Final Results
Keystone Investment Trust plc
Preliminary Announcement of Final Results
for the Year ended 30 September 2003
Chairman's Statement
Over the year to 30 September 2003, the Company's shares have provided a total
return (with dividends reinvested) of 50.7%, compared with the total return of
the benchmark index of 16.7%. This outcome is the result of three things: the
strength of the stock market since March; good performance by the Manager,
INVESCO, appointed with effect from 1 January 2003; and a narrowing of the
discount of the share price in relation to the net asset value, reflecting
generally improved investor sentiment and a positive perception of the new
management.
Performance 6 months Since 1 January 03 One Year
Share Price Total Return +36.9% +29.2% +50.7%
NAV Total Return per share +30.9% +18.2% +28.9%
FTSE All-Share Index Total +19.0% +10.5% +16.7%
Return
The portfolio is managed by Mark Barnett, part of the INVESCO team based in
Henley-on-Thames. As previously reported to shareholders, the selection of
INVESCO followed a review in which we were keen to ensure that the Manager's
approach would be in line with the Company's stated philosophy: the portfolio
should reflect the Manager's judgement on the merits of individual holdings and
its composition should not be driven primarily by the make-up of the index used
for performance measurement. We are firmly of the view that, in the long term,
the chances of the Company performing successfully are increased by a
non-index-hugging, rather than index-hugging, approach.
All but three of the Company's holdings were sold by the new Manager as soon as
they took over. The new portfolio has no recognisable relationship to the
index. Some overseas holdings (on which the Board has placed a maximum limit of
10%) have been included. Since 1 January, she share price total return has been
29.2% and the net asset value total return 18.2%, ahead of the index total
return of 10.5%. The new Manager has, therefore, got off to a good start. This
performance is all the more creditable, given that the Manager has not been
particularly optimistic about the overall market. He has, however, had
conviction about the attractions of individual stocks, and this conviction has
been effectively translated into action.
The Board's role includes the setting of prudential limits for gearing. The
current limits are that the Manager must make no net purchases if equity
exposure is more than 115% of net assets, and must make sales if, as a result
of market movements, equity exposure exceeds 120% of net assets. It is then up
to the Manager to decide where the portfolio should be positioned subject to
those limits.
The Company's borrowings, in the form of long-term debentures, amount to £40
million. The Board's gearing policy means that some of the proceeds of these
borrowings have been balanced by cash deposits. If it appeared that a
significant proportion of the outstanding debentures could be bought back
before maturity at materially advantageous prices, this would be done, but
otherwise not: we will not buy back the debentures if doing so is more painful
for shareholders than keeping them.
Equity exposure may be supplemented by a corporate bond portfolio, the size of
which the Board limited to £15 million during the year to 30 September. The
object of this is to improve the total return on the Company's net assets with
limited risk. The policy to date has been successful. Such corporate bonds also
generate higher levels of income than cash or equities, but that is not an
explicit objective of the policy. Since the year end, the Board has reduced the
limit on holdings of corporate bonds to £4 million in total.
The Company's total expense ratio, excluding performance fees, was 0.8% of
average net assets in the last year. Including performance fees accrued, the
total expense ratio was 1.6%. This higher ratio reflects the strong performance
achieved by the Manager during 2003.
Peter Stormonth Darling retired as a director during the year, having reached
the age of 70, and we recorded our gratitude to him in the interim report.
Beatrice Hollond has joined the Board. She has considerable experience in fund
management and in the supervision of fund managers which will be of great
benefit.
The Board has declared a final dividend of 17.0p per share giving a total
dividend of 25.5p per share, based on earnings of 24.9p per share during the
year. We recognise the importance to shareholders of the dividend, and have
therefore used some revenue reserve in order to maintain both the interim and
the final dividend at the same level as last year.
Outlook
The Nobel Prize winning economist, Kenneth J. Arrow, employed in the US Air
Force's meteorological unit during the Second World War, quickly came to the
conclusion that the medium-term forecasts of weather which he was obliged to
produce were no better than randomly right, and asked to be relieved of this
duty. The reply came back: 'the Commanding General is well aware that the
forecasts are no good; however, they are needed for planning purposes.'
Taking a similar view, we forecast hesitantly. Last year we felt it reasonable
to expect improvement in terms both of a narrowing discount and of a rise in
net asset value. The Manager, in his commentary in the annual report, retains a
cautious outlook, which we share. A cautious outlook has been compatible with
good performance over the past year, and we are naturally hopeful that the
Company will make further progress in the year ahead, its fiftieth year.
Richard Oldfield
Chairman
11 November 2003
Consolidated Statement of Total Return (incorporating revenue account)
for the year ended 30 September
2003 2002
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Gains/(losses) on - 20,876 20,876 - (28,503) (28,503)
investments
Foreign exchange - 251 251 - - -
gains
Income 4,524 - 4,524 3,786 - 3,786
Investment (152) (1,351) (1,503) (179) (534) (713)
management fee
Other expenses (233) - (233) (187) - (187)
…………………………………….……….…………………………………………………………
Net return before
finance
costs and taxation 4,139 19,776 23,915 3,420 (29,037) (25,617)
Finance costs (761) (2,283) (3,044) (761) (2,283) (3,044)
…………………………………….……….…………………………………………………………
Return on ordinary
activities
before tax 3,378 17,493 20,871 2,659 (31,320) (28,661)
Tax on ordinary (42) - (42) - - -
activities
…………………………………….……….…………………………………………………………
Return on ordinary
activities
after tax for 3,336 17,493 20,829 2,659 (31,320) (28,661)
the financial
year
Dividends in
respect of
non-equity (12) - (12) (12) - (12)
shares
…………………………………….……….…………………………………………………………
Return
attributable to
equity
shareholders 3,324 17,493 20,817 2,647 (31,320) (28,673)
Dividends in
respect of
ordinary shares (3,409) - (3,409) (3,420) - (3,420)
…………………………………….……….…………………………………………………………
Transfer (from)/to (85) 17,493 17,408 (773) (31,320) (32,093)
reserves
Return per
ordinary share
Basic 24.9p 130.8p 155.7p 19.4p (229.4)p (210.0)p
Dividend per 25.5p - 25.5p 25.5p - 25.5p
ordinary share
The revenue column of this statement is the profit and loss account of the
Company. All revenue
and capital items in the above statement derive from continuing operations. No
operations were
acquired or discontinued in the year.
Consolidated Reconciliation of Movement in Shareholders' Funds
for the year ended 30 September
Group Company Group Company
2003 2003 2002 2002
£'000 £'000 £'000 £'000
Revenue return for the year (85) (85) (773) (773)
Capital return for the year 17,493 17,493 (31,320) (31,320)
Issue of ordinary shares - - (5,386) (5,386)
…………………………………….……….……………………………………………………
Net movement in 17,408 17,408 (37,479) (37,479)
Shareholders' funds
Opening Shareholders' funds 78,536 78,406 116,015 115,885
…………………………………….……….……………………………………………………
Closing Shareholders' funds 95,944 95,814 78,536 78,406
Balance Sheets
as at 30 September
Group Company Group Company
2003 2003 2002 2002
£'000 £'000 £'000 £'000
Fixed assets
Investments 111,291 111,292 90,569 90,570
Current assets
Debtors 1,305 1,328 545 545
Cash 28,395 28,395 30,230 30,230
…………………………………….……….………………………………………………………….
29,700 29,723 30,775 30,775
…………………………………….……….………………………………………………………….
Creditors: amounts falling (5,485) (5,639) (3,268) (3,399)
due within one year
…………………………………….……….………………………………………………………….
Net current assets 24,215 24,084 27,507 27,376
…………………………………….……….………………………………………………………….
Total assets less current 135,506 135,376 118,076 117,946
liabilities
…………………………………….……….………………………………………………………….
Creditors: amounts falling
due after
more than one year (39,562) (39,562) (39,540) (39,540)
…………………………………….……….…………………………………………………………
Net Assets 95,944 95,814 78,536 78,406
Capital and reserves
Called up share capital 6,685 6,685 6,685 6,685
Share premium account 1,258 1,258 1,258 1,258
Other reserves:
Capital reserves - realised 76,173 76,173 91,387 91,387
Capital reserves - 7,815 7,815 (24,892) (24,892)
unrealised
Capital redemption reserve 466 466 466 466
Revenue reserve 3,297 3,167 3,382 3,252
…………………………………….……….………………………………………………………..…
Equity shareholders' funds 95,694 95,564 78,286 78,156
Non-equity interests:
Cumulative preference 250 250 250 250
shares
…………………………………….……….………………………………………………………….
Total shareholders' funds 95,944 95,814 78,536 78,406
Net asset value per ordinary
share
Basic 715.8p 714.8p 585.6p 584.6p
These Balance Sheets were approved by the Board of Directors on 11 November
2003.
Consolidated Cash Flow Statement
for the year ended 30 September
2003 2002
£'000 £'000
Cash inflow from operating activities 3,423 2,946
Servicing of finance (3,032) (2,985)
Taxation (51) -
Capital expenditure and financial 1,195 31,716
investment
Equity dividends paid (3,409) (3,966)
…………………………………….……….………………………………………………………….
Net cash (outflow)/inflow before (1,874) 27,711
management of liquid resources and
financing
Management of liquid resources 4,933 (24,169)
Financing - (5,386)
…………………………………….……….………………………………………………………….
Increase/(decrease) in cash 3,059 (1,844)
Reconciliation of net cash flow to
movement in net debt
Increase/(decrease) in cash 3,059 (1,844)
Cash (inflow)/outflow from movement in (4,933) 24,169
liquid resources
Exchange movements 39 -
Debenture stock non-cash movement (22) (22)
…………………………………….……….………………………………………………………….
Movement in net (debt)/funds in the year (1,857) 22,303
Net debt at beginning of year (9,310) (31,613)
…………………………………….……….………………………………………………………….
Net debt at end of year (11,167) (9,310)
The financial information set out above does not constitute the Company's
statutory accounts for the year ended 30 September 2003 or 2002. The financial
information for 2002 is derived from the statutory accounts for 2002 which have
been delivered to the Registrar of Companies. The auditors have reported on the
2002 statutory accounts and their report was unqualified and did not contain a
statement under s237(2) or (3) of the Companies Act 1985. The statutory
accounts for 2003 will be finalised on the basis of the information presented
by the Directors in this preliminary announcement and will be delivered to the
Registrar of Companies following the Company's annual general meeting.
The preliminary announcement is prepared on the same basis as set out in the
previous year's accounts. The audit report on the full financial statements is
yet to be signed.Notes
1. Income
2003 2002
£'000 £'000
Income from listed investments
UK dividends 2,732 3,103
Overseas dividends 588 282
UK unfranked investment income 723 9
…………………………………….….….…………..…………………………………………
4,043 3,394
………………………………….……….…………………...…………………………………
Other income
Deposit interest 481 392
…………………………………….……….………….……………………………………….
481 392
…………………………………….……….…………………………………………..……….
Total income 4,524 3,786
2. Investment management fee
2003 2002
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Investment 124 374 498 151 452 603
management fee
Performance-related - 761 761 - - --
fee
Profit realisation
fee
on unlisted - - - 1 3 4
portfolio
Irrecoverable VAT 28 216 244 27 79 106
thereon
…………………………………………………………………………………………………
152 1,351 1,503 179 534 713
Details of the management agreement will be disclosed in the Report of the
Directors in the annual report.
The performance-related fee has been accrued for the period 1 January 2003 to
30 September 2003.
In 2002, a fee of 10% of profit realised for the direct unlisted portfolio was
payable. This was to be allocated between capital and revenue in proportion to
the receipt of capital or income on the realisation of the unlisted
investments. In 2003, this fee ceased to be payable, under the new agreement
with INVESCO Asset Management Limited as Manager.
3. Expenses
2003 2002
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Directors' fees 49 - 49 51 - 51
Auditors'
remuneration:
- statutory audit 17 - 17 14 - 14
- audit related 6 - 6 4 - 4
regulatory
reporting
- further assurance 2 - 2 - - -
services
- tax compliance 9 - 9 9 - 9
services
- tax advisory 4 - 4 - - -
services
- other services 6 - 6 - - -
Other expenses 140 - 140 109 - 109
……………………………………………………………………………………………………………
233 - 233 187 - 187
4. Finance costs
2003 2002
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Interest payable on
borrowings
repayable as
follows:
Debenture stock 761 2,283 3,044 761 2,283 3,044
repayable after 5
years
…………………………………………………………………………………………………
761 2,283 3,044 761 2,283 3,044
5. Taxation
(a) Current tax charge
2003 2002
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Overseas tax 42 - 42 - - -
(b) Reconciliation of current tax charge
2003 2002
£'000 £'000
Revenue on ordinary activities before 3,378 2,659
taxation
……………………………………………………………………………………………..…
Theoretical tax at UK Corporation Tax rate 1,013 798
of 30% (2002: 30%)
Effect of:
- UK dividends which are not taxable (820) (931)
- Excess expenses for the period carried 939 978
forward
- Tax deductible expenses allocated to (1,090) (845)
Capital reserve-realised
…………………………………………………………………………………………………
Overseas tax 42 -
(c) Factors that may affect future tax changes
The Company has excess expenses of £20,560,000 (2002: £17,409,000) that are
available to offset future taxable revenue. A deferred tax asset has not been
recognised in respect of these expenses since they are recoverable only to the
extent that the Company has sufficient future taxable revenue.
6. Dividends
2003 2002
£'000 £'000
Dividends on equity shares
Interim paid 8.5p per ordinary share 1,136 1,147
(2002: 8.5p)
Proposed dividend of 17.0p per ordinary 2,273 2,273
share (2002: 17.0p)
…………………………………………………………………………………………………
3,409 3,420
Dividends on preference shares
2.50% paid on 31 March (2002: 2.50%) 6 6
2.50% paid on 30 September (2002: 6 6
2.50%)
………………………………………………………………………………………………….
12 12
7. Return per ordinary share
Basic revenue return per ordinary share is based on the net revenue on ordinary
activities after taxation and on 13,368,799 (2002: 13,652,165) shares being the
number of shares in issue throughout the year (2002: weighted average number of
shares in issue).
Basic capital return per ordinary share is based on the net capital gains on
ordinary activities after taxation and on 13,368,799 (2002: 13,652,165) shares
being the number of shares in issue throughout the year (2002: weighted number
of shares in issue).
8. Notes to the cash flow statement
(a) Reconciliation of operating profit to operating cash flows
2003 2002
£'000 £'000
Net revenue before finance costs and 4,139 3,420
taxation
(Increase)/decrease in debtors (287) 154
Increase/(decrease) in creditors 964 (94)
Investment management fee charged to capital (1,351) (534)
Tax on unfranked investment income (42) -
……………………………………………………………………………………………….
Net cash inflow from operating activities 3,423 2,946
(b) Analysis of changes in net debt
Debenture
stock 30
1 Exchange non-cash September
October
2002 Cash movements movement 2003
flow
£'000 £'000 £'000 £'000 £'000
Cash 10,297 3,059 39 - 13,395
Cash funds 19,933 (4,933) - - 15,000
Debt due after five (39,540) - - (22) (39,562)
years - Debentures
…………………………………………………………………………………………………
Net debt (9,310) (1,874) 39 (22) (11,167)
The audited Report and Accounts 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.
The Annual General Meeting will be held at the Company's Registered Office on
Monday, 15 December 2003 at 11.00 am.
By order of the Board
INVESCO Asset Management Limited, Secretaries
11 November 2003
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