Interim Results
City of London Investment Trust PLC
14 February 2005
(14) February 2004
THE CITY OF LONDON INVESTMENT TRUST PLC
UNAUDITED INTERIM RESULTS FOR THE HALF YEAR ENDED
31 DECEMBER 2004
Total Returns Six Months to
31 December 2004
Net asset value per ordinary share +12.27%
Ordinary share price +16.53%
FTSE All-Share Index +9.74%
NAV outperformance +2.53%
*Source: AITC Services Limited
Chairman's Statement
Performance
City of London has performed well during the six months under review. The UK
equity market rose by 8.17% and produced a total return, including reinvestment
of dividends, of 9.74%, as measured by the FTSE All-Share Index. The market was
helped by the continuing combination of growth and low inflation from the UK
economy. City of London outperformed producing a net asset value total return
of 12.27% over the six months. Our overweight positions in the utility and real
estates sectors were particularly helpful as was corporate activity in the
building materials sector. City of London's discount to net asset value
tightened which resulted in a share price total return of 16.53%
Dividends
The Board continues to recognise the importance of dividend income to
shareholders and declared a second interim dividend on 9 December 2004 of 2.12p
per ordinary share, an increase of 2.42% in the dividend rate compared with last
year. The dividend will be paid on 28 February and the shares traded
ex-dividend with regard to this payment from 26 January.
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THE CITY OF LONDON INVESTMENT TRUST PLC
Unaudited Interim Results for the half year ended 31 December 2004
Expenses
The total management fee was substantially higher than in the same period last
year, because a performance fee has been accrued, based on a full year effect of
rewarding the Manager, under the terms of the Management Agreement, for
outperformance achieved in the first six months. The actual fee to be paid to
the Manager will depend on his actual performance over the full year to end June
2005, and could be lower than the amount assumed in these interim accounts.
Since the accrued fee is already up to the limit prescribed by the cap in the
Management Agreement, there will be no further increase in the percentage costs
of management fees in the full year's Accounts. The total management fee for
the year, including any performance fee, is capped at 0.5% of assets under
management which is very competitive with other investment trusts and retail
equity savings products.
Savings
City of London sets out to be a straight-forward investment vehicle and seeks to
be one of the leading candidates for regular savings and investment. Enclosed
with this interim report is a newsletter which includes details about tax
efficient ways of investing in City of London for pensions and ISAs for your
consideration.
Benchmark and Investment Policy
City of London's performance benchmark has, for many years, been the FTSE
All-Share Index and it is against this index that the manager's performance is
assessed each year to determine whether a performance fee is payable. The Board
has become increasingly concerned, however, that the All-Share Index has come to
be dominated by a small number of very large capitalisation stocks. Following
the consolidation of Royal Dutch and Shell and its enlarged weighting, we
estimate that the weighting of the top five stocks could be as high as 36% of
the all-share index and at the end of December 2004 the largest stock was 7.8%
of this index. Ten years ago, the top five weighted stocks represented only
15.3% of the index and the largest stock was only 3.5%.
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THE CITY OF LONDON INVESTMENT TRUST PLC
Unaudited Interim Results for the half year ended 31 December 2004
The Board considers that it is not in the best interests of shareholders for
their investments to be exposed unduly to any one stock, with the associated
stock specific risk. At the 31st December,
only two stocks represented more than 5% of the portfolio, but for the future
the Board has decided that the manager should avoid having more than
approximately 5% in any one stock.
Since the introduction of a performance fee arrangement with Henderson Global
Investors in 2001, the manager has outperformed the existing benchmark in three
out of four years and for the first six months of 2004/2005 his performance is
2.53% ahead of the benchmark. For the future, however, to enable the manager's
performance to be assessed fairly, in the context of the new investment "
constraint", the Board will apply a "constrained benchmark" to its assessment of
relative performance.
FTSE International, the leading calculator of indices, will provide the new
index, which will be based on a maximum weighting of 4% in any one stock. The
manager will, however, have the flexibility to manage the portfolio actively up
to a maximum of approximately 5% in any one stock. The manager will not need to
be unduly influenced by the dominance in the All-Share Index of a handful of
very large stocks. From July 2005, the "constrained index" will be used to
determine whether a performance fee will be paid.
The Board recognises that, in following this prudent risk policy, the manager
will be less able to capture any outperformance by stocks weighted above 5% in
the All-Share Index, but the Board believes this does not offset the advantage
to shareholders of the reduction of stock specific risk (and the advantage for
the manager of being able to manage the portfolio in the knowledge that he can
go overweight against his new benchmark index).
The constrained index has been tested by Henderson Global Investors based on
data provided by FTSE International. In each of the five years to 31 December
2004, the constrained index would have achieved both a higher capital and income
return than the FTSE All Share Index. Over the five years the constrained index
would have outperformed the FTSE All Share Index by 6.44%. In addition,
volatility was lower in each of the last five years for the constrained index.
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THE CITY OF LONDON INVESTMENT TRUST PLC
Unaudited Interim Results for the half year ended 31 December 2004
To enable shareholders to monitor the Company's performance, both the FTSE
All-Share and the FTSE constrained indices will be published in the Interim and
Annual accounts from the year 2005/2006 onwards.
Outlook
The UK equity market should continue to benefit from the steady growth of the
economy. Fairly full employment and rising wages are likely to offset the
adverse impact of higher interest rates on consumer spending. Greater
confidence among companies in the prospects for the UK and overseas markets is
leading to increased investment spending. Despite the headwinds of the higher
oil price and lower US dollar, we would expect further profits growth from UK
companies.
Although the dividend yield of UK equities of 3.0% is not particularly
attractive by historic standards, dividend growth from UK companies is on an
uptrend. Takeover bids from overseas companies and private equity houses also
indicate the reasonable valuation of UK equities.
S M de Zoete
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THE CITY OF LONDON INVESTMENT TRUST PLC
Unaudited Interim Results for the half year ended 31 December 2004
STATEMENT OF TOTAL RETURN (incorporating the revenue account)
for the half year ended 31 December 2004
(Unaudited) (Unaudited) (Audited)
Half year ended Half year ended Year ended
31 December 2004 31 December 2003 30 June 2004
Revenue Capital Total Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
--------- -------- -------- --------- -------- -------- -------- -------- --------
Total capital gains from
investments - 48,987 48,987 - 46,459 46,459 - 57,718 57,718
Income from fixed asset
investments 8,250 - 8,250 8,890 - 8,890 20,050 - 20,050
Other interest receivable
and similar income 286 - 286 110 - 110 212 - 212
-------- -------- -------- -------- -------- -------- -------- -------- --------
Gross revenue and capital
gains 8,536 48,987 57,523 9,000 46,459 55,459 20,262 57,718 77,980
Management fee (notes 1 (256) (597) (853) (234) (545) (779) (477) (1,113) (1,590)
and 2)
Performance fee - (1,318) (1,318) - - - (419) (107) (526)
Other administrative (271) - (271) (261) - (261) (489) - (489)
expenses
-------- -------- -------- -------- -------- -------- -------- -------- --------
Net return on ordinary
activities before interest
payable and taxation 8,009 47,072 55,081 8,505 45,914 54,419 18,877 56,498 75,375
Interest payable (640) (1,493) (2,133) (641) (1,495) (2,136) (1,282) (2,991) (4,273)
-------- -------- -------- -------- -------- -------- -------- -------- --------
Net return on ordinary
activities before taxation 7,369 45,579 52,948 7,864 44,419 52,283 17,595 53,507 71,102
Taxation on net return on (34) - (34) (11) - (11) (122) - (122)
ordinary activities
-------- -------- -------- -------- -------- -------- -------- -------- --------
Net return on ordinary
activities after taxation 7,335 45,579 52,914 7,853 44,419 52,272 17,473 53,507 70,980
Dividends: (95) - (95) (95) - (95) (190) - (190)
Preference and preferred
ordinary stocks
-------- -------- -------- -------- -------- -------- -------- -------- --------
Net return attributable
to the ordinary shares 7,240 45,579 52,819 7,758 44,419 52,177 17,283 53,507 70,790
-------- --------- --------- -------- -------- -------- -------- -------- --------
Dividends:
Ordinary shares
First interim payment
2.12p (4,418) - (4,418) (4,343) - (4,343) (4,343) - (4,343)
(2003/2004 2.07p)
Second interim payment -
2.12p (4,418) (4,418) (4,343) - (4,343) (4,343) - (4,343)
(2003/2004: 2.07p)
Third interim payment
(2003/2004: 2.07p) - - - - - - (4,343) - (4,343)
Fourth interim payment
(2003/2004: 2.12p) - - - - - - (4,427) - (4,427)
-------- -------- -------- -------- -------- -------- -------- -------- --------
(8,836) - (8,836) (8,686) - (8,686) (17,456) - (17,456)
-------- --------- --------- -------- -------- -------- --------- -------- ---------
Transfer (from)/to (1,596) 45,579 43,983 (928) 44,419 43,491 (173) 53,507 53,334
reserves
===== ===== ===== ===== ===== ===== ===== ===== =====
Return per ordinary share 3.47p 21.86p 25.33p 3.70p 21.17p 24.87p 8.24p 25.50p 33.74p
(note 3)
The revenue columns of this statement represent the revenue accounts of the
company.
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THE CITY OF LONDON INVESTMENT TRUST PLC
Unaudited Interim Results for the half year ended 31 December 2004
Balance Sheet
As at 31 December 2004
(Unaudited) (Unaudited) (Audited)
31 December 31 December 30 June
2004 2003 2004
£'000 £'000 £'000
------------- ------------- -------------
Fixed asset investments
Listed at market value in the United Kingdom 517,344 483,775 483,901
AIM quoted investment at market value - - 2,000
Listed at market value overseas 21,137 10,788 14,347
Investment in FTSE 100 Index future - - (6,706)
Shares in subsidiary undertaking 347 347 347
---------- ---------- ----------
Fixed asset investments 538,828 494,910 493,889
---------- ---------- ----------
Current assets
Debtors 1,832 2,025 9,920
Bank balances and short term deposits 11,553 2,528 7,928
-------- ---------- ----------
13,385 4,553 17,848
Creditors: amounts falling due within one year (8,229) (6,708) (9,139)
---------- ---------- ----------
Net current assets/(liabilities) 5,156 (2,155) 8,709
---------- ---------- ----------
Total assets less current liabilities 543,984 492,755 502,598
Creditors: amounts falling due after more than one
year (46,000) (46,000) (46,000)
---------- ---------- ----------
Total net assets 497,984 446,755 456,598
---------- ---------- ----------
Capital and reserves
Called-up share capital 54,189 54,539 54,539
Share premium account 35,309 35,309 35,309
Other capital reserves 399,384 346,964 356,052
Revenue reserve 9,102 9,943 10,698
---------- ---------- ----------
Total shareholders' funds (including non-equity
interests of £2,086,000) 497,984 446,755 456,598
====== ====== ======
Net asset value per ordinary share (note 4) 237.94p 211.94p 216.63p
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THE CITY OF LONDON INVESTMENT TRUST PLC
Unaudited Interim Results for the half year ended 31 December 2004
Cash Flow Statement
for the half year ended 31 December 2004
(Unaudited) (Unaudited) (Audited)
Half year ended Half year ended Year ended
31 December 2004 31 December 2003 30 June 2004
£'000 £'000 £'000
----------- ----------- -----------
Net cash inflow from operating activities 7,428 8,291 17,775
Net cash outflow from servicing of finance (2,227) (2,231) (4,463)
Total tax recovered 40 - 51
Net cash inflow from purchases and sales of investments 9,829 2,557 9,335
Equity dividends paid (8,845) (8,686) (17,372)
--------- ---------- ----------
Net cash inflow/(outflow) before financing 6,225 (69) 5,326
Net cash outflow from financing (2,597) - -
--------- ---------- ----------
Increase/(decrease) in cash 3,628 (69) 5,326
====== ======
Reconciliation of operating revenue to net cash inflow
from operating activities
Net revenue before interest payable and taxation 8,009 8,505 18,877
Decrease/(increase) in accrued income 554 322 (290)
Increase in other creditors 874 28 585
Management charge and performance fee taken to other (1,915) (545) (1,220)
capital reserves
Overseas withholding tax suffered (52) (19) (177)
Scrip dividends included in investment income (42) - -
-------- ---------- ----------
Net cash inflow from operating activities 7,428 8,291 17,775
====== ====== ======
Reconciliation of net cash flow to movement in net debt
Increase/(decrease) in cash as above 3,628 (69) 5,326
Exchange movements (3) (2) 3
Net debt at the beginning of the period (38,072) (43,401) (43,401)
---------- ----------- ----------
Net debt at the end of the period (34,447) (43,472) (38,072)
====== ====== ======
Represented by:
Cash at bank and short term deposits 11,553 2,528 7,928
Debt falling due after more than one year (46,000) (46,000) (46,000)
---------- ---------- ----------
(34,447) (43,472) (38,072)
====== ====== ======
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THE CITY OF LONDON INVESTMENT TRUST PLC
Unaudited Interim Results for the half year ended 31 December 2004
Notes
1. Expenses charged to capital
The Company charges to capital 70% of its finance costs and base management
fee. Performance fees are allocated between capital and revenue based on
the outperformance attributable to capital and revenue respectively. All
other expenses are charged wholly to revenue. Expenses which are
incidental to the purchase or sale of a fixed asset investment are included
in the cost or deducted from the proceeds of sale of investment.
2. Performance fee
A performance fee has been accrued, based on a full year effect of
rewarding the Manager, under the terms of the Management Agreement, for
outperformance achieved in the first six months. The actual fee to be paid
to the Manager will depend on his actual performance over the full year to
end June. 2005.
3. Return per ordinary share
Revenue return per ordinary share is based on the earnings attributable to
the ordinary shares of £7,240,000 (half year ended 31 December 2003:
£7,758,000; year ended 30 June 2004: £17,283,000) and 208,550,718 ordinary
shares being the weighted average number of ordinary shares in issue for
the period (half year ended 31 December 2003: 209,813,762; year ended 30
June 2004: 209,813,762 ordinary shares).
Capital return per share is based on net capital gains of £45,579,000 (half
year ended 31 December 2003: gains of £44,419,000; year ended 30 June 2004:
gains of £53,507,000) and on the weighted average number of ordinary shares
stated above.
4. 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 £495,898,000 (31 December 2003:
£444,669,000; 30 June 2004: £454,512,000) and on 208,413,762 ordinary
shares (31 December 3003: 209,813,762; 30 June 2004: 209,813,762) being the
number of ordinary shares in issue at the end of the period.
5. Interim Dividends
The first interim dividend of 2.12p was paid on 28 November 2003. The
second interim dividend of 2.12p will be paid on 28 February 2004 to
shareholders on the register on 28 January 2005.
6. Accounts for the year ended 30 June 2004
The figures and financial information for the year ended 30 June 2004 are
an extract from the latest published accounts of the Company and do not
constitute statutory accounts for that year. Those accounts have been
delivered to the Registrar of Companies and included in the report of the
auditors which was unqualified and did not contain a statement under either
section 237(2) or 237(3) of the Companies Act 1985.
Interim Report
Copies of the Company's interim report for the half year ended 31 December
2004 will be posted to shareholders in March 2005 and will be available
thereafter from the Secretary at the Registered Office, 4 Broadgate, London
EC2M 2DA.
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THE CITY OF LONDON INVESTMENT TRUST PLC
Unaudited Interim Results for the half year ended 31 December 2004
Largest Investments
The 60 largest investments, convertibles and all classes of equity in any one
company being treated as one investment, were as follows:
Market value Market value
31 December 2004 31 December 2004
£'000 £'000
HSBC 33,402 Allied Domecq 4,617
BP 32,258 Smith & Nephew 4,531
Shell Transport & Trading 23,310 BPB Industries 4,259
GlaxoSmithKline 22,485 Rodamco Europe 4,135
Vodafone 21,188 Scottish Power 4,033
Barclays 19,338 Boots 4,031
Royal Bank of Scotland 17,520 Gallaher 3,958
HBOS 15,264 Liberty International 3,882
British American Tobacco 14,809 United Utilities 3,813
Lloyds TSB 14,190 BHP Billiton 3,663
Land Securities 12,250 BOC Group 3,477
Tesco 11,583 Severn Trent 3,385
Diageo 10,774 Greene King 3,340
Aviva 8,792 GUS 3,285
Scottish & Southern Energy 8,289 Cadbury Schweppes 3,153
National Grid Transco 7,440 Reckitt Benckiser 3,148
BT Group 7,105 Corio 3,051
AstraZeneca 6,234 Tomkins 3,051
Anglo American 5,852 Hammerson 3,040
Wolseley 5,841 BAE Systems 2,997
Unilever 5,806 IMI 2,953
Rio Tinto 5,749 BAA 2,920
Slough Estates 5,500 Smiths Group 2,877
Legal & General 5,500 Wereldhave 2,832
Bovis Homes 5,365 Pennon Group 2,742
Johnston Press 5,312 Rank Group 2,640
Next 4,950 Aggregate Industries 2,613
Prudential 4,945 Telecom Italia 2,535
Kingfisher 4,928 Alliance & Leicester 2,508
Imperial Tobacco 4,638 PD Ports + 2,505
These investments total £450,591,000 or 83.68% of the portfolio.
+ includes convertibles
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THE CITY OF LONDON INVESTMENT TRUST PLC
Unaudited Interim Results for the half year ended 31 December 2004
For further information please contact :
Job Curtis
Portfolio Manager, The City of London Investment Trust plc
Telephone: 020 7818 4367
James de Sausmarez
Head of Investment Trusts, Henderson Global Investors
Telephone: 020 7818 3349
or
Vicki Staveacre
Henderson Press Office
Telephone: 020 7818 4222
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