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Independent Inv Tst (IIT)

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Friday 08 July, 2011

Independent Inv Tst

Half Yearly Report

RNS Number : 0091K
Independent Investment Trust PLC
08 July 2011
 



THE INDEPENDENT INVESTMENT TRUST PLC

 

Half-Yearly Financial Report for the six months ended 31 May 2011

 

 

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 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 2010. The principal risks and uncertainties have not changed since the publication of the Annual Report which is available on the Company's website: www.independentinvestmenttrust.co.uk. 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

7 July 2011

 

 


THE INDEPENDENT INVESTMENT TRUST PLC

 

 Chairman's Statement

 

The six month period ending 31 May 2011 saw our Company produce a net asset value total return of 11.4%, which compares with a total return notionally attributable to the FTSE All Share Index of 10.8%.  Most of our holdings performed well during the period, but the effect of this was largely offset by a disappointing performance from our big retail stake.  While this was not wholly unexpected after its spectacular performance in the previous year, the scale of our retail exposure has been reduced since the end of May and is under continuous review.

 

Our net asset value rose from 234.5p to 258.2p over the period and we are declaring an unchanged interim dividend of 2p, to be paid on 26 August 2011 from earnings of 2.56p (3.42p last year).  We would once again remind shareholders that the portfolio is not being managed to meet any particular income target and would warn that there is a significant possibility that the board will recommend a reduction in the final dividend.

 

On the surface, all has appeared well with the world economy: output has been rising; inflation has not been widely perceived as a problem; profits and dividends have been growing; and financial markets have, for much of the time, been in good heart.  Issues such as the insolvency of Greece are being dealt with by sleight of hand.  But this happy state of affairs has only been achieved as a result of fiscal and monetary policies that appear reckless.  The issue of where these policies are ultimately leading is one that has exercised us greatly over the last couple of years, but we still feel no nearer to a conclusion than when we started to worry about it.  Our policy has been one of tentatively assuming that we shall continue to muddle through, but being ready to adopt a gloomier view at short notice.  Matters such as balance sheet strength and cash generating capability have been very much to the fore when we have dared to invest in companies with sensitivity to economic fluctuations, but we have also kept a significant part of the portfolio in relatively high yielding investments with strong defensive characteristics.

 

Low levels of turnover and a complete absence of major strategic moves have been the hallmarks of the period.  Our cash balances fell from 11% at 30 November 2010 to 4% at 31 May 2011, but have since risen to around 10%, such is our wariness of markets.  The relative attractions of cash on the one hand and defensive investments with secure yields on the other is a recurring topic for debate.

 

The strongest contribution to our performance during the period has come from a group of companies we have rather arbitrarily lumped together under the label Industrials.  Ranging from the machine tool component manufacturer Renishaw to the lessor of temporary generating equipment Aggreko, these companies share a number of characteristics: financial strength, cash generating capability and sensitivity to economic conditions.  All have delivered strong profit growth since the end of 2009 and all should continue to prosper if the world economy retains its poise.  The value of our stake in Industrials rose from £13.6m at 30 November 2010 to £26.2m at 31 May 2011 with £7.1m of the increase being attributable to fresh purchases.

 

As mentioned above, the performance of our large retail stake has been a significant drag: its value fell from £27.9m at 30 November 2010 to £25.2m at 31 May 2011, despite net purchases of £1.6m.  All of our UK retailers have encountered more difficult trading conditions during the period and investors are worried that this marks a trend that will in due course lead to profits disappointments.  We have made some sales of Dunelm and SuperGroup in deference to these fears, but are reluctant to abandon what still look like strong businesses in reaction to short term fluctuations in trading conditions.  Our foray into Chinese retailing with the purchase of the handbag company Powerland has yet to show benefits, but reports on recent trading have been promising.

 



Our energy stake, the source of so much disappointment in 2010, has performed better recently.  Worth £20.7m at 30 November 2010, its value had grown to £21.7m by 31 May 2011 despite sales of £1.7m.  A strong oil price has helped sentiment towards the energy sector and provided tangible benefits to oilfield service companies such as Schlumberger, but trading conditions have remained difficult for our deepwater drillers, albeit that there are some signs that we may be approaching a bottom.  We continue to believe that their share prices are cheap in relation to their long term prospects.

 

The period has seen strong performances from our old favourites, the housebuilders and the recruitment companies.  In the case of the former, the market has reacted with relief to a much better spring selling season than seemed likely at the end of last year, while the latter are showing every sign of delivering the sort of strong profits growth for which they are renowned in periods of recovering economic activity.  We have taken some profits in both sectors. 

 

Less impressive, but still positive, returns have been recorded in our other areas of cyclical exposure: property, transport, technology, telecommunications and mining.  Between them, these sectors produced a single transaction during the period: a modest reduction in our holding of Tamar European Industrial Fund.  The balance of the holding was sold in early June.

 

Our defensive sectors have also had a positive six months with tobacco, utilities and non-life insurance outperforming the overall portfolio and pharmaceuticals performing broadly in line with it.  The real test for these sectors will come in more difficult economic conditions, but it is pleasing to see them making a positive contribution in a relatively benign environment, supporting our view that high safe yields have tended to be undervalued by the market.

 

Elsewhere in the portfolio, IG Group has been held back by dull market conditions and three new holdings have made little impact so far: Robert Wiseman, the dairy company; Asian Citrus, the largest grower of oranges in China; and Domino's Pizza, which needs no explanation.

 

This is the first six month period since May 2008 in which we have not bought back any shares.  It is therefore encouraging that we can report a modest improvement in our discount over the period: from 13.2% to 11.1%.  We do, however, stand ready to make further purchases of our own shares on an opportunistic basis when we can do so to the benefit of continuing shareholders.

 

The last two and a half years have seen a major recovery in our fortunes with our net asset value having doubled since its low point in December 2008, outperforming a strong market by a considerable margin in the process.  We take comfort from the fact that this recovery has been achieved in a style fundamentally different to that which gave us our original success.  In particular, we now operate with a more liquid, more diversified portfolio populated predominantly by financially strong companies and we have turned our back on gearing.  We consider this change in style a logical adaptation to a changed world and, while there can be no assurance of future success, we feel well placed to cope with a volatile and unpredictable market environment.

 

The principal risks facing the Company are set out above.  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

7 July 2011

 

 

 



List of Investments as at 31 May 2011

Sector

Name

Value (£'000)

 

%

Housebuilders

Berkeley Group

2,258

 

1.4

 

Persimmon

2,386

 

1.5

 

 

4,644

 

2.9

Industrials

Aggreko

13,069

 

8.2

 

Croda International

5,832

 

3.7

 

IMI

3,114

 

2.0

 

Renishaw

4,233

 

2.7

 

 

26,248

 

16.6

Retailing

Dunelm Group

8,990

 

5.7

 

Halfords Group

3,198

 

2.0

 

Powerland - China

2,803

 

1.8

 

SuperGroup

8,864

 

5.6

 

Topps Tiles

1,350

 

0.8

 

 

25,205

 

15.9

Recruitment

Michael Page International

3,428

 

2.2

 

SThree

7,382

 

4.6

 

 

10,810

 

6.8

Technology and

Herald Investment Trust

10,400

 

6.6

   Telecommunications

Vodafone Group

1,690

 

1.1

 

 

12,090

 

7.7

Mining

BHP Billiton

1,802

 

1.1

 

BlackRock World Mining Trust

3,890

 

2.5

 

 

5,692

 

3.6

Offshore Drillers

Diamond Offshore Drilling - USA

2,237

 

1.4

 

Noble Corporation - USA

12,722

 

8.0

 

 

14,959

 

9.4

Oilfield Services

Schlumberger - USA

6,768

 

4.3

Food Producers

Asian Citrus Holdings - China

1,980

 

1.3

 

Robert Wiseman Dairies

1,564

 

1.0

 

 

3,544

 

2.3

Tobacco

British American Tobacco

4,081

 

2.6

 

Imperial Tobacco

4,350

 

2.7

 

 

8,431

 

5.3

Pharmaceuticals

GlaxoSmithKline

1,979

 

1.3

Leisure

Domino's Pizza

794

 

0.5

Transport

First Group

1,352

 

0.8

 

Go-Ahead Group

1,150

 

0.7

 

Stagecoach Group

3,563

 

2.3

 

 

6,065

 

3.8

Utilities

National Grid

4,382

 

2.8

 

Scottish & Southern Energy

2,754

 

1.7

 

 

7,136

 

4.5

Insurance

Amlin

4,887

 

3.1

 

Beazley

1,912

 

1.2

 

Catlin Group

1,253

 

0.8

 

Chaucer Holdings

2,100

 

1.3

 

Polar Capital Global Insurance Fund   

  (formerly Hiscox)

1,999

 

1.3

 

 

12,151

 

7.7

Property

Tamar European Industrial Fund

1,640

 

1.0

 

Orchid Developments Group

255

 

0.2

 

 

1,895

 

1.2

Miscellaneous Financials

IG Group Holdings

3,143

 

2.0

Total Investments

 

151,554

 

95.8

Net Liquid Assets

 

6,622

 

4.2

Shareholders' Funds

 

158,176

 

100.0

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


THE INDEPENDENT INVESTMENT TRUST PLC

               

INCOME STATEMENT

(unaudited)

 

For the six months ended

31 May 2011

 

For the six months ended

31 May 2010

 

For the year ended

30 November 2010

 

Revenue

£'000

Capital

£'000

Total

£'000

 

Revenue

£'000

Capital

£'000

Total

£'000

 

Revenue

£'000

Capital

£'000

Total

£'000

Gains/(losses) on sales of  investments

5,239 

5,239 

 

(1,625)

(1,625)

 

(2,276)

(2,276)

Changes in investment holding gains

9,933 

9,933 

 

2,648 

2,648 

 

26,999 

26,999 

Currency (losses)/gains

(372)

(372)

 

1,241 

1,241 

 

741 

741 

Income from investments and interest receivable

1,882 

1,882 

 

2,427 

2,427 

 

4,088 

4,088 

Other income

 

 

17 

17 

Administrative expenses

(312)

(312)

 

(254)

(254)

 

(502)

(502)

Net return before finance costs and taxation

1,575 

14,800 

16,375 

 

2,175 

2,264 

4,439 

 

3,603 

25,464 

29,067 

Finance costs of borrowings

 

(17)

(17)

 

(17)

(17)

Net return on ordinary activities before taxation

1,575 

14,800 

16,375 

 

2,158 

2,264 

4,422 

 

 

3,586 

25,464 

29,050 

Tax on ordinary activities

(8)

(8)

 

(42)

(42)

 

(61)

(61)

Net return on ordinary activities after taxation

1,567 

14,800 

16,367 

 

2,116 

2,264 

4,380 

 

3,525 

25,464 

28,989 

 

 

 

 

 

 

 

 

 

 

 

Net return per ordinary share:  (note 3)

2.56p

24.16p

26.72p

 

3.42p

3.66p

7.08p

 

5.72p

41.35p

47.07p

Note:

Dividends per share paid and payable in respect of the period

(note 4)

2.00p

 

 

 

2.00p

 

 

 

5.00p

 

 












 

 

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

2011

£'000

 

At

31 May

 2010

£'000

 

At

30 November 2010

£'000

 

 

 

 

 

 

Fixed assets

 

 

 

 

 

 

Investments held at fair value through profit or loss

151,554 

 

110,872 

 

127,049 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

Debtors

388 

 

3,366 

 

3,019 

Cash at bank and in hand

7,018 

 

9,391 

 

13,603 

 

7,406 

 

12,757 

 

16,622 

 

 

 

 

 

 

Creditors

 

 

 

 

 

 

Amounts falling due within one year

(784)

 

(3,155)

 

(24)

 

 

 

 

 

 

Net current assets

6,622 

 

9,602 

 

16,598 

 

 

 

 

 

 

 

Total net assets

158,176 

 

120,474 

 

 

143,647 

 

 

 

 

 

 

Capital and reserves

 

 

 

 

 

 

Called-up share capital

15,315 

 

15,346 

 

15,315 

Share premium

15,242 

 

15,242 

 

15,242 

Special distributable reserve

31,763 

 

31,974 

 

31,763 

Capital redemption reserve

1,217 

 

1,186 

 

1,217 

Capital reserve

91,941 

 

53,941 

 

77,141 

Revenue reserve

2,698 

 

2,785 

 

2,969 

Shareholders' funds

158,176 

 

120,474 

 

143,647 

 

 

 

 

 

 

 
Net asset value per ordinary share

258.2p

 

196.3p

 

 

234.5p

 

 

 

 

 

 

 

 

 

 

 

 

Ordinary shares in issue (note 5)

61,260,000

 

61,385,000

 

61,260,000 

 


THE INDEPENDENT INVESTMENT TRUST PLC

RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS

(unaudited)

 

For the six months ended 31 May 2011

 

 

 

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 2010

15,315

15,242

31,763

1,217

77,141

2,969 

143,647 

Net return on ordinary activities after taxation

-

-

14,800

1,567 

16,367 

Dividends paid  (note 4)

-

-

-

(1,838)

(1,838)

Shareholders' funds at 31 May 2011

15,315

15,242

31,763

1,217

91,941

2,698 

158,176 

 

 

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 year ended 30 November 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

-

-

25,464

3,525 

28,989 

Shares bought back for cancellation

(261)

-

(1,837)

261

-

(1,837)

Dividends paid  (note 4)

-

-

-

(4,937)

(4,937)

Shareholders' funds at 30 November 2010

15,315 

15,242

31,763 

1,217

77,141

2,969 

143,647 

 

 

*The Capital Reserve balance at 31 May 2011 includes an investment holding gain of £36,114,000 (31 May 2010 - gain of £1,830,000; 30 November 2010 - gain of £26,181,000).

 


THE INDEPENDENT INVESTMENT TRUST PLC

 

CONDENSED CASH FLOW STATEMENT

 (unaudited)

 


For the six months ended

 31 May

 2011

For the six months ended

 31 May

 2010

For the

year ended

30 November 2010


£'000

£'000

£'000

 

Net cash inflow from operating activities

1,554 

2,319 

 

3,564 

Net cash outflow from servicing of finance

(20)

(20)

Net cash (outflow)/inflow from financial investment

(6,301)

(619)

3,786 

Equity dividends paid

(1,838)

(3,712)

(4,937)

Net cash (outflow)/inflow before financing

(6,585)

(2,032)

2,393 

Net cash outflow from financing

(1,624)

(1,837)

(Decrease)/increase in cash

(6,585)

(3,656)

556 

 

Reconciliation of net cash flow to movement in net funds




 

(Decrease)/increase in cash in the period

(6,585)

(3,656)

 

556 

Net funds at start of the period

13,603 

13,047 

13,047 

Net funds at end of the period

7,018 

9,391 

13,603 

 

 

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




 

Net return before finance costs and taxation

16,375 

4,439 

 

29,067 

Gains on investments

(15,172)

(1,023)

(24,723)

Currency losses/(gains)

372 

(1,241)

(741)

Changes in debtors and creditors

(13)

186 

22 

Overseas tax

(8)

(42)

(61)

Net cash inflow from operating activities

1,554 

2,319 

3,564 

 

 

             


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 Report and Financial Statements at 30 November 2010 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'.  The Company's assets, the majority of which are investments in quoted securities which are readily realizable, exceed its liabilities significantly. The Company has no loans. After making enquiries and considering the future prospects of the Company the financial statements 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 does not constitute statutory accounts as defined in sections 434 to 436 of the Companies Act 2006.  The financial information for the year ended 30 November 2010 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 2011

 

Six months ended

 31 May

2010

 

Year

 ended

  30 November 2010

 

 

£'000

 

£'000

 

£'000

3.

Net return per ordinary share

 

 

 

 

 

 

Revenue return on ordinary activities after taxation

1,567

 

2,116

 

3,525 

 

Capital return on ordinary activities after taxation

14,800

 

2,264

 

25,464

 

Total net return

16,367

 

4,380

 

28,989

 

The returns per share are based on the above returns and on 61,260,000 (31 May 2010 - 61,899,352;
30 November 2010 - 61,588,730) 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.

 

 

 

Six months ended

31 May 2011

 

Six months ended

31 May

2010

 

Year

ended

30 November 2010

 

 

£'000

 

£'000

 

£'000

4.

Dividends

 

 

 

 

 

 

Amounts recognised as distributions in the period:

 

 

 

 

 

 

Previous year's final dividend of 3.00p (2010 -3.00p) paid  6 April 2011

1,838

 

1,856

 

 

1,856

 

Previous year's special dividend of 3.00p

-

 

1,856

 

1,856

 

Interim dividend for the year ended 30 November 2010 of 2.00p paid 27 August 2010

-

 

-

 

1,225

 

 

1,838

 

3,712

 

4,937



 


 




THE INDEPENDENT INVESTMENT TRUST PLC

NOTES (Ctd)

(unaudited)

 

 

Six months ended

31 May 2011

 

Six months ended

31 May

2010

 

Year ended

30 November 2010

 

 

£'000

 

£'000

 

£'000

4.

Dividends (Ctd)

 

 

Amounts paid and payable in respect of the period:

 

 

 

 

 

 

Interim dividend for the year ending

30 November 2011 of 2.00p (2010 - 2.00p)

1,225

 

1,225

 

1,225

 

Final dividend (2010 - 3.00p)

-

 

-

 

1,838

 

 

1,225

 

1,225

 

3,063

 

 

 

 

 

 

 


The interim dividend in respect of the six months to 31 May 2011 was declared after the period end date and has therefore not been included as a liability in the balance sheet. It is payable on 26 August 2011 to shareholders on the register at the close of business on 5 August 2011. The ex dividend date is 3 August 2011.

 

5.

The Company did not buy back any of its ordinary shares for cancellation during the period. At 31 May 2011, the Company had authority to buy back 9,182,874 ordinary shares as well as the authority to allot new shares up to an aggregate nominal amount of £5,154,068. 

 

6.

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 £140,000 (31 May 2010 - £84,000; 30 November 2010 - £103,000) and transaction costs on sales amounted to £31,000 (31 May 2010 - £32,000; 30 November 2010 - £58,000).

 

7.

The Half-Yearly Financial Report is available at www.independentinvestmenttrust.co.uk and will be posted to shareholders on or around 21 July 2011.

 

8.

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

 

 

Neither the contents of the Company's website nor the contents of any website accessible from hyperlinks on the Company's website (or any other website) is incorporated into, or forms part of, this announcement.

 

                                                          

 

                                                                        - ends -                                                  

 

 

 

 


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