Final Results
WITAN INVESTMENT TRUST PLC
Annual Financial Report for the year ended 31 December 2008
9 March 2009
This announcement contains regulated information
Directors' Report: Chairman's Statement
Highlights
• NAV total return ahead of benchmark over the last year and last three years
• 9 out of 13 managers beat their own benchmarks in 2008
• New management team and structure in place
• Dividend increased by 3%
Opening Remarks
On 13 October 2008, the day certain banks were all but nationalised, Gordon Brown spoke of 'extraordinary times' and that they certainly are. In last year's review we stated that the future was unclear but we did not imagine that we would be where we are now. In 2008 we witnessed a global financial crisis, a deepening widespread worldwide recession and the US stock market posting its second worst performance on record since 1871.
Your Board is not pleased to be reporting a negative NAV total return of 23.3% but Witan's globally diversified portfolio of equities has given some consolation in that it performed better than many markets. For example, the UK where the FTSE All-Share Index was down by 29.9%.
Over the last five years the most significant change to Witan's investment portfolio has been the reduction in that part of the portfolio which is invested in the domestic equity market. At the end of 2003 we were 60% invested in UK equities; today the figure stands at 32%. This decision has proved to be important not only because the UK equity market has performed poorly but because in 2008 Sterling was particularly weak against all major currencies.
Before there is a sustained improvement in the UK economy and its currency, there will need to be greater confidence generated by those in charge. They must demonstrate a deeper understanding of current events however unusual and show that long term economic stability is more important than short term political considerations. One has to believe the pilot must fly the airplane from an altimeter correctly adjusted.
Shareholder Returns and Performance
The share price fell over the year by 26.6% which, combined with the dividends paid during the year, resulted in a negative total shareholder return of 24.9%. The five year numbers have obviously taken a severe knock but it is worth recording that shareholders since December 2003 have experienced a return of 30.2%.
Over the year Witan was in the second quartile of the Global Growth Investment Trust sector. However, perhaps a more telling comparison is with actively managed unit trusts and other open-ended funds. Since the inception of our new multi manager structure in 2004 we would have been placed in the top quartile.
Manager Changes and Performance Attribution
Following the 2007 Strategic Review, and the comments made in my statement last year, we reduced the UK enhanced index segment of the portfolio, appointing two new UK managers, namely Artemis and Marathon, and appointed Varenne to manage a small proportion of the European portfolio. We also ended the currency contract with Mellon as it became obvious that the dislocation in global markets was creating unprecedented foreign exchange monetary flows and the
Page 2 of 31
WITAN INVESTMENT TRUST PLC
Annual Financial Report for the year ended 31 December 2008
Directors' Report: Chairman's Statement continued
arrangement was not working. In the CIO's Investment Review on pages 12 to 19 we give more information about these changes and all the managers in the portfolio.
Looking at the attribution analysis on the next page, it is significant to note that on a relative basis the investment portfolio outperformed the benchmark during 2008 by 1.6%.
It is also worth noting that seven out of ten managers that were investing Witan funds over the full twelve months outperformed the relevant benchmark while two out of three managers appointed part way through the year are ahead.
Changes to the Executive Management Team
In October 2008 Jim Horsburgh retired as Chief Executive Officer (CEO). I would like to pay tribute to his work as the first independent CEO of the Trust. We thank him on your behalf for his valuable contribution over such an important phase in the history of Witan.
As part of a review of the business the Witan Board last year decided to increase the level of resource applied to manage the business. It also identified various potential business opportunities for an independently managed investment trust, particularly one that is involved in multi-manager. The decision was therefore taken to split the role of CEO and to create a new position of Chief Investment Officer (CIO) - solely responsible for portfolio investments.
I am pleased to say that we were able to announce the appointment of Robert Clarke as CEO with effect from 15 September 2008 - from when he took executive responsibility for the overall management of the Trust and its subsidiary. Mark Lynam was appointed Chief Investment Officer (CIO) with effect from 3 November 2008 from when he took responsibility for investment policy and manager selection and monitoring. Robert and Mark are working closely together and in conjunction with the Board to manage all aspects of the Company's affairs.
One further change I would like to report is the appointment of James Frost as Witan's marketing
executive following James Budden's resignation in October. James Budden was employed by Witan for ten years, being one of the first dedicated marketing executives appointed to an in-house managed investment trust. James Frost worked with him at Witan for the last three years and has now taken on the responsibility for marketing the Trust.
Your Board believes that it now has the appropriate structure to manage the Trust's investments and look at business opportunities. The new management team is building upon Witan's strengths and
expertise while seeking to identify new ways of generating shareholder value.
Page 3 of 31
WITAN INVESTMENT TRUST PLC
Annual Financial Report for the year ended 31 December 2008
Directors' Report: Chairman's Statement continued
Performance Attribution
for the year ended 31 December 2008
|
Net asset value total return |
-23.3% |
Portfolio investment total return |
|
-22.3% |
|
|
|
|
|
|
|
Benchmark total return |
-23.9% |
Benchmark total return |
|
-23.9% |
|
|
|
|
|
---------- |
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|
|
Investment outperformance |
|
+1.6% |
|
|
|
|
|
|
|
|
|
Share buy-backs |
+0.5% |
|
|
|
|
Interest on cash, etc |
+0.9% |
|
|
|
|
|
---------- |
|
|
|
|
|
|
+1.4% |
|
|
|
|
|
---------- |
|
|
|
|
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+3.0% |
|
|
|
|
|
|
|
|
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Gearing and borrowing costs |
-1.5% |
|
|
|
|
Operating costs and tax |
-0.9% |
|
|
|
|
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---------- |
|
|
|
|
|
|
-2.4% |
|
|
---------- |
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|
---------- |
|
Outperformance |
+0.6% |
|
|
+0.6% |
|
|
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Dividend and Future Dividend Policy
Your Board has declared a second interim dividend of 5.9 pence per share, to be paid to shareholders on 3 April 2009, making a total distribution for the year of 10.2 pence (2007: 9.9 pence). This represents an increase of 3% over 2008 and maintains our policy of increasing dividends at least in line with inflation.
The Board has considered very carefully the global economic outlook and how companies around the world are affected - particularly in their ability to maintain their distribution policies. There is
considerable uncertainty as a result of the global financial crisis and resulting recessionary environment. Witan's own dividend is very dependent on the income we receive from our investments. We will therefore monitor developments over the next year mindful that our dividend policy is one of the most important issues for shareholders.
Board Changes
At the AGM in April Alan Jones retires after thirteen years as a director of Witan - the last five of which he has been Chairman of the Remuneration Committee. His wise counsel gained at a senior level in industry has been of great value to the Board and he will be much missed.
We welcome Catherine Claydon to the Board. With her experience at Goldman Sachs, she will no doubt make an active contribution to the business.
Page 4 of 31
WITAN INVESTMENT TRUST PLC
Annual Financial Report for the year ended 31 December 2008
Directors' Report: Chairman's Statement continued
AGM and Centenary
Our Annual General Meeting will be held at Merchant Taylors' Hall on Tuesday 28 April 2009 at 2.30pm.
On 17 February 2009 the Company celebrated its 100th birthday. Witan has endured and prospered despite two world wars, the Great Depression, the internet bubble and several stock market crashes. In the current climate it is particularly important to consider the investment returns generated over an extended period to remind ourselves of the Witan proposition. An investment in the UK stock market in 1909 would, with dividends reinvested, have grown over the last 100 years at an average rate of 9.9% per annum compared with 5.8% per annum for bonds and 4.2% per annum for inflation*. Most investors are not looking at a 100 year time horizon. However, investing in Witan for the long term makes sound financial sense because equities have outperformed all other asset classes over the long term and the Witan portfolio is a globally diversified selection of top fund managers, with low management charges and a good dividend yield growing with inflation.
Outlook
The world seeks answers as to what next but in truth there is great uncertainty. History is important but the future is more so. We can draw comparisons to the 1930's but the global economy and financial systems are very different today compared to what they were then, not to mention our understanding of how to deal with such crises.
It is highly likely that global economic growth over the next year will be worse than currently forecast. Governments in the US and the UK seem to be adopting strategies of 'whatever it takes' and it seems likely that these efforts will restore a functioning banking system and avert the worst of a recession. However, the long term cost - particularly to the UK - may be severe.
At the start of my statement I mentioned that in 2008 the US stock market posted its second worst performance on record since 1871. In all but one instance since then, when the market has been down by more than 20% there has been a 20% plus rise the following year. The only exception was the prolonged bear market of 1930 to 1932 and, interestingly, 1933 was up by over 50%! Despite a future that seems all too uncertain this is a time to accumulate global equities as investors are caught like rabbits in the headlights, frozen in masterful inactivity. Equity markets are likely to recover before economic activity turns positive. They have done so in the past and it is logical that they will do so again.
Harry Henderson
6 March 2009
*Source: Credit Suisse Global Investment Returns Sourcebook 2009, Elroy Dimson, Paul Marsh and Mike Staunton, London Business School
Page 5 of 31
WITAN INVESTMENT TRUST PLC
Annual Financial Report for the year ended 31 December 2008
Directors' Report: Business Review
This Business Review provides shareholders and other readers with information about the Company's business and results in 2008 and looks forward to the year ahead. It is divided into two sections: Corporate & Investment: the former addressed by Robert Clarke, Chief Executive Officer; the latter by Mark Lynam, Chief Investment Officer.
CORPORATE SECTION
- Objectives and strategy
- Management arrangements
- The Witan benchmark
- Dividend policy
- Buy-back policy
- Key performance indicators
- Principal risks and uncertainties
- Management team changes
- Witan Investment Services
- VAT
- Priorities for 2009
Objectives & Strategy
Witan's objective is to be the first choice for wealth creation through equity investment. From an investment perspective this means that Witan will seek to outperform global stock markets consistently, adding value in the long term for its investors. In addition Witan seeks to attract new investors to buy the Trust's shares in order to provide ongoing liquidity for shareholders.
Witan aims to outperform by using a multi-manager investment structure. This allows us to select fund managers from around the world - often where the fund manager is not otherwise available to the UK investor. Your Board pays close attention to the control of risk and this is clearly of particular relevance in the current troubled financial and economic environment. However, the Board is at the same time mindful that risk needs to be embraced in order to enhance performance. We will therefore consider employing innovative investment techniques and diverse asset classes if, and when, these are deemed appropriate. As an investment trust, Witan can borrow in order to improve performance in rising markets. We will be considering carefully at what stage it may be appropriate to deploy our long term borrowings to a greater extent in order to increase the gearing in the portfolio.
Management Arrangements
As already mentioned, the management of Witan's portfolio is outsourced to third party fund managers around the world. Witan's in-house executive management team manages and controls these relationships, selects new managers when a change is appropriate, runs Witan Investment Services and advises the Board on all relevant investment and business matters.
As already mentioned in the Chairman's Statement the Board made some changes to the investment manager line-up during the year. These are referred to in greater detail in the Investment Review on page 14 along with other investment issues.
Page 6 of 31
WITAN INVESTMENT TRUST PLC
Annual Financial Report for the year ended 31 December 2008
Directors' Report: Business Review continued
Witan has also appointed third parties for the various supporting services it requires including:
• BNP Paribas Securities Services SA for global custody and for investment accounting and administration
• Henderson Secretarial Services Limited for company secretarial services
• Equiniti Limited as plan administrators of Witan Wealthbuilder.
From time to time, and as required, Witan also procures professional advice in the areas of legal, compliance, investment consulting, financial and tax advice.
Witan's aim is to provide the best possible return to shareholders. With this in mind, your Board applies strict controls to costs. Expenditure is only undertaken when necessary and relevant or when a specific project has been identified which is likely to achieve a profitable return for the original outlay. Witan's careful cost control has resulted in a total expense ratio of 0.71%. Although, along with many other funds, we have seen our TER increase as a result of falling asset values, it remains one of the lowest in the investment trust industry and much lower than any multi-manager unit trust. See further comment on page 8.
Since November 2005 the Company has had a lease on office premises at 14 Queen Anne's Gate, London SW1H 9AA. The Company's registered office is at 201 Bishopsgate, London EC2M 3AE.
The Company's policy towards its employees is to attract and retain staff with the particular skills and expertise required to manage the affairs of an investment trust company. The Company has no specific policies in respect of environmental or social and community affairs.
The Witan Benchmark
Your Company's benchmark is a quantitative representation of what shareholders can expect in the long term from an investment in Witan both in terms of the underlying investment structure of the portfolio and in performance. It enables the aims of your company to be encapsulated succinctly without the need for a detailed description. It is an equity benchmark, although your Board reserves the right to invest in other assets if it deems it to be appropriate, for better performance or capital preservation. The benchmark does not drive the portfolio structure nor the specific allocation of mandates to managers. This is evident from the table on page 13 showing the investment management arrangements but it does provide a marker for the long term performance of the Company. Over shorter periods, performance can be expected to vary, sometimes considerably, from that of the benchmark.
On 1 October 2007 the Company's benchmark changed from 50% FTSE All Share Index / 50% FTSE World (ex UK) Index to:
40% FTSE All-Share Index
20% FTSE All-World North America Index
20% FTSE All-World Europe (ex UK) Index
20% FTSE All-World Asia Pacific Index.
This change recognised that the global economy can be viewed as three major trading areas: the Americas, Europe, and Asia Pacific. Within these regions, a large proportion of trade flows are internal. The Board felt at the time of the change, and still believes, that a slightly lower weighting to the UK and a larger weighting to the other economies split equally to all three areas would most likely deliver greater investment returns in future over the long term. Furthermore the Board believed that the new benchmark would give a fairer representation of the Company's proposition to its investors and would ultimately offer a truer gauge of its long term performance. As the new benchmark allocates a greater weighting to the Asia Pacific region, an area which your Board expects to outperform in the long term, then, if that view is correct, it will prove to be a more exacting test of performance than the old benchmark.
Page 7 of 31
WITAN INVESTMENT TRUST PLC
Annual Financial Report for the year ended 31 December 2008
Directors' Report: Business Review continued
Dividend Policy
As the Chairman has addressed in his Statement, the Company has recently announced an increase in the dividend declared in respect of 2008 of 3% compared with the previous year. This is the 34th consecutive year that the Board has increased the annual dividend and underlines the Company's ongoing intention to increase dividend income for shareholders at least in line with inflation.
Buy-back Policy
Your Board places great importance on the need to provide liquidity in Witan's shares to the market place. Shareholders should be able to sell Witan shares at a price that reflects prevailing market value while potential new shareholders should be able to invest when they wish to do so. Shares are bought back when they stand at a significant discount with the objective, subject to market conditions, of keeping the discount to net asset value at less than 10%. This policy has the impact of improving net asset value per share, improving liquidity and bringing the share price closer to that of net asset value - all other things being equal.
In 2008 the Company bought back and cancelled a total of 9,027,845 ordinary shares at a cost of £38.7 million including stamp duty. The result of this in terms of performance enhancement was to add just over 0.5% to the net asset value per share at 31 December 2008. In addition, Witan operates an ongoing marketing programme designed to stimulate demand for, and encourage new investment into, the Company's shares. This programme reaches out to private and professional investors and to financial advisers and intermediaries using a blend of targeted marketing disciplines.
At the end of the last day of our financial year there was a currency market abberation which resulted in the discount (with debt at fair value) rising to 12.3%. Nevertheless the average discount for the year was 10.1%.
Key Performance Indicators
Your Board assesses its performance in meeting the Company's objective against the following key
performance indicators:
- net asset value total return
- total shareholder return
- investment performance compared with the benchmark
- annual dividend growth
- discount to net asset value
- the level of buy back activity
- total expense ratio
- growth in the number of private investors
Page 8 of 31
WITAN INVESTMENT TRUST PLC
Annual Financial Report for the year ended 31 December 2008
Directors' Report: Business Review continued
The increase in the Total Expense Ratio (TER) from 0.53% last year to 0.71% in 2008 is due to an increase in performance fees from £0.5 million in 2007 to £1.4 million in 2008 as a result of managers outperforming their benchmarks and also due to a fall in the average total shareholders' funds of 18.3%.
The Board also reviews both absolute and relative volatility and risk statistics for the portfolio and evaluates employee performance. Witan's performance in 2008 against the above parameters is discussed in the Chairman's Statement.
Principal Risks and Uncertainties
The Board has summarised the key risks to the Group in a risk matrix document. The risks relating to Witan's subsidiary company, Witan Investment Services Limited ('WIS'), are separately recorded. The respective documents are reviewed and updated regularly by the relevant Board of directors.
The Board is conscious that it must regularly review the nature of its objective and corporate strategy to ensure that both remain relevant and appropriate in a rapidly changing financial services and savings market. These issues are reviewed at least annually by the Board and include scrutiny of investment policies, the role of marketing and the Witan Wealthbuilder savings schemes as well as wider industry trends.
The Group's key risks fall broadly under the following categories:
Market and portfolio
Witan is essentially a vehicle for UK and overseas equity investment. The Board is unlikely, in normal conditions, to allow the invested level to drop below 80%. Therefore the prime risk of investing in Witan is a fall in equity prices.
The other generic risks associated with any international equity portfolio are those of strategy and of country, currency, industrial sector, and stock selection. There are also risks associated with the choice of managers. Your Board seeks to manage these risks through:
• appropriate decisions regarding asset allocation
• regular reviews of the competency and stock selection skills of fund managers
• monitoring the economic outlook, geo-political environment and stock market conditions around the world
• the application of relevant policies on gearing and liquidity.
The multi-manager structure of the portfolio means that from a risk point of view we are less dependent on one investment manager than with a conventionally structured portfolio.
Investment activity and strategy
An inappropriate investment strategy (for example, in terms of asset allocation or the level of gearing) may lead to underperformance against the Company's benchmark index and compared with the companies in its peer group. It may also result in the Company's shares trading on a wider discount. The Board seeks to manage these risks by ensuring a diversification of investment managers and investments and a regular review of the extent of borrowings.
Page 9 of 31
WITAN INVESTMENT TRUST PLC
Annual Financial Report for the year ended 31 December 2008
Directors' Report: Business Review continued
The Chief Executive Officer ('CEO') and the Chief Investment Officer ('CIO') manage the overall business and investment portfolio in accordance with limits and restrictions determined by the Board. These include limits on the extent to which borrowings may be used. The Board reviews regularly the matters delegated to executive management and the CEO confirms compliance at each Board meeting. Directors are provided with comprehensive management information covering many aspects of the business including investment performance data, financial reports and shareholder analyses. The Board reviews investment strategy at each Board meeting and monitors the implementation and results of the investment process with the CIO, who attends all Board meetings. The CIO regularly reviews reports and data which monitor the various risk factors in respect of the portfolio.
Corporate governance and shareholder relations
Details of the Company's compliance with corporate governance best practice, including information on relations with shareholders, are set out in the Corporate Governance Statement on pages 32 to 35 of the Annual Report.
The operational and regulatory risks described below are regularly and extensively reviewed by Witan's Audit Committee. WIS and its marketing activities are regulated by the Financial Services Authority and the subsidiary is subject to its own operating rules and regulations. Your Board takes its own regulatory responsibilities very seriously and reviews the main points of compliance against requirements on a quarterly basis. Your Board also takes corporate, legal, accounting, and tax advice as appropriate.
Operationally, the multi-manager structure is a robust one as each of the investment managers, custodians and fund accountants keep their own records which are reconciled on a monthly basis. Management monitors the activities of all third parties and reports any significant issues to the Board. Comprehensive contractual obligations and indemnification provisions have been put in place with each of the third party services providers.
Accounting, legal and regulatory
In order to qualify as an investment trust the Company must comply with section 842 of the Income and Corporation Taxes Act 1988 ('section 842'). A breach of section 842 could result in the Company losing investment trust status and, as a consequence, capital gains realised within the Company's portfolio would be subject to Corporation Tax. The section 842 criteria are monitored by the CEO. The Company must comply with the provisions of the Companies Act 1985, and the Companies Act 2006 as it becomes enacted ('the Companies Acts'), and, as the Company's shares are listed for trading on the London Stock Exchange, the Company must comply with the UK Listing Authority's Listing Rules and Disclosure Rules ('UKLA Rules'). A breach of the Companies Acts could result in the Company and/or the directors being fined or becoming the subject of criminal proceedings. Breach of the UKLA Rules could result in the suspension of the Company's shares which would in turn lead to a breach of section 842. The Board relies on the CEO, the company secretary and the Group's professional advisers to ensure compliance with the Companies Acts and UKLA Rules.
Page 10 of 31
WITAN INVESTMENT TRUST PLC
Annual Financial Report for the year ended 31 December 2008
Directors' Report: Business Review continued
The subsidiary company, Witan Investment Services Limited ('WIS'), is regulated by the Financial Services Authority for the administration of savings plans. These are administered on behalf of WIS by Equiniti Limited. The operation of the savings plans is monitored closely by the Board of WIS and by the member of staff appointed as Compliance Officer.
Operational
Many of the Group's operations are outsourced to third parties, principally BNP Paribas Securities Services ('BPSS'). Disruption to, or failure of, the accounting, payment systems or custody records operated by BPSS could prevent the accurate reporting and monitoring of the Company's financial position. Details of how the Board monitors the services provided by BPSS and its other suppliers, and the key elements designed to provide effective internal control, are explained further in the internal control section of the Corporate Governance Statement on pages 34 and 35 of the Annual Report.
Management Team Changes
The Chairman's Statement refers to the splitting of the role of Chief Executive (CEO). Robert Clarke was appointed a director and CEO with effect from 15 September 2008 - from which date he took executive responsibility for the overall management of the Company and its subsidiaries. Mark Lynam was appointed Chief Investment Officer (CIO) with effect from 3 November 2008, from which date he took responsibility for investment policy and manager selection and monitoring. The CEO and CIO will work closely together and in conjunction with the Board to manage all aspects of the Company's affairs.
Witan Investment Services ('WIS')
Witan Investment Services Ltd is a wholly owned subsidiary of Witan Investment Trust plc. It was established in March 2005 and is authorised and regulated by the FSA to provide investment products and services.
WIS has two discernable channels of income by which its performance and profitability may be judged. These are firstly revenues from transaction fees and annual management charges relating to its savings plan business and, secondly, executive management and marketing fees paid by its corporate clients, Witan Investment Trust plc and Witan Pacific Investment Trust plc.
The platform provides savings plans to Witan Investment Services clients and is marketed under the Witan Wealthbuilder and Jump brands. It currently has over 29,750 customers with assets of some £150 million invested. The major cost incurred by Witan Investment Services is its fee to Equiniti Limited, the administrators of the Witan Wealthbuilder platform. WIS is a profit centre in its own right and the company contributed positively to the consolidated results of Witan Investment Trust during the year.
Witan Investment Services' overall aim is to stimulate demand for Witan shares and to do so profitably. It has three specific objectives:
• to generate a revenue stream exceeding costs normally incurred by its parent, Witan Investment Trust
• to have a tangible benefit for Witan shareholders
• to develop profitable new products within Witan that create demand for Witan shares
Page 11 of 31
WITAN INVESTMENT TRUST PLC
Annual Financial Report for the year ended 31 December 2008
Directors' Report: Business Review continued
In April Witan launched the Jump Child Trust Fund (CTF) that allows parents to invest the £250 Government CTF voucher in Witan. The CTF market represents a great opportunity for Witan to broaden the Trust's shareholder base further, and more importantly to nurture the next generation of Witan investors.
VAT
Note 8 on page 29 explains in detail the current situation with regard to recent claims made by the Company to recover VAT borne following a legal judgment which held that the provision of investment management services to investment trust companies is an exempt activity for VAT purposes. The Company has received amounts in excess of the balance recognised as receivable as at 31 December 2007 of £1.45 million. The excess received of £565,000 is included in the 2008 accounts together with a further £200,000 being an estimate of the interest likely to be received on the total balances recovered. It is possible that further amounts may be recovered in future relating to different past accounting periods. However, the recovery of such amounts is not sufficiently certain to be recognised at this stage.
Priorities for 2009
As a result of priorities set in 2008, the Board split the role of CEO, launched a new Child Trust Fund (CTF) product under the Jump brand, and introduced three new managers to the portfolio - this is referred to in greater detail on pages 14 to 16.
One of our most important priorities for the foreseeable future is to ensure that Witan is protected from the worst excesses of the severe financial and economic conditions which have developed since last year. We will also look to take advantage of any investment and business development opportunities which will undoubtedly arise from such traumatic events.
The new management team, comprising Robert Clarke, CEO, Mark Lynam, CIO, and James Frost, Marketing Executive, is focusing on:
• managing the core Witan portfolio with the objective of generating strong investment returns for
shareholders
• the execution of investment policy decisions so that once agreed new key themes can be transmitted into the portfolio quickly and effectively
• seeking and evaluating relevant business development opportunities where Witan's multimanager expertise can be combined productively with other businesses both within and outside of the investment trust sector.
Essentially the new team is looking to build upon Witan's strengths and expertise, while identifying new ways of generating shareholder value.
Page 12 of 31
WITAN INVESTMENT TRUST PLC
Annual Financial Report for the year ended 31 December 2008
Directors' Report: Business Review continued
INVESTMENT SECTION
This Investment Section is addressed by Mark Lynam, Chief Investment Officer under the following headings:
- Investment policy
- Portfolio review
- Investment managers
- Manager review
- Outlook
Investment Policy
Witan's objective is to be the first choice for wealth creation through equity investment. This means that Witan seeks to outperform global stock markets, consistently adding value in the long term for its investors. Witan invests primarily in global equities: the minimum equity level is set at 80% of net assets although in practice, in recent times, it has been over 95%. The Board is prepared to consider alternative investments when considered appropriate.
The Company has the power under its Articles of Association to borrow up to 100% of the adjusted total of capital and reserves. Essentially this allows the Board to seek to improve performance through gearing by borrowing amounts equivalent in value to shareholders' funds. The Company had in place £144 million of long term debt. In practice the Board would not, other than in exceptional circumstances, allow gearing to rise to more than 20%. Over the past five years it has varied between 0% and 15% while, occasionally, the Company has held a small net cash position.
Investment risk is managed through:
• the selection of different investment managers with different mandates. Details of the managers, their mandates and the value of funds under management are set out on pages 13 and 16.
• the broad adherence to a global geographic benchmark, ensuring diversity.
• monitoring of investment manager performance and portfolios. Investment manager performance against their benchmarks is set out on page 16.
• monitoring of asset allocation, currency exposures and gearing levels.
During the year the Company invested its assets with a view to spreading investment risk and in accordance with the investment policy as set out above. In particular it has maintained a diversified portfolio, of which the commentary in this Business Review provides illustration. The portfolio has been actively managed by the investment managers, under the direction of the Chief Executive Officer and since November under the direction of the Chief Investment Officer. The directors have received regular reports on investment activity and portfolio construction, both at and outwith the regular meetings of the Board.
2008 Portfolio Review
It is difficult to write about 2008 without adopting a wholly negative tone. The scale of the global financial crisis and economic downturn has resulted in substantial negative returns for almost all asset classes, and nearly all investment managers, badly affecting investors be they institutional or private individuals. A string of bank bailouts across the world - following the collapse of Lehman Brothers in September - has led to a total collapse in investor confidence. Over the course of the year global equity markets fell 43.3% as measured by the FTSE World Index in local currency terms.
Page 13 of 31
WITAN INVESTMENT TRUST PLC
Annual Financial Report for the year ended 31 December 2008
Directors' Report: Business Review continued
The UK economy has suffered due to its relatively high exposure to financial services, consumer indebtedness and an inflated housing market, and consequently the FTSE All-Share Index fell 29.9%.
The Witan portfolio is well diversified across stockmarkets and also through a range of managers.
|
EQUITY MANDATE |
INVESTMENT MANAGER |
MANDATE BENCHMARK (TOTAL RETURN) |
INVESTMENT STYLE |
|
UK mainstream equities |
Henderson Global Investors |
FTSE 350 (ex investment companies) |
Enhanced index |
|
UK smaller companies |
Henderson Global Investors |
Hoare Govett Smaller Companies (ex investment companies) |
Growth at an attractive price |
|
Global |
Southeastern Asset Management |
FTSE All-World |
Quality at a discounted valuation |
|
UK |
Artemis |
FTSE All-Share |
Recovery/special situations |
|
UK |
Marathon |
FTSE All-Share |
Capital cycles |
|
Global |
MFS International |
FTSE All-World |
Growth at an attractive price |
|
Global |
Thomas White International |
FTSE All-World |
Fundamental valuation techniques |
|
Continental Europe |
Wellington Management Company |
FTSE World Europe (ex UK) |
Fundamental research |
|
Europe (inc UK) |
Varenne |
FTSE All-World Developed Europe |
Value |
|
North America |
Henderson Global Investors |
FTSE World North America |
Enchanced index |
|
Japan |
Brandes Investment Partners |
FTSE Japan |
Value |
|
Asia Pacific (ex Japan) |
Comgest |
FTSE All-World Asia (ex Japan/Australia/New Zealand) |
Fundamental research |
|
Australasia |
Orbis Investment Management |
FTSE Australia |
Value |
Even so this challenging environment has resulted in a decline in net asset value total return of 23.3%, marginally ahead of the Witan benchmark which fell 23.9%. Contributions to this marginal relative outperformance came from being underweight the UK and overweight international markets where the weakness of Sterling has mitigated poor overseas stockmarket returns and there has been good stock selection by our managers.
Currency volatility has been a major feature of markets with a counter intuitive flight into the US Dollar by investors keen to seek safety in what is still considered the world's reserve currency, despite the poor US economic fundamentals. In addition to the US Dollar, both the Japanese Yen and Euro strengthened considerably against Sterling. The strategic decision taken over recent years by Witan has been to emphasise investment overseas at the expense of the UK. This has been reflected both in adjusting downwards the Company's benchmark allocation to the UK and, in 2008, by strategically underweighting the UK allocation relative to this benchmark. Whilst the rationale for this policy reflects the perceived superior growth opportunities in overseas economies, the benefit in 2008 has actually only been seen in the strengthening of foreign currencies. Witan has some 60% of its assets invested overseas and this foreign currency exposure helped improve on poor stockmarket returns when translated back into Sterling. Whilst our actual currency exposure via our overseas managers has been of benefit, shareholders will know that in 2008 Witan engaged an
Page 14 of 31
WITAN INVESTMENT TRUST PLC
Annual Financial Report for the year ended 31 December 2008
Directors' Report: Business Review continued
active currency manager to generate additional investment return. Unfortunately results have been very disappointing. At the interim stage we commented on the poor performance - whilst we believe the premise that investing in currency markets can add value, it became evident that Mellon Capital's fundamental approach to currency management was unsuited to the momentum-driven forces that have been a recurring driving force behind currency movements in 2008. Following direct discussions with Mellon Capital's new CIO we took the decision to redeem the currency loan note. This had given Witan effective economic exposure to £350 million of foreign currency - being approximately half of Witan's actual foreign currency exposure at the time of initiating the investment. The actual loss in 2008 was a very disappointing £14 million.
Elsewhere the majority of Witan's managers outperformed their respective benchmarks. Amidst such unrelenting bad economic and stockmarket news any positive comments are likely to be seen as overly optimistic but we are encouraged by our multi-manager strategy and the fact that nine out of the thirteen managers selected by us have outperformed their benchmarks in 2008 - some marginally and some to a much greater extent. It is even more encouraging if we compare our managers' returns with comparable peer groups of managers available to investors in the UK. Using the IMA's (Investment Management Association's) sector guidelines we calculate that seven managers would rank in the first quartile and a further
three in the second quartile.
Investment Managers
As listed on the previous page, the portfolio consists of 13 separate mandates managed by 11 different fund management firms.
Each of the managers is entitled to a base management fee, calculated according to the value of the assets under management, and/or a performance fee, calculated according to investment performance, over a rolling three year period, relative to the benchmark applicable to the relevant investment mandate. Each of the performance fees is subject to a cap, except in respect of the investments in the fund covering Australasia, until 31 December 2008 and each management agreement can be terminated on one month's notice. Two of the investment mandates are held through pooled vehicles. These arrangements are not subject to specific investment management agreements as they are in effect direct investments. However, the relevant terms are similar to what is described above. The base management fee rates range from nil to 0.90 per cent per annum and the performance fees range from nil to 25 per cent per annum of the relevant outperformance. All the fees are payable quarterly in arrears. The performance fees are payable on a pro rata basis, after a minimum initial period of one year, and after three years are calculated on a rolling three year basis.
The average aggregate base management fee, including the investments in pooled vehicles and the currency note, calculated on a size-weighted basis according to the value of the funds under management, was 0.28 per cent as at 31 December 2008 (and 0.21 per cent as at 31 December 2007). The investment in the fund covering Australasia is subject to uncapped performance fees of 20% of outperformance. Excluding these two investments, the maximum performance fees payable, if each of the other investment mandates performs to at least the extent that the relevant cap applies, would result in total fees of 0.98 per cent being paid (based on the value of the funds under management at 31 December 2008).
The investment managers may use certain services which are paid for, or provided by, various brokers. In return they may place business, including transactions relating to the Company, with these brokers.
Page 15 of 31
WITAN INVESTMENT TRUST PLC
Annual Financial Report for the year ended 31 December 2008
Directors' Report: Business Review continued
Investment Manager Review
All our UK managers outperformed with the new additions in 2008, Artemis and Marathon, demonstrating the benefits of active management in such a challenging environment. Both comfortably outperformed over the period from May 2008 when they were appointed. Artemis fared particularly well and benefited from large underweight positions in banks, mining and consumer related sectors. Their preference for the more defensive areas of the market such as utilities, pharmaceuticals and food companies aided performance. Whilst acknowledging the poor economic environment our fund manager at Artemis believes that 'Declining interest rates are, however, a positive. There are a large number of equities that are well financed and have yields three and four times the current level of base rates. On a medium to long term view these equities will make us money'. Marathon too have delivered outperformance which has been largely attributable to stock selection and to a lesser extent sector selection. The latter was positive owing to the significant underweight to financials which was enough to offset the underweight to outperforming defensive areas such as oil & gas, health care and utilities. Their underweight to basic materials stocks was also beneficial.
Whilst Artemis and Marathon have mandates to invest freely across all areas of the UK stockmarket, the core of Witan's UK equity exposure is managed by Henderson's UK Enhanced equity team and focuses on the FTSE 350 index. This index represents large and midcap stocks. Henderson's investment strategy seeks to add value through a mix of fundamental and technical strategies implemented through a number of small over and underweight positions around the core index. The result is a low risk strategy which for 2008 matched their benchmark.
Witan's coverage of the smaller companies in the UK has remained underweight given the poor outlook for the UK economy. This area of the market suffered more than larger companies as both prospects and liquidity dried up. This portfolio is also managed by Henderson and the manager, who outperformed his specific small company benchmark, is very experienced and thorough in his approach. 'The emphasis is to pick stocks that exhibit a solid business model, strong management, a sound financial structure ', all attributes that are key to survival in this difficult environment.
Turning to overseas, the US equity market got off to a weak start in 2008 but there was a hope after the US authorities rescued Bear Stearns that the government would step in to protect companies and the economy. At the same time corporate earnings and economic data also appeared to stabilise. However, this mild recovery in sentiment was short lived as the oil price peaked at $147 per barrel and the global economy showed signs of deteriorating. The ensuing financial crisis claimed a number of high profile victims and resulted in a wave of panic selling that peaked in November. There were a number of public bailouts, including AIG Insurance, and a number of iconic Wall Street names, such as Merrill Lynch, were forced to merge with larger rivals. The response from the Federal Reserve was unprecedented, with interest rates cut to record low levels. By the fourth quarter the financial crisis had moved into the real economy, with unemployment rising sharply, a steep drop in industrial activity, and confirmation of a recession. Only when Barack Obama proposed a massive stimulus package in November did the equity market stabilise to end the year off its lows but still down 40% in local currency terms. The near 25% rally in the US Dollar gave Sterling investors an index return of -13.1%. Our US equity exposure is through the Henderson North America Enhanced Index Fund which follows a similar low risk process to the Henderson UK Equity Enhanced portfolio and which marginally underperformed the US market.
Page 16 of 31
WITAN INVESTMENT TRUST PLC
Annual Financial Report for the year ended 31 December 2008
Directors' Report: Business Review continued
Continental European stocks declined nearly 44% in Euro terms during the year. Financial stocks fared worst, while companies with more defensive earnings profiles declined the least. The Witan Europe ex-UK account is a concentrated portfolio where bottom up fundamental analysis drives stock selection as well as industry allocation. Unfortunately absolute returns have been negative but having underperformed in recent times it is good to see that our manager, Wellington, has outperformed in 2008 by remaining true to their investment principles. Wellington's focus on less 'popular' stocks where they identified more value than the market helped them to outperform for Witan this year. This was particularly true amongst the cyclical areas of the market such as financials, energy, and industrials, where their allocation and stock selection were strong. In financials, their preference for reinsurers over banks helped, while, in industrials, timely purchases of companies like Ryanair and Deutsche Post were well rewarded. Amongst defensives, the weighting and selection in telecom stocks was again very additive; however, the selection of healthcare stocks was not as strong as hoped. While they were correct in anticipating that investors would take a fresh look at healthcare stocks generally, the market had a clear preference for larger companies. This meant that many of their smaller companies did not hold up as well as they expected. Our other European manager Varenne Capital Partners has an even more concentrated portfolio approach. Given their intense research process and the economic background, they have spent these first months since inception building the Witan portfolio which numbers just ten stocks. It is too short a period to judge their performance sensibly.
|
Performance |
|
||||||
|
For the year ended 31 December 2008 and from inception to 31 December 2008 |
|||||||
|
Investment Manager |
Value of Funds under Management £m at 31.12.08 |
% of Witan's Assets under Management at 31.12.08* |
Performance in the period 31.12.07 to 31.12.08 (%) |
Benchmark Performance 31.12.07 to 31.12.08 (%) |
Performance in the period since inception to 31.12.08 (%) (annualised) |
Benchmark performance since inception to 31.12.08 (%) (annualised) |
|
|
|
|
|
|
|
|
|
|
|
Henderson Global Investors (UK mainstream) |
134.2 |
14.8 |
-29.3 |
-29.4 |
+3.0(B) |
+2.9(B) |
|
|
Henderson Global Investors (UK smaller) |
31.0 |
3.4 |
-40.1 |
-40.8 |
+1.2(A) |
+0.0(A) |
|
|
Southeastern Asset Management (Global) |
130.8 |
14.5 |
-23.5 |
-19.4 |
+1.6(B) |
+5.7(B) |
|
|
MFS International (Global) |
101.9 |
11.3 |
-8.7 |
-19.4 |
+8.8(B) |
+5.7(B) |
|
|
Thomas White (Global) |
91.1 |
10.1 |
-18.4 |
-19.4 |
-12.9(D) |
-15.1(D) |
|
|
Wellington Management Company (Europe) |
76.2 |
8.4 |
-23.0 |
-25.9 |
+5.5(B) |
+9.0(B) |
|
|
Henderson Global Investors (USA) |
58.6 |
6.5 |
-13.9 |
-13.3 |
+3.9(A) |
+3.5(A) |
|
|
Brandes Investment Partners (Japan) |
80.3 |
8.9 |
+18.8 |
-1.1 |
+8.6(B) |
+5.9(B) |
|
|
Comgest (Asia Pacific) (ex Japan) |
50.5 |
5.6 |
-24.2 |
-33.5 |
-8.3(C) |
-17.0(C) |
|
|
Orbis (Australasia) |
10.8 |
1.2 |
-40.3 |
-32.9 |
-23.1(C) |
-19.3(C) |
|
|
Varenne Capital (Europe) |
24.3 |
2.7 |
not applicable |
-26.4(E) |
-23.6(E) |
||
|
Artemis Investment Management (UK) |
58.4 |
6.5 |
not applicable |
-19.6(F) |
-28.3(F) |
||
|
Marathon Asset Management (UK) |
55.4 |
6.1 |
not applicable |
-24.3(F) |
-28.3(F) |
||
*excluding cash balances held centrally by Witan and the unquoted investments.
Source: The WM Company.
Page 17 of 31
WITAN INVESTMENT TRUST PLC
Annual Financial Report for the year ended 31 December 2008
Directors' Report: Business Review continued
Japan has not been immune to the economic and financial crises. Whilst Brandes, our Japan manager, monitor the economic environment developments in global markets, their investment philosophy focuses on company-by-company analysis. Sector and industry weightings are a by-product of this stock selection process and are not a result of top-down allocations driven by an economic outlook. This strategy has served them well as they have been a consistent outperformer through 2008 and were some 12% ahead of their benchmark in Yen terms which, when converted into Sterling, produced a very welcome positive return of +18.8%. Brandes is a bottom-up, value-oriented manager whose objective is to buy 'undervalued' stocks and to hold them until they attain their 'intrinsic value.' Holdings in the food products industry had the most positive impact on their portfolio performance this year. Within this industry, positions such as Nippon Flour Mills Co. Ltd (packaged foods & meats) and Fuji Oil Co., Ltd (agricultural products) were among the top performers. Other positions that performed well in 2008 included Tokushu Tokai Holdings Ltd (paper & forest products) and Mitsubishi Tanabe Pharma (pharmaceuticals). At the end of the year their portfolio's most significant exposures was in the commercial banking and pharmaceutical industries and they 'believe the portfolio is well positioned to deliver
favourable long term results'.
2008 turned out to be a painful one for investors in Asia. Comgest continue to manage our Asia Pacific (ex Japan) portfolio, with their concern for free cash flow and quality companies helping them to comfortably outperform their benchmark. Comgest believe that 'those companies that can generate enough free cash flow to finance their development or that can readily draw on credit lines will be at a competitive advantage in an environment where credit is restricted. It will be critical to identify such companies because they are the best-equipped to survive or to become the consolidators in their industries'. Comgest highlight stocks such as Delta Electronics as falling into this category.
The Orbis Australia Fund completes our Asia Pacific exposure. Performance was disappointing in both absolute and relative terms but this specialist manager, has a particular small cap value style which should be handsomely rewarded in more normal markets.
In contrast to our regional managers our trio of global managers are free to actively pick stocks on a regionally unconstrained basis and two of them continue to do so successfully.
Chicago based Thomas White demonstrated their active management in the latter half of the period by reducing exposure to emerging markets and trimming the developed European and Asia-Pacific regions. The cash proceeds were designated to be added to the US weight. During the fourth quarter the portfolio reflected this strategy as new US positions in Exxon Mobil (+23.9%) and Dominion Resources (+14.4%) were among top performers. Other portfolio holdings performing well in a challenging economic environment also included leading Mexican retailer Grupo Elektra (+48.6%), Japan's Electric Power Development (+47.9%), Toyo Suisan Kaisha (+38.6%) and Bristol Myers (+36.0%).
Global equity manager MFS were substantially ahead of the benchmark index thanks to their preference for high quality stocks and consequently a lack of financials. MFS benefited from their positions in companies that have demonstrated the ability to maintain above-average growth and returns through various economic cycles, including Swiss fragrance and flavour maker Givaudan and US diversified manufacturer 3M. MFS have high conviction in a number of individual companies that they believe have a good mix of products and are able to absorb and pass on increased input costs, and therefore are able to maintain earnings growth and profit margins in various economic conditions.
Page 18 of 31
WITAN INVESTMENT TRUST PLC
Annual Financial Report for the year ended 31 December 2008
Directors' Report: Business Review continued
|
Top 10 Overweight Positions at 31 December 2008 |
|
|
|
|
|
|
|
Name |
Sector |
Portfolio Weighting minus Benchmark Weighting |
|
Fairfax Financial |
Nonlife Insurance |
1.64 |
|
Nipponkoa Insurance |
Nonlife Insurance |
1.45 |
|
Walt Disney |
Media |
1.31 |
|
Liberty Media |
Media |
1.19 |
|
Japan Petroleum Exploration |
Oil & Gas Producers |
1.00 |
|
ACS Actividades |
Construction & Materials |
0.97 |
|
Sompo Japan Insurance |
Nonlife Insurance |
0.94 |
|
Willis |
Nonlife Insurance |
0.89 |
|
DirecTV |
Media |
0.87 |
|
Dell |
Technology Hardware & Equipment |
0.87 |
|
Top 10 Underweight Positions at 31 December 2008 |
|
|
|
|
|
|
|
Name |
Sector |
Portfolio Weighting minus Benchmark Weighting |
|
HSBC |
Banks |
-1.42 |
|
BP |
Oil & Gas Producers |
-1.29 |
|
Vodafone |
Mobile Telecommunciations |
-1.05 |
|
Royal Dutch Shell |
Oil & Gas Producers |
-1.04 |
|
GlaxoSmithKline |
Pharmaceuticals & Biotechnology |
-0.65 |
|
British American Tobacco |
Tobacco |
-0.56 |
|
Telefonica |
Telecommunications |
-0.52 |
|
AstraZeneca |
Pharmaceuticals & Biotechnology |
-0.52 |
|
Novartis |
Pharmaceuticals & Biotechnology |
-0.44 |
|
BG |
Oil & Gas Producers |
-0.41 |
Source of both tables: BNP Paribas and Style Research.
The laggard continues to be Southeastern Asset Management, a manager with an enviable long term track record and clear investment philosophy. As value investors their style has been out of favour and Southeastern's end of year report shows their frustration but also a strong belief that the portfolio of stocks they hold for Witan offers dramatic upside potential when stability and confidence return to stockmarkets:
'Throughout the year we followed our long-held discipline of trying to protect capital by buying businesses with competitive advantages, good management partners, and prices below 60% of appraisal. In 2008 many high quality investments went from 60-cent dollars to 30-cent dollars, even after lowering appraisals to account for the worse environment. We believe that prices will return to fair value at some point meaning that returns on our capital are deferred, not lost.'
Page 19 of 31
WITAN INVESTMENT TRUST PLC
Annual Financial Report for the year ended 31 December 2008
Directors' Report: Business Review continued
At Witan we are acutely aware that managers have poor periods when their style of investment may be out of tune with market dynamics - indeed the strength of such managers is that they are not persuaded by shorter term underperformance to change their investment approach and throw in the towel at precisely the wrong time. We continue to monitor and liaise with all our managers, including Southeastern.
The two tables above provide extracts of the top 10 overweightings and top 10 underweightings. These are derived from the investment holdings in the managers' portfolios being consolidated and sorted according to their respective relative weightings against the benchmark.
Outlook
Confidence in a stockmarket recovery would of course be welcomed by all investors but in the short term
economic indicators suggest chronically weak economies, rising unemployment and depressed corporate profits and dividends. We view the concerted action by governments and central banks as positive, although the jury is still out as to whether or not historically low interest rates, bank bailouts and printing money will succeed in re-kindling economic activity. Loose monetary policies were the origins of this slump and counter cyclical fiscal policies are also needed to reflate the economy.
Tactically we will maintain our underweight position in the UK - with a recession unfolding there is little encouragement for investors in the short term. Elsewhere, the US should not be underestimated as the best positioned to recover first, given the flexibility and resourcefulness inherent in their economy. Asia has the advantage of being the mirror image of the West with well capitalised banks, current account surpluses and consumers who have a propensity to save.
Witan has been careful to select a range of quality investment managers who we believe have the intellectual, philosophical and practical experience to navigate difficult, arguably uncharted, waters. Most of our managers are bottom-up stock pickers who analyse individual companies using fundamental analysis. They believe that their portfolio valuations are at historic low levels and represent considerable value.
We are not able to forecast short term movements in stockmarkets but firmly believe in economic cycles, that reflation will come and that equity investments will benefit. In the very long run stockmarkets have averaged 6% per annum; from these depressed levels one might expect returns to be higher. With this in mind we will prudently make use of gearing during 2009.
Page 20 of 31
WITAN INVESTMENT TRUST PLC
Annual Financial Report for the year ended 31 December 2008
Directors' Report: Business Review continued
Corporate Key Performance Indicators
|
|
31 December 2008 |
31 December 2007 |
% change |
|
Share price |
351.0p |
478.5p |
-26.6 |
|
Net asset value per ordinary share (debt at par value) |
410.1p |
545.7p |
-24.8 |
|
Net asset value per ordinary share (debt at fair value) |
400.3p |
537.9p |
-25.6 |
|
Dividends per ordinary share |
10.2p |
9.9p |
+3.0 |
|
Discount (debt at par value) |
14.4% |
12.3% |
|
|
Discount (debt at fair value ) (A) |
12.3% |
11.0% |
|
|
Share buy-backs (B) |
4.0% |
14.3% |
|
|
Total expense ratio (C) |
0.71% |
0.53% |
|
|
Number of private investors (D) |
40,356 |
41,936 |
-3.8 |
Performance
|
Total returns to 31 December 2008 |
1 year % return |
3 years % return |
5 years % return |
|
Total shareholder return (E) |
-24.9 |
-9.5 |
30.2 |
|
Net asset value total return (F) |
-23.3 |
-7.5 |
27.2 |
|
Benchmark (G) |
-23.9 |
-7.7 |
- |
|
FTSE Asll-Share Index (H) |
-29.9 |
-13.8 |
18.7 |
|
FTSE World (ex UK) Index (H) |
-17.1 |
-3.9 |
29.3 |
(E) The movement in the ordinary share price adjusted to include the notional reinvestment of dividends.
(F) The movement in the net asset value per share adjusted to include the notional reinvestment of dividends.
(G) Source: WM Performance Services
Since 1 October 2007 the benchmark has been a composite of four indices: the FTSE All-Share Index 40%, the FTSE All-World North America Index 20%, the FTSE All-World Europe (ex UK) Index 20% and the FTSE All-World Asia Pacific Index 20%.
From 1 September 2004 to 30 September 2007 the benchmark comprised the FTSE All-Share Index 50% and the FTSE World (ex UK) Index 50%. Prior to 1 September 2004 the benchmark comprised the FTSE All-Share Index 60% and the FTSE World (ex UK) Index 40%.
(H) Source: Datastream
Other Financial Information
|
|
31 December 2008 |
31 December 2007 |
% Change |
|
Net assets |
£879,247,000 |
£1,219,306,000 |
-27.9 |
|
Number of ordinary shares in issue |
214,398,654 |
223,426,499 |
-4.0 |
|
Revenue return per ordinary share |
11.60p |
11.08p |
+4.7 |
|
Gearing* |
0.1% |
4.7% |
|
* The total market value of the investments less shareholders' funds as a percentage of shareholders' funds.
Page 21 of 31
WITAN INVESTMENT TRUST PLC
Annual Financial Report for the year ended 31 December 2008
Directors' Report: Statement of Directors' Responsibilities
Statement under DTR 4.1.12
The directors as at the date of this report each confirm to the best of their knowledge that:
(a) the financial statements, prepared in accordance with International Financial Reporting Standards as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the subsidiary undertaking included in the consolidation taken as a whole; and
(b) the management report, which is incorporated into the Directors' Report, includes a fair review of the development and performance of the business and the position of the Company and the subsidiary undertaking included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.
For and on behalf of the Board
H M Henderson
Chairman
6 March 2009
Page 22 of 31
WITAN INVESTMENT TRUST PLC
Annual Financial Report for the year ended 31 December 2008
Consolidated Income Statement
for the year ended 31 December 2008
|
|
Year ended 31 December 2008 |
Year ended 31 December 2007 |
||||
|
|
Revenue return |
Capital return |
Total |
Revenue return |
Capital return |
Total |
|
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
Investment income (note 2) |
29,577 |
- |
29,577 |
31,817 |
- |
31,817 |
|
Other income (note 3) |
8,185 |
- |
8,185 |
7,659 |
- |
7,659 |
|
(Losses)/gains on investments held at fair value through profit or loss |
- |
(297,614) |
(297,614) |
- |
54,884 |
54,884 |
|
|
---------- |
---------- |
---------- |
--------- |
--------- |
--------- |
|
Total income |
37,762 |
(297,614) |
(259,852) |
39,476 |
54,884 |
94,360 |
|
|
|
|
|
|
|
|
|
Expenses |
|
|
|
|
|
|
|
Management fees (note 4) |
(490) |
(2,831) |
(3,321) |
(505) |
(2,009) |
(2,514) |
|
Write-back of prior years' VAT (note 8) |
141 |
424 |
565 |
324 |
1,126 |
1,450 |
|
Other expenses |
(5,045) |
- |
(5,045) |
(5,432) |
- |
(5,432) |
|
|
---------- |
---------- |
---------- |
---------- |
--------- |
--------- |
|
Profit/(loss) before finance costs and taxation |
32,368 |
(300,021) |
(267,653) |
33,863 |
54,001 |
87,864 |
|
|
|
|
|
|
|
|
|
Finance costs |
(2,527) |
(7,334) |
(9,861) |
(2,618) |
(7,600) |
(10,218) |
|
|
---------- |
---------- |
---------- |
---------- |
--------- |
--------- |
|
Profit/(loss) before taxation |
29,841 |
(307,355) |
(277,514) |
31,245 |
46,401 |
77,646 |
|
|
|
|
|
|
|
|
|
Taxation |
(4,580) |
2,878 |
(1,702) |
(4,108) |
2,494 |
(1,614) |
|
|
---------- |
---------- |
---------- |
---------- |
--------- |
--------- |
|
Profit/(loss) attributable to equity holders of the parent company |
25,261 |
(304,477) |
(279,216) |
27,137 |
48,895 |
76,032 |
|
|
====== |
====== |
====== |
====== |
====== |
====== |
|
|
|
|
|
|
|
|
|
Earnings/(loss) per ordinary share (note 5) |
11.60p |
(139.86)p |
(128.26)p |
11.08p |
19.97p |
31.05p |
|
|
====== |
====== |
====== |
====== |
====== |
====== |
The total column of this statement represents the Group's Income Statement, prepared in accordance with IFRSs as adopted by the European Union. The revenue return and capital return columns are supplementary to this and are prepared under the guidance published by the Association of Investment Companies. All items in the above statement derive from continuing operations.
All income is attributable to the equity holders of Witan Investment Trust plc, the parent company. There are no minority interests.
Page 23 of 31
WITAN INVESTMENT TRUST PLC
Annual Financial Report for the year ended 31 December 2008
Consolidated and Individual Company Statements of Changes in Equity
for the year ended 31 December 2008
|
|
Group Year ended 31 December 2008 |
|||||
|
|
Ordinary share capital £'000 |
Share premium account £'000 |
Capital redemption reserve £'000 |
Other capital reserves £'000 |
Revenue reserve £'000 |
Total £'000 |
|
At 31 December 2007 |
55,857 |
16,237 |
37,969 |
1,059,939 |
49,304 |
1,219,306 |
|
(Loss)/profit for the year |
- |
- |
- |
(304,477) |
25,261 |
(279,216) |
|
Ordinary dividends paid (note 7) |
- |
- |
- |
- |
(22,137) |
(22,137) |
|
Buy-backs of ordinary shares |
(2,257) |
- |
2,257 |
(38,706) |
- |
(38,706) |
|
|
----------- |
--------- |
--------- |
------------- |
---------- |
------------- |
|
At 31 December 2008 |
53,600 |
16,237 |
40,226 |
716,756 |
52,428 |
879,247 |
|
|
====== |
===== |
===== |
======= |
====== |
======= |
|
|
|
|||||
|
|
Company Year ended 31 December 2008 |
|||||
|
|
Ordinary share capital |
Share premium account |
Capital redemption reserve |
Other capital reserves |
Revenue reserve |
Total |
|
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
At 31 December 2007 |
55,857 |
16,237 |
37,969 |
1,060,025 |
49,218 |
1,219,306 |
|
(Loss)/profit for the year |
- |
- |
- |
(304,422) |
25,206 |
(279,216) |
|
Ordinary dividends paid (note 7) |
- |
- |
- |
- |
(22,137) |
(22,137) |
|
Buy-backs of ordinary shares |
(2,257) |
- |
2,257 |
(38,706) |
- |
(38,706) |
|
|
----------- |
--------- |
--------- |
--------- |
--------- |
--------- |
|
At 31 December 2008 |
53,600 |
16,237 |
40,226 |
716,897 |
52,287 |
879,247 |
|
|
====== |
===== |
===== |
===== |
===== |
===== |
|
|
|
|||||
|
|
Group Year ended 31 December 2007 |
|||||
|
|
Ordinary share capital |
Share premium account |
Capital redemption reserve |
Other capital reserves |
Revenue reserve |
Total |
|
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
At 31 December 2006 |
65,193 |
16,237 |
28,633 |
1,192,597 |
45,874 |
1,348,534 |
|
Profit for the year |
- |
- |
- |
48,895 |
27,137 |
76,032 |
|
Ordinary dividends paid (note 7) |
- |
- |
- |
- |
(23,707) |
(23,707) |
|
Buy-backs of ordinary shares |
(9,336) |
- |
9,336 |
(181,553) |
- |
(181,553) |
|
|
----------- |
--------- |
--------- |
------------- |
---------- |
------------- |
|
At 31 December 2007 |
55,857 |
16,237 |
37,969 |
1,059,939 |
49,304 |
1,219,306 |
|
|
====== |
===== |
===== |
======= |
====== |
======= |
|
|
|
|
|
|
|
|
|
|
Company Year ended 31 December 2007 |
|||||
|
|
Ordinary share capital |
Share premium account |
Capital redemption reserve |
Other capital reserves |
Revenue reserve |
Total |
|
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
At 31 December 2006 |
65,193 |
16,237 |
28,633 |
1,192,451 |
46,020 |
1,348,534 |
|
Profit for the year |
- |
- |
- |
49,127 |
26,905 |
76,032 |
|
Ordinary dividends paid (note 7) |
- |
- |
- |
- |
(23,707) |
(23,707) |
|
Buy-backs of ordinary shares |
(9,336) |
- |
9,336 |
(181,553) |
- |
(181,553) |
|
|
---------- |
----------- |
----------- |
----------- |
----------- |
----------- |
|
At 31 December 2007 |
55,857 |
16,237 |
37,969 |
1,060,025 |
49,218 |
1,219,306 |
|
|
====== |
======= |
======= |
======== |
======= |
======= |
Page 24 of 31
WITAN INVESTMENT TRUST PLC
Annual Financial Report for the year ended 31 December 2008
Consolidated and Individual Company Balance Sheets
for the year ended 31 December 2008
|
|
Group 31 December 2008 £'000 |
Company 31 December 2008 £'000 |
Group 31 December 2007 £'000 |
Company 31 December 2007 £'000 |
|
Non current assets |
|
|
|
|
|
Investments held at fair value through profit or loss |
880,013 |
881,054 |
1,276,354 |
1,277,340 |
|
|
------------ |
------------ |
------------ |
------------ |
|
Current assets |
|
|
|
|
|
Other receivables |
19,830 |
20,204 |
6,742 |
6,625 |
|
Cash and cash equivalents |
124,383 |
122,815 |
88,394 |
87,166 |
|
|
------------ |
------------- |
------------ |
------------- |
|
|
144,213 |
143,019 |
95,136 |
93,791 |
|
|
------------ |
------------ |
------------ |
------------ |
|
|
|
|
|
|
|
Total assets |
1,024,226 |
1,024,073 |
1,371,490 |
1,371,131 |
|
|
------------ |
------------ |
------------ |
------------ |
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
Other payables |
(4,892) |
(4,739) |
(5,277) |
(4,918) |
|
|
------------- |
------------- |
------------- |
------------- |
|
Total assets less current liabilities |
1,019,334 |
1,019,334 |
1,366,213 |
1,366,213 |
|
|
------------- |
------------- |
------------- |
------------- |
|
|
|
|
|
|
|
Non current liabilities |
|
|
|
|
|
8½ per cent. Debenture Stock 2016 |
(45,779) |
(45,779) |
(45,779) |
(45,779) |
|
6.125 per cent. Secured Bonds due 2025 |
(91,753) |
(91,753) |
(98,573) |
(98,573) |
|
3.4 per cent. cumulative preference shares of £1 |
(2,055) |
(2,055) |
(2,055) |
(2,055) |
|
2.7 per cent. cumulative preference shares of £1 |
(500) |
(500) |
(500) |
(500) |
|
|
------------ |
------------ |
------------ |
------------ |
|
|
(140,087) |
(140,087) |
(146,907) |
(146,907) |
|
|
------------ |
------------ |
------------ |
------------ |
|
|
|
|
|
|
|
Net assets |
879,247 |
879,247 |
1,219,306 |
1,219,306 |
|
|
======= |
======= |
======= |
======= |
|
|
|
|
|
|
|
Equity attributable to equity holders |
|
|
|
|
|
Ordinary share capital (note 6) |
53,600 |
53,600 |
55,857 |
55,857 |
|
Share premium account |
16,237 |
16,237 |
16,237 |
16,237 |
|
Capital redemption reserve |
40,226 |
40,226 |
37,969 |
37,969 |
|
Retained earnings: |
|
|
|
|
|
Other capital reserves |
716,756 |
716,897 |
1,059,939 |
1,060,025 |
|
Revenue reserve |
52,428 |
52,287 |
49,304 |
49,218 |
|
|
------------ |
------------ |
------------ |
------------ |
|
Total equity |
879,247 |
879,247 |
1,219,306 |
1,219,306 |
|
|
======= |
======= |
======= |
======= |
|
|
|
|
|
|
|
Net asset value per ordinary share (note 6) |
410.1p |
410.1p |
545.7p |
545.7p |
|
|
======= |
======= |
======= |
======= |
Page 25 of 31
WITAN INVESTMENT TRUST PLC
Annual Financial Report for the year ended 31 December 2008
Consolidated and Individual Company Cash Flow Statements
for the year ended 31 December 2008
|
|
Group Year ended 31 December 2008 |
Company Year ended 31 December 2008 |
Group Year ended 31 December 2007 |
Company Year ended 31 December 2007 |
|
|
£'000 |
£'000 |
£'000 |
£'000 |
|
Operating activities |
|
|
|
|
|
(Loss)/profit before taxation |
(277,514) |
(277,514) |
77,646 |
77,646 |
|
Interest paid |
9,664 |
9,664 |
10,072 |
10,072 |
|
Losses/(gains) on investments held at fair value through profit or loss |
297,614 |
297,559 |
(54,884) |
(55,116) |
|
Net sales of investments held at fair value through profit or loss |
89,327 |
89,327 |
158,309 |
158,309 |
|
Net (loss)/gain from futures contracts |
(5,934) |
(5,934) |
3,029 |
3,029 |
|
Scrip dividends included in investment income |
(537) |
(537) |
(269) |
(269) |
|
Decrease/(increase) in other receivables |
150 |
(341) |
(1,202) |
(1,310) |
|
Increase/(decrease) in other payables |
1,037 |
1,243 |
(420) |
(632) |
|
|
------------ |
------------ |
------------ |
------------ |
|
Net cash inflow from operating activities before interest and taxation |
113,807 |
113,467 |
192,281 |
191,729 |
|
Interest paid |
(9,664) |
(9,664) |
(10,072) |
(10,072) |
|
Amortisation of debt issue costs |
80 |
80 |
79 |
79 |
|
Tax on overseas income |
(1,633) |
(1,633) |
(1,836) |
(1,836) |
|
|
------------ |
------------ |
------------ |
------------ |
|
Net cash inflow from operating activities |
102,590 |
102,250 |
180,452 |
179,900 |
|
|
------------ |
------------ |
------------ |
------------ |
|
|
|
|
|
|
|
Financing activities |
|
|
|
|
|
Equity dividends paid (note 8) |
(22,137) |
(22,137) |
(23,707) |
(23,707) |
|
Buy-backs of ordinary shares |
(39,264) |
(39,264) |
(182,567) |
(182,567) |
|
Buy-backs of secured bonds |
(7,518) |
(7,518) |
- |
- |
|
|
------------ |
------------ |
------------ |
------------ |
|
Net cash outflow from financing activities |
(68,919) |
(68,919) |
(206,274) |
(206,274) |
|
|
------------ |
------------ |
------------ |
------------ |
|
|
|
|
|
|
|
Increase/(decrease) in cash and cash equivalents |
33,671 |
33,331 |
(25,822) |
(26,374) |
|
Cash and cash equivalents at the start of the year |
88,394 |
87,166 |
114,610 |
113,934 |
|
Effect of foreign exchange rate changes |
2,318 |
2,318 |
(394) |
(394) |
|
|
------------ |
------------ |
------------ |
------------ |
|
Cash and cash equivalents at the end of the year |
124,383 |
122,815 |
88,394 |
87,166 |
|
|
======= |
======= |
======= |
======= |
Page 26 of 31
WITAN INVESTMENT TRUST PLC
Annual Financial Report for the year ended 31 December 2008
Notes to the Accounts
for the year ended 31 December 2008
|
1. |
Accounting Policies |
|
|
The financial statements of the Group have been prepared in accordance with International Financial Reporting Standards ('IFRSs') as adopted by the European Union. These comprise standards and interpretations approved by the International Accounting Standards Board 'IASB'), together with interpretations of the International Accounting Standards and Standing Interpretations Committee approved by the International Accounting Standards Committee ('IASC') that remain in effect, to the extent that they have been adopted by the European Union. |
|
|
These financial statements are presented in pounds sterling because that is the currency of the primary economic environment in which the Group operates. |
|
|
(a) |
Basis of preparation |
|
|
|
The financial statements have been prepared on the historical cost basis, except for the revaluation of certain financial instruments. The principal accounting policies adopted are set out below. Where presentational guidance set out in the Statement of Recommended Practice Financial Statements of Investment Trust Companies ('the SORP') issued by the Association of Investment Companies ('the AIC') in January 2003 (revised in December 2005) is consistent with the requirements of IFRSs as adopted by the European Union, the directors have sought to prepare the financial statements on a basis compliant with the recommendations of the SORP. |
|
|
(b) |
Going concern |
|
|
|
The Group's business activities, together with the factors likely to affect its future development and performance, are set out in the Business Review section of the Directors' Report on pages 5 to 19. The financial position of the Group as at 31 December 2008 is shown in the balance sheet on page 24. The cash flows of the Group for the year ended 31 December 2008, which are not untypical, are set out on page 25. The Company had fixed debt and preference share capital totalling £140,087,000; none of the borrowings is repayable before 2016. The Group has no short term borrowings or borrowing facilities. As at 31 December 2008 the Group's total assets less current liabilities exceeded its total non current liabilities by a multiple of over seven. The assets of the Group consist mainly of securities that are held in accordance with the Company's investment policy, as set out on page 12. Most of these securities are readily realisable even in the more volatile markets experienced in recent months and despite the current uncertain economic outlook. The directors consider that the Company has adequate financial resources to enable it to continue in operational existence for the foreseeable future. Accordingly, the directors believe that it is appropriate to continue to adopt the going concern basis in preparing the Group's accounts. |
|
|
(c) |
Basis of consolidation |
|
|
|
The consolidated financial statements incorporate the financial statements of the Company and the entity controlled by the Company (its subsidiary) made up to 31 December each year. Control is achieved where the Company has the power to govern the financial and operating policies of an investee entity so as to obtain benefits from its activities. All intragroup transactions, balances, income and expenses are eliminated on consolidation. |
|
|
(d) |
Presentation of Income Statement |
|
|
|
In order to better reflect the activities of an investment trust company, and in accordance with guidance issued by the AIC, supplementary information which analyses the Income Statement between items of a revenue and capital nature has been presented alongside the Income Statement. In accordance with the Company's status as a UK investment company under section 266 of the Companies Act 1985, net capital returns may not be distributed by way of dividend. Additionally, the net revenue is the measure the directors believe appropriate in assessing the Group's compliance with certain requirements set out in section 842 of the Income and Corporation Taxes Act 1988. |
Page 27 of 31
WITAN INVESTMENT TRUST PLC
Annual Financial Report for the year ended 31 December 2008
Notes to the Accounts continued
|
2. |
Income |
|
|
|
|
|
Year ended 31 December 2008 |
Year ended 31 December 2007 |
|
|
|
£'000 |
£'000 |
|
|
Investment income |
|
|
|
|
Franked: |
|
|
|
|
UK dividends from listed investments |
13,224 |
16,603 |
|
|
Special dividends from listed investments |
48 |
391 |
|
|
UK dividends from unquoted investments |
379 |
338 |
|
|
|
---------- |
---------- |
|
|
|
13,651 |
17,332 |
|
|
|
---------- |
---------- |
|
|
Unfranked: |
|
|
|
|
Overseas dividends from listed investments |
14,798 |
13,531 |
|
|
Scrip dividends from listed investments |
537 |
269 |
|
|
Special dividends from listed investments |
582 |
657 |
|
|
Overseas fixed interest and convertible bonds |
9 |
28 |
|
|
|
--------- |
--------- |
|
|
|
15,926 |
14,485 |
|
|
|
--------- |
--------- |
|
|
|
|
|
|
|
Total investment income |
29,577 |
31,817 |
|
|
|
===== |
===== |
|
|
|
|
|
|
|
Analysis of investment income by geographical segment: |
|
|
|
|
United Kingdom |
14,054 |
17,424 |
|
|
North America |
3,114 |
3,732 |
|
|
Continental Europe |
7,658 |
6,756 |
|
|
Japan |
2,180 |
1,610 |
|
|
Asia Pacific (ex Japan) |
2,032 |
1,931 |
|
|
South America |
526 |
332 |
|
|
Other |
13 |
32 |
|
|
|
-------- |
-------- |
|
|
|
29,577 |
31,817 |
|
|
|
===== |
===== |
|
3. |
Other income |
|
|
|
|
Deposit interest |
6,903 |
6,129 |
|
|
Stock lending income |
268 |
375 |
|
|
Underwriting commission |
11 |
6 |
|
|
Income from subsidiary company's third party business |
766 |
1,142 |
|
|
Other income |
237 |
7 |
|
|
|
-------- |
--------- |
|
|
|
8,185 |
7,659 |
|
|
|
===== |
===== |
Page 28 of 31
WITAN INVESTMENT TRUST PLC
Annual Financial Report for the year ended 31 December 2008
Notes to the Accounts continued
|
4. |
Management fees |
|
|||||
|
|
|
Year ended 31 December 2008 |
Year ended 31 December 2007 |
||||
|
|
|
Revenue |
Capital |
Total |
Revenue |
Capital |
Total |
|
|
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
|
Management fees |
490 |
1,470 |
1,960 |
485 |
1,453 |
1,938 |
|
|
Performance fees |
- |
1,361 |
1,361 |
- |
487 |
487 |
|
|
Irrecoverable VAT thereon |
- |
- |
- |
20 |
69 |
89 |
|
|
|
--------- |
--------- |
--------- |
--------- |
-------- |
-------- |
|
|
|
490 |
2,831 |
3,321 |
505 |
2,009 |
2,514 |
|
|
|
===== |
===== |
===== |
===== |
===== |
===== |
|
5. |
Earnings/(loss) per ordinary share |
||
|
|
The earnings per ordinary share figure is based on the net loss for the year of £278,644,000 (year ended 31 December 2007 gain of: £76,032,000) and on 217,695,259 ordinary shares (year ended 31 December 2007: 244,901,514), being the weighted average number of ordinary shares in issue during the year. The earnings per ordinary share figure detailed above can be further analysed between revenue and capital, as below. The Company has no securities in issue that could dilute the return per ordinary share. Therefore the basic and diluted earnings per ordinary share are the same. |
||
|
|
|
Year ended 31 December 2008 |
Year ended 31 December 2007 |
|
|
|
£'000 |
£'000 |
|
|
|
|
|
|
|
Net revenue profit |
25,261 |
27,137 |
|
|
Net capital (loss)/profit |
(304,477) |
48,895 |
|
|
|
---------- |
---------- |
|
|
Net total (loss)/profit |
(279,216) |
76,032 |
|
|
|
======= |
====== |
|
|
Weighted average number of ordinary shares in issue during the year |
217,695,259 |
244,901,514 |
|
|
|
|
|
|
|
|
Pence |
Pence |
|
|
Revenue earnings per ordinary share |
11.60 |
11.08 |
|
|
Capital (loss)/earnings per ordinary share |
(139.86) |
19.97 |
|
|
|
--------- |
--------- |
|
|
Total (loss)/earnings per ordinary share |
(128.26) |
31.05 |
|
|
|
===== |
===== |
|
|
|
||
|
6. |
Issued share capital |
|
|
|
|
The number of ordinary shares of 25p each in issue at 31 December 2008 was 214,398,654 (2007: 223,426,499). |
||
Page 29 of 31
WITAN INVESTMENT TRUST PLC
Annual Financial Report for the year ended 31 December 2008
Notes to the Accounts continued
|
7. |
Dividends |
||
|
|
|
Year ended 31 December 2008 |
Year ended 31 December 2007 |
|
|
|
£'000 |
£'000 |
|
|
Amounts recognised as distributions to equity holders in the year: |
|
|
|
|
Second interim dividend for the year ended 31 December 2007 of 5.80p (2006: 5.30p) per ordinary share |
12,849 |
13,694 |
|
|
First interim dividend for the year ended 31 December 2008 of 4.30p (2007: 4.10p) per ordinary share |
9,288 |
10,024 |
|
|
Write-back of unclaimed dividends relating to prior years |
- |
(11) |
|
|
|
---------- |
---------- |
|
|
|
22,137 |
23,707 |
|
|
|
====== |
====== |
|
|
Second interim dividend for the year ended 31 December 2008 of 5.90p (2007: 5.80p) per ordinary share |
12,629 |
12,849 |
|
|
|
====== |
====== |
|
|
|
|
|
|
|
The second interim dividend has not been included as a liability in these financial statements. |
||
|
|
|
|
|
|
|
Set out below is the total dividend to be paid in respect of the year. This is the basis on which the requirements of section 842 of the Income and Corporation Taxes Act 1988 are considered. |
||
|
|
|
||
|
|
|
Year ended 31 December 2008 |
Year ended 31 December 2007 |
|
|
|
£'000 |
£'000 |
|
|
First interim dividend for the year ended 31 December 2008 of 4.30p (2007: 4.10p) per ordinary share |
9,288 |
10,024 |
|
|
Second interim dividend for the year ended 31 December 2008 of 5.90p (2007: second interim dividend of 5.80p) per ordinary share |
12,629 |
12,849 |
|
|
|
---------- |
--------- |
|
|
|
21,917 |
22,873 |
|
|
|
====== |
====== |
|
|
|
|
|
|
8. |
Value Added Tax |
|
|
In 2004 the Association of Investment Companies (the 'AIC'), together with JPMorgan Claverhouse Investment Trust plc, launched a case against HM Revenue & Customs ('HMRC') to challenge whether Value Added Tax ('VAT') should have been charged on fees paid for management services provided to investment trust companies. On 28 June 2007 the European Court of Justice delivered its judgement on the case in favour of the AIC. Since then HMRC has accepted that the provision of investment management services to investment trust companies is VAT exempt and has acknowledged its liability to pay claims in respect of VAT borne by investment companies. |
|
|
|
|
|
Henderson Global Investors Limited ('Henderson'), which was the Company's sole investment manager until 2004 and has been one of the Company's investment managers since 2004, has now been able to reclaim from HMRC the amount of VAT charged to the Company in respect of investment management services from 1 October 2000 to 30 June 2007, to the extent that such VAT was borne by the Company. VAT has not been applied to investment management fees invoiced in respect of periods since June 2007. Similarly, the Company has been able to recover VAT paid in respect of its other investment management contracts. |
Page 30 of 31
WITAN INVESTMENT TRUST PLC
Annual Financial Report for the year ended 31 December 2008
Notes to the Accounts continued
|
|
Accordingly, £1,450,000 of the VAT borne by the Company on investment management fees invoiced in the period from 1 October 2000 to 30 June 2007 was written back in the year ended 31 December 2007; this was the amount that the Board then considered to be certain of recovery. The write-back has been allocated between revenue return and capital return according to the allocation of the amounts originally paid. |
|
|
|
|
|
Since the year end the Company has received back the balance of the £1,450,000 that was outstanding at 31 December 2008. As a result of the agreement reached by Henderson Global Investors Limited and HMRC, the Company has received back a further £565,000 in respect of the period from 2000 to 2007 and this has been recognised in the Income Statement for the year ended 31 December 2008. The total of £2,015,000 to date represents all the VAT borne by the Company in the period from 1 October 2000 to the point in 2007 from which VAT was no longer charged. |
|
|
|
|
|
The Company may be able to recover further amounts of the VAT charged on investment management fees in the years from 1990 to 2000 inclusive. For this purpose the years 1990 to 2000 fall into two distinct periods. The Company expects to be able to reclaim VAT paid in respect of the period from 1 January 1990 to 4 December 1996, following the judgement of the House of Lords in a case concerning the time limits applicable to VAT claims. The Board considers that the calculation of the figures is currently too uncertain to permit a realistic estimate to be made but it does not expect the amount to be material in the context of the Company's total assets. There may also be some possibility, albeit remote, of recovering VAT paid in the period from then to 30 September 2000. |
|
9. |
2008 Accounts |
|
|
The figures and financial information for 2008 are extracted from the Annual Report and Financial Statements for the year ended 31 December 2008 and do not constitute the statutory accounts for the year. The Annual Report and Financial Statements includes the Report of the Independent Auditors which is unqualified and does not contain a statement under either section 237(2) or section 237(3) of the companies Act 1985. The Annual Report and Financial Statements has not yet been delivered to the Registrar of Companies. |
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10. |
2007 Accounts |
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The figures and financial information for 2007 are extracted from the published Annual Report and Financial Statements for the year ended 31 December 2007 and do not constitute the statutory accounts for that year. The Annual Report and Financial Statements has been delivered to the Registrar of Companies and included the Report of the Independent Auditors which was unqualified and did not contain a statement under either section 237(2) or section 237(3) of the Companies Act 1985. |
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11. |
Annual Report and Financial Statements |
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Copies of the Annual Report and Financial Statements will be posted to shareholders by the end of March 2009 and will be available on the Company's website (www.witan.com) or in hard copy format from the Registered Office, 201 Bishopsgate, London, EC2M 3AE. The Annual General Meeting will be held at 2.30 pm on Tuesday 28 April 2009 at Merchant Taylors' Hall, 30 Threadneedle Street, London EC2R 8JB. |
Page 31 of 31
WITAN INVESTMENT TRUST PLC
Annual Financial Report for the year ended 31 December 2008
For further information please contact:
Robert E Clarke
Chief Executive Officer
Witan Investment Trust plc
Telephone: 020 7227 9770
James Frost
Marketing Director
Witan Investment Trust plc
Telephone: 020 7227 9770
Eleanor Mitchell or Hugo Mortimer-Harvey
Quill Communications
Telephone: 020 7758 2240/2234
This information is provided by RNS
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