Final Results

RNS Number : 2301O

City of London Investment Trust PLC

14 September 2011

 



14 September 2011     

This announcement contains regulated information

THE CITY OF LONDON INVESTMENT TRUST PLC

Annual Financial Report for the year ended 30 June 2011

	30 June 2011	30 June 2010
Dividends per ordinary share ('DPS')	+4.3%	+2.8%
Revenue return per ordinary share ('EPS')	+10.4%	-9.3%
Total Returns:
Net asset value per ordinary share ('NAV') #	+29.2%	+26.5%
AIC UK Growth & Income sector NAV (size weighted average) (benchmark) #	+29.7%	+25.8%
FTSE All-Share 4% Capped Index †	+25.9%	+23.3%
FTSE All-Share Index †	+25.6%	+21.1%
Ordinary share price #	+31.1%	+27.6%

Sources:  # Morningstar for the AIC, using cum income fair value NAV; † Datastream

CHAIRMAN'S STATEMENT

The year ended 30 June 2011 was another successful year for City of London. The net asset value total return was 29.2%, exceeding the 26.5% return in 2010 and importantly the dividend was increased for the forty-fifth consecutive year. Our total expense ratio remained amongst the lowest in the sector.

Performance for Year to 30 June 2011

Earnings and Dividends

Earnings per share rose by 10.4%, a figure that benefited mainly from a very satisfactory increase in the dividends received from companies held in the portfolio.  Investment income rose by 16.9% and we made some use of our borrowing facility to buy dividend paying equities. 

A fourth interim dividend of 3.35p was paid on 31 August 2011 making a total for the year of 13.20p, an increase of 4.3% over the previous year.  EPS of 13.17p almost covered the DPS of 13.20p and there were revenue reserves per share of 11.98p at 30 June 2011.

The dividend declarations from companies in our portfolio have been encouraging during our current financial year.  The quarterly rate will next be considered when the third interim is declared in March 2012, by which time the Board will be able to assess better the trend in income of the portfolio.

Net Asset Value Total Return

It was a good year with a net asset value total return of 29.2%.  The majority of the return was achieved in the first half of the period with the euro sovereign debt crisis and concerns about UK economic growth overshadowing the equity market in the second half.  Gearing and stock selection both contributed positively to our performance over the year.

On stock selection, for a second year running the best performers in our portfolio were industrial stocks, such as Weir Group and Croda, which have benefited from global economic growth and have strong market positions in their niche industries.  In addition, Land Securities was a notable outperformer, based on the rise in value of its London office and retail property.

City of London marginally underperformed the average of the AIC UK Growth & Income sector by 0.5% over the year.

The share price did better than its net asset value moving from a discount (with debt at par value) of 1.7% at the previous year end to a premium of 0.5% at 30 June 2011.

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THE CITY OF LONDON INVESTMENT TRUST PLC

Annual Financial Report for the year ended 30 June 2011

Chairman's Statement (continued)

Performance for Five Years to 30 June 2011

Earnings and Dividends

The Company's annual dividend has grown by 41% over the last five years from 9.36p to 13.20p and revenue reserves have increased from 8.65p to 11.98p.

Net Asset Value Total Return

Shareholders' net asset value total return has been 26.9% over the last five years, which compares with 21.6% for the average of the AIC UK Growth & Income sector. 

Expenses

There is no performance fee payable for the year.

The total expense ratio ('TER'), which is the investment management fee and other non-interest expenses as a percentage of shareholder funds, was 0.44%, which is very competitive compared with the OEIC market, with most other investment trusts and with other actively managed equity funds.

This is important because expenses are a tax on shareholder returns and we have to compete for investment and savings in a market that will be changing as a result of the Retail Distribution Review.

Share Issues and Buy-Backs

The Board's aim is for our share price to reflect closely its underlying net asset value; and also to reduce volatility and have a liquid market in our shares.  Our ability to influence this is, of course, limited.  We do believe that flexibility is important and that it is not in shareholders' interests to have a specific issuance and buy-back policy.  The Board intends, however, subject always to the overall impact on our portfolio, the pricing of other trusts and overall market conditions, to consider issuance and buy-backs within a narrow band relative to net asset value.

City of London's shares have been in strong demand. During the year under review 16.24m new shares were issued for proceeds of £45.57m at a premium to net asset value.  This allowed the Portfolio Manager to invest in good dividend yielding shares at attractive valuations.

Outlook

Since our financial year end of 30 June 2011, there have been significant falls across world equity markets.   Growth expectations in the developed Western economies have been declining.  The process of deleveraging for consumers and national governments is proving to be protracted and painful.  In contrast, companies have, in general, relatively strong balance sheets.  In addition, many UK listed companies are well-placed to benefit from the structural growth taking place in emerging markets.  Equities seem to be attractive, on a price earnings basis, based on the consensus of analysts' expectations for profits.  The dividend yield of equities is substantially above gilts and dividends have prospects for growth over the coming year.

Board

After ten years serving as Chairman I am standing down from the Board after the Annual General Meeting on 24 October 2011.  I am absolutely delighted that Philip Remnant will be succeeding me.

Annual General Meeting

Shareholders are invited to the Annual General Meeting on Monday 24 October 2011 at 201 Bishopsgate, London EC2M 3AE.  The meeting will start at 3pm and will include a presentation from the Portfolio Manager.

Simon de Zoete

14 September 2011

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THE CITY OF LONDON INVESTMENT TRUST PLC

Annual Financial Report for the year ended 30 June 2011

PORTFOLIO MANAGER'S REPORT

Investment Background

During the 12 month period under review, the UK equity market, as measured by the FTSE All-Share 4% Capped Index, produced a total return of 25.9%.  These gains were skewed towards the second half of 2010 where the return was 22.1% as equities responded well to strong global economic growth led by emerging markets, such as China. Growth in developed economies, including the UK, was relatively pedestrian.   Commodities reacted to the overall strength of demand with, for example, the Brent Crude oil price rising by 24% over the six months.

In the first half of 2011, the UK equity market produced a more modest return of 3.0%.  The rise in petrol, food and utility prices and the increase in VAT from 17.5% to 20.0%, led to a rise in inflation as well as a further squeeze on the spending power of heavily indebted UK consumers.  Given a slowdown in growth for the economy and low level of wage increases, the Bank of England's Monetary Policy Committee decided to ignore the rise in inflation and kept the base rate at the historic low of 0.5%.  Overseas, worries about the solvency of some of the countries in the Eurozone grew.

During the 12 months, sterling rose against the US dollar from 1.50 to 1.61.  Some 33% of the Company's dividend income from Royal Dutch Shell, HSBC and BHP Billiton, which all declare dividends in US dollars, had been hedged in the previous year at 1.44.

A welcome feature of the year has been the return to dividend growth from companies as profits have recovered.  The average increase in the dividend rate of companies in which City of London has shares was 5.0% compared with last year.  If BP and special dividends are excluded, the increase would have been 8.4%.

Given the dividend growth being delivered from companies in the portfolio, equities appeared to offer good value relative to the yields available in fixed interest during the 12 month period.  As a result, gearing was maintained in a range of between 8% and 12%.  The facility with HSBC was drawn down to take advantage of opportunities to a maximum of £27.2m in February and then reduced to £9.0m by the end of June 2011.  Gearing contributed positively by 2.72 percentage points to performance relative to the FTSE All-Share 4% Capped Index.  In addition, stock selection also contributed positively by 0.83 percentage points.

Performance of Higher Yielding Shares compared with Lower Yielding Shares

Over the 12 month period, the FTSE 350 Lower Yield Index returned 26.1% which was a slight outperformance of the FTSE 350 Higher Yield Index which returned 25.4%.  Although the low yielding mining sector outperformed, this was offset by the underperformance of the banking sector.

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THE CITY OF LONDON INVESTMENT TRUST PLC

Annual Financial Report for the year ended 30 June 2011

PORTFOLIO MANAGER'S REPORT (continued)

Portfolio Review

The overall supply/demand balance for oil remained tight and the oil price strengthened over the year.  Oil companies are a natural beneficiary of the rise in the oil price although they face a constant battle to replace and grow their oil reserves.  The largest holding in the portfolio, Royal Dutch Shell ("RDS"), had a very good year, producing a share price total return of 49%.  RDS's technical expertise was demonstrated by the start of production in the first half of 2011 of a large oil sands project in Canada and two complex gas projects in Qatar.  These and other major oil and gas projects under development should underpin RDS's long-term growth in profits and cash flow. Elsewhere in the oil sector, a new holding was purchased in Statoil, which is the dominant player in the Norwegian oil and gas fields.  The holding in Diamond Offshore Drilling was sold with the company's profits being adversely affected by reduced drilling activity in the Gulf of Mexico.

For the second year running, industrial companies performed strongly.  Spectacular returns were achieved from the portfolio's holdings in Weir (108%), Croda (91%), IMI (58%) and Renishaw (147%).  These companies mainly operate in niche areas with strong barriers to entry and relatively strong pricing power.  They are international leaders and have benefited from strong growth in global demand for their products.  To the extent to which they export from the UK, the sterling exchange rate has been competitive for them.  In the general industrials sector, Tomkins was sold after a bid approach from a Canadian private equity firm.

A significantly below average exposure to the banking sector was maintained throughout the year.  Banks underperformed against a background of regulatory uncertainty and a need to rebuild their capital bases.  The holding in Lloyds Banking Group, which had higher than expected losses in Ireland, was sold.  Some additions were made to HSBC which is conservatively managed with deposits in excess of loans and has significant exposure to the Pacific and emerging markets.

In the insurance sector, two new holdings were purchased.  Prudential appeared undervalued given the combination of its UK, US and Pacific life assurance businesses and its UK fund management operations.  Zurich Financial Services was bought on a very attractive dividend yield of 6.8% and appeared to be good value relative to comparable large European and US insurance companies.

In property, Land Securities had a good year, benefiting from a strong rise in value of its London office and retail portfolio.  This reflected both overseas and UK investors favouring London property as an asset class.

An above average exposure to the utility sector was maintained given attractive dividend yields and for some companies a degree of inflation protection in their regulatory controlled pricing.  A new holding was purchased in International Power which merged with GDF Suez of France to form the world's largest independent power producer.  The company has a strong balance sheet and is expected to produce double-digit percentage profits growth between 2011 and 2014 from new power stations being built.  In contrast, RWE, which has a high level of indebtedness and lacklustre outlook for profits growth from its coal and nuclear power plants, was sold.

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THE CITY OF LONDON INVESTMENT TRUST PLC

Annual Financial Report for the year ended 30 June 2011

PORTFOLIO MANAGER'S REPORT (continued)

The portfolio's biggest holding in the telecommunications sector, Vodafone, produced a total return of 25% over the 12 months.  Vodafone owns 45% of Verizon Wireless, the leading mobile operator in the USA, which is performing well and is to start paying dividends, which will give a significant boost to its cash flow.  Elsewhere, new holdings were purchased on attractive dividend yields in SK Telecom of South Korea and the French media/telecoms conglomerate Vivendi.

Certain stocks that were considered to be vulnerable to the weak UK domestic economy were sold.  These included: pub group Marston's, transportation company Stobart and leisure group Holidaybreak (which subsequently received a takeover bid).  On the other hand, a new holding was purchased in Sainsbury, in view of the relatively defensive nature of its food retailing business and the value of the stores that it owns.

In technology, a new holding was purchased in Microsoft, which has a dominating market position in providing operating systems for personal computers ('PCs') and net cash equivalent to around 20% of its market capitalisation.  Although smartphones/tablets are eroding some PC sales, there is significant scope for companies to upgrade their software and this is the most important part of Microsoft's business.  The purchase of Microsoft was financed by the sale of Playtech, the betting software company.

Other new purchases included:  Compass, the leading international caterer with good growth prospects given the continuing trend for the contracting-out of catering; Paypoint, the national network for collecting payments "over the counter", which was bought on a very attractive valuation; and John Laing Infrastructure Fund, an investment company which owns private finance initiative ('PFI') assets, which offered a secure and growing income stream.

Distribution of the Portfolio

The distribution at 30 June 2011 was: large companies 78% (2010: 76%), medium-sized companies 16% (2010: 20%) and overseas listed companies 6% (2010: 4%).  During the year under review there has been a reduction in the proportion of the portfolio invested in medium-sized companies and increases in the proportions invested in both FTSE 100 and overseas listed companies.

There is scope to have 20% of the portfolio in overseas listed stocks, but we will only invest overseas when there is, in our view, a significant advantage over UK listed companies.

Outlook

A continuation of existing trends seems likely in the year ahead.  Most developed economies, including the UK, are struggling with too much debt both among consumers and governments.  As a result, economic growth in these economies will be slow and interest rates are likely to remain at low levels.   In contrast, emerging economies should enjoy relatively rapid growth with portions of the vast population of countries, such as China and India, in the process of moving out of poverty and into a modest degree of affluence. 

The largest nine holdings in the portfolio are all multinationals.  British American Tobacco (second largest holding), Diageo (fourth) and Unilever (eighth) are consumer products companies with strong brands and substantial operations in fast growing emerging markets.  Vodafone (fifth) and HSBC (sixth) also have global footprints for their operations.

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THE CITY OF LONDON INVESTMENT TRUST PLC

Annual Financial Report for the year ended 30 June 2011

PORTFOLIO MANAGER'S REPORT (continued)

Although 9.8% of the portfolio is invested in the oil sector and 4.7% in mining, this is significantly less than the average exposure for the UK equity market.  Many companies in these sectors have low dividend yields and valuations built on the current high level of commodity prices which are volatile.  However, Royal Dutch Shell (largest holding) and BHP Billiton (ninth) have excellent prospects and good dividend records.

8.5% of the portfolio is invested in the pharmaceutical sector with GlaxoSmithKline (third largest) and AstraZeneca (seventh).  These companies are trading at historically low levels of valuation.  They also offer strong cash flows and research and development pipelines of new medicines that are, in our view, now underappreciated.

Turning to UK domestic stocks, the biggest exposure is to utilities which make up 9.5% of the portfolio.  Their revenues and profits are relatively secure but can be affected by regulatory decisions. Some domestic cyclicals with strong balance sheets and good market positions are held but overall the portfolio has below average exposure to this area.  The process of deleveraging in the UK is likely to be a long one given the high level of consumer debt.

Corporate indebtedness is at a relatively low level and the recent trend in dividend payouts is encouraging.  Shares that produce a decent dividend yield and growth are particularly attractive in the current investment climate with very low yields available in bank deposits and fixed interest.

Job Curtis

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THE CITY OF LONDON INVESTMENT TRUST PLC

Annual Financial Report for the year ended 30 June 2011

Top 40 Investments

as at 30 June 2011

The 40 largest investments, representing 78.43% of the portfolio (convertibles, all classes of equity and all written call option positions in any one company being treated as one investment), are listed below.  The stocks marked * were not in the top ten last year. The stocks which were in the top ten last year but not this year are Scottish & Southern Energy and Tesco.

	Market Value 2011			Market Value 2011
	£'000			£'000
Royal Dutch Shell	46,704		IMI	10,003
British American Tobacco	45,471		Reed Elsevier	9,056
GlaxoSmithKline	35,351		BAE Systems	8,440
Diageo	33,735		Imperial Tobacco	8,284
Vodafone	33,060		Reckitt Benckiser	7,912
HSBC	27,828		Britvic	7,890
AstraZeneca	21,756		Amlin	7,716
Unilever *	21,665		France Telecom	5,960
BHP Billiton *	20,635		Pennon	5,933
National Grid	19,906		Severn Trent	5,888
Scottish & Southern Energy	19,154		Hiscox	5,865
BP	16,053		Prudential	5,760
Tesco	14,874		United Utilities	5,691
Land Securities	13,640		Spirax-Sarco Engineering	5,503
Rio Tinto	13,399		RSA Insurance	5,396
Croda	12,737		Legal & General	5,319
Pearson	12,642		Greene King	4,874
Weir	11,167		Deutsche Telekom	4,870
Aviva	10,975		Vivendi	4,676
Centrica	10,507		Novartis	4,567

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THE CITY OF LONDON INVESTMENT TRUST PLC

Annual Financial Report for the year ended 30 June 2011

PRINCIPAL RISKS AND UNCERTAINTIES

The Board has drawn up a matrix of risks facing the Company and has put in place a schedule of investment limits and restrictions, appropriate to the Company's investment objective and policy, in order to mitigate these risks as far as practicable.  The principal risks which have been identified and the steps taken by the Board to mitigate these are as follows:

●       Portfolio and market price

         Although the Company invests almost entirely in securities that are quoted on recognised markets, share prices may move rapidly.  The companies in which investments are made may operate unsuccessfully, or fail entirely.  A fall in the market value of the Company's portfolio would have an adverse effect on shareholders' funds.  The Board reviews the portfolio each month and mitigates this risk through diversification of investments in the portfolio.

●       Investment activity, gearing and performance

         An inappropriate investment strategy (for example, in terms of asset allocation or the level of gearing) may result in underperformance against the Company's benchmark.  The Board monitors investment performance at each Board meeting and regularly reviews the level of its gearing.  

●       Tax and regulatory

A breach of section 1158 of the Corporation Tax Act 2010 would lead to a loss of investment trust status, resulting in capital gains realised within the portfolio being subject to corporation tax.  A breach of the UKLA Listing Rules could result in suspension of the Company's shares, while a breach of the Companies Act 2006 could lead to criminal proceedings, or financial or reputational damage.  The Company must also ensure compliance with the listing rules of the New Zealand Stock Exchange. 

The Manager has contracted to provide investment, company secretarial, administration and accounting services through qualified professionals.  The Board receives internal control reports produced by the Manager on a quarterly basis, which confirm regulatory compliance. 

          ●       Operational

         Disruption to, or failure of, the Manager's accounting, dealing or payment systems or custody records could prevent the accurate reporting and monitoring of the Company's financial position. The Company is also exposed to the operational risk that one or more of its suppliers may not provide the required level of service. The Board monitors the services provided by the Manager and its other suppliers.

Further details of the Company's exposure to market risk (including market price risk, currency risk and interest rate risk), liquidity risk, and credit and counterparty risk and how they are managed are contained in the notes to the financial statements in the annual report.

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THE CITY OF LONDON INVESTMENT TRUST PLC

Annual Financial Report for the year ended 30 June 2011

RELATED PARTY TRANSACTIONS

The provision of investment management, accounting, company secretarial and administration services has been outsourced to Henderson Global Investors Limited (the 'Manager').  This is the only related party arrangement currently in place.  Other than fees payable by the Company in the ordinary course of business, there have been no material transactions with the related party affecting the financial position or performance of the Company during the year under review. 

STATEMENT OF DIRECTORS' RESPONSIBILITIES

In accordance with Disclosure and Transparency Rule 4.1.12, each of the directors confirms that, to the best of their knowledge:

●          the financial statements, which have been prepared in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law), give a true and fair view of the assets, liabilities, financial position and profit of the Company; and

●          the Report of the Directors in the Annual 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.

Signed for and on behalf of the Board of directors

Simon de Zoete

Chairman

14 September 2011

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THE CITY OF LONDON INVESTMENT TRUST PLC

Annual Financial Report for the year ended 30 June 2011

Audited Income Statement

for the year ended 30 June 2011

	Year ended 30 June 2011			Year ended 30 June 2010
	Revenue return £'000	Capital return £'000	Total £'000	Revenue return £'000	Capital return £'000	Total £'000
Gains on investments held at fair value through profit or loss	-	122,350	122,350	-	87,484	87,484
Income from investments held at fair value through profit or loss (note 2)	30,179	-	30,179	25,809	-	25,809
Other interest receivable and similar income (note 3)	1,383	-	1,383	1,833	-	1,833
	---------	----------	-----------	---------	---------	----------
Gross revenue and capital gains	31,562	122,350	153,912	27,642	87,484	115,126
Management and performance fees	(658)	(1,537)	(2,195)	(561)	(1,385)	(1,946)
Other administrative expenses	(591)	-	(591)	(612)	-	(612)
	---------	----------	----------	---------	---------	----------
Net return on ordinary activities before finance charges and taxation	30,313	120,813	151,126	26,469	86,099	112,568
Finance charges	(1,521)	(3,181)	(4,702)	(1,440)	(2,993)	(4,433)
	---------	---------	----------	---------	---------	----------
Net return on ordinary activities before taxation	28,792	117,632	146,424	25,029	83,106	108,135
Taxation on net return on ordinary activities	(204)	-	(204)	(148)	-	(148)
	---------	---------	----------	---------	----------	----------
Net return on ordinary activities after taxation	28,588	117,632	146,220	24,881	83,106	107,987
	=====	======	======	=====	======	======
Return per ordinary share - basic and diluted (note 4)	13.17p	54.21p	67.38p	11.93p	39.83p	51.76p
	=====	=====	=====	=====	=====	=====

The total columns of this statement represent the Income Statement of the Company.  The revenue return and capital return columns are supplementary to this and are prepared under guidance published by the Association of Investment Companies.  All revenue and capital items in the above statement derive from continuing operations. No operations were acquired or discontinued during the year. The Company has no recognised gains or losses other than those recognised in the Income Statement.

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THE CITY OF LONDON INVESTMENT TRUST PLC

Annual Financial Report for the year ended 30 June 2011

Audited Reconciliation of Movements in Shareholders' Funds

for the years ended 30 June 2011 and 30 June 2010

Year ended 30 June 2011	Called up share capital £'000	Share premium account £'000	Capital redemption reserve £'000	Other capital reserves £'000	Revenue reserve £'000	Total £'000
At 30 June 2010	52,155	37,079	2,707	392,406	26,679	511,026
Net return on ordinary activities after taxation	-	-	-	117,632	28,588	146,220
Issue of 16,240,000 new ordinary shares	4,060	41,511	-	-	-	45,571
Dividends paid (note 6)	-	-	-	-	(28,340)	(28,340)
	--------	---------	---------	---------	---------	----------
At 30 June 2011	56,215	78,590	2,707	510,038	26,927	674,477
	=====	=====	=====	======	=====	======
Year ended 30 June 2010	Called up share capital £'000	Share premium account £'000	Capital redemption reserve £'000	Other capital reserves £'000	Revenue reserve £'000	Total £'000
At 30 June 2009	52,130	36,893	2,707	309,300	27,852	428,882
Net return on ordinary activities after taxation	-	-	-	83,106	24,881	107,987
Issue of 100,000 new ordinary shares	25	186	-	-	-	211
Dividends paid (note 6)	-	-	-	-	(26,054)	(26,054)
	--------	---------	--------	----------	---------	----------
At 30 June 2010	52,155	37,079	2,707	392,406	26,679	511,026
	=====	=====	=====	======	=====	======

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THE CITY OF LONDON INVESTMENT TRUST PLC

Annual Financial Report for the year ended 30 June 2011

Audited Balance Sheet

at 30 June 2011

	2011	2010
	£'000	£'000
Investments held at fair value through profit or loss
Listed at market value in the United Kingdom	681,202	535,443
Listed at market value overseas	46,709	23,024
Investment in subsidiary undertakings	347	347
	----------	----------
	728,258	558,814
	----------	----------
Current assets
Debtors	6,276	4,577
Cash at bank	480	1,475
	----------	----------
	6,756	6,052
	----------	----------
Creditors: amounts falling due within one year	(13,138)	(6,441)
	----------	----------
Net current liabilities	(6,382)	(389)
	----------	----------
Total assets less current liabilities	721,876	558,425
Creditors: amounts falling due after more than one year	(47,399)	(47,399)
	----------	----------
Net assets	674,477	511,026
	======	======
Capital and reserves
Called up share capital	56,215	52,155
Share premium account	78,590	37,079
Capital redemption reserve	2,707	2,707
Other capital reserves	510,038	392,406
Revenue reserve	26,927	26,679
	----------	----------
Shareholders' funds	674,477	511,026
	======	======
Net asset value per ordinary share - basic and diluted (note 5)	299.95p	244.96p
	======	======

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THE CITY OF LONDON INVESTMENT TRUST PLC

Annual Financial Report for the year ended 30 June 2011

Audited Cash Flow Statement

for the year ended 30 June 2011

	Year ended           30 June 2011		Year ended          30 June 2010
	£'000	£'000	£'000	£'000
Net cash inflow from operating activities		28,281		25,465
Servicing of finance
Debenture interest paid	(4,265)		(4,265)
Bank and loan interest paid	(262)		(11)
Dividends paid on preference and preferred ordinary stocks	(157)		(157)
	----------		----------
Net cash outflow from servicing of finance		(4,684)		(4,433)
Taxation
Withholding tax recovered	138		331
	----------		----------
Net tax recovered		138		331
Financial investment
Purchases of investments	(95,452)		(82,535)
Sales of investments	48,828		86,667
	----------		----------
Net cash (outflow)/inflow from financial investment		(46,624)		4,132
Equity dividends paid		(28,340)		(26,054)
		----------		----------
Net cash outflow before financing		(51,229)		(559)
Financing
Proceeds from issue of ordinary shares	44,392		211
Repayment of loans	-		(2,000)
	---------		---------
Net cash inflow/(outflow) from financing		44,392		(1,789)
		---------		---------
Decrease in cash		(6,837)		(2,348)
		=====		=====

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THE CITY OF LONDON INVESTMENT TRUST PLC

Annual Financial Report for the year ended 30 June 2011

Notes to the financial statements

1.	Accounting policies
	Basis of accounting
	The financial statements have been prepared on a going concern basis and under the historical cost basis of accounting as modified to include the revaluation of investments at fair value.  The financial statements are prepared in accordance with United Kingdom Generally Accepted Accounting Practice and with the Statement of Recommended Practice ("the SORP") for investment trusts issued by the Association of Investment Companies in January 2009.  All of the Company's operations are of a continuing nature. The Company's accounting policies are consistent with the prior year.
2.	Income from investments held at fair value through profit or loss
		2011	2010
		£'000	£'000
	Franked UK dividends:
	Listed	26,408	23,409
	Listed - special dividends	226	95
	Income from subsidiary	-	31
		---------	---------
		26,634	23,535
		---------	---------
	Unfranked - listed investments:
	Dividend income - overseas investments	3,035	1,590
	Dividend income - UK REIT	486	527
	Special dividends	24	157
		---------	---------
		3,545	2,274
		---------	---------
		30,179	25,809
		=====	=====
3.	Other interest receivable and similar income
		2011	2010
		£'000	£'000
	Bank interest	11	3
	Underwriting commission (allocated to revenue)*	56	526
	Option premium income †	1,316	1,304
		-------	------
		1,383	1,833
		====	====
	* During the year the Company was not required to take up shares in respect of its underwriting commitments (2010: £17,000).
	†  Options were mainly written against low or zero dividend yielding holdings, which would not normally form part of the portfolio.  These transactions had no material impact on the capital account of the Company.

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THE CITY OF LONDON INVESTMENT TRUST PLC

Annual Financial Report for the year ended 30 June 2011

Notes to the financial statements (continued)

	3.	Other interest receivable and similar income (continued) During the year, the Company sold (or wrote) call options for the purpose of generating revenue income.  In accordance with the SORP, the premiums received are recognised in the revenue return shown in the Income Statement evenly over the life of the option with an appropriate amount taken to the capital account such that the total return reflects the change in fair value of the options.  The Company received total premiums of £911,000 (2010: £1,728,000) from this activity during the year of which £892,000 (2010: £1,304,000) was recognised as revenue in the year ended 30 June 2011. The balance of £424,000 not due to be recognised as revenue in 2010 was recognised in 2011 giving total income of £1,316,000 (2010: £1,304,000).
		Call options outstanding at 30 June 2011 are recognised at their fair value and at 30 June 2011 the fair value of the written call options was a liability of £73,000 (2010: £248,000) representing the notional cost of repurchasing the call options at 30 June 2011 market prices.  The premiums recognised in respect of these outstanding options amounted to £112,000 (2010: £713,000) meaning that the total change in fair value recognised during the year ended 30 June 2011 in respect of these outstanding options amounts to a gain of £39,000 (2010: £465,000).
4.		Return per ordinary share - basic
		The return per ordinary share is based on the net return attributable to the ordinary shares of £146,220,000 (2010: £107,987,000) and on 217,008,223 ordinary shares (2010: 208,613,841), being the weighted average number of ordinary shares in issue during the year.
		The return per ordinary share is analysed between revenue and capital below:
			2011	2010
			£'000	£'000
		Net revenue return	28,588	24,881
		Net capital return	117,632	83,106
			----------	----------
		Net total return	146,220	107,987
			======	======
		Weighted average number of ordinary shares in issue during the year	217,008,223	208,613,841
		Revenue return per ordinary share	13.17p	11.93p
		Capital return per ordinary share	54.21p	39.83p
			---------	---------
		Total return per ordinary share	67.38p	51.76p
			=====	=====
		The Company does not have any dilutive securities. Therefore the basic and diluted returns per share are the same.
5.		Net asset value per ordinary share
		The net asset value per ordinary share is based on the net assets attributable to the ordinary shares of £674,477,000 (2010: £511,026,000) and on 224,859,868 (2010: 208,619,868) shares in issue on 30 June 2011.

- 16 -

THE CITY OF LONDON INVESTMENT TRUST PLC

Annual Financial Report for the year ended 30 June 2011

Notes to the financial statements (continued) 

6.	Dividends paid on the ordinary shares	Record date	Payment date	2011 £'000	2010 £'000
	Fourth interim dividend (3.08p) for the year ended 30 June 2009	24 Jul 2009	28 Aug 2009	-	6,422
	First interim dividend (3.08p) for the year ended 30 June 2010	23 Oct 2009	30 Nov 2009	-	6,426
	Second interim dividend (3.08p) for the year ended 30 June 2010	22 Jan 2010	26 Feb 2010	-	6,426
	Third interim dividend (3.25p) for the year ended 30 June 2010	30 Apr 2010	28 May 2010	-	6,780
	Fourth interim dividend (3.25p) for the year ended 30 June 2010	30 Jul 2010	31 Aug 2010	6,831	-
	First interim dividend (3.25p) for the year ended 30 June 2011	22 Oct 2010	30 Nov 2010	6,974	-
	Second interim dividend (3.25p) for the year ended 30 June 2011	21 Jan 2011	28 Feb 2011	7,090	-
	Third interim dividend (3.35p) for the year ended 30 June 2011	6 May 2011	31 May 2011	7,445	-
				--------	--------
				28,340	26,054
				=====	=====

7.   Issued share capital

During the year the Company issued 16,240,000 (2010: 100,000) ordinary shares for total proceeds of £45,571,000 (2010: £211,000).  The average price of the shares that were issued was 281p (2010: 211p). At 30 June 2011 there were 224,859,868 ordinary shares in issue (2010: 208,619,868).

8.   Dividends paid

A fourth interim dividend of 3.35p per ordinary share (2010: 3.25p) in respect of the year ended 30 June 2011 was paid on 31 August 2011 to shareholders on the register on 29 July 2011 for a total consideration of £7,533,000.

9.   Going concern statement

The directors believe that it is appropriate to continue to adopt the going concern basis in preparing the financial statements as the assets of the Company consist mainly of securities which are readily realisable and, accordingly, the Company has adequate financial resources to continue in operational existence for the foreseeable future.  In reviewing the position as at the date of this announcement, the Board has considered the "Going Concern and Liquidity Risk: Guidance for Directors of UK Companies 2009" published by the Financial Reporting Council in October 2009.

10.   2011 Financial information

The figures and financial information for the year ended 30 June 2011 are extracted from the Company's annual financial statements for that period and do not constitute statutory accounts.  The Company's annual financial statements for the year to 30 June 2011 have been audited but have not yet been delivered to the Registrar of Companies. The auditors' report on the 2011 annual financial statements was unqualified, did not include a reference to any matter to which the auditors drew attention without qualifying the report, and did not contain any statements under sections 498(2) or 498(3) of the Companies Act 2006.

- 17 -

THE CITY OF LONDON INVESTMENT TRUST PLC

Annual Financial Report for the year ended 30 June 2011

Notes to the financial statements (continued)

11.   2010 Financial information

The figures and financial information for the year ended 30 June 2010 are compiled from an extract of the published financial statements for that year and do not constitute statutory accounts.  Those financial statements have been delivered to the Registrar of Companies and included the report of the auditors which was unqualified, did not include a reference to any matter to which the auditors drew attention without qualifying the report, and did not contain any statements under sections 498(2) or 498(3) of the Companies Act 2006.

12.   Annual report and financial statements and annual general meeting

The annual report and financial statements will be posted to shareholders on 21 September 2011 and will be available on the Company's website (www.cityinvestmenttrust.com) or in hard copy format from the Company's registered office, 201 Bishopsgate, London, EC2M 3AE thereafter.

The Annual General Meeting will be held at the registered office on Monday 24 October 2011 at 3.00pm. The notice of the meeting will be sent to shareholders with the annual report.

- ENDS -

For further information please contact:

Job Curtis

Portfolio Manager, The City of London Investment Trust plc

Telephone: [phone]

James de Sausmarez

Director, Head of Investment Trusts, Henderson Global Investors

Telephone: [phone]

Sarah Gibbons-Cook

Investor Relations and PR Manager, Henderson Global Investors

Telephone: [phone]

Neither the contents of the Company's website nor the contents of any website accessible from hyperlinks on the Company's website (or any other website) is incorporated into, or forms part of, this announcement.

 

END

 

 

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