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Independent Inv Tst (IIT)

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Wednesday 21 January, 2004

Independent Inv Tst

Final Results

Independent Investment Trust PLC
21 January 2004


                    Results for the year to 30 November 2003

                                21 January 2004

                               Chairman's Statement

During the year to 30 November 2003, our net asset value per share rose by 27.9%
from 111.8p to 143.0p.  We are pleased with this result, albeit that it was
achieved against an easier stockmarket background than we have become accustomed
to: the FTSE All-Share Index rose by 7.2% during the year while the FTSE 250 and
Small Cap indices, from which much of our portfolio is drawn, rose by 25.3% and
27.6% respectively.

Our year began on a sombre note with the imminent threat of war in Iraq
compounding the sense of gloom created by two years of falling equity markets
and disappointing economic statistics.  However, the swift conclusion of formal
hostilities allowed the stimulus of decidedly lax global monetary and fiscal
conditions to work through first into stockmarkets and then into the level of
economic activity.  As has often been the case in the past, the trends emerged
first in the United States and then spread.  From March onwards the background
to our operations was a self-reinforcing pattern of rising stockmarkets and
improving confidence, and we benefited accordingly.

Once again, we have not felt it necessary to make major changes to the
composition of our portfolio: some 27 of our 36 holdings at 30 November 2003 had
been in the portfolio a year earlier and we maintained a high level of exposure
to the housebuilding, retailing and insurance industries throughout the year.
Perhaps the most encouraging feature of our progress during the year was the
strong showing from a number of holdings that had previously been a drag on our
performance: the two Herald funds, our recruitment agencies, DTZ and Altria all
fall into this category.  In the case of the last-named, this was despite the
handicap of an absurd and meaningless name change, often the harbinger of poor
stockmarket performance.  Once again, the freedom to ignore the composition of
stockmarket indices has worked to our advantage, although we should remind
ourselves that this will not always be the case.

The year has been an active one for balance sheet management: our net gearing
started at 15%, rose to 20% at the end of the first half and then fell back to
end the year at 4%.  The fall in the latter part of the year was the consequence
of individual stock decisions taken by our managing director and without any
overt encouragement from the rest of the board.  Those of you who know him will
understand that this is a sufficiently noteworthy development to merit
particular mention.  Our net position at 30 November 2003 was the product of
gross dollar borrowings of $19m and (predominantly sterling) cash balances of
£7.6m.  The role of our dollar borrowings is to provide a hedge against dollar

It is difficult to know which is the more surprising: the fact that we have had
three consecutive years of wonderful performance from our housebuilding holdings
or the fact that they look cheaper to us now than they did at the time of
original purchase.  We are not oblivious to the risk of deterioration in the
housing market, but we consider it amply discounted in the valuations of our
holdings.  Our insurance holdings have also made a worthwhile contribution to
our overall performance, particularly when account is taken of the benefits of
our dollar hedging.  We are conscious of the viewpoint that the best has already
been seen of the current insurance cycle, but not yet ready to subscribe to it.
Our retail holdings have again justified our enthusiasm for them, but have
inevitably been held back by growing signs of more difficult trading conditions
ahead.  We do, however, continue to struggle in the banking sector where only a
fine performance by Anglo Irish has spared our blushes.

Earnings per share for the year were 3.95p (3.17p).  We are proposing a final
dividend of 1.75p (1.5p) to make a total for the year of 3p (2.5p).  We should
draw attention to the fact that the very low interest rates prevailing during
the year and the benefit to our income account from our dollar hedging
activities have introduced a windfall element to our earnings that may reverse
in the future.  However, with a revenue reserve of 1.7p per share, we believe
that the current level of dividend will prove sustainable in the absence of
major changes to the portfolio.  Our expenses for the year (other than interest
charges) amounted to £0.4m, equivalent to 0.43% of shareholders' funds at the
end of the period.

This low expense ratio, remarkably low for a stand alone company of our scale,
was achieved despite a 50% increase in the salary of the managing director, from
£50,000 (the level fixed at launch in October 2000) to £75,000.  In the view of
the board the percentage increase was amply justified by the outstanding
performance and increased scale of the company since launch.  The absolute level
of this salary remains extremely low by the absurdly inflated standards of the
investment management business.  Fees for the other directors remain at the
levels fixed at launch.  No director receives any bonus or other form of
remuneration.  Three directors have options, but only exercisable at full net
asset value per share at the point of subscription.  One of the tenets of the
Company, set out at launch, is that the directors have a harmony of interest
with other shareholders by looking to their own shareholdings to provide the
reward for their involvement.

We have once again been able to issue new shares at a premium to net asset
value.  In addition to the exercise of options at net asset value, we have
issued a total of 4.8m shares on terms that have added a premium of £426,000 to
shareholders' funds.  As was the case in the previous year, this benefit covered
the cost of managing the Company for the year.  As the fund grows we have to
take account of the impact of increased size on the liquidity of the portfolio,
and this may affect our readiness to issue shares or the terms on which we are
prepared to issue them.

The immediate economic outlook, both in the UK and in the world at large, is
better than it has been for some time.  But this improvement has been achieved
at a cost in terms of monetary and fiscal prudence, particularly in the United
States.  The timing and nature of the corrective measures needed to claw back
this cost are still uncertain, but there can be little doubt about their
potential to unsettle financial markets, as the nervous reaction to the recent
small increase in UK interest rates showed.  Meanwhile, the rally since March
has taken equity valuations back into territory that looks demanding to those
with long memories.  It is against this background that we have reduced our
gearing.  Our confidence in our holdings remains unshaken and they appear to us
more reasonably valued than the overall market.  This provides a sound basis for
our longer term optimism, even if we are a little nervous about the year ahead.

I should like to thank Max Ward for another excellent result, Vivien Keighren
for the continued smooth operation of our small office and Baillie Gifford & Co
for a further year of flawless secretarial service.

Once again, we should like to encourage you to come to the AGM, which is to be
held in the new offices of Baillie Gifford at 4.45pm on Wednesday, 17 March
2003.  It will help our planning if we know how many shareholders are likely to
attend, and I shall be grateful if you will mark the proxy form accordingly and
return it to us.  I look forward to seeing as many of you as possible there.

                       Managing Director's Statement

During the year to 30 November 2003, The Independent Investment Trust produced
an NAV total return of 30.8%.  This looks good against the 11.2% total return
produced by a theoretical investment in the FTSE All-Share Index over the
period, but, as indicated in the chairman's statement, this is a flattering
comparison in a year when large companies did significantly less well than small
and medium sized ones.

Housebuilding remained our biggest position throughout the year and again
produced an excellent return.  An investment of £17.8m at 30 November 2002 was
supplemented by net purchases of £1.6m (largely related to our new share issues)
and had become worth £24.8m by 30 November 2003.  Our view of the long term
future of the sector has changed little over the year and we feel relieved that
we resisted the temptation to predict its short term outlook a year ago: we
would have been some way wide of the mark.  Sooner or later this industry is
going to experience a period of difficult operating conditions and if the
valuations of our holdings do not improve in the meantime we shall probably sail
into the storm with a full sheet.  This is not a strategy that would be likely
to find favour in the fashionable circles of today's investment management
industry, but it strikes us as preferable to the wholesale disposal of shares in
strong companies at derisory prices.  One of the key elements of our enthusiasm
for our housebuilders is a belief that their management teams will acquit
themselves better in a downturn than the stockmarket is prepared to give credit
for.  Until this belief is tested, the gains we have made from the sector should
be credited more to luck than to skill, because we had no idea that the industry
would enjoy conditions as persistently buoyant as those of the last three years
when we initiated our position in it.

It has been a bumpy year for our insurance holdings, but on balance we can draw
some satisfaction from their performance: we started the year with £14.6m
invested in the sector and, after net additions of £1m, ended with a position
worth £17.7m.  In addition, we estimate that our hedging activities in respect
of our Bermudan holdings have saved us over £0.5m.  The big lesson we have
learnt during the year has been that legacy issues (by which we mean the
consequences of underwriting decisions made years earlier) can return to haunt
insurance investors even when the sky appears cloudless.  Most of our
underwriting companies were hit during the year by the need to strengthen
reserves and, in the case of Converium, Goshawk and XL, this caused us to sell
our holdings.  Our other holdings, both underwriters and brokers, have all
produced good overall results but many have not seen the strength of their
figures reflected in their share prices.  It must have been particularly galling
for the management of Jardine Lloyd Thompson to have seen an exemplary profits
performance rewarded with a sharp decline in their share price.  The stockmarket
has become concerned that the rating environment is showing signs of weakness.
At the moment, we are inclined to regard this as part of the normal adjustment
process after any period of sharply rising rates, but we remain alert for signs
of more general deterioration, however surprising this may appear in the light
of the industry's continuing shortage of capital.

The third of our three big industry positions, retailing, produced a
satisfactory rather than exciting return for us: after net additions of £1.4m, a
starting position of £15.3m had grown in value to £19.0m by the end of the year.
  An excellent performance from Merchant Retail, whose Perfume Shop chain goes
from strength to strength, a good profit from Carpetright (which we sold purely
on valuation grounds) and respectable profits from New Look and Signet were the
positive features of the year.  A modest loss (exactly equal to its dividend for
the year) on DFS, caused by increasingly competitive trading conditions, and a
rather flat showing from William Morrison were the disappointments.  We consider
the dull performance of William Morrison a great opportunity and have both added
to it and bought a small holding in Safeway.  If, as seems likely, Morrison can
win Safeway on sensible terms, we think it could be a considerable boon to it.
Meanwhile, the company's share price does not seem to us to be even a fair
reflection of its position as an independent entity, which is clearly
impressively strong.

We have continued to destroy value with our activities in the British banks: we
have realized a substantial loss on our holding in Abbey National, but have
soldiered painfully on in Lloyds TSB.  Our strategy of preferring high yields to
growth prospects is looking less than inspired, although even those British
banks considered to have growth prospects have tended to be disappointing
stockmarket performers over the last year.  Fortunately, the same is not true of
Anglo Irish Bank, purchased in May, which has a remarkable record of growth and
has made up for much of the money we lost during the year in British banking.

In the water sector, we realized useful gains on holdings in Kelda and Severn
Trent, but had little to show for our big holding in United Utilities, which
unsettled the market with the announcement of a big rights issue.  We think the
rights issue should help the regulator to understand the true cost of capital
for water companies and thus improve the chances of a fair determination at the
next regulatory review in 2005.  We are, however, conscious of the fact that
predicting regulators' actions is a hazardous business.

It has been disappointing, but perhaps not surprising, to discover that the
experts have been better than us at playing the recovery in technology and
telecommunications: our direct holdings were worth less in aggregate at the end
of the year than at the beginning, while the average gain for the year on our
two Herald funds was over 50%.  The inference we draw from this is the obvious

Our faith in the principle of holding strong companies through cyclical
downturns has received a real boost from our experience in the recruitment
sector during the year.  Both Michael Page and Robert Walters produced excellent
share price performances and each ended the year showing a profit on book cost,
despite distinctly limited evidence of improved trading conditions.  Such was
the extent to which their share price recoveries appeared to be running ahead of
fundamental progress that we were tempted  into paring back both holdings.  To
date this has been a mistake.

Elsewhere in the portfolio, we had successful forays in and out of Inter-Link
Foods and easyJet, made a premature disposal of Wolseley and lost IG Group and
Compco to cash takeover bids.  In the case of Compco, the bid reflected
particularly well on management, who subordinated their own interests to those
of shareholders.

Finally, we saw strong recoveries in the share prices of DTZ (to which we added)
and Altria, another very satisfactory showing from Johnston Press and another
rather disappointing one from GlaxoSmithKline.

Results for the Period 1 June 2003 to 30 November 2003

We are bound by the listing requirements to disclose the results for the six
months from 1 June 2003 to 30 November 2003.  During that period the net asset
value per share rose by 16.9% as compared to a rise of 9.0% in the FTSE All-
Share Index.


The following is the unaudited preliminary statement for the year to 30 November
2003 which was approved by the Board on 20 January 2004.  The directors of The
Independent Investment Trust PLC are recommending to the Annual General Meeting
of the Company to be held on 17 March 2004 the payment of a final dividend of
1.75p net (1.50p net last year) per ordinary share, making a total of 3.00p net
(2.50p net last year) per ordinary share for the year ended
30 November 2003.

               (unaudited and incorporating the revenue account*)

                                            For the year ended                      For the year ended
                                             30 November 2003                        30 November 2002

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

Realised gains on investments              -       2,148      2,148                -      4,299        4,299
Unrealised gains/(losses) on
investments                                -      15,386     15,386                -     (4,371)      (4,371)

Currency gains                             -         939        939                -        634          634
Income                                 3,208           -      3,208            2,564          -        2,564
Administrative expenses                 (400)          -       (400)            (360)         -         (360)
Net return before finance costs
and taxation                           2,808      18,473     21,281            2,204        562        2,766

Finance costs of borrowings             (338)          -       (338)            (459)         -         (459)
Return on ordinary activities
before taxation                        2,470      18,473     20,943            1,745        562        2,307

Tax on ordinary activities               (24)          -        (24)               -          -            -
Return on ordinary activities
after taxation                         2,446      18,473     20,919            1,745        562        2,307

Dividends in respect of equity
shares                                (1,943)          -     (1,943)          (1,447)         -       (1,447)
Transfer to reserves                     503      18,473     18,976              298        562          860

Return per ordinary share :
(note 1)
Basic                                   3.95p     29.81p      33.76p            3.17p      1.02p        4.19p
Diluted (FRS 14)                        3.90p                                   3.13p

Dividends per ordinary share
(note 2)                                3.00p                                   2.50p

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

All revenue and capital items in this statement derive from continuing


                            SUMMARISED BALANCE SHEET
                              at 30 November 2003

                                                                                    At                       At
                                                                      30 November 2003         30 November 2002
                                                                                 £'000                    £'000


Fixed tangible assets                                                                -                        9
Fixed asset investments                                                         97,678                   75,638
Net liquid assets                                                                6,655                    3,426

Total assets (before deduction of bank loans)                                  104,333                   79,073
Bank loans                                                                     (11,047)                 (12,640)
                                                                                93,286                   66,433


Called-up share capital                                                         16,307                   14,850
Capital reserves                                                                75,863                   50,970
Revenue reserve                                                                  1,116                      613

EQUITY SHAREHOLDERS' FUNDS                                                      93,286                   66,433

NET ASSET VALUE PER ORDINARY SHARE (note 3)                                      143.0p                   111.8p



                                                           For the year ended         For the year ended
                                                           30 November 2003           30 November 2002
                                                           £'000            £'000          £'000       £'000

NET CASH INFLOW FROM OPERATING ACTIVITIES                                   2,796                      2,057

NET CASH OUTFLOW FROM SERVICING OF FINANCE                                   (347)                      (457)

Acquisitions of investments                                   (38,740)                   (59,432)
Disposals of investments                                       35,953                     43,270
Realised currency loss                                            (77)                       (11)

INVESTMENT                                                                 (2,864)                   (16,173)

EQUITY DIVIDENDS PAID                                                      (1,692)                    (1,617)

NET CASH OUTFLOW BEFORE FINANCING                                          (2,107)                   (16,190)

Issues of shares                                                7,887                      7,771
Expenses of share issues                                          (10)                        (6)
Bank loans repaid                                              (4,859)                          -
Bank loans drawn down                                           4,282                      3,779
NET CASH INFLOW FROM FINANCING                                              7,300                     11,544
INCREASE/(DECREASE) IN CASH                                                 5,193                     (4,646)

Increase/(decrease) in cash in the year                                     5,193                     (4,646)
Decrease/(increase) in bank loans                                             577                     (3,779)
Exchange movement on bank loans                                              1,016                       645

MOVEMENT IN NET DEBT IN THE YEAR                                            6,786                     (7,780)
NET DEBT AT START OF YEAR                                                 (10,248)                    (2,468)
NET DEBT AT END OF YEAR                                                    (3,462)                   (10,248)



                                                                        Year to                     Year to
                                                               30 November 2003            30 November 2002
                                                                          £'000                       £'000
1.   Return per ordinary share
     Revenue return                                                       2,446                       1,745
     Capital return                                                      18,473                         562

     The returns per share are based on the above returns and on 61,958,749 shares (2002 - 54,992,130),
     being the weighted average number of shares in issue during the year.

     Dilution of revenue return is attributable to the difference between the average share price and the
     average exercise price of the outstanding options for the year. The diluted revenue returns per share
     are based on the above returns and on 62,705,069 shares (2002 - 55,812,907), being the weighted
     average number of shares in issue during the year plus the notional number of shares that would have
     been issued for no consideration using an average share price of 131.0p (2002 - 125.8p) and an average
     exercise price for the options of 121.2p (2002 - 116.9p).

                                                    Year to 30 November 2003       Year to 30 November 2002
                                                        Pence           £'000            Pence        £'000
2.   Dividends per share
     Adjustment to previous year's final dividend           -              15                -            -
     Interim dividend paid 4 September 2003              1.25             786             1.00          556
     Proposed final dividend payable 6 April 2004        1.75           1,142             1.50          891
                                                         3.00           1,943             2.50        1,447

     If approved, the final dividend will be paid on 6 April 2004 to all shareholders on the register at
     the close of business on 12 March 2004.

                                                                 At 30 November              At 30 November
                                                                           2003                        2002
                                                                          £'000                       £'000
3.   Net asset value per ordinary share
     Net asset value attributable to ordinary shares                     93,286                      66,433

     Net asset value per share is based on net assets (as shown above) and on 65,228,895 shares (2002
     - 59,400,000) being the number of shares in issue at the year end.

     Dilution of revenue return is attributable to the difference between the share price and the
     exercise price of the outstanding options. Because these options are exercisable at net asset
     value, no dilution to the net asset value arises from their exercise.

4.   The financial information set out above does not constitute the Company's statutory accounts for
     the year ended 30 November 2003.  The financial information for 2002 is derived from the
     statutory accounts for 2002 which have been delivered to the Registrar of Companies.  The
     Auditors have reported on the 2002 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
     2003 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.

                      This information is provided by RNS
            The company news service from the London Stock Exchange