Interim Results
Monks Investment Trust PLC
27 November 2007
THE MONKS INVESTMENT TRUST PLC
Results for the six months to 31 October 2007
In the six months to 31 October net asset value rose by 14.6%. The FTSE World
Index increased by 4.4%. The good performance was driven by a combination of
high exposure to holdings in mining, oil, steelmakers and capital goods
producers and low exposure to the financial sector.
• The Monks portfolio was well positioned to benefit from the trends in
markets during the period. The share prices of banks and other financial
companies in Britain, America and parts of Europe fell, as the scale of the
problems caused by imprudent lending to borrowers unlikely to be able to
repay became clear, and banks became unwilling to lend to each other. In
contrast, shares of mining companies, capital goods producers, some oil
companies, steelmakers and oil service companies were generally strong,
helped by demand from rapidly growing economies such as China and India and
by the difficulties of bringing on new supply in some of these industries.
• During the period overall equity exposure was reduced by £43.0m, or 3.5%
of total assets at the end of the period, with net sales from North
America, the UK, Asia and Japan. The majority of sales were made in order
to reduce the already low exposure to companies dependent on the
discretionary spending of American and British consumers. There were net
increases in exposure to European and non-Asian Emerging markets.
• At the period-end, the combined value of net liquid assets and bonds of
£182m exceeded the value of the borrowings of £163m when valued at fair
value (£114m or 9.4% of total assets were held in net liquid assets and
£68m, or 5.5%, of total assets were in bonds). This reflects a cautious
approach to equity markets which takes into account the possibility of a
dampening of economic activity, particularly in the United States.
• Earnings per share were 1.52p (1.2p) and an unchanged interim dividend of
0.50p has been declared.
Monks, with net assets of £1,072 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 £52 billion under
management and advice as at 26 November 2007.
27 November 2007
- ends -
For further information please contact:
Robert O'Riordan
Baillie Gifford & Co 07730 412007
Mike Lord, Director
Broadgate Marketing 020 7726 6111
The following is the unaudited Half-Yearly Financial Report for the six months
to 31 October 2007
THE MONKS INVESTMENT TRUST PLC
Half-Yearly Financial Report 31 October 2007
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 interim 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
description of principal risks and uncertainties for the remaining six
months of the year); and
c) the interim management report includes a fair review of the
information required by Disclosure and Transparency Rules 4.2.8R
(disclosure of related party transactions and changes therein).
By order of the Board
J G D Ferguson
Chairman
27 November 2007
THE MONKS INVESTMENT TRUST PLC
Interim Management Report
Results
Over the six months to 31 October, net asset value, with borrowings deducted at
fair value, rose by 14.6%, from 338.4p to 387.8p, at which level it was 28.9%
ahead of the figure twelve months ago. The FTSE World Index, our principal
comparative index, was up 4.4% over six months and 10.8% over a year.
Largely as a result of an increase in dividend income, earnings per share
increased from 1.20p last year to 1.52p. The Board has declared a dividend of
0.50p, which will be paid in January 2008.
During the first half of the Company's financial year there was a large
variation of returns within markets. The share prices of banks and other
financial companies in Britain, America and parts of Europe fell, as the scale
of the problems caused by imprudent lending to borrowers unlikely to be able to
repay became clear, and banks became unwilling to lend to each other. In
contrast, shares of mining companies, capital goods producers, some oil
companies, steelmakers and oil service companies were generally strong, helped
by demand from rapidly growing economies such as China and India and by the
difficulties of bringing on new supply in some of these industries. The
differing fortunes of these sectors balanced out to modest overall gains for
most markets as shown by the change in the FTSE World Index over the period
noted above. The biggest gains were in Asian and other Emerging Markets, led by
China where the local market rose by nearly 60% and the main index of Chinese
companies listed in Hong Kong almost doubled. Of the major markets, the UK
market produced the best returns for sterling based investors during the first
half of the year with a rise of 2.9% followed by Continental Europe, up 2.6%.
The US market was almost unchanged with a rise of 0.6%. The performance of the
Japanese market was disappointing with a decline of 5.0%. All index movements
are in sterling terms.
Investment Changes
With the exception of the investments in Japan, our portfolio was well
positioned to benefit from the trends in markets during the period but we also
made some adjustments. Overall we added £3.0m to bonds and reduced equity
holdings by £43.0m. The reduction in equities was the result of net sales of
£49.2m in North America, £33.3m in Asia ex Japan, £8.0m in the UK and £4.8m in
Japan, and net purchases of £47.5m in Europe and £4.9m in non-Asian Emerging
Markets. The majority of these investment changes were made in order to reduce
our already low exposure to companies dependent on the discretionary spending of
American and British consumers and on these individuals willingness to increase
their indebtedness. Fortuitously, for this reason we sold the holding in
Northern Rock in June, before its funding difficulties became apparent. Towards
the end of the period we also took from profits in Asia ex Japan, a region where
valuations appear stretched after large share price rises. The analysis below
shows the distribution of investments by geography and industrial sector at the
end of October and the end of April. Cash and fixed interest holdings exceeded
the value of borrowings at the end of the first half of the year.
THE MONKS INVESTMENT TRUST PLC
Interim Report (Ctd)
Outlook
The re-discovery of risk by those engaged in lending money, either in the form
of bank loans or bonds, is likely to mean that credit becomes less readily
available and more expensive in those markets where standards had fallen. It
would be surprising if this did not have the effect of dampening economic
activity, particularly in the United States where the housing market is already
weak. Other countries' housing markets may also follow a similar path as the
behaviour of buyers and lenders has been similar in some respects in a number of
countries around the world and the losses arising from American mortgage
defaults are already affecting lenders in these markets. At the same time, there
remain upward pressures on inflation and companies' costs arising from the
difficulty of increasing the supply of oil and other key commodities to match
the rising demand from rapidly growing economies in the developing world. It is
hard to predict the result of the action of these opposing forces within the
global economy but the most likely outcome in the short term is probably a
continuation of current trends and this may be a slightly tricky period for
equity markets as earnings may fall, interest rates may not fall as expected or
inflation may accelerate unexpectedly.
VAT
In June this year the European Court of Justice ruled that investment trust
management fees should be exempt from VAT. This decision has now been accepted
in principle by HM Revenue and Customs, although a number of procedural matters
remain to be resolved. The result of this decision is that future management
fees will not be subject to VAT. In addition, the Company will be able to
recover some of the VAT suffered on past management fees, although the actual
amount remains uncertain. Consequently, no account of any refund has been
included in the financial statements.
Risks and Uncertainties
The Company's main risk is investment risk. It is to be expected that some or
all of the investments we make will not deliver the returns we anticipate. This
expectation cannot, however, be transformed into a numerical value of use to
investors. Events during the last year have demonstrated the folly of relying on
mathematical models to quantify and control investment risk. At their heart lie
the assumptions that past performance is a good indicator of the future and that
it is possible to quantify all of the factors likely to have a significant
effect on the future value of investments. Neither of these assumptions seems
reasonable. Shareholders should be aware that unexpected things do happen and
that these can have significant effects on the value of various investments. The
risk of permanent loss of capital can be mitigated by prudent diversification
but it cannot be eliminated altogether. Other risk factors that can be
identified are detailed in note 11.
THE MONKS INVESTMENT TRUST PLC
INCOME STATEMENT
(unaudited)
For the six months ended For the six months ended For the year ended
31 October 2007 31 October 2006 30 April 2007
Revenue Capital Total Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Realised gains on
investments - 63,479 63,479 - 75,917 75,917 - 136,534 136,534
Unrealised gains/(losses)
on investments - 73,636 73,636 - (134,617) (134,617) (100,379) (100,379)
Currency gains - 157 157 - 5,608 5,608 - 5,224 5,224
Income 12,214 - 12,214 10,590 - 10,590 25,738 - 25,738
Investment
management fee (2,776) - (2,776) (2,385) - (2,385) (4,903) - (4,903)
(note 3)
Other administrative (516) - (516) (389) - (389) (735) - (735)
expenses
Net return before finance
costs and taxation 8,922 137,272 146,194 7,816 (53,092) (45,276) 20,100 41,379 61,479
Finance costs of (3,982) - (3,982) (4,025) - (4,025) (8,002) - (8,002)
borrowings
Net return on ordinary
activities before
taxation 4,940 137,272 142,212 3,791 (53,092) (49,301) 12,098 41,379 53,477
Tax on ordinary
activities (735) - (735) (356) - (356) (916) - (916)
Net return on ordinary
activities after
taxation 4,205 137,272 141,477 3,435 (53,092) (49,657) 11,182 41,379 52,561
Net return
per ordinary share
(note 4) 1.52p 49.65p 51.17p 1.20p (18.51p) (17.31p) 3.91p 14.49p 18.40p
Note:
Dividends paid and
proposed per ordinary
share (note 5) 0.50p 0.50p 3.15p
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 gains
and losses of the Company have been reflected in the above statement.
THE MONKS INVESTMENT TRUST PLC
BALANCE SHEET
(unaudited)
At 31 October At 31 October At 30 April
2007 2006 2007
£'000 £'000 £'000
Fixed assets
Investments 1,107,061 952,517 1,009,631
Current assets
Debtors 25,938 3,119 7,719
Cash and short term deposits 93,638 87,498 98,450
119,576 90,617 106,169
Creditors
Amounts falling due within one year (5,176) (9,683) (3,421)
Net current assets 114,400 80,934 102,748
Total assets less current liabilities 1,221,461 1,033,451 1,112,379
Creditors
Amounts falling due after more than one year:
Bank loans (note 6) (69,315) (74,291) (69,458)
Debenture stocks (79,500) (79,468) (79,484)
(148,815) (153,759) (148,942)
Provisions for liabilities and charges
Deferred taxation (161) - -
Total net assets 1,072,485 879,692 963,437
Capital and reserves
Called-up share capital 13,649 14,334 14,033
Share premium 11,100 11,100 11,100
Capital redemption reserve 5,749 5,064 5,365
Capital reserve - realised 671,166 594,007 632,275
Capital reserve - unrealised 346,118 233,636 272,795
Revenue reserve 24,703 21,551 27,869
Equity shareholders' funds 1,072,485 879,692 963,437
Net asset value per ordinary share
(after deducting borrowings at fair value) (note 7) 387.8p 300.8p 338.4p
Net asset value per ordinary share
(after deducting borrowings at par) 392.7p 306.7p 343.1p
Ordinary shares in issue (note 8) 272,971,966 286,670,295 280,652,693
THE MONKS INVESTMENT TRUST PLC
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS (unaudited)
For the six months ended 31 October 2007
Capital Capital Capital Total
Share Share redemption reserve - reserve - Revenue shareholders'
capital premium reserve realised unrealised reserve funds
£'000 £'000 £'000 £'000 £'000 £'000 £'000
Shareholders' funds
at 1 May 2007 14,033 11,100 5,365 632,275 272,795 27,869 963,437
Return on ordinary
activities after
taxation - - - 63,949 73,323 4,205 141,477
Shares purchased for
cancellation+ (384) - 384 (25,058) - - (25,058)
Dividends paid
during the period# - - - - - (7,371) (7,371)
Shareholders' funds
at 31 October 2007 13,649 11,100 5,749 671,166 346,118 24,703 1,072,485
For the six months ended 31 October 2006
Capital Capital Capital Total
Share Share redemption reserve - reserve - Revenue shareholders'
capital premium reserve realised unrealised reserve funds
£'000 £'000 £'000 £'000 £'000 £'000 £'000
Shareholders' funds
at 1 May 2006 14,368 11,100 5,030 519,996 362,574 22,130 935,198
Return on ordinary
activities after
taxation - - - 75,846 (128,938) 3,435 (49,657)
Shares purchased for
cancellation (34) - 34 (1,835) - - (1,835)
Dividends paid
during the period - - - - - (4,014) (4,014)
Shareholders' funds
at 31 October 2006 14,334 11,100 5,064 594,007 233,636 21,551 879,692
For the year ended 30 April 2007
Capital Capital Capital Total
Share Share redemption reserve - reserve - Revenue shareholders'
capital premium reserve realised unrealised reserve funds
£'000 £'000 £'000 £'000 £'000 £'000 £'000
Shareholders' funds
at 1 May 2006 14,368 11,100 5,030 519,996 362,574 22,130 935,198
Return on ordinary
activities after
taxation - - - 131,158 (89,779) 11,182 52,561
Shares purchased for
cancellation (335) - 335 (18,879) - - (18,879)
Dividends paid
during the year
- - - - - (5,443) (5,443)
Shareholders' funds
at 30 April 2007 14,033 11,100 5,365 632,275 272,795 27,869 963,437
+ See note 8
# See note 5
THE MONKS INVESTMENT TRUST PLC
CONDENSED CASH FLOW STATEMENT
(unaudited)
Six months to Six months to Year to
31 October 2007 31 October 2006 30 April 2007
£'000 £'000 £'000
Net cash inflow from operating activities 12,062 10,001 17,484
Net cash outflow from servicing of finance (3,961) (4,037) (8,027)
Net cash inflow from financial investment 19,512 58,294 84,223
Equity dividends paid (7,371) (4,014) (5,443)
Net cash inflow before use of liquid resources and financing 20,242 60,244 88,237
Net cash outflow from use of liquid resources (16,000) (40,000) (65,000)
Shares purchased for cancellation (25,054) (1,835) (18,876)
(Decrease)/increase in cash (20,812) 18,409 4,361
Reconciliation of net cash flow to movement in net debt
(Decrease)/increase in cash in the period (20,812) 18,409 4,361
Increase in short term deposits 16,000 40,000 65,000
Exchange movement on bank loans 143 5,679 10,513
Other non-cash changes (16) (16) (33)
Movement in net debt in the period (4,685) 64,072 79,841
Net debt at start of the period (50,492) (130,333) (130,333)
Net debt at end of the period (55,177) (66,261) (50,492)
Reconciliation of net return before finance costs and
taxation to net cash inflow from operating activities
Net return before finance costs and taxation 146,194 (45,276) 61,479
Net (gains)/losses on investments (137,115) 58,700 (36,155)
Currency gains (157) (5,608) (5,224)
Amortisation of fixed income book cost (299) (435) (805)
Changes in debtors and creditors 3,956 2,966 (883)
Overseas tax (624) (381) (893)
Income tax 107 35 (35)
Net cash inflow from operating activities 12,062 10,001 1 7,484
THE MONKS INVESTMENT TRUST PLC
THIRTY LARGEST EQUITY HOLDINGS
at 31 October 2007
(unaudited)
Market % of
value total
£'000 assets
Name Region Business
Baillie Gifford Pacific Fund Asia Pacific Investment fund 99,453 8.1
Petrobras Other Emerging Markets Integrated oil 47,545 3.9
Schlumberger North America Oilfield services 38,014 3.1
National Oilwell Varco North America Drilling equipment manufacturer 27,487 2.3
EOG Resources North America Oil and gas exploration and 26,650 2.2
production
Reliance Industries Asia Pacific Petrochemical firm 22,720 1.9
CVRD Other Emerging Markets General mining 21,047 1.7
Diamond Offshore Drilling North America Offshore drilling 20,086 1.6
BHP Billiton Asia Pacific Diversified resources 19,205 1.5
Suncor Energy North America Integrated oil 18,754 1.5
Rio Tinto United Kingdom Diversified mining group 17,936 1.5
Rolls Royce Group United Kingdom Aerospace equipment provider 17,345 1.4
Merrill Lynch World Mining United Kingdom Investment trust 16,958 1.4
Trust
Aker Kvaerner Continental Europe Engineering and construction 16,587 1.4
services
Atlas Copco Continental Europe Engineering 16,082 1.3
Cameron International North America Oilfield equipment manufacturer 14,781 1.2
Arcelormittal Continental Europe Steel 14,103 1.2
Norilsk Nickel Other Emerging Markets Nonferrous metals 14,102 1.2
Richemont Continental Europe Tobacco 13,262 1.1
Seadrill Continental Europe Drilling services 13,123 1.1
Ensco International North America Drilling services 13,065 1.1
IMS Health North America Business support services 13,022 1.1
TMK Other Emerging Markets Pipe production 12,838 1.0
A P Moller-Maersk Continental Europe Marine transportation 12,791 1.0
Brambles Asia Pacific Business support services 12,715 1.0
Baillie Gifford Japanese Japan Investment fund 12,649 1.0
Smaller
Companies Fund
Baillie Gifford British Smaller United Kingdom Investment fund 12,337 1.0
Companies Fund
Komatsu Japan Mining and construction equipment 12,062 1.0
Hamworthy United Kingdom Fluid handling systems 11,733 1.0
Sumitomo Metal Industries Japan Steel 11,571 0.9
620,023 50.7
DISTRIBUTION OF ASSETS
(unaudited)
At 31 October At 31 October At 30 April
2007 2006 2007
% % %
Equities: United Kingdom 12.8 14.6 13.9
Continental Europe 17.3 12.9 13.9
North America 21.5 24.1 25.2
Japan 8.5 17.1 10.7
Asia Pacific 16.2 10.8 15.1
Other Emerging Markets 8.8 5.9 5.9
Total equities 85.1 85.4 84.7
Bonds 5.5 6.8 6.1
Net liquid assets 9.4 7.8 9.2
Total assets (before deduction of borrowings) 100.0 100.0 100.0
THE MONKS INVESTMENT TRUST PLC
NOTES
1. The condensed set of financial statements have been prepared on the basis
of the same accounting policies as set out in the Company's Annual
Financial Statements at 30 April 2007 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'.
2. The financial information contained within this half-yearly financial
report does not constitute statutory accounts as defined in section 240 of
the Companies Act 1985. The financial information for the year ended
30 April 2007 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
237(2) or (3) of the Companies Act 1985.
3. The management agreement is terminable on not less than 12 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.
Six months to Six months to Year to
31 October 31 October 30 April
2007 2006 2007
£'000 £'000 £'000
4. Return per ordinary share
Revenue return on ordinary activities after 4,205 3,435 11,182
taxation
Capital return on ordinary activities after 137,272 (53,092) 41,379
taxation
Total Return 141,477 (49,657) 52,561
Net return per ordinary share is based on the above totals of revenue and capital and on 276,461,245 (31
October 2006 - 286,768,746; 30 April 2007 - 285,637,104) ordinary shares, being the weighted average
number of ordinary shares in issue during each period.
5. Dividends
Amounts recognised as distributions in the
period:
Pervious year's final dividend of 2.65p (2006 -
1.40p), paid 6 August 2007 7,371 4,014 4,014
Interim dividend for the year ended 30 April
2007, paid 31 January 2007 - - 1,429
7,371 4,014 5,443
Dividends paid and proposed in the period:
Adjustment to provision for previous year's (66) (9) (9)
final dividend re shares bought back
Interim dividend for the year ending 30 April
2008 of 0.50p (2007 - 0.50p)
1,365 1,433 1,429
Final dividend (30 April 2007 - 2.65p) - - 7,437
1,299 1,424 8,857
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 2008 to shareholders on the register at the close of
business on 11 January 2008. The ex dividend date is 9 January 2008.
THE MONKS INVESTMENT TRUST PLC
NOTES (Ctd)
6. The Company's bank loans comprise Y16,600 million fixed rate term loan
repayable in December 2010 (31 October 2006 and 30 April 2007 - Y16,600
million).
7. The fair value of loans and debentures at 31 October 2007 was £162.8m (31
October 2006 - £171.0m; 30 April 2007 - £162.7m).
8. During the period under review the Company bought back 7,680,727 ordinary
shares with a nominal value of £384,000 for a total consideration of
£25,058,000. At 31 October 2007 the Company had the authority to buy back
a further 39,722,076 shares.
9. Transaction costs incurred on the purchase and sale of the investments are
added to the purchase cost or deducted from the sale proceeds, as
appropriate. During the period, transaction costs on purchases amounted
to £562,000 (31 October 2006 - £252,000; 30 April 2007 - £624,000) and
transaction costs on sales amounted to £354,000 (31 October 2006 -
£221,000; 30 April 2007 - £471,000).
10. None of the views expressed in this document should be construed as advice
to buy or sell a particular investment.
11. Risks and uncertainties
The principal risks and uncertainties facing the Company are detailed in
the Interim Management Report. Other risks facing the Company include the
following; currency risk (investments are subject to movements in exchange
rates), gearing risk (the use of borrowing can magnify the impact of
falling markets), the risk that the discount can widen and regulatory risk
(that the loss of investment trust status or a breach of the UKLA Listing
Rules could have adverse financial consequences and cause reputational
damage). These risks are monitored and assessed by the Managers and
reported on regularly to the Board and the Audit Committee.
12. The half-yearly financial report is available on
www.monksinvestmenttrust.co.uk and will be posted toshareholders on or
around 14 December 2007.
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