Final Results
October 01 2003 - 12:33PM
UK Regulatory
LEGGMASON INVESTORS EUROPEAN UTILITIES TRUST PLC
PRELIMINARY ANNOUNCEMENT OF ANNUAL RESULTS
The Directors announce the unaudited statement of results for the year ended 31
July 2003 as follows:
STATEMENT OF TOTAL RETURN
(incorporating the revenue account)
1 August 2002 1 August 2001
to 31 July 2003 to 31 July 2002
Revenue Capital Total Revenue Capital Total
�'000 �'000 �'000 �'000 �'000 �'000
Gains/(Losses) on - 2,836 2,836 - (9,681) (9,681)
investments
Dividends and 1,475 - 1,475 1,538 - 1,538
interest
Other income 1 - 1 1 - 1
Investment (121) (121) (242) (165) (165) (330)
management fee
Other expenses (215) - (215) (216) (4) (220)
Exchange losses on - (1,019) (1,019) - (272) (272)
capital items
Return on ordinary
activities
before finance costs
and
taxation 1,140 1,696 2,836 1,158 (10,122) (8,964)
Interest payable and
similar
charges (286) (287) (573) (319) (319) (638)
Return on ordinary
activities
before taxation 854 1,409 2,263 839 (10,441) (9,602)
Taxation on ordinary (87) 1 (86) (163) 69 (94)
activities
Return on ordinary
activities
after taxation 767 1,410 2,177 676 (10,372) (9,696)
Appropriations in
respect of
non-equity shares:
- Zero Coupon - (856) (856) - (782) (782)
Preference
Return attributable
to equity
shares 767 554 1,321 676 (11,154) (10,478)
Dividends in respect
of equity
shares:
- Interim dividend
of 1.97p
paid 25 April 2003 (210) - (210) (256) - (256)
(2002:2.4p)
- Second interim
dividend of
4.53p(2002: 3.9p)
payable on
27 October 2003 (483) - (483) (415) - (415)
Transfer to/(from) 74 554 628 5 (11,154) (11,149)
reserves
pence pence pence pence pence pence
Return per Ordinary
Income
share 7.20 5.20 12.40 6.34 (104.73) (98.39)
Return per Zero
Coupon
Preference share - 19.68 19.68 - 17.98 17.98
SUMMARISED BALANCE SHEET
As at As at
31 July 2003 31 July 2002
�'000 �'000
Investments at market value 29,611 29,157
Net current liabilities (9,589) 557
Assets less current liabilities 20,022 29,714
Long-term liabilities - (11,176)
20,022 18,538
As at As at
31 July 2003 31 July 2002
pence pence
NET ASSETS PER ORDINARY INCOME
SHARE 94.92 89.02
NET ASSETS PER ZERO COUPON
PREFERENCE
SHARE 227.90 208.22
SUMMARISED STATEMENT OF CASHFLOWS
Year ended Year ended
31 July 2003 31 July 2002
�'000 �'000
Net cash inflow from operating 871 848
activities
Net cash outflow from servicing (578) (638)
of finance
Net tax recovered 52 63
Net cash inflow from financial 2,896 1,716
investment
Equity dividends paid (625) (671)
Loan repayment (2,506) (884)
Increase in cash 110 434
The above financial information does not constitute statutory financial
statements as defined in Section 240 of the Companies Act 1985 and has been
prepared on the basis of the accounting policies set out in the statutory
accounts of the Company for the year ended 31 July 2002. Full accounts of
LeggMason Investors European Utilities Trust plc for the year ended 31 July
2002, on which the auditors, Ernst & Young LLP, gave an unqualified report,
have been delivered to the Registrar of Companies.
The Board has declared a second interim net dividend of 4.53p (2002: 3.9p) on
the Ordinary Income shares, to be paid on 27 October 2003 to holders on the
register at the close of business on 10 October 2003.
The annual report will be sent to shareholders in mid-October and will be
available to members of the public from the Registered Office at 23 Cathedral
Yard, Exeter, EX1 1HB.
CHAIRMAN'S STATEMENT
Performance
The year to 31 July 2003 has been another highly volatile one. To put this into
context the Trust's benchmark, the Dow Jones Composite Index of Utilities and
Telecoms companies, stood at 135.5 on 31 July 2002. By 31 March 2003 it had
fallen to 128.6, recovering subsequently to 146.6 by 31 July 2003, a rise over
the year of 8.2%. I am pleased to report that, over the same period, our
Manager has done rather better because the Trust's gross assets, adjusted for
the partial repayment of our bank loan, have risen from �27.2m to �29.7m, an
improvement of 9.2%. Net assets, which exclude our bank loan, rose from �18.53m
to �20.02m a rise of 8.0%.
Net assets attributable to the Trust's Ordinary Income shares, after adjusting
for the accrual on the Zero Coupon Preference shares rose from 89.02p to 94.92p
over the year.
Gearing
The continuing decline in our assets at the start of the year meant your Board
felt it prudent to repay a further, Euro4m of our loan in September 2002 incurring
swap breakage costs of �54,000 in the process. We debated the wisdom of
repaying the loan entirely, because it was our belief that the Euro was
fundamentally undervalued against Sterling. We decided, however, that those
holdings denominated in Euros, which constituted around 76.9% of our portfolio,
were likely to appreciate further than the currency and that it would
consequently be beneficial overall to both classes of shareholder for the Trust
to remain geared to the fullest extent permitted by the terms of our loan
agreement. Accordingly, we retained Euro13.8m of our loan. The subsequent rise in
share values and appreciation of the Euro against Sterling has benefited our
gross assets but that gain has been partly offset by the need to increase the
Sterling value that we have to show for the Euro loan in our Annual Accounts.
The consequence is that the rise in net assets has been less than that in gross
assets.
Dividends
Since the launch of the Trust in 1994 we have tried to pursue a progressive
dividend policy without compromising capital growth prospects for the
portfolio. At the Interim stage we had not earned enough revenue to be able to
maintain the interim dividend at the previous year's level. This was
principally due to an unexpected change in the timing of dividends from two of
our largest investments. Accordingly the first interim dividend was reduced
from 2.4p to 1.97p.
As stated in my Interim Report we were confident that we would be able to make
up this income shortfall over the remainder of the year. I am pleased to say
that this is the case, earnings per Ordinary Income Share for the year totalled
7.2p, an improvement over last year. Your Board is therefore able to declare a
second interim dividend for the year of 4.53p per Ordinary Income share meaning
dividends for the year total 6.5p. This is an increase of just over 3% on total
dividends paid in respect of last year. The Trust will retain a revenue reserve
totalling �206,000, which is equivalent to 1.93p per Ordinary Income share.
Change to management arrangements
Legg Mason Investments (Europe) Ltd has informed the Board that it wishes to
withdraw from the investment trust market in the UK. As part of this process
Andrew Whalley, the fund manager with day-to-day responsibility for overseeing
the Trust's investment portfolio will be leaving Legg Mason and will be joining
Premier Asset Management PLC ("PAM"). This move will become effective on 1
November 2003. Given the relatively short time remaining to the end of the
Trust's currently authorised life, the Board believes that continuity of
manager and investment approach will be very much in the interests of all
shareholders. Thus, after due deliberation, your Board has decided that the
Trust's management contract should be transferred to PAM PLC. The contract will
be transferred on the same terms as it is currently managed by Legg Mason
Investments with Andrew Whalley retaining responsibility for the day-to-day
management of the portfolio. No additional costs will be borne by the Trust.
PAM is traded on the London stock exchange and as at 31 August 2003 had funds
under management of �420 million, �74 million of which was in 3 investment
trusts.
Outlook.
Although markets have risen strongly over recent months there is still
considerable uncertainty ahead. Interest rates may have to rise from this point
as inflationary forces, benign for so long, appear to be growing whilst a
resolution to the Iraq conflict still appears some way off. More positively,
investors appear in more confident mood and the valuation of our portfolio is
still relatively undemanding. There should therefore be scope for our assets to
make further headway over coming months.
With relatively little time remaining until the end of the Trust's authorised
life in July 2004, your Directors are ever more mindful of our capital and
income obligations to both classes of our shares.
The Board is actively investigating various proposals that might be put to
shareholders prior to the potential cessation date. Proposals may include
rolling the Company over into a new vehicle. However, any such re-structuring
proposals will not be fully developed until nearer the termination date. We
will be seeking the views of all shareholders on the future of your Trust,
which remains, despite recent volatility, one of the better performing split
capital trusts in the UK in recent years.
The Directors believe it remains appropriate for the accounts to be prepared on
a going concern basis, although there is a fundamental uncertainty about the
ability of the Company to continue in operational existence beyond 31 July
2004. We believe that the asset class into which your Trust invests has
long-term attractions notwithstanding our relatively small size. Thus, it is
our expectation that the company will, with shareholder support, have a life
extended beyond the current termination date. Having solicited the views of our
shareholders we hope to be able to clarify the future of your Trust early next
year.
Lord Inchyra
Chairman
01 October 2003
END