Half Yearly Report

RNS Number : 4515T

Monks Investment Trust PLC

06 December 2011

 



THE MONKS INVESTMENT TRUST PLC

Half-Yearly Results to 31 October 2011

The net asset value total return (capital and dividends) over the six months to the end of October 2011 was minus 9.9% and the share price total return was minus 9.8%.  The FTSE World Index total return figure for the same period was minus 8.8%.

§ Earnings per share were 3.30p (2.45p in the corresponding period a year ago).  The interim dividend is 0.5p (also 0.5p in the corresponding period).

§ Markets were adversely affected by a number of factors including the difficulty in reaching an agreement regarding the US government debt ceiling, fears of deceleration in the rate of global growth and the Eurozone crisis. 

§ In early July futures were sold to provide some protection against sharp falls in US, UK and European markets. Effective gearing taking into account these transactions, fell from 110% of shareholders funds at end April to 93% at the end of October. 

§ The benefit from the sales of futures was more than offset by the impact of losses on positions in emerging markets and from companies sensitive to growth from these economies.

§ The problems in major emerging markets are cyclical while those of developed markets are more deep-seated and structural.  Many companies operating in developed countries are enjoying very high margins but only the exceptional ones are likely to be able to defend these against competitive pressures and governments' needs for more revenues.  Fortunately there is a wide range of investments with better prospects including many sound companies operating at attractive valuations.

6 December 2011

The Monks Investment Trust PLC invests internationally in order to achieve capital growth, which takes priority over income and dividends. Monks is managed by Baillie Gifford & Co, the independent Edinburgh based fund management group with around £71 billion under management and advice as at 5 December 2011.

Past performance is not a guide to future performance. Monks is listed on the stock market. As a result, the value of the shares, and any income from them, can fall as well as rise and investors may not get back the amount invested.  As Monks invests in overseas securities, changes in the rates of exchange may also cause the value of your investment (and any income it may pay) to go down or up. As the aim of Monks is to achieve capital growth you should not expect a significant, or steady, annual income from the shares.

Investment Trusts are UK public listed companies and are not authorised or regulated by the Financial Services Authority.

- ends -

For further information please contact:

For further information please contact:

James Budden,

Baillie Gifford & Co                              0131 275 2816 or 07507 201208

Roland Cross,

Broadgate Mainland                             0207 776 0512  or 07831 401309

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.

The following is the unaudited Half-Yearly Financial Report for the six months to 31 October 2011.

 

THE MONKS INVESTMENT TRUST PLC

 

Half-Yearly Financial Report 31 October 2011

Responsibility Statement

 

We confirm that to the best of our knowledge:

a)   the condensed set of financial statements has been prepared in accordance with the Accounting Standards Board's statement 'Half-Yearly Financial Reports';

b)   the Half-Yearly Management Report includes a fair review of the information required by Disclosure and Transparency Rules 4.2.7R (indication of important events during the first six months, and their impact on the financial statements, and a description of principal risks and uncertainties for the remaining six months of the year); and

c)   the Half-Yearly Financial Report includes a fair review of the information required by Disclosure and Transparency Rules 4.2.8R (disclosure of related party transactions and changes therein).

By order of the Board

J G D Ferguson

Chairman

6 December 2011

THE MONKS INVESTMENT TRUST PLC

Half-Yearly Management Report to 31 October 2011

Results

Over the six months to 31 October, the net asset total return, with borrowings deducted at fair value, was -9.9% and the share price total return was -9.8% while the FTSE World Index in sterling terms returned -8.8%. In the twelve months to 31 October the net asset total return was -5.5%, the share price return was -0.7% and the comparative index returned 0.4%.

Earnings per share were 3.30p, up from 2.45p in the corresponding period a year ago. An increase in dividend income was the main reason for the change in earnings. This is partly a consequence of investing the proceeds from the additional loan raised in February in shares, the dividends from which exceeded the increase in interest expense. The Board has declared an interim dividend of 0.50p, to be paid on 30 January 2012.

During the half year, markets were adversely affected by concerns about the difficulty of reaching an agreement to increase the amount of debt the US government is allowed to issue, potential sovereign defaults in Europe, the disruption to oil supplies from Libya and fears of sharp deceleration in the rate of global growth. In the first three months of the period markets generally drifted lower. There was then a very sharp fall in July and August. The sell-off appears to have been triggered by the inability of European politicians to get to grips with problems within the eurozone, and the risk that this might cause a banking crisis, but it was compounded by mounting evidence of a slowdown in growth in the US. By September the major market indices seemed to have stabilised at this reduced level, but the more economically sensitive shares suffered from fears of a global recession. Emerging market currencies such as the Brazilian real depreciated significantly against sterling, the US dollar and the yen during this period. At the end of October there was a sharp rise in European markets led by bank and other financial shares.

The markets that experienced the smallest falls in sterling terms over the six months to 31 October were those of the US and Japan.  In the case of Japan this was largely a consequence of the appreciation of the yen.  European markets suffered the largest falls, but emerging markets also performed poorly in sterling terms. Our portfolio benefited from a decision to take out some protection against potential large falls in developed markets in early July, as described below, and the net gains from sales of futures and purchases of calls on the same indices amounted to £34m. This was, however, more than offset by the impact of losses experienced as a result of holding onto our positions in emerging markets and companies sensitive to growth in these economies listed on stockmarkets elsewhere.

Investment Changes

From early July gearing was reduced by the sale of index futures. These sales were combined with the purchase of call options on the same indices, which had the effect of capping potential losses on the futures positions in the event of a rise in these indices. The net effect of these transactions was to take out some protection against falls in the European, UK and US markets without selling individual holdings.  When markets fell sharply in July and August we used some of the profits from the position in futures to add to equity holdings at attractive prices. During the six months to 31 October we made a net addition to equities of £42.2m and a net reduction in bonds of £27.1m. Within equities, net reductions were made in Europe and Emerging Markets and net additions were made in all other regions. Net reductions were made to both sterling and US dollar denominated bonds. Effective gearing taking into account futures and options positions fell from 110% of shareholders' funds at the end of April to 93% at the end of October.

The sales of futures and purchases of options also had the effect of reducing the impact on the overall value of our investments of broad changes in the value of shares in Europe, the UK and the US. This is reflected in the figures for effective exposure in the table below showing the distribution of investments by geography at the end of October and the end of April.

THE MONKS INVESTMENT TRUST PLC

Half-Yearly Management Report to 31 October 2011 (Ctd)

Outlook

Over the last year persisting with a bias towards growth in emerging markets such as Brazil and China has been detrimental to performance and we would have been better off had we instead had all of the portfolio invested in a combination of US equities and UK gilts. Taking into account starting valuations and growth prospects, we expect our portfolio positioning to deliver better returns in the long run.

The problems in the major emerging market economies are cyclical in nature, while those of the major developed economies are more deep-seated and structural. It seems perverse to seek safety in bonds issued by governments of countries with large budget deficits and high and rising levels of debt to gross domestic product where growth is sluggish at best. The main uncertainty here appears to be whether investors will lose money rapidly, as the result of a sudden loss of investor confidence, or slowly, through the effects of inflation. Many companies operating in these countries are currently enjoying very high margins, but in the long run only the truly exceptional among them are likely to be able to defend these against competitive pressures and governments' need for more revenues. Fortunately, there is a wide range of other investments for which the prospects are better and there are many sound companies trading at attractive valuations. We are therefore optimistic about the returns that can be achieved by the sensible selection of investments.

The principal risks and uncertainties facing the Company are set out on the inside front cover of this report.

THE MONKS INVESTMENT TRUST PLC

INCOME STATEMENT

(unaudited)

	For the six months ended 31 October 2011				For the six months ended 31 October 2010			For the year ended 30 April 2011
	Revenue £'000	Capital £'000		Total £'000	Revenue £'000	Capital £'000	Total £'000	Revenue £'000	Capital £'000	Total £'000
Gains on sales of investments	-	78,321		78,321	-	42,623	42,623	-	99,508	99,508
Changes in investment holding   gains and (losses)	-	(186,752)		(186,752)	-	8,382	8,382	-	(5,191)	(5,191)
Currency (losses)/gains	-	(1,386)		(1,386)	-	960	960	-	1,042	1,042
Income from investments and   interest receivable	17,635	-		17,635	14,494	-	14,494	27,134	-	27,134
Other income	9	-		9	223	-	223	232	-	232
Investment management fee (note 3)	(2,574)	-		(2,574)	(2,416)	-	(2,416)	(5,075)	-	(5,075)
Other administrative expenses	(595)	-		(595)	(529)	-	(529)	(1,172)	-	(1,172)
Net return before finance costs and    taxation	14,475	(109,817)		(95,342)	11,772	51,965	63,737	21,119	95,359	116,478
Finance costs of borrowings	(5,256)	-		(5,256)	(4,590)	-	(4,590)	(9,374)	-	(9,374)
Net return on ordinary activities   before taxation	9,219	(109,817)		(100,598)	7,182	51,965	59,147	11,745	95,359	107,104
Tax on ordinary activities	(630)	-		(630)	(781)	-	(781)	(1,145)	-	(1,145)
Net return on ordinary activities   after taxation	8,589	(109,817)		(101,228)	6,401	51,965	58,366	10,600	95,359	105,959
Net return per ordinary share   (note 4)	3.30p		(42.14p)	(38.84p)	2.45p	19.91p	22.36p	4.06p	36.56p	40.62p
Note: Dividends per share paid and payable   in respect of the period (note 5)	0.50p				0.50p			3.00p

The Total column of this statement is the profit and loss account of the Company.

All revenue and capital items in this statement derive from continuing operations.

A Statement of total Recognised Gains and Losses is not required as all the gains and losses of the Company have been reflected in the above statement.

THE MONKS INVESTMENT TRUST PLC

BALANCE SHEET

 (unaudited)

	At 31 October 2011	At 31 October 2010	At 30 April 2011
	£'000	£'000	£'000
Fixed assets
Investments	1,071,733	1,103,083	1,193,261
Current assets
Debtors	63,937	6,833	20,789
Cash and short term deposits	19,594	31,199	18,912
	83,531	38,032	39,701
Creditors
Amounts falling due within one year:
Bank loan (note 6)	(40,000)	(40,000)	(40,000)
Debenture stock (note 6)	(40,000)	-	-
Other creditors	(44,922)	(6,927)	(12,469)
	(124,922)	(46,927)	(52,469)
Net current liabilities	(41,391)	(8,895)	(12,768)
Total assets less current liabilities	1,030,342	1,094,188	1,180,493
Creditors
Amounts falling due after more than one year:
Bank loan (note 6)	(40,000)	-	(40,000)
Debenture stocks (note 6)	(39,631)	(79,598)	(79,614)
	(79,631)	(79,598)	(119,614)
Total net assets	950,711	1,014,590	1,060,879
Capital and reserves
Called up share capital	13,001	13,038	13,038
Share premium	11,100	11,100	11,100
Capital redemption reserve	6,397	6,360	6,360
Capital reserve	880,542	949,386	992,780
Revenue reserve	39,671	34,706	37,601
Shareholders' funds	950,711	1,014,590	1,060,879

Net asset value per ordinary share (after deducting borrowings at fair value) (note 6)	361.8p	385.7p	403.9p
Net asset value per ordinary share (after deducting borrowings at par)	365.5p	388.9p	406.7p
Ordinary shares in issue (note 7)	260,014,859	260,764,859	260,764,859

 

THE MONKS INVESTMENT TRUST PLC

 

RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS (unaudited)

For the six months ended 31 October 2011

	Share capital £'000	Share premium £'000	Capital redemption reserve £'000	Capital reserve* £'000	Revenue reserve £'000	Shareholders' funds £'000
Shareholders' funds at 1 May 2011	13,038	11,100	6,360	992,780	37,601	1,060,879
Net return on ordinary activities after taxation	-	-	-	(109,817)	8,589	(101,228)
Shares purchased for cancellation (note 7)	(37)	-	37	(2,421)	-	(2,421)
Dividends paid during the period (note 5)	-	-	-	-	(6,519)	(6,519)
Shareholders' funds at 31 October 2011	13,001	11,100	6,397	880,542	39,671	950,711

For the six months ended 31 October 2010

	Share capital £'000	Share premium £'000	Capital redemption reserve £'000	Capital reserve* £'000	Revenue reserve £'000	Shareholders' funds £'000
Shareholders' funds at 1 May 2010	13,051	11,100	6,347	898,228	29,610	958,336
Net return on ordinary activities after taxation	-	-	-	51,965	6,401	58,366
Shares purchased for cancellation	(13)	-	13	(807)	-	(807)
Dividends paid during the period (note 5)	-	-	-	-	(1,305)	(1,305)
Shareholders' funds at 31 October 2010	13,038	11,100	6,360	949,386	34,706	1,014,590

For the year ended 30 April 2011

	Share capital £'000	Share premium £'000	Capital redemption reserve £'000	Capital reserve* £'000	Revenue reserve £'000	Shareholders' funds £'000
Shareholders' funds at  1 May 2010	13,051	11,100	6,347	898,228	29,610	958,336
Net return on ordinary activities after taxation	-	-	-	95,359	10,600	105,959
Shares purchased for cancellation	(13)	-	13	(807)	-	(807)
Dividends paid during the year (note 5)	-	-	-	-	(2,609)	(2,609)
Shareholders' funds at 30 April 2011	13,038	11,100	6,360	992,780	37,601	1,060,879

*      The Capital Reserve balance at 31 October 2011 includes investment holding gains on fixed asset investments of £88,980,000 (31 October 2010 - gains of £252,191,000; 30 April 2011 - gains of £242,855,000).

THE MONKS INVESTMENT TRUST PLC

CONDENSED CASH FLOW STATEMENT (unaudited)
	Six months to 31 October 2011 £'000	Six months to 31 October 2010 £'000	Year to 30 April 2011 £'000
Net cash inflow from operating activities	16,186	13,639	5,270
Net cash outflow from servicing of finance	(5,333)	(4,555)	(9,461)
Total tax paid	(616)	(836)	(1,188)
Net cash (outflow)/inflow from financial investment	(2,244)	10,610	(26,742)
Equity dividends paid	(6,519)	(1,305)	(2,609)
Net cash inflow/(outflow) before use of liquid resources and financing	1,474	17,553	(34,730)
Shares purchased for cancellation	(792)	(803)	(807)
Bank loans drawn	-	-	40,000
Increase in cash	682	16,750	4,463
Reconciliation of net cash flow to movement in net debt
Increase in cash in the period	682	16,750	4,463
Net cash inflow from bank loans	-	-	(40,000)
Other non-cash changes	(17)	(16)	(32)
Movement in net debt in the period	665	16,734	(35,569)
Net debt at start of the period	(140,702)	(105,133)	(105,133)
Net debt at end of the period	(140,037)	(88,399)	(140,702)
Reconciliation of net return before finance costs and taxation to net cash inflow from operating activities
Net return before finance costs and taxation	(95,342)	63,737	116,478
Net losses/(gains) on investments	108,431	(51,005)	(94,317)
Currency losses/(gains)	1,386	(960)	(1,042)
Amortisation of fixed income book cost	(442)	(453)	(988)
Changes in debtors and creditors	2,153	2,320	(14,861)
Net cash inflow from operating activities	16,186	13,639	5,270

THE MONKS INVESTMENT TRUST PLC

THIRTY LARGEST EQUITY HOLDINGS at 31 October 2011 (unaudited)
Name	Region	Business	Value £'000	% of total assets
Seadrill	Continental Europe	Contract drilling services	35,748	3.2
Aggreko	United Kingdom	Temporary power units	24,191	2.2
Eldorado Gold	North America	Gold mining	21,946	2.0
Odontoprev	Other Emerging Markets	Health care providers and services	18,903	1.7
Cetip	Other Emerging Markets	Investment services	17,046	1.5
Dragon Oil	Other Emerging Markets	Oil and gas exploration and production	15,425	1.4
National Oilwell Varco	North America	Drilling equipment manufacturer	15,330	1.4
Digital Garage	Japan	Software	15,300	1.4
Iamgold	North America	Gold mining	15,011	1.4
Vale	Other Emerging Markets	Diversified mining group	14,923	1.3
McDonalds	North America	Fast food restaurants	14,494	1.3
Petrofac	United Kingdom	Oilfield services company	13,670	1.2
Yingde Gases Group	Asia Pacific	Speciality chemicals	12,717	1.1
Credicorp	Other Emerging Markets	Banking	12,599	1.1
Samsung Electronics	Asia Pacific	Electronic goods	12,506	1.1
Drax Group	United Kingdom	Electricity	12,487	1.1
Verizon Communications	North America	Telecommunication services	12,408	1.1
Solera Holdings	North America	Transactional software	12,390	1.1
Kone	Continental Europe	Lifts	12,284	1.1
IP Group	United Kingdom	Speciality finance	12,102	1.1
Novozymes	Continental Europe	Enzyme producer	12,095	1.1
O'Reilly Automotive	North America	Auto parts supplier	12,034	1.1
Quanta Computer	Asia Pacific	Electronic equipment	11,867	1.1
Chungwa Telecom	Asia Pacific	Fixed line telecommunications	11,815	1.1
Naspers	Other Emerging Markets	Media company	11,803	1.1
Telstra	Asia Pacific	Telecommunications services	11,675	1.1
Mercadolibre	Other Emerging Markets	Online trading	11,345	1.0
Seek	Asia Pacific	Business support services	11,341	1.0
Burford Capital	United Kingdom	Investment fund	11,328	1.0
IG Group	United Kingdom	Spread betting	11,150	1.0
			437,933	39.4

 

THE MONKS INVESTMENT TRUST PLC

DISTRIBUTION OF ASSETS

(unaudited)

		At 31 October 2011		At 30 April 2011
		Total Assets %	Effective Exposure* %	Total Assets %	Effective Exposure* %
Equities:	North America	18.8	13.8	17.4	14.5
	United Kingdom	17.9	13.0	16.6	13.5
	Other Emerging Markets	17.5	21.4	17.7	18.2
	Asia Pacific	16.3	19.9	16.8	17.2
	Continental Europe	13.8	8.7	16.3	13.1
	Japan	6.2	11.6	5.3	13.4
		90.5	88.4	90.1	89.9
Bonds		6.0	7.3	7.7	7.8
Net liquid assets		3.5	4.3	2.2	2.3
		100.0	100.0	100.0	100.0

Geographical Analysis

* The effective exposure takes into account the exposure of derivative holdings which may differ substantially from their market value. The Trust's derivative holdings include sales of index futures and purchases of index call options.

Sector Analysis

			At 31 October 2011 %	At 30 April 2011 %
Equities:	Oil and Gas		14.5	13.0
	Basic Materials		11.0	8.7
	Industrials		11.5	10.4
	Consumer Goods		2.6	5.4
	Health Care		6.2	8.9
	Consumer Services		11.1	10.5
	Telecommunications		4.1	4.9
	Utilities		1.6	1.7
	Financials		18.6	17.9
	Technology		9.3	8.7
			90.5	90.1
Bonds			6.0	7.7
Net liquid assets			3.5	2.2
			100.0	100.0

THE MONKS INVESTMENT TRUST PLC

Notes to the condensed financial statements (unaudited)

1.	The condensed financial statements for the six months to 31 October 2011 have been prepared on the basis of the same accounting policies as set out in the Company's Annual Report and Financial Statements at 30 April 2011 and in accordance with the ASB's Statement 'Half-Yearly Financial Reports' and have not been audited or reviewed by the Auditors pursuant to the Auditing Practices Board Guidance on 'Review of Interim Financial Information'. The Company's assets, the majority of which are investments in quoted securities which are readily realisable, exceed its liabilities significantly. All borrowings require the prior approval of the Board. The Board approves borrowing and gearing limits and reviews regularly the amounts of any borrowing and gearing as well as compliance with borrowing covenants. Accordingly, the Half-Yearly Financial Report has been prepared on the going concern basis as it is the Directors' opinion that the Company will continue in operational existence for the foreseeable future.
2.	The financial information contained within this Half-Yearly Financial Report does not constitute statutory accounts as defined in sections 434 to 436 of the Companies Act 2006.  The financial information for the year ended 30 April 2011 has been extracted from the statutory accounts which have been filed with the Registrar of Companies. The Auditors' Report on those accounts was unqualified and did not contain statements under sections 498(2) or (3) of the Companies Act 2006.
3.	Baillie Gifford & Co are employed by the Company as investment managers and secretaries under a management agreement which is terminable on not less than 6 months' notice, or on shorter notice in certain circumstances.  The annual fee is 0.45% of total assets less current liabilities, calculated on a quarterly basis.
		Six months to 31 October  2011	Six months to 31 October 2010	Year to 30 April 2011
		£'000	£'000	£'000
4. .	Net return per ordinary share
	Revenue return on ordinary activities after taxation	8,589	6,401	10,600
	Capital return on ordinary activities after taxation	(109,817)	51,965	95,359
	Total net  return	(101,228)	58,366	105,959
	Net return per ordinary share is based on the above totals of revenue and capital and on 260,650,729 (31 October 2010 - 260,974,099; 30 April 2011 - 260,870,338) ordinary shares, being the weighted average number of ordinary shares in issue during each period. There are no dilutive or potentially dilutive shares in issue.
5.	Dividends
	Amounts recognised as distributions in the period:
	Previous year's final dividend of 2.50p (2010 - 0.50p), paid 5 August 2011	6,519	1,305	1,305
	Interim dividend for the year ended 30 April 2011 of 0.50p, paid 31 January 2011	-	-	1,304
		6,519	1,305	2,609
	Amounts paid and payable in respect of the period:
	Interim dividend for the year ending 30 April 2012 of 0.50p (2011 - 0.50p)	1,300	1,304	1,304
	Final dividend (2011 - 2.50p)	-	-	6,519
		1,300	1,304	7,823
	The interim dividend was declared after the period end date and has therefore not been included as a liability in the balance sheet.  It is payable on 30 January 2012 to shareholders on the register at the close of business on 6 January 2012.  The ex dividend date is 4 January 2012. The Company operates a Dividend Reinvestment Plan and the final date for elections for reinvestment of this dividend is 12 January 2012.

THE MONKS INVESTMENT TRUST PLC

Notes to the condensed financial statements (unaudited)

(Ctd)

6.	The Company's bank loans comprise a £40m loan drawn down under a one year floating rate loan facility expiring in March 2012 and a £40m three year fixed rate loan repayable in February 2014. The Company's debentures comprise a £40m 11% stock repayable in June 2012 and a £40m 6 3/8% stock repayable in 2023.
	The fair value of borrowings at 31 October 2011 was £169.6m (31 October 2010 - £128.3m; 30 April 2011 - £167.2m).
7.	During the period under review the Company bought back 750,000 ordinary shares with a nominal value of £37,500 for a total consideration of £2,421,000.  At 31 October 2011 the Company had the authority to buy back a further 38,338,652 shares.
8.	Transaction costs on purchases amounted to £280,000 (31 October 2010 - £649,000; 30 April 2011 - £1,067,000) and transaction costs on sales amounted to £279,000 (31 October 2010 - £363,000; 30 April 2011 - £586,000).
9.	Shareholders will be notified on or around 19 December 2011 that the Half-Yearly Financial Report has been published and will be available on the Monks' page of the Managers' website www.monksinvestmenttrust.co.uk.
10.	Principal Risk and Uncertainties The principal risks facing the Company relate to the Company's investment activities.  These risks are market risk (comprising currency risk, interest rate risk and other price risk), liquidity risk and credit risk.  An explanation of these risks and how they are managed is contained in note 23 of the Company's full Annual Report and Accounts for the year to 30 April 2011 The Principal risks and uncertainties have not changed since the publication of the Annual Report which can be obtained free of charge from, Baillie Gifford & Co and is available on the Monks' page of the Managers' website: www.monksinvestmenttrust.co.uk. Other risks facing the Company include the following: regulatory risk (that the loss of investment trust status or a breach of applicable legal and regulatory requirements could have adverse financial consequences and cause reputational damage); operational/financial risk (failure of service providers' accounting systems could lead to inaccurate reporting or financial loss); the risk that the discount can widen; and gearing risk (the use of borrowings can magnify the impact of falling markets).
11.	None of the views expressed in this document should be construed as advice to buy or sell a particular investment.

 

END

 

 

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