THE NEW ZEALAND INVESTMENT TRUST PLC
PRELIMINARY ANNOUNCEMENT OF UNAUDITED RESULTS
The Directors announce the unaudited statement of results for the year 1
November 2005 to
31 October 2006 as follows:
CHAIRMAN'S STATEMENT
The Board of The New Zealand Investment Trust is recommending a final dividend
of 7.5 pence (approximately NZ 21 cents) for the year ended 31 October 2006.
This is an increase of 15% from the prior annual dividend, and the fourth
consecutive increase.
The dividend complements the total return per ordinary share of 31.0 pence for
the year, and a diluted net asset value per share of 383.1 pence. Your Board is
also pleased to note that since the end of our financial year the net asset
value per share has increased further, to 392.1 pence at 13 December 2006. Our
investment results for the year are discussed in detail in the Investment
Manager's Report, which follows.
The date for the Annual General Meeting of shareholders (at which the dividend
will be submitted for approval) may be as late as May, 2007. This is a
particularly important Annual General Meeting. Our Company's third continuation
vote will be proposed, made even more important by the significant taxation
enacted this week by the New Zealand government. Now that the long-discussed
tax changes have been finalised, your Board will be exploring all feasible
means of providing shareholders the benefits inherent in the new tax regime.
The tax changes include new taxes on investments by New Zealand residents in
companies outside New Zealand and Australia, including our Company, which is
incorporated in the United Kingdom. However, we are delighted to report that,
in response to representations by your Board, the Government has provided that
The New Zealand Investment Trust be granted a two-year exemption from the
application of the new rules, which means that there will be no change in the
New Zealand taxation on our Company until 2009. In addition, the new tax bill
provides important new incentives for qualified investment companies in New
Zealand, which may permit us to propose a reorganisation of our Company in such
a way as to benefit all shareholders, including those resident in New Zealand.
The two-year exemption from the application of the new rules will provide time
for your Board to propose measures that will best address all shareholders'
interests in the future and prevent the need for any New Zealand-resident
shareholders to sell their shares to avoid new taxes on foreign investments.
When making investment decisions, I would like to draw attention to following
factors:
* Performance of your Company continues to be strong.
* When appropriate, the Company will buy back its shares in the market,
increasing the net asset value of the remaining shares.
* There will be no new New Zealand taxes for two years.
* A reorganisation of the Company may be feasible, providing for lower costs,
lower taxes, and higher dividends.
In considering the future of our Company, it is useful to look at the
performance under our present management team, with Richard Scott of iimia
advised by Andrew South. Andrew advised on the majority of our portfolio at BT
Funds Management NZ from the 31 March 2000 to 31 March 2004, and at Brook Asset
Management from the 1 April 2004 to the present. The capital returns through to
the 31 October 2006 have been outstanding, compared to all relevant indices:
In Sterling:
Net Asset Value +149%
NZX All Index +63%
NZX Smaller Companies Index +101%
Australian All Ords Index +82%
In New Zealand dollars:
Net Asset Value +121%
NZX All Index +45%
NZX Smaller Companies Index +79%
Australian All Ords Index +62%
We appreciate the support of our shareholders which has made this possible.
Your Board is committed to finding ways of making the Company even more
attractive and successful in the future.
Donald M. Campbell
Chairman
20 December 2006
Subject to shareholder approval, the dividend will be paid on 6 June 2007 with
an associated record date of 20 April 2007.
INCOME STATEMENT
(incorporating the profit and loss account of the Company)
for the year ended 31 October 2006
2006 2005
Revenue Capital Total Revenue Capital Total
�'000 �'000 �'000 �'000 �'000 �'000
(unaudited) (audited)
Gains on investments - 2,695 2,695 - 6,755 6,755
Foreign exchange - (122) (122) - 214 214
(losses)/gains on
capital items
Income 1,539 - 1,539 1,713 - 1,713
Investment Manager's (156) - (156) (143) - (143)
fee
Investment Advisers' (175) - (175) (156) - (156)
fees
Cost of share options (1) - (1) - - -
Other expenses (241) - (241) (228) - (228)
Net return before and 966 2,573 3,539 1,186 6,969 8,155
after finance costs and
before taxation
Taxation on ordinary (249) - (249) (347) - (347)
activities
Return on ordinary 717 2,573 3,290 839 6,969 7,808
activities after
taxation for the
financial year
Return per ordinary
share
- Basic 6.75p 24.23p 30.98p 7.82p 64.96p 72.78p
- Diluted 6.73p 24.17p 30.90p 7.80p 64.82p 72.62p
The total column of this statement is the profit and loss account of the
Company. The supplementary revenue and capital columns are prepared under
guidelines published by the Association of Investment Companies.
All revenue and capital items in the above statement derive from continuing
operations.
STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
2006 2005
�'000 �'000
(unaudited) (audited)
Net return after taxation 3,290 7,808
Total recognised gains during the year 3,290 7,808
Prior period adjustment re: FRS 26 (fair 80 -
value of investments)
Total recognised gains and losses since 3,370 7,808
last
annual report
Total recognised gains per share 31.73p 72.78p
BALANCE SHEET
As at 31 October 2006
2006 2005
(restated)
�'000 �'000
(unaudited) (audited)
Fixed assets
Investments at fair value through profit 38,538 -
or loss
Investments at market value - 35,488
38,538 35,488
Current assets
Debtors 32 52
Cash at bank 2,140 2,912
2,172 2,964
Creditors - amounts falling due within (273) (296)
one year
Net current assets 1,899 2,668
Total assets less current liabilities 40,437 38,156
Provision for liabilities and charges
Provision for deferred taxation - (5)
Total net assets 40,437 38,151
Share capital and reserves
Share capital 2,688 2,686
Share premium 9,192 9,184
Capital redemption reserve 89 89
Own shares held (726) (322)
Capital reserve 27,917 25,264
Share options reserve 1 -
Revenue reserve 1,276 1,250
Total shareholders' funds 40,437 38,151
Basic net asset value per ordinary share 384.20p 358.49p
Diluted net asset value per ordinary 383.10p 357.49p
share
RECONCILIATION OF MOVEMENT IN SHAREHOLDERS' FUNDS (UNAUDITED)
Share Share Capital Capital Own Share Revenue Total
capital redemption reserve shares options reserve
premium held reserve �'000
�'000 reserve �'000 �'000
�'000 �'000 �'000
�'000
Year ended 31
October 2006:
31 October 2005 2,686 9,184 89 25,264 (322) - 1,250 38,151
as restated for
dividends under
FRS 21
Adjustment re: - - - 80 - - - 80
fair value of
investments
under FRS 26
As further 2,686 9,184 89 25,344 (322) - 1,250 38,231
restated 31
October 2005
Net return for - - - 2,573 - - 717 3,290
the period
Dividends paid - - - - - - (691) (691)
Cost of share - - - - - 1 - 1
options to
separate
reserve
Options 2 8 - - - - - 10
conversion to
Ordinary shares
Costs of shares - - - - (404) - - (404)
purchased for
Treasury
31 October 2006 2,688 9,192 89 27,917 (726) 1 1,276 40,437
Year ended 31
October 2005:
31 October 2004 2,713 9,184 62 18,532 (231) - 948 31,208
as restated for
dividends under
FRS 21
Net return for - - - 6,969 - - 839 7,808
the period
Dividends paid - - - - - - (537) (537)
Transfer re: - - - (237) 237 - - -
Treasury shares
cancelled
Nominal value (27) - 27 - - - - -
of shares
purchased for
cancellation
Cost of shares - - - - (328) - - (328)
purchased for
Treasury
31 October 2005 2,686 9,184 89 25,264 (322) - 1,250 38,151
as restated
STATEMENT OF CASHFLOWS
for the year ended 31 October 2006
2006 2005
�'000 �'000
(unaudited) (audited)
Operating activities
Investment income received 1,293 1,391
Interest received 127 229
Investment Manager's fee paid (153) (137)
Investment Advisers' fees paid (175) (156)
Secretarial fees paid (54) (52)
Directors' fees paid (40) (46)
Other cash payments (136) (123)
Net cash inflow from operating 862 1,106
activities
Taxation
Taxation paid (166) (137)
Taxation recovered 26 -
Total taxation paid (140) (137)
Capital expenditure and financial
investment
Purchases of investments (1,400) (6,416)
Sales of investments 1,115 5,536
Exchange gains on settlements 20 22
Net cash outflow from capital (265) (858)
expenditure and financial
investment
Equity dividends paid (691) (537)
Net cash outflow before financing (234) (426)
Financing
Proceeds of option conversion 10 -
Purchase of shares for Treasury (404) (328)
Net cash outflow from financing (394) (328)
Decrease in cash (628) (754)
Notes:
The financial statements are prepared under the historical cost convention as
modified by the revaluation of fixed asset investments, and in accordance with
applicable law and accounting standards and with the Statement of Recommended
Practice (as revised December 2005) regarding the Financial Statements of
Investment Trust Companies ("SORP").
1) Accounting policies
This financial information has been prepared using new accounting standards,
which have been issued to begin the process of converging UK standards with
International Financial Reporting Standards (IFRS).
The Company has taken advantage of the exemption to only adopt FRS25 and FRS26
from 1 November 2005, rather than the date of transition of 1 November 2004.
Therefore the comparatives contained in this statement have not been restated
in respect of these standards. Instead, the opening reserves at 1 November 2005
have been restated to take these standards into account. All investments held
by the Company are classified as "fair value through profit or loss". For
investments actively traded in organised financial markets, fair value is
generally determined by reference to Stock Exchange quoted market bid prices or
last traded prices at the close of business on the balance sheet date.
Previously all listed investments were valued using closing mid market prices
at the balance sheet date.
There is no such exemption in respect of FRS21 regarding dividends paid and
therefore the Company has restated the comparatives in this statement to adopt
the provisions of FRS21. Dividends paid by the Company are now accounted for in
the period in which they are paid, whereas previously the Company recognised
dividends in the period in which the net revenue to which those dividends
related, was accounted for.
FRS20 with regards to share based payments, has also been applied to the
financial information. Given the immateriality of the amounts involved the
comparative figures have not been restated in respect of this standard.
2) Net asset value per share
These net asset values have been calculated in accordance with the revised
accounting policies set out in note 1.
Reconciliation of changes to undiluted net asset values resulting from
accounting policy changes referred to in note 1:
31 October 2006 31 October 2005
�'000 Pence �'000 pence
Net asset value as 40,437 384.20 37,459 351.99
announced
Increase due to - - 692 6.50
dividend
accounting change
Net asset value 40,437 384.20 38,151 358.49
per revised UK
GAAP
3) At 31 October 2006 the issued share capital of the Company was 10,750,220
Ordinary shares of 25 pence each including 225,160 Ordinary shares held in
Treasury (31 October 2005: 10,744,220, including 102,033 Ordinary shares held
in Treasury).
In the period the Company purchased for Treasury 123,127 Ordinary shares for a
total cost of �403,914.
4) The unaudited financial information set out above does not constitute the
Company's statutory accounts as defined in section 240 of the Companies Act
1985 but is derived from those accounts. Statutory accounts for the year ended
31 October 2005 have been delivered to the Registrar of Companies. The Auditors
have reported on those accounts; their report was unqualified and did not
contain statements under section 237 (2) or (3) of the Companies Act 1985. The
income statement, balance sheet and statement of cash flows have been prepared
using the accounting standards and policies adopted at 31 October 2005 except
as disclosed above in note 1.
Statutory accounts for the year ended 31 October 2006 will be filed with the
Registrar of Companies following the Company's Annual General Meeting.
MANAGER'S REPORT
Performance
For the fourth year in a row the Company's investment performance was
materially better than its benchmark, the NZX All Index (a market value
weighted index of 115 New Zealand companies). Measured in New Zealand dollars,
the Company's diluted net asset value rose from NZ$9.03 to NZ$10.91 over the
year to 31 October 2006, an increase of 20.8%. While much of the portfolio is
invested in medium and large companies in New Zealand it should be acknowledged
that the Company's performance relative to the NZX All Index was flattered
because other components of its investment universe performed better. This is
illustrated by the fact that the returns of the NZX Smaller Companies Index and
the Australian All Ords Index (in NZ$) were 14.1% and 31.2% respectively.
Currency translation has no effect on judging how the Company has performed
relative to market indices, as all figures are simply converted from one
currency into another. However, foreign exchange movements can have a material
impact on returns achieved by investors according to their base currency. The
year to 31 October 2006 was one such period as the Company's returns were
significantly lower for Sterling based investors than for those located in New
Zealand. Thus the rise in the net asset value of 7.2% (�) compared to a decline
in value of 5.6% (�) for the benchmark NZX All Index.
Performance highlights and portfolio activity
The incomparable US investor Warren Buffett remarked once "Our favourite
holding period is forever". The year under review was a period when the value
of this exaggerated truth proved its worth, as the Company's good performance
was achieved thanks to strong returns from long established investments and by
making very few changes to the portfolio. The New Zealand Investment Trust's
investment management process is described in detail in the annual report, but
in essence it involves backing quality companies that are chosen for their
potential to build considerable value for their shareholders over an extended
period. Some of the worst mistakes in fund management are buying shares in poor
companies because they look slightly too cheap, or selling shares in good
companies when they look a bit too expensive.
The portfolio is fairly concentrated and investments in less than 20 New
Zealand companies were held over the past year. Of the 115 companies in the
benchmark NZX All Index, the Company had investments in 3 of the top 10 top
performing shares (Mainfreight, Ryman Healthcare and Metlifecare) and none of
the 10 worst performing shares. Having comparatively low exposure to the poor
performing NZX All Index heavyweight Telecom NZ was also helpful in a year in
which New Zealand's dominant telecommunications company continued to struggle
and was also hit by negative regulatory developments.
The Australian component of the portfolio, which accounted for just under 30%
of the Company's assets through the period under review, made a very strong
contribution to performance. Measured in New Zealand dollars the value of three
of the Australian investments held in the portfolio over the whole year rose by
over 40%. Two of these were high quality companies in the insurance sector,
Promina and QBE Insurance, while the other, United Group continued to see
growth across its range of businesses mainly related to the strength of
spending in infrastructure and mining.
One major theme that had a significant and positive impact on performance over
the year was merger and acquisition activity. A number of holdings in the
portfolio saw their share prices rise significantly on the back of this theme.
These included the position in SFE Corp (the Sydney Futures Exchange), which
was taken over by the Australian Stock Exchange. This deal creates a larger
more powerful exchange that has an increased ability to compete on a global
scale. This fact together with the potential for the enlarged company to
enhance shareholder value through cost-savings should continue to make the
combined entity's shares an attractive investment. On this basis, a substantial
holding in the Australian Stock Exchange has been retained in the portfolio.
Changes made to the portfolio during the year included the disposal of the
holdings in Salmat and APN News and Media due to concerns about corporate
strategy and weakness in the trends of their operations. By contrast, a holding
in the New Zealand financial company Tower was reintroduced into the portfolio
prior to its split into separate New Zealand and Australian companies. Tower is
ideally positioned to benefit from changes in the savings industries in
Australasia. A position in Rakon was purchased in May at the time of its launch
on the New Zealand Stock Exchange. Rakon is an exciting high growth technology
company that supplies world beating components for the rapidly expanding market
in global positioning devices. Rakon is an interesting example of how investing
in New Zealand can provide opportunities to access high quality growth stocks
in niche areas of global industries often thought of as being dominated by
companies in the US and Asia.
The economic backdrop
With the growth rate of New Zealand's economy having halved from 4.4% to 2.2%
in calendar 2005 from 2004, growth bounced back slightly helped by a weaker
currency and the positive impact this had on the demand for New Zealand's
exports. Consumption reacted with a lag to the RBNZ's progressive tightening in
monetary policy in the previous year, such that consumer spending and
confidence both steadily weakened over the first half of the year. For example,
the Colmar Brunton Survey that measures consumer confidence reached a trough
with a reading of minus 38 in May, before steadily rallying back to minus 10 in
October, its least pessimistic reading for over a year.
Several factors supported an improvement in New Zealand's economy over the
second half of the year. Along with rising exports there was a decent upturn in
net-migration, while construction and housing also showed signs of recovery.
The authorities have been particularly anxious that there should be a
rebalancing in the economy seeking a healthier position in the country's net
trade position, and a slowdown in domestic consumption. In this respect figures
reported towards the end of the period under review were encouraging. From a
peak of $7.4 billion the annualised deficit fell by $1.2 billion in September,
thanks to a rise in the value of exports of almost 20% and a 3% fall in
imports.
The rate of inflation was stubbornly above the Reserve Bank of New Zealand's
(RBNZ) target through the period under review. However, modest growth in the
level of wages together with a sharp pullback in energy prices provided grounds
for the RBNZ to keep the Official Cash Rate on hold at 7.25% from December 2005
despite rises in interest rates in many other developed economies. There has
been some evidence to suggest that the cyclical peak in New Zealand's inflation
rate may have passed with the headline rate of inflation falling to 3.5% over
the three month period ended 30 September, down from 4.0% in the previous
quarter. The RBNZ is far from relaxed despite this fall in headline inflation,
and has commented that monetary policy will need to remain tight for some time
to come, with the possibility of another rise in rates before a peak is reached
in the current cycle.
By its own robust standards the Australian economy had a comparatively
lacklustre year, with fading momentum in several areas. While residential
construction and business investment were understandably subdued after a long
period of strong growth, even mining disappointed due to falling output of some
base metals and gold. Despite low growth the Reserve Bank of Australia
progressively tightened monetary policy through 2006, reacting to upward cost
pressures on inflation from the very high level of resource utilisation in the
economy. The upward trend in Australian interest rates compared with those of
New Zealand was the key factor behind a rally in the value of the Australian
dollar compared with the New Zealand dollar over the year to 31 October 2006.
Outlook
The twelve months ended 31 October 2006 proved to be a year in which the tail
wind in terms of the performance of the New Zealand stock market blew less
strongly than in the previous three years, but the storm clouds of recession or
a bear market remained threats rather than reality. One year on fears about the
outlook for the global economy continue to trouble investors in New Zealand and
Australian equities. Furthermore, there are domestic economic concerns such as
high consumer debt levels, vulnerable housing markets and the large size of the
New Zealand current account deficit. In this environment the portfolio remains
focussed mainly on companies with exceptional franchises, strong management and
robust finances. These companies should perform well if economic conditions
remain benign, but prove more able to enhance shareholder value than their
competitors in a more challenging environment. The continuing success of the
largest investment held in the portfolio, Fletcher Building, is an example of
this strategy. Fletcher Building has continued to achieve healthy profits over
the last year at a time when the building and construction industries have
faced less buoyant trading conditions.
In assessing the outlook it is also important to consider secular issues,
particularly as investment in equities should be made for the long term. In
this respect investors in New Zealand and Australian equities can be
encouraged. For example, positives include the remarkably strong state of
public finances in New Zealand. Figures reported in October showed that for the
year to June 2006 the Government recorded a surplus of NZ$ 11.5 billion,
equivalent to 7.5% of Gross Domestic Product. The robust state of public
finances in New Zealand and Australia compares very favourably with those of
other developed countries and gives their governments an ability to support
economic growth via tax cuts in the event of a serious slowdown in the global
economy. Furthermore, both countries are experiencing a secular improvement in
their terms of trade. For several years Australia has been benefiting from
strong demand and high prices for its industrial commodities, and there are now
signs that a sustainable improvement is now underway in the prices of both
countries' agricultural commodities. An additional positive in the outlook is
that demand for New Zealand and Australian equities should be boosted on an
on-going basis by consistent buying from pension funds now that both countries
have funded state pension schemes that are partly invested in their domestic
financial markets.
Richard Scott
Exeter Asset Management Limited a subsidiary of iimia Investment Group
Acting on advice from Brook Asset Management Ltd
20 December 2006
Copies of the annual report will be sent in 2007 and will be available to the
public at the registered office of the Company, 23 Cathedral Yard, Exeter EX1
1HB.
For further information please contact Richard Scott, Exeter Asset Management,
telephone no: 01392 475905.
END
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