INVESTEC HIGH INCOME TRUST PLC
Chairman's Statement
Interim Results and Performance
Total assets (excluding current year revenue reserves) increased by 15.6% over
the six months to 30 September 2003. This compares with an increase in the FTSE
All Share Index of 16.8% and in the FTSE 350 Higher Yield Index of 15.6%. The
effect of the gearing provided by your Company's Zero Dividend Preference
shares and bank debt was that the net asset value attributable to the Ordinary
shareholders increased by 100.7% (including current year revenue reserves) over
the same period.
A second interim dividend of 1.625p has been declared by the Directors, payable
on 21 November 2003 to Shareholders on the register as at 31 October 2003. This
follows a first interim dividend of 1.625p; both these dividends are below the
equivalent dividends for last year for the reasons set out in my statement in
the Annual Report.
The recovery in equity markets since 12 March 2003 has continued, albeit not
without some alarms. With hindsight, equity valuations, particularly relative
to gilts, had become too cheap; the successful end of the war in Iraq, the end
of forced selling by life companies and some signs of an economic revival in
the US provided a more optimistic backdrop for the subsequent rally.
Those shares which performed best in this rally were typically those cyclicals
which had been most battered by a triple "whammy" of economic downturn,
relatively high gearing and concern about pension fund deficits. Thus, while
these shares included some which might once have been regarded as "blue chip",
it was the mid cap rather than the larger FTSE 100 constituents which led the
market up.
Given we started the period with 32.5% of total assets in cash and bonds, as
well as a protective put position, we have captured a relatively large
proportion of the equity market recovery in our total asset performance. Given
doubts as to the sustainability of the economic recovery, we have maintained a
relatively cautious stance to ensure that your Company did not risk breaching
its bank covenants.
The total asset performance which matched the rise in the FTSE 350 Higher Yield
Index and was only 1.2% behind the FTSE All Share Index is estimated by the
Managers as follows -:
Six months to 30 September Performance Contribution to total
2003 asset performance %
%
Bonds 4.2 0.6
UK Equities 24.8 11.7
Investment trusts 33.3 6.9
Option (2.1)
Expenses charged to capital (1.5)
Total 15.6
FTSE All Share Index 16.8
It is worth noting in this analysis that the opening option position, which
protected the Trust in the sharp first quarter fall in markets, had already
generated a profit of �573,674 at 31 March 2003 and hence the net cost of
having taken out this insurance has so far amounted to only �169,337, equating
to 0.4% of gross assets at the beginning of December 2002 when the option
position was taken out.
It can be seen that the performance of the equity portfolio was strongly
positive relative to the FTSE All Share Index. We benefited from holding a
number of mid cap stocks which experienced good recoveries; RMC, Millennium &
Copthorne, Carphone Warehouse and SSL were prominent amongst these, as
investors chased more economically sensitive shares or those vulnerable to
corporate activity. An even greater contribution came from some former "blue
chip" stocks whose market positions had become very undervalued by the market.
Dixons, Reuters, GKN and EMI fall into this latter category.
As regards larger capitalisation stocks, Barclays performed well in a generally
stronger banking sector. The two oil majors, BP and Shell, underperformed
significantly as investors focused on the potential for Iraq to pump oil
although, relative to the market, we benefited from being underweight in this
sector. GlaxoSmithKline lagged the market slightly as patent expiry fears
remained to the fore.
After a difficult period for the split capital sector it is pleasing to see
such a good contribution from our investment trust holdings. We believe that
the ability to invest a reasonable proportion of your assets in the split
sector, whether that be in annuity shares, income shares, ordinary shares or
zeros, is in keeping with the spirit in which your Company was originally
launched. We therefore do not intend to reduce your holdings in other
investment trusts below 15%. The Company will therefore not be able to comply
with the requirement of investing no more than 15% of its gross assets in other
listed investment companies. We do, however, recognise that such an investment
policy places even greater importance on managing the gearing in our own
structure effectively and economically. We continue to work with the Managers
to this effect.
Revenue
Whilst we cannot forecast future profits, we would like to stress that the
Managers have undertaken a thorough review of future revenue and, in the
absence of an unforeseen decline in UK dividends, expect the current
distribution level to be sustainable over the next few years. We would remind
shareholders, however, of the provisions of Sections 263-265 of the Companies
Act which may prevent us from being able to pay a dividend, notwithstanding our
having sufficient reserves to do so.
Outlook
The UK stock market has recovered strongly from its low in March 2003. However,
while it does not appear expensive on fundamental grounds, we are concerned at
the extent to which the USA appears to be discounting a strong economic
recovery. Many of the economic problems which lay behind previous investor
unease remain: the large budget and current account deficits in the USA, the
high level of household debt in both the USA and the UK and the potentially
destabilising effect of the congruence of these imbalances. Given this
background the Managers have maintained a defensive posture. Stock selection is
focusing on two areas: first, those companies which are in a position to
benefit from self-help and are not overly reliant on a strong economic
recovery; secondly, those with reasonably predictable earnings but which have
been oversold by investors concerned to switch into stocks or sectors appearing
to exhibit greater momentum.
James Dawnay
21 October 2003
Consolidated Statement of Total Return
(incorporating the Revenue Account) of the Group
for the six months to 30 September 2003 (unaudited)
Six months ended Six months ended Year ended
30 September 2003 30 September 2002 31 March 2003 (audited)
(unaudited) (unaudited)
Notes Revenue Capital Total Revenue Capital Total Revenue Capital Total
�'000 �'000 �'000 �'000 �'000 �'000 �'000 �'000 �'000
Gains/(losses) 5 - 5,965 5,965 - (13,668) (13,668) - (15,392) (15,392)
on Investments
Income 6 1,492 - 1,492 1,710 - 1,710 3,280 - 3,280
Investment (52) (121) (173) (58) (136) (194) (109) (255) (364)
management fee
Other expenses (107) - (107) (168) - (168) (280) - (280)
Net return 1,333 5,844 7,177 1,484 (13,804) (12,320) 2,891 (15,647) (12,756)
before finance
costs and
taxation
Interest payable (187) (436) (623) (187) (436) (623) (373) (870) (1,243)
and similar
charges
Return on 1,146 5,408 6,554 1,297 (14,240) (12,943) 2,518 (16,517) (13,999)
ordinary
activities
before taxation
Taxation - - - - - - - - -
Return on 1,146 5,408 6,554 1,297 (14,240) (12,943) 2,518 (16,517) (13,999)
ordinary
activities after
taxation
Appropriation to 3 - (428) (428) - (393) (393) - (801) (801)
redemption
reserve
1,146 4,980 6,126 1,297 (14,633) (13,336) 2,518 (17,318) (14,800)
Dividends to (910) - (910) (1,260) - (1,260) (2,590) - (2,590)
equity
shareholders
Transfer to/ 236 4,980 5,216 37 (14,633) (14,596) (72) (17,318) (17,390)
(from) reserves
Return per 4.09p 17.79p 21.88p 4.63p (52.26)p (47.63)p 8.99p (61.85)p (52.86)p
Ordinary Share
Dividends per 3.25p - 3.25p 4.50p - 4.50p 9.25p - 9.25p
Ordinary Share
Return per Zero - 5.09p 5.09p - 4.68p 4.68p - 9.54p 9.54p
Dividend
Preference Share
Consolidated Balance Sheet
as at 30 September 2003 (unaudited)
30 September 2003 31 March 2003
(unaudited)
(audited)
�'000 �'000
�'000 �'000
Investments 34,920 27,414
Current assets
Debtors 309 391
Cash and short term deposits 5,730 7,975
6,039 8,366
Creditors: amounts falling due within 580 1,045
one year
Net current assets 5,459 7,321
40,379 34,735
Creditors: amounts falling due after (19,600) (19,600)
more than one year
Net assets 20,779 15,135
Capital and reserves
Called up share capital 7,000 7,000
Special reserve 19,740 19,740
Capital reserve - realised (8,878) (7,737)
Capital reserve - unrealised (7,768) (13,889)
Revenue reserve 302 66
Total equity shareholders' funds 10,396 5,180
Minority interests
Investec High Income Securities plc
Zero dividend preference shares 10,383 9,955
20,779 15,135
Net asset value per share:
Ordinary shares 37.13p 18.50p
Investec High Income Securities plc
Zero dividend preference shares 123.60p 118.51p
Consolidated Cash Flow
Statement
for the period to 30
September 2003
Six months to Six months Year ended
to
30 September 30 31 March
2003 September
2002 2003
(unaudited)
(unaudited) (audited)
�'000
�'000 �'000
Cash inflow from operating activities 1,173 1,609 2,902
Taxation
UK taxation paid - - 2
Return on investments and servicing of
finance
Interest paid (634) (626) (1,243)
Capital expenditure and financial
investment
Purchases of investments (6,242) (14,423) (24,538)
Sales of investments 4,713 15,646 29,955
(1,529) 1,223 5,417
Dividends paid (1,253) (1,330) (2,492)
Cash (outflow)/inflow before management (2,243) 876 4,586
of liquid resources and financing
Management of liquid resources
Money market deposits withdrawn/(placed) 800 1,100 (4,500)
(Decrease)/increase in cash (1,443) 1,976 86
Reconciliation of net cash flow to
movement in net debt
(Decrease)/increase in cash (1,443) 1,976 86
Cash used to (decrease)/increase liquid (800) (1,100) 4,500
resources
Exchange movements (2) (30) (104)
Change in net debt (2,245) 846 4,482
Net debt at beginning of period (11,625) (16,107) (16,107)
Net debt at end of period (13,870) (15,261) (11,625)
Notes
1. Principal activity
The principal activity of the Company is that of an investment trust.
2. Recharge to capital and accounting policies
30% of the management fee and interest payable on the bank loan is charged to
the revenue account and the remaining 70% is charged to capital reserves, net
of corporation tax relief, and inclusive of any related irrecoverable value
added tax.
3. Appropriations in respect of non-equity shares
The appropriation to capital redemption reserve for �428,000 has been made to
cover the pre-determined entitlement of the zero dividend preference shares
issued by Investec High Income Securities PLC.
4. Dividends
The First Interim dividend in respect of the period to 31 March 2004 will
amount to 1.625p per Ordinary share and was paid on 26 August 2003.
The Second Interim dividend in respect of the period to 31 March 2004 will
amount to 1.625p per Ordinary share and will be paid on 21 November 2003 to
shareholders on the register on 31 October 2003.
5. Gains/(losses) on investments
Six months ended Six months Year ended
ended
30 September 31 March
30 September
2003 2003
2002
�'000 �'000 �'000
Net realised (losses)/gains on (154) 985 (3,850)
investments
Currency losses (2) (30) (104)
Net decrease/(increase) in 6,121 (14,623) (11,438)
unrealised depreciation
Gains/(losses) on investments 5,965 (13,668) (15,392)
6. Income
Six months ended Six months Year ended
ended
30 September 31 March
30 September
2003 2003
2002
�'000 �'000 �'000
UK dividends 1,197 1,455 2,674
Overseas dividends 6 10 31
Income from UK fixed interest 159 215 389
securities
Scrip dividends 10 15 19
Dealing gain/(loss) in subsidiary 2 (17) (10)
Interest income 118 32 175
Underwriting commission - - 2
1,492 1,710 3,280
7. Comparative figures
The information for the year ended 31 March 2003 does not constitute statutory
accounts, but has been extracted from the latest published audited accounts,
which have been filed with the Registrar of Companies. The report of the
auditors on those accounts contained no qualification or statement under
section 237(2) or (3) of the Companies Act 1985.
8. Publication
The interim Report is being sent to shareholders and copies will be made
available to the public at the Registered Office of the Company.
For further information, please contact:
Heather Williams
Investec Investment Management Limited 020 7597 2000
END
