Final Results

RNS Number : 0190N

City of London Investment Trust PLC

24 September 2012

 



24 September 2012

This announcement contains regulated information

THE CITY OF LONDON INVESTMENT TRUST PLC

Annual Financial Report for the year ended 30 June 2012

●       Net asset value total return ahead of AIC UK Growth & Income sector over 1, 3, 5 and 10 years.

●       Dividend per share up 4.1%.  The 46^th consecutive annual increase.

●       Ongoing charges ratio of 0.45%

	30 June 2012	30 June 2011
Dividends per ordinary share ('DPS')	+4.1%	+4.3%
Revenue return per ordinary share ('EPS')	+6.7%	+10.4%
Total Returns:
Net asset value per ordinary share ('NAV') #	+2.3%	+29.2%
AIC UK Growth & Income sector NAV (size weighted average) (benchmark) #	+1.2%	+29.7%
FTSE All-Share Index †	(3.1%)	+25.6%
Ordinary share price #	+2.9%	+31.1%

Sources:  # Morningstar for the AIC, using cum income fair value NAV; † Datastream

CHAIRMAN'S STATEMENT

City of London's performance was again satisfactory for the year ended 30 June 2012.  We have outperformed both our benchmark and the wider market in each of the last one, three, five and ten year periods.  The dividend was increased, by 4.1%, for the 46^th consecutive year and our ongoing charge ratio remains, at 0.45%, the lowest in the sector.  City of London has been awarded a gold rating in Morningstar's inaugural rating of investment trusts. 

The Markets

The year has been a volatile one with sentiment dominated by macro economic issues such as the Eurozone sovereign debt crisis and the US fiscal impasse.  UK economic growth has been disappointing with consumers' disposable income under pressure.  The FTSE All-Share Index fell by 3.1% during the year.

Nonetheless, companies generally appeared to be in relatively good shape compared with consumers and governments, with sound balance sheets and strong dividend paying capacity.  Based on valuation measures such as dividend yield and price earnings ratios, equities appeared under valued on a long term basis. 

Our Investment Approach

Our fund manager, Job Curtis, has been managing City of London for over 20 years.  He manages the portfolio in a conservative way, focusing on companies with cash generative businesses able to grow their dividends with attractive yields.  The portfolio is well diversified with at least 80% invested in well known blue chip UK listed companies but it remains biased towards international companies invested in economies likely to grow faster than the UK.  In times when savers have difficulty in receiving adequate returns on their investments, the portfolio aims to provide shareholders with dividends between 10%  and 30% higher than the FTSE All-Share Index.

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THE CITY OF LONDON INVESTMENT TRUST PLC

Annual Financial Report for the year ended 30 June 2012

Chairman's Statement (continued)

Performance

Earnings and Dividends

Earnings per share rose by 6.7% to 14.05p, reflecting the increase in the dividends received from companies held in the portfolio.  A fourth interim dividend of 3.52p per share was paid on 31 August 2012 making the total for the year 13.74p, an increase of 4.1% over the previous year and ahead of the rate of inflation.

This means that £323,000 will be added to the Revenue Reserve to underpin future dividends.  City of London's unsurpassed record of 46 years of unbroken dividend growth has been achieved by retaining income from good years in this Revenue Reserve and using that reserve in difficult years.

The quarterly dividend rate will next be considered by the Board when the third interim is declared in March 2013. 

Net Asset Value Total Return

City of London's total return was 2.3% which exceeded the 1.2% average total return for the AIC UK Growth & Income sector and the negative 3.1% total return for the FTSE All-Share Index.  This investment out-performance was principally achieved by our overweight positions in the consumer goods and utilities sectors and by the underweight positions in the mining and banks sectors.

Expenses

There is no performance fee payable for the year.  The ongoing charges ratio, which is the investment management fee and other non-interest expenses as a percentage of shareholders' funds, was 0.45%, which is very competitive compared with the OEIC market, with most other investment trusts and with other actively managed funds.

Share Issues and Buy-Backs

The Board's aim is for our share price to reflect closely its underlying net asset value; and also to reduce volatility and have a liquid market in our shares.  Our ability to influence this is, of course, limited.  We do believe that flexibility is important and that it is not in shareholders' interests to have a specific issuance and buy-back policy.  The Board intends, however, subject always to the overall impact on our portfolio, the pricing of other trusts and overall market conditions, to consider issuance and buy-backs within a narrow band relative to net asset value.

During the year under review, City of London's shares have been in strong demand and have consistently traded at a premium.  Fourteen million shares were issued, at a premium to net asset value, for proceeds of £39.25m.  This issuance has contributed positively to City of London's outperformance during the year.  In the past two years, City of London has issued 30.24m new shares, increasing its share capital by 14.5%. 

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THE CITY OF LONDON INVESTMENT TRUST PLC

Annual Financial Report for the year ended 30 June 2012

Chairman's Statement (continued)

Retail Distribution Review (RDR)

Under the terms of RDR, which takes effect from 31 December 2012, IFAs are obliged to recommend suitable products from the entire range of those available, including investment trusts.  They and their clients will, therefore, be looking further afield than hitherto for high quality investment opportunities.  Those investment trusts which stand to benefit from RDR are the larger trusts with a ready, liquid market in their shares, who have delivered consistently good returns over a long period of time.  This is exactly what City of London offers. 

We are actively marketing the City of London investment proposition to the fund platforms and to the IFA community.  Success in the short term is by no means assured, as the challenges which RDR poses for platforms and IFAs are much wider than this one issue, but the opportunity for City of London to attract additional demand for its shares is significant.

The Board

At last year's Annual General Meeting in October 2011 Simon de Zoete retired from the Board.  He had been our chairman for 10 years and we thank him for his wise counsel and leadership over that time.

Martin Morgan joined the Board on 1 March 2012.  He is chief executive of Daily Mail and General Trust PLC.

Annual General Meeting

The Annual General Meeting will be held at the offices of Henderson Global Investors, 201 Bishopsgate, London EC2M 3AE on Monday, 29 October 2012 at 3pm.  All shareholders are most welcome to attend.  As usual, Job Curtis, our Portfolio Manager, will be making a presentation.

Outlook

The global macro economic problems and imbalances are deep seated, with an excess of government and consumer debt at their core.  The determination of policy makers to undertake increasingly radical attempts to bring about economic growth is yet to be tested and the deleveraging process is likely to remain protracted.

Against this backdrop we continue to believe that equities represent good value although market setbacks in the short term are to be expected.  The portfolio is likely to remain defensively positioned, invested in companies which benefit from international diversification and which continue to produce healthy dividend increases.  We believe that a combination of a dividend yield on City of London shares of around 4.5% and of attractive dividend growth prospects from our investee companies is a proposition which will stand our shareholders in good stead, especially when compared with the paltry rates available in the fixed interest markets and on bank deposit accounts.

Philip Remnant

24 September 2012

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THE CITY OF LONDON INVESTMENT TRUST PLC

Annual Financial Report for the year ended 30 June 2012

PORTFOLIO MANAGER'S REPORT

Investment Background

During the twelve month period under review, the UK equity market, as measured by the FTSE All-Share Index, produced a negative total return of 3.1%. This contrasts with the positive total return for the previous financial year (to 30 June 2011) of 25.6%. The overall direction of the market was determined by macro economic developments rather than specific problems with companies or sectors. The eurozone sovereign debt crisis proved destabilising for the equity market because it was so hard to see a solution to the crisis given the structure  of a monetary union without a fiscal or political union.

Growth in the eurozone was adversely affected by deleveraging and fiscal tightening. UK economic growth was also disappointing due to the impact of falling real wages and tight credit conditions. The best growth continued to be in emerging markets although Chinese economic growth slowed down from its exceptionally high rate of recent years.

One positive effect of the sluggish economic activity was the fall in the oil price. Brent Crude peaked at $125 a barrel in March and then fell to $92 a barrel by the end of June as a result of weaker than expected demand for oil. The fall in the oil price helped to reduce inflation across the developed economies.

Against a background of significant economic uncertainties, there was a strong demand for assets that were perceived to be safe. UK ten year gilt yields fell throughout the twelve months to reach 1.6% by the end of June. The UK base rate stayed at 0.5% while the dividend yield on equities varied between 3% and 4%. Companies in City of London's portfolio on average increased their dividends by 7.8%.

Given the attractive dividend yield and other measures of value, gearing was maintained in a range of between 7.9% and 10.7%. During this year, gearing detracted from performance by 0.99% having contributed positively last year by 2.72%.

Performance of Higher Yielding Shares compared with Lower Yielding Shares

Over the twelve month period, the FTSE 350 Higher Yield Index significantly outperformed the FTSE 350 Lower Yield Index. Against the background of low interest rates, stocks with an above average dividend yield were in demand. In addition, the low dividend yielding mining sector, where the portfolio was significantly underweight, was a major underperformer due to the weakness in commodity prices.

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THE CITY OF LONDON INVESTMENT TRUST PLC

Annual Financial Report for the year ended 30 June 2012

PORTFOLIO MANAGER'S REPORT (continued)

Portfolio Review

City of London has been under represented, relative to the FTSE All-Share Index, in the mining sector for many years because the sector is volatile with the direction of share prices depending on spot commodity prices. In addition, mining companies tend to be poor dividend payers and with the exception of BHP Billiton, which is held in City's portfolio, all of the mining stocks either cut or passed their dividends during the 2008/2009 downturn. Being under represented in the mining sector was the biggest sector contribution to outperformance over the twelve months.

The second biggest contributor to performance was through being under represented in the banks sector. Overall, our view is that many banks will struggle as they are required to hold more capital than in the past which will depress future returns. HSBC is our favoured bank because of its strong capital ratios and deposit base, conservative lending and global footprint. Elsewhere in the financial sectors, the portfolio's overweight position in life assurance was increased with additions to existing holdings and the purchase of a new holding in Phoenix at a significant discount to its embedded value. In non life insurance, the holding in Admiral was sold on concerns about slowing profits growth in its motor insurance operations. In real estate investment trusts, the overweight position was increased through a new holding in British Land which offers a high quality income stream through its relatively long let portfolio. In financial services, two new holdings were bought. Brewin Dolphin has a strong franchise as one of the UK's largest private client fund managers. IG Group is a market leader in providing retail financial derivatives and it tends to benefit from market volatility.

The third most successful area was the multi-national consumer products companies. In particular, the two biggest single stock contributors were Diageo, in beverages, and British American Tobacco. Both companies benefited from strong brands selling into emerging markets as well as the relatively resilient US economy. At the end of the Trust's financial year, British American Tobacco had overtaken Royal Dutch Shell as the largest holding. Diageo moved up from fourth to third largest holding over the year.

The gas, water and multiutilities sector was also a big contributor to performance. The fall in British Government bond yields helped the sector as did the relatively stable UK regulatory regimes. Within the utility sector, some profits were taken in National Grid. Additions were made to Centrica which has a relatively strong balance sheet and has pursued a strategy of combining its British Gas supply business with upstream ownership of North Sea gas fields as well as electricity generation plants. In the electricity sector, a poorly timed sale was made of International Power which was subsequently taken over by Suez of France.

Telecommunications was a mixed area for the Trust over the year. The largest holding in Vodafone was an outperformer and a special dividend was received from its market leading US joint venture. Many overseas telecommunications markets faced tough trading due to competitive and regulatory issues. As a result, the holdings in Cable & Wireless Communications, SK Telecom of South Korea and Vivendi of France were sold. In contrast, the UK telecommunications market appeared to be relatively healthy and a holding was purchased in BT which is benefiting from its leading position in supplying broadband.

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THE CITY OF LONDON INVESTMENT TRUST PLC

Annual Financial Report for the year ended 30 June 2012

PORTFOLIO MANAGER'S REPORT (continued)

The industrial engineering sector underperformed over the twelve months but it should be remembered that the sector had strongly outperformed in the previous two years. Profits were taken in about one third of the holding in Weir Group but overall the industrial engineering companies in the portfolio are in niche sectors with strong technology and should prosper in the long run. In the industrial area, two new holdings were purchased on attractive valuations relative to their history. Emerson Electric of the US is a diversified industrial holding company, with some 35% of its sales in emerging markets, that has increased its dividend every year since 1956. Daimler of Germany is the owner of Mercedes Benz cars as well as being the global leader in heavy commercial trucks. A new holding was also bought in Balfour Beatty, the international contractor, which has growth potential in its support services and US construction businesses.

Turning to the largest sectors in the portfolio, oil and gas producers was the biggest with 9.8% of the portfolio at 30 June 2012. The main holding remained Royal Dutch Shell which delivered some technically difficult projects into production in Qatar and Canada during the twelve months. Royal Dutch Shell outperformed the FTSE All Share by 9% over the twelve months while BP, where the portfolio was significantly under represented relative to the FTSE All Share Index, underperformed by some 1% due to problems with its Russian joint venture. In oil services, a small holding was purchased in Cape which has significant recovery potential under a new chief executive.

The second largest sector in the portfolio, at 30 June 2012, was pharmaceuticals. GlaxoSmithKline outperformed over the twelve months by some 18% as investors appreciated its strong cash flow from its spread of healthcare products. In contrast, AstraZeneca only performed in line with the market because it was adversely affected by the expiry of patents on some of its important medicines. A new holding was purchased in Merck, the US pharmaceutical company, which is generating significant cash flow relative to its market capitalisation from existing products and has some promising new products under development.

The portfolio remained biased towards international companies with exposure to economies likely to grow faster than the UK. However, some new purchases were made of quality UK cyclicals, which had attractive dividend yields and growth. Daily Mail and General retains a strong franchise in national newspapers as well as a growing international business publishing operation. Greencore was bought on a price earnings multiple that undervalues its growth potential as a leading supplier of food products to UK supermarkets. Greggs is the well known sandwiches and savouries retailer with an excellent profits and dividend growth record. Persimmon is one of the UK's largest housebuilders with a six year land bank and a plan to make substantial cash returns to shareholders over the next nine years. Young & Co's Brewery has a valuable estate of pubs in south west London and Surrey. A notable sale during the year was made of the holding in G4S at the time of a potential large acquisition (which was subsequently abandoned) and ahead of the problems with its security contract for the London Olympics.

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THE CITY OF LONDON INVESTMENT TRUST PLC

Annual Financial Report for the year ended 30 June 2012

PORTFOLIO MANAGER'S REPORT (continued)

Distribution of the Portfolio

The distribution at the previous year end was: large companies 78%, medium-sized companies 16% and overseas listed companies 6%. In this analysis, medium-sized (UK listed) companies are identified as those outside the FTSE 100 Index.

An alternative analysis is to consider the weighting of the largest 30 stocks in the UK and the rest of the UK market. On this basis, at 30 June 2012, 54% of City's portfolio was in the largest 30 (compared with 65% of the FTSE All Share Index), 39% in the rest of the UK market (35% FTSE All Share) and 7% overseas listed.

There is scope to have 20% of the portfolio in overseas listed stocks, but we will only invest overseas when there is, in our view, an advantage over UK listed companies.

Outlook

With the debt overhang and subdued growth outlook in the UK and other developed economies, it is likely that interest rates will remain at exceptionally low yields. As a result equities that offer sustainable yields and growth remain attractive. Such companies form the heart of City of London's portfolio. Companies with strong balance sheets good cash flow and growth in profits are better placed to sustain and grow their profits. Large consumer goods and healthcare companies (such as British American Tobacco, Diageo, GlaxoSmithKline, Unilever and AstraZeneca) with exposure to emerging markets meet these characteristics. These companies are all in City of London's top eight holdings. Also in the top eight are the multinationals Royal Dutch Shell, Vodafone and HSBC which are not over dependent on any

one country or region for their growth. The ninth, tenth and eleventh largest holdings in the portfolio are UK utilities with relatively high visibility of revenues and profits.

At the time of writing, a defensive bias does seem appropriate for the portfolio. However, as economic circumstances change, it is important to be flexible, especially as the stock market tends to reflect known information and the sentiment of investors. There will continue to be opportunities in the months ahead to increase the portfolio's exposure to stocks outside the largest 30 in the UK market and to overseas listed stocks.

Job Curtis

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THE CITY OF LONDON INVESTMENT TRUST PLC

Annual Financial Report for the year ended 30 June 2012

Top 40 Investments

as at 30 June 2012

The 40 largest investments, representing 76.99% of the portfolio (convertibles, all classes of equity and all written call option positions in any one company being treated as one investment), are listed below.  The stocks marked * were not in the top ten last year. The stock that was in the top ten last year but not this year is BHP Billiton.

	Market Value 2012			Market Value 2012
	£'000			£'000
British American Tobacco	51,540		Prudential	8,118
Royal Dutch Shell	48,872		IMI	7,899
Diageo	42,692		Tesco	7,751
GlaxoSmithKline	40,227		BAE Systems	7,648
Vodafone	37,642		Reed Elsevier	7,485
HSBC	27,494		United Utilities	7,425
Unilever	23,155		Aviva	7,306
AstraZeneca	19,686		Novartis	7,120
National Grid	18,576		Amlin	6,724
Scottish & Southern Energy*	18,431		Severn Trent	6,612
Centrica	18,285		Pennon	6,477
BP	17,131		Weir	6,120
Croda International	15,275		Greene King	6,055
BHP Billiton	15,198		Sainsbury (J)	6,028
Pearson	13,609		Hiscox	5,982
Land Securities	11,447		Britvic	5,938
Rio Tinto	10,868		Merck & Co	5,855
Imperial Tobacco	9,820		Provident Financial	5,771
Reckitt Benckiser	8,292		Standard Life	5,602
Legal & General	8,274		Spirax-Sarco Engineering	5,462

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THE CITY OF LONDON INVESTMENT TRUST PLC

Annual Financial Report for the year ended 30 June 2012

PRINCIPAL RISKS AND UNCERTAINTIES

The Board has drawn up a matrix of risks facing the Company and has put in place a schedule of investment limits and restrictions, appropriate to the Company's investment objective and policy, in order to mitigate these risks as far as practicable.  The principal risks which have been identified and the steps taken by the Board to mitigate these are as follows:

●       Portfolio and market price

         Although the Company invests almost entirely in securities that are quoted on recognised markets, share prices may move rapidly.  The companies in which investments are made may operate unsuccessfully, or fail entirely.  A fall in the market value of the Company's portfolio would have an adverse effect on shareholders' funds.  The Board reviews the portfolio each month and mitigates this risk through diversification of investments in the portfolio.

●       Investment activity, gearing and performance

         An inappropriate investment strategy (for example, in terms of asset allocation or the level of gearing) may result in underperformance against the Company's benchmark.  The Board monitors investment performance at each Board meeting and regularly reviews the level of its gearing.  

●       Tax and regulatory

A breach of section 1158 of the Corporation Tax Act 2010 could lead to a loss of investment trust status, resulting in capital gains realised within the portfolio being subject to corporation tax.  A breach of the UKLA Listing Rules could result in suspension of the Company's shares, while a breach of the Companies Act 2006 could lead to criminal proceedings, or financial or reputational damage.  The Company must also ensure compliance with the listing rules of the New Zealand Stock Exchange. 

          ●       Operational

         Disruption to, or failure of, the Manager's accounting, dealing or payment systems or custody records could prevent the accurate reporting and monitoring of the Company's financial position. The Company is also exposed to the operational risk that one or more of its suppliers may not provide the required level of service.

The Manager has contracted to provide investment, company secretarial, administration and accounting services through qualified professionals.  The Board receives internal control reports produced by the Manager on a quarterly basis, which confirm regulatory compliance. 

Further details of the Company's exposure to market risk (including market price risk, currency risk and interest rate risk), liquidity risk, and credit and counterparty risk and how they are managed are contained in the notes to the financial statements in the annual report.

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THE CITY OF LONDON INVESTMENT TRUST PLC

Annual Financial Report for the year ended 30 June 2012

RELATED PARTY TRANSACTIONS - TRANSACTIONS WITH THE MANAGER

The provision of investment management, accounting, company secretarial and administration services has been outsourced to Henderson Global Investors Limited (the 'Manager').  Other than fees payable by the Company in the ordinary course of business, there have been no material transactions with the manager affecting the financial position or performance of the Company during the year under review. 

STATEMENT OF DIRECTORS' RESPONSIBILITIES

In accordance with Disclosure and Transparency Rule 4.1.12, each of the directors confirms that, to the best of their knowledge:

●          the financial statements, which have been prepared in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law), give a true and fair view of the assets, liabilities, financial position and net return of the Company; and

●          the Report of the Directors in the Annual Report and Financial Statements 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.

Signed for and on behalf of the Board of directors

Philip Remnant

Chairman

24 September 2012

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THE CITY OF LONDON INVESTMENT TRUST PLC

Annual Financial Report for the year ended 30 June 2012

Audited Income Statement

for the year ended 30 June 2012

	Year ended 30 June 2012			Year ended 30 June 2011
	Revenue return £'000	Capital return £'000	Total £'000	Revenue return £'000	Capital return £'000	Total £'000
(Losses)/gains on investments held at fair value through profit or loss	-	(10,617)	(10,617)	-	122,350	122,350
Income from investments held at fair value through profit or loss (note 2)	34,729	-	34,729	30,179	-	30,179
Other interest receivable and similar income (note 3)	759	-	759	1,383	-	1,383
	---------	----------	-----------	---------	---------	----------
Gross revenue and capital (losses)/gains	35,488	(10,617)	24,871	31,562	122,350	153,912
Management and performance fees	(693)	(1,617)	(2,310)	(658)	(1,537)	(2,195)
Other administrative expenses	(589)	-	(589)	(591)	-	(591)
	---------	----------	----------	---------	---------	----------
Net return/(loss) on ordinary activities before finance charges and taxation	34,206	(12,234)	21,972	30,313	120,813	151,126
Finance charges	(1,519)	(3,178)	(4,697)	(1,521)	(3,181)	(4,702)
	---------	---------	----------	---------	---------	----------
Net return/(loss) on ordinary activities before taxation	32,687	(15,412)	17,275	28,792	117,632	146,424
Taxation on net return on ordinary activities	(237)	-	(237)	(204)	-	(204)
	---------	---------	----------	---------	----------	----------
Net return/(loss) on ordinary activities after taxation	32,450	(15,412)	17,038	28,588	117,632	146,220
	======	======	======	=====	======	======
Return/(loss) per ordinary share - basic and diluted (note 4)	14.05p	(6.67p)	7.38p	13.17p	54.21p	67.38p
	=====	=====	=====	=====	=====	=====

The total columns of this statement represent the Income Statement of the Company.  The revenue return and capital return columns are supplementary to this and are prepared under guidance published by the Association of Investment Companies.  All revenue and capital items in the above statement derive from continuing operations. The Company has no recognised gains or losses other than those recognised in the Income Statement.  There is no material difference between the profit on ordinary activities before taxation and the profit for the financial year stated above and their historical costs equivalents.   

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THE CITY OF LONDON INVESTMENT TRUST PLC

Annual Financial Report for the year ended 30 June 2012

Audited Reconciliation of Movements in Shareholders' Funds

for the year ended 30 June 2012

Year ended 30 June 2012	Called up share capital £'000	Share premium account £'000	Capital redemption reserve £'000	Other capital reserves £'000	Revenue reserve £'000	Total £'000
At 1 July 2011	56,215	78,590	2,707	510,038	26,927	674,477
Net (loss)/return on ordinary activities after taxation	-	-	-	(15,412)	32,450	17,038
Issue of 14,000,000 new ordinary shares	3,500	35,750	-	-	-	39,250
Dividends paid (note 6)	-	-	-	-	(31,219)	(31,219)
	--------	---------	---------	---------	---------	----------
At 30 June 2012	59,715	114,340	2,707	494,626	28,158	699,546
	======	======	=====	=======	======	=======
Year ended 30 June 2011	Called up share capital £'000	Share premium account £'000	Capital redemption reserve £'000	Other capital reserves £'000	Revenue reserve £'000	Total £'000
At 1 July 2010	52,155	37,079	2,707	392,406	26,679	511,026
Net return on ordinary activities after taxation	-	-	-	117,632	28,588	146,220
Issue of 16,240,000 new ordinary shares	4,060	41,511	-	-	-	45,571
Dividends paid (note 6)	-	-	-	-	(28,340)	(28,340)
	--------	---------	--------	----------	---------	----------
At 30 June 2011	56,215	78,590	2,707	510,038	26,927	674,477
	=====	=====	=====	======	=====	======

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THE CITY OF LONDON INVESTMENT TRUST PLC

Annual Financial Report for the year ended 30 June 2012

Audited Balance Sheet

at 30 June 2012

	2012 £'000	2011 £'000
Investments held at fair value through profit or loss
Listed at market value in the United Kingdom	714,141	681,202
Listed at market value overseas	52,067	46,709
Investment in subsidiary undertakings	347	347
	----------	----------
	766,555	728,258
	----------	----------
Current assets
Debtors	6,275	6,276
Cash at bank	-	480
	----------	----------
	6,275	6,756
	----------	----------
Creditors: amounts falling due within one year	(25,885)	(13,138)
	----------	----------
Net current liabilities	(19,610)	(6,382)
	----------	----------
Total assets less current liabilities	746,945	721,876
Creditors: amounts falling due after more than one year	(47,399)	(47,399)
	----------	----------
Net assets	699,546	674,477
	======	======
Capital and reserves
Called up share capital	59,715	56,215
Share premium account	114,340	78,590
Capital redemption reserve	2,707	2,707
Other capital reserves	494,626	510,038
Revenue reserve	28,158	26,927
	----------	----------
Shareholders' funds	699,546	674,477
	======	======
Net asset value per ordinary share - basic and diluted (note 5)	292.87p	299.95p
	======	======

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THE CITY OF LONDON INVESTMENT TRUST PLC

Annual Financial Report for the year ended 30 June 2012

Audited Cash Flow Statement

for the year ended 30 June 2012

	2012		2011
	£'000	£'000	£'000	£'000
Net cash inflow from operating activities		31,758		28,281
Servicing of finance
Debenture interest paid	(4,265)		(4,265)
Bank and loan interest paid	(271)		(262)
Dividends paid on preference and preferred ordinary stocks	(157)		(157)
	----------		----------
Net cash outflow from servicing of finance		(4,693)		(4,684)
Taxation
Withholding tax recovered	120		138
	----------		----------
Net tax recovered		120		138
Financial investment
Purchases of investments	(95,697)		(95,452)
Sales of investments	45,576		48,828
	----------		----------
Net cash outflow from financial investment		(50,121)		(46,624)
Equity dividends paid		(31,219)		(28,340)
		----------		----------
Net cash outflow before financing		(54,155)		(51,229)
Financing
Proceeds from issue of ordinary shares	39,991		44,392
	---------		---------
Net cash inflow from financing		39,991		44,392
		---------		---------
Decrease in net debt		(14,164)		(6,837)
		=====		=====

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THE CITY OF LONDON INVESTMENT TRUST PLC

Annual Financial Report for the year ended 30 June 2012

Notes to the financial statements

1.	Accounting policies
	Basis of accounting
	The financial statements have been prepared on a going concern basis and under the historical cost basis of accounting as modified to include the revaluation of investments and derivative financial instruments at fair value.  The financial statements are prepared in accordance with United Kingdom Generally Accepted Accounting Practice and with the Statement of Recommended Practice ("the SORP") for investment trusts issued by the Association of Investment Companies ("the AIC") in January 2009.  The Company's accounting policies are consistent with the prior year.
2.	Income from investments held at fair value through profit or loss
		2012	2011
		£'000	£'000
	Franked UK dividends:
	Listed	29,737	26,408
	Listed - special dividends	879	226
		---------	---------
		30,616	26,634
		---------	---------
	Unfranked - listed investments:
	Dividend income - overseas investments	3,511	3,035
	Dividend income - UK REIT	602	486
	Special dividends	-	24
		---------	---------
		4,113	3,545
		---------	---------
		34,729	30,179
		=====	=====
3.	Other interest receivable and similar income
		2012	2011
		£'000	£'000
	Bank interest	2	11
	Underwriting commission (allocated to revenue)*	11	56
	Stock lending revenue	67	-
	Option premium income †	679	1,316
		-------	------
		759	1,383
		====	====
	* During the year the Company was not required to take up shares in respect of its underwriting commitments (2011: none).
	† Options were mainly written against low or zero dividend yielding holdings, which would not normally form part of the portfolio.  These transactions had no material impact on the capital account of the Company.

- 16 -

THE CITY OF LONDON INVESTMENT TRUST PLC

Annual Financial Report for the year ended 30 June 2012

Notes to the financial statements (continued)

	3.	Other interest receivable and similar income (continued) During the year, the Company sold (or wrote) call options for the purpose of generating revenue income.  In accordance with the SORP, the premiums received are recognised in the revenue return shown in the Income Statement evenly over the life of the option with an appropriate amount taken to the capital account such that the total return reflects the change in fair value of the options.  The Company received total premiums of £660,000 (2011: £911,000) from this activity during the year of which £660,000 (2011: £892,000) was recognised as revenue in the year ended 30 June 2012. The balance of £19,000 (2011: £424,000) not due to be recognised as revenue in 2011 was recognised in 2012 giving total income of £679,000 (2011: £1,316,000).
		At 30 June 2012 the total value of securities on loan by the Company for stock lending purposes was £2,980,000 (2011:  £nil).  The maximum aggregate value of securities on loan at any one time during the year ended 30 June 2012 was £62,621,000 (2011:  £nil).  The Company's agent holds collateral at 30 June 2012, with a value of £3,129,000 in respect of securities on loan, the value of which is reviewed on a daily basis and comprises CREST Delivery By Value ("DBVs") and Government Bonds with a market value of 105% of the market value of any securities on loan.
4.		Return per ordinary share - basic and diluted
		The return per ordinary share is based on the net return attributable to the ordinary shares of £17,038,000 (2011: £146,220,000) and on 230,996,546 ordinary shares (2011: 217,008,223), being the weighted average number of ordinary shares in issue during the year.
		The return per ordinary share is analysed between revenue and capital below:
			2012	2011
			£'000	£'000
		Net revenue return	32,450	28,588
		Net capital (loss)/return	(15,412)	117,632
			----------	----------
		Net total return	17,038	146,220
			======	======
		Weighted average number of ordinary shares in issue during the year	230,996,546	217,008,223
		Revenue return per ordinary share	14.05p	13.17p
		Capital (loss)/return per ordinary share	(6.67p)	54.21p
			---------	---------
		Total return per ordinary share	7.38p	67.38p
			=====	=====
		The Company does not have any dilutive securities. Therefore the basic and diluted returns per share are the same.
5.		Net asset value per ordinary share
		The net asset value per ordinary share is based on the net assets attributable to the ordinary shares of £699,546,000 (2011: £674,477,000) and on 238,859,868 (2011:224,859,868) shares in issue on 30 June 2012.

- 17 -

THE CITY OF LONDON INVESTMENT TRUST PLC

Annual Financial Report for the year ended 30 June 2012

Notes to the financial statements (continued) 

6.	Dividends paid on the ordinary shares	Record date	Payment date	2012 £'000	2011 £'000
	Fourth interim dividend (3.25p) for the year ended 30 June 2010	30 Jul 2010	31 Aug 2010		6,831
	First interim dividend (3.25p) for the year ended 30 June 2011	22 Oct 2010	30 Nov 2010		6,974
	Second interim dividend (3.25p) for the year ended 30 June 2011	21 Jan 2011	28 Feb 2011		7,090
	Third interim dividend (3.35p) for the year ended 30 June 2011	6 May 2011	31 May 2011		7,445
	Fourth interim dividend (3.35p) for the year ended 30 June 2011	29 Jul 2011	31 Aug 2011	7,533	-
	First interim dividend (3.35p) for the year ended 30 June 2012	28 Oct 2011	30 Nov 2011	7,690	-
	Second interim dividend (3.35p) for the year ended 30 June 2012	27 Jan 2012	28 Feb 2012	7,730	-
	Third interim dividend (3.52p) for the year ended 30 June 2012	4 May 2012	31 May 2012	8,266	-
				--------	--------
				31,219	28,340
				=====	=====

7.   Issued share capital

During the year the Company issued 14,000,000 (2011: 16,240,000) ordinary shares for total proceeds of £39,250,000 after deduction of issue costs of £55,000 (2011:  £45,571,000).   The average price of the shares that were issued was 280p (2011: 281p).

8.   Dividends paid

A fourth interim dividend of 3.52p per ordinary share (2011: 3.35p) in respect of the year ended 30 June 2012 was paid on 31 August 2012 to shareholders on the register on 10 August 2012 for a total consideration of £8,441,000.

9.   Going concern statement

The directors believe that it is appropriate to continue to adopt the going concern basis in preparing the financial statements as the assets of the Company consist mainly of securities which are readily realisable and, accordingly, the Company has adequate financial resources to continue in operational existence for the foreseeable future.  In reviewing the position as at the date of this announcement, the Board has considered the "Going Concern and Liquidity Risk: Guidance for Directors of UK Companies 2009" published by the Financial Reporting Council in October 2009.

10.   2012 Financial information

The figures and financial information for the year ended 30 June 2012 are extracted from the Company's annual financial statements for that period and do not constitute statutory accounts.  The Company's annual financial statements for the year to 30 June 2012 have been audited but have not yet been delivered to the Registrar of Companies. The auditors' report on the 2012 annual financial statements was unqualified, did not include a reference to any matter to which the auditors drew attention without qualifying the report, and did not contain any statements under sections 498(2) or 498(3) of the Companies Act 2006.

- 18 -

THE CITY OF LONDON INVESTMENT TRUST PLC

Annual Financial Report for the year ended 30 June 2012

Notes to the financial statements (continued)

11.   2011 Financial information

The figures and financial information for the year ended 30 June 2011 are compiled from an extract of the published financial statements for that year and do not constitute statutory accounts.  Those financial statements have been delivered to the Registrar of Companies and included the report of the auditors which was unqualified, did not include a reference to any matter to which the auditors drew attention without qualifying the report, and did not contain any statements under sections 498(2) or 498(3) of the Companies Act 2006.

12.   Annual report and financial statements and Annual General Meeting

The annual report and financial statements will be posted to shareholders on 1 October 2012 and will be available on the Company's website (www.cityinvestmenttrust.com) or in hard copy format from the Company's registered office, 201 Bishopsgate, London, EC2M 3AE thereafter.

The Annual General Meeting will be held at the registered office on Monday 29 October 2012 at 3.00pm. The notice of the meeting will be sent to shareholders with the annual report.

- ENDS -

For further information please contact:

Job Curtis

Portfolio Manager, The City of London Investment Trust plc

Telephone: [phone]

James de Sausmarez

Director, Head of Investment Trusts, Henderson Global Investors

Telephone: [phone]

Sarah Gibbons-Cook

Investor Relations and PR Manager, Henderson Global Investors

Telephone: [phone]

Neither the contents of the Company's website nor the contents of any website accessible from hyperlinks on the Company's website (or any other website) is incorporated into, or forms part of, this announcement.

 

END

 

 

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