Annual Financial Report
Keystone Investment Trust plc
Annual Financial Report Announcement
for the Financial Year Ended 30 September 2009
Financial Information and Performance Statistics
Performance Statistics
At At
30 September 30 September %
2009 2008 Change
Assets
Net assets attributable to ordinary 150,252 144,908 +3.7
shareholders (£'000)
Net asset value per ordinary share 1123.9p 1083.9p +3.7
- with income reinvested +7.5
Share price (mid-market) of ordinary 1008.0p 940.0p +7.2
shares
- with income reinvested +12.5
FTSE All-Share Index +6.1
- with income reinvested +10.8
Discount of share price to net asset
value per
ordinary share (%):
- debt at par 10.3 13.3
- debt at fair value 8.6 10.2
Total borrowings as % of net assets
attributable to
ordinary shareholders 26.5 27.5
Effective gearing - equity exposure as
% of net
assets attributable to ordinary 105 98
shareholders
Revenue
Net revenue available for ordinary 7,680 6,745
shareholders (£'000)
Dividends per ordinary share - interim 17.5p 17.0p
- final 28.0p 27.0p
- total excluding special 45.5p 44.0p +3.4
- special 11.1p -
- total including special 56.6p 44.0p
Total expense ratio:
- excluding performance fee 0.9% 0.9%
- including performance fee 1.3% 0.9%
Chairman's Statement
In the year to 30 September 2009, the Company's share price provided a total
return of +12.5%. The total return of the net asset value per share was +7.5%.
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 +10.8%.
All these figures are with income reinvested. The discount of the share price
relative to net asset value per share narrowed from 13.3% at the end of
September 2008 to 10.3% at 30 September 2009.
Performance 6 Months One year Since appointment
of current manager
on
1 January 2003
Share Price Total Return +14.0% +12.5% +141.8%
NAV Total Return per share +24.2% +7.5% +119.1%
FTSE All-Share Total Return +35.7% +10.8% +76.9%
Index
Source: Fundamental Data
Gearing and investment guidelines
The Company's borrowings, in the form of long-term debentures, amount to £40
million. The effective gearing of the Company is determined by the extent to
which these borrowings are invested in shares, rather than held in cash
deposits. At 30 September 2008 the Company had no gearing; early in the year
under review, gearing was re-introduced to allow the fund manager to take
advantage of opportunities to buy stocks at depressed valuations. The present
position is that the Manager must make no net purchases which would take equity
exposure above 107.5% 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. Equity
exposure increased during the year from 98% of net assets to 105%.
The Board has also authorised in the past some exposure to corporate bonds
which is treated as additional to the gearing limits. Early in the year the
Board increased the maximum limit on corporate bond investments to £8 million
from £4 million. At the year-end £7.7 million was held in such bonds.
The guidelines for cash deposits and certificates of deposit had been reviewed
by the Board in May 2008 and the list of approved banks was restricted to six
banks. This rule is still in place.
At regular intervals the Board has considered whether it would be in
shareholders' interests to attempt to buy back and cancel the outstanding
debentures. Each time we have concluded that it would not. The 10.25% Debenture
Stock 2010 can be repaid at par on 1 October 2010, together with accrued
interest to the date of repayment, and the Company may also from 1 October 2010
redeem the whole or any part of the 11.375% Debenture Stock 2010/2015.
Dividends
The Board has declared a final dividend of 28p per share (2008: 27p), giving a
total dividend of 45.5p per share, compared with 44p last year, an increase of
3.4%. Based on the share price at the year-end, this total dividend represents
a dividend yield of 4.5%. While the primary objective of the Company is
long-term growth of capital, the Board will continue to pay attention to the
importance of dividend to some of the Company's shareholders. This emphasis is
in tune with the Manager's focus on investing in companies which can maintain
and increase dividends. Earnings per share in this year were 57.4p (2008:
50.4p). The dividend will be paid on 22 December 2009 to shareholders on the
register on 20 November 2009.
In addition, a special dividend representing VAT reclaimed will be paid. This
is discussed in the paragraph below.
VAT on Management Fees
As reported in the interim statement, the Company had recognised some refunds
of VAT and interest thereon at that point and expected to receive additional
refunds of VAT and interest for earlier periods. The Company has now received
all VAT refunds. These total £2,416,000, together with interest receivable of £
640,000. These amounts added 22.9p per share to the net asset value. The
revenue portion of this reclaimed VAT, 11.1p per share, will be paid as a
special dividend on 22 December 2009 to shareholders on the register on 20
November 2009.
Expenses
The Company's total management expenses were 0.9% of average net assets
excluding performance fee in the year ended 30 September 2009 (2008: 0.9%).
Including performance fee the Company's total management expenses were 1.3% of
average net assets (2008: 0.9%).
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.
Outlook
The figures in the opening paragraph give little indication of the
extraordinary turbulence of the last year. We continue to have every confidence
that the Company has an investment manager who will steer through the
uncertainties and fulfil the Company's objectives: to provide, for the investor
with a long-term outlook, strong returns from a portfolio of equities. The
Board firmly supports the manager's approach: committed to the long term, and
to the fundamental evaluation of companies.
Special Business at the Annual General Meeting (`AGM')
As special business at the AGM, the Board will propose four resolutions:
Share issuance
First, the Board is asking for the usual authority to issue up to an aggregate
nominal amount of £334,219 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 AGM in 2010.
Second, the Directors are also 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 £334,219 (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 AGM in
2010.
Share Buybacks
Third, the Board is seeking to renew the authority to purchase up to 2,003,982
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 AGM in 2010.
Calling General Meetings at 14 Days' Notice
New UK legislation implementing the EU Shareholder Rights Directive has, with
effect from 3 August 2009, increased the notice period for a general meeting
from 14 days to 21 days. However, companies are able to pass a special
resolution permitting them to continue to call general meetings (other than
AGMs) on 14 days' notice if they allow voting by electronic means.
Approval of Special Resolution 13 will therefore enable the Board to call any
general meetings other than AGMs on 14 days' notice, should that be necessary.
The Board has carefully considered all the resolutions proposed in the Notice
of the AGM and consider them all to be in the best interest of the Company and
its shareholders. The Directors therefore recommend that shareholders vote in
favour of each resolution.
My fellow Directors and I look forward to seeing investors at the AGM of the
Company on 18 December 2009, where there will be an opportunity to meet and
question the investment manager.
Richard Oldfield
Chairman
18 November 2009
Manager's Report
Market Review
The FTSE All-Share Index produced a total return of 10.8% in the 12 months to
30 September 2009. This positive gain was achieved largely as a result of the
strong index return in the second half of the review period. Indeed, the
performance of the UK equity market can be divided into two distinct halves.
In detail, the UK stockmarket declined in the opening six months of the review
period as the effects of the credit crunch, the bankruptcy of Lehman Brothers
and fears that the global economy was heading for a severe recession created
nervousness and uncertainty among investors. Against this backdrop, investor
sentiment towards the UK economy deteriorated rapidly and there was ample
evidence to support this pessimistic outlook. For example, economic leading
indicators continued to head lower, UK unemployment data continued to rise and
GDP figures worsened. In addition, turmoil in the financials sector due to a
lack of liquidity and a collapse in confidence in the banking system led to a
redrawing of the map of the UK banking industry: HBOS was purchased by Lloyds
TSB (forming the Lloyds Banking Group); the Bradford & Bingley business
encountered serious funding problems and was split-up and sold to Santander and
the UK government; and Lloyds Banking Group and RBS were part-nationalised. In
this environment, measures were introduced to stabilise the financial system
such as the steep reductions in base rates and the introduction of the
Quantitative Easing programme by the Bank of England. During this very
difficult market environment, the companies that performed best were those with
the most resilient revenues and the strongest balance sheets.
In the second six months of the review period, the UK economy started to show
tentative signs of recovery. House price data pointed to an emerging recovery
in the housing market, and second-quarter 2009 GDP in the UK came in slightly
better than expected. As macro-economic data continued to turn more positive,
the UK equity market began to rise steadily, supported by better-than-expected
corporate results primarily due to rapid and deep cost reduction strategies in
the second half of 2008. Reflecting investors' renewed appetite for riskier
assets, equity-market performance during this time was dominated by share-price
appreciation of companies in cyclical sectors of the market, such as mining and
financials. By contrast, defensive sectors underperformed the wider UK equity
market.
Portfolio Strategy & Review
The Trust's net asset value, including reinvested dividends, rose by 7.5%
during the 12 months to the end of September 2009, compared to a rise of 10.8%
from the FTSE All-Share Index (total returns).
The Trust generated healthy absolute returns over the review period, but on a
relative basis was not able to keep pace with the performance of the FTSE
All-Share Index. This was largely attributable to an investment strategy which
favoured defensive sectors of the market. This strategy proved beneficial in
the first six months of the review period when the UK stockmarket was falling
and the macro-economic outlook was bleak. However, in the second half of the
review period, improving data on the UK economy and a more favourable backdrop
for UK equities in general encouraged a substantial improvement in investor
sentiment towards riskier companies. In this environment, the rotation out of
defensive sectors and into cyclical sectors restricted the progress of the
Trust. In terms of stock contributions, holdings which provided a meaningful
contribution to the Trust's performance included BP, AstraZeneca, Hiscox and
Vodafone.
There were several significant transactions within the Trust over the review
period. For instance, Royal Dutch Shell and Arm Holdings were removed from the
portfolio following a period of strong performance as the Manager wanted to
take advantage of better opportunities for investment in other parts of the
market. Other disposals included TUI Travel primarily resulting from concerns
over macroeconomic headwinds facing the holiday market. These disposals led to
a number of new holdings being introduced into the Trust. For example,
positions were initiated in Compass Group, International Power and Northumbrian
Water.
A dip in Compass Group's share price during the review period presented an
attractive entry point to purchase the shares at a favourable valuation. The
decline in the share price was caused by some disappointment in the market with
regard to the latest results. The company remains a resilient business which is
benefiting from the global growth in outsourcing of catering services in both
the public and private sectors.
The holding in International Power was initiated to take advantage of a fall in
its share price as a result of concerns towards a leveraged balance sheet and
exposure to weakening electricity demand in its major markets of the UK, US and
Australia. These factors forced the stock to fall to an attractive valuation
from which a position was established in the portfolio.
Northumbrian Water was acquired after falling out of favour with investors
ahead of the Ofwat regulatory review in the summer of 2009 and in the general
market move away from utilities.
Outlook
The recent improvement in macroeconomic data has led some market participants
to subscribe to the view that the economy is emerging strongly from recession.
The Manager, however, is not convinced. There are uncertainties over the
strength and sustainability of the recovery that is being anticipated by the
market. Businesses and households are still in the process of tempering their
former exuberance and rebuilding their balance-sheets. While this process of
deleveraging continues, which could take years to run its course, the economy
is likely to face substantial challenges, such as rising unemployment and a
subdued housing market, which will pose obstacles to a solid and sustained
recovery.
A lack of revenue growth in corporate results is a feature of the current
market, which is concerning to the Manager. It is the Manager's belief that the
optimism in the market is built largely upon the success with which companies
have had in cutting costs. The Manager believes that only the emergence of
underlying revenue growth will help to drive the economy into sustained
recovery; after all, it has never been possible to achieve an economic recovery
from cost cutting alone.
Notwithstanding this sombre outlook for the UK economy, the Manager believes
that there are selected areas of opportunity in the stockmarket that look
interesting, particularly in an environment where economic growth is
lacklustre. These areas are typically found in defensive sectors and display
such characteristics as strong balance-sheets, visible cash-generation, robust
business models and, most importantly, growing dividend streams.
The Manager is well aware that although the portfolio has generated positive
returns in the first half of the current year, the performance has lagged the
benchmark. Whilst the Manager is disappointed with this level of relative
performance, he believes that given the long-term nature of his investment
time-frame, and the substantial valuation anomalies which have arisen in the
recent market environment, it is definitely in the best interests of the
shareholders to retain the current investment strategy as described and remain
patient in the knowledge that `value will out'. The Manager is confident that
this is the best method to deliver superior risk-adjusted investment returns to
shareholders over the long term.
Mark Barnett
Fund Manager
18 November 2009
Principal Risks and Uncertainties
The principal risk factors relating to the Company can be divided into the
following areas:
Investment Objective
The Company's investment objective is described in the Annual Financial Report.
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 prices of these securities are influenced by many
factors including the general health of the economy in the UK, interest rates,
inflation, government policies, industry conditions, political and diplomatic
events, tax laws, environmental laws, and by the demand from investors for
income. 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 2009, an ordinary share of the Company traded at a discount of
10.3%. During the year, the Company's shares traded at an average discount of
7.7%.
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 2009, gearing stood at 105%.
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 s842 ICTA 1988
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 Section 842 ICTA 1988 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 the financial
statements in the annual financial report.
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;
• state whether applicable UK Accounting Standards have been followed, subject
to any material departures disclosed and explained in the financial statements;
and
• prepare the financial statements on the going concern basis unless it is
inappropriate to presume that the Company will continue in business.
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 (including a Business Review), a Directors'
Remuneration Report and a Corporate Governance Statement that comply with that
law and those regulations.
The Directors of the Company, whose names are shown in the annual financial
report, 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.
Richard Oldfield
Chairman
Signed on behalf of the Board of Directors
18 November 2009
Investments by Sector
at 30 September 2009
UK listed ordinary shares unless stated otherwise
Market
Value % of
Sector/Company £'000 Portfolio
Basic Materials
UK Coal, Ordinary and Oversubscription 2,070 1.1
shares
2,070 1.1
Consumer Goods
British American Tobacco 8,528 4.6
Imperial Tobacco 7,767 4.2
Reynolds American, US Common stock 7,471 4.0
Reckitt Benckiser 3,278 1.7
Tate & Lyle 1,418 0.8
Landkom International 238 0.1
28,700 15.4
Consumer Services
Tesco 5,640 3.0
Compass 2,773 1.5
DSG International 578 0.3
ITV 553 0.3
9,544 5.1
Financials
Hiscox 4,326 2.3
Provident Financial 3,026 1.6
Just Retirement 2,038 1.1
Beazley 2,015 1.1
A J Bell , Unquoted 1,650 0.9
Impax Environmental Markets 1,149 0.6
Trading Emissions 933 0.5
Climate Exchange 925 0.5
Ecofin Water and Power 737 0.4
Helphire 430 0.2
Macau Property Opportunities Fund 385 0.2
17,614 9.4
Health Care
AstraZeneca 8,475 4.5
GlaxoSmithKline 7,752 4.2
BTG 2,502 1.3
Vectura 1,086 0.6
Puricore 796 0.4
Lombard Medical Technologies 555 0.3
Imperial Inno 504 0.3
Fusion IP 274 0.2
Renovo 237 0.1
Xcounter AB 48 -
XTL Biopharmaceutical, US ADR (10 Ord Shrs) 23 -
Napo Pharmaceuticals, Common stock 15 -
22,267 11.9
Industrials
Capita 5,267 2.8
International Power 3,932 2.1
BAE Systems 3,418 1.8
Balfour Beatty 2,539 1.4
Rentokil Initial 1,952 1.1
Homeserve 1,901 1.0
Bunzl 1,533 0.8
Rolls Royce 1,034 0.6
VT 994 0.5
22,570 12.1
Market
Value % of
Sector/Company £'000 Portfolio
Oil & Gas
BG 9,165 4.9
BP 4,588 2.5
Altus Resource 1,116 0.6
14,869 8.0
Technology
Sage 2,676 1.4
Nexeon Series B, Unquoted 300 0.2
Mirada 11 -
2,987 1.6
Telecommunications
Vodafone 8,516 4.5
BT 6,674 3.6
Kcom 1,293 0.7
16,483 8.8
Utilities
National Grid 4,971 2.7
Centrica 3,803 2.0
Drax 3,446 1.8
Scottish & Southern Energy 3,081 1.7
Pennon 2,978 1.6
Northumbrian Water 1,844 1.0
Barclays Bank - Nuclear Power Notes
28 February 2019(1) 831 0.4
20,954 11.2
Total Equity Investments 158,058 84.6
Fixed Interest Coupon Maturity
Date
Centrica 6.375% Mar 2022 1,630 0.9
Imperial Tobacco 8.125% Mar 2024 1,618 0.9
British Airways Fltg 8.750% Aug 2016 1,170 0.6
ITV 6.125% Jan 2017 817 0.4
Linde Finance BV Fltg 8.125% Jul 2066 774 0.4
Tesco 6.125% Feb 2022 528 0.3
First Hydro 9.000% Jul 2021 522 0.3
Finance
Reed Elsevier 5.625% Oct 2016 514 0.3
Ecofin Water and 6.000% May 2016 157 0.1
Power
7,730 4.2
Total Fixed Asset Investments 165,788 88.8
Certificates of Deposit
Bank of Scotland 0.890% 30 October 2009 10,001 5.3
Barclays Bank 0.600% 30 November 2009 5,998 3.2
RBS 1.100% 1 October 2009 5,000 2.7
Total Investments 186,787 100.0
1. Contingent Value Rights (`CVRs') referred to as Nuclear Power Notes
(`NPNs') 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
participate in BE's existing business at the time of the takeover.
Income Statement
For the year ended 30 September
2009 2008
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Gains/(losses) on investments - 6,538 6,538 - (31,285) (31,285)
Gain/(loss) on certificates of
deposit - 29 29 - (35) (35)
Foreign exchange losses - (931) (931) - (983) (983)
Income 8,263 - 8,263 8,159 - 8,159
Investment management fee (245) (1,318) (1,563) (280) (839) (1,119)
VAT recoverable on investment
management fees 840 1,576 2,416 - - -
Other expenses (298) - (298) (290) - (290)
Net return before finance
costs and taxation 8,560 5,894 14,454 7,589 (33,142) (25,553)
Finance costs (772) (2,280) (3,052) (772) (2,277) (3,049)
Return on ordinary activities
before tax 7,788 3,614 11,402 6,817 (35,419) (28,602)
Tax on ordinary activities (108) - (108) (72) - (72)
Return on ordinary activities
after tax for the financial 7,680 3,614 11,294 6,745 (35,419) (28,674)
year
Return per ordinary share
Basic 57.4p 27.1p 84.5p 50.4p (265.0)p (214.6)p
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 6,685 1,258 466 163,344 7,444 179,197
September 2007
Final dividend for 2007 - - - - (3,342) (3,342)
Net return on ordinary - - - (35,419) 6,745 (28,674)
activities
Interim dividend - - - - (2,273) (2,273)
Balance as at 30 6,685 1,258 466 127,925 8,574 144,908
September 2008
Final dividend for 2008 - - - - (3,610) (3,610)
Net return on ordinary - - - 3,614 7,680 11,294
activities
Interim dividend - - - - (2,340) (2,340)
Balance as at 30 6,685 1,258 466 131,539 10,304 150,252
September 2009
The accompanying notes are an integral part of these statements.
Balance Sheet
At 30 September
2009 2008
£'000 £'000
Fixed assets
Investments held at fair value through 165,788 142,670
profit or loss
Current assets
Certificates of deposits 20,999 34,973
Debtors 1,889 1,164
Cash and cash funds 3,762 7,967
26,650 44,104
Creditors: amounts falling due within one (2,354) (2,052)
year
Net current assets 24,296 42,052
Total assets less current liabilities 190,084 184,722
Creditors: amounts falling due after more (39,832) (39,814)
than one year
Provisions - -
Net assets 150,252 144,908
Capital reserves
Share capital 6,685 6,685
Share premium 1,258 1,258
Capital redemption reserve 466 466
Capital reserve 131,539 127,925
Revenue reserve 10,304 8,574
Shareholders' funds 150,252 144,908
Net asset value per ordinary share
Basic 1123.9p 1083.9p
These financial statements were approved and authorised for issue by the Board
of Directors on 18 November 2009.
Signed on behalf of the Board of Directors
Richard Oldfield
Chairman
Cash Flow Statement
For the year ended 30 September
2009 2008
£'000 £'000
Cash inflow from operating activities 8,395 6,068
Servicing of finance (3,034) (3,035)
Capital expenditure and financial investment (2,956) 802
Equity dividends paid (5,950) (5,615)
Net cash outflow before management of
liquid resources and financing (3,545) (1,780)
Management of liquid resources - 10,700
(Decrease)/increase in cash (3,545) 8,920
Reconciliation of net cash flow to movement in
net debt
(Decrease)/increase in cash (3,545) 8,920
Cashflow from movement in liquid resources - (10,700)
Exchange movements (660) (966)
Debenture stock non-cash movement (18) (15)
Movement in net debt in the year (4,223) (2,761)
Net debt at beginning of year (31,847) (29,086)
Net debt at end of year (36,070) (31,847)
Notes to the Financial Statements
1. Accounting policies
(a) 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. The disclosures on going concern in the Report of the Directors in the
Annual Financial Report form part of the financial statements.
(ii) Changes to presentation
Following the publication of the new SORP, capital reserves are now shown in
aggregate in the balance sheet and the reconciliation of movements in
shareholders' funds. This has no effect on either the net assets or earnings of
the Company.
2. Income
2009 2008
£'000 £'000
Income from investments
UK dividends 5,537 5,770
Overseas dividends 609 624
UK unfranked investment income - 1,285 1,443
interest
Scrip dividends 135 -
7,566 7,837
Other income
Interest on VAT recovered on management 640 -
fees
Deposit interest 18 322
Underwriting commission 39 -
697 322
Total income 8,263 8,159
3. Investment management fee
2009 2008
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Investment management 245 734 979 280 839 1,119
fee
Performance-related fee
relating
to 31 December 2008 - 584 584 - - -
245 1,318 1,563 280 839 1,119
Details of the management agreement are disclosed in the Report of the
Directors in the Annual Financial Report. Performance-related fees are based on
a calendar year. No performance fee has been provided for the year ended 31
December 2009 (31 December 2008: £584,000 paid).
VAT is no longer payable on management or performance fees. An amount of £
2,416,000 has been recognised in these accounts in respect of VAT recoverable
on management fees paid to both Invesco Asset Management Limited and the
previous manager, Merrill Lynch Investment Managers Limited. This has been
credited £840,000 to revenue and £1,576,000 to capital, in the same proportion
as originally charged to the income statement. In addition, £640,000 of
interest thereon has been credited to revenue.
4. Dividends
2009 2008
£`000 £'000
Dividends on equity shares paid and
recognised in the year:
Final dividend for 2008 of 27p (2007: 25p) 3,610 3,342
Interim dividend for 2009 of 17.5p (2008: 2,340 2,273
17p)
5,950 5,615
2009 2008
£'000 £'000
Dividends on equity shares payable in
respect of the year:
Interim paid 17.5p per ordinary share 2,340 2,273
(2008: 17p)
Final dividend of 28p per ordinary share 3,743 3,610
(2008: 27p)
Special dividend of 11.1p per ordinary 1,484 -
share (2008: Nil)
7,567 5,883
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 (2008:
13,368,799) shares being the number of shares in issue throughout the year.
6. Share Capital
2009 2008
Number £'000 Number £'000
Authorised:
Ordinary shares of 50p 20,000,000 10,000 20,000,000 10,000
each
Allotted, called-up and
fully paid:
Ordinary Shares of 50p 13,368,799 6,685 13,368,799 6,685
each
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
2009 2008 2009 2008
Pence Pence £'000 £'000
Ordinary shares
- Basic 1123.9 1083.9 150,252 144,908
Net asset value per ordinary share is based on net assets at the year end and
on 13,368,799 (2008: 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
2009 2008
£'000 £'000
Total return before finance costs and 14,454 (25,553)
taxation
Adjustment for (gains)/losses on investments
and certificates
of deposit (6,567) 31,320
Adjustment for exchange losses 931 983
Scrip dividends (135) -
Increase in debtors (194) (470)
Increase/(decrease) in creditors and 14 (140)
provisions
Tax on overseas dividends (108) (72)
Net cash inflow from operating activities 8,395 6,068
(b) Analysis of cash flow for headings netted in the cash flow statement
2009 2008
£'000 £'000
Servicing of finance
Preference dividends paid (12) (12)
Bank interest paid - (1)
Interest paid on debenture stocks (3,022) (3,022)
Net cash outflow from servicing of finance (3,034) (3,035)
Capital expenditure and financial investment
Purchase of investments * (69,489) (60,113)
Sale of investments 52,530 90,919
Purchase of certificates of deposit (103,503) (95,002)
Sale of certificates of deposit 117,506 64,998
Net cash (outflow)/inflow from capital
expenditure and financial
investments (2,956) 802
Management of liquid resources
Cash movement on short-term deposit - 10,700
Net cash inflow from management of liquid - 10,700
resources
* includes scrip dividends received as income.
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. Full details of Directors' interests are set out in the Report of
the Directors in the Annual Financial Report. There are no other related party
transactions.
10. 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 2009. The opinion of the auditors
on the 2009 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 2008 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 2009, once approved by
shareholders, will be delivered to the Registrar in due course.
11. The audited Annual Financial Report will be posted to shareholders shortly.
Copies may be obtained during normal business hours from the Company's
Registered Office, 30 Finsbury Square, London EC2A 1AG. A copy of the
Annual Financial Report will be available shortly from Invesco Perpetual on
the following website:
www.invescoperpetual.co.uk/investmenttrusts
12. The Annual General Meeting will be held at the Company's Registered Office
on Friday, 18 December 2009 at 11.00am.
By order of the Board
Invesco Asset Management Limited, Secretaries
18 November 2009
Friday, 10th January 2025
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