1			11,156
Medco Health Solutions	North America		Pharmacy benefit manager			7,657		1.0			-
BHP Billiton	Asia Pacific		Diversified resources			7,624		1.0			18,900
Solera Holdings	North America		Transactional software			7,575		1.0			-
Partnerre	North America		Multi-line reinsurance			7,533		1.0			-
Praxair	North America		Industrial gas producer			7,399		1.0			6,775
Dragon Oil	Other Emerging Markets		Oil and gas exploration and    production			7,218		0.9			-
Total	Continental Europe		Oil and gas producer			7,025		0.9			-
Wal Mart Stores	North America		General retailer			6,725		0.9			5,789
Atlas Copco	Continental Europe		Industrial compressors and    mining equipment			6,702		0.9			16,136
Petrofac	United Kingdom		Oil and gas producer			6,650		0.9			-
Banco Santander	Continental Europe		International bank			6,628		0.9			-
Ishares MSCI Taiwan	Asia Pacific		Taiwan exchange traded    fund			6,620		0.9			-
Royal Dutch Shell B	United Kingdom		Oil and gas producer			6,502		0.9			-
Vale	Other Emerging Markets		Mining holding company			6,496		0.9			22,306
						332,841		43.9			362,269

THE MONKS INVESTMENT TRUST PLC

NOTES

(unaudited)

	The financial information within this preliminary announcement has been extracted from the unaudited financial statements for the year to 30 April 2009 have been prepared on the basis of the accounting policies set out in the Company's Annual Financial Statements at 30 April 2008.
			2009					2008
			£'000					£'000
2	Income
	Income from investments and interest receivable		33,890					28,667
	Other income		59					68
			33,949					28,735
3	Recoverable VAT
	In 2007 the European Court of Justice ruled that investment management fees should be exempt from VAT. Since then, HMRC has accepted the Managers' repayment claims for the periods from 1990 to 1996 and from 2000 to 2007. During the period the Company received a reimbursement of £2,902,000 in this regard of which £1,164,000 had been recognised in the year to 30 April 2008, with the balance of £1,738,000 being recognised in the current period together with interest thereon of £1,078,000.
			2009					2008
4	Net return per ordinary share
	Revenue return		6.97p					4.53p
	Capital return		(134.79p)					43.68p
	Total return		(127.82p)					48.21p
	Revenue return per ordinary share is based on the net revenue on ordinary activities after taxation of £18,384,000 (2008 - £12,285,000) and on 263,678,571 (2008 - 271,319,153) ordinary shares of 5p, being the weighted average number of ordinary shares in issue during the year. Capital return per ordinary share is based on the net capital loss for the financial year of £355,417,000 (2008 - gain of £118,527,000) and on 263,678,571 (2008 - 271,319,153) ordinary shares, being the weighted average number of ordinary shares in issue during the year. There are no dilutive or potentially dilutive shares in issue.
		2009		2008		2009 £'000				2008 £'000
5	Ordinary Dividends
	Amounts recognised as distributions in the period:
	Previous year's final (paid 8 August 2008)	3.20p		2.65p		8,437				7,371
	Interim (paid 30 January 2009)	1.00p		0.50p		2,636				1,323
		4.20p		3.15p		11,073				8,694
	We also set out below the total dividends paid and proposed in respect of the financial year, which is the basis on which the requirements of section 842 of the Income and Corporation Taxes Act 1988 are considered. The revenue available for distribution by way of dividend for the year is £18,384,000 (2008 - £12,285,000).

THE MONKS INVESTMENT TRUST PLC

NOTES (Ctd)

(unaudited)

		2009		2008		2009 £'000		2008 £'000
5.	Ordinary Dividends (Ctd)
	Dividends paid and proposed in the period:
	Adjustment to previous year's final dividend re shares bought back					(17)		(66)
	Interim dividend per ordinary share (paid 30 January 2009)	1.00p		0.50p		2,636		1,323
	Proposed final dividend per ordinary share (payable 7 August 2009)	5.00p		3.20p		13,182		8,454
		6.00p		3.70p		15,801		9,711
	If approved the final dividend will be paid on 7 August 2009 to all shareholders on the register at the close of business on 10 July 2009. The ex-dividend date is 8 July 2009.
6	The fair value of borrowings at 30 April 2009 was £87,940,000 (2008 - £89,260,000).
7	In the year to 30 April 2009 the Company bought back 535,000 ordinary shares with a nominal value of £27,000 at a total cost of £1,990,000. At 30 April 2009 the Company had authority to buy back a further 30,520,364 ordinary shares.
8	The Report and Accounts will be available on the Managers' website www.bailliegifford.com on or around
9	The financial information set out above does not constitute the Company's statutory accounts for the year ended  30 April 2009. The financial information for 2008 is derived from the statutory accounts for 2008 which have been delivered to the Registrar of Companies. The Auditors have reported on the 2008 accounts; their report was unqualified and it did not contain a statement under section 237(2) or (3) of the Companies Act 1985. The statutory accounts for 2009 will be finalised on the basis of the financial information presented in this preliminary announcement and will be delivered to the Registrar of Companies following the Company's Annual General Meeting.
10	None of the views expressed in this document should be construed as advice to buy or sell a particular investment.

 

END

 

 

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