RNS Number:1294M
Investment Company PLC
10 June 2003
The Investment Company plc - Preliminary Results for the year ended 31 March
2003
Chairman's Statement
Without beating about the bush, the year to 31st March 2003 was a bad one for
The Investment Company. In the previous year we had been able to cover a
maintained dividend with earnings which benefitted from deemed income
distributions of #118,389. At the time of the 600 Group preference share
redemption, which accounted for the lion's share of this sum, I commented on the
good fortune which had enabled us to increase our long-standing holding not long
before that company announced its unexpected proposal.
Unhappily the large number of such redemptions had so reduced our investment
constituency that we had decided to look elsewhere for opportunities. We had
some initial success in backing unquoted companies, almost always through a
prior charge or preference share, but with equity options or warrants. However
subsequently several of our investee companies got into financial difficulties
and despite our best efforts we have lost significant sums in Ozotech, Swift
Technology Systems and Environmental Polymers Group. The latter two were also
expected to make interest payments during the year under review the absence of
which has made a nasty dent in our revenue expectations. We have now sold the
intellectual property rights of Swift Technologies Limited (secured under a
debenture) to Rapid Mouldings Technologies Limited. The sale should return to
the Company the original invested amount of #200,000 in two years, together with
a royalty of 2% of turnover of the buyer until 31st March 2007. The Company will
maintain a charge over the intellectual property rights until the payment of
#200,000 is made. Elsewhere, in an endeavour to save our original capital
investment, we have taken the decision to advance further sums to Service
(Engineers) Limited and Adept Polymers Limited from which interest payments in
the short-term are unlikely.
The other area into which we diversified from our straight preference share
portfolio was that of split capital investment trusts. While it may be easy to
be wise after the event these trusts in many instances had excellent records of
sustained steady growth in the value of their zero dividend preference shares.
As it was expected that the capital values would rise over the years to the
planned wind-up dates, we also invested in some high yielding income or ordinary
shares, dividends on which (even if to an extent at the expense of the capital
account) were expected to restore our revenue stream to the overall return
required to maintain the annual dividend.
Ultimately the value of investment trusts depends upon the capital performance
of the underlying assets and the calendar year 2002 saw a continuation of the
bear market in UK equities which was so much worse than almost anybody had
anticipated. The trusts' underlying portfolios had often been geared up by bank
borrowings which consequently eroded the asset values of the trust's own shares
at two or three times the rate at which the whole market was falling. The result
had a domino effect as cross holdings between trusts spiralled downwards in
value. We suffered losses on both classes of share; but by no means is all lost.
Although shares in two of our trusts (Aberdeen Preferred Income and Dartmoor)
have been suspended and are probably worthless (we have written the holdings
down to nil) others are faring better and we expect them to recover
significantly from the levels to which they have fallen as nervous investors cut
their positions. Already, with the much better tone of equity markets in April,
these holdings are beginning to recover.
In our core portfolio of straight preference shares we have had mixed fortunes.
For many decades the company held shares in the Illingworth Morris group of
woollen textile companies headed by Alan Lewis CBE, formerly a Deputy Treasurer
of the Conservative Party, which got into severe difficulties a couple of years
ago. The announcement to the London Stock Exchange when these shares were
suspended in September 2001 anticipated an attempt at a Creditors Voluntary
Arrangement. However nothing has been heard since of that proposal and the
shares were delisted on 6th September 2002 so we have written the value off
completely in these accounts resulting in a loss of #542,611. On the other hand
we have seen a sprinkling of redemption announcements such as Smith & Nephew
(offer price 138p our book value 59p) and Brixton Estates (offer price 58p our
book value 22p) both of which will contribute exceptional distributions to the
revenue account next year. Unfortunately both issues were very small, 268,500
and 150,000 shares respectively, even though we held useful percentages (54.8%
and 8.5%) of them.
Seeing the fall in the price of H. P. Bulmer's two preference issues when the
company announced losses, accounting problems and financial difficulties last
Autumn, we purchased shares in both as holders panicked with the passing of the
dividend. Last month Scottish & Newcastle announced an agreed takeover bid, the
terms of which (while seemingly generous to the ordinary shareholders) are
distinctly stingy in relation to the price at which the preference shares used
to trade before the accounting irregularities came to light. Nevertheless at
110p for the 91/2% issue and 100p for the 83/4% (in both cases
plus accrued but unpaid dividends) we shall make the handsome profit of #233,590
(our book values were 68.3p and 68.9p respectively). This will all be of a
capital nature since the accrued interest will not rank as a distribution.
Here is a tale which should be a lesson for shareholders. In July 2000 a new
company, Retail Stores plc, subsequently to be admitted to trading on AIM, made
an offer for the shares of Liberty plc. We held both Liberty preference issues,
the 6% and the 91/2%. Liberty ordinary shareholders were offered 300p
per share in cash, a total sum in excess of #68 million, but the offers for the
preference shares were exchanges on similar coupons and terms of an identical
number of shares in Retail Stores. There were only 597,500 91/2%
preference shares in issue and 385,000 6% for which one might have thought a
cash offer could have been extended. After all the #68 million ordinary offer
was at a premium of 99% to the average closing market price of Liberty ordinary
shares for a previous 12-month period, and an offer for the preference issue
would have cost barely #1 million, or less than 11/2% of the ordinary
offer value. Candidly we were reluctant to accept the preference offers where we
held 11.9% of the 91/2% issue and 24.2% of the 6% issue. However if left
outstanding the Liberty shares were to be delisted and an AIM quotation is
better than nothing so we were persuaded by the personal intervention of the
corporate financier acting for the bidder to accept the exchange offers, albeit
reluctantly. In the event only the offer for the 6% issue went unconditional and
our share certificate for the 91/2% issue was returned since acceptances
fell short of the 90% required.
What has happened since is interesting. As holders of the now delisted Liberty
91/2% issue we had shares in a trading company which has seen its
property assets sold to a fellow subsidiary, resulting in a huge credit to the
Profit & Loss account reserves. The result is that dividends have been able to
be resumed and all the arrears have now been paid up. The parent company, in
which we hold the 6% shares, still has a large deficit on the P&L account with
the result that no dividend can be paid. It was clearly not in our interests to
accept the share exchange offer and it is more by luck than judgement that we
have enjoyed the payment of the dividend arrears of the shares we now hold in
Liberty. Shareholders will like to know that we took the opportunity in October
2001 and again in 2002 to add to our holding of the 91/2% Liberty
preference shares in which we now hold a 25.9% stake.
In the light of the reduced revenue for the year your directors believe it is
appropriate while drawing on revenue reserves to reduce the final dividend from
7p to 6p, making a total annual dividend of 10p (2002: 11p). As a consequence of
this the participating element of the dividend on our participating preference
shares will go down from 2.25p to 2p, reducing the total dividend for the year
thereon to 9p from 9.25p. The basic half-yearly payment of 3.5p was paid on 1st
April and the payment that includes the participating element on 1st October
next will therefore amount to 5.5p (2002: 5.75p).
Paul Simms
Chairman
REVENUE ACCOUNT
For the year ended 31st March 2003
Unaudited Audited
Year to Year to
31st March 2003 31st March 2002
# #
Total income 1,032,883 1,318,025
Expenses 326,351 321,382
Net revenue before taxation 706,532 996,643
Taxation recoverable - 27,154
Net revenue, after taxation 706,532 1,023,797
Dividends paid and proposed 926,380 938,727
Transfer (from)/to reserves (219,848) 85,070
Earnings per 50p Ordinary Share 2.08p 14.04p
Net asset value per 50p Ordinary Share 197.03p 258.68p
All of the Company's operations are continuing.
STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
For the year ended 31st March 2003
2003 2002
# #
Distributable profits
Net revenue, after taxation 706,532 1,023,797
Non-distributable profits
Net (loss)/profit on disposals of investments (533,218) 847,427
Writedown in value of investments (1,112,399) (733,000)
Tax on realised gains - -
Movement in unrealised depreciation of investments 137,144 (1,427,752)
(1,508,473) (1,313,325)
Total recognised gains and losses for the financial (801,941) (289,528)
year
BALANCE SHEET
At 31st March 2003
Unaudited Audited
31st March 2003 31st March 2002
# # # #
Fixed assets
Investments at cost 13,433,242 15,099,336
Unrealised depreciation (325,726) (462,870)
Investments at market value 13,107,516 14,636,466
Current assets
Debtors 231,972 1,913
Cash at bank 14,081 212,136
246,053 214,049
Current liabilities
Bank overdraft 517,206 -
Dividends 413,258 441,244
Corporation tax 1,050 2,796
Other creditors 673,113 157,167
1,604,627 601,207
Net current liabilities (1,358,574) (387,158)
Net assets 11,748,942 14,249,308
Capital and reserves
Called up share capital 4,566,695 4,954,195
Revaluation reserve (325,726) (462,870)
Capital reserve 4,510,426 6,156,043
Capital redemption reserve 2,439,800 2,052,300
Revenue reserves brought forward 557,747 1,549,640
Shareholders' funds 11,748,942 14,249,308
Net asset value per:
Participating Preference Share of 50p
(6,234,805 shares) 100.00p 100.00p
Ordinary Share of 50p
(2,798,584 shares) 197.03p 258.68p
CASH FLOW STATEMENT
For the year ended 31st March 2003
Unaudited Audited
2003 2002
Notes # # # #
Operating activities
Cash received from investments 894,327 1,115,483
Interest received 134,497 202,567
Sundry income 4,059 -
Cash paid to and on behalf of employees (66,435) (66,117)
Other cash payments (218,399) (246,091)
Net cash inflow from
operating activities 1 748,049 1,005,842
Returns on investments and
servicing of finance
Interest paid (15,808) (16,963)
Non-equity dividends paid (648,407) (630,882)
Net cash outflow from returns on
investments and servicing of finance (664,215) (647,845)
Taxation
UK corporation tax repaid - 7,186
UK corporation tax paid (1,746) (22,800)
(1,746) (15,614)
Capital expenditure and
financial investment
Purchase of investments (2,101,932) (2,882,211)
Purchase of own shares (273,204) -
Sale of investments 1,883,914 3,518,716
Net cash (outflow)/inflow from capital
expenditure and financial investment (491,222) 636,505
Equity dividends paid (306,127) (278,489)
(Decrease)/increase in cash
and cash equivalents 2 (715,261) 700,399
NOTES ON THE CASH FLOW STATEMENT
For the year ended 31st March 2003
2003 2002
# #
1. Reconciliation of operating profit to
net cash inflow from operations:
Net revenue before taxation 706,532 996,643
Interest paid 15,808 16,963
Decrease/(increase) in debtors 289 (822)
Increase/(decrease) in creditors 25,420 (6,942)
748,049 1,005,842
2. Analysis of net funds
At 31st March Cash At 1st April
2003 Flow 2002
# # #
Bank overdraft (517,206) (517,206) -
Cash at bank 14,081 (198,055) 212,136
(503,125) (715,261) 212,136
Dividend
The final dividend of 6p will be paid, subject to shareholder approval, on 8
August 2003 to shareholders on the share register on 18 July 2003. The shares
will go ex-dividend on 16 July 2003.
Note to the financial information for the year ended 31 March 2003
The financial information does not constitute statutory financial statements
within the meaning of Section 240 of the Companies Act 1985 (as amended). These
statements have been prepared on a consistent basis with the accounting policies
as stated in the previous and current years' financial statements.
The company's statutory accounts for the year ended 31 March 2003 have not been
signed and have not been reported on by the company's auditors.
Copies of this announcement are available from the company's registered office
at 3rd Floor, Salisbury House, London Wall, London, EC2M 5QS.
This information is provided by RNS
The company news service from the London Stock Exchange
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