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Independent Inv Tst (IIT)

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Friday 09 July, 2010

Independent Inv Tst

Half Yearly Report

RNS Number : 0719P
Independent Investment Trust PLC
09 July 2010
 



THE INDEPENDENT INVESTMENT TRUST PLC

 

Half-Yearly Financial Report for the six months ended 31 May 2010

 

 

 

 

 

 

 

 

 

 

 

 

                                        

THE INDEPENDENT INVESTMENT TRUST PLC

Objective and Policy

The Company's objective is to provide good absolute returns over long periods by investing the great majority of its assets in UK and international quoted securities. When appropriate, the directors will sanction relatively high levels of gearing and a relatively concentrated portfolio structure. The portfolio is constructed without reference to the composition of any stockmarket index.

 

 

Principal Risks and Uncertainties

The principal risks facing the Company relate to the Company's investment activities. These risks are market price 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 18 of the Company's Annual Report and Financial Statements for the year to 30 November 2009, which is available on the Company's website: www.independentinvestmenttrust.co.uk. The principal risks and uncertainties have not changed since the publication of the Annual Report. Other risks facing the Company include the following: regulatory risk (that the loss of investment trust status or a breach of applicable legal and regulatory requirements could have adverse financial consequences and cause reputational damage); operational/financial risk (failure of service providers' accounting systems could lead to inaccurate reporting or financial loss); the risk that the discount can widen; and gearing risk (the use of borrowing can magnify the impact of falling markets). The Company's policy is designed to allow the Company an unusually high degree of freedom to exploit the directors' judgement. To the extent that the directors' judgement is flawed, future results could be unusually poor.

Responsibility Statement

We confirm that to the best of our knowledge:

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

b)   the Chairman's Statement 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 their impact on the financial statements, and a description of principal risks and uncertainties for the remaining six months of the year); and

c)   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

Douglas McDougall

Chairman

8 July 2010

 

 


THE INDEPENDENT INVESTMENT TRUST PLC

 

 Chairman's Statement

 

The six month period ending 31 May 2010 saw our Company produce a total return of 4.8%, which compares with a total return notionally attributable to the FTSE All Share Index of 2.7%.  An otherwise satisfactory performance was marred by our failure to anticipate the full stockmarket consequences of the tragic Deepwater Horizon accident in the Gulf of Mexico.

 

Our net asset value rose marginally over the period - from 194.9p to 196.3p - and we are declaring an unchanged interim dividend of 2p, to be paid on 27 August 2010 from earnings of 3.42p (2.12p last year).  Our income account has benefited from the curious but firm advice of our auditors that we treat the exceptional capital distribution from Dunelm as income.  As ever, it is difficult to offer any sensible guidance as to the outcome for the full year, which will depend on investment decisions taken in the second half, but we would remind shareholders that the portfolio is not being managed to meet any particular income target.

 

The story of the period has been one of progressive economic recovery punctuated by bouts of nervousness about the stability of the financial system.  There has been particular concern about the finances of some of the weaker members of the Eurozone and about the difficulty they might have in engineering recovery in their economies, having surrendered the ability to devalue their currency.  It has been the clearest possible illustration of the wisdom of the British government in steering clear of this fundamentally flawed project.  Elsewhere, the pace of recovery has been sufficient to produce good profits growth, but not so rapid as to encourage the authorities to tighten monetary policy.  It remains difficult to predict whether the recovery will be sustained or whether the weight of debt in the system will snuff it out.  We have therefore persisted with our policy of hedging our bets by having substantial exposure to both defensive businesses and cyclical companies with sustainable finances.

 

Activity has been relatively modest during the period and has been driven primarily by decisions on individual stocks rather than by strategic considerations.  Our cash balances fell from 11% at 30 November 2009 to 8% at 31 May 2010.  Whilst remaining worried about the outlook for stockmarkets, we consider defensive investments with secure yields a better home for our money than a bank deposit account.

 

It is a great disappointment to be reporting on a period when buoyant oil prices have gone hand in hand with a dismal performance from our energy portfolio: a stake worth £31m at 30 November 2009 had fallen in value to £22.9m by 31 May 2010, albeit that £3.0m of this reduction can be attributed to net sales during the period.  And this is after a considerable benefit from the movement in the sterling dollar exchange rate.

 

The drilling accident in the Gulf of Mexico has created understandable concern about the risks associated with the exploitation of deep water fields, which in turn has led to a six month moratorium on any deep water drilling in the Gulf.  The stockmarket's view is that the rigs that have been occupied in the Gulf will have to find work elsewhere, destroying the delicate balance that existed in the market for deep water rigs.  This creates considerable uncertainty in the short term, but has no bearing on the longer term arguments that we need to find more oil to avert a supply crunch and that the best chances of making new discoveries tend to be in the deep water prospects.  Once again we find ourselves trying to wrestle with the conflicting influences of an uncertain short term outlook, cheap valuations and a seemingly bright long term future.  On the evidence so far, we have not been attaching enough importance to the first of these.

 

Our retailing stake has shown underlying stability during the period: the increase in its value from £13.7m at 30 November 2009 to £18.1m at 31 May 2010 is largely attributable to net purchases of £4.3m (including the Dunelm capital distribution).  Our traditional holdings, Dunelm and Topps, both performed poorly but our new holding in the fashion business Supergroup made good the deficit.  We are excited by Supergroup's plans for future expansion, but conscious of the fact that we are ill placed personally to make judgements on the key aspect of its outlook: the durability of the appeal of its merchandise.

 

Our defensive positions in insurance, tobacco, utilities and pharmaceuticals have remained largely undisturbed and have had little impact on our overall performance.  Of our more cyclical exposures, engineering, transport and mining have made a positive contribution, but commercial property and housebuilding have been a drag.  The return of Persimmon to our portfolio reflects the extraordinary achievement of management in steering the company safely through the difficult conditions of the last three years without recourse to equity funding.

 

A good performance from our mainstream recruitment holdings was spoilt by a brief and painful entanglement with Healthcare Locums.  Elsewhere, Aggreko, IG Group, Herald and Marston's all performed well.

 

We have once again been active buyers of our own shares on terms that have benefited continuing shareholders: during the period we bought 920,000 shares, which enhanced our net asset value by roughly 0.3p.

 

We are encouraged at the way in which improvements in global economic conditions have been feeding through to the profits of economically sensitive companies and we would have little difficulty in persuading ourselves of the cheapness of the shares of many such companies if we could only be sure that the recovery were sustainable.  It still seems to us, however, that the risk of renewed instability in the financial system is significant enough to justify the retention of our defensive investments and a cautious approach to the deployment of our cash balances.  We shall, of course, keep this conclusion under continuous review.

 

The principal risks facing the Company are set out on the inside front cover of this report.  We draw your attention, in particular, to the unusually important role of the directors' judgement in the success or failure of the Company's policy.

 

Douglas McDougall

Chairman

8 July 2010

 

 

 

 

 

 

 

 

 



List of Investments as at 31 May 2010

 

Sector

Name

Value (£'000)

 

%

Housebuilders

Berkeley Group

1,601

 

1.3

 

Persimmon

2,448

 

2.0

 

 

4,049

 

3.3

Industrials

Aggreko

8,837

 

7.3

Capital Goods

IMI

1,963

 

1.6

 

Renishaw

1,056

 

0.9

 

 

3,019

 

2.5

Retailing

Dunelm Group

11,110

 

9.2

 

Supergroup

5,950

 

4.9

 

Topps Tiles

990

 

0.8

 

 

18,050

 

14.9

Recruitment

Michael Page International

2,380

 

2.0

 

SThree

3,030

 

2.5

 

 

5,410

 

4.5

Technology and Telecommunications

Herald Investment Trust

7,120

 

5.9

 

Vodafone Group

1,382

 

1.2

 

 

8,502

 

7.1

Mining

BHP Billiton

1,434

 

1.2

 

BlackRock World Mining Trust

2,912

 

2.4

 

 

4,346

 

3.6

Offshore Drillers

Diamond Offshore Drilling - USA

5,210

 

4.3

 

Noble Corporation - USA

11,196

 

9.3

 

 

16,406

 

13.6

Oilfield Services

Schlumberger - USA

5,021

 

4.2

Oil and Gas Producers

BP

1,484

 

1.2

Tobacco

British American Tobacco

5,106

 

4.2

 

Imperial Tobacco

2,700

 

2.3

 

 

7,806

 

6.5

Pharmaceuticals

GlaxoSmithKline

1,735

 

1.4

Leisure

Marston's

1,890

 

1.6

Transport

First Group

1,507

 

1.3

 

Go-Ahead Group

1,025

 

0.9

 

Stagecoach Group

2,761

 

2.3

 

 

5,293

 

4.5

Utilities

†National Grid

2,771

 

2.3

 

Scottish & Southern Energy

2,104

 

1.7

 

 

4,875

 

4.0

Insurance

Amlin

2,249

 

1.9

 

Beazley

1,695

 

1.4

 

Catlin Group

979

 

0.8

 

Chaucer Holdings

1,720

 

1.4

 

Hiscox Insurance Portfolio Fund

1,894

 

1.6

 

 

8,537

 

7.1

Property

Tamar European Industrial Fund

1,750

 

1.5

 

Orchid Developments Group

450

 

0.4

 

 

2,200

 

1.9

Miscellaneous Financials

Alliance Trust

751

 

0.6

 

IG Group Holdings

2,661

 

2.2

 

 

3,412

 

2.8

Total Investments

 

110,872

 

92.0

Net Liquid Assets

 

9,602

 

8.0

Shareholders' Funds

 

120,474

 

100.0

All holdings are in equities domiciled in the UK unless otherwise stated.

†Includes a holding in nil paid shares.


THE INDEPENDENT INVESTMENT TRUST PLC

               

INCOME STATEMENT

(unaudited)

 

For the six months ended

31 May 2010

 

For the six months ended

31 May 2009

 

For the year ended

30 November 2009

 

Revenue

£'000

Capital

£'000

Total

£'000

 

Revenue

£'000

Capital

£'000

Total

£'000

 

Revenue

£'000

Capital

£'000

Total

£'000

Losses on sales of  investments

(1,625)

(1,625)

 

(10,088)

(10,088)

 

(10,713)

(10,713)

Changes in investment holding gains/losses

2,648 

2,648 

 

24,327 

24,327 

 

43,915 

43,915 

Currency gains/(losses)

1,241 

1,241 

 

(888)

(888)

 

(1,219)

(1,219)

Income from investments and interest receivable

2,427 

2,427 

 

1,665 

1,665 

 

3,247 

3,247 

Other income

 

14 

14 

 

18 

18 

Administrative expenses

(254)

(254)

 

(249)

(249)

 

(494)

(494)

Net return before finance costs and taxation

2,175 

2,264 

4,439 

 

1,430 

13,351 

14,781 

 

2,771 

31,983

34,754 

Finance costs of borrowings

(17)

(17)

 

(20)

(20)

 

(40)

(40)

Net return on ordinary activities before taxation

2,158 

2,264 

4,422 

 

1,410 

13,351 

14,761 

 

31,983 

34,714 

Tax on ordinary activities

(42)

(42)

 

(48)

(48)

 

(92)

(92)

Net return on ordinary activities after taxation

2,116 

2,264 

4,380 

 

1,362 

13,351 

14,713 

 

31,983 

34,622 

Net return per ordinary share:  (note 3)

 

 

 

 

 

 

 

 

 

 

 

Basic and Diluted (FRS 22)

3.42p

3.66p

7.08p

 

2.12p

20.82p

22.94p

 

4.16p

50.42p

54.58p

Note:

Dividends per share paid and payable in respect of the period

(note 4)

2.00p

 

 

 

 

2.00p

 

 

 

 

8.00p

 

 












 

 

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. No operations were acquired or discontinued during the period.

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 INDEPENDENT INVESTMENT TRUST PLC

 

BALANCE SHEET

 (unaudited)

 

 

At

31 May

2010

£'000

 

At

31 May

 2009

£'000

 

At

30 November 2009

£'000

 

 

 

 

 

 

Fixed assets

 

 

 

 

 

 

Investments held at fair value through profit or loss

110,872 

 

84,466 

 

108,008 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

Debtors

3,366 

 

927 

 

404 

Cash at bank and in hand

9,391 

 

18,824 

 

13,047 

 

12,757 

 

19,751 

 

13,451 

 

 

 

 

 

 

Creditors

 

 

 

 

 

 

Amounts falling due within one year (note 5)

(3,155)

 

(23)

 

(27)

 

 

 

 

 

 

Net current assets

9,602 

 

19,728 

 

13,424 

 

 

 

 

 

 

 

Total net assets

120,474 

 

104,194 

 

 

121,432 

 

 

 

 

 

 

Capital and reserves

 

 

 

 

 

 

Called-up share capital

15,346 

 

15,812 

 

15,576 

Share premium

15,242 

 

15,242 

 

15,242 

Special distributable reserve

31,974 

 

35,013 

 

33,600 

Capital redemption reserve

1,186 

 

720 

 

956 

Capital reserve

53,941 

 

33,045 

 

51,677 

Revenue reserve

2,785 

 

4,362 

 

4,381 

Shareholders' funds

120,474 

 

104,194 

 

121,432 

 

 

 

 

 

 

 
Net asset value per ordinary share

196.3p

 

164.7p

 

 

194.9p

 

 

 

 

 

 

 

 

 

 

 

 

Ordinary shares in issue (note 6)

61,385,000

 

63,250,000

 

62,305,000 

 


THE INDEPENDENT INVESTMENT TRUST PLC

RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS

(unaudited)

 

For the six months ended 31 May 2010

 

 

 

Share capital

£'000

 

Share premium

£'000

Special distributable reserve

£'000

Capital redemption reserve

£'000

 

Capital

reserve*

£'000

 

Revenue reserve

£'000

Share-holders' funds

£'000

 

Shareholders' funds at

1 December 2009

 

15,576 

 

15,242

 

33,600 

 

956

 

51,677

 

4,381 

 

121,432 

Net return on ordinary activities after taxation

-

-

2,264

2,116 

4,380 

Shares bought back for cancellation

(230)

-

(1,626)

230

 

-

(1,626)

Dividends paid  (note 4)

-

-

-

(3,712)

(3,712)

Shareholders' funds at 31 May 2010

 

15,346 

 

15,242

31,974 

1,186

53,941

2,785 

120,474 

 

 

For the six months ended 31 May 2009

 

 

 

Share capital

£'000

 

Share premium

£'000

Special distributable reserve

£'000

Capital redemption reserve

£'000

 

Capital

reserve*

£'000

 

Revenue reserve

£'000

Share-holders' funds

£'000

 

Shareholders' funds at

1 December 2008

16,295 

15,242

37,377 

237

19,694

5,394 

94,239 

Net return on ordinary activities after taxation

-

-

 

13,351

1,362 

14,713 

Shares bought back for cancellation

(483)

-

(2,364)

483

 

-

(2,364)

Dividends paid  (note 4)

-

-

-

(2,394)

(2,394)

Shareholders' funds at 31 May 2009

15,812 

15,242

35,013 

720

 

33,045

4,362 

104,194 

 

 

For the year ended 30 November 2009

 

 

 

Share capital

£'000

 

Share premium

£'000

Special distributable reserve

£'000

Capital redemption reserve

£'000

 

Capital

reserve*

£'000

 

Revenue reserve

£'000

Share-holders' funds

£'000

 

Shareholders' funds at

1 December 2008

16,295 

15,242

37,377 

237

19,694

5,394 

94,239 

Net return on ordinary activities after taxation

 

 

-

 

-

 

31,983

 

2,639 

 

34,622 

Shares bought back for cancellation

 

(719)

 

-

 

(3,777)

 

719

 

-

 

 

(3,777)

Dividends paid  (note 4)

-

-

-

(3,652)

(3,652)

Shareholders' funds at 30 November 2009

 

15,576 

 

15,242

 

33,600 

 

956

 

51,677

 

4,381 

 

121,432 

 

 

*The Capital Reserve balance at 31 May 2010 includes an investment holding gain of £1,830,000 (31 May 2009 - loss of £20,406,000; 30 November 2009 - loss of £818,000).

 


THE INDEPENDENT INVESTMENT TRUST PLC

 

CONDENSED CASH FLOW STATEMENT

 (unaudited)

 


For the six months ended

 31 May

 2010

For the six months ended

 31 May

 2009

For the

year ended

30 November 2009


£'000

£'000

£'000

 

Net cash inflow from operating activities

2,319 

1,483 

 

2,888 

Net cash outflow from servicing of finance

(20)

(30)

(50)

Net cash (outflow)/inflow from financial investment

(619)

16,182 

11,695 

Equity dividends paid

(3,712)

(2,394)

(3,652)

Net cash (outflow)/inflow before financing

(2,032)

15,241 

10,881 

Net cash outflow from financing

(1,624)

(2,717)

(4,134)

(Decrease)/increase in cash

(3,656)

12,524 

6,747 

 

Reconciliation of net cash flow to movement in net funds




 

(Decrease)/increase in cash in the period

(3,656)

12,524 

 

6,747 

Net funds at start of the period

13,047 

6,300 

6,300 

Net funds at end of the period

9,391 

18,824 

13,047 

 

 

Reconciliation of net return before finance costs and taxation to net cash inflow from operating activities




 

Net return before finance costs and taxation

4,439 

14,781 

 

34,754 

Gains on investments

(1,023)

(14,239)

(33,202) 

Amortisation of fixed interest book cost

27 

27 

Currency (gains)/losses

(1,241)

888 

1,219 

Changes in debtors and creditors

186 

74 

182 

Overseas tax

(42)

(48)

(92)

Net cash inflow from operating activities

2,319 

1,483

2,888 

 

 

             


THE INDEPENDENT INVESTMENT TRUST PLC

NOTES TO THE CONDENSED FINANCIAL STATEMENTS

(unaudited)

 

1.

The condensed financial statements have been prepared on the basis of the same accounting policies set out in the Company's Annual Financial Statements at 30 November 2009 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'.  They have been prepared on the going concern basis as it is the directors' opinion that the Company will continue in operational existence for the foreseeable future.

 

2.

The financial information contained within this Half-Yearly Financial Report comprises non-statutory accounts as defined in sections 434 to 436 of the Companies Act 2006.  The financial information for the year ended 30 November 2009 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 498(2) or (3) of the Companies Act 2006.



 

 

 

                                 

Six months ended
 31 May 2010

 

Six months ended

 31 May

2009

 

Year

 ended

  30 November 2009

 

 

£'000

 

£'000

 

£'000

3.

Net return per ordinary share

 

 

 

 

 

 

Revenue return on ordinary activities after tax

2,116

 

1,362

 

2,639 

 

Capital return on ordinary activities after tax

2,264

 

13,351

 

31,983

 

Total net return

4,380

 

14,713

 

34,622

 

The returns per share are based on the above returns and on 61,899,352 (31 May 2009 - 64,113,917;
30 November 2009 - 63,428,586) shares, being the weighted average number of shares in issue during each period.

 

There was no dilution of returns during any of the financial periods under review, as the average exercise price of the outstanding options was higher than the average share price.

 

 

 

Six months ended

31 May 2010

 

Six months ended

31 May

2009

 

Year

ended

30 November 2009

 

 

£'000

 

£'000

 

£'000

4.

Dividends

 

 

 

 

 

 

Amounts recognised as distributions in the period:

 

 

 

 

 

 

Previous year's final dividend of 3.00p (2009 -3.00p) paid  1 April 2010

1,856

 

1,915

 

 

1,915

 

Previous year's special dividend of 3.00p (2009 -0.75p) paid  1 April 2010

1,856

 

479

 

479

 

Interim dividend for the year ended 30 November 2009 of 2.00p paid 28 August 2009

-

 

-

 

1,258

 

 

3,712

 

2,394

 

3,652



 


 




THE INDEPENDENT INVESTMENT TRUST PLC

NOTES (Ctd)

(unaudited)

 

 

Six months ended

31 May 2010

 

Six months ended

31 May

2009

 

Year ended

30 November 2009

 

 

£'000

 

£'000

 

£'000

4.

Dividends (Ctd)

 

 

Amounts paid and payable in respect of the period:

 

 

 

 

 

 

Interim dividend for the year ending

30 November 2010 of 2.00p (2009 - 2.00p)

1,228

 

1,258

 

1,258

 

Final dividend (2009 - 3.00p)

-

 

-

 

1,856

 

Special dividend (2009 - 3.00p)

-

 

-

 

1,856

 

 

1,228

 

1,258

 

4,970

 

 

 

 

 

 

 


The interim dividend in respect of the six months to 31 May 2010 was declared after the period end date and has therefore not been included as a liability in the balance sheet. It is payable on 27 August 2010 to shareholders on the register at the close of business on 6 August 2010. The ex dividend date is 4 August 2010.

 

5.

The Company had a three year £20m facility with Lloyds TSB Scotland which expired in May 2010. There were no outstanding drawings at 31 May 2009 or 30 November 2009.

 

6.

During the period the Company bought back 920,000 ordinary shares (nominal value £230,000) for cancellation at a total cost of £1,626,000. At 31 May 2010, the Company had authority to buy back 8,802,065 ordinary shares as well as the authority to allot new shares up to an aggregate nominal amount of £5,154,068. 

 

At 31 May 2010 there were outstanding options to acquire 8,900,000 (31 May 2009 and 30 November 2009 - 8,900,000) ordinary shares in the Company. The options, which were granted to the founding shareholders on 11 September 2000 and expire on 31 August 2010, are exercisable at a price per share equivalent to the net asset value at the time of exercise. No options were exercised during the period.

 

7.

Transaction costs incurred on the purchase and sale of the investments are added to the purchase cost or deducted from the sale proceeds, as appropriate. During the period, transaction costs on purchases amounted to £84,000 (31 May 2009 - £112,000; 30 November 2009 - £193,000) and transaction costs on sales amounted to £32,000 (31 May 2009 - £50,000; 30 November 2009 - £70,000).

 

8.

The Half-Yearly Financial Report is available at www.independentinvestmenttrust.co.uk and will be posted to shareholders on or around 22 July 2010.

 

9.

None of the views expressed in this document should be construed as advice to buy or sell a particular investment.

 

 

 

 

 

 

 


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