Half Yearly Report

RNS Number : 5843U

Monks Investment Trust PLC

03 December 2013

RNS Announcement

The Monks Investment Trust PLC

Results for the half-year to 31 October 2013

The net asset value total return (capital and dividends) over the six months to the end of October 2013 was 9.4% and the share price return was 10.0%. The total return on the FTSE World Index in sterling terms was 6%.

¾ Major positive contributors included Sky Deutschland (German satellite television), Alnylam Pharmaceuticals (innovative drug company), Facebook (social media), Digital Garage (Japanese internet investor) and TripAdvisor (online travel). Returns from Emerging Markets continued to be relatively poor.

¾ Earnings per share were 1.99p compared to 2.47p in the corresponding period. The interim dividend is 0.50p (0.50p in the corresponding period).

¾ It is considered imprudent to be geared at the moment, owing to the likelihood that interest rates will rise at some point, even though there is optimism about the longer-term prospects for the investments.

¾ Exciting opportunities arise from, among other things, the disruption of traditional business models by online alternatives, advances in drug discovery and diagnostics and changes in oil and gas production.

The Monks Investment Trust PLC invests internationally in order to achieve capital growth, which takes priority over income and dividends. Monks is managed by Baillie Gifford & Co, the independent Edinburgh based fund management group with over £100 billion under management and advice as at 2 December 2013.

Past performance is not a guide to future performance. Monks is a listed UK company. As a result, the value of the shares, and any income from them, can fall as well as rise and investors may not get back the amount invested. Monks invests in emerging markets where difficulties in dealing, settlement and custody could arise, resulting in a negative impact on the value of your investment

Investment Trusts are UK public listed companies and are not authorised or regulated by the Financial Conduct Authority.

You can find up to date performance information about Monks at www.monksinvestmenttrust.co.uk^‡

‡ Neither the contents of the Managers' website nor the contents of any website accessible from hyperlinks on the Managers' website (or any other website) is incorporated into, or forms part of, this announcement.

For further information please contact:

James Budden, Baillie Gifford & Co

Tel: 0131 275 2816 or 07507 201208

Roland Cross, Director, Broadgate Mainland

Tel: 0207 726 6111

The Monks Investment Trust PLC

The following is the unaudited Half-Yearly Financial Report for the six months to 31 October 2013.

Responsibility statement

We confirm that to the best of our 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 Half-Yearly Management Report includes a fair review of the information required by Disclosure and Transparency Rules 4.2.7R (indication of important events during the first six months, and their impact on the financial statements, and a description of the principal risks and uncertainties for the remaining six months of the year); and

c) the Half-Yearly Financial Report includes a fair review of the information required by Disclosure and Transparency Rules 4.2.8R (disclosure of related party transactions and changes therein).

By order of the Board

JGD Ferguson

Chairman

3 December 2013

The Monks Investment Trust PLC

Half-yearly management report

Results

Over the six months to 31 October, the net asset total return, with borrowings deducted at fair value, was 9.4% and the share price total return was 10.0%. The FTSE World Index in sterling terms returned 6.0%. In the twelve months to 31 October the net asset total return was 25.4%, the share price return was 27.0% and the comparative index returned 25.3%. Over five years the total returns were 99.0% for net assets per share, 97.3% for the share price and 94.8% for the index.

Major positive contributors to performance during the six month period included Sky Deutschland (German satellite television), Alnylam Pharmaceuticals (innovative drug company), Facebook (social media), Digital Garage (Japanese internet investor) and TripAdvisor (online travel). A common factor among many of our more successful investments during this period is that their value is derived almost entirely from anticipated future earnings rather than today's cash flows. Until recently these types of companies have been shunned by many investors in favour of those perceived as more defensive, especially when accompanied by relatively high dividends. This period has seen something of a reversal of the previous trend.

Returns from Emerging Markets continued to be relatively poor. Not surprisingly, the largest negative contributors to performance include a number of companies listed in Emerging Markets. Among these were Kunlun Energy (Chinese gas company), Odontoprev (Brazilian dentistry) and BIM (Turkish discount retailer).

Our largest holding, IP Group (UK venture capital), also performed relatively poorly in share price terms despite some good results from underlying investments, but after a good year in 2012.

Earnings per share were 1.99p, down from 2.47p in the corresponding period a year ago. A reduction in dividend income arising from investment changes was the main reason for the decline in earnings. As the Company's investment objective makes capital appreciation a higher priority than income or dividends, earnings are volatile and dividends may fall as well as rise. The Board has declared an interim dividend of 0.50p, to be paid in January 2014.

Investment Changes

During the six months to 31 October we reduced exposure to equities by £69.1m and sold £2.6m worth of bonds. A total of £43.1m was used to repurchase 12.2m shares. Within equities, the largest net reduction was in the shares of companies quoted in Emerging Markets and the largest net addition was in North America.

Gearing is managed using derivatives as well as holding cash. Effective gearing taking into account derivative positions declined from 1% of shareholders' funds at the end of April to minus 2% at the end of October.

The derivative positions also alter our effective geographical exposure and are reflected in the table below showing the distribution of investments by geography at the end of October and the end of April.

Outlook

Over the medium term there is, at best, a tenuous relationship between economic growth rates and financial market returns. The interest rate that is used to discount future cash flows plays a more important role in determining the fair value of all financial assets, including shares and bonds. This discount rate is closely related to policies of central banks, which are in turn dependent on their forecasts of economic variables such as inflation and unemployment rates. Any sign that the extraordinary monetary stimulus may be coming to an end therefore tends to have a negative effect on the prices of almost all financial assets, albeit to varying degrees. Conversely, any indication that these policies are likely to be continued a little longer tends to have a positive impact. Market participants are notoriously short-term and any economic data that is seen as giving an indication that policy might change sooner rather than later has an impact on markets, resulting in exaggerated moves in one direction followed by reversals if the next data release suggests the opposite.

As long-term investors we are able to stand back from this noise. Nevertheless, the Managers believe that it is more likely that interest rates in most developed market countries will rise at some point than that they will fall further, even if not by much in the near term (owing to the existence of deflationary forces and the vulnerability of highly indebted borrowers). While a return to a more normal pattern of economic growth after the worst recession since the Second World War would be welcome for many reasons, it may involve some painful adjustments for those individuals and companies that have benefited from the extraordinarily low level of interest rates that has prevailed over the last five years. A rise in interest rates could also adversely affect share prices, particularly of those shares bought as alternatives to fixed income securities. If, on the other hand, interest rates do not rise, or even fall further, it would almost certainly mean that deflation had taken hold, and this too is unlikely to be good for share prices. For these reasons, we think it would be imprudent to be geared at the moment, even though we are optimistic about the longer-term prospects for our investments.

We see many exciting opportunities arising from, among other things, the disruption of traditional business models by online alternatives, advances in drug discovery and diagnostics and changes in oil and gas production. They also view the recent convergence of economic growth rates between developed and emerging economies as cyclical rather than structural and continue to view growing consumption in Emerging Markets as an important source of long-term investment returns.

The principal risks and uncertainties facing the Company are set out in note 10.

Baillie Gifford & Co

3 December 2013

Past performance is not a guide to future performance.

The Monks Investment Trust PLC

Thirty largest equity holdings at 31 October 2013 (unaudited)

Name	Region	Business	Value £'000	% of total assets
IP Group	United Kingdom	Intellectual property commercialisation	36,156	3.3
Sky Deutschland	Continental Europe	German pay television services	32,998	3.0
Seadrill	Continental Europe	Offshore drilling services	24,786	2.3
Nanoco Group	United Kingdom	Quantum dot manufacturer	23,431	2.1
Harley-Davidson	North America	Motorcycle manufacturer	20,690	1.9
Samsung Electronics	Emerging Markets	Consumer and industrial electronic equipment	18,607	1.7
Alnylam Pharmaceuticals	North America	Biotechnology - RNA interference	18,443	1.7
Kone	Continental Europe	Elevator manufacture and servicing	18,375	1.7
Trip Advisor	North America	Online travel review platform	18,019	1.6
First Republic Bank	North America	Banking	17,451	1.6
TJX Companies	North America	Apparel and home fashion retailer	17,103	1.6
Enquest	United Kingdom	Oil and gas exploration and production	17,085	1.6
Seek	Developed Asia	Online recruitment	16,306	1.5
Facebook	North America	Social networking website	16,026	1.5
Fuchs Petrolub	Continental Europe	Speciality industrial and automotive lubricants	15,617	1.4
Priceline.com	North America	Online travel agent	15,012	1.4
Doric Nimrod Air Two	United Kingdom	Aircraft leasing	14,700	1.3
MercadoLibre	Emerging Markets	E-commerce platform	14,128	1.3
Sun Art Retail Group	Emerging Markets	Hypermarket operator	14,117	1.3
Petrofac	United Kingdom	Oilfield services company	13,927	1.3
Visa	North America	Global electronic payments network and related services	13,767	1.3
IG Group	United Kingdom	Spread betting	13,555	1.2
Digital Garage	Japan	Internet business incubator	13,541	1.2
Rolls-Royce	United Kingdom	Power systems manufacturer	13,537	1.2
National Oilwell Varco	North America	Drilling equipment manufacturer	13,431	1.2
Seattle Genetics	North America	Biotechnology - antibody drug conjugates	13,227	1.2
Marine Harvest	Continental Europe	Fish farming	13,129	1.2
Genus	United Kingdom	Agricultural services	13,057	1.2
Taiwan Semiconductor Manufacturing	Emerging Markets	Semiconductor manufacturer	13,015	1.2
IHS	North America	Specialist statistics and analytics	12,969	1.2
			516,205	47.2

The Monks Investment Trust PLC

Distribution of portfolio (unaudited)

Geographical Analysis

	At 31 October 2013		At 30 April 2013
	Total Assets %	Effective Exposure * %	Total Assets %	Effective Exposure * %
North America	33.4	34.6	28.2	29.3
United Kingdom	22.6	21.8	23.4	22.8
Continental Europe	15.1	14.8	14.6	13.9
Emerging Markets	10.9	10.2	18.9	18.4
Japan	5.4	5.6	5.7	5.9
Net Liquid Assets	5.2	5.4	2.8	3.0
Bonds	4.3	4.4	4.5	4.7
Developed Asia	3.1	3.2	1.9	2.0
	100.0	100.0	100.0	100.0

* The effective exposure takes into account the exposure of derivative holdings which may differ substantially from their market value. The Company's derivative holdings at 31 October 2013 comprise of purchases of index put options.

Sectoral Analysis

		At 31 October 2013 %	At 30 April 2013 %
Equities:	Oil and Gas	10.0	11.0
	Basic Materials	2.3	2.8
	Industrials	8.9	11.4
	Consumer Goods	7.4	5.8
	Health Care	6.4	7.3
	Consumer Services	18.1	14.9
	Financials	21.9	22.8
	Technology	15.5	16.7
		90.5	92.7
Bonds		4.3	4.5
Net Liquid Assets		5.2	2.8
		100.0	100.0

The Monks Investment Trust PLC

Income statement (unaudited)

	For the six months ended 31 October 2013			For the six months ended 31 October 2012			For the year ended 30 April 2013
	Revenue £'000	Capital £'000	Total £'000	Revenue £'000	Capital £'000	Total £'000	Revenue £'000	Capital £'000	Total £'000
Gains/(losses) on sales of investments	-	43,784	43,784	-	2,864	2,864	-	(37,665)	(37,665)
Changes in investment holding gains and (losses)	-	32,648	32,648	-	(65,764)	(65,764)	-	87,859	87,859
Currency losses	-	(1,273)	(1,273)	-	(2,907)	(2,907)	-	(3,117)	(3,117)
Income from investments and interest receivable	9,893	-	9,893	12,359	-	12,359	22,983	-	22,983
Investment management fee (note 3)	(2,431)	-	(2,431)	(2,280)	-	(2,280)	(4,648)	-	(4,648)
Other administrative expenses	(436)	-	(436)	(460)	-	(460)	(907)	-	(907)
Net return before finance costs and taxation	7,026	75,159	82,185	9,619	(65,807)	(56,188)	17,428	47,077	64,505
Finance costs of borrowings	(2,018)	-	(2,018)	(2,889)	-	(2,889)	(4,929)	-	(4,929)
Net return on ordinary activities before taxation	5,008	75,159	80,167	6,730	(65,807)	(59,077)	12,499	47,077	59,576
Tax on ordinary activities	(419)	-	(419)	(425)	-	(425)	(721)	-	(721)
Net return on ordinary activities after taxation	4,589	75,159	79,748	6,305	(65,807)	(59,502)	11,778	47,077	58,855
Net return per ordinary share (note 4)	1.99p	32.55p	34.54p	2.47p	(25.78p)	(23.31p)	4.68p	18.72p	23.40p
Note: Dividends per share paid and payable in respect of the period (note 5)	0.50p			0.50p			3.95p

The total column of this 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 the gains and losses of the Company have been reflected in the above statement.

The Monks Investment Trust PLC

Balance sheet (unaudited)

	At 31 October 2013 £'000	At 31 October 2012 £'000	At 30 April 2013 £'000
Fixed assets
Investments held at fair value through profit or loss	1,035,266	976,474	1,023,427
Current assets
Debtors	4,863	7,876	5,735
Investments held at fair value through profit or loss	1,969	157	12,341
Cash and short term deposits	55,013	16,682	38,591
	61,845	24,715	56,667
Creditors
Amounts falling due within one year:
Bank loan (note 6)	(40,000)	-	(40,000)
Other creditors	(2,449)	(8,639)	(14,188)
	(42,449)	(8,639)	(54,188)
Net current assets	19,396	16,076	2,479
Total assets less current liabilities	1,054,662	992,550	1,025,906
Creditors
Amounts falling due after more than one year:
Bank loan (note 6)	-	(40,000)	-
Debenture stock (note 6)	(39,696)	(39,663)	(39,679)
	(39,696)	(79,663)	(39,679)
Total net assets	1,014,966	912,887	986,227

Capital and reserves
Called up share capital	11,407	12,671	12,017
Share premium	11,100	11,100	11,100
Capital redemption reserve	7,991	6,727	7,381
Capital reserve	942,403	841,229	910,342
Revenue reserve	42,065	41,160	45,387
Shareholders' funds	1,014,966	912,887	986,227
Net asset value per ordinary share (after deducting borrowings at fair value) (note 6)	443.0p	356.6p	408.1p
Net asset value per ordinary share (after deducting borrowings at par)	444.8p	360.1p	410.2p
Ordinary shares in issue (note 7)	228,137,859	253,421,859	240,331,859

The Monks Investment Trust PLC

Reconciliation of movements in shareholders' funds (unaudited)

For the six months ended 31 October 2013

	Share capital £'000	Share premium £'000	Capital redemption reserve £'000	Capital reserve* £'000	Revenue reserve £'000	Shareholders' funds £'000
Shareholders' funds at 1 May 2013	12,017	11,100	7,381	910,342	45,387	986,227
Net return on ordinary activities after taxation	-	-	-	75,159	4,589	79,748
Shares purchased for cancellation (note 7)	(610)	-	610	(43,098)	-	(43,098)
Dividends paid during the period (note 5)	-	-	-	-	(7,911)	(7,911)
Shareholders' funds at 31 October 2013	11,407	11,100	7,991	942,403	42,065	1,014,966

For the six months ended 31 October 2012

	Share capital £'000	Share premium £'000	Capital redemption reserve £'000	Capital reserve* £'000	Revenue reserve £'000	Shareholders' funds £'000
Shareholders' funds at 1 May 2012	12,806	11,100	6,592	915,546	43,675	989,719
Net return on ordinary activities after taxation	-	-	-	(65,807)	6,305	(59,502)
Shares purchased for cancellation	(135)	-	135	(8,510)	-	(8,510)
Dividends paid during the period (note 5)	-	-	-	-	(8,820)	(8,820)
Shareholders' funds at 31 October 2012	12,671	11,100	6,727	841,229	41,160	912,887

For the year ended 30 April 2013

	Share capital £'000	Share premium £'000	Capital redemption reserve £'000	Capital reserve* £'000	Revenue reserve £'000	Shareholders' funds £'000
Shareholders' funds at 1 May 2012	12,806	11,100	6,592	915,546	43,675	989,719
Net return on ordinary activities after taxation	-	-	-	47,077	11,778	58,855
Shares purchased for cancellation	(789)	-	789	(52,281)	-	(52,281)
Dividends paid during the year (note 5)	-	-	-	-	(10,066)	(10,066)
Shareholders' funds at 30 April 2013	12,017	11,100	7,381	910,342	45,387	986,227

* The Capital Reserve balance at 31 October 2013 includes investment holding gains on investments of

£304,982,000 (31 October 2012 - gains of £115,966,000; 30 April 2013 - gains of £273,769,000).

The Monks Investment Trust PLC

Condensed cash flow statement (unaudited)

	Six months to 31 October 2013 £'000	Six months to 31 October 2012 £'000	Year to 30 April 2013 £'000
Net cash inflow from operating activities	7,681	10,220	17,645
Net cash outflow from servicing of finance	(1,987)	(4,952)	(6,969)
Total tax paid	(445)	(76)	(397)
Net cash inflow from financial investment	71,064	76,258	130,711
Equity dividends paid	(7,911)	(8,820)	(10,066)
Net cash inflow before use of liquid resources and financing	68,402	72,630	130,924
Shares purchased for cancellation	(50,707)	(13,300)	(49,475)
Borrowings repaid	-	(80,000)	(80,000)
Increase/(decrease) in cash	17,695	(20,670)	1,449

Reconciliation of net cash flow to movement in net debt
Increase/(decrease) in cash in the period	17,695	(20,670)	1,449
Translation difference	(1,273)	(2,167)	(2,377)
Net cash outflow from borrowings	-	80,000	80,000
Other non-cash changes	(17)	(16)	(32)
Movement in net debt in the period	16,405	57,147	79,040
Net debt at start of the period	(41,088)	(120,128)	(120,128)
Net debt at end of the period	(24,683)	(62,981)	(41,088)

Reconciliation of net return before finance costs and taxation to net cash inflow from operating activities
Net return before finance costs and taxation	82,185	(56,188)	64,505
Net (gains)/losses on investments	(76,432)	62,900	(50,194)
Currency losses	1,273	2,907	3,117
Amortisation of fixed income book cost	(240)	(896)	(2,014)
Changes in debtors and creditors	895	1,497	2,231
Net cash inflow from operating activities	7,681	10,220	17,645

The Monks Investment Trust PLC

Notes to the condensed financial statements (unaudited)

1.	The condensed financial statements for the six months to 31 October 2013 comprise the statements set out in the previous pages together with the related notes below. They have been prepared on the basis of the same accounting policies as set out in the Company's Annual Report and Financial Statements at 30 April 2013 and in accordance with the ASB's Statement 'Half-Yearly Financial Reports' and have not been audited or reviewed by the Auditors pursuant to the Auditing Practices Board Guidance on 'Review of Interim Financial Information'. The Company's assets, the majority of which are investments in quoted securities which are readily realisable, exceed its liabilities significantly. All borrowings require the prior approval of the Board. The Board approves borrowing and gearing limits and reviews regularly the amounts of any borrowing and gearing as well as compliance with borrowing covenants. Accordingly, the Half-Yearly Financial Report has been prepared on the going concern basis as it is the Directors' opinion that the Company will continue in operational existence for the foreseeable future.
2.	The financial information contained within this Half-Yearly Financial Report does not constitute statutory accounts as defined in sections 434 to 436 of the Companies Act 2006. The financial information for the year ended 30 April 2013 has been extracted from the statutory accounts which have been filed with the Registrar of Companies. The Auditors' Report on those accounts was not qualified and did not contain statements under sections 498 (2) or (3) of the Companies Act 2006.
3.	Baillie Gifford & Co are employed by the Company as investment managers and secretaries under a management agreement which is terminable on not less than six months' notice, or on shorter notice in certain circumstances. The annual fee is 0.45% of total assets less current liabilities, calculated on a quarterly basis.
4.	Net return per ordinary share	Six months to 31 October 2013 £'000	Six months to 31 October 2012 £'000	Year to 30 April 2013 £'000
	Revenue return on ordinary activities after taxation	4,589	6,305	11,778
	Capital return on ordinary activities after taxation	75,159	(65,807)	47,077
	Total net return	79,748	(59,502)	58,855
	Net return per ordinary share is based on the above totals of revenue and capital and on 230,857,673 (31 October 2012 - 255,217,191; 30 April 2013 -251,551,655) ordinary shares, being the weighted average number of ordinary shares in issue during each period. There are no dilutive or potentially dilutive shares in issue.
5.	Dividends	Six months to 31 October 2013 £'000	Six months to 31 October 2012 £'000	Year to 30 April 2013 £'000
	Amounts recognised as distribution in the period:
	Previous year's final dividend of 3.45p (2012 - 3.45p), paid 9 August 2013	7,911	8,820	8,820
	Interim dividend for the year ended 30 April 2013 of 0.50p, paid 30 January 2013	-	-	1,246
		7,911	8,820	10,066

The Monks Investment Trust PLC

Notes to the condensed financial statements (unaudited) (ctd)

5.	Dividends (ctd)	Six months to 31 October 2013 £'000	Six months to 31 October 2012 £'000	Year to 30 April 2013 £'000
	Amounts paid and payable in respect of the period:
	Adjustment to previous year's final dividend re shares bought back	(380)	(16)	(16)
	Interim dividend for the year ending 30 April 2014 of 0.50p (2013 - 0.50p)	1,141	1,267	1,246
	Final Dividend (2013 - 3.45p)	-	-	8,291
		761	1,251	9,521
	The interim dividend was declared after the period end date and has therefore not been included as a liability in the balance sheet. It is payable on 31 January 2014 to shareholders on the register at the close of business on 10 January 2014. The ex dividend date is 8 January 2014. The Company operates a Dividend Reinvestment Plan and the final date for elections for reinvestment of this dividend is 17 January 2014.
6.	At 31 October 2013, the Company's borrowings comprised a £40m three year fixed rate loan repayable in February 2014 and a £40m 6 3/8% debenture stock repayable in 2023. The fair value of borrowings at 31 October 2013 was £84.0m (31 October 2012 - £88.9m; 30 April 2013 - £85.2m).
7.	During the period under review the Company bought back 12,194,000 ordinary shares with a nominal value of £610,000 for a total consideration of £43,098,000. At 31 October 2013 the Company had the authority to buy back a further 33,211,749 shares.
8.	Transaction costs on purchases amounted to £128,000 (31 October 2012 - £93,000; 30 April 2013 - £256,000) and transaction costs on sales amounted to £205,000 (31 October 2012 - £137,000; 30 April 2013 - £303,000).
9.	Shareholders will be notified on or around 16 December 2013 that the Half-Yearly Financial Report has been published and will be available on the Monks' page of the Managers' website www.monksinvestmenttrust.co.uk ^‡
10.	Principal Risks and Uncertainties The principal risks facing the Company relate to the Company's investment activities. These risks are market risk (comprising currency risk, interest rate risk and other price risk), liquidity risk and credit risk. An explanation of these risks and how they are managed is contained in note 21 of the Company's Annual Report and Financial Statements for the year to 30 April 2013. The principal risks and uncertainties have not changed since the publication of the Annual Report and Financial Statements which can be obtained free of charge from Baillie Gifford & Co and is available on the Monks' page of the Managers' website: www.monksinvestmenttrust.co.uk.‡ Other risks facing the Company include the following: regulatory risk (that the loss of investment trust status or a breach of applicable legal and regulatory requirements could have adverse financial consequences and cause reputational damage); operational/financial risk (failure of service providers' accounting systems could lead to inaccurate reporting or financial loss); the risk that the discount can widen and gearing risk (the use of borrowing can magnify the impact of falling markets). Further information can be found on page 19 of the Annual Report and Financial Statements.