RNS Number:1228N
Investment Trust of Inv Tst PLC
03 July 2003
THE INVESTMENT TRUST OF INVESTMENT TRUSTS PLC
Preliminary announcement of audited results for the year ended 30th April 2003
CHAIRMAN'S STATEMENT
This is the third full year since your Company adopted its geared split capital
structure and investment policy. It has once again been a very difficult year
for equity related investment generally and for highly geared split capital
investment trusts in particular. Projections for world economic growth continued
to fall whilst stock market turbulence increased in a period beset by increasing
geo-political risk.
The Financial Health of Your Company
In this generally poor environment your Company's assets continued to experience
severe pressure and I am sorry to have to report a further fall over this period
under review. After adjusting for long term bank debt repayments, total assets
less current liabilities have fallen by 70.2 % to #10.526 million over the year
to 30th April 2003. Over the same period the FTSE Actuaries Investment Companies
Index fell by 28.3% whilst the Datastream Investment Trust Split Capital Highly
Geared Ordinary Index fell by 61.6%.
Your board reported in July 2002 that the Company had breached the financial
covenants of its loan agreement and following further market weakness in the
second half of 2002 the situation deteriorated to the extent that the Company's
liabilities exceeded its assets in August 2002, and this remains the case today.
Dividends
The Company has been prohibited under the Companies Act 1985 and the terms of
its loan agreement from paying dividends to the holders of its Preferred Income,
Warrant Income and Ordinary shares for the whole of the financial year under
review. The resumption of dividends is dependent on a number of factors
(including requirements that the Company's portfolio has a minimum net asset
value and distributable reserves) and the board considers that the likelihood
the Company will be in a position to resume dividend payments in the foreseeable
future is remote.
The Warrant Income shares (followed by the Preferred Income shares) will have
prior entitlement to any future revenues generated by the Company after
satisfying its commitments to the bank. However, we have not accrued for the
Warrant Income or Preferred Income share dividends for the year ended 30th April
2003 in these accounts because we believe that the likelihood that such dividend
payments will recommence prior to the Company's winding up date of 31st August
2007 is remote.
Section 142 of the Companies Act 1985
When the assets of the Company fell to less than 50% of its called up share
capital, in accordance with Section 142 of the Companies Act 1985, the directors
convened an Extraordinary General Meeting. At this meeting shareholders did not
dissent from the board's opinion that, so long as the Company had the support of
its bankers, it would not be in the interest of shareholders to wind up the
Company.
Entitlement to Capital on Liquidation
The Group had net liabilities of #8.174 million at 30th April 2003 and was
therefore currently unable to meet its obligations to its lenders. Consequently,
no class of share had any assets attributable to it as at that date.
On a winding up of the Company, the Company's share classes rank in the
following order of preference to participate in any surplus capital assets after
repayment of the bank debt: 1st: Warrant Income shares, 2nd: Zero Dividend
Preference shares ("ZDPs"), 3rd: Preferred Income shares and 4th: Ordinary
shares.
In monetary terms, on 31st August 2007 the Warrant Income shareholders will have
a notional accrued entitlement under the Company's Articles of 0.01p per Warrant
Income share. If the aggregate capital entitlement of #205 is covered (and any
unpaid entitlement of Warrant Income shareholders to dividends is paid), the ZDP
shares will have a notional accrued entitlement of 177.33765p per ZDP. This
represents a shortfall of #36.08 million against the Company's net assets which
would need to be recovered in order for the ZDP shares to receive their full
entitlement. Any excess over that amount would be payable to the Preferred
Income shareholders until their aggregate entitlement has been covered, which
would again take priority over the Ordinary shares.
Bank Debt
Throughout the year we have worked closely with the Company's lending bank, Bank
of Scotland, and the Company's investment manager, Jupiter Asset Management
Limited, to try and resolve the Company's serious financial problems. Bank of
Scotland continues to support the Company as a going concern and I would like to
express the board's thanks to them for their continuing support through these
extremely difficult times.
The Company's cash flow projections are carefully monitored by your board and
its advisers and these continue to indicate that there would be sufficient
revenues to pay the interest on bank debt and limited operating expenses for the
foreseeable future. In the event that this is no longer proven to be the case,
assets in the Company's portfolio would need to be realised in order to satisfy
such payments. In order to maximise the Company's free cash flow, both the
directors and Jupiter Asset Management Limited have waived their fees due from
the Company and the board has also agreed with Bank of Scotland to endeavour to
keep the Company's other administrative expenses to an aggregate of no more than
#150,000 per annum.
During the year to 30th April 2003, the Company repaid a total of #7.9 million
to Bank of Scotland together with #0.591 million of associated interest rate
breakage costs. Going forward, the Company intends to repay a minimum of #1
million of bank debt per annum out of revenues (as supplemented by asset sales
if required).
Bank of Scotland has indicated to the board that, subject to certain conditions,
it will not demand early repayment of the loan facility.
Continuation as a Going Concern - Fundamental Uncertainty
If the Company were to be wound up today no shareholder would receive any amount
in respect of their investment in the Company and Bank of Scotland's loan would
not be repaid in full. Taking into account Bank of Scotland's current position
and the possibility of an improvement in the Company's financial situation
during the remainder of its life to 31st August 2007, your board believes that
it is in the best interests of all classes of its shareholders for the Company
to continue to operate as a going concern. These accounts have therefore been
prepared on a going concern basis but there remains a fundamental uncertainty
regarding the ability of the Company to continue in operational existence for
the foreseeable future.
Market Outlook
Considerable stock market turbulence has been witnessed over this past year.
Accounting scandals emanating from the US, uncertainty leading up to war in Iraq
and the SARS virus outbreak all exacerbated generally anaemic world economic
growth and therefore corporate profitability.
In this environment the net assets and prices for highly geared split capital
investment trusts, in which the majority of your Company's portfolio is
invested, came under increasing and well documented pressure. The media coverage
of this sector has further increased pressure on both share prices and market
liquidity which was also commensurably reduced.
Your board has been fully supportive of the moves within the industry to improve
transparency by increased disclosure by investment trusts of their holdings
within the sector. A full list of all holdings representing more than 0.5% of
the portfolio can be found on the AITC's website which is up-dated on a monthly
basis.
Your board and manager have continued to work to reduce the proportionate level
of bank debt to assets within these poor market conditions. Equally important is
the maintenance of an investment portfolio that has a high degree of equity
exposure and revenue production in order to be able to participate in the equity
market recovery which, hopefully, we may have begun to see in the last month of
our financial year.
Martin Boase
Chairman
3rd July 2003
CONSOLIDATED STATEMENT OF TOTAL RETURN
(INCORPORATING THE REVENUE ACCOUNT)
for the year ended 30th April 2003
2003 2002
Revenue Capital Total Revenue Capital Total
#'000 #'000 #'000 #'000 #'000 #'000
Net realised - (7,556) (7,556) - (4,528) (4,528)
loss on
investments
Movement in
unrealised
depreciation
of investments - (23,572) (23,572) - (52,505) (52,505)
Income 3,112 - 3,112 8,779 - 8,779
Investment (28) (52) (80) (214) (440) (654)
management fee
Other expenses (171) - (171) (190) - (190)
______ ______ ______ ______ ______ ______
Net return
before finance
costs
and taxation 2,913 (31,180) (28,267) 8,375 (57,473) (49,098)
Loan redemption (207) (384) (591) (271) (504) (775)
fees
Interest (558) (1,036) (1,594) (951) (1,965) (2,916)
payable
______ ________ ______ ______ ______ ______
Return on
ordinary
activities
before tax 2,148 (32,600) (30,452) 7,153 (59,942) (52,789)
Tax on ordinary (157) 155 (2) (480) 480 -
activities
______ ______ ______ ______ ______ ______
Return on
ordinary
activities
after tax 1,991 (32,445) (30,454) 6,673 (59,462) (52,789)
Dividend in - - - (2,442) - (2,442)
respect of
non-equity
shares
Other
appropriations
in respect of
non-equity - (1,533) (1,533) - (1,365) (1,365)
shares
______ ______ ______ ______ ______ ______
Return 1,991 (33,978) (31,987) 4,231 (60,827) (56,596)
attributable
to
equity
shareholders
Equity - - - (2,834) - (2,834)
dividends
______ ______ ______ ______ ______ ______
Transfer to/ 1,991 (33,978) (31,987) 1,397 (60,827) (59,430)
(from)
reserves
Return/(loss) 3.03p (51.68)p (48.65)p 7.31p (105.16)p (97.85)p
per Ordinary
share:
The revenue column of this statement is the profit and loss account
of the Group.
All revenue and capital items in the above statement derive from
continuing operations.
No operations were acquired or discontinued during the year.
CONSOLIDATED BALANCE SHEET
at 30th April 2003
2003 2002
#'000 #'000
Fixed assets
Investments 10,164 46,742
Current assets
Investments 177 303
Debtors 220 458
Cash at bank 236 2,193
633 2,954
Creditors: amounts falling due within one year (271) (816)
Net current assets 362 2,138
Total assets less current liabilities 10,526 48,880
Creditors: amounts falling due after more than one year (18,700) (26,600)
Net (liabilities) / assets (8,174) 22,280
Capital and reserves
Called up share capital 7,647 7,647
Share premium 67,911 67,911
Warrant reserve 2,885 2,885
Capital reserve - realised (749) 9,657
Capital reserve - unrealised (95,026) (71,454)
Redemption reserve 4,232 2,699
Revenue reserve 4,926 2,935
Total shareholders' funds (8,174) 22,280
Total shareholders' funds under FRS4 are attributable to:
Equity shareholders (65,894) (33,913)
Non-equity shareholders 57,720 56,193
(8,174) 22,280
Total shareholders' funds in accordance with the Articles
of Association are attributable to:
Equity shareholders - -
Non-equity shareholders - 22,280
- 22,280
Entitlement per share under FRS4
Ordinary 5p shares - undiluted (100.22)p (51.58)p
Zero Dividend Preference shares 126.92p 117.51p
Preferred Income shares 49.40p 49.27p
Warrant Income shares 140.46p 140.46p
Ordinary 5p shares - undiluted 0.0p 0.0p
Zero Dividend Preference shares 0.0p 117.51p
Preferred Income shares 0.0p 6.17p
Warrant Income shares 0.0p 0.01p
Approved by the board of directors on 3rd July 2003.
CONSOLIDATED CASH FLOW STATEMENT
for the year ended 30th April 2003
2003 2002
#'000 #'000
Operating activities
Net cash inflow from operating activities 2,944 8,312
Servicing of finance
Interest paid (1,646) (3,010)
Loan redemption fees (591) (775)
Dividends paid on Warrant Income shares - (229)
Dividends paid on Preferred Income shares (458) (1,755)
Net cash outflow from servicing of finance (2,695) (5,769)
Taxation
Tax repaid 128 5
Capital expenditure and financial investment
Purchase of fixed asset investments - (53,452)
Sale of fixed asset investments 5,566 27,336
Net cash inflow / (outflow) from capital expenditure and
financial investment
5,566 (26,116)
Equity dividends paid - (4,450)
Net cash inflow / (outflow) before financing 5,943 (28,018)
Financing
Proceeds of shares issued - 42,443
Cost of shares issued - (705)
Long term loan repaid (7,900) (13,875)
Net cash (outflow)/inflow from financing (7,900) 27,863
Decrease in cash (1,957) (155)
RECONCILIATION OF REVENUE TO NET CASH INFLOW FROM OPERATING ACTIVITIES
2003 2002
#'000 #'000
Revenue return before interest payable and taxation 2,913 8,375
(Increase)/decrease in prepayments and accrued income (8) 359
Decrease in other creditors and accruals (35) (41)
Current asset investment dealings 126 59
Expenses charged to capital reserve:
Investment management fee (incl. VAT) (52) (440)
_______ _______
Net cash inflow from operating activities 2,944 8,312
====== ======
ANALYSIS OF CHANGES IN NET FUNDS
At 1st May 2002 Cash flow At 30th April 2003
#'000 #'000 #'000
Cash:
Cash at bank 2,193 (1,957) 236
Debt:
Debts falling due after
more than one year (26,600) 7,900 (18,700)
_______ _______ _______
Total (24,407) 5,943 (18,464)
====== ====== ======
INCOME
2003 2002
#'000 #'000
Income from investments
UK dividend income (net) 2,293 6,425
UK unfranked investment income 68 72
Dividends from overseas companies 755 2,124
3,116 8,621
Other income
Deposit interest 32 217
Loss on dealings by subsidiary (36) (59)
(4) 158
Total income 3,112 8,779
====== ======
Income from investments
Listed in the UK 3,116 8,621
====== ======
The Company has been prohibited under the Companies Act 1985 and the terms of
its loan agreement from paying dividends to the holders of its Preferred Income,
Warrant Income and Ordinary shares during the year ended 30th April 2003.
Accordingly, no dividends have been paid to the holders of any class of shares
during the year. The resumption of dividends is dependent on a number of factors
(including requirements that the Company's portfolio has a minimum net asset
value and distributable reserves) and the likelihood that the Company will be in
a position to resume dividend payments in the foreseeable future is remote.
The figures for the year ended 30th April 2003 do not constitute statutory
accounts within the meaning of Section 240 of the Companies Act 1985. The
statutory accounts for the year ended 30th April 2002, which included an
unqualified audit report, have been delivered to the Registrar of Companies.
Statutory accounts for the year ended 30th April 2003 including an unqualified
audit report will be delivered to the Registrar of Companies in due course.
The directors' report and accounts will be posted to shareholders shortly and
copies will be available from the registered office of the company at 1
Grosvenor Place, London SW1X 7JJ. The Annual General Meeting has been convened
for Thursday 14th August 2003 at 12.30 p.m.
This information is provided by RNS
The company news service from the London Stock Exchange
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