Information  X 
Enter a valid email address

Independent Inv Tst (IIT)

  Print      Mail a friend

Wednesday 16 January, 2002

Independent Inv Tst

Final Results

Independent Investment Trust PLC
16 January 2002


        Results for the period from 30 August 2000 to 30 November 2001

                               16 January 2002


                             Chairman's Statement

This report covers the period from 30 August 2000, when the Company was
incorporated, to 30 November 2001, but funds did not become available for
investment until October 2000.  Over the period from 18 October 2000, the day
before we started investing, to 30 November 2001, the net asset value per
share rose from 98.4p to 109.0p, a gain of 10.8%.

The objective of the Company is to provide good absolute returns over long
periods, uninhibited by the straitjacket of a formal benchmark.  Nonetheless,
shareholders will want to know whether we have done well or badly compared to
the markets in which we have been invested.  Since we have been almost
entirely invested in UK equities from inception, the most appropriate
yardstick is the FTSE All Share Index, which fell by 14.6% between 18 October
2000 and 30 November 2001.

The satisfactory if not striking absolute gain in the portfolio was achieved
in generally difficult stockmarket conditions.  At the start of the period,
equity valuations were high and the earnings on which those valuations were
based were close to a peak.  A combination of higher oil prices and interest
rates, a collapse in spending on telecommunications and technology and a
developing sense that the protracted Wall Street boom might have run its
course were about to tip the US economy into recession and thus to damage the
prospects for other economies.

Against this background, we benefited from our freedom to ignore large areas
of the market.  The worldwide equity bull market which peaked in the spring of
2000 was so dominated by the new economy that it was able to accommodate a
bear market in the old economy, companies committed to which were jettisoned
by investors seeking to enjoy the momentum of TMT.  The bear market in the old
economy bottomed in March 2000, but there were still attractive values to be
found by the time we were able to invest.  General factors that were helpful
to us were: the modest valuations of many of our holdings; the relative
resilience of their earnings; a bias within the portfolio in favour of
companies likely to benefit from falling interest rates; and a certain amount
of luck on the takeover front.

By the end of May we had drawn down £12m of our £20m facility with the Bank of
New York Europe Limited.  However, we decided to reduce our borrowings after
the terrorist attacks of 11 September and ended the period with net debt of 
£2.5m.  Some £3.5m of our gross borrowings at this time was in dollars and
acted as a hedge against our dollar assets, principally the holding in Rodamco
North America.  It remains the case that, as a group, the investments against
which our borrowing has been earmarked, which are relatively high yielding,
have performed significantly better than the portfolio as a whole.  We shall
continue to balance our enthusiasm for the principle of borrowing to finance
part of our equity portfolio with a consideration of prevailing market

Our housebuilding holdings, which had done so well over our interim period,
have had a more subdued performance since the end of May; we have made some
reduction in our very large position to reflect the greater uncertainty
surrounding the short term prospects for the industry, but we continue to
believe that this unfashionable sector offers excellent value.  Our retail
portfolio has benefited from strength in New Look, Signet and DFS, partially
offset by further weakness in the Carphone Warehouse share price.  Our
technology holdings have caused us more pain since the end of May, but the
additions we have made to them have been profitable.  The most significant
recent field of investment for us has been the insurance sector.  For a
detailed review of developments within the portfolio, please see the Managing
Director's Report .

Earnings per share for the period were 3.60p.  As foreshadowed in the
prospectus, we are proposing to combine a basic dividend, at a rate which we
think likely to be sustainable, with a special dividend.  In addition to the
interim dividend of 1.0p per share, a special interim dividend of 1.0p per
share has been declared on 15 January 2002 and a final dividend of 1.0p per
share is recommended for approval at the AGM.  The undistributed earnings of
0.6p per share would establish a revenue reserve to shelter the basic rate of
dividend in future years.

I should like to comment on a small but sensitive wrinkle in the accounts.  At
the launch of the Company, options were issued to four founding shareholders,
who included three directors.  These options can only be exercised at full NAV
at the point of exercise.  It is therefore a matter of simple arithmetic that
the exercise of these options cannot dilute NAV for the other shareholders,
hence no diluted NAV is shown in the accounts.  FRS14, however, requires us to
disclose diluted returns per share in the statement of total return because
the share price stood at a premium to NAV for most of the period.  We consider
this application of FRS14 to be inappropriate in the case of an investment
trust such as Independent, whose assets consist almost entirely of quoted
securities and cash.

Our expenses for the period (other than finance costs) amounted to £423,000.
Excluding the reimbursement of set-up costs incurred before the formation of
the Company, expenses for the period ran at an annual rate of £0.33m, 0.6% of
the proceeds of the placing.  From the start, the day-to-day management
arrangements have run smoothly.  I should like to thank our office manager,
Vivien Watson, whose job description is all-embracing, and Baillie Gifford &
Co., whose experienced investment trust department has provided a flawless
secretarial service.  The performance of the managing director has been all
that we hoped for.

Since flotation, our shares have tended to sell at a premium to net asset
value.  This is a satisfactory development and it has enabled us to make
issues of new shares, raising £0.6m at a premium of around 10%.  We should
also be prepared to buy in shares at a discount to net asset value.  Such
activities are anti-dilutive and help to iron out anomalies in the market.

For much of the time since the launch of the Company we have been running up
the down escalator of the markets.  Since the terrorist attacks of 11
September the US authorities have redoubled their efforts to improve economic
conditions with aggressive interest rate cuts and fiscal easing, but serious
imbalances remain from the boom of the nineties, such as an overhang of
capital investment, a low savings rate, a wide trade deficit and a highly
valued equity market.  Recovery in the rest of the world will probably depend
on developments in the USA; in the UK the consumer has been rallying to the
flag, but his borrowing has risen to record levels in the process.  At The
Independent we have to take account of general economic and market trends, but
our focus is very much on the quality and valuation of the individual
businesses in which we are invested, and in these terms the present portfolio,
which bears no resemblance to any index, is reassuring.


                        Managing Director's Statement

Over the period 18 October 2000 to 30 November 2001, The Independent
Investment Trust achieved an NAV total return of 13.8%, which is equivalent to
an annualized rate of 12.3%.  Judged in isolation, this must be regarded as a
modest start to our campaign to produce 'good absolute returns over long
periods of time'.  However, it can be placed in a more favourable light
through comparison with the annualized return of -11.0% registered by the All
Share Index over the same period.

Our biggest industry position throughout the period under review has been in
housebuilding.  Our initial investment in the industry amounted to £13.2m; we
have made net sales amounting to £5m; and our remaining holdings were valued
at £13.6m on 30 November.  Underlying our enthusiasm for the industry is a
belief that political constraints on the planning system have acted to keep
the level of new housing completions in recent years well below the level of
underlying demand.  The idea of an industry with a fairly predictable level of
underlying demand confronted by artificial but apparently durable restrictions
operating to keep the level of supply well below that level of demand is one
we find appealing.  We also seem to hold a higher opinion of the managements
of many housebuilding companies than is commonly held in the City and we have
been struck by the cheapness of many of the share prices in relation to
current earnings and tangible net asset values.  Obviously, the strong
performance of the sector since our original purchases has weakened some of
the valuation arguments and we have kept in mind the fact that this is a
cyclical industry which may be facing more difficult trading conditions in the
immediate future.  However, we do not yet regard either of these factors as
significant enough to detract from the longer term arguments for the sector.
We consider Persimmon, with one of the strongest recent records of performance
within the industry, a long landbank bought on favourable terms and
considerable rationalization benefits to come from its acquisition of Beazer,
particularly attractive.

Our two biggest retail holdings, Signet and DFS, have made major contributions
to our overall performance.  We were drawn to Signet by the strength of its US
operations, which contribute the bulk of the company's profits.  At the time
of our original purchase, and for much of the period under review, the market
has viewed Signet as particularly vulnerable to a slowing US consumer sector,
whereas we have considered the long term potential of a strong competitor in a
fragmented market a more important attribute.  The strength of the share price
is the product of an unexpectedly resilient fundamental performance against a
difficult industry background.  The attraction of DFS lay in its superb
operating ratios, its prodigious capacity for cash generation and a valuation
that owed more to the image of its industry than to its own characteristics
and achievements.  The strength of the share price since our purchases has
weakened the power of these arguments, but not altered the nature of them.
The modest reduction in our holding reflects this as well as recognizing the
likelihood that the valuation of the shares would be affected by any
unexpected increase in interest rates.  Our holding in New Look would have
been quite the biggest contributor to our overall performance had we been
sensible enough just to leave it alone after purchase.  As it was, our
confidence in the company's recovery was shaken by an unexpectedly poor
trading experience last winter and we made poorly timed reductions in the
holding.  More recent trading has shown a big improvement and the share price
has risen to more than double our book cost.  Carphone Warehouse has
inevitably felt some impact from the weakness of the market for mobile
telephones, but still shows every sign of being a strong competitor in its
markets.  We regard William Morrison, which we bought towards the end of the
period, as a formidable competitor in the food retail market.

We have chosen to delegate much of our investment in the technology sector to
Katie Potts and her team at Herald through purchases of Herald Investment
Trust and Herald Worldwide Fund.  While these have yet to demonstrate their
potential in absolute terms, their performance must be considered creditable
in the context of a particularly difficult environment for technology shares.
Our principal direct holdings in the sector are Sage, Nokia and ARM.  ARM has
actually exceeded our expectations in fundamental terms, while Sage has come
close to matching them and Nokia has provided ample evidence of the dominance
of its market position.  Encouraging though all this is, the fact remains that
we would have been better off without any technology shares.

The same is true of our holdings in the recruitment sector, Michael Page and
Robert Walters.  We feel less defensive about having bought these when we did
(we take the view that trying to predict short term earnings trends in
recruitment companies in an uncertain economic environment is a pointless
exercise), but feel angry with ourselves that we did not capitalize on the
weakness of the share prices in the wake of disappointing earnings
announcements by buying more.  The share prices have risen sharply from their
lows despite the absence of any evidence of an end to deterioration in the
short term outlook for their businesses.

In the printing and publishing sector, we have taken holdings in Johnston
Press and St Ives.  It has been pleasing that our expectations of resilient
trading from the former have been borne out despite a difficult industry
background and that this began to be reflected in the share price towards the
end of the period.  More surprising has been the equanimity with which the
market has accepted a steady deterioration in the latter's immediate trading

We have been able to unearth a couple of interesting property companies,
Haslemere and Rodamco North America.  They are respectively the UK and North
American components of the Dutch property company, Rodamco.  Both appear to be
sound companies and look very cheap in relation to their assets and their
declared dividends.  We have heard it suggested that the main reason for this
is that their natural appeal should be to investors in the countries in which
their assets are to be found, but such investors are unwilling (or in some
cases unable) to buy the shares since they are not included in local
stockmarket indices, being quoted in Amsterdam.  If true, this is an example
of the sort of absurdity created by current institutional attitudes to equity

Finally, we are intrigued at the prospect of a sustained period of favourable
operating conditions in insurance markets in the wake of damage done to the
industry's capital position in 2001 by a combination of weak equity markets
and losses incurred as a result of the destruction of the World Trade Center.
We have bought a holding in the highly regarded insurance broker, Jardine
Lloyd Thompson, to supplement our longstanding holding in Royal & Sun
Alliance, and we have invested in the Hiscox Insurance Portfolio Fund in order
to benefit from the specialist knowledge of Alec Foster, who runs the fund and
who has spent the best part of a lifetime in the insurance industry.  We are
also actively considering possible opportunities in the reinsurance industry.

Results for the Period 1 June 2001 to 30 November 2001

We are bound by the listing requirements to disclose the results for the six
months 1 June 2001 to 30 November 2001.  During that period, the net asset
value fell by 5.9% while the FTSE All Share Index fell by 10.6%.


The following is the unaudited preliminary statement for the period from 30
August 2000 to 30 November 2001 which was approved by the Board on 15 January
2002.  The directors of The Independent Investment Trust PLC are recommending
to the Annual General Meeting of the Company to be held on 28 February 2002
the payment of a final dividend of 1.00p per ordinary share which, together
with the interim already paid and the special interim declared, makes a total
of 3.00p for the period ended 30 November 2001.

                           STATEMENT OF TOTAL RETURN
               (unaudited and incorporating the revenue account*)
            For the period from 30 August 2000 to 30 November 2001

                                                Revenue   Capital       Total
                                                  £'000     £'000       £'000

Realised gains on investments                         -      2,620       2,620

Unrealised appreciation on investments                -      2,507       2,507

Currency losses                                       -         (8)         (8)

Income                                            2,927          -       2,927

Administrative expenses                            (423)         -        (423)

Net return before finance costs and taxation      2,504      5,119       7,623

Finance costs of borrowings                        (527)         -        (527)

Return on ordinary activities before taxation     1,977      5,119       7,096

Tax on ordinary activities                          (70)         -         (70)

Return on ordinary activities after taxation      1,907      5,119       7,026

Dividends in respect of equity shares            (1,592)         -      (1,592)

Transfer to reserves                                315      5,119       5,434

Return per ordinary share:  (note 1)

Basic                                              3.60p      9.67p      13.27p

Diluted (FRS 14)                                   3.54p      9.51p      13.05p

Dividends per ordinary share (note 2)              3.00p

* The revenue column of this statement is the profit and loss account of the

All revenue and capital items in the above statement derive from continuing


                           SUMMARISED BALANCE SHEET
                              at 30 November 2001


Fixed tangible assets                                                       18
Fixed asset investments                                                 61,140
Net liquid assets                                                        6,156
Total assets (before deduction of bank loans)                           67,314
Bank loans                                                              (9,506)


Called-up share capital                                                 13,263
Capital reserves                                                        44,230
Revenue reserve                                                            315
EQUITY SHAREHOLDERS' FUNDS                                              57,808

NET ASSET VALUE PER ORDINARY SHARE (note 3)                              109.0p


          For the period from 30 August 2000 to 30 November 2001

                                                              £'000    £'000

NET CASH INFLOW FROM OPERATING ACTIVITIES                                2,246

NET CASH OUTFLOW FROM SERVICING OF FINANCE                                (509)

Acquisitions of tangible assets                                   (27)
Acquisitions of investments                                   (90,107)
Disposals of investments                                       34,094
Realised currency loss                                            (80)

INVESTMENT                                                             (56,120)

EQUITY DIVIDENDS PAID                                                     (531)

NET CASH OUTFLOW BEFORE FINANCING                                      (54,914)

Issue of shares                                                52,691
Expenses of share issue                                          (317)
Bank loans drawn down                                           9,578

NET CASH INFLOW FROM FINANCING                                          61,952

INCREASE IN CASH                                                         7,038

Increase in cash in the period                                           7,038
Bank loans drawn down                                                   (9,578)
Exchange movement on bank loans                                             72

NET DEBT AT 30 NOVEMBER 2001                                            (2,468)



                                                             30 November 2001

1. Return per ordinary share
   Revenue return                                                        1,907
   Capital return                                                        5,119

   The returns per share are based on the above returns and on 52,930,837
   shares, being the weighted average number of shares in issue during the
   period from 18 October 2000 (the date the share flotation proceeds were
   received) to 30 November 2001.

   The diluted returns per share are based on the above returns and on
   53,837,855 shares, being the weighted average number of shares in issue
   during the period plus the notional number of shares that would have been
   issued for no consideration using an average share price of 114.0p and an
   average exercise price for the options of 105.2p.

2. Dividends per share                                       Pence    £'000
   Interim dividend paid 5 September 2001                        1.00      531
   Special interim dividend declared payable 6 April 2002        1.00      531
   Proposed final dividend payable 6 April 2002                  1.00      530
                                                                 3.00    1,592

   The special interim dividend, declared today, and the final dividend (if
   approved) will both be paid on 6 April 2002 to all shareholders on the
   register at the close of business on 15 March 2002.

3. Net asset value per ordinary share
   The net asset value per share is based on net assets of £57,808,000 and on
   53,050,000 shares, being the number of shares in issue at the period end.

4. The financial information set out above does not constitute the Company's
   statutory accounts for the period ended 30 November 2001.  The statutory
   accounts to 30 November 2001 will be finalized 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.