Annual Financial Report
Keystone Investment Trust plc
Annual Financial Report Announcement
for the Year Ended 30 September 2011
FINANCIAL INFORMATION AND PERFORMANCE STATISTICS
Performance Statistics
AT AT
30 SEPTEMBER 30 SEPTEMBER %
2011 2010 CHANGE
Assets
Net assets attributable to ordinary 164,253 162,154 +1.3
shareholders (£'000)
Net asset value per ordinary share 1228.6p 1212.9p +1.3
- with income reinvested +5.0
Share price (mid-market) of ordinary 1135.5p 1170.0p -2.9
shares
- with income reinvested +0.8
FTSE All-Share Index -7.4
- with income reinvested -4.4
Discount of share price to net asset
value per ordinary share (%):
- debt at par 7.6 3.5
- debt at fair value 5.1 1.7
Gearing - gross 19.4% 24.9%
- net 9.0% 7.5%
Revenue
Net revenue available for ordinary 6,085 5,428
shareholders (£'000)
Dividends per ordinary share - interim 17.5p 17.5p
- final 29.0p 28.0p
- total 46.5p 45.5p +2.2
Total expense ratio:
- excluding performance fee 1.0% 0.9%
- including performance fee 1.0% 0.9%
Historical Record - Last 10 Years
Net Net
revenue Revenue Net assets asset Mid-market
Year ended Gross available earnings Dividends attributable value price
30 for per per to per per
September revenue shares share share shareholders share share
£'000 £'000 p p £'000 p p
2002 3,786 2,647 19.4 25.5 78,286 585.6 455.0
2003 4,524 3,324 24.9 25.5 95,564 714.8 651.0
2004 5,659 4,298 32.2 30.0 111,224 832.0 754.0
2005 5,737 4,315(1) 32.2(1) 31.5 143,415(1) 1072.8(1) 963.0
2006 6,477 4,984 37.3 35.0 166,739 1247.2 1102.0
2007 7,099 5,566 41.6 40.0 179,197 1340.4 1190.0
2008 8,159 6,745 50.4 44.0 144,908 1083.9 940.0
2009 8,263 7,680 57.4 56.6(2) 150,252 1123.9 1008.0
2010 6,864 5,428 40.6 45.5 162,154 1212.9 1170.0
2011 7,391 6,085 45.5 46.5 164,253 1228.6 1135.5
(1) Restated for new UK Accounting Standards.
(2) Includes a special dividend of 11.1p per share.
CHAIRMAN'S STATEMENT
In the year to 30 September 2011, the Company's share price provided a total
return of +0.8%. The total return of the net asset value per share was +5.0%.
In the same period, the total return of the Company's benchmark for the purpose
of performance measurement, the FTSE All-Share Total Return Index, was -4.4%.
All these figures are with income reinvested. The discount of the share price
relative to net asset value per share widened to 7.6% from 3.5% at the end of
September 2010.
SINCE
APPOINTMENT OF
CURRENT MANAGER
SIX ONE ON 1 JANUARY
PERFORMANCE MONTHS YEAR 2003
Share Price Total Return -0.3% +0.8% +209.8%
NAV Total Return per share -2.6% +5.0% +163.8%
FTSE All-Share Total Return Index -11.8% -4.4% +90.3%
Source: Morningstar.
Gearing and investment guidelines
The Company's borrowings, in the form of long-term debentures, amount to £32
million after two of the debentures, the 10.25% Debenture Stock 2010 and the
11.375% Debenture Stock 2010/2015, were redeemed in full on 1 October 2010. The
net gearing of the Company is determined by the extent to which these
borrowings are invested in shares. The present position is that the Manager
must make no net purchases which would take equity exposure above 110% of net
assets, and has to make sales if, as a result of market movements, equity
exposure goes higher than 115% of net assets. It is up to the investment
manager to decide on exposure subject to those limits.
The Board takes responsibility for the Company's gearing strategy and sets
parameters within which the fund manager operates.
The Board has also authorised in the past some exposure to corporate bonds
which is not treated as equity exposure for the purposes of the gearing limits.
The maximum limit on corporate bond investments is £12 million. At the
year-end, bonds held by the Company amounted to only £0.7 million or 0.4% of
total investments.
Dividends
The Board has proposed a final dividend of 29p per share (2010: 28p), giving a
total dividend of 46.5p per share for the year (2010: 45.5p). Based on the
share price at the year-end, this total dividend represents a dividend yield of
4.1%. While the primary objective of the Company is long-term growth of
capital, the Board will continue to pay attention to the importance of
dividends to the Company's shareholders. This emphasis is in tune with the
Manager's focus on investing in companies which can maintain and increase
dividends. Revenue earnings per share in this year were 45.5p (2010: 40.6p).
The dividend will be paid on 23 December 2011 to shareholders on the register
on 25 November 2011.
Expenses
The Company's total management expenses were 1.0% of average net assets
excluding performance fee in the year ended 30 September 2011 (2010: 0.9%). As
was the case in the year to 30 September 2010, no performance fee was paid.
The Board
I succeeded Richard Oldfield as Chairman of the Company in December 2010.
Richard was Chairman of the Company from 2001 until he retired at the last AGM.
He provided excellent leadership and a calm guiding hand during a time that
encompassed both extremely good and extremely bad market conditions. In
particular, he took the stewardship of shareholder's funds as an absolute
priority, questioning the management group when appropriate whilst, at the same
time, providing full support to Mark Barnett, the Company's named fund manager,
for him to follow his investment philosophy. This has established a fine
template for me to follow. On 8 March 2011, the Board appointed John Wood as a
new Director of the Company. He has a fund management background, with previous
roles including being a fund manager at Artemis Investment Management and Head
of UK Equities at Deutsche Asset Management. His broad experience of fund
management complements the Board's skills and I ask shareholders to support his
election at the AGM.
The Manager
During the year the Board again reviewed all aspects of the service provided by
the Manager and the terms of the Manager's appointment. We remain satisfied
with the service and the current terms of appointment. I would also like to
record our appreciation for the strong performance produced by our appointed
fund manager, Mark Barnett, over a torrid year.
Outlook
The figures above show that our fund manager's approach, committed to the long
term and to the fundamental evaluation of companies, has protected shareholders
from the worst of the adverse markets in the year to 30 September 2011. We
believe this approach to be particularly appropriate in these turbulent times
and are confident that it will enable the Company to continue to fulfil its
investment objective to provide shareholders with long-term growth of capital.
Special Business at the Annual General Meeting (`AGM')
The resolutions put to shareholders at the AGM will include four items of
special business. These are all to renew authorities that were granted by
shareholders last year:
Share issuance
The Board is asking for the usual authority to issue up to an aggregate nominal
amount of £334,220 in new ordinary shares, this being 5% of the Company's
issued ordinary share capital. This will allow Directors to issue shares within
the prescribed limits should any favourable opportunities arise to the
advantage of shareholders. The powers authorised will not be exercised at a
price below net asset value so that the interests of existing shareholders are
not diluted. This authority will expire at the next AGM.
Disapplication of pre-emption rights
The Directors are again asking for the authority to issue new ordinary shares
pursuant to a rights issue, or otherwise than in accordance with a rights
issue, of up to an aggregate nominal amount of £334,220 (5% of the Company's
issued ordinary share capital) of new ordinary shares disapplying pre-emption
rights. This will allow for shares to be issued to new shareholders without
having to be offered to existing shareholders first, thus broadening the
shareholder base of the Company. This authority will expire at the next AGM.
Share Buybacks
The Board is seeking to renew the authority to purchase up to 2,003,980 of the
Company's own shares, this being 14.99% of the issued ordinary shares, subject
to the restrictions referred to in the notice of the AGM. This authority will
expire at the next AGM.
Calling General Meetings at 14 Days' Notice
The minimum notice period permitted by the Companies Act 2006 for general
meetings, other than annual general meetings, is 14 days. The EU Shareholder
Rights Directive increases this to 21 days, except that companies can reduce
the minimum notice period back to 14 days, other than for annual general
meetings, provided that two conditions are met. The first condition is that the
company offers facilities for shareholders to vote by electronic means. The
second condition is that there is an annual resolution of shareholders
approving the reduction in the minimum notice period from 21 days to 14 days.
The Board is consequently proposing, as it did last year, a Special Resolution
to approve 14 days as the minimum period of notice for all general meetings of
the Company other than annual general meetings. It is intended that this
flexibility will be used only where the Board believes it is in the interests
of shareholders as a whole.
The Directors recommend that shareholders vote in favour of these resolutions.
Beatrice Hollond
Chairman
17 November 2011
.
MANAGER'S REPORT
The first half of the financial year saw strong stock market performance as
hopes of economic recovery gathered pace. However, this optimism faded over the
last six months as the economic news flow deteriorated reflecting a worsening
outlook. In fact, by the summer months of 2011, the market sentiment had become
so poor that the FTSE All-Share index recorded its largest quarterly fall since
the third quarter of 2002. Macro-economic news flow, particularly the European
sovereign debt and banking crisis, dominated investor sentiment for much of the
period, while forecasts for slower economic growth led to reductions in profit
estimates for cyclical industries and to even sharper falls in the share prices
of those sectors.
The IMF cut its forecast for UK economic growth in 2011 from 1.5% to 1.1% as
the Bank of England continued to keep interest rates on hold at 0.5% - raising
expectations for an extension of quantitative easing, which has since been
confirmed. Meanwhile the UK government's preferred measure of UK inflation, the
Consumer Price Index (CPI), remained above its target of 2.0%. The Bank of
England still believes that the CPI will fall sharply in 2012. However, despite
this economic background, there continue to be areas of positive corporate news
flow with a number of large companies announcing share buy backs as well as
continuing to deliver resilient operational performance.
Portfolio Strategy & Review
The Company's net asset value, including reinvested dividends, returned 5.0%
during the 12 months to the end of September 2011. This compares to a fall of
4.4% from the FTSE All-Share index (total return).
The stock market very rarely rewards investors in a straight line and the
significant outperformance of the market by the Company over the year masked
shorter term periods of underperformance, particularly during the first half.
But the overall message from the first quarter of 2011 to date is that market
dynamics appear to have changed significantly. For much of the previous two
years, equity markets were driven by momentum with fundamentals largely being
ignored. In 2011 however, fundamentals appear to have started to reassert
themselves - valuation has again started to matter. This change has been
broadly positive for the Company's investment strategy and has allowed its
value to rise despite the market's decline.
The portfolio's holdings in the tobacco sector performed very strongly over the
year, delivering positive absolute returns even through the challenging
conditions of the second half.
The Company is also heavily invested in the pharmaceutical sector. News flow
for the sector improved over the period; for an industry that is priced for
terminal decline the market was wrong-footed by a string of new drug approvals.
The holding in BT provided a positive impetus to performance. The share price
rose on news of on-going operational improvements and the realisation of the
scope for further cost savings. BG also provided a positive impact,
specifically during the first half of the period when the company benefited
from encouraging news on production in Brazil.
The portfolio has no exposure to the mining sector and this benefited
performance relative to the FTSE All-Share index; the sector fell sharply over
the period as reduced forecasts for global economic growth and growing concerns
about the possibility of a hard landing in China hit both sector profit
forecasts and valuations. The zero weighting in the bank sector provided a
further positive impact on relative performance; fears over the worsening
situation in the Eurozone led to falls in share prices across the sector.
Weighing on performance were the holdings in BAE Systems, Amlin, Rentokil
Initial and Regus, whose shares fell in nervous markets.
In terms of portfolio activity, overall activity was limited as our views on
the market and the wider economy were largely unaltered. A number of new
holdings were nevertheless introduced to the portfolio. These comprised both
larger companies, including Rolls Royce, Roche and Daily Mail & General Trust,
and some less well known businesses, including N.Brown, Amlin and Doric Nimrod
Air Two.
The Company further reduced its exposure to the utilities sector over the year,
disposing of the holding in Northumbrian Water. Other sales, following strong
performance, were the holdings in Altria and Bunzl and part of the holding in
Tate & Lyle.
Outlook
The recent news from the UK economy has provided strong evidence of the fragile
condition of the domestic economic situation. Indeed, according to Sir Mervyn
King, we are in the middle of the worst financial crisis since the 1930's. This
level of economic weakness is not a big surprise to us and we expect this
challenging environment to persist for several years to come. This view has
been instrumental in shaping the strategy for the past year or so. The strategy
has been focused on taking advantage of the strength of large quoted companies.
In sharp contrast to the household and government sectors, corporates look to
be in a position of strength, not just in the UK but globally. Large companies,
in particular, are mostly well managed and have flexibility in their use of
capital and labour. This has allowed them to gradually reduce debt levels in
recent years, to the extent that company balance sheets in general are now in
excellent shape. By comparison, most sovereign balance sheets have been vastly
expanded to provide the large stimulus packages that have characterised the
post-crisis world and leave many sovereign credit ratings at risk of
downgrades.
Many of the biggest holdings in the portfolio have delivered solid levels of
earnings, cash flow and dividend growth over the last three years. This
operational progress has been achieved despite the financial crisis and the
deepest recession in post-war history. The management teams of the companies in
the portfolio have clearly demonstrated their ability to grow on a per share
basis over the recent past. This gives confidence that these businesses can
continue in similar vein in the future notwithstanding the continued probable
weakness of developed world economies.
One thing that is surprising about these businesses is the valuation at which
their shares trade. Despite their dependability and their proven ability to
grow through the most testing of economic circumstances, their valuations are
low both in absolute terms and relative to other asset classes. Indeed, in many
instances, the dividend yield on their equity is higher than their equivalent
corporate bond yield. Although the equity asset class remains out of favour, it
is arguable that equities are lower risk now than for many years given the
scale of the derating witnessed. From the perspective of an equity investor,
this represents an exceptional opportunity to invest in some of the biggest and
best companies in the market at very attractive valuations.
Mark Barnett
Investment Manager
17 November 2011
.
REPORT OF THE DIRECTORS
Principal Risks and Uncertainties
The principal risk factors relating to the Company can be divided into the
following areas:
Investment Objective
There is no guarantee that the Company's investment objective will be achieved
or will provide the returns sought by the Company.
The Board has established guidelines to ensure that the investment policy that
has been approved is pursued by the Manager.
Investment Process
The investment process employed by the Manager combines top down assessment of
economic and market conditions with stock selection. Fundamental analysis forms
the basis of the Company's stock selection process, with an emphasis on sound
balance sheets, good cash flows, the ability to pay and sustain dividends, good
asset bases and market conditions. The process is complemented by constant
assessment of market valuations. It is important to have a sense of a company's
realistic valuation which, to some extent, will be independent of the price at
which the company currently trades in the market.
Overall, the investment process is aiming to achieve absolute returns through a
genuinely active fund management approach. This can therefore result in a
portfolio which looks substantially different from the index.
Risk management is an integral part of the investment management process. The
Manager effectively controls risk by ensuring that the Company's portfolio is
always appropriately diversified. In depth and continual analysis of the
fundamentals of all holdings gives the Manager a full understanding of all the
financial risks associated with any particular security.
Market Movement and Portfolio Performance
The majority of the Company's investments are traded on the London Stock
Exchange. The principal risk for investors in the Company is of a significant
fall in the markets and/or a prolonged period of decline in the markets
relative to other forms of investment as well as bad performance of individual
portfolio investments. The value of investments held within the portfolio is
influenced by many factors including the general health of the economy in the
UK, interest rates, inflation, government policies, industry conditions,
political events, tax laws, environmental laws, and by changing investor
demand. The Manager strives to maximise the total return from the securities in
which it invests, but these securities are influenced by market conditions and
the Board acknowledges the external influences on portfolio performance.
While the Board obviously cannot influence market movements, it is vigilant in
monitoring the Manager's performance and additionally in reviewing regularly
the degree of gearing, through borrowings, which it permits the Manager to
undertake. The continuation of the Manager's mandate is formally reviewed each
year.
Past performance of the Company is not necessarily indicative of future
performance.
For a fuller discussion of economic and market conditions and prospects for
future performance of the portfolio, please see the Chairman's Statement and
the Manager's Report.
The Ordinary Shares
The market price of an ordinary share may trade at a discount to its NAV. As at
30 September 2011, an ordinary share of the Company traded at a discount of
7.6% (debt at par). During the year, the Company's shares traded at an average
discount of 4.1%.
There can be no guarantee that any appreciation in the value of the Company's
investments will occur and investors may not get back the full value of their
investment. Due to the potential difference between the mid-market price of the
ordinary shares and the prices at which they are sold, there is no guarantee
that their realisable value will reflect their market price.
While it is the intention of the Directors to pay dividends to ordinary
shareholders twice a year, the ability to do so will depend upon the level of
income received from securities and the timing of receipt of such income by the
Company. Accordingly, the amount of the twice-yearly dividends paid to ordinary
shareholders may fluctuate. Any change in the tax or accounting treatment of
dividends or other investment income received by the Company may also affect
the level of dividend paid on the ordinary shares in future years.
Bond Holdings
Fixed interest securities are subject to credit, liquidity, duration and
interest rate risks. Adverse changes in the financial position of an issuer or
in general economic conditions may impair the ability of the issuer to make
payments of principal and interest or may cause the liquidation or insolvency
of an issuer.
Gearing
Gearing levels may change from time to time in accordance with the Manager's
and the Board's assessment of risk and reward. Whilst the use of borrowings by
the Company should enhance the total return on the ordinary shares where the
return on the Company's underlying securities is rising and exceeds the cost of
borrowing, it will have the opposite effect where the underlying return is
falling. As at 30 September 2011, net gearing stood at 9.0% (equity exposure as
a percentage of net assets attributable to ordinary shareholders).
Regulatory and Tax-related
The Company is subject to various laws and regulations by virtue of its status
as an investment company under s833 of the Companies Act 2006, as an investment
trust, and its listing on the London Stock Exchange. A breach of s1159 CTA
could lead to the Company being subject to capital gains tax on the profits
arising from the sale of its investments. A serious breach of other regulatory
rules might lead to suspension from the Stock Exchange or to a qualified Audit
Report. Other control failures, either by the Manager or any other of the
Company's service providers, might result in operational or reputational
problems, erroneous disclosures or loss of assets through fraud, as well as
breaches of regulations.
The Manager reviews the level of compliance with s1159 CTA and other financial
regulatory requirements on a daily basis. All transactions, income and
expenditure are reported to the Board. The Board regularly considers all risks,
the measures in place to control them and the possibility of any other risks
that could arise. The Board ensures that satisfactory assurances are received
from service providers. The Manager's Compliance Officer produces regular
reports for review by the Company's Audit Committee.
Further details of risks and risk management policies as they relate to the
financial assets and liabilities of the Company are detailed in note 18 to the
financial statements.
Reliance on Third Party Service Providers
The Company has no employees and the Directors have all been appointed on a
non-executive basis. The Company is therefore reliant upon the performance of
third party service providers for its executive function. In particular, the
Manager performs services which are integral to the operation of the Company.
Failure by any service provider to carry out its obligations to the Company in
accordance with the terms of its appointment could have a materially
detrimental impact on the operation of the Company and could affect the ability
of the Company to successfully pursue its investment policy.
The Manager may be exposed to reputational risks. In particular, the Manager
may be exposed to the risk that litigation, misconduct, operational failures,
negative publicity and press speculation, whether or not it is valid, will harm
its reputation. Any damage to the reputation of the Manager could result in
potential counterparties and third parties being unwilling to deal with the
Manager and by extension the Company. This could have an adverse impact on the
ability of the Company to pursue its investment policy successfully.
.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
IN RESPECT OF THE PREPARATION OF FINANCIAL STATEMENTS
The Directors are responsible for preparing the annual financial report in
accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each
financial year. Under that law the Directors have elected to prepare financial
statements in accordance with United Kingdom Generally Accepted Accounting
Practice (United Kingdom Accounting Standards and applicable law). Under
company law, the Directors must not approve the accounts unless they are
satisfied that they give a true and fair view of the state of affairs of the
Company and of the profit or loss of the Company for that period.
In preparing these financial statements, the Directors are required to:
• select suitable accounting policies and then apply them consistently;
• make judgments and estimates that are reasonable and prudent; and
• state whether applicable UK Accounting Standards have been followed, subject
to any material departures disclosed and explained in the financial statements.
The Directors are responsible for keeping adequate accounting records which are
sufficient to show and explain the Company's transactions and disclose with
reasonable accuracy at any time the financial position of the Company and which
enable them to ensure that the accounts comply with company law. They are also
responsible for safeguarding the assets of the Company and hence for taking
reasonable steps for the prevention and detection of fraud and other
irregularities.
Under applicable law and regulations, the Directors are also responsible for
preparing a Directors' Report, a Directors' Remuneration Report and a Corporate
Governance Statement that comply with that law and those regulations.
The Directors of the Company, each confirm to the best of their knowledge that:
• the accounts, which have been prepared in accordance with applicable
accounting standards, give a true and fair view of the assets, liabilities,
financial position and profit or loss of the Company; and
• this annual financial report includes a fair review of the development and
performance of the business and the position of the Company, together with a
description of the principal risks and uncertainties that it faces.
Beatrice Hollond
Chairman
Signed on behalf of the Board of Directors
17 November 2011
Electronic Publication
The annual financial report is published on www.invescoperpetual.co.uk/
investmenttrusts which is the Company's website maintained by the Company's
Manager. The work carried out by the Auditor does not involve consideration of
the maintenance and integrity of this website and accordingly, the Auditor
accepts no responsibility for any changes that have occurred to the financial
statements since they were initially presented on the website. Visitors to the
website need to be aware that legislation in the United Kingdom governing the
preparation and dissemination of the financial statements may differ from
legislation in other jurisdictions.
INVESTMENTS BY SECTOR
AT 30 SEPTEMBER 2011
UK listed ordinary shares unless MARKET
stated otherwise VALUE % OF
SECTOR/COMPANY £'000 PORTFOLIO
Basic Materials
UK Coal 537 0.3
Halosource 367 0.2
904 0.5
Consumer Goods
Reynolds American US Common stock 9,417 4.9
Imperial Tobacco 9,174 4.8
British American Tobacco 9,047 4.7
Reckitt Benckiser 4,708 2.4
Tate & Lyle 1,604 0.8
Landkom International 457 0.2
34,407 17.8
Consumer Services
Tesco 4,445 2.3
Compass 3,392 1.8
Morrison (W) Supermarkets 2,571 1.3
Daily Mail & General Trust 1,804 0.9
Ladbrokes 1,727 0.9
N.Brown 980 0.5
Yell 162 0.1
Mirada 3 0.0
15,084 7.8
Financials
Provident Financial 4,156 2.2
Hiscox 3,650 1.9
A J Bell Unquoted 3,000 1.6
Beazley 2,524 1.3
Amlin 2,288 1.2
Doric Nimrod Air Two 1,443 0.8
Impax Asian Environmental Markets 1,183 0.6
Altus Resource 1,140 0.6
Damille Investment 946 0.5
Impax Environmental Markets 827 0.4
Imperial Innovation - ordinary shares 456 0.3
- preference shares Unquoted 233
Macau Property Opportunities Fund 484 0.2
Trading Emissions 477 0.2
Fusion IP 395 0.2
Workspace 215 0.1
Walton & Co Unquoted 113 0.1
Helphire 28 0.0
Ecofin Water & Power Opportunities - 0.0
23,558 12.2
Health Care
GlaxoSmithKline 8,978 4.7
AstraZeneca 7,817 4.1
Roche Swiss Common stock 4,877 2.5
BTG 3,387 1.8
Napo Pharmaceuticals Unquoted 3,030 1.6
Lombard Medical Technologies 1,214 0.6
Vectura 1,026 0.5
Xcounter AB 374 0.2
PuriCore 200 0.1
Renovo 120 0.1
XTL Biopharmaceutical US ADR (10 Ord 41 0.0
Shares)
31,064 16.2
Industrials
BAE Systems 5,008 2.6
Capita 4,990 2.6
Babcock International 4,315 2.2
Balfour Beatty 2,877 1.5
Homeserve 2,844 1.5
Serco 2,685 1.4
Chemring 2,280 1.2
Rentokil Initial 2,067 1.1
Nexeon - preference `C' shares Unquoted 400 0.4
- series `B' shares Unquoted 389
- ordinary shares Unquoted 3
Rolls Royce 512 0.3
28,370 14.8
Oil & Gas
BG 7,662 4.0
7,662 4.0
Telecommunications
Vodafone 7,972 4.1
BT 7,156 3.7
KCOM 2,942 1.5
TalkTalk Telecom 949 0.5
19,019 9.8
Utilities
Centrica 4,793 2.5
SSE (formerly: Scottish & Southern 3,633 1.9
Energy)
Pennon 3,469 1.8
Drax 3,313 1.7
International Power 2,947 1.5
Barclays Bank - Nuclear Power Notes 28 519 0.3
February 2019(1)
18,674 9.7
Total Equity Investments 178,742 92.8
Fixed Interest
Puricore 6% December 2011 Unquoted 500 0.3
Ecofin 6% July 2016 151 0.1
651 0.4
Total Fixed Asset Investment 179,393 93.2
Certificates of Deposit
Barclays 1.43% 10 November 2011 5,001 2.6
RBS 0.72% 28 November 2011 4,998 2.6
Barclays 1.07% 28 October 2011 3,001 1.6
13,000 6.8
Total Investments 192,393 100.0
1. Contingent Value Rights (`CVR') referred to as Nuclear Power Notes (`NPN')
were offered by EDF as a partial cash alternative to its cash bid for
British Energy (`BE'). The NPNs were issued by Barclays Bank. The CVRs
particpate in BE's existing business.
INCOME STATEMENT
FOR THE YEAR ENDED 30 SEPTEMBER
2011 2010
REVENUE CAPITAL TOTAL REVENUE CAPITAL TOTAL
NOTES £'000 £'000 £'000 £'000 £'000 £'000
Gains on investments - 4,930 4,930 - 17,312 17,312
(Losses)/gains on - (6) (6) - 1 1
certificates of deposit
Foreign exchange losses - (295) (295) - (149) (149)
Income 2 7,391 - 7,391 6,864 - 6,864
Investment management 3 (312) (935) (1,247) (280) (840) (1,120)
fee
Other expenses (323) - (323) (294) - (294)
Net return before 6,756 3,694 10,450 6,290 16,324 22,614
finance costs and
taxation
Finance costs (559) (1,641) (2,200) (772) (2,283) (3,055)
Return on ordinary 6,197 2,053 8,250 5,518 14,041 19,559
activities before tax
Tax on ordinary (112) - (112) (90) - (90)
activities
Return on ordinary 6,085 2,053 8,138 5,428 14,041 19,469
activities after tax for
the financial year
Return per ordinary
share
Basic 5 45.5p 15.4p 60.9p 40.6p 105.0p 145.6p
The total column of this statement represents the Company's profit and loss
account, prepared in accordance with the accounting policies detailed in note 1
to the financial statements. The supplementary revenue and capital columns are
presented for information purposes in accordance with the Statement of
Recommended Practice issued by the Association of Investment Companies. All
items in the above statement derive from continuing operations and the Company
has no other gains or losses. Therefore no statement of total recognised gains
or losses is presented. No operations were acquired or discontinued in the
year.
.
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
FOR THE YEAR ENDED 30 SEPTEMBER
CAPITAL
SHARE SHARE REDEMPTION CAPITAL REVENUE
CAPITAL PREMIUM RESERVE RESERVE RESERVE TOTAL
£'000 £'000 £'000 £'000 £'000 £'000
Balance as at 30 September 6,685 1,258 466 131,539 10,304 150,252
2009
Dividends paid - note 4 - - - - (7,567) (7,567)
Net return on ordinary - - - 14,041 5,428 19,469
activities
Balance as at 30 September 6,685 1,258 466 145,580 8,165 162,154
2010
Dividends paid - note 4 - - - - (6,039) (6,039)
Net return on ordinary - - - 2,053 6,085 8,138
activities
Balance as at 30 September 6,685 1,258 466 147,633 8,211 164,253
2011
The accompanying notes are an integral part of these statements.
.
BALANCE SHEET
AT 30 SEPTEMBER
2011 2010
NOTES £'000 £'000
Fixed assets
Investments held at fair value through profit 179,393 174,833
or loss
Current assets
Certificates of deposit 13,000 28,000
Debtors 1,380 731
Cash and cash funds 3,441 -
17,821 28,731
Creditors: amounts falling due within one year (1,089) (9,559)
Net current assets 16,732 19,172
Total assets less current liabilities 196,125 194,005
Creditors: amounts falling due after more than (31,872) (31,851)
one year
Net assets 164,253 162,154
Capital and reserves
Share capital 6 6,685 6,685
Share premium 1,258 1,258
Capital redemption reserve 466 466
Capital reserve 147,633 145,580
Revenue reserve 8,211 8,165
Shareholders' funds 164,253 162,154
Net asset value per ordinary share
Basic 7 1228.6p 1212.9p
These financial statements were approved and authorised for issue by the Board
of Directors on 17 November 2011.
Signed on behalf of the Board of Directors
Beatrice Hollond
Chairman
The accompanying notes are an integral part of this statement.
.
CASH FLOW STATEMENT
FOR THE YEAR ENDED 30 SEPTEMBER
2011 2010
NOTES £'000 £'000
Cash inflow from operating activities 8(a) 5,571 5,946
Servicing of finance 8(b) (2,179) (3,036)
Capital expenditure and financial investment 8(b) 14,935 811
Net equity dividends paid 4 (6,039) (7,567)
Net cash inflow/(outflow) before management of 12,288 (3,846)
liquid resources and financing
Management of liquid resources - -
Increase/(decrease) in cash 12,288 (3,846)
Reconciliation of net cash flow to movement in
net debt
Increase/(decrease) in cash 12,288 (3,846)
Exchange movements (366) (397)
Debenture stock non-cash movement (21) (19)
Movement in net debt in the year 11,901 (4,262)
Net debt at beginning of the year (40,332) (36,070)
Net debt at end of the year 8(c) (28,431) (40,332)
The accompanying notes are an integral part of this statement.
NOTES TO THE FINANCIAL STATEMENTS
1. Accounting policies
Basis of preparation
(i) Accounting Standards applied
The financial statements have been prepared in accordance with applicable
United Kingdom Accounting Standards and with the Statement of Recommended
Practice (`SORP') `Financial Statements of Investment Trust Companies and
Venture Capital Trusts', issued by the Association of Investment Companies in
January 2009. The financial statements are also prepared on a going concern
basis.
(ii) Functional and presentation currency
The financial statements are presented in sterling, which is the Company's
functional and presentation currency and the currency in which the Company's
share capital and expenses, as well as a majority of its assets and
liabilities, are denominated.
2. Income
2011 2010
£'000 £'000
Income from investments
UK dividends 6,463 5,901
Overseas dividends 752 601
UK unfranked investment income - interest 174 310
Scrip dividends - 38
7,389 6,850
Other income
Deposit interest 2 8
Underwriting commission - 6
2 14
Total income 7,391 6,864
3. Investment management fee
2011 2010
REVENUE CAPITAL TOTAL REVENUE CAPITAL TOTAL
£'000 £'000 £'000 £'000 £'000 £'000
Investment management 312 935 1,247 280 840 1,120
fee
312 935 1,247 280 840 1,120
Details of the management agreement are disclosed in the Report of the
Directors. The performance fee is based on a calendar year basis; no
performance fee has been provided for the year ended 31 December 2011 (31
December 2010 and 31 December 2009: none).
4. Dividends
2011 2010
£'000 £'000
Dividends on equity shares paid and recognised in the year:
Final dividend for 2010 of 28p (2009: 28p) 3,743 3,743
Special dividend of 11.1p in respect of VAT refunds - 1,484
Interim dividend for 2011 of 17.5p (2010: 17.5p) 2,340 2,340
Return of unclaimed dividends from previous years (44) -
6,039 7,567
2011 2010
£'000 £'000
Dividends on equity shares payable in respect of the year:
Interim paid 17.5p per ordinary share (2010: 17.5p) 2,340 2,340
Proposed final dividend of 29p per ordinary share (2010: 3,877 3,743
28p)
6,217 6,083
5. Return per ordinary share
Basic revenue, capital and total return per ordinary share is based on each of
the returns on ordinary activities after taxation and on 13,368,799 (2010:
13,368,799) shares being the number of ordinary shares in issue throughout the
year.
6. Share capital
2011 2010
NUMBER £'000 NUMBER £'000
Authorised
Ordinary shares of 50p each 20,000,000 10,000 20,000,000 10,000
Allotted, called-up and fully paid:
Ordinary shares of 50p each 13,368,799 6,685 13,368,799 6,685
The ordinary shares are fully participating and carry one vote per £1 nominal
held.
7. Net asset value per ordinary share
The net asset value per ordinary share and the net assets attributable at the
year end were as follows:
NET ASSET VALUE NET ASSETS
PER SHARE ATTRIBUTABLE
2011 2010 2011 2010
PENCE PENCE £'000 £'000
Ordinary shares
- Basic 1228.6 1212.9 164,253 162,154
Net asset value per ordinary share is based on net assets at the year end and
on 13,368,799 (2010: 13,368,799) ordinary shares, being the number of ordinary
shares in issue at the year end.
8. Notes to the cash flow statement
(a) Reconciliation of operating profit to operating cash flows
2011 2010
£'000 £'000
Total return before finance costs and taxation 10,450 22,614
Adjustment for gains on investments and certificates (4,924) (17,313)
of deposit
Adjustment for exchange losses 295 149
Scrip dividends - (38)
(Increase)/decrease in debtors (149) 604
Increase in creditors and provisions 11 20
Tax on overseas dividends (112) (90)
Net cash inflow from operating activities 5,571 5,946
(b) Analysis of cash flow for headings netted in the cash flow statement
2011 2010
£'000 £'000
Servicing of finance
Preference dividends paid (12) (12)
Bank interest paid - (2)
Interest paid on debenture stocks (2,167) (3,022)
Net cash outflow from servicing of finance (2,179) (3,036)
Capital expenditure and financial investment
Purchase of investments* (42,031) (35,103)
Sale of investments 41,972 42,914
Purchase of certificates of deposit (62,020) (101,002)
Sale of certificates of deposit 77,014 94,002
Net cash inflow from capital expenditure and financial 14,935 811
investments
*Excludes scrip dividends received as income.
(c) Analysis of changes in net debt
DEBENTURE
1 STOCK 30
OCTOBER CASH EXCHANGE NON-CASH SEPTEMBER
2010 FLOW MOVEMENTS MOVEMENT 2011
£'000 £'000 £'000 £'000 £'000
Cash/(bank overdraft) (481) 4,288 (366) - 3,441
Debentures (39,601) 8,000 - (21) (31,622)
5% Cumulative (250) - - - (250)
preference shares
Net debt (40,332) 12,288 (366) (21) (28,431)
9. Related party transactions
Invesco Asset Management Limited (`IAML'), a wholly owned subsidiary of Invesco
Limited, acts as Manager, Company Secretary and Administrator to the Company.
Details of IAML's services and fees are disclosed in the Report of the
Directors.
This announcement does not constitute the Company's statutory accounts. It is
an abridged version of the audited Annual Financial Report of the Company for
the year ended 30 September 2011. The opinion of the auditors on the 2011
Annual Financial Report is unqualified, and the auditors have not drawn
attention to any matter, nor have they sought to make a statement under section
498 of the Companies Act 2006. Information relating to the year ended 30
September 2010 is taken from the audited Annual Financial Report for that year
which has been delivered to the Registrar of Companies. The Annual Financial
Report for 2011 will be delivered to the Registrar in due course.
The audited Annual Financial Report will be posted to shareholders shortly. It
will also shortly be available from Invesco Perpetual on the following website:
http://www.invescoperpetual.co.uk/investmenttrusts
Copies may also be obtained during normal business hours from the Company's
Registered Office, 30 Finsbury Square, London EC2A 1AG.
The Annual General Meeting will be held at Invesco Perpetual's offices in 43-45
Portman Square, London W1H 6LY, on Tuesday 20 December 2011 at 11.00am.
By order of the Board
Invesco Asset Management Limited, Secretaries
17 November 2011
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