RNS Number:0060T
Royal London Growth & Inc Trust PLC
08 December 2003
ROYAL LONDON GROWTH & INCOME TRUST PLC
Preliminary Announcement for the year ended 30 September 2003 (unaudited)
Chairman's Statement
This Annual Report and Accounts covers your Company's financial year to 30
September 2003. It is encouraging to report that there has been some recovery in
the net asset value of the Company, helped by a stock market that has been
rising since March 2003, and a relatively stable corporate bond market.
Nevertheless, the value of the Company remains well below where it stood at the
time of its launch, over three years ago.
While it would be premature to suggest that all the gloom of the last three
years has been dispelled completely, there are encouraging signs that the
international economies are in better shape. The United Kingdom is no exception
to this trend, and indeed is demonstrating considerably more resilience than
many parts of Europe, which remain depressed. The stronger economy is helping
Companies to grow their profits, and, as often happens after a period of slower
economic growth, the recovery can be quite significant. Improving profitability
in the corporate sector can combine with low interest rates to create a potent
mixture for shares.
However, there remain grounds for caution. The recovery, both here and in the
United States is being led by the consumer. While it is heartening to see people
regain their nerve after a period of anxiety, we should be aware that part of
this increased spending is based on higher levels of personal debt. Some of this
depends on higher house prices being used to support second or even third
mortgages. Personal indebtedness relative to incomes in both Britain and the
United States is at record levels. Thus we should continue to be aware that the
foundations of this economy may not be as secure as one would like. The recent
increase in interest rates may have brought this home.
Dividends
We reported at the interim period having reviewed the expected future returns of
the Company, about a change in the way investment management fee expenses and
finance costs are allocated, this is in accordance with the Statement of
Recommended Accounting Practise for investment trust companies. Previously 60%
of the major costs were set against the capital, rather than the income account.
In June 2003, this was lowered to 40%, meaning that the surplus of the Company's
revenues after expenses will be significantly reduced. The offset to this is
that the levels of capital reserve depletion will be considerably lower, which
ought to act to the long term benefit of the Company. While this may seem like a
technicality, the result is that we will be paying a sharply lower dividend on
the geared ordinary shares. We are declaring a final dividend of 0.35p payable
on 30 January 2004 to all shareholders on the register of members as at the
close of business on 19 December 2003.
Our objective is to manage the Company in such a way that its longer term future
is sustainable. If we had sustained the relatively high dividend on the geared
ordinary shares, the Company's capital would eventually have been depleted. To
offset this, the share portfolio would have to appreciate at a faster pace than
might be expected today from long term market performance. To achieve this, it
might have been necessary to take higher risks with the portfolio than would
have been desirable. This situation is magnified by the need to pay 9% per annum
to the holders of the Company's Convertible Unsecured Loan Stock ('CULS') and
the 6.835% interest payable on the bank loan. Although this is not so in every
case, a large number of our geared ordinary shareholders are also holders of the
CULS and enjoy the benefit of an interest coupon that is higher than that on
many similar investments. Nevertheless, shareholders need to be aware of the
balancing act that is required to pay this level of coupon, as well as to
maintain a level of good return on the geared ordinary shares. Your Board has
spent much time in the last year dealing with the issues that are raised by the
capital structure of your Company.
Portfolio
The Company's investment portfolio contains a mix of 62% equities and 38%
corporate bonds. Your Board has maintained these proportions since the beginning
of the financial year we are reporting on. There have been moments during the
recent equity market recovery when this might have looked rather cautious.
However, we are still inclined to maintain the relative protection that less
volatile bonds provide to the overall mix of assets in the Company. The
political worries that concerned markets earlier in the year have not
disappeared, and as we have pointed out, we still have some concerns about the
sustainability of the economic recovery.
Another influential factor here is the bank loan that the Company has taken out
from the time of its inception. The effect of this gearing is to act as a
ratchet, exaggerating the performance of the portfolio in either a rising or a
falling market. In the case of the recent upward move in the stock market, this
has helped to secure better performance. The bond portfolio helps to act as a
counterweight to this bank debt, and assists in controlling the overall risk of
the portfolio, while enabling the Company to participate in any market recovery.
We keep under review the levels of gearing, and recognise that there may be a
time when it is appropriate to reduce this further. Set against this are the
steep penalties for early redemption of all or part of a fixed term loan that
has a little under four years to run.
In accordance with the AITC Review of Corporate Governance, we have included an
analysis in the Report and Accounts showing the impact of different market
return scenarios over the next five years on the Company's performance.
Share buy backs
The Company has continued to be active in the market in buying back its own
shares. By buying these shares at a discount to net asset value, the Company can
actually enhance the value of the shares held by those shareholders who remain.
As in previous years, at the Annual General Meeting we shall be asking our
shareholders to vote in favour of us continuing to carry out this activity. The
liquidity of the geared ordinary shares is still extremely limited, and we
recognise that the Company should play a role in providing an opportunity for
those who may wish to reduce their holdings in the stock, to sell. While it has
been disappointing that there have not been more natural new buyers attracted to
the stock, this appears to mirror the experiences of much of the investment
trust industry. Our Investment Managers, Royal London Asset Management Limited
('RLAM'), maintain a budget for marketing and raising general awareness of the
Company. By contrast the CULS, with their attractive 9% coupon, have been sought
after in the marketplace, and the price has risen to a premium to net asset
value. The Company has also bought back for cancellation #2,513,677 of CULS. By
doing this, the cost of paying the interest on the CULS will be reduced, as the
amount of outstanding stock diminishes.
Performance of the Investment Manager
RLAM has been the Investment Manager since the inception of the Company in 2000.
Through most of this period their investment performance relative to the equity
and bond benchmarks that we use, has been satisfactory. However, your Board has
noted a period of underperformance in the equity portfolio during the second
half of the latest financial year, which has resulted in a shortfall against the
benchmark. This has caused us to review the investment style that RLAM employ on
the equity portfolio, in order to reduce the risk of under performance in the
future. The Board takes most seriously its responsibility for the conduct of the
affairs of the Company, in particular the performance of the Investment Manager.
Changes to the UK Listing Rules
The Financial Services Authority, with its responsibility for regulating the
activity of participants in the financial markets, recently published a new set
of directives for the investment trust sector, after a period of intensive
discussion with the representatives of the industry. Much of this involves more
complete disclosure by investment trusts, particularly where they have holdings
in other investment trusts. This was in response to the problems in the
split-capital sector where in falling markets myriad cross holdings created a
downward spiral for many companies. We welcome this move towards greater
transparency and improved corporate governance, in the belief that it will lift
confidence throughout the whole sector.
Board composition
Chris Phillips a member of your Board, resigned in September 2003 from RLAM
where he held the position of Chief Executive Officer. The independent members
of your Board have reviewed the succession at RLAM following Chris' departure,
and are satisfied that under the direction of Andy Carter, Chris' successor,
that there will be continuity of the required service standards. Chris, with his
considerable knowledge of the history, the shareholders, and the structure of
the Company, remains on the Board. George Kershaw, another of your Directors,
was appointed a deputy chairman of the Association of Investment Trust
Companies, which is the national body that represents the investment trust
industry. We are delighted to have one of our Directors holding this prestigious
position, and the valuable input that he brings to your Board as a result. We
are conducting a review of your Board and the balance of skills and experience
that each Director has, to ensure that we can collectively serve the Company
with the utmost professionalism. It is possible that out of this review, an
additional Director will be appointed.
Annual General Meeting
Your Board has had another year of challenge in ensuring that the Company is
structured to fulfil our shareholders' needs over the long term. We have had to
take some difficult decisions with this end in mind. We have sought to establish
a rapport with shareholders, and to this effect the strong attendance at our
Annual General Meeting is enormously welcome. After we have diligently fulfilled
all the requirements of corporate governance and control, it is extremely
important for us as Directors to meet shareholders at first hand, and have the
opportunity of explaining to them what is taking place. We therefore greatly
appreciate the opportunity to meet shareholders at the Annual General Meeting
which will be held on Wednesday, 28 January 2004.
James Williams
Chairman
8 December 2003
STATEMENT OF TOTAL RETURN
(incorporating the revenue account)
for the year ended 30 September 2003
(Unaudited) (Audited)
Year ended Year ended
30 September 2003 30 September 2002
Revenue Capital Total Revenue Capital Total
#'000 #'000 #'000 #'000 #'000 #'000
Notes
Total capital - 7,576 7,576 - (21,877) (21,877)
gains/(losses)
from investments
Income from 6,673 - 6,673 6,689 - 6,689
fixed asset
investments
Other interest 77 - 77 89 - 89
receivable and ----------- ---------- ---------- ----------- ---------- ----------
similar income
Gross revenue 6,750 7,576 14,326 6,778 (21,877) (15,099)
and capital
gains/(losses)
Management fee (529) (625) (1,154) (539) (809) (1,348)
Other (449) - (449) (366) - (366)
administrative ------------ ---------- ---------- ------------ ---------- ----------
expenses
Net 5,772 6,951 12,723 5,873 (22,686) (16,813)
return/(loss) on
ordinary
activities
before interest
payable and
taxation
Interest payable (3,551) (4,218) (7,769) (3,193) (4,788) (7,981)
Breakage costs - - - (248) (372) (620)
on early
repayment of
loan
Capital return
attributable to - (63) (63) - (76) (76)
9% Convertible ------------ ---------- ---------- ------------ ---------- ----------
Unsecured Loan
Stock 2020
Net 2,221 2,670 4,891 2,432 (27,922) (25,490)
return/(loss) on
ordinary
activities
before taxation
Taxation on net - - - - - -
return on ------------ ---------- ---------- ------------ ---------- ----------
ordinary
activities
Available for 2,221 2,670 4,891 2,432 (27,922) (25,490)
geared ordinary
shareholders
Dividends -
geared ordinary
shares
Dividends 2003: (1,535) - (1,535) (2,480) - (2,480)
1.45p (2002: ------------ ---------- ---------- ------------ ---------- ----------
2.20p)
Transfer 686 2,670 3,356 (48) (27,922) (27,970)
to/(from) ======= ====== ====== ======= ====== ======
reserves
Return/(loss) 1 2.03p 2.44p 4.47p 2.15p (24.68p) (22.53p)
per geared
ordinary share
The revenue columns of this statement represent the revenue account of the Company.
All revenue and capital items in the above statement derive from continuing operations. No operations were acquired
or discontinued in the year.
BALANCE SHEET
At 30 September 2003
(Unaudited) (Audited)
At 30 September 2003 At 30 September 2002
#000 #000
Notes
Fixed asset investments
Listed in United Kingdom 131,199 132,072
----------- -----------
Current assets
Debtors 1,866 2,598
Cash at bank 1,064 1,562
----------- -----------
2,930 4,160
Creditors: amounts falling due within one year (1,159) (2,551)
----------- -----------
Net current assets 1,771 1,609
----------- -----------
Total assets less current liabilities 132,970 133,681
Creditors: amounts falling due after more than one year
Bank loan (40,955) (40,944)
9% Convertible Unsecured Loan Stock 2020 (53,952) (56,401)
----------- -----------
(94,907) (97,345)
----------- -----------
Total net assets 38,063 36,336
======= =======
Share capital and reserves
Called-up share capital 1,062 1,122
Special reserve 109,401 111,022
Other reserves:
Capital redemption reserve 71 11
Capital reserve - realised (52,027) (30,284)
Capital reserve - unrealised (21,790) (46,195)
Revenue reserve 1,346 660
----------- -----------
Total shareholders' funds (All equity) 38,063 36,336
----------- -----------
Net asset value per geared ordinary share 2 35.8p 32.4p
Net asset value per unit of 9% Convertible Unsecured Loan 2 99.8p 99.7p
Stock 2020
Net asset value per geared unit 2 171.4p 164.5p
CASH FLOW STATEMENT
for the year ended 30 September 2003
(Unaudited) (Audited)
2003 2003 2002 2002
#000 #000 #000 #000
Net cash inflow from operating 5,202 5,329
activities
Servicing of finance
Interest paid (7,777) (8,690)
----------- -----------
Net cash outflow from servicing of (7,777) (8,690)
finance
Taxation
UK tax recovered 62 -
Income tax recovered - 10
----------- -----------
Net tax recovered 62 10
Financial investment
Purchases of investments (27,037) (27,219)
Sales of investments 35,545 40,011
----------- -----------
Net cash inflow from financial 8,508 12,792
investment
Equity dividends paid (2,402) (2,377)
----------- -----------
Net cash inflow before financing 3,593 7,064
Financing
Repayment of loan - (10,000)
Expenses paid in respect of share issue (12) (77)
Cost of geared ordinary share buy backs (1,621) (300)
Buyback of 9% Convertible Unsecured Loan (2,458) (18)
Stock 2020 ----------- -----------
Net cash outflow from financing (4,091) (10,395)
----------- -----------
Decrease in cash (498) (3,331)
======= =======
Reconciliation of net cash flow to
movements in net debt
Decrease in cash as above (498) (3,331)
Cash outflow from repayment of loan - 10,000
Cash outflow from buyback of 9% 2,458 18
Convertible Unsecured Loan Stock 2020 ----------- -----------
Change in net debt resulting from cash 1,960 6,687
flows
Increase in debt due to non-cash (20) (88)
movements ----------- -----------
Movement in net debt in the year 1,940 6,599
Net debt at 1 October (95,783) (102,382)
----------- -----------
Net debt at 30 September (93,843) (95,783)
======= =======
NOTES TO THE ACCOUNTS
1. Return/(loss) per geared ordinary share
Revenue return per geared ordinary share is based on earnings attributable to geared ordinary shares of #2,221,000
(year ended 30 September 2002: #2,432,000) and on the weighted average number of geared ordinary shares in issue
during the year of 109,342,136 (year ended 30 September 2002: 113,158,786).
Capital gain/(loss) per geared ordinary share is based on the net capital gains for the year of #2,670,000 (year
ended 30 September 2002: loss: #27,922,000) and on the weighted average number of geared ordinary shares in issue of
109,342,136 (year ended 30 September 2002: 113,158,786).
2. Net asset value per geared ordinary share
The net asset value per geared ordinary share is based on net assets attributable to geared ordinary shares of
#38,063,000 (2002: #36,336,000) and on the 106,195,033 (2002: 112,220,127) geared ordinary shares in issue at 30
September 2003. There is no dilution at present.
Net asset value per unit of Convertible Unsecured Loan Stock 2020 ('CULS')
The net asset value per unit of CULS is based on net assets attributable to CULS of #53,952,000 (2002: #56,401,000)
and on the 54,078,660 (2002: 56,592,337) CULS in issue at 30 September 2003.
The net asset value per geared unit comprises two geared ordinary shares and one unit of CULS.
3. Purchase of Own Securities
During the year the Company repurchased for cancellation 6,025,094 of its own issued geared ordinary shares of one
penny each at a cost of #1,621,000, leaving a balance of 106,195,033 geared ordinary shares for the purposes of the
calculation of the net asset value per geared ordinary share. In addition, the Company has also repurchased for
cancellation #2,513,677 of its CULS at a cost of #2,458,000, leaving a balance of 54,078,660 for the purposes of the
calculation of the net asset value per unit of CULS.
4. 2003 Accounts
The preliminary figures for the year ended 30 September 2003 are compiled from an extract of the latest accounts and
do not constitute statutory accounts as defined by Section 240 of the Companies Act 1985. These accounts have not
been delivered to the Registrar of Companies, nor have the auditors yet reported on them.
5. 2002 Accounts
The figures and financial information for the year ended 30 September 2002 are compiled from an extract of the latest
published accounts and do not constitute the statutory accounts for that year. Those accounts have been delivered to
the Registrar of Companies and included the report of the auditors which was unqualified and did not contain a
statement under either Section 237(2) or Section 237(3) of the Companies Act 1985.
6. Annual Report
The Annual Report will be issued to shareholders in December 2003 and further copies will be available from the
Company's registered office. The Company's Annual General Meeting will be held on Wednesday, 28 January 2004 at 12.00
pm at Founders' Hall, No. 1 Cloth Fair, London EC1A 7HT.
For further information, please contact:
Royal London Asset Management Limited
Tel: 020 7506 6500
This information is provided by RNS
The company news service from the London Stock Exchange
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