Interim Results

RNS Number : 3893J

Monks Investment Trust PLC

02 December 2008

 



THE MONKS INVESTMENT TRUST PLC

Half-Yearly Management Report to 31 October 2008

Results

Over the six months to 31 October, net asset value, with borrowings deducted at fair value, fell by 38.9%, from 386.5p to 236.3p, at which level it was 39.1% below the figure twelve months ago. The FTSE World Index, our principal comparative index, was down 23.6% over six months and 27.8% over a year. Over the same periods, the Company's share price fell by 39.7% and 40.0% respectively.

Earnings per share increased from 1.52p last year to 4.17p. Included in income for the period is an amount for the recovery of VAT paid in previous years together with interest thereon (see note 4 to the Condensed Financial Statements below for further details). Earnings per share would have been 3.40p excluding these items. An increase in dividend income was the main reason for the change in earnings. The Board has declared a dividend of 1.00p which will be paid on 30 January 2009. This is double the rate of last year's interim dividend: this rate of increase carries no implication for the final dividend.

The global economy appears to have undergone a very sudden change in the middle of September. The failure of Lehman Brothers was either the cause of this change or its most visible symptom. Prior to this time stockmarkets were drifting lower and economic activity was slowing but after it markets took a marked turn for the worse and economic activity experienced a downturn almost unprecedented in its suddenness. Shares of companies whose prospects are tied to the continuation of global growth, in general, and to investment spending, in particular, were among those that suffered the most in this latter period and our portfolio was adversely affected as a large proportion of our equity holdings fell into this category. Having managed to avoid the worst performing areas of the equity markets in prior periods it could be said that there were no places to hide.

Of the major stockmarkets, the best performing for a sterling based investor were those of the US and Japan with falls of 14% and 17% respectively, as the weakness of sterling against the dollar and the yen went some way to offsetting falls in local currency terms. Non-Japan Asia and other Emerging Markets experienced the largest falls. The UK market fell by just under 30%.

Investment Changes

We made net additions to equities and bonds of £11.7m and £19.3m, respectively, as we sought to take advantage of distressed selling and reduced valuations. Within equities net additions were made in the UK and North America and net sales were made elsewhere. Purchases included bank and other financial shares, areas of the market we have avoided for some time but where share price falls have been particularly large. Net purchases were made of US dollar and euro denominated bonds and net sales were made of sterling bonds.

The analysis below shows the distribution of investments by geography and industrial sector at the end of October and the end of April. Cash and fixed interest holdings exceeded the value of borrowings at the end of the first half of the year.

Outlook

It now seems more likely than not that the current recession will be the worst since the Second World War as it is accompanied by, or possibly precipitated by, a breakdown in the financial system that in its severity and global scope is without parallel in the post war period. Previous banking crises have been largely confined to a single region or country and recovery has usually been led by exports following currency devaluation. This is not an option for the world as a whole. Investment spending is likely to be reduced around the world and even those companies with strong competitive positions can be expected to suffer if their revenues are dependent on the investment spending of their customers. While the majority of these companies have already suffered large declines in their share prices, the outlook is clearly considerably less favourable than it seemed earlier in the year and it is highly likely that expectations for future earnings remain too optimistic. A review of the portfolio identified a significant exposure to companies whose prospects can be closely linked to investment spending in a variety of industries and as a result a number of sales have been or are being made in order to reduce overall exposure to the risk of further price weakness as a result of falling investment.

There is also mounting evidence of falling capital expenditure in the oil industry. The combination of uncertainty about the future price of oil and the drying up of normal sources of financing has led companies to scale back or delay projects. Even those companies who are able to afford to spend are showing evidence of holding back in anticipation of lower costs as service prices fall and raw material prices decline. The decline rate of existing fields is such that investment can only be deferred rather than cancelled, and the longer it is delayed the tighter the market for oil can be expected to become in future, but a setback for the oil service industry seems virtually certain. While share prices have already fallen significantly and many shares in this industry are cheap there is scope for further disappointment if orders for new drilling rigs are cancelled and the rates at which contracts for rigs are renewed start to decline significantly, even though revenues for several years are secured by long term contracts. Given this background and the large position in oil services some reduction in exposure was prudent but following these sales this position will remain one of the largest industry exposures as the long term prospects for companies in this industry remain attractive.

Equity markets have returned to levels at which they appear either fairly valued or slightly undervalued using long term measures after many years of trading above fair value. The greatest level of distress at the moment is, however, probably to be found in the market for corporate bonds. When compared with the yields on government bonds, corporate bonds are priced to discount a level of defaults greater than that during any previous recession and for those categories of bonds with long price histories the implied level of defaults is greater than that experienced in the 1930s. If equities are fair value, corporate bonds appear extremely cheap. In current circumstances there is no guarantee that equities and bonds will not become even cheaper in the short term but they do now represent either good or exceptional value based on past history.

The principal risks and uncertainties facing the Company are set out in note 12 to the Condensed Financial Statements below.

2 December 2008

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 £38 billion under management and advice as at 1 December 2008.

Past performance is no guarantee of future performance. The value of an investment 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 can find up to date performance information about Monks at www.monksinvestmenttrust.co.uk

- ends -

For further information please contact:

Robert O'Riordan

Baillie Gifford & Co                              07730 412007

Roland Cross, Director

Broadgate Marketing                            020 7726 6111

The following is the unaudited Half-Yearly Financial Report for the six months to 31 October 2008

THE MONKS INVESTMENT TRUST PLC

Half-Yearly Financial Report 31 October 2008

Responsibility Statement

We confirm that to the best of our knowledge:

• the condensed set of financial statements has been prepared in accordance with the Accounting Standards Board's statement 'Half-Yearly Financial Reports';

• the Interim Management report includes a fair review of the information required by Disclosure and Transparency Rules 4.2.7R (indication of important events during the first six months and description of principal risks and uncertainties for the remaining six months of the year); and

• the Half-Yearly Financial Report includes a fair review of the information required by Disclosure and Transparency Rules 4.2.8R (disclosure of related party transactions and changes therein).

By order of the Board

J G D Ferguson

Chairman

      2 December 2008

THE MONKS INVESTMENT TRUST PLC

INCOME STATEMENT 

(unaudited)

	For the six months ended 31 October 2008				For the six months ended 31 October 2007			For the year ended 30 April 2008
	Revenue £'000	Capital £'000		Total £'000	Revenue £'000	Capital £'000	Total £'000	Revenue £'000	Capital £'000	Total £'000
(Losses)/gains on investments	-	(394,350)		(394,350)	-	137,115	137,115	-	118,594	118,594
Currency (losses)/gains	-	(1,352)		(1,352)	-	157	157	-	(67)	(67)
Income from investments and interest receivable	18,789	-		18,789	12,181	-	12,181	28,667	-	28,667
Other income	34	-		34	33	-	33	68	-	68
Investment management fee (note 3)	(1,975)	-		(1,975)	(2,776)	-	(2,776)	(5,248)	-	(5,248)
Recoverable VAT (note 4)	1,738	-		1,738	-	-	-	1,164	-	1,164
Other administrative expenses	(474)	-		(474)	(516)	-	(516)	(1,018)	-	(1,018)
Net return before finance costs and taxation	18,112	(395,702)		(377,590)	8,922	137,272	146,194	23,633	118,527	142,160
Finance costs of borrowings	(3,492)	-		(3,492)	(3,982)	-	(3,982)	(7,872)	-	(7,872)
Net return on ordinary activities before taxation	14,620	(395,702)		(381,082)	4,940	137,272	142,212	15,761	118,527	134,288
Tax on ordinary activities	(3,619)	-		(3,619)	(735)	-	(735)	(3,476)	-	(3,476)
Net return on ordinary activities after taxation	11,001	(395,702)		(384,701)	4,205	137,272	141,477	12,285	118,527	130,812
Net return per ordinary share (note 5)	4.17p		(150.05p)	(145.88p)	1.52p	49.65p	51.17p	4.53p	43.68p	48.21p
Note: Dividends paid and proposed per ordinary share (note 6)	1.00p				0.50p			3.70p

The Total column of this 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

BALANCE SHEET

 (unaudited)

	At 31 October  2008	At 31 October 2007	At 30 April 2008
	£'000	£'000	£'000
Fixed assets
Investments	648,205	1,107,061	1,011,054
Current assets
Debtors	18,561	25,938	17,245
Cash and short term deposits	55,843	93,638	88,016
	74,404	119,576	105,261
Creditors
Amounts falling due within one year	(7,098)	(5,176)	(4,997)
Net current assets	67,306	114,400	100,264
Total assets less current liabilities	715,511	1,221,461	1,111,318
Creditors
Amounts falling due after more than one year:
Bank loans	-	(69,315)	-
Debenture stocks	(79,533)	(79,500)	(79,516)
	(79,533)	(148,815)	(79,516)
Provisions for liabilities and charges
Deferred taxation	(254)	(161)	(950)
Total net assets	635,724	1,072,485	1,030,852
Capital and reserves
Called-up share capital	13,182	13,649	13,209
Share premium	11,100	11,100	11,100
Capital redemption reserve	6,216	5,749	6,189
Capital reserve - realised	686,322	671,166	695,683
Capital reserve - unrealised	(115,120)	346,118	273,211
Revenue reserve	34,024	24,703	31,460
Equity shareholders' funds	635,724	1,072,485	1,030,852

Net asset value per ordinary share (after deducting borrowings at fair value) (note 7)	236.3p	387.8p	386.5p
Net asset value per ordinary share  (after deducting borrowings at par)	241.0p	392.7p	390.0p
Ordinary shares in issue (note 8)	263,644,859	272,971,966	264,179,859

  THE MONKS INVESTMENT TRUST PLC

RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS (unaudited)

For the six months ended 31 October 2008

	Share capital £'000	Share premium £'000	Capital redemption reserve £'000	Capital reserve - realised £'000	Capital reserve - unrealised £'000	Revenue reserve £'000	Total shareholders' funds £'000
Shareholders' funds at 1 May 2008	13,209	11,100	6,189	695,683	273,211	31,460	1,030,852
Net return on ordinary activities after taxation	-	-	-	(7,371)	(388,331)	11,001	(384,701)
Shares purchased for cancellation†	(27)	-	27	(1,990)	-	-	(1,990)
Dividends paid during the period#	-	-	-	-	-	(8,437)	(8,437)
Shareholders' funds at 31 October 2008	13,182	11,100	6,216	686,322	(115,120)	34,024	635,724

For the six months ended 31 October 2007

	Share capital £'000	Share premium £'000	Capital redemption reserve £'000	Capital reserve - realised £'000	Capital reserve - unrealised £'000	Revenue reserve £'000	Total shareholders' funds £'000
Shareholders' funds at 1 May 2007	14,033	11,100	5,365	632,275	272,795	27,869	963,437
Net return on ordinary activities after taxation	-	-	-	63,949	73,323	4,205	141,477
Shares purchased for cancellation†	(384)	-	384	(25,058)	-	-	(25,058)
Dividends paid during the period#	-	-	-	-	-	(7,371)	(7,371)
Shareholders' funds at 31 October 2007	13,649	11,100	5,749	671,166	346,118	24,703	1,072,485

For the year ended 30 April 2008

	Share capital £'000	Share premium £'000	Capital redemption reserve £'000	Capital reserve -realised £'000	Capital reserve - unrealised £'000	Revenue reserve £'000	Total shareholders' funds £'000
Shareholders' funds at  1 May 2007	14,033	11,100	5,365	632,275	272,795	27,869	963,437
Net return on ordinary activities after taxation	-	-	-	118,111	416	12,285	130,812
Shares purchased for cancellation	(824)	-	824	(54,703)	-	-	(54,703)
Dividends paid during the year	-	-	-	-	-	(8,694)	(8,694)
Shareholders' funds at 30 April 2008	13,209	11,100	6,189	695,683	273,211	31,460	1,030,852

† See note 8

#   See note 6

THE MONKS INVESTMENT TRUST PLC

CONDENSED CASH FLOW STATEMENT (unaudited)
	Six months to 31 October 2008 £'000	Six months to 31 October 2007 £'000	Year to 30 April 2008 £'000
Net cash inflow from operating activities	20,971	12,579	21,486
Net cash outflow from servicing of finance	(3,475)	(3,961)	(8,222)
Total tax paid	(1,656)	(517)	(1,162)
Net cash (outflow)/inflow from financial investment	(39,132)	19,512	113,603
Equity dividends paid	(8,437)	(7,371)	(8,694)
Net cash (outflow)/inflow before use of liquid resources and financing	(31,729)	20,242	117,011
Net cash inflow/(outflow) from use of liquid resources	17,826	(16,000)	11,555
Shares purchased for cancellation	(1,990)	(25,054)	(54,706)
Bank loans repaid	-	-	(81,216)
Decrease in cash	(15,893)	(20,812)	(7,356)
Reconciliation of net cash flow to movement in net (debt)/funds
Decrease in cash in the period	(15,893)	(20,812)	(7,356)
(Decrease)/increase in short term deposits	(17,826)	16,000	(11,555)
Net cash outflow from bank loans	-	-	81,216
Exchange movements on short term deposits	1,546	-	8,477
Exchange movement on bank loans	-	143	(11,758)
Other non-cash changes	(17)	(16)	(32)
Movement in net (debt)/funds in the period	(32,190)	(4,685)	58,992
Net funds/(debt) at start of the period	8,500	(50,492)	(50,492)
Net (debt)/funds at end of the period	(23,690)	(55,177)	8,500
Reconciliation of net return before finance costs and taxation to net cash inflow from operating activities
Net return before finance costs and taxation	(377,590)	146,194	142,160
Net losses/(gains) on investments	394,350	(137,115)	(118,594)
Currency losses/(gains)	1,352	(157)	67
Amortisation of fixed income book cost	(420)	(299)	(632)
Changes in debtors and creditors	3,279	3,956	(1,515)
Net cash inflow from operating activities	20,971	12,579	21,486

  THE MONKS INVESTMENT TRUST PLC

THIRTY LARGEST EQUITY HOLDINGS at 31 October 2008 (unaudited)
Name	Region	Business	Value £'000	% of total assets
Baillie Gifford Pacific Fund	Asia Pacific	Investment fund	40,910	5.7
EOG Resources	North America	Gas exploration and production	25,641	3.6
Petrobras	Other Emerging Markets	Integrated oil	21,990	3.1
Schlumberger	North America	Oilfield services	20,789	2.9
Imperial Energy	Other Emerging Markets	Oil and gas exploration and production	16,920	2.4
Diamond Offshore Drilling	North America	Offshore drilling	15,318	2.1
National Oilwell Varco	North America	Drilling equipment manufacturer	13,799	1.9
Nestlé	Continental Europe	Food and consumer products	10,823	1.5
Rolls Royce Group	United Kingdom	Engine manufacturer	10,637	1.5
Atlas Copco	Continental Europe	Industrial compressors and mining equipment	9,794	1.4
Reliance Industries	Asia Pacific	Petrochemical firm	9,698	1.4
Cameron International	North America	Oilfield equipment manufacturer	9,491	1.3
Swisscom	Continental Europe	Telecommunications	8,884	1.2
Goldman Sachs	North America	Banking	8,858	1.2
Canon	Japan	Copier/printers and cameras	8,798	1.2
Berkshire Hathaway	North America	Insurance	8,607	1.2
OGX	Other Emerging Markets	Oil and gas exploration and production	8,533	1.2
Transocean	North America	Offshore drilling contractor	7,849	1.1
Aggreko	United Kingdom	Temporary power units	7,713	1.1
Investor	Continental Europe	Industrial holding company	7,416	1.0
Maritime Capital Shipping	Asia Pacific	Marine transportation	7,238	1.0
EDF	Continental Europe	Electricity utility	7,116	1.0
Wal Mart Stores	North America	General retailer	6,831	1.0
A P Moller-Maersk	Continental Europe	Oil and gas, and shipping conglomerate	6,786	0.9
Tokyu REIT	Japan	Real estate investment trust	6,696	0.9
Seadrill	Continental Europe	Contract drilling services	6,676	0.9
Brambles	Asia Pacific	Pallet pool operator	6,548	0.9
Deere	North America	Farm and construction machinery	5,966	0.8
Praxair	North America	Industrial gas producer	5,927	0.8
Norilsk Nickel	Other Emerging Markets	Nickel producer	5,756	0.8
			338,008	47.0

DISTRIBUTION OF ASSETS

 (unaudited)

			At 31 October 2008 %	At 31 October 2007 %	At 30 April  2008 %
Equities:	United Kingdom		10.9	12.8	10.3
	Continental Europe		14.4	17.3	17.5
	North America		21.8	21.5	19.2
	Japan		5.5	8.5	6.3
	Asia Pacific		12.1	16.2	15.5
	Other Emerging Markets		11.1	8.8	12.7
Total equities			75.8	85.1	81.5
Bonds			14.8	5.5	9.6
Net liquid assets			9.4	9.4	8.9
Total assets (before deduction of borrowings)			100.0	100.0	100.0

THE MONKS INVESTMENT TRUST PLC

Notes to the condensed financial statements (unaudited)

1.	The condensed set of financial statements have been prepared on the basis of the same accounting policies as set out in the Company's Annual Financial Statements at 30 April 2008 and in accordance with the ASB's Statement 'Half-Yearly Financial Reports' and have not been audited or reviewed by the Auditors pursuant to the Auditing Practices Board Guidance on 'Review of Interim Financial Information'.
2.	The financial information contained within this Half-Yearly Financial Report does not constitute statutory accounts as defined in section 240 of the Companies Act 1985. The financial information for the year ended 30 April 2008 has been extracted from the statutory accounts which have been filed with the Registrar of Companies. The Auditors' Report on those accounts was not qualified and did not contain statements under sections 237(2) or (3) of the Companies Act 1985.
3.	The management agreement is terminable on not less than 12 months' notice, or on shorter notice in certain circumstances. The annual fee is 0.45% of total assets less current liabilities, calculated on a quarterly basis.
4.	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 period 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 the current period together with interest thereon of £1,078,000.
		Six months to  31 October  2008	Six months to 31 October  2007	Year to  30 April  2008
		£'000	£'000	£'000
5.	Net return per ordinary share
	Revenue return on ordinary activities after taxation	11,001	4,205	12,285
	Capital return on ordinary activities after taxation	(395,702)	137,272	118,527
	Total net return	(384,701)	141,477	130,812
	Net return per ordinary share is based on the above totals of revenue and capital and on 263,711,734 (31 October 2007 - 276,461,245; 30 April 2008 - 264,179,859) ordinary shares, being the weighted average number of ordinary shares in issue during each period.
6.	Dividends
	Amounts recognised as distributions in the period:
	Pervious year's final dividend of 3.20p (2007 - 2.65p), paid 8 August 2008	8,437	7,371	7,371
	Interim dividend for the year ended 30 April 2008, paid 31 January 2008	-	-	1,323
		8,437	7,371	8,694
	Dividends paid and proposed in the period:
	Adjustment to provision for previous year's final dividend re shares bought back	(17)	(66)	(66)
	Interim dividend for the year ending 30 April 2009 of 1.00p (2008 - 0.50p)	2,636	1,365	1,323
	Final dividend (30 April 2008 - 3.20p)	-	-	8,454
		2,619	1,299	9,711
	The interim dividend was declared after the period end date and has therefore not been included as a liability in the balance sheet. It is payable on 30 January 2009 to shareholders on the register at the close of business on 9 January 2009. The ex dividend date is 7 January 2009.

THE MONKS INVESTMENT TRUST PLC

Notes to the condensed financial statements (unaudited)

(Ctd)

7.	The fair value of loans and debentures at 31 October 2008 was £92.2m (31 October 2007 - £162.8m; 30 April 2008 - £89.3m).
8.	During the period under review the Company bought back 535,000 ordinary shares with a nominal value of £26,750 for a total consideration of £1,990,000. At 31 October 2008 the Company had the authority to buy back a further 39,520,364 shares.
9.	Transaction costs on purchases amounted to £313,000 (31 October 2007 - £562,000; 30 April 2008 - £1,038,000) and transaction costs on sales amounted to £130,000 (31 October 2007 - £354,000; 30 April 2008 - £702,000).
10.	None of the views expressed in this document should be construed as advice to buy or sell a particular investment.
11.	Shareholders will be notified on or around 16 December 2008 that the Half-Yearly Financial Report has been published and will be available on the Monks'  page of the Managers' website www.monksinvestmenttrust.co.uk.
12.	Principal Risk and Uncertainties The principal risks facing the Company relate to the Company's investment activities. These risks are market risk (comprising currency risk, interest rate risk and other price risk), liquidity risk and credit risk. An explanation of these risks and how they are managed is contained in note 23 of the Company's full Annual Report and Accounts for the year to 30 April 2008 which can be obtained free of charge from, Baillie Gifford & Co and is available from the Monks' page of the Managers' website: www.monksinvestmenttrust.co.uk. The Principal risks and uncertainties have not changed since the publication of the Annual Report.

 

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