Final Results
(Thomson Reuters ONE) - M&G Equity Investment Trust P.L.C.For the year ended 30 June 2009Chairman's Statement and Management ReportPerformance during the yearOn a net asset value (NAV) basis, each Package Unit produced anegative total return of 18.9% over the year to 30 June 2009. Thiswas ahead of the negative total return of 20.5% from the FTSEAll-Share Index over the same period, despite the detrimental effectof the Company's balance sheet gearing. An amount of £14 million ofthe outstanding borrowings was repaid at the end of October, reducingthe Company's debt to £40 million at the year end, representing 23.6%of total assets less current liabilities.As at the year end, the market price discount widened slightly to4.9% to the NAV, compared with a discount of 4.5%as at 30 June 2008,the mid-market price at the year end being 71.0p and the NAV 74.69p.On a mid-market price basis, there was a negative total return on theCompany's Package units of 19.1%.The Company's revenue earnings per Package Unit were 5.09p. Inrespect of the year, the Company declared three quarterly dividendsof 1.25p per Package Unit and a fourth interim of 2.00p, making atotal of 5.75p. This represents an increase of 2.7% compared with thetotal of 5.60p in respect of the previous year. The Company has builtup revenue reserves over the course of its life and these have beenreduced this year to ensure continuance of our progressive dividendpolicy. After the payment of the fourth interim dividend, revenuereserves will be 3.08p per Package Unit, leaving the Company wellplaced over its remaining life. The inflation rate for the year to 30June 2009 as measured by the Retail Prices Index (RPI) was minus1.6%. As at the year end, the mid-market price yield on the Company'sPackage Units was 8.1%, compared with the yield of 4.6% on the FTSEAll-Share Index.Long-term performanceAgainst an extremely hostile stockmarket environment, the Company'sabove-index performance was encouraging. The outperformance occurredprimarily in the first half of the year, during which high yieldingand defensive shares proved relatively resilient to the severe marketdownturn. This improvement can be attributed to the reduction in theCompany's borrowings, a positive return from the Company's bondholdings as well as changes to the portfolio's asset allocation. Wehave focused on companies with strong finances, stable cash flow andsustainable growth prospects. Capital goods and financial stocks withvulnerable high yields were sold.The Company's total return over three and five years and sinceinception remains below that of the index, though theunderperformance has narrowed, thanks to the improvement over thepast year.The Company continues to meet its income objectives. The rate ofdividend growth in respect of the review period was ahead of the RPIinflation rate. This maintained the Company's record of uninterruptedordinary dividend growth since its inception in 1996. In the absenceof unforeseen circumstances, we are hopeful of at least maintainingthe Company's dividend at 5.75p per Income share. This should nothowever be taken to be a profit or dividend forecast.Unfortunately, as a result of weak equity and bond markets during thepast year and the impact of financial gearing, the net asset value ofCapital Shares has fallen to nil from 12.07p in 2008, leaving theZero Dividend Preference Shares uncovered. The Board remains acutelyaware that an investment strategy which supports an improvement inreturns to the benefit of both the Zero Dividend PreferenceShareholders and Capital Shareholders is a key objective.Debt repaymentThe Board took the decision in October to repay £14 million of thedebenture stock leaving £40 million outstanding. With a weakshort-term outlook for the equity market, it was decided to reducethe gearing of the Company. This decision added value by reducing thenegative impact of gearing and by the saving of interest paid fromthe fourth quarter of 2008.Winding upAs an investment company with a limited life, the Company willwind-up on or immediately before 8 March 2011. The directors willwork with the Company's advisers and M&G to devise a range of taxeffective rollover options in addition to a return of cash.Share buy back and issueThe powers to buy back the Company's own shares were exercised duringthe year with 500,000 Package Units bought and cancelled at anaverage cost of 92p each. The share repurchases improved the NAV ofeach remaining Package Unit by approximately 0.03p. Accordingly, theBoard is seeking to renew the power to buy back and cancel theCompany's shares.Also during the year, the Company issued a total of 1,550,000 PackageUnits in relation to the dividend reinvestment facility. Furtherdetails of the share issue can be found in note 15 to the FinancialStatements.VATIn the Directors' Report in the Annual Financial Statements for theyear ended 30 June 2008, we reported that, following agreement withM&G that in light of the HMRC confirmation in November 2007 that fundmanagement services supplied to investment companies were VAT exempt,M&G would refund (i) all amounts charged to the Company in relationto VAT plus interest since April 2004 including amounts it was unableto recover against HMRC and (ii) for periods prior to April 2004, allamounts M&G was able to recover against HMRC. Payment in the sum of£2,644,000 was received by the Company by way of recovery of VAT andinterest up to 13 August 2008.During the course of the year, the Board has been in discussion withPwC Legal regarding its proposals to issue proceedings against HMRCon behalf of companies in liquidation to which certain of PwC'spartners are appointed liquidators by way of a restitutionary claimin respect of VAT payments made on investment management fees. TheBoard understands that these proceedings are expected to be initiatedvery shortly ('the Lead Proceedings'). In this connection, theCompany has entered into a consultancy agreement with PwC with a viewto bringing its own restitutionary proceedings on the same legalbasis as the Lead Proceedings so as to enable further recoveries ofVAT to be secured. Whilst there is no certainty as to the ultimateoutcome of the Company's proposed litigation, the Board believes thaton balance the potential benefits to shareholders justify theestimated costs. The timescale for the ultimate resolution of theLead Proceedings, and therefore any proceedings which the Companybrings in its own name, is likely to take a number of years and giventhe Company's expected winding-up in March 2011, is likely to be amatter ultimately concluded by the Company's appointed liquidator.OutlookI am pleased to report that since the year end the Company's NAV perPackage Unit has increased by 17% from 74.69p to 87.52p.Consequently, the hurdle rate and cover in respect of the ZeroDividend Preference shares have improved from 18.96% and 0.67xrespectively to 12.06% and 0.79x.There is considerable uncertainty over how the UK economy will evolvein the coming year. However, it seems likely that the trough of therecession occurred around the turn of the calendar year with nationalincome in the second quarter shrinking by 0.8%, far less than the2.4% figure reported for the first quarter. The economy remainsfragile, but tentative signs of improvement are evident. Surveys ofbusiness and confidence show a marked improvement from the depthsplumbed during the winter months, though this is yet to be reflectedin higher output. Despite low levels of mortgage approvals, activityin the housing market has quickened and prices appear to bestabilising.On the other hand, there are powerful headwinds that could bothhamper recovery and ensure that post- recession growth rates will bemediocre. Unemployment is on a rising trend, there is little growthin wages and taxes are set to increase. This combination is likely todampen consumer sentiment and persuade households to continue payingdown debt and rebuilding savings rather than relaxing their cautiousapproach to spending. World trade is forecast to decline by nearly10% this year, making life difficult for UK exporters. Moreover, noearly relaxation in credit conditions seems likely. In addition,revelations in the Chancellor's recent budget speech of an alarmingdeterioration in government finances, with the public sector deficitset to reach 12.4% of GDP in 2009/10, implies substantial future cutsin public spending. In mitigation, with inflation likely to remainsubdued in the short term, the Bank of England is well placed to keepbase rates low.We expect that companies will continue to reduce costs, but willhesitate to increase capital investment until the outlook is moreassured. We also expect companies to announce further rights issuesto strengthen their finances. The overall level of company profits islikely to be lower in 2009 (with downgrades probable if sterlingcontinues to strengthen against the US dollar) and further cuts individends are possible. However, profitability should improve in2010, though the extent of this is difficult to predict, and may wellprove to be anaemic. Pressure on the consumer is likely to re-emergeafter the general election expected next May as taxes are raised tocorrect the public sector deficit.We remain cautious on the short-term outlook for the UK equitymarkets. Indeed, we used the recent rally in shares in cyclicalsectors to reduce weightings in these areas. The overall valuation ofthe stockmarket remains unattractive and, furthermore, is certainlydiscounting a solid economic recovery, implying that equities arevulnerable to setbacks on disappointing news.Government bond markets face considerable challenges in the yearahead, not least from the implicit risks arising from thedeterioration of government finances and the associated surge inissuance. Investors may demand higher yields to compensate forassuming greater risk. Likewise, any indication of a medium-termpick-up in inflation would depress market sentiment. Corporate bondsface some of the headwinds likely to weigh on government bonds,including an abundance of new issues, though their premium yieldsshould enable them to attract continuing support from investors. Theyform a key part of the Company's fixed income portfolio and areexpected to deliver positive returns over the coming year.Responsibility statementsTo the best of my knowledge and belief:a ) this statement includes a fair review of the development andperformance of the business and the position of the Company togetherwith a description of the principal risks and uncertainties that theCompany faces; andb ) the financial statements, prepared in accordance with UnitedKingdom Accounting Standards, give a true and fair view of theassets, liabilities, financial position and losses of the Company.J C Barclay OBEChairman25 August 2009Income statement (audited)for the year 2009 2008ended 30 June Revenue Capital Total Revenue Capital Total £000 £000 £000 £000 £000 £000 -------- -------- ------- -------- ------- --------Net losses on - (36,811) (36,811) - (57,370) (57,370)investmentsExchange gains - - - - 2 2Income 10,431 - 10,431 12,966 - 12,966Investment (417) (974) (1,391) 94 54 148management feeOther expenses (210) - (210) (175) - (175) ------- ------- ------- ------ -------- --------Net returnbefore finance 9,804 (37,785) (27,981) 12,885 (57,314) (44,429)costs and taxFinance costs: - (11,737) (11,737) - (10,491) (10,491)AppropriationsFinance costs: (10,625) - (10,625) (9,368) - (9,368)DividendsFinance costs: (982) (2,939) (3,921) (1,211) (2,818) (4,029)Interestpayable andsimilarcharges[a] ------- ------- ------- ------ -------- --------Net return onordinary (1,803) (52,461) (54,264) 2,306 (70,623) (68,317)activitiesbefore taxTax on ordinary (90) 90 - (321) 321 -activities ------- ------- ------- ------ -------- --------Net return onordinary (1,893) (52,371) (54,264) 1,985 (70,302) (68,317)activitiesafter tax ------- ------- ------- ------ -------- --------Return per ZeroDividend - (11.53)p (11.53)p - 6.10p 6.10pPreferenceShareRevenueearnings / 5.09p (0.10)p 4.99p 6.60p - 6.60preturn perIncome ShareReturn per - (12.06)p (12.06)p - (40.89)p (40.89)pCapital ShareTotal returnper Package 5.09p (23.69)p (18.60)p 6.60p (34.79)p (28.19)pUnit[a] Finance costs: Interest payable and similar charges for the yearended 30 June 2009 includes £648,000 within capital as cost of earlypartial redemption of Debenture stock.The total column of this statement is the profit and loss account ofthe Company. The revenue return and capital return columns aresupplementary to this and are prepared under the guidance publishedby the Association of Investment Companies.All items in the above statement derive from continuing operations.No operations were acquired or discontinued during the year.A statement of Total Recognised Gains and Losses is not required asall gains and losses of the Company have been reflected in the abovestatement.Statement of movements in net assets attributable to shareholders(audited)For the year ended 30 June 2009 2008 £000 £000 ---------- ----------Net return on ordinary activities after (54,264) (68,317)taxFinance costs: Appropriations 11,737 10,491Issue of Package Units (including related 1,306 -costs)Repurchase of Package Units (including (461) (857)related costs) ---------- ----------Net movement in net assets attributable (41,682) (58,683)to shareholdersOpening net assets attributable to 170,490 229,173shareholders (all non-equity) ---------- ----------Closing net assets attributable to 128,808 170,490shareholders (all non-equity) ---------- ----------Balance sheet (audited)As at 30 June 2009 2008 £000 £000 ------- -------Fixed assetsPortfolio of investments 166,476 215,977 ------- -------Current assetsDebtors 1,967 7,138Cash at bank and short-term deposits 696 1,797 ------- ------- 2,663 8,935 ------- -------Total financial assets 169,139 224,912Creditors: Amounts falling due within one year (354) (472) ------- -------Total assets less current liabilities 168,785 224,440Creditors: Amounts falling due after more than (39,977) (53,950)one year ------- -------Net assets attributable to shareholders (all 128,808 170,490non-equity) ------- -------Net assets attributable to shareholders comprise:As at 30 June 2009 2008 £000 £000 ------- -------Zero Dividend Preference Shareholders 120,038 138,972Income Shareholders 8,770 10,834Capital Shareholders - 20,684 -------- --------Net assets attributable to shareholders (all 128,808 170,490non-equity) -------- --------The net assets attributable to shareholders have been calculated inaccordance with the Company's Articles of Association and the netasset values (per share) applicable to each class of shareholding asshown below.Each class of the Company's shares meets the definition of aliability and therefore the Company has no equity shares.This does not affect the rights and benefits of each class asdisclosed in note 15. The breakdown of the net assets attributable toshareholders into the share capital and reserves attributable to themis given in notes 14 to 19 below.As at 30 June 2009 2008Net asset value per Zero Dividend Preference Share 69.61p 81.08pNet asset value per Income Share 5.08p 6.32pNet asset value per Capital Share - 12.07pNet asset value per Package Unit 74.69p 99.47pCash flow statement (audited)For the year ended 30 June 2009 2008 £000 £000 £000 £000 ------ -------- -------- -------Net cash inflow from operating 11,561 10,054activitiesServicing of financeDividends paid (non-equity) (10,625) (9,368)Annual monitoring fee paid (3) -Bank interest paid - (3)Interest paid on Debenture (3,370) (3,983)Stock -------- -------- (13,998) (13,354)Financial investmentCapital distributions 705 432Purchase of investments (62,207) (80,214)Sale of investments 76,641 84,233 ------ ------- 15,139 4,451FinancingPartial repayment of Debenture (14,000) -StockCost of early partial (648) -redemption of Debenture StockIssue of Package Units 1,306 -(including related costs)Repurchase of Package Units (461) (857)(including related costs) ------ ------- (13,803) (857) ------- -------Net (decrease) / increase in (1,101) 294cash ------- -------Notes to the Financial Statements1. Accounting policiesa) Basis of accounting: These financial statements have been preparedin accordance with the historical cost convention, as modified by therevaluation of investments, in accordance with applicable UnitedKingdom Accounting and Financial Reporting Standards and theStatement of Recommended Practice for Financial Statements ofInvestment Trust Companies (SORP) issued by the Association ofInvestment Companies in December 2005.b) Portfolio of investments: All investments have been designated as'at fair value through profit or loss'. Purchases of investments areinitially recognised on the trade date at fair value, being theconsideration paid, and subsequently valued at their fair value,excluding any accrued interest, at the balance sheet date. The fairvalue for listed investments is deemed to be bid value. Investmentswhich are unquoted or not listed are valued at the Director's bestestimate of fair value. Investments are derecognised on the tradedate of the sale.c) Recognition of income: Income from quoted equity shares isrecognised net of attributable tax credits when the security isquoted ex-dividend. Interest on debt securities and income frompreference shares are accounted for on an effective yield basis. Bankinterest and underwriting commission are accounted for on an accrualsbasis.d) Stock dividends: The ordinary element of stocks received in lieuof cash dividends is recognised as revenue. Any enhancement above thecash dividend is treated as capital.e) Special dividends: These are recognised when the security isquoted ex-dividend and treated as either revenue or capital dependingupon the nature and circumstances of the dividend receivable.f) Investment management fees: These have been charged 30% to therevenue account and 70% to capital reserve - realised. This is inline with the Board's expected long-term split of returns in the formof capital gains and income respectively from the investmentportfolio of the Company.g) Other expenses: All expenses (other than those incidental to thepurchase or sale of investments) are charged against revenue on anaccruals basis.h) Appropriations: Appropriations for premiums payable on redemptionare accounted for as finance costs and transferred from capitalreserves - realised. They represent an apportionment of the increasein the redemption value of Zero Dividend Preference Shares over theamounts originally subscribed.i) Dividends payable to Income Shareholders: Dividends approved bythe board and declared after the balance sheet date, in respect ofthe net revenue for the period, are recognised as a finance cost whenthe shareholders' right to receive them is established.j) Debenture stock: Finance costs of debt, insofar as they relate tothe financing of the Company's investments or to financing activitiesaimed at maintaining or enhancing the value of the Company'sinvestments, are allocated 30% to the revenue account and 70% to thecapital reserves - realised, in line with the Board's expectedlong-term split of returns, in the form of capital gains and incomerespectively, from the investment portfolio of the Company. Costsspecific to arranging the debt finance have been capitalised and willbe amortised over the term of the finance.k) Capital reserves: Gains and losses on the realisation ofinvestments together with finance costs, expenses and appropriationsin accordance with the above policies are accounted for in capitalreserves - realised. Increases and decreases in the valuation ofinvestments held at the balance sheet date are accounted for incapital reserves - unrealised.l) Share capital: All classes of the Company's shares meet thedefinition of a financial liability under FRS 25 therefore theCompany has no equity shares and appropriations in respect of ZeroDividend Preference Shares and dividends payable to IncomeShareholders are accounted for as finance costs. The appropriationsare charged 100% to capital and dividends are charged 100% to revenueto reflect the rights and benefits of the different classes of sharein issue.m) Taxation: The charge for taxation is based upon the revenue forthe year and is allocated according to the marginal basis betweenrevenue and capital using the Company's effective tax rate ofcorporation tax for the accounting period.n) Deferred taxation: This is provided for in respect of all timingdifferences. Any liability is provided at the average rate of taxexpected to apply. Deferred tax assets and liabilities are notdiscounted to reflect the time value of money.o) Foreign currency transactions: These are translated at the rate ofexchange ruling on the date of the transaction. Assets andliabilities denominated in foreign currencies are translated intosterling at the rate of exchange ruling at the balance sheet date.p) Forward currency contracts: Gains and losses on contracts areaccounted for in accordance with the investment manager's intentionon entering into the contracts and are taken to the Income Statement.Amounts receivable under these contracts are included at the contractrates. Assets and liabilities arising are included at the forwardexchange rates on the last business day of the financial year.q) Issue costs: These have been offset against proceeds of shareissues and dealt with in the share premium account.r) Functional and presentation currency: The functional andpresentation currency of the Company is pounds sterling because thatis the currency of the primary economic environment in which theCompany operates.2. Investments: At fair value through profit or loss 2009 2008 Capital Capitala) Net losses on £'000 £'000investments Non derivative -------------- --------------securities:Realised (losses) / gains (30,110) 2,261on sales of investmentsIncrease in unrealised (7,406) (60,037)depreciationCapital distributions 705 432Effect of forward currencycontracts: [a]Realised losses on forward - (21)currency contractsDecrease in unrealisedgains on forward currency - (5)contracts -------------- --------------Net losses on investments (36,811) (57,370) -------------- -------------- [a] To reduce the currency exposure from investing in eurodenominated bonds, the Company used forward foreign currencycontracts where gains or losses arising from movements in the valueof the foreign currency assets are offset.b) InvestmentsOpening book cost 252,570 256,626Opening unrealised(depreciation) / (36,593) 23,444appreciation onnon-derivative securitiesOpening unrealised gainson forward currency - 5contracts -------------- --------------Opening valuation 215,977 280,075Movements in the year -non derivative securities:Effective yield (79) (96)adjustmentsPurchases - at cost 61,978 79,109 - 236 277transaction chargesSales - proceeds (74,432) (86,057) - 54 52transaction charges -realised (losses) / gains (30,110) 2,261on sales of investmentsStock dividends 258 398Increase in unrealised (7,406) (60,037)depreciationDecrease in unrealisedgains on forward currency - (5)contracts -------------- --------------Closing valuation 166,476 215,977 -------------- --------------Closing book cost 210,475 252,570Closing unrealiseddepreciation on (43,999) (36,593)non-derivative securities -------------- --------------Portfolio of Investments 166,476 215,977 -------------- --------------3. Income 2009 2008 Revenue RevenueIncome from investments £'000 £'000 -------------- --------------Interest on debt securities 1,684 1,859Property income dividends 92 11Overseas dividends 7 -Stock dividends 258 398UK dividends 8,211 10,191 -------------- -------------- 10,252 12,459 -------------- --------------Other income -------------- --------------Bank interest 21 13Deposit interest 85 104HM Revenue & Customs interest [a] 10 383Underwriting commission 63 7 -------------- -------------- 179 507 -------------- --------------Total income 10,431 12,966 -------------- --------------Total income comprises -------------- --------------Dividends 8,568 10,600Interest 1,800 2,359Other income 63 7 -------------- -------------- 10,431 12,966 -------------- --------------[a] Interest in relation to the VAT recoverable as disclosed in Note4.4. Investment management fee 2009 2008 Revenue Capital Total Revenue Capital Total £'000 £'000 £'000 £'000 £'000 £'000 ------------ --------- ---------- ---------- --------- ---------Investmentmanagement fee 417 974 1,391 585 1,366 1,951IrrecoverableVAT thereon upto 6 November2007[a] - - - 46 106 152 ------------ --------- ---------- ---------- --------- --------- 417 974 1,391 631 1,472 2,103 ------------ --------- ---------- ---------- --------- ---------VATrecoverable[a] - - - (725) (1,526) (2,251) ------------ --------- ---------- ---------- --------- --------- 417 974 1,391 (94) (54) (148) ------------ --------- ---------- ---------- ---------- ----------The name of the investment manager and the terms and duration of itsappointment are disclosed in the Directors' Report of the AnnualReport and Financial Statements of the Company for the year ended 30June 2009. The basis of allocating the investment management fee torevenue and capital is dealt with in note 1f.During the year no performance related fees were paid (2008: same).[a] Following the decision of the European Court of Justice and theBusiness Brief issued by HMRC in 2007 and the Michael Fleming (t/aBodycraft) -v- CRC (Conde Nast Publications Ltd) case, the Companyreceived from the investment manager a refund in respect of aproportion of the VAT paid on investment management fees which wasrecognised as recoverable VAT. Since 7 November 2007, VAT has nolonger been charged on the investment management fee.5. Other expenses 2009 2008 Revenue Revenue £'000 £'000 -------------- --------------Annual listing fee 5 5Auditors' fees[a] 27 25Bank charges and safe custody 9 10feesDirectors' remuneration 68 63FSA fees 4 4Registrar's fees 19 21The Association of Investment 20 22Companies feesBroker fees 9 12Legal advice 15 -Other fees 34 13 -------------- -------------- 210 175 -------------- --------------[a] During the year £2,000 of non-audit fees were paid (2008: £nil).Auditors' fees include VAT charged of £3,450 (2008: £3,762).6. Finance costs: Appropriations 2009 2008Appropriation for premium payable £'000 £'000on redemption -------------- --------------Zero Dividend Preference Shares 11,737 10,491 -------------- --------------This constitutes an appropriation of reserves in respect of thepremium to issue proceeds payable to holders of Zero DividendPreference Shares on redemption. The appropriation for the yearrepresents the increase in redemption value of the amounts originallysubscribed. However, as at 30 June 2009, there was a deficiency ofassets available amounting to £31,519,000 to fully cover the NAVentitlement of the Zero Dividend Preference Shares under the articlesof association of the Company.7. Finance costs: Dividends 2009 2008Dividends (payable to Income £'000 £'000Shareholders) -------------- --------------Fourth interim 2008: 2p paid 19 3,418 3,185September 2008 (2007: 1.85p)Special Dividend: 0.45p paid 19 769 -September 2008 (2007: nil)First interim 2009: 1.25p paid 19 2,146 2,063December 2008 (2007: 1.2p)Second interim 2009: 1.25p paid 20 2,146 2,063March 2009 (2008: 1.2p)Third interim 2009: 1.25p paid 19 2,146 2,057June 2009 (2008: 1.2p) -------------- -------------- 10,625 9,368 -------------- --------------On 25 August 2009 the Board declared a fourth interim dividend of 2p(2008: 2p) per Income Share, totalling £3,449,000 (2008: £3,418,000),payable on 18 September 2009 to Income Shareholders on the registerat the close of business on 4 September 2009. The ex-dividend date is2 September 2009.All dividends are payable to holders of Income Shares and PackageUnits.8. Interest payable and similar charges 2009 2008 Revenue Capital Total Revenue Capital Total £'000 £'000 £'000 £'000 £'000 £'000 ------------ ---------- ------- --------- ------- -------Bankinterest - - - 3 - 3paid7.376%Debenture 973 2,270 3,243 1,202 2,805 4,007Stock 2011interestAnnualmonitoring 1 2 3 - - -feeAmortisationof costsspecific to 8 19 27 6 13 19the 7.376%DebentureStock 2011 Partialredemption - 648 648 - - -charges ------------ ---------- ------- --------- --------- ------- 982 2,939 3,921 1,211 2,818 4,029 ------------ ---------- ------- --------- --------- -------The terms of the 7.376% Debenture Stock 2011 are dealt with in note13.9. Tax on ordinary activities 2009 2008 Revenue Capital Total Revenue Capital Totala) Analysis ofthe charge in £'000 £'000 £'000 £'000 £'000 £'000the year ------------- ------------ ------------- ------------ ----------- ------------Corporation 90 (90) - 321 (321) -tax / (relief) ------------- ------------ ------------- ------------ ----------- ------------Total currenttax charge 90 (90) - 321 (321) -(note 9b)Deferred tax - - - - - -(note 9c) ------------- ------------ ------------- ------------ ----------- ------------Tax on profiton ordinary 90 (90) - 321 (321) -activities ------------- ------------ ------------- ------------ ----------- ------------b) Factors affecting the tax charge for the year ------------- ------------ ------------- ------------ ----------- ------------Net return onordinary (1,803) (52,461) (54,264) 2,306 (70,623) (68,317)activitiesbefore tax ------------- ------------ ------------- ------------ ----------- ------------Corporation (505) (14,689) (15,194) 681 (20,836) (20,155)tax [a]Effects of:Finance costs:Appropriations - 3,286 3,286 - 3,095 3,095[b]Finance costs: 2,975 - 2,975 2,764 - 2,764Dividends [b]Capital - 10,307 10,307 - 16,925 16,925returns [b]Stock (72) - (72) (117) - (117)dividends [b]UK dividends (2,299) - (2,299) (3,007) - (3,007)[b]Income taxablein different (9) - (9) - - -periodsCurrent yearexpenses not - 1,006 1,006 - 495 495utilized [c] ------------- ------------ ------------- ------------ ----------- ------------Current taxcharge (note 90 (90) - 321 (321) -9a) ------------- ------------ ------------- ------------ ----------- ------------[a] Corporation tax charged at 30% to 31 March 2008 and at 28% from 1 April 2008.[b] As an investment trust company these items are not subject to corporation tax.[c] Current year expenses includes interest paid on debenture stock.c) Provision for deferred taxThere is no provision for deferred tax at the start or end of the year (2008: same)d) Deferredtax asset notrecognised ------------- ------------ ------------- ------------ ----------- ------------Resulting fromunutilised - 8,064 8,064 - 7,058 7,058expenses [d] ------------- ------------- ------------- ------------ ----------- ------------ [d] These expenses will not be utilised unless the tax treatment ofUK dividends and capital gains for an investment trust companychanges.10. Earnings / returns per share 2009 2008 Capital Capitala) Return per Zero DividendPreference Share -------------- --------------Appropriations £11,737,000 £10,491,000Losses offset against Zero Dividend £(31,515,000) -Preference Shares (note 10c) -------------- --------------Net capital return attributable toZero Dividend Preference £(19,778,000) £10,491,000ShareholdersWeighted average shares in issue 171,579,496 171,920,442throughout the year -------------- --------------Return per share (11.53)p 6.10p -------------- --------------b) Revenue earnings per Income 2009 2008Share -------------- --------------Net revenue return on ordinary £(1,893,000) £1,985,000activities after taxFinance costs: Dividends £10,625,000 £9,368,000 -------------- --------------Revenue return attributable to £8,732,000 £11,353,000Income ShareholdersWeighted average shares in issue 171,579,496 171,920,442throughout the year -------------- --------------Revenue earnings per share 5.09p 6.60p -------------- --------------Capital return attributable to £(172,000) -Income Shareholders (note 10c)Weighted average shares in issue 171,579,496 171,920,442throughout the year -------------- --------------Capital return per Income (0.10)p -share -------------- --------------c) Return per Capital Share 2009 2008 -------------- --------------Net capital return on ordinaryactivities after tax £(52,371,000) £(70,302,000)Losses offset against Income Shares £172,000 -Losses offset against Zero DividendPreference Shares £31,515,000 - -------------- --------------Net capital return attributable toCapital Shareholders £(20,684,000) £(70,302,000)Weighted average shares in issuethroughout the year 171,579,496 171,920,442 -------------- --------------Return per share (12.06)p (40.89)p -------------- --------------d) Package unitsThe earnings and returns per Package Unit are calculated by referenceto its component shares.11. Debtors 2009 2008 £'000 £'000 -------------- --------------Amounts due from brokers - 2,263Bank interest receivable - 1Debt security interest 599 579receivableUnderwriting commission 15 -receivableDividends receivable 1,332 1,661Income tax recoverable 21 -HM Revenue & Customs interest - 383receivableVAT recoverable - 2,251 -------------- -------------- 1,967 7,138 -------------- --------------None of the Company's receivables are past due or impaired.12. Creditors: Amounts falling due within one year 2009 2008 £'000 £'000 -------------- --------------Amounts due to brokers 7 -Interest payable 291 418Other creditors and accruals 56 54 -------------- -------------- 354 472 -------------- --------------13. Creditors: Amounts falling due after more than one year 2009 2008 7.376% Debenture Stock 2011 £'000 £'000 -------------- --------------Opening nominal 54,000 54,000Opening specific costs (50) (69)capitalised -------------- --------------Opening value 53,950 53,951Partial redemption (14,000) -Specific costs amortised 27 19 -------------- -------------- Closing value 39,977 53,950 -------------- --------------Closing nominal 40,000 54,000Closing specific costs (23) (50)capitalised -------------- -------------- 39,977 53,950 -------------- --------------The 7.376% Debenture Stock 2011 is secured by a first floating chargeover the assets of the Company.The Company has no undrawn loan facilities at the year end (2008:same).14. Capital and reserves attributable to shareholders 2009 2008As at 30 June £'000 £'000 -------------- --------------Called up share capital 5,174 5,142Share premium account 141,137 139,878Capital redemption reserve 1,463 1,448Zero Dividend Preference Shares 97,319 85,837appropriation reserveSpecial reserve 25,007 25,213Capital reserves - realised (106,063) (61,098) - (43,999) (36,593)unrealisedRevenue reserve 8,770 10,663 -------------- --------------Net assets attributable to 128,808 170,490shareholders (all non-equity) -------------- --------------Under the terms of the Articles of Association sums standing to thecredit of the Special Reserve are available for distribution only byway of redemption or purchase of the Company's own shares. TheCompany may only distribute accumulated 'realised' profits.The Institute of Chartered Accountants of England and Wales hasissued guidance (TECH 01/08), stating that profits arising out of achange in fair value of assets, recognised in accordance with theAccounting Standards may be distributed provided the relevant assetscan be readily converted into cash. Securities listed on recognisedstock exchanges are generally regarded as being readily convertibleinto cash and hence unrealised profits in respect of such securitiescurrently included within Capital Reserves - Unrealised may beregarded as distributable under Company Law.At 30 June 2009 the Company had unrealised losses amounting to£43,999,000 (2008: losses of £36,593,000) in respect of suchsecurities.15. Share capital (all non-equity) 2009 % of total 2008 % of total £'000 share capital £'000 share capitalAllocated, called up ------- ---------- ------ -------------and fully paid:172,451,139 (2008:171,401,139) Zero 1,725 33.33% 1,714 33.33%Dividend PreferenceShares of 1p each172,451,139 (2008:171,401,139) Income 1,725 33.33% 1,714 33.33%Shares of 1p each172,451,139 (2008:171,401,139) Capital 1,725 33.33% 1,714 33.33%Shares of 1p each ------ --------- ----- -------------During the year the Company issued a total of 1,550,000 shares ofeach class as follows:a) the Company issued 750,000 shares of each class at an issue priceof 82.93p per Zero Dividend Preference Share, 5.19p per Income Shareand 6.59p per Capital Share. The issue price was at a premium of0.75% to the Net Asset Value of the Package Units.b) the Company also issued 800,000 shares of each class at an issueprice of 63.06p per Zero Dividend Preference Share, 10.90p per IncomeShare and 2.47p per Capital Share. The issue price was at a premiumof 0.25% to the Net Asset Value of the Package Units.Also during the year the Company repurchased and cancelled 500,000Package Units at an average cost of 92p per Package Unit costing£461,000.Each class of the Company's shares meets the definition of aliability under FRS 25 and therefore the Company has no equityshares.The holders of Income Shares are entitled to receive revenue profitsof the Company by way of dividends. Holders of Zero DividendPreference Shares and Capital Shares are not entitled to receivedividends out of the revenue or any other profits of the Company.On the basis that the Company is wound up on 8 March 2011 as planned,and subject to the repayment of the 7.376% Debenture Stock 2011 andany other liabilities of the Company, the holders of the ZeroDividend Preference Shares will be entitled to a capital payment of100.00p per share, or such lesser sum as remains. Holders of IncomeShares will then become entitled to a return of capital of 0.10p pershare plus any balance standing to revenue reserve and holders ofCapital Shares will be entitled to any surplus assets, aftersatisfying all the liabilities of the Company.Voting rights are subject to certain restrictions. Holders of ZeroDividend Preference Shares generally have no entitlement to voteother than in the exceptional circumstances prescribed by theArticles of Association.Where voting rights apply, holders of Zero Dividend Preference,Income and Capital Shares are, on a show of hands, each entitled toone vote at general meetings of the Company and on a poll areentitled to one vote for each share held.The Company has an authorised share capital of £38,850,000 (2008:£38,850,000) consisting of 1,295,000,000 (2008: 1,295,000,000) sharesof each class.16. Revenue and capital reserves Revenue Capital reserves reserve realised unrealised £'000 £'000 £'000 -------------- -------------- --------------Opening balance aspreviously reported 10,663 (61,098) (36,593)at 30 June 2008Net losses on - (29,405) (7,406)investmentsIncome 10,431 - -Expenses (627) (974) -Finance costs: - (11,737) -AppropriationsFinance costs: (10,625) - -DividendsInterest payableand similar (982) (2,939) -chargesCorporation taxrelief on (90) 90 -expenses -------------- ------------- --------------Balance reported as 8,770 (106,063) (43,999)at 30 June 2009Fourth interimdividend: 2p payableto Income (3,449) - -Shareholders on 18September 2009 ------------- ------------- --------------Reserves adjustedfor dividend 5,321 (106,063) (43,999)declared ------------- ------------- --------------17. Called up share capital, capital redemption reserve and sharepremium account Called Capital Share up share redemption premium capital reserve account £'000 £'000 £'000 -------------- -------------- --------------Opening balance as 5,142 1,448 139,878at 30 June 2008Package Units issued 47 - 1,259Package Unitsrepurchased and (15) 15 -cancelled -------------- -------------- --------------Closing balance as 5,174 1,463 141,137at 30 June 2009 -------------- -------------- --------------Share premium represents the surplus of subscription monies afterexpenses over the nominal value of the issued share capital. With theshareholders' approval and confirmation of the Court, a specialreserve (see note 18) was created by the cancellation of £70,000,000of the share premium account, with effect from 10 October 1997, to beissued by the Company to purchase its shares.18. Other reserves Zero Dividend Preference Special Share reserve Appropriation reserve £'000 £'000 -------------- ------------Opening balance as at 30 June 85,837 25,2132008Zero Dividend Preference 11,737 -Share appropriationZero Dividend PreferenceShares repurchased and (255) 255cancelledPackage Units repurchased and - (461)cancelled -------------- ----------Closing balance as at 30 June 97,319 25,0072009 -------------- ----------The Zero Dividend Preference Share appropriation reserve, togetherwith the amounts originally subscribed, represent the assetentitlement for the Zero Dividend Preference Shares set out in theBalance Sheet.The special reserve, resulting from the cancellation of sharepremium, may only be used for the purpose of the share repurchases.On the repurchase and cancellation of Package Units a transfer ismade from the Zero Dividend Preference Share reserve to the specialreserve. This represents the appropriation contained within the ZeroDividend Preference Share reserve relating to those Zero DividendPreference Shares repurchased and cancelled as part of the PackageUnits. 19. Reconciliation of movement in net assets attributable toshareholders Zero Dividend Income Capital Preference Shares Shares Shares £'000 £'000 £'000 ---------- --------- --------Opening balance as at 30 138,972 10,834 20,684June 2008Net return on ordinary - (1,893) (52,371)activities after taxAppropriation from Capital 11,737 - -ReservesRepurchase of Package (405) (1) (55)UnitsIssue of Package Units 1,240 2 64Issue of Capital Sharesrepaid to Zero Dividend 9 - (9)Preference andIncome SharesCapital losses for theyear offset against Zero (31,515) (172) 31,687Dividend Preferenceand Income shares --------- -------- --------Closing balance as at 30 120,038 8,770 -June 2009 --------- -------- ---------20. Cash flow 2009 2008a) Reconciliation of net return onordinary activities before tax to net £'000 £'000cash inflow from operating activities: ---------- ----------Net return on ordinary activities (54,264) (68,317)before taxNet losses on investments 36,811 57,370Exchange gains - (2)Finance costs: Appropriations 11,737 10,491Finance costs: Dividends 10,625 9,368Interest payable and similar charges 3,921 4,029Effective interest adjustment 79 96Stock dividends (258) (398)Decrease / (increase) in other 2,908 (2,589)debtorsIncrease in other creditors 2 6 ----------- -----------Net cash inflow from operating 11,561 10,054activities ----------- -----------b) Reconciliation of net cash £'000 £'000(outflow) / inflow to movements innet debt: ---------- ----------Net cash (outflow) / inflow (1,101) 294Cash outflow from decrease in debt 14,000 -Effect of changes in foreign exchange - (19)rates -------- --------Movement in net debt 12,899 275Net debt brought forward (52,203) (52,478) -------- ---------Closing net debt (39,304) (52,203) -------- --------- £'000 £'000c) Comprising: ---------- ----------Current account 696 189Short term deposits - 1,608 ---------- ----------Cash at bank and in hand 696 1,797Debt due after one year: 7.376% (40,000) (54,000)Debenture Stock 2011 -------- --------Closing net debt (39,304) (52,203) ----------- ----------21. Financial instrumentsIn pursuing the Company's objectives, the Company accepts marketprice risk and interest rate risk in relation to the portfolio ofinvestments. Since the Company's investment objectives are to deliverreturns over the long term, transactions with the sole intention ofrealising short-term returns are not undertaken. The risk policiesalong with the Company's capital management policies have beenconsistently applied throughout both this and the preceding financialyear and the quantitative data disclosed is representative of theCompany's exposure to risk throughout the year.Fair value of financial assets and financial liabilities: Allfinancial assets and liabilities are either included in the balancesheet at fair value or the carrying amount in the balance sheet is areasonable approximation of fair value.Market price risk: The investment manager has the responsibility formonitoring the existing portfolio selected in accordance with theoverall asset allocation parameters and seeks to ensure thatindividual stocks also meet an appropriate risk / reward profile. Theportfolio's relative exposure to the FTSE All-Share Index is alsomonitored with the sector and individual stock variances kept withinreasonable levels. At its quarterly meetings, the Board reviews theasset allocation of the Company's portfolio having regard to therisks associated with particular industry sectors whilst continuingto follow the investment objectives. The Company's exposure tochanges in market prices on quoted and unquoted equity investments at30 June 2009 is £136,470,000 (2008: £185,635,000).Price risk sensitivity: The following table illustrates thesensitivity of revenue and capital return on ordinary activitiesafter tax and net assets attributable to shareholders to an increaseor decrease of 10% in the fair value of the Company's quoted andunquoted equity investments. This level of change is considered to bereasonably possible based on observation of market conditions andhistoric trends. The sensitivity analysis is based on the Company'sequities at each balance sheet date, with all other variables heldconstant. Increase in fair value Decrease in fair valueIncome 2009 2008 2009 2008Statement £'000 £'000 £'000 £'000 ------------- -------------- -------------- --------------Revenue (22) (30) 22 30returnCapital 13,567 18,454 (13,567) (18,454)return ------------- ------------- ------------- -------------Total changeto netreturn on 13,545 18,424 (13,545) (18,424)ordinaryactivitiesafter tax ------------- ------------- ------------- -------------Change tonet assetsattributable 13,545 18,424 (13,545) (18,424)toshareholders ------------- -------------- ------------- --------------Credit risk associated with the portfolio of investments: The bondportfolio is invested in both investment grade and sub-investmentgrade corporate bonds with a maximum exposure of £30,006,000 at 30June 2009 (2008: £30,342,000).The investment manager considers the credit rating of each securitytogether with its yield and its maturity in order to ensure that theyield fully reflects any perceived risk and invests in bonds issuedby a broad spread of companies and institutions to reduce credit riskand the impact of default by any one user. The credit rating of eachbond is shown on the portfolio of investments.Interest rate risk associated with the portfolio of investments: Thebonds within the portfolio are mainly fixed rate securities, andaccordingly whilst changes in interest rates will not in the shortterm affect earnings, both the capital value of these securities andthe ability to acquire securities on similar terms may be affected.The level of exposure to interest rate risk at the year end and themaximum and minimum exposures throughout the year are shown below. 2009 2008 30.06.09 Maximum Minimum 30.06.08 Maximum MinimumAmountof £'000 £'000 £'000 £'000 £'000 £'000exposure ------------- ------------- -------------- -------------- -------------- --------------Cash at 696 7,064 696 1,797 1,797 696bankFixedrate 25,917 27,497 23,376 24,322 28,192 24,322bondsFloatingrate 4,089 5,434 3,423 6,020 8,955 6,020bonds ------------- ------------- -------------- ------
Datum: 26.08.2009 - 17:45 Uhr
Sprache: Deutsch
News-ID 5129
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