Final Results

RNS Number : 2804N

Monks Investment Trust PLC

09 June 2010

 



THE MONKS INVESTMENT TRUST PLC

Results for the year to 30 April 2010

In the year to 30 April 2010 Monks net asset value per share appreciated by 42.8% compared to a 31.5% increase in the FTSE World Index in sterling terms. The share price increased by 32.3%.

·	Markets rallied as the financial system stabilised and growth resumed in most parts of the world. The largest positive contribution to performance was made by emerging markets equities. The bond holdings also made a strong contribution.
·	Earnings per share was 4.02p compared to last year's exceptionally high 6.97p. Taking this and the Company's investment objective of capital growth into account the Board is recommending a final dividend of 0.50p (2009: 5.00p) to give a total of 3.00p, compared to the much higher than normal 6.00p paid last year.
·	During the year additional one year borrowings of £40m were taken out and were matched by a 30 year interest rate swap to give an overall cost for the additional borrowings of 5.3%.  This reflects the view that long term interest rates are likely to rise.
·	Over 5 years Monks share price total return (including dividends) was 81.6% (12.7% on an annualised basis) compared to a 58.9% return from the FTSE All World Index (9.6% annualised).
·	The Managers believe that equities appear more attractive than government and corporate bonds while the value of cash is falling in real terms.  The deterioration of public finances is a cause of considerable concern but the prospects for achieving capital growth through exposure to the areas of most rapid growth in demand remain bright.

The Monks Investment Trust PLC invests internationally in order to achieve capital growth, which takes priority over income and dividends. Monks is managed by Baillie Gifford & Co, the independent Edinburgh based fund management group with around £59 billion under management and advice as at 7 June 2010.

Past performance is not a guide to future performance. The value of an investment in Monks and any income from it is not guaranteed and may go down as well as up and investors may not get back the amount invested. You should view your investment as long term. As Monks invests in overseas securities, changes in the rates of exchange may also cause the value of your investment (and any income it may pay) to go down or up. The generation of income is less important than Monks' aim of achieving capital growth. You should not expect a significant, or steady, annual income from the shares. You can find up to date performance information about Monks at www.monksinvestmenttrust.co.uk

8 June 2010

- ends -

For further information please contact:

James Budden, Baillie Gifford & Co       07780 704404 or 0131 275 2816

Roland Cross, Broadgate                       07831 401309 or 0207 776 0512

THE MONKS INVESTMENT TRUST PLC

 

CHAIRMAN'S STATEMENT

Performance

In the year to 30 April 2010 net asset value per share, with borrowings at fair value, rose by 42.8% and the FTSE World Index in sterling terms rose by 31.5%. During the first half of the year net asset value per share rose by 20.8% while the comparative index rose by 12.4% and during the second half net asset value per share rose by a further 18.2% and the index advanced by another 17.0%. The share price ended the Company's year at 313p, 32.3% higher than at the end of the previous year.  Over the five years to 30 April 2010 the net asset value per share rose by 67.1% and the share price by 69.6% while the comparative index rose by 40.2%.

Markets rallied as the financial system appeared to have been stabilised, greatly reducing the risk of a complete meltdown and, after a severe shock, economic growth resumed in most parts of the world.

Over and above the general rise in equity markets around the world the largest positive contributions to performance were made by our equity holdings in Emerging Markets and Europe. Also of particular note was the performance of our holdings of bonds, which in aggregate exceeded that of the comparative index during a period of strong equity markets.

Earnings and Dividend

Earnings per share was 4.02p compared to last year's exceptionally high 6.97p, a decrease of 42.3%, mainly as a result of lower income from shares and a reduced amount of deposit income. Earnings last year also included an amount for the recovery of VAT paid in previous years together with interest thereon (see note 3), excluding which the decrease in earnings per share was 35.2%.

Monks invests with the aim of achieving capital growth rather than income and all costs are charged to the Revenue Account. As a result earnings fluctuate from year to year. The year before was an exceptional period in terms of income received from investments as many of the companies in which we invest increased their dividends despite the deteriorating economic background, and we also received a relatively large amount of income from bonds. Since then, companies have become more cautious in their dividend policies in response to an increase in uncertainty about future revenues and the availability of financing from banks. As a consequence, a number of the companies in our portfolio cut their dividends. Interest income from bonds with variable coupons also declined owing to the downward trend of short term interest rates and we also reduced the holdings of bonds and cash during the year, with an adverse effect on income.

The Board has taken the decline in the Company's income and its investment objective of capital growth into account in recommending a final dividend of 0.50p, which together with the regular interim (0.50p) and second exceptional interim (2.00p) already paid, would make the total dividend for the year 3.00p, a decline of 50% from the much higher than normal 6.00p paid last year.

THE MONKS INVESTMENT TRUST PLC

CHAIRMAN'S STATEMENT (CTD)

Long Term Borrowing

The Board takes a long term and strategic view of the Company's capital structure. The 11% debenture stock will mature in 2012 and the 6 ³/₈% debenture stock in 2023. Current long term interest rates are low relative to past history and, on balance, it seems more likely that they will rise than that they will fall. Locking in current long term rates is therefore an attractive option. Such funding is, however, difficult to obtain in practice owing to the unwillingness of banks to lend and the limited market for investment trust debentures. After examining the options available, we entered into a thirty year interest rate swap for £40m which locks in the rate banks charge to each other. We then borrowed this amount under a shorter term facility with the margin over the rate at which banks lend to each other fixed for one year. The net effect of these two transactions is that part of the cost of borrowing over the next thirty years has been locked in at attractive rates but the smaller element that is determined by the additional margin banks charge non-bank customers has only been fixed for a year. This margin is currently high compared to past levels and so may well decline in future, making it unattractive to fix this element of the borrowing cost. Taking the two transactions together the current interest rate on the £40m of additional borrowing is 5.3%. The funds were invested in a diversified basket of equities with an initial yield of more than 6%.

Investment Activity

Over the course of the year there were significant changes to the portfolio. In the latter half of the previous year we were able to purchase a number of corporate bonds trading at distressed prices owing to the dysfunctional nature of the market following the collapse of Lehman Brothers. During the course of the year to 30 April 2010 this investment paid off and the majority of these bonds were sold for substantially higher prices and some matured. The proceeds were largely reinvested in equities resulting in net sales of £125.6m of bonds. The cash balance at the start of the year was also almost entirely invested by the year end as were the funds raised by additional borrowing of £40m. Net purchases of equities amounted to £206.3m and overall there was a net investment of £80.7m in the combination of shares and bonds.

At the year end, equities as a percentage of shareholders' funds were 102% and equities and bonds together were 110%. This represents both a substantial increase in exposure to equities from 74% at the end of the previous year and an increase in exposure to the combination of equities and bonds from 98%. The funds raised by additional borrowing were, however, invested in a basket of shares of companies with what appear to be sustainable dividends and relatively high yields, and this may to some extent mitigate the increase in the sensitivity of shareholders' funds to fluctuations in the general level of equity markets.

Discount and Buybacks

The discount (at fair value) widened to 14.0% from 7.3% over the course of the year. The Board considers the level of discount and has authorised the repurchase of shares when this will be of benefit to continuing shareholders as well as being in the interest of those shareholders who may need to sell some or all of their shares.

THE MONKS INVESTMENT TRUST PLC

CHAIRMAN'S STATEMENT (CTD)

During the year to 30 April 2010 £7.3m was spent on the repurchase of 2,630,000 shares. Since the power to buy back shares was first granted in 1999, 126.9m shares have been bought back and cancelled, representing 33% of the share capital at the start of that period. The Board will continue to buy back shares if suitable opportunities appear.

Outlook

The magnitude of the decline in output makes this the worst recession in the post war period and unemployment has risen sharply in many countries. It has been unusual in that it was not triggered by the need to raise interest rates to control inflation and instead interest rates were slashed to record low levels. This has meant that for the majority of those with jobs and mortgages disposable income has held up or actually risen. This in turn means that consumers in the heavily indebted countries have been able to maintain relatively high spending levels and at the same time save more or pay down debt. Companies have been able to cut costs by reducing employment and have also cut back on investment while their revenues have been higher than anticipated. This has enabled companies to pay down debt and increase earnings.

Unfortunately, the improvements in the balance sheets and cash flows of companies and individuals have been achieved at the cost of a dramatic deterioration in public finances. In effect, the parcel of debt that caused the problem is still there and has just been passed to the public sector. In many parts of the world the period of fiscal stimulus is coming to an end as governments are discovering the limits to their ability to borrow. This will create a headwind for growth.

Overall global demand has also been greatly assisted by the success of efforts to stimulate the Chinese economy in the face of the collapse of export markets. This has boosted demand for commodities in general and helped to stimulate the more resource based economies such as Australia and Brazil.

While fears of mal-investment on a grand scale in China may well be exaggerated, the authorities are clearly concerned and measures aimed at property speculation may have an adverse effect on demand for commodities in the short term. Interest rates have also risen in some of the faster growing economies and may have further to rise if inflation is not to get out of control.

With so many forces pulling in different directions the immediate outlook is unclear and after the rises of the last year there are fewer pockets of value. In general terms, however, equities appear more attractive than government and corporate bonds, while the value of cash is falling in real terms. Taking a longer term view, the prospects for achieving capital growth through exposure to the areas of most rapid growth in demand remain bright.

AGM

I hope shareholders will come to the Annual General Meeting, which will be held on 3 August 2010 at 11.00am at the Institute of Directors. Our manager will give a short presentation and there will be an opportunity to ask questions.

THE MONKS INVESTMENT TRUST PLC

 

The following is the unaudited preliminary statement for the year to 30 April 2010 which was approved by the Board on 8 June 2010.  The Directors of The Monks Investment Trust PLC are recommending to the Annual General Meeting of the Company to be held on 3 August 2010 the payment of a final dividend of 0.50p (5.00p  last year) per ordinary share, making a total of 3.00p (6.00p last year) per ordinary share for the year ended 30 April 2010.

INCOME STATEMENT

(unaudited)

	For the year ended 30 April 2010				For the year ended 30 April 2009
	Revenue £'000	Capital £'000	Total £'000		Revenue £'000	Capital £'000	Total £'000
Gains /(losses) on investments	-	305,723	305,723		-	(361,428)	(361,428)
Currency (losses)/gains	-	(11,670)	(11,670)		-	6,011	6,011
Income (note 2)	23,887	-	23,887		33,949	-	33,949
Investment management fee	(4,186)	-	(4,186)		(3,637)	-	(3,637)
Recoverable VAT (note 3)	-	-	-		1,738	-	1,738
Other administrative expenses	(1,062)	-	(1,062)		(914)	-	(914)
Net return before finance costs and taxation	18,639	294,053	312,692		31,136	(355,417)	(324,281)
Finance costs of borrowings	(7,483)	-	(7,483)		(6,982)	-	(6,982)
Net return on ordinary activities before taxation	11,156	294,053	305,209		24,154	(355,417)	(331,263)
Tax on ordinary activities	(587)	-	(587)		(5,770)	-	(5,770)
Net return on ordinary activities after taxation	10,569	294,053	304,622		18,384	(355,417)	(337,033)
Net return per ordinary share (note 4)*	4.02p	111.99p	116.01p		6.97p	(134.79p)	(127.82p)
Dividends per share paid and payable in respect of the year (note 5)	3.00p				6.00p

* Net return per ordinary share for 2009 includes 0.77p (net of tax) in respect of recoverable VAT and interest thereon (see note 3).

The total column of the Income Statement is the profit and loss account of the Company.

All revenue and capital items in this statement derive from continuing operations.

A Statement of Total Recognised Gains and Losses is not required as all gains and losses of the Company have been reflected in the above statement.

THE MONKS INVESTMENT TRUST PLC

SUMMARISED BALANCE SHEET

at 30 April 2010

(unaudited)

		30 April 2010		30 April 2009
		£'000		£'000
Fixed assets
Investments		1,054,003		664,627
Current assets
Debtors		26,589		9,438
Cash and deposits		14,449		98,958
		41,038		108,396
Creditors
Amounts falling due within one year		(57,066)		(11,895)
Net current (liabilities)/assets		(16,028)		96,501
Total assets less current liabilities		1,037,975		761,128
Creditors
Amounts falling due after more than one year (note 6)		(79,582)		(79,549)
Provisions for liabilities and charges
Deferred taxation		(57)		(823)
Total net assets		958,336		680,756
Capital and Reserves
Called-up share capital		13,051		13,182
Share premium		11,100		11,100
Capital redemption reserve		6,347		6,216
Capital reserve		898,228		611,487
Revenue reserve		29,610		38,771
Shareholders' funds		958,336		680,756
Net asset value per ordinary share		364.1p		255.0p
(after deducting borrowings at fair value)
Net asset value per ordinary share		367.0p		258.0p
(after deducting borrowings at par)
Ordinary shares in issue (note 7)		261,014,859		264,179,859

THE MONKS INVESTMENT TRUST PLC

 

RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS

(unaudited)

For the year ended 30 April 2010

	Share capital £'000	Share premium £'000	Capital redemption reserve £'000	Capital reserve* £'000	Revenue reserve £'000	Total shareholders' funds £'000
Shareholders' funds at 1 May 2009	13,182	11,100	6,216	611,487	38,771	680,756
Net return on ordinary activities after taxation	-	-	-	294,053	10,569	304,622
Shares purchased for cancellation	(131)	-	131	(7,312)	-	(7,312)
Dividends paid during the year	-	-	-	-	(19,730)	(19,730)
Shareholders' funds at 30 April 2010	13,051	11,100	6,347	898,228	29,610	958,336

For the year ended 30 April 2009

	Share capital £'000	Share premium £'000	Capital redemption reserve £'000	Capital reserve* £'000	Revenue reserve £'000	Total shareholders' funds £'000
Shareholders' funds at 1 May 2008	13,209	11,100	6,189	968,894	31,460	1,030,852
Net return on ordinary activities after taxation	-	-	-	(355,417)	18,384	(337,033)
Shares purchased for cancellation	(27)	-	27	(1,990)	-	(1,990)
Dividends paid during the year	-	-	-	-	(11,073)	(11,073)
Shareholders' funds at 30 April 2009	13,182	11,100	6,216	611,487	38,771	680,756

 

*The capital reserve balance at 30 April 2010 includes investment holding gains on fixed asset investments of £246,960,000 (2009 - loss of £4,881,000).

 

THE MONKS INVESTMENT TRUST PLC

SUMMARISED CASH FLOW STATEMENT (unaudited)
	For the year ended 30 April 2010			For the year ended 30 April 2009
	£'000	£'000		£'000	£'000
Net cash inflow from operating activities		19,921			29,056
Net cash outflow from servicing of finance		(6,990)			(6,950)
Taxation
Corporation tax paid	(2,332)			(3,458)
Overseas tax incurred	(1,278)			(1,114)
Income tax (incurred)/refunded	(35)			41
Total tax paid		(3,645)			(4,531)
Financial investment
Acquisitions of investments	(493,377)			(414,273)
Disposals of investments	398,939			414,692
Forward currency contracts	(6,161)			-
Currency (losses)/gains	(3,900)			2,117
Net cash (outflow)/inflow from financial investment		(104,499)			2,536
Equity dividends paid		(19,730)			(11,073)
Net cash (outflow)/inflow before use of liquid resources and financing		(114,943)			9,038
Liquid resources
Decrease in short term deposits	43,924			19,638
Net cash inflow from use of liquid resources		43,924			19,638
Financing
Shares purchased for cancellation	(7,312)			(1,990)
Bank loans drawn	40,000			-
Net cash inflow/(outflow) from financing		32,688			(1,990)
(Decrease)/Increase in cash		(38,331)			26,686
Reconciliation of net cash flow to movement in net (debt)/funds
(Decrease)/increase in cash in the year		(38,331)			26,686
Decrease in short term deposits		(43,924)			(19,638)
Exchange movement on short term deposits		(2,254)			3,894
Net cash inflow from bank loans		(40,000)			-
Other non-cash changes		(33)			(33)
Movement in net (debt)/funds in the year		(124,542)			10,909
Net funds at 1 May		19,409			8,500
Net (debt)/funds at 30 April		(105,133)			19,409
Reconciliation of net return before finance costs and taxation to net cash inflow from operating activities
Net return before finance costs and taxation		312,692			(324,281)
(Gains)/losses on investments		(305,723)			361,428
Currency losses/(gains)		11,670			(6,011)
Amortisation of fixed interest book cost		(2,348)			(1,855)
Decrease/(increase) in accrued income		3,172			(922)
Decrease in debtors		40			1,089
Increase/(decrease) in creditors		418			(392)
Net cash inflow from operating activities		19,921			29,056

THE MONKS INVESTMENT TRUST PLC

 

DISTRIBUTION OF ASSETS

at 30 April 2010

(unaudited)

 

				30 April 2010 %		30 April 2009 %
Equities:	United Kingdom			13.1		7.8
	Continental Europe			15.1		10.8
	North America			22.1		21.2
	Japan			2.8		3.6
	Asia Pacific			16.7		11.4
	Other Emerging Markets			20.8		12.0
				90.6		66.8
Bonds:                 United Kingdom				2.9		6.3
Overseas				4.3		14.3
Net liquid assets				2.2		12.6
Total assets (before deduction of borrowings)				100.0		100.0

 

THE MONKS INVESTMENT TRUST PLC

 

THIRTY LARGEST EQUITY HOLDINGS at 30 April 2010 (unaudited)
Name		Region		Business	2010					2009
					Value £'000		% of total assets		Value £'000
Baillie Gifford Pacific Fund	Asia Pacific		Investment fund			49,708		4.6		54,593
OGX	Other Emerging Markets		Oil and gas exploration and   production			46,533		4.3		30,726
Aggreko	United Kingdom		Temporary power units			21,773		2.0		10,290
McDonalds	North America		Fast food restaurants			19,158		1.8		-
Seadrill	Continental Europe		Contract drilling services			18,804		1.7		8,469
Dragon Oil	Other Emerging Markets		Oil and gas exploration and   production			13,419		1.2		7,218
Eldorado Gold	North America		Gold mining			13,271		1.2		-
Petrofac	United Kingdom		Oilfield services company			13,162		1.2		6,650
Meditek	Asia Pacific		Electronic components			13,060		1.2		-
Novozymes	Continental Europe		Enzyme producer			13,042		1.2		3,801
Petrobras	Other Emerging Markets		Integrated oil			12,833		1.2		22,071
TKI Garanti BSKI	Other Emerging Markets		Bank			12,722		1.2		-
Solera Holdings	North America		Transactional software			12,501		1.2		7,575
Vale	Other Emerging Markets		Diversified mining group			12,321		1.1		6,496
Healthspring	North America		Health maintenance   organisation			12,290		1.1		-
LG Electronics	Asia Pacific		Electronic goods			11,520		1.1		-
Atlas Copco	Continental Europe		Industrial compressors and   mining equipment			11,271		1.0		6,702
Berkshire Hathaway	North America		Insurance			11,067		1.0		9,086
Kunlun Energy Company	Asia Pacific		Oil and gas company			10,937		1.0		-
DNO International	Continental Europe		Oil and gas exploration and   production			10,873		1.0		-
Marine Harvest	Continental Europe		Salmon farmer			10,849		1.0		3,756
BHP Billiton	Asia Pacific		Diversified resources			10,842		1.0		7,624
The Biotech Growth Trust	United Kingdom		Investment trust			10,744		1.0		3,961
Naspers	Other Emerging Markets		Media company			10,530		1.0		-
Nestlé	Continental Europe		Food and consumer products			10,524		1.0		10,262
Kellog	North America		Food manufacturer			10,473		1.0		8,281
Noble	North America		Offshore drilling company			10,420		1.0		-
Capitalsource	North America		Commercial lending			10,395		1.0		-
Taiwan Semicon   Manufacturing	Asia Pacific		Semiconductor manufacturer			10,340		1.0		-
BIM Birlesik Magazalar	Other Emerging Markets		Discount food and consumer   goods			10,337		1.0		-
						445,719		41.3		207,561

THE MONKS INVESTMENT TRUST PLC

NOTES

(unaudited)

1.	The financial information within this preliminary announcement has been extracted from the unaudited financial statements for the year to 30 April 2010 have been prepared on the basis of the accounting policies set out in the Company's Annual Financial Statements at 30 April 2009.
			2010					2009
			£'000					£'000
2.	Income
	Income from investments and interest receivable		23,842					33,890
	Other income		45					59
			23,887					33,949
3.	Recoverable VAT
	In 2007 the European Court of Justice ruled that investment management fees should be exempt from VAT. Since then, HMRC has accepted the Managers' repayment claims for the periods from 1990 to 1996 and from 2000 to 2007. During the year ended 30 April 2009 the Company received a reimbursement of £2,902,000 in this regard of which £1,164,000 had been recognised in the year to 30 April 2008, with the balance of £1,738,000 being recognised in that year together with interest thereon of £1,078,000. A case has been recently brought against HMRC to seek to recover the amounts relating to the intervening period, 1997 to 2000, together with interest on a compound basis. The Company's Auditors, PwC, have provided services in connection with this case for a fee of £35,000. Additional fees may become payable to PwC in the event of a successful outcome to the case. No amounts have been accrued in this regard. The potential recoveries of VAT and interest would be a significant multiple to the potential additional fees payable to PwC. No VAT or related interest recover has been accrued or recognized as a contingent asset, as the outcome of the case is expected to remain uncertain for several years.
			2010					2009
4.	Net return per ordinary share
	Revenue return		4.02p					6.97p
	Capital return		111.99p					(134.79p)
	Total return		116.01p					(127.82p)
	Revenue return per ordinary share is based on the net revenue return on ordinary activities after taxation of £10,569,000 (2009 - £18,384,000) and on 262,582,039 (2009 - 263,678,571) ordinary shares of 5p, being the weighted average number of ordinary shares in issue during the year. Capital return per ordinary share is based on the net capital loss for the financial year of £294,053,000 (2009 - loss of £355,417,000) and on 262,582,039 (2009 - 263,678,571) ordinary shares, being the weighted average number of ordinary shares in issue during the year. There are no dilutive or potentially dilutive shares in issue.
		2010		2009		2010 £'000			2009 £'000
5.	Ordinary Dividends
	Amounts recognised as distributions in the year:
	Previous year's final (paid 7 August 2009)	5.00p		3.20p		13,182			8,437
	Interim (paid 29 January 2010)	0.50p		1.00p		1,310			2,636
	Second interim (paid 1 April 2010)	2.00p		-		5,238			-
		7.50p		4.20p		19,730			11,073
	We also set out below the total dividends paid and proposed in respect of the financial year, which is the basis on which the requirements of section 842 of the Income and Corporation Taxes Act 1988 are considered.  The revenue available for distribution by way of dividend for the year is £10,569,000 (2009 - £18,384,000).

THE MONKS INVESTMENT TRUST PLC

NOTES (Ctd)

(unaudited)

		2010		2009		2010 £'000		2009 £'000
5.	Ordinary Dividends (Ctd)
	Dividends paid and payable in respect of the financial year:
	Adjustment to previous year's final dividend re shares bought back					-		(17)
	Interim  (paid 29 January 2010)	0.50p		1.00p		1,310		2,636
	Second interim (paid 1 April 2010)	2.00p		-		5,238		-
	Proposed final (payable 6 August 2010)	0.50p		5.00p		1,305		13,182
		3.00p		6.00p		7,853		15,801
	If approved the final dividend will be paid on 6August 2010 to all shareholders on the register at the close of business on 9 July 2010.  The ex-dividend date is 7 July 2010. The Company's Registrar offers a Dividend Reinvestment Plan and the final date for elections for this dividend is 16 July 2010.
6.	The fair value of the debentures at 30 April 2010 was £87,584,000 (2009 - £87,940,000).
7.	In the year to 30 April 2010 the Company bought back 2,630,000 ordinary shares with a nominal value of £131,500 at a total cost of £7,312,000. At 30 April 2010 the Company had authority to buy back a further 36,890,364 ordinary shares, being 14.1% of the shares in issue at the year end.
8.	The Report and Accounts will be available on the Managers' website www.bailliegifford.com on or around 30 June 2010.
9.	The financial information set out above does not constitute the Company's statutory accounts for the year ended 30 April 2010.  The financial information for 2009 is derived from the statutory accounts for 2009 which have been delivered to the Registrar of Companies.  The Auditors have reported on the 2009 accounts; their report was unqualified and it did not contain a statement under section 237(2) or (3) of the Companies Act 1985.  The statutory accounts for 2010 will be finalised on the basis of the financial information presented in this preliminary announcement and will be delivered to the Registrar of Companies following the Company's Annual General Meeting.
10.	None of the views expressed in this document should be construed as advice to buy or sell a particular investment.

 

END

 

 

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