Final Results
Investment Company PLC
27 July 2005
The Investment Company plc - Preliminary Results for the year ended 31 March
2005
CHAIRMAN'S STATEMENT
I was delighted to be invited to join the Board of The Investment Company plc
following its acquisition of New Centurion Trust Limited (previously its parent
company) and to be elected Chairman by the directors on the 19th April 2005. As
chairman of Jove Investment Trust plc from 1977 until that company's voluntary
liquidation in November 2004 I followed the fortunes of The Investment Company
since Jove was, after New Centurion Trust, its largest ordinary shareholder. For
a number of years I have also been a director and recently chairman of Danae
Investment Trust plc, Jove's sister trust, both of which were floated by Ionian
Bank in 1972 and both of which had a substantial portfolio of preference
shareholdings managed by Stephen Cockburn.
When the Jove portfolio was realised last Autumn a number of its long standing
preference shareholdings were acquired through the market by The Investment
Company. As explained in the recent document circulated setting out the details
of the acquisition of New Centurion Trust Limited, as a result of ceasing to be
a close company your Company may be able in future to obtain the tax benefits
granted to an Authorised Investment Trust under Section 842 of the Income and
Corporation Taxes Act 1988. Jove Investment Trust also used to own 20% of Fiske
& Co (later Fiske plc when it was floated on the Alternative Investment Market)
and so I was aware of the management services provided by Ionian Investment
Management, a division of Fiske plc. As shareholders will know from the New
Centurion Trust acquisition document and Listing Particulars new agreements are
in place with Fiske for the provision of investment administration and
accommodation services.
The revenue account has recovered substantially from the painful experience of
the loss of income from Whitnash in the previous year but expenses for the year
to 31st March 2005 have been distorted by the write-off of goodwill of £354,879
being principally the costs of the acquisition of New Centurion Trust. Without
this exceptional expenditure the dividends paid and proposed would have been
covered by the revenue for the year.
The asset value of the ordinary shares, however, has enjoyed a useful recovery
rising from 177.39p per share to 211.65p per share. As pointed out in the
acquisition document, the manner in which New Centurion Trust was paid for, by
the issue of 5% loan notes and new ordinary shares amounting to less than half
the number of our own shares that were being acquired (and which have now been
re-designated non-voting shares), significantly increased the gearing of the
reduced number of ordinary shares now in issue. When total assets appreciate the
percentage rise in the assets attributable to each ordinary share is therefore
exaggerated. While of course any diminution in the underlying value of our
portfolio would be similarly reflected by a greater fall in the asset value per
ordinary share, the fact remains that ordinary shareholders will see greater
benefits from good investment performance.
It should also be beneficial to participating preference shareholders since an
ordinary dividend measured in pence per share costs less due to the smaller
number of shares on which the dividend is payable. Since the participating
element of the dividend on these preference shares is directly related to the
amount of the ordinary dividend per share and not the total cost this will
result in a more rapid rise in the participating preference dividend than would
have been the case previously. However the asset backing of the preference
shares is now more highly geared as a result of the issue of loan notes which
increases the risk profile of these shares.
I should like to pay tribute to my predecessor Mr Paul Simms who retired at the
Annual General Meeting in October last year. He was of course also the Chairman
of the parent company, New Centurion Trust, and it would have been difficult to
negotiate appropriate terms for the merger of our companies if he had continued
to hold both positions. Mr Simms had been a director for 16 years and Chairman
since August 1994. He retired from the Chairmanship of New Centurion Trust at
the time of its acquisition in March 2005 and I put on record the gratitude of
the directors of both companies for his services during those years.
One of the difficulties that your directors have from time to time is to
determine the value at which unlisted securities should be carried in the
balance sheet. Many of our holdings, while listed on the London Stock Exchange,
do not see regular trading and we rely on the advice of Messrs Collins Stewart
for guidance to value such listed securities. There are also some preference
shares which while unlisted nevertheless trade fairly regularly in the market
and their advice on the price at which such holdings should be valued is much
appreciated too.
However there are other investments on which the directors alone have to form a
judgement. For example we do not normally value any unlisted shares at above
par. The convertible preference shares of Hunting Group plc were repaid at par
last year despite having traded in the stock market (there were 48 million of
them fully listed) up to 120p because the Articles of the company did not allow
the preference shareholders a vote. There was no protection of an average market
price clause in their terms of issue, and the repayment was effected by the
legal process of repaying the capital rather than redeeming the shares which
would have required the consent of a class meeting. It is unlikely indeed that
the shareholders would have voted to lose so much money!
Your directors do not value unlisted preference shares above par however high
the coupon although they would be bound to use a market price for listed
securities. Consequently we enjoyed a pleasing uplift in value when we sold back
to the company our holding of 290,000 John Cotton Group 13.25% preference shares
at 130p. We have also since the balance sheet date enjoyed a material uplift in
an unquoted preference share in a subsidiary of the Charles Church Group of
companies. When Charles Church was in financial difficulties 10 years or so ago
the Royal Bank of Scotland having acquired control of the company sold over 90%
of the ordinary shares at a nominal price of 1p per share to the then listed
Beazer Group. Our holding of ordinary shares was as a result compulsorily
acquired at a price significantly below what we had paid for them.
At the same time Beazer offered 20p per share for the preference shares which
had been trading in the market shortly before as high as 35p, a price at which
indeed we had recently bought shares. Beazer's offer was accepted by
shareholders holding about 75% of the preference shares but the bidder was
unable to acquire the balance compulsorily. For the last 10 years we have
thought it prudent to value our Charles Church preference shares at no higher
than the 20p bid price (which we had refused to accept) despite the fact that
the Charles Church business has prospered and the Beazer Group was acquired by
Persimmon plc. The directors of Persimmon recently decided to make an offer for
the minority preference shareholders in Charles Church and we were pleased when
the realistic price of 85p per share was proposed. The consequent uplift in the
value of our asset of some £392,000 represents 20p per ordinary share,
appreciation on top of the uplift in asset value recorded in these accounts at
31st March. The unaudited net asset value per ordinary share, as at 30th June
2005, was 254.43p.
Your directors intend that the majority of the portfolio of The Investment
Company should continue to be invested in preference shares although we have had
a favourable experience in one or two other securities recently. Our holding of
Equitable Life Finance 8% Subordinated guaranteed bonds has shown us a profit of
over 50%. We enjoyed a profit of some 20% in our holding of Danae Investment
Trust Zero Dividend preference shares and our holding of Stanelco ordinary
shares which were exchanged for an unlisted private company investment has more
than recovered the depreciation at the 31st March 2004 and we still have 35% of
our holding which is showing us a substantial profit. Our holding of New Fulcrum
Investment Trust ordinary shares has also been an excellent performer: we
anticipate a small capital profit when the trust is liquidated as the new
directors have proposed and we have received a dividend flow in the last 9
months in excess of £200,000. Nevertheless the Board does not intend to invest
more than 15% of the company's portfolio in such investments as the vast
majority of our funds are invested in preference shares and other similar quoted
prior charge securities.
Your directors have resolved to recommend a maintained ordinary share dividend
for the year to 31st March 2005, but will consider the interim dividend for the
year to the 31st March 2006 in the light of revenue for the half year to 30th
September 2005 when no exceptional charges to the Profit and Loss account are
expected to distort the underlying performance of the Company's portfolio. The
participating preference share dividend payable on 1st October 2005 will
therefore be the same as it was last year, namely 4.75p.
I would draw shareholders attention to two matters which may be of interest to
them. Firstly we acquired for a nominal sum of £3,873 the share capital of
Abport Limited a share dealing company with accumulated losses of some £500,000.
When appropriate opportunities occur this should enable us to take advantage of
short term trading in shares. We have also invested in the ordinary shares of
Fiske plc, who provide the Company with administrative and company secretarial
services, thus creating an identity of interest in the prosperity of the two
businesses.
Sir David Thomson Bt. (Chairman)
CONSOLIDATED REVENUE ACCOUNT
For the year ended 31st March 2005
2005 2004
£ £
Total income 1,028,871 942,380
Expenses (697,456) (327,111)
Net revenue before taxation 331,415 615,269
Taxation - -
Net revenue, after taxation 331,415 615,269
Dividends paid and proposed (675,545) (757,033)
Transfer from reserves (344,130) (141,764)
(Loss)/earnings per 50p Ordinary Share: Basic (6.41)p 1.93p
Adjusted 6.27p 1.93p
Net asset value per 50p Ordinary Share 211.65p xd 177.39p xd
The 2004 figures are the Company's profit and loss account.
CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
For the year ended 31st March 2005
2005 2004
£ £
Distributable profits
Net revenue, after taxation 331,415 615,269
Non-distributable profits
Net profit on disposals of investments 505,081 370,696
Writedown in value of investments - (1,258,719)
505,081 (888,023)
Tax on realised gains - -
Movement in unrealised appreciation of investments 436,258 480,089
941,339 (407,934)
Total recognised gains and losses for the financial year 1,272,754 207,335
The 2004 figures represent the Company's Statement of Total Recognised Gains and
Losses.
CONSOLIDATED BALANCE SHEET
At 31st March 2005
At 31st March 2005
£ £
Fixed assets
Portfolio investments at cost 13,769,941
Unrealised appreciation 619,385
Portfolio investments at market value 14,389,326
Current assets
Debtors 29,198
Investments 318,201
Cash at bank 27,236
374,635
Current liabilities
Bank overdraft 273,582
Dividends 295,434
Other creditors 217,417
786,433
Net current liabilities (411,798)
Total assets less current liabilities 13,977,528
Loan Notes (3,657,004)
Net assets 10,320,524
Capital and reserves
Called up share capital 4,991,381
Share premium 1,019,246
Own shares held (2,919,861)
Revaluation reserve 590,621
Capital reserve 4,127,484
Capital redemption reserve 2,439,800
Revenue reserves carried forward 71,853
Shareholders' funds 10,320,524
Net asset value per:
Participating Preference Share of 50p (6,234,805 shares) 100.0p
Ordinary Share of 50p (1,930,391 shares, 2004: 2,798,584 shares) 211.65p xd
CONSOLIDATED CASH FLOW STATEMENT
For the year ended 31st March 2005
Group Company
2005 2004
£ £ £ £
Operating activities
Cash received from investments 840,766 850,366
Interest received 59,788 90,871
Sundry income 7,245 1,142
Cash paid to and on behalf of employees (83,913) (66,353)
Other cash payments (241,627) (234,673)
Net cash inflow from operating activities 582,259 641,353
Returns on investments and servicing of finance
Interest paid (21,594) (35,018)
Non-equity dividends paid (514,371) (588,257)
Net cash outflow from returns on investments and (535,965) (623,275)
servicing of finance
Taxation
UK corporation tax repaid - -
UK corporation tax paid - -
- -
Capital expenditure and financial investment
Purchase of investments (3,820,714) (1,554,571)
Purchase of subsidiaries (314,960) -
Cash acquired with subsidiary 469,091 -
Purchase of own shares - (498,841)
Sale of investments 3,211,979 3,144,182
Net cash (outflow)/inflow from capital (454,604) 1,090,770
expenditure and financial investment
Equity dividends paid (194,389) (249,370)
(Decrease)/increase in cash (602,699) 859,478
The amounts included for the year ended 31st March 2004 represent the Company's
results.
NOTES ON THE CONSOLIDATED CASH FLOW STATEMENT
For the year ended 31st March 2005
Group Company
2005 2004
£ £
A. Reconciliation of operating profit to
net cash inflow from operations:
Net revenue before taxation 331,415 615,269
Goodwill written off on consolidation 354,879 -
Interest paid 21,594 35,018
Deemed income distribution (92,127) -
Investment gains of trading subsidiary (3,945) -
(Increase)/decrease in debtors (28,674) 1,101
Decrease in creditors (883) (10,035)
582,259 641,353
B. Reconciliation of cash flow to
movement in net debt
(Decrease)/increase in cash in the period (602,699) 859,478
Change in net debt resulting from cash flows (602,699) 859,478
New loan notes issued (3,657,004) -
(Increase)/decrease in net debt (4,259,703) 859,478
Net funds/(debt) at 1st April 2004 356,353 (503,125)
Net (debt)/funds at 31st March 2005 (3,903,350) 356,353
C. Analysis of net debt
At 31st March Cash Non At 1st
April
2005 Flow Cash Flow 2004
£ £ £ £
Bank overdraft (273,582) (273,582) - -
Cash at bank 27,236 (329,117) - 356,353
(246,346) (602,699) - 356,353
Long term debt (3,657,004) - (3,657,004) -
(3,903,350) (602,699) (3,657,004) 356,353
D. Major non-cash transactions and purchase of subsidiary undertakings.
On 7th March 2005 the Company acquired the entire issued share capital
of its former parent, New Centurion Trust Limited through the issue of 849,372
ordinary shares of 50p each and £3,657,004 5% loan notes.
On 22nd October 2004 the Company acquired the entire issued share
capital of Abport Limited for £3,873.
New Centurion Abport
Trust Limited Limited
Net Assets acquired £ £
Investments 4,605,136 43,873
Cash at bank 469,091 -
Creditors (22,427) (40,000)
Net Assets 5,051,800 3,873
Goodwill 354,879 -
5,406,679 3,873
Satisfied by:
Cash paid - 1
Shares allotted:
Issue of shares 1,443,932 -
Issue of loan notes 3,657,004 -
Transaction costs 305,743 3,872
5,406,679 3,873
New Centurion Trust Limited contributed £4,170 to the year's net operating cash
flows. Abport Limited contributed £5,775 to the year's net operating cash flows.
Dividend
The Directors are recommending a final dividend of 4p for the year to 31 March
2005, (2004 Second Interim:4p) which will be paid, subject to shareholder
approval, on 29 September 2005 to shareholders on the register on 12 August
2005. The shares will be marked ex-dividend on 10 August 2005.
Note to the financial information for the year ended 31 March 2005
The financial information does not constitute statutory financial statements
within the meaning of Section 240 of the Companies Act 1985 (as amended). These
statements have been prepared on a consistent basis with the accounting policies
as stated in the previous and current years' financial statements.
The company's statutory accounts for the year ended 31 March 2005 have not been
signed and have not been reported on by the company's auditors.
Copies of this announcement are available from the company's registered office
at 3rd Floor, Salisbury House, London Wall, London, EC2M 5QS.
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