ST. DAVID'S INVESTMENT TRUST PLC
PRELIMINARY ANNOUNCEMENT OF ANNUAL RESULTS
for the year ended 30 November 2003
Chairman's Statement
I am encouraged to report that markets generally have recovered from the lows
experienced during 2003. Having fallen to 3,287 on 12 March 2003 under the
influence of an impending war in Iraq and the SARS virus the FTSE 100 Index has
risen above the 4,400 level. This has had a positive impact on the Company's
asset value at a time when the Board and its advisors have continued to try to
find ways of using the Company's capital losses to improve its financial
position.
The basis of this recovery has been better than expected economic news from the
United States. This has been coupled with excellent performance from Asian
markets after the uncertainty and decline of the late 1990s. Global terrorism, a
question mark over post-war Iraq and further multi-national accounting scandals
still demand a degree of caution. In the UK the manufacturers' index started to
indicate positive expansion in the fourth quarter of 2003 and we have seen
improvements in corporate profitability. Consumer spending remains strong,
fuelled by personal borrowings and we have seen the Bank of England attempting
to curb this and inflationary dangers by increasing interest rates for the first
time in four years. This upwards trend in rates is likely to continue.
In this environment the Company's total assets*** improved from �51.3 million as
at 30 November 2002 (excluding the provision to the Preferred Annuity
Shareholders) to �53.8 million as at 30 November 2003. As at 27 February 2004
and after taking account of the costs of extending the life of the ZDP 2003
shares and the loan facilities maturing in 2003 (�0.3m in total), the Company's
total assets were �55.6 million. At 30 November 2003 the portfolio had the asset
allocation shown below, the asset allocation as at 27 February 2004 is also
given.
30 November 27 February
2003 2004
�m % �m %
Equities 37.9 70.4 39.3 70.7
Investment Company Geared Ordinary 2.9 5.4 3.3 5.9
and Income shares*
Fixed Interest (including Convertible 8.3 15.5 8.6 15.5
Preference shares)
Net current assets** 4.7 8.7 4.4 7.9
Total assets*** 53.8 100 55.6 100.0
*Valued at bid price
**Before deducting prior charges
*** Total assets as described comprise fixed and current assets less other
creditors
The portfolio remains focused on its UK bluechip equity holdings with an above
average yield and further market strength should have a positive impact upon the
asset value. The residue of the income share and fixed interest portfolios is
now more stable and a source of income to the Company's cashflow.
The Company's bank loans have reduced from �60.3 million (including �5.6 million
of interest rate swap breakage and RPI redemption costs) as at 30 November 2002
to �59.3 million (including �4.6 million of interest rate swap breakage and RPI
swap and redemption costs) as at 30 November 2003. This reduction follows the
repayment in 2003 of �1.5 million in respect of the RPI redemption reserve
relating to the 2003 maturing loan. As at 27 February 2004, the Company's bank
loans were �59.6 million (including �4.9 million RPI redemption and swap
breakage costs).
With the Company's liabilities still exceeding its gross assets there are still
no assets attributable to any class of share. Our bank continues to support the
Company as it has done for the last two and a half years, although it should be
noted that the outstanding loans can be called in at any time. As I mentioned in
my interim statement this support is
based predominantly on the Company's ability to continue to generate revenues
which exceed its current debt service costs and operational expenses.
This is only possible as a result of the Manager continuing to waive its
management and secretarial fees; we are grateful for the support we have
received from both our manager and our bank.
Despite the recent improvements in the financial markets' sentiment and the
Company's investment portfolio the Board believes that the greatest prospect of
making a financial return to shareholders comes from utilising the Company's
past losses. The Directors estimate that in the three year period ended 30
November 2003 the Company has realised capital losses of approximately �72
million and unrealised losses of approximately �82 million. These losses cannot
be utilised if the Company was to retain Investment Trust Status under Section
842 of the Income and Corporation Taxes Act 1988 and it has not applied for such
status in respect of the two years ended 30 November 2002 and does not intend to
apply in respect of the year ended 30 November 2003.
As a result of this decision, the Directors consider that the presentation of
the financial statements in accordance with the Investment Trust SORP is no
longer appropriate. Accordingly the Company has presented its results in the
routine format prescribed by the Companies Act 1985.
As at 30 November 2003 the total assets of the Company would have to increase by
approximately 110% in order for the Company to be legally able to pay the
Preferred Annuity Shareholders their accrued dividend entitlement. As such, the
payment of the accrued dividend is therefore deemed to be unlikely. Therefore,
in accordance with current accounting practice the provision for the accrued
dividends due to the Preferred Annuity Shareholders amounting to �8.2 million at
30 November 2003 has been released, although their legal entitlement to these
dividends remains. In this context it will be seen that as at 30 November 2003
the Company's revenue reserves amounted to �5.6 million or approximately two-
thirds of the accrued dividends.
The principal short-term objective of the Board has been to avoid putting the
Company into liquidation and to keep open the possibility of recovering some
value for Shareholders. This has so far been achieved. I must thank Shareholders
for agreeing overwhelmingly to support the proposal to extend the life of the
ZDP 2003 sharesby 12 months. Without this vote the Company would have faced
being wound up at a time when no assets were attributable
to any class of shares. This action on the part of investors has allowed the
Board to continue working on proposals to obtain reasonable value from the
Company's capital losses. I appreciate that this work is taking a considerable
amount of time and thank Shareholders for their patience, but there is a large
amount of work to be done before a detailed proposal can be presented to
Shareholders for approval.
As a precursor to such a proposal the Board seeks to simplify the Company's
capital. A circular setting out the rationale will be sent to Shareholders
today, together with the Annual Report and Accounts. We envisage putting forward
detailed proposals concerning the Company's capital losses later this year. It
is anticipated that this exercise linked to further market strength may create
some value for all Shareholders, but at levels much lower than their respective
entitlements under the existing Articles of Association.
John S Cousins
Chairman
19 March 2004
Profit & Loss Account
Year ended Year ended
30 November 30 November
2003 2002
(unaudited) (restated)*
(audited)
�'000 �'000
Investment income and deposit interest 3,328 9,130
Investment management fee - (267)
Other administrative expenses (365) (471)
2,963 8,392
Loss on realisation of investments (514) (15,120)
Exchange gains/(losses) 132 (383)
Operating profit/(loss) before interest 2,581 (7,111)
and taxation
Interest payable and similar charges (3,342) (4,412)
Indexation of loan (1,435) (562)
Breakage costs on loans (78) (2,470)
Loss on ordinary activities before (2,274) (14,555)
taxation
Taxation on ordinary activities - -
Loss on ordinary activities after taxation (2,274) (14,555)
Dividend attributable to Preferred Annuity - (4,279)
Shareholders
Compounding entitlement of Zero Dividend (7,258) (6,647)
Preference shares
Release of accrual of Preferred Annuity 3,914 -
Dividend in prior years
Net loss for the financial year (5,618) (25,481)
Transfers (from)/to reserves as follows:
Capital reserve-realised (9,989) (26,352)
Retained revenue 4,371 871
(5,618) (25,481)
Earnings per ordinary share (6.95)p (31.51)p
* As the Company is no longer an investment company under Section 266 of the
Companies Act 1985 and is not seeking approval as an investment trust under
section 842 ofthe Income and Corporation Taxes Act, the accounts have been
presented in the routine format as prescribed by the Companies Act 1985 with the
prior year comparisons also restated in this format.
All items in the above statement derive from continuing operations.
No operations were acquired or discontinued in the year.
Statement of Total Recognised Gains and
Losses
Year ended Year ended
30 November 30 November
2003 2002
(unaudited) (audited)
�'000 �'000
Loss on ordinary activities after taxation (2,274) (14,555)
Unrealised gain/(loss) on revaluation of 4,608 (54,339)
investments
Total recognised gains/(losses) for the 2,334 (68,894)
year
Note of Historical Cost Profit and Losses
Year ended Year ended
30 November 30 November
2003 2002
(unaudited) (audited)
�'000 �'000
Loss on ordinary activities before (2,274) (14,555)
taxation
Realisation of revaluation losses of (26,107) (30,040)
previous years
Historical cost loss on ordinary (28,381) (44,595)
activities before taxation
Historical cost loss on ordinary (28,381) (44,595)
activities after taxation and dividends
The above statements were not included in the prior year's Report and Accounts,
however, 2002 figures have been derived accordingly and included for comparative
purposes.
All revenueand capital items in the above statement derive from continuing
operations.
No operations were acquired or discontinued in the year.
Balance Sheet
As at As at
30 November 30 November
2003 2002
(unaudited) (audited)
�'000 �'000
Fixed assets
Investments 49,107 45,787
Current assets
Debtors 1,379 1,854
Cash at bank 3,587 5,728
4,966 7,582
Creditors: amounts falling due within one
year
Bank loans (54,700) (54,700)
Indexation of loans (2,496) (2,549)
Other creditors (318) (5,975)
(57,514) (63,224)
Net current liabilities (52,548) (55,642)
Net liabilities (3,441) (9,855)
Share capital and reserves
Called-up share capital 46,554 46,554
Share premium account 1,166 1,000
Special reserve 130,375 130,375
Other reserves:
Redemption reserve 26,981 21,768
Capital reserve - realised (126,930) (92,879)
Capital reserve - unrealised (87,216) (117,931)
Revenue reserve 5,629 1,258
Total Shareholders' deficit (3,441) (9,855)
Attributable under an Articles basis to:
Non-equity interests:
ZDP 2004/2003 shares - -
ZDP 2008 shares - -
Preferred Annuity shares - -
Equity interests:
Ordinary shares - -
Shortfall in assets available for (3,441) (9,855)
repayment of bank loan
Total (3,441) (9,855)
Net asset value per share on an Articles
basis (pence):*
ZDP 2004/2003 share - -
ZDP 2008 share - -
Preferred Annuity share - -
Ordinary share - -
* The net asset value per share presented in this balance sheet is prepared in
accordance with the Articles which restricts the net asset value per share to
nil in the event that there are insufficient assets to meet the prior rights and
entitlements of each share class. A reconciliation of the net asset value
attributed to each class of share calculated on an Articles basis with that
prepared on a FRS 4 basis is presented in note 6.
Cash Flow Statement
Year ended Year ended
30 November 2003 30 November 2002
(unaudited) (audited)
�'000 �'000 �'000 �'000
Net cash inflow from operating 3,016 10,691
activities
Servicing of finance
Bank and loan interest paid (3,462) (4,585)
Breakage costs on bank loans (78) (2,470)
Dividends paid on Preferred - (905)
Annuity shares
Net cash outflow from servicing of (3,540) (7,960)
finance
Financial investment
Purchases of investments (21,707) (22,194)
Sales of investments 21,446 55,612
Net cash (outflow)/inflow from (261) 33,418
financial investment
Equity dividends paid - (3,436)
Net cash (outflow)/inflow before (785) 32,713
financing
Financing
Expenses paid in respect of issue - (376)
of new shares
Repayment of loans - (24,149)
Senior Loan RPI interest rate swap (1,488) (2,549)
cost
Net cash outflow from financing (1,488) (27,074)
(Decrease)/increase in cash (2,273) 5,639
Reconciliation of net cash flow to
movements in net debt
(Decrease)/increase in cash as (2,273) 5,639
above
Cash outflow from decrease in 1,488 26,698
loans
RPI Indexation of loans (1,435) (562)
Exchange movements 132 (383)
Movement in net debt in the year (2,088) 31,392
Net debt at 30 November 2002 (51,521) (82,913)
Net debt at 30 November 2003 (53,609) (51,521)
Notes.
1. Fundamental uncertainties
(a) Going concern
As described in the Chairman's Statement there is uncertainty as to the
continuation of support from the Company's bankers. The Company had net
liabilities of �3.4 million at 30 November 2003, and the preparation of the
financial statements is dependent on the continuation of support from the
Company'sbankers. Further, the Company's ZDP 2004 shares expire on 3 December
2004 and the Directors are required to put proposals regarding the future of the
Company to Shareholders prior to that date. The Directors have stated that they
are currently exploring opportunities to utilise the Company's capital losses.
The preparation of financial statements on the going concern basis is dependent
on both the Directors formulating plans for the future of the Company, and
Shareholders support for those plans.
This financial information do not include any adjustments that would arise if
the bankers or Shareholders were to withdraw their support, or if the Directors
were unable to submit appropriate plans for the future of the Company. If the
Company is no longer considered a going concern, adjustments to the financial
statements as described in Note 2 below would be required.
(b) Valuation of investments
As described in Note 2(b) below a lack of liquidity in the market of certain
fixed asset investments raises uncertainty as to the realisability of middle
market prices in current market conditions. The portfolio of income shares has
therefore been valued at bid prices. However, the financial statements do not
include any adjustments for potential shortfalls that would result from
obtaining a value materially below bid market prices for any of these
investments in the event of their disposal.The value of shares so affected was
�2.9 million at 30 November 2003.
2. Adjustments to the financial informationif prepared on a non-going concern
basis
The financial information have been prepared on a going concern basis, which the
Directors believe is appropriate at the date of approval of this financial
information. However, there is fundamental uncertainty regarding this assumption
due to the Company's financial position and need for continuing support from the
bank and Shareholders, as described in note 1 above.
If the Company were no longer considered to be a going concern, certain material
adjustmentswould be required to be made to this financial information.
(a) Liquidation costs
Break costs would be incurred, payable to the bank, in respect of early
termination of the fixed interest rate contract. At 27 February 2004 these
amounted to approximately �4.9 million (30 November 2003 - �4.6 million).
Additionally, further costs would be incurred in respect of the liquidation of
the Company. These costs are not possible to quantify at this stage.
(b) Valuation of investments
The carrying value of investments would need to be written down to their net
realisable value. As referred to in note 1, there is uncertainty as to whether
certain of the Company's investments would attain bid-price if sold. It is not
possible to quantify the extent to which net realisable value might differ from
bid-price.
3. Accounting policies
The Company will not seek investment trust status for the year ended 30 November
2003 nor did it seek it for the two years ended 30 November 2002. As there are
no net realised capital gains for these years, the loss of investment trust
status will not have any adverse tax consequences for the Company. However, as
the Company is not entitled to use the special rules for preparation of
investment company accounts in accordance with the Companies Act 1985, the
Directors consider that the presentation of a statement of total return in
accordance with the Investment Trust SORP is no longer appropriate. Accordingly,
the Company has presented its results by way of a profit and loss account (which
contains all revenue and capital items which are realised) and a statement of
total recognised gains and losses (which reflects unrealised movements on
investments and shows the total of all recognised gains and losses equivalent to
that which would have been shown in a statement of total return).
There has been no change to the balance sheet arising from this change in
presentation as the realised investment losses and other capital expenses have
been transferred to the capital reservein accordance with the provisions
contained within the Articles of Association.
As at 30 November 2003 the total assets*** of the Company would have to increase
by approximately 110% in order for the Company to be legally able to pay the
Preferred Annuity Shareholders their accrued dividend entitlement. As such, the
payment of the accrued dividend is deemed by the directors to be remote.
Therefore, in accordance with accounting guidance set out in FRS 4, the Company
has not accrued the Preferred Annuity dividend entitlement for the year ended 30
November 2003 of �4.3m, and has released the prior year accrual of �3.9m in
respect of the Preferred Annuity dividend entitlement for the year ended 30
November 2002. However, the Company continues to transfer the redemption
discount from redemption reserves to capital reserves - realised, despite having
ceased to accrue for the dividend.
4. Investment income and deposit interest
2003 2002
�'000 �'000
Income from UK listed
investments
UK dividend income 2,814 5,817
Unfranked investment income 302 1,778
Interest on fixed interest 15 1,249
securities
3,131 8,844
Other income
Deposit interest 197 279
Underwriting commission 7
-
Total income 3,328 9,130
Total income comprises:
Dividends 3,116 7,595
Interest 212 1,528
Other income 7
-
3,328 9,130
5. Earnings per share
2003 2002
p p
Ordinary share (6.95) (31.51)
The return per Ordinary share is based on the net loss for the financial year of
�5,618,000 (2002 - loss of �25,481,000) and on 80,867,549 (2002 - 80,867,549)
Ordinary shares, being the number of shares in issue throughout the year.
6. Net asset value per share
The net asset value per share and the net asset values attributable to
Shareholders at the year end have been prepared in accordance with the Articles,
which restricts the net asset value of each of the share classes to nil. The
amounts attributable to eachshare class were as follows:
Net asset Net asset
value per values
share attributable
attributable
2003 2002 2003 2002
p p �'000 �'000
ZDP 2004/2003 - - - -
share
ZDP 2008 share - - - -
Preferred - - - -
Annuity share
Ordinary share - - - -
The attributable asset value of the ZDP 2004 shares calculated in accordance
with the Articles is nil (2002 - nil). The net asset value disclosed above
reflects the shortfall in funding of the attributable asset value amounting to
�60,531,000(2002 - �55,626,000), and is calculated on 19,013,292 (2002 -
19,013,292) ZDP 2004 shares in issue at the year end.
The attributable asset value of the ZDP 2008 share calculated in accordance with
the Articles is nil (2002 - nil). The net asset value disclosed above reflects
the shortfall in funding of the attributable asset value amounting to
�25,888,000 (2002 - �23,535,000), and is calculated on 21,139,935 (2002 -
21,139,935) ZDP 2008 shares in issue at the year end.
The net asset value per Preferred Annuity share has been calculated based on the
prior capital entitlement of the Preferred Annuity shares of �0.001.The net
asset value disclosed above reflects the shortfall in funding amounting to
�21,430 (2002 - �21,430), and is calculated on 21,429,913 (2002 - 21,429,913)
Preferred Annuity shares in issue at the year end.
The net asset value per Ordinary share is based on revenue reserves and on
80,867,549 (2002 - 80,867,549) Ordinary shares, being the number of Ordinary
shares in issue at the year end. Under the Articles, Ordinary shares are usually
entitled to the revenue reserves of �5,629,000 (2002 - �1,258,000) of the
Company giving a net asset value of 6.96p (2002 - 1.56p), however currently the
revenue reserve is deemed not to be distributable hence Ordinary Shareholders
are attributed a net asset value of nil.
2003 2002
Shareholders' funds reconciliation of FRS 4 basis �'000 �'000
to the Articles basis
Equity shares - Ordinary per FRS 4 (89,881) (89,037)
Provision for ZDP entitlement 86,419 79,161
Provision for Annuity entitlement 21 21
Shortfall in assets available for repayment of 3,441 9,855
bank loan
Total equity funds on an Articles basis -
-
Non-equity shares - Preferred Annuity on a FRS 4 21 21
basis
Provision for Annuity entitlement shortfall (21) (21)
Preferred Annuity funds on an Articles basis - -
Non-equity shares - ZDP 2004/2003 on a FRS 4 60,531 55,626
basis
Provision for ZDP entitlement shortfall (60,531) (55,626)
ZDP 2004/2003 funds on an Articles basis -
-
Non-equity shares - ZDP 2008 on a FRS 4 basis 25,888 23,535
Provision for ZDP entitlement shortfall (25,888) (23,535)
ZDP 2008 funds on an Articles basis -
-
Total non-equity shares - ZDP's -
-
Total Shareholders' funds -
-
7. The financial information for the year ended 30 November 2003 comprise non-
statutory accounts within the meaning of section 240 of the Companies Act 1985.
The financial information for the year ended 30 November 2002 has been restated
from the published accounts that have been delivered to the Register of
Companies and on which the report of the auditors is unqualified and does not
contain a statement under section 237 (2) or (3) of the Companies Act 1985. The
statutory accounts for 2003 will be finalised on the basis of the financial
information presented by the directors in this preliminary announcement and will
be delivered to the Register of Companies in due course. It is expected that the
audit opinion will include an explanatory paragraph relating to the fundamental
uncertainties set out in Note 1 of this preliminary announcement.
8. Copies of the Annual Report will be posted to all shareholders in due course
and further copies may be obtained from the Registered Office, One Bow
Churchyard, Cheapside, London EC4M 9HH.
Aberdeen Asset Management PLC
Secretaries
19 March 2004
ST.David It (LSE:SDA)
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