RECOVERY TRUST PLC
PRELIMINARY ANNOUNCEMENT OF UNAUDITED RESULTS
Chairman's Statement
The year under review has been a positive one for shareholders. The Company's
benchmark, the FTSE All-Share Index rose by 14% in capital terms. It is
pleasing to report that total shareholder funds increased by 20%, significantly
outperforming the benchmark.
The net asset value of the Zero Dividend Preference (ZDP) shares continued to
rise in line with the accrued entitlement and ended the year fully covered at
153.35p per share. As a result of the continued increase in the total value of
the Company's assets, net assets attributable to holders of Ordinary Income
shares almost doubled at 16.38p (2005: 9.37p) per Ordinary Income share. With
the ZDP shares trading at or close to NAV, there has been no opportunity during
the year to make buy-backs for cancellation.
The total dividend payable recommended by the Board to holders of the Ordinary
Income shares was 2.0p per share for the year ended 31 July 2006. Shareholders
should be aware that allowing for the dividend paid in September 2006 revenue
reserves have been fully utilised and therefore dividends in respect of the
year to 31 July 2007 will depend on net revenue achieved during the year.
A strong rise in UK share prices during the first nine months of the financial
year was followed by profit taking in the final quarter (during May 2006 in
particular), prompted by signs of an economic slow down in the United States
and concerns over rising inflation in the United Kingdom. Although investors
were clearly unsettled by the first meaningful market sell-off in three years,
this has been a healthy and long overdue correction. Stock markets rarely rise
in a straight line.
Continued outperformance has been achieved through careful stock selection and
the prudent use of gearing. Total borrowings have remained unchanged at �3
million. All available funds were fully invested for most of the year under
review. The level of net borrowing was reduced in the fourth quarter during the
period of increased volatility in UK equity markets.
The ongoing recovery in the performance of the Company is encouraging. Market
sentiment remains broadly positive, supported by strong corporate activity and
high levels of cash available for investment. The recent rise in interest rates
is likely to focus attention on well-managed, high quality companies which
forms the core of the portfolio.
As shareholders may be aware accounts have been prepared under revised UK
Accounting Standards. This results in changes, in particular, in the treatment
of the Company's ZDP shares which are now classified as liabilities in the
balance sheet rather than as equity. Additionally, the proposed second interim
dividend is not deducted from shareholders funds as it was not paid before the
balance sheet date and investments are valued at bid rather than mid-market
prices.
Over the coming months, the Board will be reviewing all the options available
to the Company ahead of the repayment of the ZDP shares on 15 August 2007. I
look forward to updating shareholders later in the financial year.
Trevor Trefgarne
Chairman
11 October 2006
T
he Directors present the unaudited results for the year from 1 August 2005 to
31 July 2006.
INCOME STATEMENT (UNAUDITED)
1 August 2005 to 1 August 2004 to
31 July 2006 31 July 2005
(restated)*
Revenue Capital Total Revenue Capital Total
�'000 �'000 �'000 �'000 �'000 �'000
Gains on investments at fair - 3,677 3,677 - 3,816 3,816
value
Income 777 - 777 1,050 - 1,050
Investment management fee (64) (64) (128) (52) (52) (104)
Other expenses (193) - (193) (202) - (202)
Net return on ordinary 520 3,613 4,133 796 3,764 4,560
activities before finance
costs and taxation
Interest payable and similar (91) (91) (182) (94) (95) (189)
charges
Finance costs in respect of
non-equity shares:
- Zero Dividend Preference - (1,311) (1,311) - (1,196) (1,196)
shares (note 6)
Net return on ordinary 429 2,211 2,640 702 2,473 3,175
activities before taxation
Taxation on ordinary - - - - - -
activities
Return attributable to equity 429 2,211 2,640 702 2,473 3,175
shareholders
Return per share pence pence pence pence pence pence
Ordinary Income share 1.43 7.37 8.80 2.34 8.24 10.58
Zero Dividend Preference - 13.29 13.29 - 12.13 12.13
share
The total column of this statement is the Profit and Loss account of the
Company.
All revenue and capital items in the above statement derive from continuing
operations.
A separate Statement of Total Recognised Gains and Losses has not been prepared
as all such gains and losses are included in the Income Statement.
* For details of the restatement of the Company's comparative figures please
refer to note 1.
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS (UNAUDITED)
Capital ZDP
Share Special Capital Revenue
redemption redemption
capital reserve reserve reserve reserve reserve Total
�'000 �'000 �'000 �'000 �'000 �'000 �'000
Year ended 31 July
2006
1 August 2005 (as 399 51 38,710 4,172 (27,073) 203 16,462
previously stated)
Restatements* (99) (51) (9,408) (4,172) (107) 330 (13,507)
1 August 2005 300 - 29,302 - (27,180) 533 2,955
(restated)
Net return after - - - - 2,211 429 2,640
taxation for the year
Dividends in respect
of:
Ordinary Income - - - - - (600) (600)
shares
31 July 2006 300 - 29,302 - (24,969) 362 4,995
Year ended 31 July
2005
1 August 2004 (as 399 51 38,710 2,976 (29,425) 101 12,812
previously stated)
Restatements* (99) (51) (9,408) (2,976) (228) 450 (12,312)
1 August 2004 300 - 29,302 - (29,653) 551 500
(restated)
Net return after - - - - 2,473 702 3,175
taxation for the year
Dividends in respect
of:
Ordinary Income - - - - - (720) (720)
shares
31 July 2005 300 - 29,302 - (27,180) 533 2,955
(restated)
* For details of the restatement of the Company's comparative figures please
refer to note 1.
SUMMARISED BALANCE SHEET (UNAUDITED)
As at As at
31 July 2006 31 July 2005
(restated)*
�'000 �'000
Investments at fair value 21,687 18,635
Net current liabilities (1,651) (1,950)
Total assets less current liabilities 20,036 16,685
Creditors -amounts falling due after more than
one year
Assets attributable to Zero Dividend Preference 15,041 13,730
shareholders on winding up
Net assets 4,995 2,955
Net asset value per (note 2): pence pence
Ordinary Income share 16.38 9.37
*For details of the restatement of the Company's comparative figures please
refer to note 1.
SUMMARISED STATEMENT OF CASH FLOWS (UNAUDITED)
1 August 2005 1 August 2004
to to
31 July 2006 31 July 2005
�'000 �'000
Net cash inflow from operating activities 422 743
Net cash outflow from servicing of finance (184) (186)
Taxation - -
Capital expenditure and financial investment
Purchases of investments (9,340) (7,809)
Sales of investments 8,986 9,796
Net cash (outflow)/ inflow from capital (354) 1,987
expenditure and financial investment
Equity dividends paid (600) (720)
Net cash (outflow)/inflow before and after (716) 1,824
financing
(Decrease)/ increase in cash (716) 1,824
The unaudited financial information does not constitute statutory accounts as
defined in Section 240 of the Companies Act 1985. The statutory accounts for
the year to 31 July 2005 which contained an unqualified auditors' report, have
been lodged with the Registrar of Companies and did not contain a statement
required under Section 237 (2) or (3) of the Companies Act 1985.
This information has been prepared on the basis of accounting policies set out
in the statutory accounts of the Company for the year to 31 July 2005, with the
exception of the changes stated below.
The Company has adopted the Statement of Recommended Practice: Financial
Statements of Investment Trust Companies January 2003 as revised in December
2005.
NOTES
1. Changes in accounting policies
This financial information has been prepared using new accounting standards
("revised UK GAAP") which have been issued to converge UK accounting standards
with International Financial Reporting Standards ("IFRS"). The effect on the
net asset value of these changes is disclosed in note 2.
The first change, Financial Reporting Standard ("FRS") 21 "Events after the
balance sheet date" is to recognise any dividends payable as a liability in the
period in which they are paid or approved in general meetings rather than when
proposed.
The second change, FRS 26 "Financial Instruments: Measurement", is to value the
portfolio of investments at bid prices rather than at mid-market prices. 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 at the close of business on the balance sheet date, without adjustment
for transaction costs necessary to realise the asset.
Under FRS 25 "Financial Instruments: Disclosure and Presentation" the Zero
Dividend Preference shares are classified as financial liabilities and are no
longer shown as equity under capital and reserves in the balance sheet.
Consequently, a long term liability for assets attributable to Zero Dividend
Preference shareholders on winding up has been recognised. This change is
presentational and has no impact on the Company's net assets per share or
returns per share as calculated in accordance with the Articles of Association.
Comparatives for previous periods have been restated where necessary to reflect
the change in accounting policies (see note 2).
2. Net asset value per share
The net asset values have been calculated in accordance with the revised
accounting policies set out in
note 1.
31 July 2006 31 July 2005
�'000 pence �'000 pence
Ordinary Income shareholders 4,915 16.38 2,812 9.37
Zero Dividend Preference 15,121 153.35 13,873 140.70
shareholders
Reconciliation of NAV as announced to NAV as per revised UK GAAP (under the
Company's Articles of Association):
31 July 2006 31 July 2005
�'000 pence �'000 pence
Net assets attributable to 4,585 15.28 2,589 8.63
Ordinary Income shareholders (as
announced)*
Increase due to dividend 330 1.10 330 1.10
accounting change
Decrease due to using fair value - - (107) (0.36)
of investments
Net assets attributable to 4,915 16.38 2,812 9.37
Ordinary Income shareholders per
revised UK GAAP
* The net asset value announced, for the Ordinary Income shareholders was
15.17p and in addition there was income attributable of 0.11p (31 July 2005
0.68p). This has been calculated in accordance with the entitlements as at 31
July 2006 and the Company's Articles of Association.
The net assets attributable to shareholders, as shown in the balance sheet,
have been calculated under the provisions of FRS 25, and do not reflect the
rights under the Articles of Association of the respective classes of share on
a return of assets. The assets attributable to shareholders include current
period revenue and are represented by:
31 July 2006 31 July 2005
(restated)
�'000 �'000
Share capital 399 399
Capital redemption reserve 51 51
Special reserve 38,710 38,710
ZDP redemption reserve 5,483 4,172
Capital reserve - realised (29,134) (25,158)
- unrealised 4,165 (2,022)
Revenue reserve 362 533
Assets attributable to shareholders on winding 20,036 16,685
up
3. The Directors have declared a second interim dividend of 1.1p per Ordinary
Income share which was paid on 29 September 2006 to the holders of Ordinary
Income shares on the register at 8 September 2006.
4. The revenue return per Ordinary Income share is based on earnings of �
429,000 (2005: �702,000) and on 30,000,000 Ordinary Income shares in issue
throughout the year.
5. The capital return per Ordinary Income share is based on net capital gains
of �2,211,000 (2005: �2,473,000) and on 30,000,000 Ordinary Income shares in
issue throughout the year.
6. There are 9,860,000 Zero Dividend Preference shares in issue. The Zero
Dividend Preference shareholders are entitled to receive 167.74p per share on
15 August 2007. In accordance with FRS 25, the accrued compound growth
entitlement of �1,311,000 (2005: �1,196,000) which takes into account the
allocation of share issue expenses to the Zero Dividend Preference
shareholders, has been charged against the capital return in the income
statement. The appropriation is used to calculate the capital return per Zero
Dividend Preference share.
7. An amount of �155,000 (2005: �147,000) has been charged to capital in
respect of management fees and interest in accordance with the Company's
accounting policy.
8. The Company operates as an investment trust and has been approved by HM
Revenue & Customs as an investment trust authorised under Section 842 of the
Income and Corporation Taxes Act 1988 for the year ended 31 July 2005. In the
opinion of the Directors the Company has subsequently conducted its affairs so
as to enable it to continue such approval. The Company will continue to seek
approval under Section 842 of the Income & Corporation Taxes Act 1988 each
year.
END
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