THE NEW ZEALAND INVESTMENT TRUST PLC
PRELIMINARY ANNOUNCEMENT OF UNAUDITED RESULTS
The Directors announce the unaudited statement of results for the six months to
31 October 2007 as follows:
Chairman's Report
It is with regret that I provide this last interim report before the expected
winding up of The New Zealand Investment Trust. Because of the proposed
impending winding up, we have extended our financial year such that it did not
end on 31 October, 2007, but will actually end at the time of the winding up.
For that reason, we will not publish an audited annual report, therefore this
is a second interim report for the six months ended 31 October 2007.
For 19 years the Company has provided its investors with a profitable exposure
to the share market of New Zealand, enhanced for the latter ten years by a
limited exposure to Australian shares. During those 19 years the performance of
the Company has far exceeded that of the broad New Zealand share market
indices, achieving a diluted net asset value increase of 350%, against only 75%
for the New Zealand Stock All Index, and its predecessor, the NZSE 40 Capital
Index. Through January, 2008 we will have paid gross dividends of 91.9 pence,
bringing the total investment return to 440%.
The excellent performance is continuing through the date of this report, as
discussed in detail in the Investment Manager's Report.
Winding Up of the Company
The proposed winding up of the Company is the result of significant tax changes
in New Zealand, which are not in themselves negative, but which make it less
attractive for New Zealand residents to invest in the share markets of their
own country and Australia through a United Kingdom company. Given that half of
our shares are held on the New Zealand register, and that our largest
shareholder is interested in an exit from the Company, we believe our proposals
are in the best interests of shareholders as a whole. Given the performance of
the Company, it is obvious that the winding up is not because of any failing by
the Company, or by its investment manager and investment adviser.
Following the vote of the shareholders that the Company not continue as a
United Kingdom investment trust, as recommended by the Directors, we have been
working to develop a proposal for the reconstruction of the Company. In
cooperation with our Investment Adviser, Brook Asset Management, we endeavoured
to find a way to form a listed New Zealand company into which we could merge
The New Zealand Investment Trust. Such a company would have been constructed to
qualify as a Portfolio Investment Entity ("PIE") under a new tax regime
effective in New Zealand on 1 October 2007. Our Company could then have gone
forward in a tax-effective form similar to that which has served shareholders
so well for 19 years. Unfortunately, we were not successful.
Your Directors have therefore determined that the best result for our
shareholders as a whole is to wind up the Company. In doing so, we are
recommending that shareholders wishing to exit their investment be given cash
from the liquidation of the Company's assets, whilst shareholders who wish to
continue with an investment be offered the following:
* For shareholders in the United Kingdom, a roll-over into the CF iimia
Growth and Income Fund, a fund of funds with a global mandate and a
sub-fund of a United Kingdom Open-Ended Investment Company ("OEIC"), a fund
of funds invested globally and managed by iimia plc (the manager of The New
Zealand Investment Trust).
* For shareholders elsewhere, in New Zealand and in those jurisdictions where
it can be offered under securities regulations, a roll-over into the Brook
Tasman Fund, an open ended unit trust based in New Zealand, and managed by
Brook Asset Management (the adviser to the manager of The New Zealand
Investment Trust).
The proposals will be subject to shareholders' approval and a shareholder
circular, setting out details of the Board's proposals and convening meetings
of shareholders, will be issued in the new year with a view to an effective
date for the proposals no later than 31 March 2008.
Dividends
Your Directors have declared an interim dividend for the period ended 31
October 2007 of 7.5 pence, payable on 18 January 2008 to shareholders on the
register on 21 December 2007. This is the same amount as paid on 6 June 2007
from income from the year ended 31 October 2006.
New Zealand's Fair Dividend Rate Tax Regime
The winding up of the Company will have income tax ramifications which will
depend upon the situation of various shareholders, the elections they make, and
the jurisdiction in which they are taxed, and this will be discussed in some
detail in the shareholder circular which we are now drafting. Thus, at this
time, we wish only to comment to shareholders subject to tax in New Zealand
about the actions we have taken which have resulted in the loss of our
exemption from New Zealand's Fair Dividend Rate Regime.
In contemplation of the imminent winding up of the Company, we have permitted
our manager to sell selective holdings, which sales have resulted in our
holdings of cash increasing to 19% of assets. Our exemption from the Fair
Dividend Rate Tax Regime required that we hold no more than 10% of our assets
in cash, so we have now lost that exemption.
Surprisingly, the loss of the exemption will result in only a minor amount of
additional tax for the great majority of our New Zealand shareholders. With the
exemption, New Zealand shareholders would have been taxed on the dividends
received during the tax year ending 31 March 2008. As noted in the Dividends
section above, those dividends total 15 pence, including the final dividend
paid for our 2006 financial year and the interim dividend declared for the
current year. With the loss of the exemption, those New Zealand shareholders
who are subject to the Fair Dividend Rate Regime will be taxed on presumed
"fair dividend" income of 5% of the NZ$ 10.75 market price of our shares on 1
April 2007, or 5% x NZ$ 10.75 = NZ 54 cents of "fair dividend" income. As this
is not significantly greater than the New Zealand dollar equivalent of the 15p
dividends paid over the 24 months ended 31 October 2007, the effect on most
shareholders of the loss of the exemption will be very small indeed, relative
to the value of the distributions from the proposed windup of the Company.
However, we must note that any New Zealand shareholders who are not subject to
the Fair Dividend Rate Regime (because they have total overseas shareholdings
costing less than NZ$50,000, including the cost of their investment in The New
Zealand Investment Trust), could have a significantly greater tax burden if
they receive cash from the liquidation of the Company. Thus, those shareholders
who are not subject to the Fair Dividend Rate Regime and who wish a cash exit
from their investment in the Company should consult with their tax
professionals, as they are likely to find it advantageous to sell their shares
in the market prior to the liquidation of the Company.
Treasury Share Programme
We have cancelled the 1,075,000 shares we were holding in Treasury from past
share buybacks. To the extent that the market price for our shares continues to
be significantly below our net asset value per share, we expect to make
purchases of additional shares for cancellation. Such purchases may benefit
exiting shareholders, whilst also modestly increasing our net asset value per
share and therefore the realizations of those shareholders who remain with us
until the effective date of our winding up proposals. We have authority from
the resolutions passed at our last annual general meeting to purchase up to
1,458,490 more shares.
Outlook
We will continue to build our cash balances. The remaining assets invested in
the two share markets are in companies' shares that we believe to be
fundamentally sound investments, but it is unlikely that in the limited time
remaining we will see the significant rates of gain we have enjoyed in prior
years.
Donald M. Campbell
Chairman
19 December 2007
Investment Manager's Report
Performance
The New Zealand Investment Trust performed strongly over the six-month period
ended 31 October 2007. Measured in New Zealand dollars the diluted net asset
value rose by 6.7%, a result that compares very favourably with the change in
the Company's Benchmark, the NZX All Index, which actually fell by 2.7%.
Results were even more positive measured in Sterling, with the net asset value
rising by 6.3%. These gains build on the strong results achieved in the first
Interim Period (six months ended 30 April 2007), such that for the year to 31
October 2007 the Company's net asset value rose by 18.4% in New Zealand dollars
and 25.5% in Sterling. The Company's Benchmark, the NZX All Index rose by 6.2%
in New Zealand dollars and by 12.0% in Sterling over the same twelve month
period.
The last report to shareholders covering the six-month period to 30 April 2007
detailed how a number of the large investments in New Zealand companies, such
as Auckland International Airport and Fletcher Building, were key contributors
to the positive performance. However, the most important source of returns was
from the Company's investments in the Australian stock market. In the most
recent period this trend in the relative performance not just continued, but
was even more marked. One of the main reasons for this was the sharp upward
movement in the value of the Australian dollar versus the New Zealand dollar
and Sterling. For example, over the six-month period to 31 October 2007 the
Australian dollar rose by 7.7% versus the New Zealand dollar. The share prices
of two of the largest Australian holdings in the portfolio, Australian Stock
Exchange and United Group did particularly well, with their respective share
prices rising by 19% and 36% (over the six month period ended 30 April 2007 in
A$).
Portfolio activity
The Company's Investment Manager and Adviser have been acutely aware of the
looming reconstruction of the Trust in managing the portfolio over the period
under review. However, this has not been taken as an excuse to sit on our hands
and do nothing. What it has meant is that any changes made to the portfolio
have been made with a shorter time perspective than usual, and in the
expectation that the transactional costs would be more than offset by the
benefits seen over the remaining period leading up to the reconstruction. It is
pleasing in this regard that portfolio activity has enhanced value over the
past year. For example, in the previous report to shareholders we described how
one of the most significant changes made to the portfolio had been the disposal
of the long-standing holding in the Australian listed specialist buildings
materials company James Hardie. This decision proved particularly timely given
that James Hardie would have proved the worst Australian investment in New
Zealand Investment Trust's portfolio had it been held over the six-month period
ended 31 October 2007. James Hardie's share price fell by 27% over this period
against the background of a severe deterioration in demand for its products
from the US housing market.
Merger and acquisition activity was a notable feature of the period under
review with cash bids accepted for long-standing holdings in Toll Holdings and
CanWest MediaWorks. Some of the proceeds from these realisations were used to
add to holdings in high quality New Zealand companies' shares with good
liquidity such as Sky City Entertainment and Contact Energy. The holding in
Telecom NZ which has been steadily reduced from a position of being one of the
largest holdings several years ago was completely sold from the portfolio.
Telecom NZ remains New Zealand's largest quoted company, but unfortunately one
that has proved a poor advertisement for investment in the country, and there
is little sign that Telecom's poor operating performance will turn around for
sometime to come.
Economic background
The trends referred to in the last report to shareholders continued in the
latest period under review. Once again the picture was one of pessimism about
the outlook for the US, with worries that the sharp deterioration in the
housing market would have a damaging impact on the wider US economy. The value
of the US dollar dropped sharply against most major currencies reflecting these
worries. However, despite worries about the US and other leading developed
economies including the UK, the major "emerging" economies such as China and
India continued to grow at an exceptional rate thereby not just sustaining
commodity prices at high levels but fuelling further advances. The oil price
ended the period at close to US $100 per barrel, and several soft commodity
prices were exceptionally strong.
The New Zealand and Australian economies have shared some of the woes of
leading developed economies such as high consumer debt, while benefitting from
their high level of exposure to the commodities which have been in such high
demand from emerging markets. While drought has had a negative impact on the
Australian agricultural sector, its resource sector has continued to boom.
Meanwhile New Zealand's agricultural sector, notably the dairy industry, has
prospered, with producers enjoying exceptional levels of demand and high
prices.
The Reserve Bank of New Zealand (RBNZ) raised interest rates four times between
March and July, taking rates to 8.25% against a backdrop of building
inflationary pressures and a resilient housing sector. This high level of rates
has had the effect of boosting inflows of foreign capital into New Zealand, and
maintaining the value of the New Zealand dollar at a high level. Nevertheless,
the onset of a serious credit crisis in global financial markets in July and
August led to exceptional volatility in New Zealand's currency with an initial
sharp fall in its value quickly followed by an explosive rally. The continuing
difficulties in credit markets have led commentators to speculate whether the
slowing US economy will slip into recession. Other developed economies are also
slowing and it would be dangerously optimistic to conclude that emerging
economies could continue to power ahead if the world's largest economies
experience a serious slowdown. The strength of New Zealand's dairy industry and
public finances together with the growth of its tourist industry are all
strengths for the country in an increasingly difficult period for the world
economy. The less supportive global backdrop together with the impact of the
RBNZ's tight monetary policy makes it hard to be optimistic about the operating
environment for New Zealand's companies. Nevertheless, company balance sheets
are strong, and the busy schedule of merger and acquisition in the country
suggests that corporate buyers, who are closest to what is happening in the
real economy, can find reasonable value in the market. The New Zealand
Investment Trust's portfolio is a highly selective list of good quality New
Zealand and Australian companies, and while it is impossible for them to
prosper through all economic conditions they have been chosen for their
attractive franchises and ability to build value for their shareholders.
Conclusion
The management of The New Zealand Investment Trust's portfolio has relied on
the close teamwork of Andrew South and Richard Scott under guidance and
oversight from an active Chairman and Board of Directors for over seven years.
The reconstruction of the Trust regrettably involves bringing an end to this
teamwork. However, if the Board of Directors' recommended reconstruction is
approved, the Brook Tasman Fund will offer many of the Company's shareholders
the chance to maintain a high degree of continuity in both the assets they are
invested in and Andrew's involvement in the management of those assets
(regrettably not including shareholders in the UK, as UK regulations do not
permit its offering here). Richard Scott is the manager the iimia Growth &
Income Fund (a global fund of funds with an emphasis on investment trusts), the
fund the Company's Directors have decided to offer as a roll-over vehicle for
the Company's UK shareholders.
The Company's Investment Manager and Adviser will work together to balance the
need to conduct an orderly programme to raise liquidity with the maintenance of
significant and diversified exposure to New Zealand and Australian equities for
shareholders seeking to continue their investment in the area by rolling into
the Brook Tasman Fund.
Richard Scott
Exeter Asset Management
(A subsidiary of iimia MitonOptimal plc)
Acting on advice from
Brook Asset Management Ltd
19 December 2007
INCOME STATEMENT
for the six month period ended 31 October 2007
1 May 2007 to Year to 1 May 2006 to
31 October 2007 31 October 2006 31 October 2006
Revenue Capital Total Revenue Capital Total Revenue Capital Total
�'000 �'000 �'000 �'000 �'000 �'000 �'000 �'000 �'000
Gains on - 2,573 2,573 - 2,695 2,695 - 662 662
investments at
fair value
Realised exchange - 14 14 - 20 20 - 6 6
gains on capital
items
Unrealised - 185 185 - (142) (142) - (49) (49)
exchange gains/
(losses) on
capital items
Unfranked 889 - 889 1,409 - 1,409 770 - 770
investment income
Bank interest 84 - 84 130 - 130 58 - 58
Investment (94) - (94) (156) - (156) (79) - (79)
Manager's fee
Investment (100) - (100) (175) - (175) (87) - (87)
Adviser's fee
Cost of share - - - (1) - (1) - - -
options
Other expenses (109) - (109) (241) - (241) (107) - (107)
Return on 670 2,772 3,442 966 2,573 3,539 555 619 1,174
ordinary
activities before
taxation
Taxation on (200) - (200) (249) - (249) (160) - (160)
ordinary
activities
Return on 470 2,772 3,242 717 2,573 3,290 395 619 1,014
ordinary
activities after
taxation for the
period
Basic return per 4.80p 29.91p 34.71p 6.75p 24.23p 30.98p 3.72p 5.85p 9.57p
Ordinary share
Diluted return 4.79p 29.79p 34.58p 6.73p 24.17p 30.90p 3.71p 5.84p 9.55p
per Ordinary
share
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.
A separate statement of total recognised gains and losses has not been prepared
as all gains and losses are included in the income statement.
These accounts have been prepared using the accounting standards and policies
adopted at the year end.
All revenue and capital items in the above statement derive from continuing
operations.
These accounts are unaudited and are not the Company's statutory accounts.
BALANCE SHEET
As at As at As at
31 October 2007 30 April 2007 31 October 2006
�'000 �'000 �'000
(Unaudited) (Unaudited) (Audited)
Fixed assets
Investments at fair 43,470 43,216 38,538
value through
profit or loss
Current assets
Debtors 29 1,319 32
Cash at bank 3,535 2,705 2,140
3,564 4,024 2,172
Creditors: amounts 300 (2,759) (273)
falling due within
one year
Net current assets 3,264 1,265 1,899
Total assets less 46,734 44,481 40,437
current liabilities
Provision for - (4) -
deferred taxation
Total net assets 46,734 44,477 40,437
Share capital and
reserves
Share capital 2,688 2,688 2,688
Share premium 9,192 9,192 9,192
Capital redemption 89 89 89
reserve
Capital reserve 37,488 34,716 27,917
Own shares held (4,031) (3,818) (726)
Share options 1 1 1
reserve
Revenue reserve 1,307 1,609 1,276
Total shareholders' 46,734 44,477 40,437
funds
Retained revenue (31) (333) -
for the current
period
Total net assets 46,703 44,144 40,437
for the purpose of
calculating the net
asset value per
Ordinary share
Basic net asset 482.70p 453.95p 384.20p
value per Ordinary
share
Fully diluted net 480.72p 452.20p 383.10p
asset value per
Ordinary share
Basic net asset 483.03p 457.38p 384.20p
value per Ordinary
share including
current period
revenue
Fully diluted net 481.05p 455.60p 383.10p
asset value per
Ordinary share
including current
period revenue
The basic net asset value per Ordinary share is based on net assets of �
46,,703,000 (30 April 2007: �44,144,000 and 31 October 2006: �40,437,000) and
on 9,675,220 Ordinary shares (30 April 2007: 9,724,350 and 31 October 2006:
10,525,060) being the number of Ordinary shares in issue at the period end
(excluding 1,075,000 Ordinary shares held in Treasury at 31 October 2007,
1,025,870 at 30 April 2007 and 225,160 as at 31 October 2006 respectively).
The fully diluted net asset value per Ordinary share has been calculated on the
assumption that the options granted are exercised at 161.47p, 173.53p, 189.30p,
239.23p, 319.38p and 370.48p respectively. The figure is therefore based on
adjusted net assets of �46,881,000 and on 9,752,220 Ordinary shares being the
adjusted number of Ordinary shares that would result from the exercise of the
options.
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
Six months to
31 October 2007
1 May 2007 2,688 9,192 89 34,716 (3,818) 1 1,609 44,477
Net return for - - - 2,772 - - 470 3,242
the period
Dividends paid - - - - - - (772) (772)
Costs of shares - - - - (213) - - (213)
purchased for
Treasury
31 October 2007 2,688 9,192 89 37,488 (4,031) 1 1,307 46,734
Year ended 31
October 2006
1 November 2005 2,686 9,184 89 25,344 (322) - 1,250 38,231
Net return for - - - 2,573 - - 717 3,290
the year
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
Six months to
31 October 2006
1 May 2006 2,686 9,184 89 27,298 (370) 1 1,572 40,460
Net return for - - - 619 - - 395 1,014
the period
Dividends paid - - - - - - (691) (691)
Options 2 8 - - - - - 10
conversion to
Ordinary shares
Costs of shares - - - - (356) - - (356)
purchased for
Treasury
31 October 2006 2,688 9,192 89 27,917 (726) 1 1,276 40,437
STATEMENT OF CASHFLOWS
for the year ended 31 October 2007
1 May 2007 to Year to 1 May 2006 to
31 October 2007 31 October 2006 31 October 2006
�'000 �'000 �'000
Operating activities
Investment income received 815 1,293 725
Interest received 79 127 47
Investment Manager's fee paid (134) (153) (78)
Investment Advisers' fees (100) (175) (87)
paid
Secretarial fees paid (27) (54) (26)
Directors' fees paid (20) (40) (28)
Other cash payments (112) (136) (85)
Net cash inflow from 501 862 468
operating activities
Tax paid (124) (166) (166)
Tax recovered - 26 -
Total taxation paid (124) (140) (166)
Capital expenditure and
financial investment
Purchases of investments (4,620) (1,400) (223)
Sales of investments 8,229 1,115 1,115
Exchange (losses)/gains on 13 20 6
settlements
Net cash inflow/(outflow) 3,622 (265) 898
from capital expenditure and
financial investment
Equity dividends paid (772) (691) (691)
Net cash inflow/(outflow) 3,227 (234) 509
before financing
Financing
Proceeds of option conversion - 10 10
Cost of shares purchased for (2,583) (404) (356)
Treasury
Net cash outflow from (2,583) (394) (346)
financing
Increase/(decrease) in cash 644 (628) (163)
Notes:
1 Accounting Policies
The above financial information for the six months to 31 October 2007 and 31
October 2006 is unaudited and does not constitute statutory accounts as defined
in Section 240 of the Companies Act 1984. The statutory accounts for the year
to 31 October 2006, which contained an unqualified auditor's report, have been
lodged with the Registrar of Companies and did not contain a statement under
Section 237(2) or (3) of the Companies Act 1985.
2 Taxation
1 May 2007 to 31 Year to 31 October 1 May 2006 to 31
October 2007 2006 October 2006
�'000 �'000 �'000
Current taxation:
On revenue for 200 254 160
period
Double taxation (87) (154) (85)
relief
113 100 75
Overseas taxation 87 154 85
Total current 200 254 160
taxation
Deferred taxation - (5) -
200 249 160
The current taxation charge is lower than the standard rate of corporation tax
in the UK (30%). The differences are explained below:
1 May 2007 to 31 Year to 31 October 1 May 2006 to 31
October 2007 2006 October 2006
�'000 �'000 �'000
Return on ordinary 670 966 555
activities before
taxation
Theoretical tax at 201 290 166
UK corporation tax
rate of 30%
Effect of:
Accrued income - 5 -
taxable on receipt
Adjustment re: - (26) -
previous year
Marginal relief (1) (15) (6)
rate reduction
Actual current tax 200 254 160
charge
Due to the Company's status as an Investment Trust, and the intention to
continue meeting the conditions required to obtain approval in the foreseeable
future, the Company has not provided deferred tax on any capital gains and
losses arising on the revaluation or disposal of investments.
3 Reconciliation of net revenue before finance costs and taxation to net cash
inflow from operating activities
1 May 2007 to 31 Year to 31 October 1 May 2006 to 31
October 2007 2006 October 2006
�'000 �'000 �'000
Net revenue before 670 966 555
finance costs and
taxation
Add back: Cost of - 1 -
share options
(Decrease)/increase (83) 19 (28)
in creditors
Decrease in accrued 1 30 26
income and other
debtors
New Zealand (87) (154) (85)
withholding tax
payable by
deduction
501 862 468
4 Related party transactions
Exeter Asset Management Limited, the Investment Manager, is regarded as a
related party of the Company. The sums paid to the Manager in the period 1 May
2007 to 31 October 2007 were �94,000 (period 1 May to 31 October 2006: �79,000.
Year to 31 October 2006: �156,000).
For further information please contact Richard Scott, Exeter Asset Management,
telephone no: 01392 475905.
END
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