Final Results
WITAN INVESTMENT TRUST PLC
Annual Financial Report for the year ended 31 December 2010
15 March 2011
This announcement contains regulated information
Directors' Report: Chairman's Statement
Highlights
• NAV total return ahead of benchmark by 3.4%
• NAV total return over last five years of 38.1% - exceeding benchmark by 6.5%
• increased gearing at market low point in June
• dividend increased for the 36th consecutive year
• portfolio repositioned on 100% active lines with a more proactive approach to risk management
Opening remarks
It has been another good year for equities and for Witan shareholders, with the FTSE All-Share index giving a total return of 14.5%, the FTSE World ex-UK index 16.7% and Witan achieving a share price total return of 18.9%. The year had a happy ending but there were some hairy moments along the way which meant financial markets experienced significant volatility and something of a white-knuckle ride during the summer. After a rally lasting until April, the uncertainty over the possible withdrawal of fiscal stimulus and monetary policy changes implemented in 2009 was sharpened by the explosion of a full-blown European debt crisis and the consequent fears for the viability of Europe's financial sector. This gave investors a real shock but it also obscured the reality of the ongoing recovery in the global economy.
As the year progressed, better fundamentals manifested themselves on the back of loose global monetary policies. A robust recovery in corporate profitability reduced the risk of a double-dip recession, unemployment stabilised and household bank balance sheets were rebuilt. The apparent improvement in visibility has led investors to end 2010 in a positive frame of mind. The script for 2011 may well not be very different.
Increased volatility in financial markets has persuaded the Board that a more pro-active approach to the management of the Trust should be adopted. Your Board, therefore, took the decision to sell the more index aware proportion of the portfolio and replace it with managers that demonstrate skills in managing the economic cycle and picking stocks. The Board has also supported a more active approach to the management of risk through the variable use of gearing, employing equity index futures and investment in specialist funds. These important changes are set out in detail in the Investment Section of the Business Report on pages 11 to 20.
Performance and Shareholder Returns
In the twelve months ended 31 December 2010 the total return of Witan's benchmark was 15.5%. Your Board is pleased that the comparable Witan NAV total return is 18.9%. The share price rose by 16.2% in 2010 which, combined with dividends paid during the year resulted in a total shareholder return which was also 18.9%. The twelve month figures are important but a longer term perspective is a better indicator of what an investment in Witan might offer. Over five years the Witan NAV total return has been 38.1% which translates into a 6.7% per annum compound rate of return and the share price total return has been 7.1% per annum, despite the market crisis in 2008.
Page 2 of 32
WITAN INVESTMENT TRUST PLC
Annual Financial Report for the year ended 31 December 2010
Directors' Report: Chairman's Statement continued
Portfolio Attribution
Witan's outperformance of its benchmark during 2010 amounted to 3.4%, attributable to a range of factors. The portfolio generated outperformance (net of fees) of 3.1%, share buybacks contributed 0.5% and gearing (which was increased ahead of the second half market recovery) a further 1.9%. Offsetting these gains were borrowing costs (-0.7%) and operating costs and tax (-1.3%).
The Company finished the year with a similar level of gearing to the end of 2009 but this conceals a number of active moves. There was a positive decision to increase gearing to a peak of 13% during the summer correction. After the market rallied, gearing was reduced back to 5.4% by the year end.
Apart from the decision to close the remainder of the enhanced index fund mandates, replacing them with active stock pickers, the international portion of the Company's assets was restructured to reduce the proportion managed in separate geographical portfolios. This entailed closing a Europe ex-UK mandate (replacing it with a pan-European remit) and closing the Japanese and US specialist mandates, merging them into a focused global stock-selection mandate. Finally, a specialist Emerging Markets manager was appointed, to give further direct exposure to faster growing areas of the global economy.
Performance Attribution
for the year ended 31 December 2010 (based on the Company's financial statements)
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Net asset value total return |
+18.9% |
Portfolio investment total return |
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+18.6% |
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Benchmark total return |
+15.5% |
Benchmark total return |
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+15.5% |
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---------- |
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Relative investment performance |
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+3.1% |
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Gearing impact |
+1.9% |
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Share buy-backs |
+0.5% |
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Interest on cash, etc |
+0.0% |
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+2.4% |
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+5.5% |
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Borrowing costs |
-0.7% |
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Operating costs and tax |
-1.3% |
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-2.0% |
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Outperformance |
+3.4%* |
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+3.4%* |
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* The totals on each side may not add up because of roundings.
Total Expense Ratio
Including performance fees our Total Expense Ratio ('TER') was 8 basis points higher at 1.07% (2009:0.99%). Excluding performance fees, the TER rose from 0.72% in 2009 to 0.81%.
These figures should be evaluated against the weighted average TER of 0.88% (excluding performance fees) for the AIC Global Growth sector (source: AIC) and of 2.1% for the open-ended multi-manager sector (source: IMA, Financial Express).
Page 3 of 32
WITAN INVESTMENT TRUST PLC
Annual Financial Report for the year ended 31 December 2010
Directors' Report: Chairman's Statement continued
Although the average level of assets was higher, which reduced the impact of fixed costs, the move to fully active management increased base management fees and there were increased (one-off) legal and administrative costs associated with the transition to a new administrator for the Witan Wisdom and Jump savings schemes. Your Board is pleased to note that shareholders earned good returns in 2010 in spite of this increase in expenses but it will continue to seek ways of keeping expenses as low as practicable.
We have taken the opportunity of the manager changes during the year to update many of our fee structures, to ensure they give value for money for Witan shareholders, while still enabling us to attract high calibre managers to look after our assets.
Dividend
Your Board has declared a second interim dividend of 6.5 pence per share, to be paid to shareholders on 1 April 2011, making a total distribution for the year of 10.9 pence (2009: 10.5 pence). This represents an increase of 3.8% over 2009 and maintains our policy of increasing dividends at least in line with inflation. We have drawn £2.6m from our revenue reserves to cover the increased payment, leaving us with a revenue reserve of £38m, equivalent to close to two years' dividend payments. A number of one-off effects, such as manager transitions and the BP dividend cut, left us with a revenue shortfall in 2010. Our forecasts indicate that this gap will substantially, or completely, close in 2011, justifying the decision to use our revenue reserve to cover what is likely (subject to the unforeseen) to be a temporary hiatus in our incoming revenue.
This is the 36th consecutive year during which we have increased the dividend.
Share Buy-Backs and Discount
The Company purchased a total of 4% of the starting shares in issue during the year. Buybacks were at a higher level of 3% in the first half of the year but there was reduced net selling in the market during the second half so that level of share buy-backs reduced to 1%. These share buy-backs generated an increase in net asset value per share of 0.5% as well as helping to maintain the discount close to our desired target of a sustainable level of 10% or below. The share price discount (to the net asset value excluding income, with debt at fair value) ended the year at 9.9% compared with 9.2% at the end of 2009. The average discount for the year on this basis was 11.1% (2009: 11.0%).
The Board
In line with what is now best practice, an independent Board Review was commissioned in 2010 to find out how we might operate more effectively. The Board has conducted an annual internal evaluation for a number of years but the periodic use of an external specialist ensures a fresh look - it can be helpful to see ourselves as others see us. The review concluded that your Board is performing at a high standard and has also made a number of helpful suggestions for maintaining and building on this.
At the AGM in May, Rory McGrath retires after fifteen years as a director of Witan. He has been a director of Witan Investment Services since inception in 2005 and has sat on the Remuneration Committee for the past 5 years. Rory has been instrumental in leading Witan's marketing strategy from his early days as a director and his experience, particularly in this field, has made a large contribution to Witan's fortunes over his time as a director of your company.
Page 4 of 32
WITAN INVESTMENT TRUST PLC
Annual Financial Report for the year ended 31 December 2010
Directors' Report: Chairman's Statement continued
We welcome Richard Oldfield, who will be joining the Board in May. With his experience across the investment management industry spanning thirty three years, he brings a wealth of pertinent knowledge and we look forward to his contribution to the business.
Andrew Bell joined the Board and took over responsibility as Chief Executive Officer in February 2010. Changes to the way in which the Trust is managed have been highlighted in this statement and in the Business Review on pages 5 to 20. Your Board is encouraged by these changes which have been led by Andrew, and believes they are appropriate to enable Witan's shareholders to benefit from the more changeable economic conditions which seem likely to prevail in coming years.
Witan Differentiated Approach
Witan is unique amongst investment trusts in operating a fully-fledged multi-manager structure for the management of its assets. This aims to benefit from the specific skills of particular managers, as well as reducing the performance volatility that can come from having a single manager. This structure is overseen by the Company's executive team, which is responsible for managing risk appetite by actively varying gearing as well as taking advantage of specialised opportunities which fall outside the investment managers' remits. The details of how the process works, and the significant changes implemented during 2010, are set out in the Business Review on pages 5 to 20.
AGM
Our Annual General Meeting will be held at Merchant Taylors' Hall on Tuesday 10 May 2011 at 2.30 pm. Formal notice of the meeting will be sent to shareholders with the Annual Report. With my fellow directors, I look forward to the opportunity to meet you then for the Company's 103rd AGM.
Outlook
Recent data indicate that the global recovery remains intact. However politicians are performing a high wire act, trying to balance the imperative of continued economic growth on the one hand and the need to resolve the debt crisis on the other. It would seem that higher inflation is probably the inevitable outcome. An additional and less predictable complication is the recent widespread political change affecting the Arab world. This has led to a rise in the oil price, which threatens to undermine economic growth in oil consuming countries.
In recent days, the world has been transfixed by the enormity of the earthquake in Japan and the subsequent inundation of a wide area of Japan's East coast by tsunamis. It is too soon to gauge the consequences, in the wake of the tragic loss of life and the damage to nuclear and other infrastructure. Notwithstanding these immediate uncertainties, your Board believes that in the years ahead a well diversified portfolio of global equities offers the opportunity to participate in positive longer term trends in the global economy, as well as offering some protection against the risks of higher inflation.
Harry Henderson
Chairman
15 March 2011
Page 5 of 32
WITAN INVESTMENT TRUST PLC
Annual Financial Report for the year ended 31 December 2010
Directors' Report: Business Review
This Business Review provides shareholders and other readers with information about the Company's business and results in 2010 and looks forward to the year ahead. It is divided into two sections: Corporate and Investment.
CORPORATE SECTION
Objectives & Strategy
Witan's objective is to be the preferred choice for wealth creation through equity investment, adding value in the long term for its investors. This means that Witan will seek to make money for shareholders, to do so more effectively than its sector peers with similar objectives and to achieve consistent outperformance of the global stock markets represented by its benchmark. Recognising the importance of dividends in the returns from equity investment, Witan has a policy of seeking to increase its dividend at least in line with inflation. In addition, Witan seeks to attract new investors to buy the Trust's shares in order to provide ongoing liquidity for shareholders.
Witan's portfolio has a multi-manager investment structure. This reduces the performance volatility which can occur when employing a single manager. This approach allows us to select a range of high quality fund managers with differing areas of expertise from around the world - often where the fund manager is not otherwise available on the same terms (or at all) to the UK investor.
Your Board believes that active management of risk is essential in investment. This is particularly relevant when markets are threatened by major economic disruption, as seen in recent years, but an adaptable approach is also needed in order to enhance investment performance in more positive times. Where appropriate, we are also willing to employ innovative investment techniques and invest in diverse asset classes. Investment trusts have the advantage of being able to borrow in order to improve performance in rising markets. Witan has £110 million of long term debt (including preference shares) which can be deployed, hedged or neutralised with cash balances according to our view of the outlook for markets. We have a policy of actively managing our gearing.
Management Arrangements
As already noted, the management of Witan's portfolio is outsourced to third party investment managers around the world. Witan's in-house executive management team manages and controls these relationships, selects new managers when a change is appropriate, and advises the Board on all relevant investment and business matters. The executive management team is also responsible for actively managing the overall risk appetite of the portfolio and for identifying attractive specialist investments in areas outside the delegated remit of Witan's external managers. In addition, the in-house team manages the subsidiary company, Witan Investment Services Limited.
Changes to the investment manager line-up during the year, along with other investment issues, are referred to in greater detail in the Investment Section on pages 11 to 20. Our current managers are listed on page 15.
Witan uses third parties for the supporting services it requires, including:
· BNP Paribas Securities Services SA ('BPSS') for global custody, investment accounting and administration.
· Frostrow Capital LLP for company secretarial services.
· International Financial Data Services ('IFDS') Limited as the savings plan administrators of Witan Wisdom and Jump Savings
Page 6 of 32
WITAN INVESTMENT TRUST PLC
Annual Financial Report for the year ended 31 December 2010
Directors' Report: Business Review continued
· Cauldron Consulting for media relations.
· Tangible Financial for advertising.
· Towers Watson for manager research and performance analysis.
· From time to time, as required, Witan also procures professional advice in the areas of legal, compliance, investment consulting, financial and tax advice.
Witan's aim (as indicated in the first paragraph of this Business Review on page 5) is to provide consistently superior returns to shareholders. Unlike other multi-manager services, we do not levy an additional fee (on top of the underlying external managers' fees) and any negotiated savings in investment management fees fall directly through to lower the costs for shareholders. Your Board applies strict controls over central corporate costs. Expenditure is only undertaken when necessary or when a specific endeavour has been identified which is likely to achieve a profitable return. Our Total Expense Ratio ('TER') reflects this disciplined attitude to costs as well as our ability to secure external investment management services on competitive terms. The figure for 2010 was 1.07%, of which 0.26% reflected performance fees payable as a result of your managers' success in beating their benchmarks. This compares with a TER of 0.99% in 2009, or 0.72% excluding performance fees and with an average fee of 0.88% for the AIC Global Growth sector (source: AIC) and of 2.1% for the open-ended fund of funds sector (source: IMA, Financial Express).
Since November 2005 the Company has had a lease on office premises at 14 Queen Anne's Gate, London SW1H 9AA, which (since 21 February 2011) has also become the Company's registered office.
The Company's policy towards its employees is to attract and retain staff with the particular skills and expertise required to manage the affairs of an investment trust company. The Group has no specific policies in respect of environmental or social and community affairs.
The Witan Benchmark
Your Company's benchmark is a reference point for what shareholders can expect in the long term from an investment in Witan, in terms of the underlying investment structure of the portfolio and in performance. It enables the aims of your Company to be encapsulated succinctly without the need for a detailed description. Although it is an equity benchmark, your Board reserves the right to invest in other assets if appropriate, for better performance or capital preservation. Since 1 October 2007 the benchmark has been:
40% FTSE All-Share Index
20% FTSE All-World North America Index (£)
20% FTSE All-World Europe (ex UK) Index (£)
20% FTSE All-World Asia Pacific Index (£).
This reflects a balance between the domestic exposure and international status of the UK market and a broadly spread exposure to growth in other regions of the world. To assist shareholders who may apply different benchmarks in evaluating comparative performance, we include performance information for other commonly used indices in the Key Performance Indicators summary section on page 21. The benchmark does not drive the portfolio structure or the specific allocation of mandates to managers but it provides a marker for the long term performance of the Company - it is a yardstick, not a straitjacket.
Page 7 of 32
WITAN INVESTMENT TRUST PLC
Annual Financial Report for the year ended 31 December 2010
Directors' Report: Business Review continued
Over shorter periods, performance can be expected to vary, sometimes considerably, from that of the benchmark. Over the longer term, we aim for consistent outperformance.
Dividend Policy
The Board has declared a second interim dividend of 6.5 pence per share, to be paid to shareholders on 1 April 2011, making a total distribution for the year of 10.9 pence (2008:10.5 pence). This is the 36th consecutive year that the annual dividend has increased and meets the Company's ongoing intention to increase dividends per share at least in line with inflation.
Share Buy-Backs and Discount Policy
Your Board places great importance on the encouragement of a liquid market in Witan's shares on the stock exchange. A healthy two-way market enables shareholders to sell Witan shares at a price that reflects prevailing market value while potential new shareholders should also be able to invest readily. The Company operates an active share buyback policy, purchasing shares for cancellation when they stand at a significant discount to the net asset value (excluding income, with debt at market value), with the objective of achieving a sustainable discount of 10% or below (subject to market conditions). This policy has the direct effect of improving net asset value per share with the additional strategic aims of mitigating volatility in the discount and bringing the share price closer to the net asset value.
The level of share buy-backs during 2010 is referred to in detail in the Chairman's Statement. This activity not only generated an increase in net asset value per share of 0.5% but also helped to reverse periods of widening discounts occasioned by market conditions and trading imbalances. Our discount ended the year at 9.9% (2009: 9.2%). Our average discount during the year was 11.1% (2009: 11.0%).
In addition to share buy-backs, Witan operates an ongoing marketing programme designed to stimulate interest in Witan and encourage new investment into the Company's shares. This programme communicates with private and professional investors, financial advisers and intermediaries using a range of media (including direct meetings, press interviews and advertising through traditional media and the internet).
Debt and Gearing Policy
Witan has long term debt consisting of debentures, secured bonds and preference share capital. In December 2010, a £50m one year multi-currency facility was agreed, which provides additional flexibility over the level of gearing, as well as enabling the Company to borrow in other currencies than sterling, if deemed appropriate. Witan may either invest its borrowings fully, or neutralise the gearing effect with cash balances (or the sale of equity index futures) according to our view of the outlook for markets.
Key Performance Indicators
Your Board assesses its performance in meeting the Company's objective against the following key performance indicators:
· net asset value total return
· total shareholder return
· investment performance compared with the benchmark
· investment performance compared with sector comparators
· annual dividend growth
· discount to net asset value
Page 8 of 32
WITAN INVESTMENT TRUST PLC
Annual Financial Report for the year ended 31 December 2010
Directors' Report: Business Review continued
· total expense ratio.
Witan's performance in 2010 against the above indicators is shown on page 21. Most are also discussed in the Chairman's Statement on pages 1 to 4. The Board also reviews absolute and relative volatility and risk statistics for the portfolio and evaluates employee performance against assigned personal targets.
Principal Risks and Uncertainties
The Board has identified the key risks to the Group which need to be managed and has collated them in a risk matrix document. The risks relating to Witan's subsidiary company, Witan Investment Services Limited ('WIS'), are separately recorded. The respective documents are reviewed and updated regularly by the relevant Board of directors.
The Board is conscious that it must regularly review the nature of its corporate objectives and strategy to ensure that both remain relevant and appropriate in a rapidly changing financial services and savings market. This includes scrutiny of investment policies, the role of marketing, the service offered by the Witan Wisdom savings schemes and wider industry trends. These issues are reviewed at least annually by the Board.
The Group's key risks fall broadly under the following categories:
1. Market and portfolio risks
Witan has traditionally been a vehicle for UK and overseas equity investment. Whilst this does not preclude a more diversified or defensive strategy during periods of falling or turbulent markets, nonetheless a key risk of investing in Witan is a general fall in equity prices.
The other generic risks, as with any international equity portfolio, are those of overall investment strategy and country, currency, industrial sector, and stock selection. There are also risks associated with the choice of managers. Your Board seeks to manage these risks through:
· Appropriate asset allocation decisions
· Regular reviews of the competence and stock selection skills of fund managers.
· Monitoring the economic outlook, geo-political environment and stock market conditions around the world.
· The application of relevant policies on gearing and liquidity.
· Manager diversification. The multi-manager structure of the portfolio means that from a risk point of view Witan is less exposed to individual manager performance than with a conventionally structured portfolio.
· Delegating authorities to the executive management team to manage risk actively, whether to preserve capital or capitalise on opportunities.
2. Investment activity and strategy risks
It is important that investment activities, including asset allocation, stock selection and the level of gearing, are managed in a disciplined and prudent way, to reduce the risk of falls in Witan's portfolio value or underperformance against the Company's benchmark index or its peer group. Adverse performance could also result in the Company's shares trading on a wider discount. The Board seeks to manage these risks by implementing an appropriate asset allocation and a portfolio that is spread across a diverse range of investment managers and investments. These aspects are regularly reviewed, in addition to the extent of borrowings.
Page 9 of 32
WITAN INVESTMENT TRUST PLC
Annual Financial Report for the year ended 31 December 2010
Directors' Report: Business Review continued
During the year Witan's Chief Executive, Andrew Bell, managed the overall business and investment portfolio in accordance with limits and restrictions determined by the Board. These include limits on the extent to which borrowings may be used. The Board reviews regularly the matters delegated to executive management and the CEO confirms compliance at each Board meeting. Directors are provided with comprehensive management information covering many aspects of the business including investment performance data, financial reports and shareholder analyses. The Board reviews investment strategy at each Board meeting and monitors the implementation and results of the investment process with the CEO. The CEO regularly reviews reports and data which monitor the portfolio's principal risk factors.
3. Corporate governance and shareholder relations
Details of the Company's compliance with corporate governance best practice, including information on relations with shareholders, are set out in the Corporate Governance Statement in the Annual Report.
An innovation in 2010 was the commission of an externally-managed Board Review, to evaluate the current effectiveness of the Board and make suggestions to help ensure that the structure and processes of the Board remain effective and evolve to meet future challenges. The Board has for a number of years conducted its own internal review but in line with best practice a three-yearly external review cycle has been established to supplement the more frequent internal evaluation.
Operational and regulatory risks are regularly and extensively reviewed by Witan's Audit Committee. Witan Investment Services Limited ('WIS') is subject to its own operating rules and regulations and is regulated by the Financial Services Authority. Your Board takes its own regulatory responsibilities very seriously and reviews the main points of compliance against requirements on a quarterly basis. Your Board also takes corporate, legal, accounting and tax advice as appropriate.
Operationally the multi-manager structure is robust, as each of the investment managers, the custodian and the fund accountants keep their own records which are reconciled monthly. Management monitors the activities of all third parties and reports any significant issues to the Board. Comprehensive contractual obligations and indemnification provisions have been put in place with each of the third party service providers.
4. Accounting, legal and regulatory
In order to qualify as an investment trust the Company must comply with sections 1158-59 of the Corporation Tax Act 2010 ('CTA'). A breach of these sections could result in the Company losing investment trust status and, as a consequence, capital gains realised within the Company's portfolio would be subject to Corporation Tax. The criteria are monitored by the CEO. The Company must comply with the provisions of the Companies Act 2006 ('the Companies Act'), and, as the Company's shares are listed for trading on the London Stock Exchange, the Company must comply with the UK Listing Authority's Listing Rules and Disclosure Rules ('UKLA Rules'). A breach of the Companies Act could result in the Company and/or the directors being fined or becoming the subject of criminal proceedings. Breach of the UKLA Rules could result in the suspension of the Company's shares which would in turn lead to a breach of the provisions of the CTA.
Page 10 of 32
WITAN INVESTMENT TRUST PLC
Annual Financial Report for the year ended 31 December 2010
Directors' Report: Business Review continued
The Board relies on the CEO, the Company Secretary and the Group's professional advisers to ensure compliance with the CTA, the Companies Act and the UKLA Rules. WIS is regulated by the Financial Services Authority for the marketing and administration of savings plans and the provision of investment advice to professional clients. The savings plans are administered on behalf of WIS by IFDS.
The Board takes legal, accounting or compliance advice, as appropriate, to monitor changes in the regulatory environment affecting the Company. Current issues include the Alternative Investment Fund Manager Directive from the European Commission and the Retail Distribution Directive, which will affect the investment management industry as well as the marketing of investment products to retail investors. Their practical implications will become clearer as the details of how they will be implemented are specified in the next two years.
5. Operational
Many of the Group's operations are outsourced to third parties, principally BPSS. Disruption to, or failure of, the accounting, payment systems or custody records operated by BPSS could prevent the accurate reporting and monitoring of the Company's financial position. Details of how the Board monitors the services provided by BPSS and its other suppliers, and the key elements designed to provide effective internal control, are explained further in the internal control section of the Corporate Governance Statement in the Annual Report.
Witan Investment Services ('WIS')
Witan Investment Services Limited is a wholly owned subsidiary of Witan Investment Trust plc. It was established in March 2005 and is authorised and regulated by the FSA to provide investment products and services and to give investment advice to professional investors.
The principal activity of WIS is to provide executive management services to the boards of Witan Investment Trust plc and Witan Pacific Investment Trust plc and stimulate interest in their shares.
Its objectives are:
· to operate a reliable and efficient investment savings platform for Witan and Witan Pacific investors
· to minimise the operating costs for Witan Investment Trust
· to seek sources of revenue to generate a profit.
WIS has two discernible channels of income by which its performance may be judged. These are the revenues from transaction fees or annual management charges relating to its savings plan business and, secondly, executive management and marketing fees paid by its corporate clients, Witan Investment Trust plc and Witan Pacific Investment Trust plc.
The business provides savings plans to WIS clients and is marketed under the Witan Wisdom and Jump Savings brands. It currently has about 30,000 customers with assets of some £229 million invested. The major costs incurred by WIS are fees to the administrators of the Witan Wisdom platform.
The migration of Witan's savings schemes to a new administrator was successfully completed in December 2010. The new administrator is International Financial Data Services Limited.
Page 11 of 32
WITAN INVESTMENT TRUST PLC
Annual Financial Report for the year ended 31 December 2010
Directors' Report: Business Review continued
Priorities for 2011
The objective in 2010 was to manage Witan's portfolio to add value in an environment which was less chaotic than 2008 and 2009 but continued to have its share of crises. This was successfully accomplished, as recorded in detail elsewhere in this report. The range of managers was changed to increase the exposure to active management, closing the remaining enhanced index mandates. A more active approach was taken to asset allocation and risk management, increasing gearing mid year after the summer correction and using equity index futures. A portfolio of direct holdings in certain investment companies was built up, focused on asset categories (such as private equity) not represented in our external managers' portfolios.
2010 was a year of substantial change, increasing the range of tools used by Witan to generate performance. 2011 will see Witan operating the revised investment process for the full year, while remaining alert to new ideas which could give us additional levers to pull to generate performance.
In 2011, the key priorities include:
· maintaining an appropriate strategic asset allocation to reflect changing opportunities in the world economy
· selecting and monitoring suitable managers to deliver our strategic objectives through a multi-manager structure
· active management of risk appetite, responding to tactical opportunities to boost returns or to protect capital
· aiming to maintain dividend growth ahead of inflation
· communicating Witan's more active investment process to existing and potential shareholders
· delivering a good service to the corporate and individual clients of Witan Investment Services
· seeking business development opportunities where Witan's multi-manager expertise can be applied beneficially.
INVESTMENT SECTION
Investment Policy
Witan invests primarily in global equities. Equity exposure is unlikely, in normal conditions, to drop below 80% although this does not preclude a more defensive positioning in exceptional market conditions. The Board is prepared to consider alternative investments when appropriate.
The Company has the power under its Articles of Association to borrow up to 100% of the adjusted total of capital and reserves. This allows the Board to seek to improve performance through gearing by borrowing amounts equivalent in value to shareholders' funds. In practice the Board would not, other than temporarily in exceptional circumstances, allow gearing as defined on page 21 to rise to more than 20%. Over the past five years it has varied between 0% and 15% while, occasionally, the Company has held a small net cash position. At the end of 2010, the Company had in place £110 million of long term debt (equivalent to 9.7% of shareholders' funds), although effective gearing was less than this (5.4%), owing to cash holdings, which had been increased following the market rally.
Page 12 of 32
WITAN INVESTMENT TRUST PLC
Annual Financial Report for the year ended 31 December 2010
Directors' Report: Business Review continued
Investment risk is managed through:
· diversification of the investment portfolio across global markets
· selecting of a range of investment managers with different mandates
· monitoring and reviewing investment manager performance and portfolios
· active management of risk appetite, taking account of asset allocation, currency exposures and gearing levels
· carefully controlled use of liquid, exchange-traded derivatives (principally equity index futures).
During the year the Company invested its assets with a view to spreading investment risk and in accordance with the investment policy as set out above. In particular it has maintained a diversified portfolio in terms of stocks, sectors and geography. The portfolio has been actively managed by the investment managers, with overall asset allocation and risk being managed by Witan's executive team. The directors have received regular reports on investment activity and portfolio construction, both at and between the regular meetings of the Board.
Portfolio Review
The year in summary
Following the high dramas of 2009, 2010 saw greater certainty over the economic outlook and reduced fears over the stability of the financial system but still had its fair share of volatility. Sentiment was fickle, with the early months' anticipation of economic recovery giving way to fears of renewed recession, as the impact of 2009's reflationary policies began to fade. These concerns were given extra bite by investor realisation that the Euro currency zone's economic policies were unable to bridge the differences in economic conditions between the core, relatively stable economies (notably Germany) and those on the periphery of the region, whose economies had misapplied the benefit of the lower interest regime in the Euro by succumbing to fiscal laxity or a bank lending bubble centred on property speculation.
The fear of governments defaulting would be bad enough at any time but the widespread exposure of European banks to the government bonds of peripheral Eurozone countries threatened losses which would undermine their capital strength when they had barely begun to recover from exposure to the sub-prime lending collapse in the US. Albeit grudgingly, the European authorities recognized that they could not afford to allow a run of sovereign defaults, since these would risk a renewed recession which would make it harder to implement the more responsible policies required to put the continent's economies on a sustainable long-term footing. It also became clear that there was a degree of self-sustaining momentum in the recovery, particularly in the corporate sector, and that the global authorities were committed to supporting the recovery, if only in order to make the required rebalancing in the global economy more readily achievable (which would be less likely, and certainly more traumatic, in a recessionary environment). Consequently, a midyear wobble in equity markets was followed by a strong autumn rally which persisted through to the end of the year.
Page 13 of 32
WITAN INVESTMENT TRUST PLC
Annual Financial Report for the year ended 31 December 2010
Directors' Report: Business Review continued
As 2010 ended, the policy contradictions in Europe remained a potential source of instability, given differing national objectives within the Eurozone. Furthermore, there is a risk that bond markets take fright if a sustained global recovery takes hold in 2011, given the risk of inflation from the unconventional monetary policies adopted to combat the banking crisis. There is also likely to be an increased focus on the outsized government deficits which have been created in order to mitigate the effects of recession. Although a rise in bond yields seems more likely to force politicians to curtail budget deficits rather than be ignored and then stifle the recovery, the risks of policy mistakes mean that a benign outcome cannot be taken for granted. A lesson from 2010 was that periods when markets are unhappy with macro-economic policies can be highly volatile.
Manager changes
During the year, a number of changes were made to Witan's manager structure:
· In July, Marathon Asset Management was appointed to manage a pan-European portfolio, incorporating its existing UK-only mandate and a Europe ex-UK mandate previously managed by Wellington Management Company.
· In September, two active UK Managers (Lindsell Train and NewSmith Asset Management) were appointed in place of the UK enhanced index portfolio previously managed by Henderson Global Investors.
· In November, Veritas Asset Management was appointed to manage a global unconstrained portfolio, replacing the Japan-only mandate previously managed by Brandes Investment Partners and the US enhanced index portfolio previously managed by Henderson Global Investors.
· Finally, in December, Trilogy Global Advisors were appointed to manage a specialist Emerging Markets portfolio, funded from cash balances and the sale of the Australian equity portfolio previously managed by Orbis Investment Management.
The guiding principles behind these manager changes were a reorientation of the portfolio towards a full commitment to active managers, closing the remainder of the index-oriented mandates and a greater emphasis on unconstrained cross-border stock selection, reducing the proportion in single-country portfolios.
Use of Derivatives
In June 2010, Witan began to employ equity index futures in order to raise its gearing, in response to the perceived value on offer after the correction in world markets. The investments covered futures in the FTSE 100, S&P Composite, Euro Stoxx 50, Japanese and MSCI Emerging Markets indices. The Company takes full account of the underlying value of the futures contracts in measuring its gearing. The value of the investments (which are exchange traded) is fully marked to market every day.
The use of equity index futures has a number of benefits. It enables Witan to increase or reduce its gearing at a known and immediate index level, conferring tactical flexibility. It also provides a means of adjusting the geographical asset allocation (for example, by allocating the investment differentially to favoured markets). In both cases, the use of index futures enables the adjustments to be made without interfering with the assigned objectives for our investment managers, which are to pick stocks that will grow in value over the medium to long term and outperform their respective benchmarks.
Page 14 of 32
WITAN INVESTMENT TRUST PLC
Annual Financial Report for the year ended 31 December 2010
Directors' Report: Business Review continued
The underlying futures exposure varied between zero and 7% of assets, finishing the year at zero. The investments in this area were profitable during 2010, as they gave us additional tactical exposure to our preferred equity markets during the second half of the year, when the market trend was strongly positive. Although this ability was used in 2010 to increase gearing ahead of the second half market rally, in other circumstances it could be used to reduce our investment exposure, if this were judged to be in the interests of shareholders.
The operation of this investment area is the responsibility of the Chief Executive Officer, who reports transactions to the Board as they occur as well as being accountable to the Board for the financial results.
Gearing management
Gearing was managed actively during the year, averaging 6.6% during the first half before being stepped up to reflect clearer economic prospects in the second half, when gearing averaged 9.9%, ending the year at 5.4%. This reflects the Company's view that gearing is an effective tool to boost returns at times of high conviction but should be used judiciously.
Growth Opportunities
The Company initiated a policy of making direct investments in selected collective funds during the year, to gain exposure to investment areas which fell outside the remit of the Company's external investment managers but were viewed as attractive. These included listed private equity funds (3i Group, Electra Private Equity and HarbourVest Global Private Equity), distressed debt investment (NB Distressed Debt Fund), UK domestic recovery (Invista Foundation Property Fund and Aberforth Geared Income Trust) and a specialist environmental fund (Ludgate Environmental Fund Limited). These amounted to 6.5% of Witan's portfolio at the year end, with the management of this portfolio being the responsibility of the Chief Executive Officer. This category may also be used to allocate smaller size investments to investment managers who may currently be less established in order to gain greater familiarity with their processes and style. The incidence of such opportunities is likely to vary over the economic cycle, which will be reflected in the size and composition of this portfolio of direct holdings.
Portfolio diversification
In order to capture the changing dynamics in the global economy and provide stability against problems within individual countries, Witan's portfolio is well diversified across regional stock markets and, importantly, across a range of managers. In addition, the exposure to more rapidly growing and emerging economies has been increased. As expected in a multi-manager portfolio, individual manager returns vary; however, in 2010, all of Witan's managers who were in place for the whole of 2010 outperformed their respective benchmarks during the year. In addition, five out of the six who were replaced outperformed their benchmarks. This combined performance, along with the timely use of gearing, helped to generate a NAV total return of 18.9%, 3.4% ahead of the Witan benchmark which returned 15.5%.
Witan is predominantly equity based but the remit allows investment in other areas when considered appropriate, either to enhance returns or to mitigate risk. In normal market circumstances, equity exposure can be expected to be at least 80%, while gearing, as noted elsewhere, is managed within an overall maximum level of 20%.
Page 15 of 32
WITAN INVESTMENT TRUST PLC
Annual Financial Report for the year ended 31 December 2010
Directors' Report: Business Review continued
The table below shows the current investment management arrangements:
|
Equity mandate |
Investment Manager |
Benchmark |
Investment style |
|
UK |
Artemis Investment Management |
FTSE All-Share |
Recovery/special situations |
|
UK |
Lindsell Train |
FTSE All-Share |
Intrinsic value |
|
UK |
NewSmith Asset Management |
FTSE All-Share |
Flexible, thematic |
|
UK Smaller Companies |
Henderson Global Investors |
Hoare Govett Smaller Companies (ex investment companies) |
Growth at an attractive price |
|
Global |
Southeastern Asset Management |
FTSE All-World |
Value |
|
Global |
MFS Investment Management |
FTSE All-World |
Growth at an attractive price |
|
Global |
Thomas White International |
FTSE All-World |
Fundamental value |
|
Global |
Veritas Asset Management |
FTSE All-World |
Fundamental value, real return objective |
|
Pan-European |
Marathon Asset Management |
FTSE All-World Developed Europe |
Capital cycles |
|
Pan-European |
Varenne Capital Partners |
FTSE All-World Developed Europe |
Intrinsic value |
|
Asia Pacific (ex-Japan) |
Comgest |
FTSE All World Asia (ex Japan, Australia, New Zealand) |
Fundamental research |
|
Emerging Markets |
Trilogy |
MSCI Emerging Markets |
Fundamental, growth orientated |
|
Growth Opportunities |
Witan (direct holdings) |
Witan's external benchmark |
Opportunistic, mispriced assets, recovery, specialist funds |
Investment Managers
As set out in the table above, the portfolio consists of 12 separate external mandates managed by different fund management firms, in addition to the directly-held positions managed by the Chief Executive Officer.
Each of the managers is entitled to a base management fee, calculated according to the value of the assets under management, and/or a performance fee, calculated according to investment performance, relative to the benchmark applicable to the investment mandate. The fees for each of the segregated investment management agreements are subject to a cap in respect of each accounting year. Each agreement can be terminated on one month's notice. One of the investment mandates is operated via a fund vehicle, to simplify custody arrangements in emerging economies.
The base management fee rates range from nil to 0.9 per cent per annum and the performance fees range from nil to 25 per cent per annum of the relevant outperformance. All the fees are payable quarterly in arrears. The performance fees are payable on a pro rata basis, after a minimum initial period of one year.
Page 16 of 32
WITAN INVESTMENT TRUST PLC
Annual Financial Report for the year ended 31 December 2010
Directors' Report: Business Review continued
The average aggregate base management fee, weighted according to the value of the funds under management, was 0.35% as at 31 December 2010 (end 2009: 0.31%). On a similar basis, the average performance fee is 14% of outperformance of the relevant benchmark, subject in most cases to capping of payments for any particular year. As an illustration, if our managers uniformly outperformed their benchmarks by 3% after base management fees, this would generate a performance fee of 0.42% of net assets, giving total investment management fees of 0.77%. The actual fees payable will of course vary according both to the level of performance and the variation in performance between managers with higher or lower fees. Witan takes care to ensure that the fee levels it pays are competitive and that where higher fees are incurred they are linked to good performance, from which shareholders benefit.
The investment managers may use certain services which are paid for, or provided by, various brokers. In return, they may place business, including transactions relating to the Company, with those brokers.
Manager Review
The table below shows the performance of the individual equity managers for 2010 as well as since inception, compared with their respective benchmarks. The standout absolute performer in 2010 was the smaller companies portfolio managed by Henderson, which delivered a total return of 43%, 14% ahead of its benchmark. The strongest relative performer was the concentrated stock portfolio managed by Varenne, which saw a total return of 31%, 23% ahead of its benchmark. All the managers in place for the full year outperformed.
The outperformance from most of the managers whose mandates were closed during the year underscores the point that the reason for the changes related principally to a shift towards a more active, unconstrained stock-picking structure for Witan's portfolio, not to manager shortcomings.
In the UK, the management of our assets was substantially changed during the year by the replacement of the UK enhanced index mandate and the merger of Marathon's UK portfolio into a new and larger pan-European portfolio. The two mandates in place for the full year, Artemis and Henderson smaller companies, both outperformed. As noted earlier, the smaller companies portfolio was a particularly strong performer.
The two new active managers appointed in September have had a good start, keeping pace with the strong rally in the market since their appointment.
Our three global stock picking managers all outperformed their global benchmark, with Southeastern's value-driven concentrated style proving the most successful. This illustrates the merits of taking a long-term view of manager performance, given that their deep value style struggled to perform during the momentum led bull market prior to 2008 but has been creating value since the markets troughed. Witan added a fourth global manager, Veritas, in November, for whom it is too soon to comment on performance.
Aside from European holdings within the global managers' portfolios, Witan has two managers with pan-European UK remits. Varenne is a small, intrinsic-value focused concentrated stock picker and performed very strongly, against an unpromising European market backdrop. Its relative return of 23% was the strongest in Witan's portfolio although the absolute gain came second to the UK smaller companies portfolio. Marathon, the other pan-European manager, was appointed in July and has so far performed ahead of its European benchmark.
Page 17 of 32
WITAN INVESTMENT TRUST PLC
Annual Financial Report for the year ended 31 December 2010
Directors' Report: Business Review continued
Japan is a market where we have decided to cease using a specialist manager. Although Witan's manager outperformed the Japanese market during the six years of the appointment, Japan was such a poorly performing market that the mandate was a drain on Witan's overall returns. Although the 20 year relative decline of the Japanese market attracts the attention of contrarians, the attraction is diluted by the overvalued starting point in 1990. The yen's strength has offset some of the index decline and the record of companies being managed in shareholders' interests is mixed. We are watchful for signs of change but not currently convinced of the market's relative attractions. Our global managers are free to take positions in Japanese companies they perceive as attractive compared with opportunities elsewhere and we have tactical scope to vary Japanese market exposure using equity index futures (which were profitably employed during November).
Our Asian manager, Comgest, has performed ahead of the regional benchmark during the year, despite a fundamentally-driven investment style that was at a disadvantage during some of the more momentum-dominated phases of the market. During December, Witan also appointed a manager, Trilogy Global Advisors, for a global emerging markets portfolio. This, together with an increase in our global portfolios' exposure to faster growing and emerging economies, has increased the proportion of our assets exposed to countries with faster growth, which we believe will prove to be an enduring trend, albeit with bumps along the way.
Finally, as noted elsewhere, Witan has invested 6.5% of its assets in a number of investment companies, which offer exposure to areas of value or specialist growth in which our external managers would be unlikely to invest. To date, the bulk of this investment is in quoted private equity investment companies, as well as some exposure to property, smaller companies and distressed debt management. This portfolio is compared against the overall Witan composite benchmark, since it has a wide remit partly determined by gaps in Witan's overall exposure and needs to demonstrate that it can add value in the long-term relative to allocating the money to Witan's other managers. To date, performance has been behind Witan's average performance, although the average invested period for the holdings is under six months.
It is pleasing to note that, aside from their relative performance, all of Witan's portfolios (including those appointed shortly before the market downturn) are now ahead of their book cost (making shareholders actual, rather than simply relative, money).
|
Performance For the year ended 31 December 2010 and from inception to 31 December 2010 Investment Manager |
Inception Date
|
Value of Witan assets managed £m at 31.12.10 |
% of Witan's assets under management at 31.12.10 (Note 1) |
Performance in 2010 (%) |
Bench-mark Perfor-mance in 2010 (%) |
Performance since inception to 31.12.10 (%) (Note 2) |
Benchmark Performance since inception to 31.12.10 (%) (Note 2) |
|
Artemis Investment Management (UK) |
06.05.08 |
101.7 |
8.3 |
+20.3 |
+14.5 |
+9.6 |
+2.5 |
|
Lindsell Train (UK) (Note 3) |
01.09.10 |
117.2 |
9.5 |
n/a |
n/a |
+16.8 |
+11.5 |
|
NewSmith Asset Management (UK) (Note 3) |
01.09.10 |
114.4 |
9.3 |
n/a |
n/a |
+13.4 |
+11.5 |
|
Henderson Global Investors (UK smaller) |
31.08.04 |
31.2 |
2.5 |
+42.8 |
+28.5 |
+13.5 |
+12.1 |
|
Southeastern Asset Management (Global) |
30.09.04 |
156.6 |
12.8 |
+21.4 |
+16.7 |
+8.6 |
+9.8 |
|
MFS Investment Management (Global) |
30.09.04 |
118.6 |
9.7 |
+17.7 |
+16.7 |
+11.9 |
+9.8 |
|
Thomas White International (Global) |
28.09.07 |
122.6 |
10.0 |
+20.3 |
+16.7 |
+5.5 |
+4.4 |
|
Veritas Asset Management (Global) (Note 3) |
11.11.10 |
83.2 |
6.8 |
n/a |
n/a |
+4.2 |
+5.9 |
|
Marathon Asset Management (Pan-Europe) (Note 3) |
23.07.10 |
136.9 |
11.2 |
n/a |
n/a |
+12.8 |
+11.8 |
|
Varenne Capital Partners( Pan-Europe) |
30.04.08 |
31.7 |
2.6 |
+31.1 |
+8.2 |
+5.2 |
+0.8 |
|
Comgest (Asia Pacific (ex Japan)) |
31.07.07 |
81.6 |
6.6 |
+27.2 |
+25.6 |
+12.9 |
+12.4 |
|
Trilogy Global Advisors (Emerging markets) (Note 3) |
09.12.10 |
51.9 |
4.2 |
n/a |
n/a |
+4.2 |
+3.7 |
|
Witan Growth Opportunities (direct holdings) (Note 3) |
19.03.10 |
79.9 |
6.5 |
n/a |
n/a |
+3.3 |
+6.7 |
Page 18 of 32
WITAN INVESTMENT TRUST PLC
Annual Financial Report for the year ended 31 December 2010
Directors' Report: Business Review continued
Notes
1. Excluding cash balances held centrally by Witan and the unquoted investments.
2. The percentages are annualised where the inception date was before 2010
3. Part year only
Source: The WM Company.
The following table shows the investments with the widest variation above and below the weighting of the stocks in Witan's benchmark. Although stock selection is not driven by the significance of the stock in the index, the table gives a snapshot of the top overweight and underweight holdings (on a look through basis across our managers).
|
Top 10 Overweight Positions at 31 December 2010 |
|
|
|
|
|
|
|
Name |
Sector |
Portfolio Weighting minus Benchmark Weighting |
|
Electra Private Equity (including convertible bond) |
Equity Investment Instruments |
2.44 |
|
NKSJ Holdings |
Nonlife Insurance |
1.30 |
|
London Stock Exchange |
Financial Services |
1.15 |
|
3i Group |
Financial Services |
1.12 |
|
Schroders |
Financial Services |
1.11 |
|
Fairfax Financial |
Nonlife Insurance |
1.00 |
|
Sage |
Software & Computer Services |
0.96 |
|
DirecTV |
Media |
0.94 |
|
Dell |
Technology Hardware & Equipment |
0.92 |
|
ACS Actividades |
Construction & Materials |
0.90 |
|
Top 10 Underweight Positions at 31 December 2010 |
|
|
|
|
|
|
|
Name |
Sector |
Portfolio Weighting minus Benchmark Weighting |
|
Royal Dutch Shell |
Oil & Gas Producers |
-2.42 |
|
HSBC |
Financial Services |
-2.20 |
|
Vodafone |
Mobile Telecommunications |
-1.07 |
|
British American Tobacco |
Tobacco |
-0.93 |
|
Anglo American |
Mining |
-0.90 |
|
BG Group |
Oil & Gas Producers |
-0.54 |
|
Exxon Mobil |
Oil & Gas Producers |
-0.54 |
|
GlaxoSmithKline |
Pharmaceuticals &Biotechnology |
-0.47 |
|
Nestle |
Food Producers |
-0.46 |
|
BP |
Oil & Gas Producers |
-0.44 |
|
|
|
|
|
|
|
|
The top 50 holdings across the whole of Witan's portfolios are set out in the Annual Report. They represent 42.9% of Witan's portfolio (2009: 37%). This highlights the substantial diversification provided by our range of managers and global geographical exposure. Diversification does not mean index-hugging. What also stands out is the distinctive nature of our top 50. They represent 43% of Witan's portfolio but only 19% of the benchmark. Looked at another way, the benchmark's top 50 stocks represent 34.9% of that yardstick but Witan only 19% of its portfolio invested in them. The objective of using active managers is to hold a portfolio which will perform better than the benchmark, which means it has to be different from the benchmark. Witan meets this test.
Page 19 of 32
WITAN INVESTMENT TRUST PLC
Annual Financial Report for the year ended 31 December 2010
Directors' Report: Business Review continued
Outlook
2010's recovery in corporate profitability is expected to continue during 2011, as economic growth has picked up from a dip last summer. The process of retrenchment by overextended borrowers in developed economies and the pressure on banks to boost their capital ratios continue to act as headwinds to economic growth. The hope therefore is that the corporate sector will begin to raise capital investment to offset the cuts in government spending required to bring budget deficits down. There is also an assumption that monetary policy will remain very loose, to help borrowers reduce their debts and attract capital to refinance borrowings hanging over from the credit boom.
The recent widespread political change in Arab countries, including some important oil producers, has injected significant uncertainty into the economic outlook for 2011. A prolonged disruption to oil supplies would change current assumptions markedly for the worse. In a rational world, the dislocation to supplies would be limited, or brief, as producing countries' need for oil revenues is independent of the nature of the government. However, reason is not always in the ascendant during periods of rapid political change, so forecast of steady economic growth during 2011 must be made with greater caveats than usual.
Another threat is premature policy tightening. As long as growth in developed economies remains slow and fragile, there is a risk that rapid fiscal retrenchment or rises in interest rates could cause the recovery to stall. So far, this risk has been averted (helped by the US commitment to low rates and 'quantitative easing') but complacency is not warranted - some European countries are under market pressure to tighten fiscal policy to a degree that threatens to keep their economies in recession.
Inflation has gained increased attention in recent months, as strong demand growth in emerging economies, loose monetary policy, political unrest and climatic factors have contributed to a surge in commodity prices. This is posing dilemmas for developed economies (as a result of headline inflation rising in economies still subject to deflationary pressures), but the problems are more severe in emerging economies, where the cost of basic foodstuffs is a higher proportion of household budgets. In recent days, the world has been transfixed by the enormity of the earthquake in Japan and the subsequent inundation of a wide area of Japan's East coast by tsunamis. In a humbling demonstration of the forces of nature, many thousands have lost their lives or been displaced for an indefinite period and coastal towns and cities have been swept away. It is too soon to gauge the consequences, in the wake of the tragic loss of life and the damage to nuclear and other infrastructure.
The foregoing range of both man-made and natural events injects a significant amount of uncertainty into the outlook for economic planners and financial markets. The improving prior trend of economic momentum should help these problems to be surmounted but the conjunction of these factors has led to a correction in equity markets, reflecting greater concern over the near-term prospects for economic growth in general and the differing effects of these events on individual economies and companies.
Witan's Multi-Manager Approach
As referred to elsewhere in this report, Witan manages its portfolio using a multi-manager approach. This was adopted in 2004, in the belief that no single investment manager was likely to excel in all asset classes over economic cycles or longer time periods. Therefore, seeking to employ managers to invest in their areas of greatest competence has the potential both to improve returns and to reduce risk relative to using a single manager across the investment waterfront.
Page 20 of 32
WITAN INVESTMENT TRUST PLC
Annual Financial Report for the year ended 31 December 2010
Directors' Report: Business Review continued
The Board and the executive team are responsible for managing the portfolio's asset allocation, choosing a suitable range of managers to use their stock selection skills to implement the strategy, designing appropriate incentives and monitoring performance against targets.
Witan selects its managers from amongst those whose processes, principles and performance commend them as long term custodians of investors' wealth. We are seeking managers who can capture the longer term growth rewards from equity investment by focusing on fundamental value rather than chasing short term momentum. This fits with a fundamental dictum of equity investment, that whilst in the short term markets are a voting machine in the long term they are a weighing machine.
Central to this approach is the idea of balance. Just as exposure to a single market or a small number of investments can lead to volatile performance, so can investing with a single manager or a group of managers with the same philosophy. Witan's approach aims to balance different factors (such as value and growth, geographical diversification, concentrated versus widely diversified portfolios and secular growth versus cyclical trends) with the intention of smoothing out stylistic fashions and profiting from the managers' ability to outperform over time.
Our Current Managers
The tables on pages 15 and 17 give a summary of the range of styles amongst our current investment managers, the proportion of Witan's portfolio they manage and their performance over the past year and since appointment. Further information is given in the Annual Report about the managers' history, the total amount of investments they manage and their investment approach. These are intended to give a sense of the investment infrastructure and dynamics underlying the management of the portfolio.
An Evolving Process
Witan's multi-manager approach has evolved in stages from its pre 2004 model as a Company with a single manager. 2010 was a year of significant change, with the aims of adding to future performance and giving greater clarity over Witan's investment policy. Our investment processes are focused on continuing to adapt to structural changes and themes in the global economy while being resilient against the shorter term influences of economic cycles and investment fads.
Page 21 of 32
WITAN INVESTMENT TRUST PLC
Annual Financial Report for the year ended 31 December 2010
Corporate Key Performance Indicators
|
|
31 December 2010 |
31 December 2009 |
% change |
|
Share price |
516.5p |
444.6p |
+16.2 |
|
Net asset value per ordinary share (debt at par value) |
584.4p |
502.7p |
+16.3 |
|
Net asset value per ordinary share (debt at fair value) |
578.1p |
497.0p |
+16.3 |
|
Dividends per ordinary share |
10.9p |
10.5p |
+3.8 |
|
Discount (debt at par value) |
11.6% |
11.6% |
|
|
Discount (debt at fair value ) (A) |
10.7% |
10.5% |
|
|
Share buy-backs (B) |
4.0% |
5.1% |
|
|
Total expense ratio including performance fees (C) |
1.07% |
0.99% |
|
|
Total expense ratio excluding performance fees (C) |
0.81% |
0.72% |
|
|
Number of private investors (D) |
36,595 |
36,703 |
|
(A) The average discount in 2010 was 11.1%. (2009: 11.0%). (Source: Datastream)
(B) The percentage of the ordinary share capital in issue at the previous year end that was bought back during the year.
(C) The total of the management fees and other administrative expenses (excluding the expenses of the subsidiary company) as a percentage of the average of shareholders' funds at the beginning and end of the year.
(D) The sum of the number of accounts on the Company's register of members and the number of accounts in Witan Wisdom and Jump Savings.
Performance
|
Total returns to 31 December 2010 |
1 year % return |
3 years % return |
5 years % return |
|
Total shareholder return (E) |
18.9 |
16.7 |
40.6 |
|
Net asset value total return (F) |
18.9 |
15.6 |
38.1 |
|
Benchmark (G) |
15.5 |
9.4 |
31.6 |
|
FTSE All-Share Index (H) |
14.5 |
4.4 |
28.4 |
|
FTSE World (ex UK) Index (H) |
16.7 |
15.0 |
33.2 |
(E) The movement in the ordinary share price adjusted to include the notional reinvestment of dividends.
(F) The movement in the net asset value per share adjusted to include the notional reinvestment of dividends.
(G) Source: Lipper. Since 1 October 2007 the benchmark has been a composite of four indices: the FTSE All-Share Index 40%, the FTSE All-World North America Index 20%, the FTSE All-World Europe (ex UK) Index 20% and the FTSE All-World Asia Pacific Index 20%. From 1 September 2004 to 30 September 2007 the benchmark consisted of the FTSE All-Share Index 50% and the FTSE World (ex UK) Index 50%.
(H) Source: Lipper
Other Financial Information
|
|
31 December 2010 |
31 December 2009 |
% change |
|
Net assets |
£1,141,765,000 |
£1,022,819,000 |
+11.6 |
|
Number of ordinary shares in issue |
195,375,220 |
203,464,280 |
-4.0 |
|
Revenue return per ordinary share |
9.45p |
10.63p |
-11.1 |
|
Gearing* |
5.4% |
5.0% |
|
* The total market value of the investments less shareholders' funds as a percentage of shareholders' funds.
Page 22 of 32
WITAN INVESTMENT TRUST PLC
Annual Financial Report for the year ended 31 December 2010
Directors' Report: Statement of Directors' Responsibilities
Statement under DTR 4.1.12
The directors as at the date of this report each confirm to the best of their knowledge that:
(a) the financial statements, prepared in accordance with International Financial Reporting Standards as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and
(b) the management report, which is incorporated into the Directors' Report, includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.
For and on behalf of the Board
H M Henderson
Chairman
15 March 2011
A L C Bell
Chief Executive Officer
15 March 2011
Page 23 of 32
WITAN INVESTMENT TRUST PLC
Annual Financial Report for the year ended 31 December 2010
Consolidated Statement of Comprehensive Income
for the year ended 31 December 2010
|
|
Year ended 31 December 2010 |
Year ended 31 December 2009 |
||||
|
|
Revenue return £'000 |
Capital return £'000 |
Total £'000 |
Revenue Return £'000 |
Capital Return £'000 |
Total £'000 |
|
Investment income (note 2) |
28,021 |
- |
28,021 |
29,199 |
- |
29,199 |
|
Other income (note 3) |
1,365 |
- |
1,365 |
2,304 |
- |
2,304 |
|
Gains on investments held at fair value through profit or loss |
- |
169,686 |
169,686 |
- |
196,885 |
196,885 |
|
|
---------- |
---------- |
---------- |
---------- |
---------- |
---------- |
|
Total income |
29,386 |
169,686 |
199,072 |
31,503 |
196,885 |
228,388 |
|
|
|
|
|
|
|
|
|
Expenses |
|
|
|
|
|
|
|
Management fees (note 4) |
(776) |
(5,161) |
(5,937) |
(583) |
(4,310) |
(4,893) |
|
Write-back of prior years' VAT (note 8) |
75 |
- |
75 |
1,249 |
- |
1,249 |
|
Other expenses |
(6,195) |
(387) |
(6,582) |
(5,172) |
(74) |
(5,246) |
|
|
---------- |
---------- |
---------- |
---------- |
---------- |
---------- |
|
Profit before finance costs and taxation |
22,490 |
164,138 |
186,628 |
26,997 |
192,501 |
219,498 |
|
|
|
|
|
|
|
|
|
Finance costs |
(2,046) |
(5,888) |
(7,934) |
(2,146) |
(6,189) |
(8,335) |
|
|
---------- |
---------- |
---------- |
---------- |
---------- |
---------- |
|
Profit before taxation |
20,444 |
158,250 |
178,694 |
24,851 |
186,312 |
211,163 |
|
|
|
|
|
|
|
|
|
Taxation |
(1,715) |
- |
(1,715) |
(2,327) |
723 |
(1,604) |
|
|
---------- |
---------- |
---------- |
---------- |
---------- |
---------- |
|
Profit attributable to equity holders of the parent company |
18,729 |
158,250 |
176,979 |
22,524 |
187,035 |
209,559 |
|
|
====== |
====== |
====== |
====== |
====== |
====== |
|
|
|
|
|
|
|
|
|
Earnings per ordinary share (note 5) |
9.45p |
79.87p |
89.32p |
10.63p |
88.27p |
98.90p |
|
|
====== |
====== |
====== |
====== |
====== |
====== |
The total column of this statement represents the Group's Statement of Comprehensive Income, prepared in accordance with IFRSs as adopted by the European Union.
The revenue return and capital return columns are supplementary to this and are prepared under guidance published by the Association of Investment Companies.
The Group does not have any Other Comprehensive Income and hence the net profit, as disclosed above, is the same as the Group's Total Comprehensive Income.
All items in the above statement derive from continuing operations.
The net profit for the year of the Company was £176,979,000 (2009: £209,559,000).
All income is attributable to the equity holders of Witan Investment Trust plc, the parent company. There are no minority interests.
Page 24 of 32
WITAN INVESTMENT TRUST PLC
Annual Financial Report for the year ended 31 December 2010
Consolidated and Individual Company Statements of Changes in Equity
for the year ended 31 December 2010
|
Group Year ended 31 December 2010
|
Ordinary share capital £'000 |
Share premium account £'000 |
Capital redemption reserve £'000 |
Other capital reserves £'000 |
Revenue reserve £'000 |
Total £'000 |
||
|
Total equity at 31 December 2009 |
50,866 |
16,237 |
42,960 |
859,595 |
53,161 |
1,022,819 |
||
|
Total comprehensive income: Profit for the year |
- |
- |
- |
158,250 |
18,729 |
176,979 |
||
|
Transactions with owners, recorded directly to equity: Ordinary dividends paid |
- |
- |
- |
- |
(21,072) |
(21,072) |
||
|
Buy-backs of ordinary shares |
(2,022) |
- |
2,022 |
(36,961) |
- |
(36,961) |
||
|
|
----------- |
--------- |
--------- |
------------- |
---------- |
------------- |
||
|
Total equity at 31 December 2010 |
48,844 |
16,237 |
44,982 |
980,884 |
50,818 |
1,141,765 |
||
|
|
====== |
===== |
===== |
======= |
====== |
======= |
||
|
|
|
|||||||
|
Company Year ended 31 December 2010 |
Ordinary share capital £'000 |
Share premium account £'000 |
Capital redemption reserve £'000 |
Other capital reserves £'000 |
Revenue reserve £'000 |
Total £'000 |
||
|
Total equity at 31 December 2009 |
50,866 |
16,237 |
42,960 |
859,711 |
53,045 |
1,022,819 |
||
|
Total comprehensive income: Profit for the year |
- |
- |
- |
158,297 |
18,682 |
176,979 |
||
|
Transactions with owners, recorded directly to equity: Ordinary dividends paid |
- |
- |
- |
- |
(21,072) |
(21,072) |
||
|
Buy-backs of ordinary shares |
(2,022) |
- |
2,022 |
(36,961) |
- |
(36,961) |
||
|
|
----------- |
--------- |
--------- |
--------- |
--------- |
--------- |
||
|
Total equity at 31 December 2010 |
48,844 |
16,237 |
44,982 |
981,047 |
50,655 |
1,141,765 |
||
|
|
====== |
===== |
===== |
====== |
===== |
======= |
||
|
|
|
|||||||
|
Group Year ended 31 December 2009 |
Ordinary share capital £'000 |
Share premium account £'000 |
Capital redemption reserve £'000 |
Other capital reserves £'000 |
Revenue reserve £'000 |
Total £'000 |
||
|
Total equity at 31 December 2008 |
53,600 |
16,237 |
40,226 |
716,756 |
52,428 |
879,247 |
||
|
Total comprehensive income: Profit for the year |
- |
- |
- |
187,035 |
22,524 |
209,559 |
||
|
Transactions with owners, recorded directly to equity: Ordinary dividends paid |
- |
- |
- |
- |
(21,791) |
(21,791) |
||
|
Buy-backs of ordinary shares |
(2,734) |
- |
2,734 |
(44,196) |
- |
(44,196) |
||
|
|
----------- |
--------- |
--------- |
------------- |
---------- |
------------- |
||
|
Total equity at 31 December 2009 |
50,866 |
16,237 |
42,960 |
859,595 |
53,161 |
1,022,819 |
||
|
|
====== |
===== |
===== |
======= |
====== |
======= |
||
|
|
|
|||||||
|
Company Year ended 31 December 2009 |
Ordinary share capital £'000 |
Share premium account £'000 |
Capital redemption reserve £'000 |
Other capital reserves £'000 |
Revenue reserve £'000 |
Total £'000 |
||
|
Total equity at 31 December 2008 |
53,600 |
16,237 |
40,226 |
716,897 |
52,287 |
879,247 |
||
|
Total comprehensive income: Profit for the year |
- |
- |
- |
187,010 |
22,549 |
209,559 |
||
|
Transactions with owners, recorded directly to equity: Ordinary dividends paid |
- |
- |
- |
- |
(21,791) |
(21,791) |
||
|
Buy-backs of ordinary shares |
(2,734) |
- |
2,734 |
(44,196) |
- |
(44,196) |
||
|
|
----------- |
--------- |
--------- |
--------- |
--------- |
--------- |
||
|
Total equity at 31 December 2009 |
50,866 |
16,237 |
42,960 |
859,711 |
53,045 |
1,022,819 |
||
|
|
====== |
===== |
===== |
====== |
===== |
======= |
||
Page 25 of 32
WITAN INVESTMENT TRUST PLC
Annual Financial Report for the year ended 31 December 2010
Consolidated and Individual Company Balance Sheets
for the year ended 31 December 2010
|
|
Group 31 December 2010 £'000 |
Company 31 December 2010 £'000 |
Group 31 December 2009 £'000 |
Company 31 December 2009 £'000 |
|
Non current assets |
|
|
|
|
|
Investments held at fair value through profit or loss |
1,203,675 |
1,204,738 |
1,074,189 |
1,075,205 |
|
|
------------ |
------------ |
------------ |
------------ |
|
Current assets |
|
|
|
|
|
Other receivables |
4,986 |
5,918 |
5,978 |
6,251 |
|
Cash and cash equivalents |
52,510 |
50,357 |
58,638 |
57,084 |
|
|
------------ |
------------- |
------------ |
------------- |
|
|
57,496 |
56,275 |
64,616 |
63,335 |
|
|
------------ |
------------ |
------------ |
------------ |
|
|
|
|
|
|
|
Total assets |
1,261,171 |
1,261,013 |
1,138,805 |
1,138,540 |
|
|
------------ |
------------ |
------------ |
------------ |
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
Other payables |
(9,160) |
(9,002) |
(5,820) |
(5,555) |
|
|
------------- |
------------- |
------------- |
------------- |
|
Total assets less current liabilities |
1,252,011 |
1,252,011 |
1,132,985 |
1,132,985 |
|
|
------------- |
------------- |
------------- |
------------- |
|
|
|
|
|
|
|
Non current liabilities At amortised cost: |
|
|
|
|
|
8½ per cent. Debenture Stock 2016 |
(44,589) |
(44,589) |
(44,589) |
(44,589) |
|
6.125 per cent. Secured Bonds due 2025 |
(63,102) |
(63,102) |
(63,022) |
(63,022) |
|
3.4 per cent. cumulative preference shares of £1 |
(2,055) |
(2,055) |
(2,055) |
(2,055) |
|
2.7 per cent. cumulative preference shares of £1 |
(500) |
(500) |
(500) |
(500) |
|
|
------------ |
------------ |
------------ |
------------ |
|
|
(110,246) |
(110,246) |
(110,166) |
(110,166) |
|
|
------------ |
------------ |
------------ |
------------ |
|
|
|
|
|
|
|
Net assets |
1,141,765 |
1,141,765 |
1,022,819 |
1,022,819 |
|
|
======= |
======= |
======= |
======= |
|
|
|
|
|
|
|
Equity attributable to equity holders |
|
|
|
|
|
Ordinary share capital |
48,844 |
48,844 |
50,866 |
50,866 |
|
Share premium account |
16,237 |
16,237 |
16,237 |
16,237 |
|
Capital redemption reserve |
44,982 |
44,982 |
42,960 |
42,960 |
|
Retained earnings: |
|
|
|
|
|
Other capital reserves |
980,884 |
981,047 |
859,595 |
859,711 |
|
Revenue reserve |
50,818 |
50,655 |
53,161 |
53,045 |
|
|
------------ |
------------ |
------------ |
------------ |
|
Total equity |
1,141,765 |
1,141,765 |
1,022,819 |
1,022,819 |
|
|
======= |
======= |
======= |
======= |
|
|
|
|
|
|
|
Net asset value per ordinary share |
584.4p |
584.4p |
502.7p |
502.7p |
|
|
======= |
======= |
======= |
======= |
Page 26 of 32
WITAN INVESTMENT TRUST PLC
Annual Financial Report for the year ended 31 December 2010
Consolidated and Individual Company Cash Flow Statements
for the year ended 31 December 2010
|
|
Group Year ended 31 December 2010 £'000 |
Company Year ended 31 December 2010 £'000 |
Group Year ended 31 December 2009 £'000 |
Company Year ended 31 December 2009 £'000 |
|
Operating activities |
|
|
|
|
|
Profit before taxation |
178,694 |
178,694 |
211,163 |
211,163 |
|
Interest paid |
7,909 |
7,909 |
8,233 |
8,233 |
|
Gains on investments held at fair value through profit or loss |
(169,686) |
(169,733) |
(196,885) |
(196,860) |
|
Net sales of investments held at fair value through profit or loss |
33,295 |
33,295 |
17,248 |
17,248 |
|
Net gain from futures contracts |
8,984 |
8,984 |
1,101 |
1,101 |
|
Scrip dividends included in investment income |
- |
- |
(94) |
(94) |
|
Decrease/(increase) in other receivables |
397 |
(262) |
1,367 |
1,468 |
|
(Decrease)/increase in other payables |
(76) |
31 |
864 |
752 |
|
|
------------ |
------------ |
------------ |
------------ |
|
Net cash inflow from operating activities before interest and taxation |
59,517 |
58,918 |
42,997 |
43,011 |
|
Interest paid |
(7,909) |
(7,909) |
(8,233) |
(8,233) |
|
Amortisation of debt issue costs |
80 |
80 |
79 |
79 |
|
Tax on overseas income |
(1,877) |
(1,877) |
(1,513) |
(1,513) |
|
|
------------ |
------------ |
------------ |
------------ |
|
Net cash inflow from operating activities |
49,811 |
49,212 |
33,330 |
33,344 |
|
|
------------ |
------------ |
------------ |
------------ |
|
|
|
|
|
|
|
Financing activities |
|
|
|
|
|
Equity dividends paid |
(21,072) |
(21,072) |
(21,791) |
(21,791) |
|
Buy-backs of ordinary shares |
(36,561) |
(36,561) |
(44,316) |
(44,316) |
|
Buy-backs of secured bonds and debenture stock |
- |
- |
(32,038) |
(32,038) |
|
|
------------ |
------------ |
------------ |
------------ |
|
Net cash outflow from financing activities |
(57,633) |
(57,633) |
(98,145) |
(98,145) |
|
|
------------ |
------------ |
------------ |
------------ |
|
|
|
|
|
|
|
Decrease in cash and cash equivalents |
(7,822) |
(8,421) |
(64,815) |
(64,801) |
|
Cash and cash equivalents at the start of the year |
58,638 |
57,084 |
124,383 |
122,815 |
|
Effect of foreign exchange rate changes |
1,694 |
1,694 |
(930) |
(930) |
|
|
------------ |
------------ |
------------ |
------------ |
|
Cash and cash equivalents at the end of the year |
52,510 |
50,357 |
58,638 |
57,084 |
|
|
======= |
======= |
======= |
======= |
Page 27 of 32
WITAN INVESTMENT TRUST PLC
Annual Financial Report for the year ended 31 December 2010
Notes to the Financial Statements
for the year ended 31 December 2010
|
1. |
Accounting policies |
|
|
The financial statements of the Group have been prepared in accordance with International Financial Reporting Standards ('IFRSs') as adopted by the European Union and therefore the Group financial statements comply with Article 4 of the EU IAS Regulation. These comprise standards and interpretations approved by the International Accounting Standards Board ('IASB'), together with interpretations of the International Accounting Standards and Standing Interpretations Committee approved by the International Accounting Standards Committee ('IASC') that remain in effect, to the extent that they have been adopted by the European Union.
|
|
|
These financial statements are presented in pounds sterling because that is the currency of the primary economic environment in which the Group operates. |
|
|
(a) |
Basis of preparation |
|
|
|
The financial statements have been prepared on the historical cost basis, except for the revaluation of certain financial instruments. The principal accounting policies adopted are set out below. Where presentational guidance set out in the Statement of Recommended Practice Financial Statements of Investment Trust Companies ('the SORP') issued by the Association of Investment Companies ('the AIC') in January 2009 is consistent with the requirements of IFRSs as adopted by the European Union, the directors have sought to prepare the financial statements on a basis compliant with the recommendations of the SORP.
|
|
|
(b) |
Going concern |
|
|
|
The Group's business activities, together with the factors likely to affect its future development and performance, are set out in the Business Review section of the Directors' Report on pages 5 to 20 above. The financial position of the Group as at 31 December 2010 is shown in the balance sheet on page 25 above. The cash flows of the Group for the year ended 31 December 2010, which are not untypical, are set out on page 26 above. The Company had fixed debt and preference share capital totalling £110,246,000; none of the borrowings is repayable before 2016. The Group had no short term borrowings at 31 December 2010 but shortly before the year end put in place a one year secured multi-currency borrowing facility for £50 million. The notes to the Financial Statements in the Annual Report set out the Group's risk management policies and procedures, including those covering currently risk, interest rate risk and liquidity risk. As at 31 December 2010 the Group's total assets less current liabilities exceeded its total non current liabilities by a multiple of over ten. The assets of the Group consist mainly of securities that are held in accordance with the Company's investment policy, as set out on page 11 above. Most of these securities are readily realisable even in more volatile markets. The directors, who have reviewed carefully the Group's budget and forecast for the coming year, consider that the Group has adequate financial resources to enable it to continue in operational existence for the foreseeable future. Accordingly, the directors believe that it is appropriate to continue to adopt the going concern basis in preparing the Group's accounts.
|
|
|
(c) |
Basis of consolidation |
|
|
|
The consolidated financial statements incorporate the financial statements of the Company and the entity controlled by the Company (its subsidiary) made up to 31 December each year. Control is achieved where the Company has the power to govern the financial and operating policies of an investee entity so as to obtain benefits from its activities. Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used by them into line with those used by the Group. All intra-group transactions, balances, income and expenses are eliminated on consolidation.
|
|
|
(d) |
Presentation of the Statement of Comprehensive Income |
|
|
|
In order to better reflect the activities of an investment trust company, and in accordance with guidance issued by the AIC, supplementary information which analyses the Statement of Comprehensive Income between items of a revenue and capital nature has been presented alongside the Statement of Comprehensive Income. In accordance with the Company's status as a UK investment company under section 833 of the Companies Act 2006, net capital returns may not be distributed by way of dividend. Additionally, the net revenue is the measure the directors believe appropriate in assessing the Group's compliance with certain requirements set out in section 1158 of the Corporation Tax Act 20100 (formerly section 842 of the Income and Corporation Taxes Act 1988). |
Page 28 of 32
WITAN INVESTMENT TRUST PLC
Annual Financial Report for the year ended 31 December 2010
Notes to the Financial Statements continued
|
2. |
Investment income |
|
|
|
|
|
Year ended 31 December 2010 £'000 |
Year ended 31 December 2009 £'000 |
|
|
Investment income |
|
|
|
|
Franked: |
|
|
|
|
UK dividends from listed investments |
11,515 |
13,401 |
|
|
Special dividends from listed investments |
19 |
- |
|
|
UK dividends from unquoted investments |
53 |
308 |
|
|
|
---------- |
---------- |
|
|
|
11,587 |
13,709 |
|
|
|
---------- |
---------- |
|
|
Unfranked: |
|
|
|
|
Overseas dividends from listed investments |
16,253 |
14,643 |
|
|
Property income dividends |
53 |
111 |
|
|
Scrip dividends from listed investments |
- |
94 |
|
|
Overseas fixed interest and convertible bonds |
128 |
642 |
|
|
|
--------- |
--------- |
|
|
|
16,434 |
15,490 |
|
|
|
--------- |
--------- |
|
|
|
|
|
|
|
Total investment income |
28,021 |
29,199 |
|
|
|
===== |
===== |
|
|
|
|
|
|
|
Analysis of investment income by geographical segment: |
|
|
|
|
United Kingdom |
11,708 |
14,075 |
|
|
North America |
2,818 |
3,429 |
|
|
Continental Europe |
8,026 |
7,346 |
|
|
Japan |
2,091 |
1,994 |
|
|
Asia Pacific (ex Japan) |
2,573 |
2,111 |
|
|
South America |
117 |
229 |
|
|
Other |
688 |
15 |
|
|
|
-------- |
-------- |
|
|
|
28,021 |
29,199 |
|
|
|
===== |
===== |
|
3. |
Other income
|
|
|
|
|
Deposit interest |
124 |
252 |
|
|
Stock lending income |
217 |
30 |
|
|
Underwriting commission |
135 |
134 |
|
|
Income from subsidiary company's third party business |
840 |
724 |
|
|
Interest on VAT recovered |
- |
984 |
|
|
Other income |
49 |
180 |
|
|
|
-------- |
-------- |
|
|
|
1,365 |
2,304 |
|
|
|
===== |
===== |
Page 29 of 32
WITAN INVESTMENT TRUST PLC
Annual Financial Report for the year ended 31 December 2010
Notes to the Financial Statements continued
|
4. |
Management fees |
|
|||||
|
|
|
Year ended 31 December 2010 |
Year ended 31 December 2009 |
||||
|
|
|
Revenue £'000 |
Capital £'000 |
Total £'000 |
Revenue £'000 |
Capital £'000 |
Total £'000 |
|
|
Management fees |
776 |
2,328 |
3,104 |
583 |
1,747 |
2,330 |
|
|
Performance fees |
- |
2,833 |
2,833 |
- |
2,563 |
2,563 |
|
|
|
--------- |
--------- |
--------- |
--------- |
--------- |
--------- |
|
|
|
776 |
5,161 |
5,937 |
583 |
4,310 |
4,893 |
|
|
|
===== |
===== |
===== |
===== |
===== |
===== |
|
5. |
Earnings per ordinary share |
||
|
|
The earnings per ordinary share figure is based on the net profit for the year of £176,979,000 (2009: £209,559,000) and on 198,139,038 ordinary shares (2009: 211,898,833), being the weighted average number of ordinary shares in issue during the year.
The earnings per ordinary share figure detailed above can be further analysed between revenue and capital, as below. The Company has no securities in issue that could dilute the return per ordinary share. Therefore the basic and diluted earnings per ordinary share are the same.
|
||
|
|
|
Year ended 31 December 2010 £'000 |
Year ended 31 December 2009 £'000 |
|
|
|
|
|
|
|
Net revenue profit |
18,729 |
22,524 |
|
|
Net capital profit |
158,250 |
187,035 |
|
|
|
---------- |
---------- |
|
|
Net total profit |
176,979 |
209,559 |
|
|
|
======= |
======= |
|
|
Weighted average number of ordinary shares in issue during the year |
198,139,038 |
211,898,833 |
|
|
|
|
|
|
|
|
Pence |
Pence |
|
|
Revenue earnings per ordinary share |
9.45 |
10.63 |
|
|
Capital earnings per ordinary share |
79.87 |
88.27 |
|
|
|
--------- |
--------- |
|
|
Total earnings per ordinary share |
89.32 |
98.90 |
|
|
|
===== |
===== |
|
|
|
||
|
6. |
Issued share capital |
|
|
|
|
The number of ordinary shares of 25p each in issue at 31 December 2010 was 195,375,220 (2009: 203,464,280). |
||
Page 30 of 32
WITAN INVESTMENT TRUST PLC
Annual Financial Report for the year ended 31 December 2010
Notes to the Financial Statements continued
|
7. |
Dividends |
||
|
|
|
Year ended 31 December 2010 £'000 |
Year ended 31 December 2009 £'000 |
|
|
Amounts recognised as distributions to equity holders in the year: |
|
|
|
|
Second interim dividend for the year ended 31 December 2009 of 6.20p (2008: 5.90p) per ordinary share |
12,407 |
12,629 |
|
|
First interim dividend for the year ended 31 December 2010 of 4.40p (2009: 4.30p) per ordinary share |
8,665 |
9,162 |
|
|
|
---------- |
---------- |
|
|
|
21,072 |
21,791 |
|
|
|
====== |
====== |
|
|
Second interim dividend for the year ended 31 December 2010 of 6.50p (2009: 6.20p) per ordinary share |
12,654 |
12,407 |
|
|
|
====== |
====== |
|
|
|
|
|
|
|
The second interim dividend has not been included as a liability in these financial statements. |
||
|
|
|
||
|
|
Total in respect of the year: |
|
|
|
|
Set out below is the total dividend to be paid in respect of the year. This is the basis on which the requirements of section 1158 of the Corporation Tax Act 2010 are considered. |
||
|
|
|
||
|
|
|
Year ended 31 December 2010 £'000
|
Year ended 31 December 2009 £'000 |
|
|
Revenue profits available for distribution |
18,729 |
22,524 |
|
|
First interim dividend for the year ended 31 December 2010 of 4.40p (2009: 4.30p) per ordinary share |
(8,665) |
(9,162) |
|
|
Second interim dividend for the year ended 31 December 2010 of 6.50p (2009: 6.20p) per ordinary share |
(12,654) |
(12,407) |
|
|
|
---------- |
---------- |
|
|
Revenue (deficit)/surplus for the year |
(2,590) |
955 |
|
|
|
====== |
====== |
|
|
|
|
|
|
8. |
Value Added Tax on management fees |
|
|
Following the decision of the European Court of Justice in 2007 that Value Added Tax ('VAT') should not be charged on fees paid for management services provided to investment trust companies, the Company received, over the three previous financial years (ie the three years up to 31 December 2009), refunds of VAT totalling £3,264,000 (relating to management fees paid during the periods 1990 to 1996 and 2000 to 2007) and £1,191,000 of simple interest on those VAT refunds. During the year the Company received a further £75,000 in respect of the VAT on investment administration fees incurred between 2004 and 2007. No further VAT refunds or interest were expected or received during the year under review. The write-backs of VAT were allocated between revenue return and capital return according to the allocation of the amounts originally paid. The £75,000 recognised in the year had been allocated wholly to the revenue return. The interest paid by HMRC on the VAT recovered was included in other income. |
|
|
|
|
|
There remain outstanding claims relating to the period 1996 to 2000 and claims for compound interest from 1990 onwards. No amounts have been recognised in respect of these claims as it is currently uncertain whether any further amounts will be recovered. |
Page 31 of 32
WITAN INVESTMENT TRUST PLC
Annual Financial Report for the year ended 31 December 2010
Notes to the Financial Statements continued
|
9. |
2010 Accounts |
|
|
The figures and financial information for 2010 are extracted from the Annual Report and Financial Statements for the year ended 31 December 2010 and do not constitute the statutory accounts for the year. The Annual Report and Financial Statements includes the Report of the Independent Auditors which is unqualified and does not contain a statement under either section 498(2) or section 498(3) of the Companies Act 2006. The Annual Report and Financial Statements has not yet been delivered to the Registrar of Companies. |
|
10. |
2009 Accounts |
|
|
The figures and financial information for 2009 are extracted from the published Annual Report and Financial Statements for the year ended 31 December 2009 and do not constitute the statutory accounts for that year. The Annual Report and Financial Statements has been delivered to the Registrar of Companies and included the Report of the Independent Auditors which was unqualified and did not contain a statement under either section 498(2) or section 498(3) of the Companies Act 2006. |
|
11. |
Annual Report and Financial Statements |
|
|
Copies of the Annual Report and Financial Statements will be posted to shareholders by the end of March 2011 and will be available on the Company's website (www.witan.com) or in hard copy format from the Registered Office, 14 Queen Anne's Gate, London, SW1H 9AA.
The Annual General Meeting will be held at 2.30 pm on Tuesday 10 May 2011 at Merchant Taylors' Hall, 30 Threadneedle Street, London EC2R 8JB.
|
Page 32 of 32
WITAN INVESTMENT TRUST PLC
Annual Financial Report for the year ended 31 December 2010
For further information please contact:
Andrew Bell
Chief Executive Officer
Witan Investment Trust plc
Telephone: 020 7227 9770
James Frost
Marketing Director
Witan Investment Trust plc
Telephone: 020 7227 9770
Jain Castiau, Director
Cauldron Consulting
Tel: 020 3718 7236/07909 963969
- ENDS -
Neither the contents of the Company's website nor the contents of any website accessible from hyperlinks on the Company's website (or any other website) is incorporated into, or forms part of, this announcement.
This information is provided by RNS