Final Results
NEW STAR INVESTMENT TRUST PLC
PRELIMINARY ANNOUNCEMENT OF ANNUAL RESULTS
The Directors announce the unaudited statement of consolidated results for the
year ended 30th June 2002 as follows:
CONSOLIDATED STATEMENT OF TOTAL RETURN
* (incorporating the revenue account) of the group
1st July 2001 to 6th May 2000 to
30th June 2002 30th June 2001
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Losses on - (12,400) (12,400) - (2,992) (2,992)
investments
Dividend and 2,643 - 2,643 5,476 - 5,476
interest income
Losses on index
futures
contracts - (2,791) (2,791) - (921) (921)
Investment (520) - (520) (761) - (761)
management fees
Other expenses (398) - (398) (388) - (388)
Other exchange gains - 17 17 - - -
Return on ordinary
activities
before finance costs
and
taxation 1,725 (15,174) (13,449) 4,327 (3,913) 414
Interest payable - - - (9) - (9)
Return on ordinary
activities
before taxation 1,725 (15,174) (13,449) 4,318 (3,913) 405
Taxation on ordinary (424) (135) (559) (1,174) - (1,174)
activities
Return attributable
to equity
shareholders 1,301 (15,309) (14,008) 3,144 (3,913) (769)
Dividends in respect
of equity
shares (1,977) - (1,977) (2,416) - (2,416)
Transfer (from)/to (676) (15,309) (15,985) 728 (3,913) (3,185)
reserves
* The revenue column of this statement is the consolidated revenue account of
the group.
pence pence pence pence pence pence
Return per ordinary 1.18 (13.94) (12.76) 2.89 (3.60) (0.71)
share
CONSOLIDATED BALANCE SHEET
30th June 2002 * restated
30th June 2001
£'000 £'000
Fixed assets
Investments 89,210 106,934
Current assets
Debtors 2,266 3,101
Cash at bank 2,985 710
5,251 3,811
Creditors: amounts falling due
within one year 2,747 3,046
Net current assets 2,504 765
Total assets less current
liabilities
and net assets 91,714 107,699
Capital and reserves:
Called up share capital 1,098 1,098
Share premium account 21,573 21,573
Capital reserve (18,333) (3,024)
Special reserve 87,290 87,290
Revenue reserve 86 762
Equity shareholders' funds 91,714 107,699
Net asset value per share
Ordinary shares 83.51p 98.07p
* A special reserve was created when the share premium account was partially
cancelled by court order on 28th June 2000. This was not disclosed in the
Accounts for the period ended 30th June 2001 and the comparative figures for
that period have therefore been amended by way of a prior year adjustment.
CONSOLIDATED STATEMENT OF CASHFLOWS
1st July 2001 to 6th May 2000 to
30th June 2002 30th June 2001
£'000 £'000
Net cash inflow from operating 481 3,138
activities
Servicing of finance
Interest paid - (9)
- (9)
Taxation
Taxation paid (341) (739)
(341) (739)
Capital expenditure and financial
investment
Purchase of investments (45,105) (174,436)
Disposal of investments 52,494 62,831
Losses on index futures contracts (2,791) (921)
Revaluation of foreign currency 17 -
Exchange losses on settlements (64) -
4,551 (112,526)
Equity dividends paid (2,416) -
Net cash inflow/(outflow) before 2,275 (110,136)
financing
Financing
Issue of share capital - 17,222
Expenses of issue - (419)
Net cash inflow from financing - 16,803
Increase/(decrease) in cash 2,275 (93,333)
Returns per share
The Group net revenue on ordinary activities after taxation amounted to £
1,301,000 (2001: £3,144,000). The basic revenue return per Ordinary share is
based on this figure and a total of 109,820,026 (2001: 108,788,593) shares,
being the weighted average number of Ordinary shares in issue during the year.
The capital return per Ordinary share is based on net capital losses for the
year of £15,309,000 (2001: £3,913,000) and on 109,820,026 (2001: 108,788,593)
shares, being the weighted average number of Ordinary shares in issue during
the year.
The Directors have declared an interim dividend of 1.8p net (2001: final
dividend of 2.2p) per Ordinary share which was paid on 12th August 2002 to
shareholders on the register at the close of business on 19th July 2002.
Net asset value per share
The net asset value per share of 83.51p (2001: 98.07p) has been calculated by
reference to net assets of £91,714,000 (2001: £107,699,000) and 109,820,026
(2001: 109,820,026) Ordinary shares, being the number of shares in issue at the
end of the year.
The above financial information for the year ended 30th June 2002 does not
constitute statutory accounts as defined in Section 240 of the Companies Act
1985. This preliminary statement of results has been agreed with our auditors,
Ernst & Young LLP. The comparative financial information is based on the
statutory financial statements for the period ended 30th June 2001. Those
financial statements, upon which the auditors issued an unqualified opinion,
have been delivered to the Registrar of Companies. Statutory financial
statements for the period ended 30th June 2002 will be delivered to the
Registrar.
The annual report will be sent to shareholders in September and will be
available to members of the public from the Registered Office at 23 Cathedral
Yard, Exeter EX1 1HB. The Annual General Meeting of the Company will be held on
10th October 2002 at 12 noon at 1 Knightsbridge Green, London SW1X 7NE.
CHAIRMAN'S STATEMENT
The total assets of your Company fell by 14.8% to £91.7 million during the year
to 30th June 2002. This compares with a fall in the FTSE All-Share Index of
17.0% over the same period. This out-performance has been achieved by
continuing to have a high exposure to gilts in the portfolio, reflecting a
cautious stance.
Net revenue for the period was £1,301,000 which compares to £3,144,000 for the
previous period. Your Directors have declared an interim dividend of 1.8p net
per Ordinary Share (final dividend of 2.2p in 2001). As last year, the level of
revenue has been boosted by the level of liquidity so the dividend should not
be taken as an indication of future dividends. Also, because of the
reconstruction mentioned below, the revenue reserve was utilised to pay this
dividend.
At the start of the year under review, the London stock market had already
experienced many months of decline as investors retreated from technology,
media and telecommunications shares whose valuations had been inflated by
exaggerated expectations that the internet would transform their prospects.
After lacklustre trading over the summer with investors increasingly concerned
by falling capital spending, the 11th September atrocities delivered a severe
blow to confidence. Led by the US Federal Reserve, central banks around the
world responded by cutting official interest rates and this partly restored
investor confidence. The result was that shares traded broadly sideways in the
early months of 2002 with the themes of 2000 and early 2001 reasserting
themselves. Shares in old economy sectors rose strongly while shares in new
economy sectors fell sharply.
At the end of the period under review there was a further bout of serious
weakness as investors responded to scandals in America involving boardroom
excess, insider dealing and accounting manipulation. Such scandals, involving
some of the biggest names in corporate America, came at a time of increasing
worries about imbalances within the American economy, in particular its
widening trade deficit. The result was a flight into quality with investors
selling shares and investing instead in government bonds and gold.
The short-term investment climate looks difficult. Yet there are indications of
an improving global economic outlook. Business confidence surveys have been
upbeat, suggesting an improving climate for manufacturing at a time when
monetary policies are loose and government spending is increasing in the US and
in the UK.
At the end of the year under review the price-earnings ratio of the US market,
adjusted for cyclical swings in profitability, had dropped to its lowest level
for six years. Yet the monetary and fiscal stimulus on both sides of the
Atlantic is expected to feed through into higher corporate profits. This
suggests share prices could recover once investors become confident that the
worst of the corporate and accounting scandals have been dealt with. The
shorter term outlook, however, remains nervous and uncertain.
Shareholders will know that agreement has been reached between Jupiter, the
Board and myself as to the terms of a reconstruction of your Company. This is
subject to Court consent, which is expected to be received on or around 25th
September 2002, for the cancellation of the shares at which time the
reconstruction will be complete. I am pleased to say that Jupiter finally - and
after much argument - agreed to meet all the costs of this reconstruction if
completed, up to a maximum of £450,000 excluding VAT and stamp duty. On that
basis the reconstruction has had no adverse financial effect on those
shareholders who are not participating in it. The reconstruction was
unanimously approved at the EGM on 22nd August 2002. This is exactly the
outcome that your Board, including myself, has always wanted and we are
therefore delighted that it has finally been achieved, albeit after totally
unnecessary delays and expense caused by the litigation which Jupiter
initiated. I am also pleased that Jupiter was ordered to make a substantial
payment towards my own costs of this litigation.
On other outstanding matters referred to in previous reports to shareholders,
it has also been agreed that the legal expenses claimed by Mr Baker and Mr
Stevenson will not be paid by your Company and that no further action will be
taken regarding Mr Stevenson's disclosure of confidential information.
Subject to the Court's consent being received, the transfer of assets
(representing the proportion of assets attributable to the exiting shares) to
the Jupiter unit trust will take place on 26th September 2002.
The investment policy of the Company following successful implementation of the
Proposals will be unchanged from the Company's current investment objective,
which is to achieve long term capital growth.
It is expected that an important proportion of the Company's assets will be
represented by investments in pooled investment vehicles. A significant
proportion may be represented by shares or units in other investment companies
managed by associates of New Star Asset Management Group Limited, the parent
company of the Manager. In this way it is intended that the management of a
significant proportion of the Company's assets will be devolved to the
specialist individuals within the Manager's group who have produced good
historic performance. Asset allocation can be facilitated by this process, both
in making structural changes and in targeting specific market sectors. To the
extent that any fees are payable to the Manager or its associates from any
pooled vehicles in that portfolio, the fees payable to the Manager by the
Company will be waived on that portion of the assets.
The unaudited net asset value of your Company at 21st August 2002 was 79.39p.
This shows a fall since inception of 20.3% compared to a fall of 30.4% in the
FTSE All-Share Index over the same period. Despite difficult conditions, I
believe that your Company has performed well.
J L Duffield
Chairman
New Star Investment Trust PLC
2nd September 2002
INVESTMENT MANAGER'S REPORT
Equity investors suffered poor returns in the year to 30th June 2002. In the
United Kingdom, the FTSE All-Share Index fell 17.0%. In the United States, the
Standard & Poor's Composite fell 19.2% and the technology-heavy Nasdaq
Composite fell 33.3%. Continental European markets, as measured by the FTSE
Europe ex UK Index, fell 23.1%. Your Company's total assets fell by 14.8%.
For the year under review, there was a striking disparity between the
performance of the strongest and weakest sectors within the London market,
repeating the pattern of the previous year with old economy stocks rising, but
not sufficiently to compensate for the falls in new economy stocks. The worst
performing sectors were IT hardware, down 76.2%, software and computer
services, down 59.5%, insurance, down 45.8%, and telecommunications services,
down 44.3%. By contrast the steel and other metals sector rose 38.3%, tobacco
rose 37.8%, forestry and paper rose 24.7% and personal care and household
products rose 13.6%.
Mid-cap companies proved more resilient than large and small ones. The FTSE 250
Index fell 12.7% while the FTSE 100 Index fell 17.4% and the FTSE Small Cap
Index fell 21.0%. The worst performing of the main indices was the FTSE
techMark Index, which fell 46.2%.
If the markets, beset by concerns about corporate scandals and accounting
manipulation, failed to draw lasting benefit from interest rate cuts, the
monetary easing did underpin economic activity. The US Federal Reserve cut its
Federal Funds rate from 3.75% in June to 1.75% in November and then held rates
steady; the Bank of England's monetary policy committee cut its rates from
5.25% to 4%, the lowest since 1964.
Such rate cuts added to the strength of consumer spending in the UK at a time
when demand was also being inflated by the surge in government spending. UK
retail sales growth began the year at 5.75% per annum and fluctuated between
4.75% and 7%, fuelled by accelerating house price rises. The Halifax house
price index showed a rise in the rate of house price inflation from 9.7% per
annum in June 2001 to 18.2% in May 2002. Unemployment remained low with the
headline count easing from 3.2% of the labour force to 3.1%.
Yet the buoyancy of consumer demand did not produce higher inflation.
Underlying inflation, excluding mortgage interest, rose from 2.4% at the start
of the year under review to 2.6% in August 2001 but then fell back below the
Bank of England's 2.5% target rate for most of the rest of the year.
The effect of interest rate cuts on industrial activity was more muted with
manufacturing suffering from the global decline in industrial confidence.
Manufacturing activity declined in the first nine months of the year under
review, with the most severe decline, 1.9%, occurring in the three months to
31st December. Such weakness was reflected in gross domestic product, which was
flat between October and March. Only in the last three months of the year under
review were there signs of a return to growth in industrial production and GDP.
When your Company was launched in April 2000 a cautious view was taken of
markets. It was feared the late 1990s euphoria and the soaring valuations of
TMT stocks would not be sustained. As a result more than half the portfolio was
invested in short-term gilts helping to shield the Company from stock market
weakness and during the period approximately one third of the assets were
retained in gilts and cash. During the year under review the return from gilts
was 7.0% and the return on cash was 4.3%.
In addition, your Company chose to invest in hedge funds, such as the New Star
Hedge Fund and the HSBC European Absolute fund of hedge funds, and these
investments have also helped to preserve value. The New Star Hedge Fund
out-performed the market with its fall limited to 8% while the HSBC European
Absolute Return fund limited its fall to 4%. During the year, your Company
bought holdings in the New Star European Hedge Fund, which produced a positive
return of 3% from the date of purchase, and the New Star Asia Renaissance Hedge
Fund, which fell just 4%.
Holdings were also purchased in a series of New Star retail funds, such as the
New Star European Growth, UK Growth and UK Aggressive and most recently the
Select Opportunities Fund. Since launch all but one of the established funds
have out-performed their respective benchmarks.
Following the fall in share prices after 11th September, your Company increased
its exposure to equities at the expense of bonds through the futures market,
through funds and through a number of individual stocks.
Since then, investment in shares that are geared to the stock market, such as
Aberdeen Asset Management and Jupiter Split Trust capital shares, have been
disappointing, falling by 35% and 29% respectively. Another financial stock,
Abbey National, also performed badly, falling by 38%.
At the year-end, 37% of the portfolio was invested in UK equities, both direct
and through futures and pooled funds, 31% was in gilts and cash, 9% was in
hedge funds, 9% was in European equities and pooled funds, 6% was in unlisted
securities, 4% was in a global technology pooled fund and 4% was in Far East
pooled funds.
Short-term prospects look unexciting with investors concerned there will be
further revelations about corporate excess and accounting manipulation. In such
circumstances auditors are likely to take a conservative approach in auditing
accounts this year with the result that reported profits for some companies for
2002 may be lower than had been expected.
Yet the consensus is that UK corporate profits will still advance modestly this
year and grow more rapidly in 2003. At share values prevailing at 30th June,
the UK market was trading on a prospective price-earnings multiple of 13 for
2003, a modest rating relative to the late 1990s. Once confidence is restored
in corporate accounting and governance, such a valuation may prove attractive
to investors and produce a recovery in share prices.
The strategy of your Company will be to continue to invest in undervalued
listed companies and attractive pooled funds and hedge funds and possibly to
use New Star's expertise in the management of financial companies to invest in
unlisted financial businesses capable of long-term growth.
New Star Asset Management
2nd September 2002
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