Annual Financial Report
The Edinburgh Investment Trust plc
Annual Financial Report Announcement
for the Year Ended 31 March 2009
FINANCIAL INFORMATION AND PERFORMANCE STATISTICS
Performance Statistics
(1) Source: Datastream
At At
31 March 31 March %
2009 2008 Change
Capital Return
Net asset value (`NAV') per share:
- debt at par 326.99p 474.74p -31.1
- debt at market value 293.56p 448.53p -34.6
FTSE All-Share index(1) 1984.17 2927.05 -32.2
Share price(1) 292.50p 403.25p -27.5
Discount:
- debt at par 10.5% 15.1%
- debt at market value 0.4% 10.1%
Gearing:
- actual gearing 31.2% 12.9%
- potential gearing 31.2% 21.2%
FOR THE YEAR TO 31 MARCH %
2009 2008 Change
Revenue Return
Revenue return per ordinary share 21.0p 21.4p -1.9
Retail price index -0.4% 3.8%
Dividends:
- first interim 4.75p 4.75p
- second interim 4.75p 4.75p
- third interim 4.75p 4.75p
- final proposed 6.15p 5.65p
20.40p 19.90p +2.5
FOR THE YEAR TO 31 MARCH 2009 2008
% %
Change Change
Total Return (capital growth with
income reinvested)
NAV per share:
- debt at par -27.8 -11.7
- debt at market value -31.5 -12.3
FTSE All-Share index(1) -29.3 -7.7
Share price(1) -23.5 -12.6
Total Expense Ratio
- excluding performance fee 0.5% 0.4%
- including performance fee 0.9% 0.4%
CHAIRMAN'S STATEMENT
Introduction: The UK Equity Market
As I described in my Interim Statement, the Company appointed a new manager,
Invesco Asset Management Limited (`lnvesco'), on 15 September 2008, where Mr
Neil Woodford has assumed responsibility for the investment portfolio. Mr
Woodford is a long term investor prepared to take substantial positions in
companies which he believes, in the light of expected economic conditions, have
the potential to generate above average growth in earnings and dividends. This
investment approach will often lead to concentrated portfolios which may
diverge, sometimes for quite long periods, from movements in the Company's
benchmark, the FTSE All-Share Index.
The year to 31 March 2009 was one of particular difficulty for equity markets
including that of the UK. Despite deteriorating conditions for global banking
and credit markets generally, equity markets were initially resilient in the
early months of the Company's financial year. After some weakness in May. the
benchmark FTSE All-Share Index (`The Index') fell sharply in September and at
the interim stage was 15.1% lower than on 1 April 2008. The market weakness
continued in October and despite brief rallies through the following three
months, reached a low point early in March when the Index was virtually 40%
lower than the level at the start of the Company's year. Thereafter, the
downward trend reversed and the fall since 1 April in the Index was reduced at
31 March 2009 to 32.2%.
Investment Performance
This account of the Company's performance for the year to 31 March 2009
reflects the contribution of the previous Manager, Fidelity International
Limited (`Fidelity') for the period to 15 September 2008 and of Invesco for the
remainder of the period.
The company has two long-term investment objectives:
• to increase net assets per share (`NAV') by more than the growth in the
Index;
• to achieve growth in dividends per share by more than the rate of UK
inflation.
Capital: The table in the Annual Financial Report shows that NAV (with debt at
par at 31 March 2009) is 31.1% lower than at the start of the year. This is a
marginally better out-turn than that of the Index, which fell by 32.2% in the
same period. Invesco, the new Manager, produced a significantly better relative
performance than Fidelity. From the start of the financial year to the handover
on 15 September NAV (debt at par and adjusted for dividend accruals) fell by
7.6%, compared to an Index reduction over the same period of 5.8%. From 15
September to the financial year end, under Invesco management, NAV fell by
26.3%; this was less than the Index reduction of 28.0%. This is illustrated in
the table in the Annual Financial Report and leads to Invesco's entitlement to
a performance fee, details of which are explained later in the accounts. NAV
with debt at market value has fallen in the financial year by more than the
Index: this is due to the increased price of the Company's debentures, and
conversely reduced NAV.
Share Price: The Company's share price fell over the year by 27.5%. Although of
little comfort to the Board or shareholders, this fall was less than that of
the Index and in part reflected investor demand for companies with above
average yield in an environment of falling interest rates. The discount of the
share price to NAV (debt at par) was reduced from 15.1% to 10.5%. Measuring
debt at market value, the share price stood on 31 March 2009 at a discount of
0.4% to NAV, compared to 10.1% on 1 April 2008.
Income: The Board is recommending a final dividend of 6.15p which, if approved
by shareholders, will be paid on 24 July 2009 to those on the Company's
register on 19 June 2009 (ex dividend date 17 June 2009). This compares to
5.65p paid in July 2008. This dividend proposal brings the total payment in
respect of the year to March 2009 to 20.4p, 2.5% more than the 19.9p paid in
the year to March 2008. The Retail Price Index has in this period fallen by
0.4%, hence the Company's objective of growing income above the rate of
inflation is achieved. I have explained in my statements in the last two years'
Annual Reports that the Board expected the Company's dividends to grow at a
much slower rate in future than they had since the move in 2005 to a higher
income portfolio. Nevertheless, the Board recognises that growth, or at least
maintenance of current dividend levels is important to shareholders.
Accordingly, the Manager has adopted an investment strategy which seeks to
identify companies he believes can sustain or increase distributions in an
environment where dividends generally are under pressure. The Board has in the
past shown that it is prepared to use reserves to maintain dividends, provided
it sees scope for eventual recovery and shareholders will be aware that the
Company has dividend reserves, high relative to its peer group of Investment
Trusts, which after payment of the proposed final dividend represent 96% of the
current annual dividend. Whilst the Board and the Manager accept that income
forecasts are subject to a high degree of uncertainty at this stage in the
market cycle, they believe the Company, for the reasons given, is in a good
position to meet shareholder expectations in this respect.
Portfolio Structure
The Investment Manager's Report describes the rationale for the Company's
investment portfolio. Essentially, the Manager has adopted a defensive posture
by investing in businesses which he believes will be resilient to the weakening
global economy. This strategy, strongly endorsed by the Board, is designed to
secure to the greatest extent possible both future dividend stream and capital
performance. In the market recovery which has occurred since the 31 March 2009
year end, defensively oriented companies have risen by less than the market as
a whole and the Company's portfolio has underperformed. The Manager believes
that this rally in more volatile securities is premature and can demonstrate
that the price/earnings ratio of the key constituents of the Company's own
portfolio is currently well below that of the FTSE 100 Index, suggesting that
considerable scope remains for relative appreciation.
The Manager has full responsibility for gearing decisions and has used the
Company's borrowings to virtually their full extent since handover on 15
September. The Board has reviewed the position of the Company's debenture
stocks and continues to believe that it is in shareholders' interests that they
should be retained.
VAT
I reported in my interim statement that the Company was in discussion with
Fidelity over recovery of VAT paid since 2002 and with Aberdeen Asset
Management in respect of prior periods. I am pleased to report that agreement
has been reached with Fidelity and that £1.97 million plus interest was paid to
the Company during the six months under review. This was allocated to income
and capital in the same proportions as originally charged (see note 3).
Aberdeen Asset Managers have now started the discussions with HM Revenue &
Customs which will precede our own settlement with them; it is too early to
forecast the outcome and no provision has been made in these Accounts.
Annual General Meeting
The Company this year celebrates the 120th anniversary of its founding and the
Board and the Manager look forward to meeting shareholders at the Annual
General Meeting in Edinburgh on 17 July. I would like to draw attention to two
particular matters on the Agenda for this meeting.
1. Buy Back/Share Issuance: The Company will, as it has for many years, seek
permission from shareholders to buy back shares in appropriate circumstances to
enhance the NAV for the remaining shareholders. During the year under review,
3.178 million shares were bought back, enhancing NAV for remaining shareholders
by about 0.15p. I mentioned earlier in this statement that the discount to NAV
of the Company's shares had fallen during the year, and that at the year end
the share price was at a very small discount to NAV (debt at market). As and
when shares do trade at a premium, it can be advantageous to issue new shares
and shareholders will be asked to grant permission for the Company to do so.
2. Investment in Overseas Registered Securities: The Company's current
investment policy objective states that it will invest in UK securities. The
bulk of UK listed companies in which we now invest operate internationally in
global markets. In searching for investment opportunities, the Manager from
time to time identifies companies quoted in an overseas market but exhibiting
the same investment characteristics as others quoted in the UK: the major oil
companies are a good example. The Board and Manager believe that where the
overseas quoted entity is a more attractive alternative than the domestic one,
then it is to the Company's advantage to invest accordingly. Shareholders will
be asked to grant permission to invest up to 15% of the assets of the Company
in overseas quoted companies. The investment benchmark, the FTSE All-Share
Index, will remain unchanged.
Outlook
The world's markets have fallen heavily in the past year in reaction to the
credit crunch and the resulting impact on world economies. The UK equity market
has not escaped the general trend and fell by almost one-third in the Company's
financial year ending 31 March 2009. Although at time of writing the market has
made some recovery and there is talk of sighting of `green shoots', the
short-term outlook for the UK market remains highly uncertain and in the
broader economy there is clear concern that both interest rates and inflation
will face upward pressure. Against this background the Manager has constructed
a portfolio of companies which he believes are strongly placed to continue to
generate satisfactory profits and dividends in an expected weak economy. Whilst
income generation is the immediate priority, he does not believe this need be
at the expense of capital growth as the market recovers.
In summary, the Company offers a defensive portfolio, yielding substantially
more than Government bonds with good prospects of capital growth when market
confidence returns.
Scott Dobbie
Chairman
8 June 2009
INVESTMENT MANAGER'S REPORT
Market Review
Against a backdrop of substantial market volatility, the UK equity market gave
investors a total return of -29.3%, as measured by the FTSE All Share index
over the twelve months to 31 March 2009.
Global equity markets endured one of the most turbulent periods on record, as
slowing economic growth - coupled with uncertainty over the health of the
banking system - weighed on market sentiment. In particular, September 2008
witnessed unprecedented levels of market volatility, primarily due to the
ongoing turmoil in the financial sector, but then exacerbated by the bankruptcy
of US investment bank Lehman Brothers. Against this backdrop, policymakers were
pushed into aggressive action to assist banks through nationalisations, capital
injections or the issuance of state guarantees. However, whilst government
action around the world ensured that the banking system stabilised, governments
were not able to prevent an immediate negative impact on the real economy from
the freeze of credit that followed the Lehman Brothers failure. The sudden lack
of available credit to so many corporates and households took a substantial
toll on economies, leading to a contraction in GDP in the developed world of
several percentage points.
The Bank of England's (`BoE') Monetary Policy Committee cut UK interest rates
aggressively during the year in an attempt to cushion the slowdown. At the end
of March 2009, the base rate stood at 0.5%, the lowest level in the BoE's
315-year history. The UK economy, however, continued to deteriorate. GDP growth
for fourth quarter 2008 confirmed that the economy had entered a recession,
with the 1.5% quarterly drop in output being the biggest since the second
quarter of 1980. Unemployment rose sharply and public finance data showed that
net borrowing had been much larger than expected.
The financial landscape changed markedly over the 12 months to 31 March 2009,
with many of the world's largest financial organisations - especially in the US
- being undermined by the sheer scale of the crisis. Within the UK, HBOS merged
with Lloyds TSB following a run on HBOS shares. Bradford & Bingley's mortgage
business was nationalised and its savings assets sold off to Spain's Santander.
The UK government assumed a prominent role, part-nationalising RBS and the
newly formed Lloyds Banking Group, whilst Barclays opted not to accept any
government assistance, preferring instead to raise additional funding from
Middle Eastern and other investors.
Portfolio Strategy and Review
With an unprecedented level of debt built up in the UK economy, the Manager
believes that the current process of rebalancing the UK economy may take years
to conclude. In addition, until evidence of a return to sustained economic
growth becomes concrete, economically sensitive areas of the stockmarket will
struggle to make significant progress. Therefore, the Manager is maintaining a
defensive bias within the portfolio, with sectors such as utility, tobacco,
pharmaceuticals and telecommunications featuring prominently. The Manager
favours the sound balance sheets, earnings visibility and dividend security
that defensive companies offer and believe that his investment strategy will
benefit the fund during these challenging times.
In the period from 15 September 2008 to 31 March 2009 when the Manager took
over the management of the Company, several new holdings were purchased for the
portfolio. These included tobacco companies Altria and Reynolds American. The
Manager also added to several of the portfolio's existing holdings at
favourable levels. These included pharmaceuticals company AstraZeneca and
retailer Tesco.
Whilst no industry can be described as recession proof, there are some
industries which often prove to be resilient. The Manager has identified the
tobacco sector as a recession-resilient industry since demand for cigarettes
and other tobacco products generally hold up well in times of economic
difficulty. It is for this reason that the Manager purchased Altria and
Reynolds American for the portfolio.
The portfolio's exposure to AstraZeneca was increased during the sharp rotation
from defensive sectors into cyclical parts of the market towards the end of
March 2009, which left defensive companies such as AstraZeneca out of favour
with investors. The Manager believes that the revival in the performance of
cyclical companies is predicated on the belief that governments and central
banks may somehow be able to engineer an economic recovery later this year. The
Manager does not concur with this view and considers that the economic downturn
will be deeper and more prolonged than the market is currently expecting. For
this reason, the Manager remains confident in the investment case for
AstraZeneca.
Whilst Tesco provides exposure to the UK consumer, something that the Manager
has been minimising in recent times due to his concerns about the aggregate
level of debt held by UK households, he believes that Tesco should prove more
resilient through this recession than most retailers since its business mix is
dominated by food. In addition, with over half of its floor space now based
overseas, Tesco is now by no means just a UK retailer but has other avenues for
long-term growth. This growth looks undervalued in the Manager's view, and
recent share-price weakness has provided an opportunity to add to the position.
In terms of disposals, the Manager reduced the portfolio's holding in oil major
BP to reflect his view that the decline in demand as a result of the global
recession will probably act to keep oil prices depressed for some time to come.
Furthermore, whilst BP has committed to paying a dividend this year, the
Manager believes that at current depressed oil prices it will be difficult for
the company to cover its dividend solely through cashflow and it is his opinion
that it may have to finance some of the payment through debt. In the Manager's
view, this policy is not sustainable and if the oil price remains depressed for
some years, the dividend may come under pressure. The Manager has reduced the
holding in BP to reflect this risk to future dividends.
Elsewhere, the holding in British Energy was sold after the company was
acquired by EDF. A residue of this holding remains, however, in the form of a
`nuclear power note' issued by Barclays, which resulted from EDF deal structure
and enables the portfolio to remain exposed to the potential for higher power
prices in the UK and the improving reliability of British Energy's fleet of
power stations.
Outlook
The Manager expects the economic outlook to remain difficult for some time and
in this environment his preferences continue to be companies with sound balance
sheets, earnings visibility and dividend security. The Manager has been able to
find companies with these characteristics in the utility, tobacco,
pharmaceutical and telecoms sectors and he considers valuations in these areas
to be attractive at current levels. He believes that these businesses have not
yet been rewarded for the certainty they offer in an otherwise highly uncertain
market. In his view, these are the sectors that can lead the market higher when
some discrimination is shown between fundamentally sound companies and those
more vulnerable to further economic weakness.
Neil Woodford
Investment Manager
8 June 2009
INVESTMENTS IN ORDER OF VALUATION
at 31 March 2009
UK listed and ordinary shares unless stated otherwise
Market
Value % of
Investment Sector £'000 Portfolio
GlaxoSmithKline Pharmaceuticals & 64,861 7.7
Biotechnology
AstraZeneca Pharmaceuticals &
Biotechnology 60,691 7.2
Vodafone Mobile 58,338 7.0
Telecommunications
Imperial Tobacco - ordinary Tobacco 47,333
- 9% Notes 17 February 2022 10,535
57,868 6.9
BG Oil & Gas Producers 57,043 6.8
British American Tobacco Tobacco 51,931 6.2
Tesco - Ordinary Food & Drug Retailers 41,009
- 6.125% MTN 24 February 2022 2,157
43,166 5.1
National Grid Gas & Water 39,655 4.7
Multiutilities
BP Oil & Gas Producers 35,676 4.2
BT Fixed Line 30,259 3.7
Telecommunications
Ten Top Holdings 499,488 59.5
Reynolds American - US common Tobacco 28,306 3.4
stock
Capita Support Services 21,656 2.6
Scottish & Southern Electricity 21,522 2.6
Energy
Reckitt Benckiser Household Goods 20,480 2.4
Royal Dutch Shell Oil & Gas Producers 20,340 2.4
Drax Electricity 20,017 2.4
Rolls Royce Aerospace & Defence 18,521 2.2
Centrica Gas & Water 18,163 2.2
Multiutilities
Altria - US common stock Tobacco 17,205 2.1
Reed Elsevier Media 13,793 1.6
Twenty Top Holdings 699,491 83.4
Amlin Non-life Insurance 12,402 1.4
United Utilities Gas & Water 12,130 1.4
Multiutilities
International Power Electricity 11,031 1.3
Tate & Lyle Food Producers 11,001 1.3
Sage Software & Computer 9,911 1.2
Services
Barclays Bank - Nuclear Power
Notes
28 February 2019(1) Electricity 8,557 1.0
Severn Trent Gas & Water 8,194 1.0
Multiutilities
Hiscox Non-life Insurance 8,126 1.0
Pennon Gas & Water 7,494 0.9
Multiutilities
Bunzl Support Services 7,330 0.9
Thirty Top Holdings 795,667 94.8
Northumbrian Water Gas & Water 6,568 0.8
Multiutilities
Rexam General Industrials 6,550 0.8
Catlin Non-life Insurance 5,614 0.7
Raven Russia - ordinary Real Estate 968
- warrants 86
- preference shares 4,301
5,355 0.6
Homeserve Support Services 5,151 0.6
Climate Exchange Equity Investments 3,768 0.4
Instruments
Rentokil Initial Support Services 2,654 0.3
Paypoint Support Services 1,545 0.2
BTG Pharmaceuticals & 1,492 0.2
Biotechnology
AMEC Support Services 1,061 0.1
Forty Top Holdings 835,425 99.5
Yell Media 849 0.1
BAE Systems Aerospace & Defence 834 0.1
Mecom General Financial 691 0.1
Provident Financial General Financial 597 0.1
Helphire General Financial 310 0.1
Eurovestech General Financial 271 -
Eni Lasmo Oil & Gas Producers 250 -
McBride Household Goods 127 -
Stobart Industrial 108 -
Transportation
Total Holdings 839,462 100.0
(1) Contingent Value Rights (`CVRs') referred to as Nuclear Power Notes
(`NPNs') were offered by EDF as a
partial alternative to its cash bid for British Energy (`BE'). The NPNs were
issued by Barclays Bank.
The CVRs participate in BE's existing business at the time of the takeover.
RELATED PARTY TRANSACTIONS
Fidelity Investments International was the Manager and Secretary of the Company
until 15 September 2008. Thereafter, Invesco Asset Management Limited (`IAML'),
a wholly owned subsidiary of Invesco Limited, acted as Manager, Company
Secretary and Administrator to the Company. Details of these services and fees,
together with details of Directors' interests, are disclosed in the Report of
the Directors. There are no other related party transactions.
PRINCIPAL RISKS AND UNCERTAINTIES
The Board is ultimately responsible for risk control systems but the day to day
operation and monitoring is delegated to the Manager.
Market risk
The uncertainty over future equity market price movements is an inherent part
of the rationale for the Company's existence. The Company's objectives and the
means of attaining them are reviewed annually. The Company's portfolio consists
of a mix of assets and securities that may display high levels of volatility
from time to time in response to economic and other market forces. The Board
receives the Manager's performance report against this background on a monthly
basis and reviews it at each Board meeting.
Performance risk
The Board sets risk parameters and performance objectives and it delegates the
investment management process to the Manager. The achievement of the Company's
performance objectives relative to the market requires active management of the
portfolio of assets and securities. Strategy, asset allocation and stock
selection decisions by the Manager might lead to underperformance of the
benchmark Index and income targets. The Manager's style may result in
significant overweight or underweight positions in individual stocks or sectors
compared to the index, and therefore the performance of the portfolio may
deviate significantly from that of the benchmark index.
Investment selection is delegated to the Manager. The Manager manages the
portfolio and the Board sets overall risk parameters, without specifying asset
allocation, monitoring performance in that context.
Performance information is provided to the Board on a monthly basis. Specific
information provided includes benchmark and performance objectives, rolling
three year performance, largest holdings, size and sector analysis and cash
holdings. The Manager is responsible for actively monitoring the portfolio
selected in accordance with the Board's parameters and seeks to ensure that
individual stocks meet an acceptable risk-reward profile. A review of
performance risk and how it relates to the Company's objectives is undertaken
annually.
Gearing risk
The Company has the ability to invest up to £200 million from its Debenture
Stocks in the equity market. The principal gearing risk is that the level of
gearing may have an adverse impact on performance. Secondary risks relate to
whether the cost of gearing is too high and whether the length of gearing is
appropriate. The Manager has full discretion over the amount of cash from the
Company's Debenture Stocks to be invested in the equity market. Information
related to gearing is provided to the Board as part of the Board papers. The
Board regularly reviews the level of gearing. Additionally, the Board regularly
reviews the cost of buying back debt.
Income/dividend risk
The Company is subject to the risk that income generation from its investments
fails to meet the level of income required to meet its objectives.
The Board monitors this risk through the review of detailed income forecasts
and comparison against budget. These are contained within the Board papers. The
Board considers the level of income at each meeting.
Share price risk
There is a risk that the Company's prospects and NAV may not be fully reflected
in the share price from time to time.
The share price is monitored on a daily basis. The Board is empowered to
repurchase shares within agreed parameters. The discount at which the shares
trade to NAV can be influenced by share repurchases. The Company has in the
last year repurchased shares within parameters set by the Board.
Control systems risk
The Board delegates a number of specific risk control activities to the Manager
including:
• the management of the relationship with the custodian in respect of the
custody and security of the Company's assets;
• financial controls;
• best practice standards in fund management operations; and
• meeting regulatory requirements.
Consequently in respect of these activities the Company is dependent on the
Manager's control systems and those of its Custodian and Registrars, both of
which are monitored by the Manager in the context of safeguarding the Company's
assets and interests. There is a risk that the Manager fails to ensure that
these controls are performed in a satisfactory manner.
A risk-based programme of internal audits is carried out by the Manager
regularly to test the controls environment. An internal controls report
providing an assessment of these risks is prepared by the Manager and
considered by the Audit Committee, and is formally reported to and considered
by the Board.
Other risks
The Company may be exposed to other business and strategic risks in the future,
including fiscal, legal or regulatory changes, and the perceptional impact of
the designated Investment Manager ceasing to be involved with the Company.
The instruments in which the Company's cash positions are invested are reviewed
by the Board to ensure liquidity and concentration risks are adequately
managed. Where an Invesco vehicle is utilised, it is assessed for suitability
against other similar investment options.
There is an ongoing process for the Board to consider these other risks. In
addition, the composition of the Board is regularly reviewed to ensure the
membership offers sufficient knowledge and experience to assess and anticipate
these risks, as far as possible.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
in respect of the preparation of financial statements
The Directors are responsible for preparing the annual financial report in
accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each
financial year. Under that law the Directors have elected to prepare financial
statements in accordance with United Kingdom Generally Accepted Accounting
Practice. The financial statements are required by law to give a true and fair
view of the state of affairs of the Company and of the profit or loss of the
Company for that period.
In preparing these financial statements, the Directors are required to:
• select suitable accounting policies and then apply them consistently;
• make judgments and estimates that are reasonable and prudent;
• state whether applicable accounting standards have been followed, subject to
any material departures disclosed and explained in the financial statements;
and
• prepare the financial statements on the going concern basis unless it is
inappropriate to presume that the Company will continue in business.
The Directors are responsible for keeping proper accounting records that
disclose with reasonable accuracy at any time the financial position of the
company and enable them to ensure that the financial statements comply with the
Companies Act 1985 (as and when updated by the Companies Act 2006). They are
also responsible for safeguarding the assets of the Company and hence for
taking reasonable steps for the prevention and detection of fraud and other
irregularities.
The Directors, to the best of their knowledge, state that:
• the financial statements, prepared in accordance with United Kingdom
Generally Accepted Accounting Practice, give a true and fair view of the
assets, liabilities, financial position and profit or loss of the Company; and
• the Report of the Directors includes a fair review of the development and
performance of the business and the position of the Company together with a
description of the principal risks and uncertainties that it faces.
Scott Dobbie
Chairman
Signed on behalf of the Board of Directors
8 June 2009
INCOME STATEMENT
FOR THE YEAR ENDED 31 MARCH
2009 2008
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Losses on - (274,429) (274,429) - (163,699) (163,699)
investments
Foreign exchange - (4) (4) (6) (3) (9)
loss
Income 48,241 - 48,241 51,723 - 51,723
Investment (994) (5,739) (6,733) (1,112) (2,596) (3,708)
management fee
VAT recovered on
management
fees 591 1,378 1,969 - - -
Other expenses (725) (58) (783) (705) - (705)
Net return before
finance
costs and 47,113 (278,852) (231,739) 49,900 (166,298) (116,398)
taxation
Finance costs (5,850) (13,651) (19,501) (5,850) (13,651) (19,501)
Return on ordinary
activities
before tax 41,263 (292,503) (251,240) 44,050 (179,949) (135,899)
Tax on ordinary (134) - (134) (276) - (276)
activities
Return on ordinary
activities
after tax for the 41,129 (292,503) (251,374) 43,774 (179,949) (136,175)
financial year
Return per
ordinary share
Basic 21.0p (149.5)p (128.5)p 21.4p (88.0)p (66.6)p
The total column of this statement represents the Company's profit and loss
account, prepared in accordance with UK Accounting Standards. The supplementary
revenue and capital columns are presented for information purposes in
accordance with the Statement of Recommended Practice issued by the Association
of Investment Companies. All items in the above statement derive from
continuing operations and the Company has no other gains or losses therefore no
statement of recognised gains or losses is presented. No operations were
acquired or discontinued in the year.
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
FOR THE YEAR ENDED 31 MARCH
Capital
Share Share Redemption Capital Revenue
Capital Premium Reserve Reserve Reserve Total
£'000 £'000 £'000 £'000 £'000 £'000
Balance at 1 April 53,875 6,639 19,580 1,070,816 54,317 1,205,227
2007
Dividends paid - note 5 - - - - (40,522) (40,522)
Net return on - - - (179,949) 43,774 (136,175)
ordinary activities
Repurchase of shares (4,301) - 4,301 (83,492) - (83,492)
Balance at 31 March 49,574 6,639 23,881 807,375 57,569 945,038
2008
Dividends paid - note 5 - - - - (39,062) (39,062)
Net return on - - - (292,503) 41,129 (251,374)
ordinary activities
Repurchase of shares (795) - 795 (13,202) - (13,202)
Balance at 31 March 48,779 6,639 24,676 501,670 59,636 641,400
2009
BALANCE SHEET
FOR THE YEAR ENDED 31 MARCH
2009 2008
£'000 £'000
Fixed assets
Investments held at fair value 839,462 1,064,645
through profit or loss
Current assets
Debtors 5,698 10,733
Cash and cash funds 5 78,045
5,703 88,778
Creditors: amounts falling due within (5,447) (12,029)
one year
Net current assets 256 76,749
Total assets less current liabilities 839,718 1,141,394
Creditors: amounts falling due after (196,607) (196,356)
more than one year
Provision (1,711) -
Net assets 641,400 945,038
Capital and reserves
Share capital 48,779 49,574
Share premium 6,639 6,639
Capital redemption reserve 24,676 23,881
Capital reserve 501,670 807,375
Revenue reserve 59,636 57,569
Shareholders' funds 641,400 945,038
Net asset value per ordinary share
Basic 326.99p 474.74p
CASH FLOW STATEMENT
FOR THE YEAR ENDED 31 MARCH
2009 2008
£'000 £'000
Cash inflow from operating activities 48,455 46,435
Servicing of finance (19,250) (19,250)
Capital expenditure and financial (52,386) 149,099
investment
Equity dividends paid (39,062) (40,522)
Net cash (outflow)/inflow before
management of
liquid resources and financing (62,243) 135,762
Management of liquid resources 52,601 (52,601)
Financing (15,793) (85,595)
Decrease in cash (25,435) (2,434)
Reconciliation of net cash flow to
movement in net debt
Decrease in cash (25,435) (2,434)
Cashflow from movement in liquid (52,601) 52,601
resources
Exchange movements (4) 57
Debenture stock non-cash movement (251) (251)
Movement in net debt in the year (78,291) 49,973
Net debt at beginning of year (118,311) (168,284)
Net debt at end of year (196,602) (118,311)
NOTES TO THE FINANCIAL STATEMENTS
1. Principal accounting policies
The principal accounting policies adopted in the preparation of the financial
statements are set out below. These policies have been consistently applied
during the year and the preceding year, unless otherwise stated.
(a) Basis of preparation
(i) Accounting Standards applied
The financial statements have been prepared in accordance with applicable
United Kingdom Accounting Standards and with the Statement of Recommended
Practice (`SORP') `Financial Statements of Investment Trust Companies and
Venture Capital Trusts', issued by the Association of Investment Companies in
2009.
(ii) Changes to presentation
Following the publication of the new SORP and technical guidance by the
Institute of Chartered Accountants in England and Wales in Tech 01/08, capital
reserves are now shown in aggregate in the balance sheet and the reconciliation
of movements in shareholders' funds. This has no effect on either the net
assets or earnings of the Company.
2. Income
2009 2008
£'000 £'000
Income from listed investments
UK dividends 42,307 45,108
Scrip dividends 1,269 23
Overseas dividends 1,883 742
Income from money market funds 1,416 2,601
UK unfranked investment income - interest 116 -
Premium on call options - 1,199
46,991 49,673
Other income
Deposit interest 854 1,980
Interest on VAT recovered on management 251 -
fees (note 3)
Underwriting commission 118 46
Sundry income 27 24
Total income 48,241 51,723
3. Investment management fees
2009 2008
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Investment 994 2,317 3,311 1,005 2,345 3,350
management fee
Performance fee - 3,422 3,422 - - -
VAT suffered - - - 107 251 358
994 5,739 6,733 1,112 2,596 3,708
Details of the change of managers and the investment management agreements in
place during the year are disclosed in the Report of the Directors in the 2009
Annual Financial Report. At 31 March 2009 investment management fees totalling
£589,000 (2008: £444,000) were due for payment together with a performance fee
of £3,422,000 in respect of the period 15 September 2008 to 31 March 2009
(2008: no performance fee).
With effect from late 2007 no VAT has been payable on management or performance
fees. An amount of £1,969,215 has been recognised in these accounts in respect
of VAT recovered on management fees paid to the previous manager, Fidelity
Investments International. The recovered VAT has been credited £590,765 to
revenue and £1,378,450 to capital, in the same proportion as originally charged
to the income statement. Interest recovered thereon of £250,620 has been
recognised wholly in revenue.
4. Return per ordinary share
The basic, capital and total return per ordinary share is based on each return
on ordinary shares after tax and on 195,657,784 (2008: 204,452,781) ordinary
shares, being the weighted average number of shares in issue during the year.
5. Dividends
2009 2008
pence £'000 pence £'000
Dividends paid and recognised
in the year:
Third interim paid in respect 4.75 9,441 4.40 9,444
of previous year
Final paid in respect of 5.65 11,085 5.65 12,028
previous year
First interim paid 4.75 9,268 4.75 9,601
Second interim paid 4.75 9,268 4.75 9,449
19.90 39,062 19.55 40,522
Dividends on shares payable in
respect of
the year:
First interim paid 4.75 9,268 4.75 9,601
Second interim paid 4.75 9,268 4.75 9,449
Third interim 4.75 9,268 4.75 9,441
Proposed final 6.15 12,000 5.65 11,085
20.40 39,804 19.90 39,576
The proposed final dividend is subject to approval by Ordinary Shareholders at
the AGM.
6. Share capital
2009 2008
Number £'000 Number £'000
Authorised
Ordinary shares of 25p each 316,099,929 79,025 316,099,929 79,025
Allotted, called-up and
fully paid:
Ordinary shares of 25p each 195,116,734 48,779 198,294,748 49,574
During the year the Company bought back and cancelled the following ordinary
shares:
Number £'000
As at 31 March 2008 198,294,748 49,574
Buy backs (3,178,014) (795)
At 31 March 2009 195,116,734 48,779
Details of the share buy backs are given in the Report of the Directors in the
2009 Annual Financial Report.
7. Net asset value (`NAV') per ordinary share
(a) NAV - debt at par
The shareholders' funds in the balance sheet are accounted for in accordance
with accounting standards, however, this does not reflect the rights of
shareholders on a return of assets under the Articles of Association. These
rights are reflected in the net assets with debt at par and the corresponding
NAV per share. A reconciliation between the two sets of figures follows:
2009 2008
NAV Shareholders' NAV Shareholders'
per Funds Per Funds
share share
Pence £'000 Pence £'000
Shareholders' funds 328.73 641,400 476.58 945,038
Less: Unamortised
discount and
expenses arising from
debenture
issue (1.74) (3,393) (1.84) (3,644)
NAV - debt at par 326.99 638,007 474.74 941,394
(b) NAV - debt at market value
The market value of the debenture stocks is determined by reference to the
daily closing price. This is the Bloomberg closing price, subject to review
against other data providers to ensure consistency between data providers and
against the reference gilts.
The net asset value per share adjusted to include the debenture stocks at
market value rather than at par is as follows:
2009 2008
NAV Shareholders' NAV Shareholders'
per Funds Per Funds
share share
Pence £'000 Pence £'000
NAV - debt at par 326.99 638,007 474.74 941,394
Debt at par 102.50 200,000 100.86 200,000
Debt at market value
111â„2% Debenture (69.73) (136,054) (66.71) (132,291)
Stock 2014
73â„4% Debenture Stock (66.20) (129,170) (60.36) (119,683)
2022
NAV - debt at market 293.56 572,783 448.53 889,420
value
The number of ordinary shares in issue at the year end was 195,116,734 (2008:
198,294,748).
This Annual Financial Report announcement is not the Company's statutory
accounts. The statutory accounts for the year ended 31 March 2008 have been
delivered to the Registrar of Companies. The statutory accounts for the year
ended 31 March 2008 and for the year ended 31 March 2009 received an audit
report which was unqualified, did not include a reference to any matters to
which the auditors drew attention by way of emphasis without qualifying the
report, and did not include a statement under either section 237(2) or 237(3)
of the Companies Act 1985. The statutory accounts for the financial year ended
31 March 2009 have been approved and audited but have not been filed.
The audited Annual Financial Report will be available to shareholders shortly.
Copies may be obtained during normal business hours from the Company's
Registered Office, Quartermile One, 15 Lauriston Place, Edinburgh EH3 9EP or
the Company's website at www.invescoperpetual.co.uk/investmenttrusts.
The Annual General Meeting will be held on 17 July 2009 at 10.30 am at the
Weston Link, National Galleries of Scotland, Princes Street, Edinburgh.
By order of the Board
Invesco Asset Management Limited
8 June 2009
Contacts:
Mr Tim Mitchell
Tel - 020 7065 3182
Mr Andrew Watkins
Tel - 020 7065 4023
Miss Carolyn Ladd
Tel - 020 7065 3526
Friday, 31st May 2024
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