Interim Results

Acorn Income Fund Ld 28 September 2006 ACORN INCOME FUND LIMITED UNAUDITED INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2006 CHAIRMAN'S STATEMENT I am pleased to present to Shareholders the Company's unaudited interim results for the half-year ending 30 June 2006. The financial position of the Company has continued to strengthen during the first half of 2006, with the net asset value ('NAV') per Ordinary Share, based on investments valued at bid market prices, rising by 13.41p to 187.15p on 30 June 2006, after distributing dividends totalling 4.0p per share in the period. The Company generated a total return for the period of 10.02%, outperforming the Extended Hoare Govett Smaller Companies Index (excluding investment companies), which achieved a total return over the same period of 6.76%. The market price of the Company's Ordinary Shares rose from 158.75p at 31 December 2005 to 181.50p at 30 June 2006. The Company's NAV per Ordinary Share has outperformed its benchmark index since launch in 1999, achieving a total return of 172.55% compared to a total return of 127.21% for the Extended Hoare Govett Smaller Companies Index (excluding investment companies). Since the period end the NAV (with investments valued at bid prices) has continued to increase, reaching 189.42p at 31 August 2006. A cessation vote was held on 26 June 2006 at the Company's Annual General Meeting. Although the Special Resolution that 'the Company ceases to continue as an investment company' was not passed, a majority of voting Shareholders voted in favour of the Special Resolution. In accordance with its undertakings announced earlier in the year the Board and its advisers have considered various proposals in respect of the reconstruction of the Company. Further details will be released in the near future. Martin Bralsford Chairman 28 September 2006 INCOME STATEMENT For the six months ended 30 June 2006 (unaudited) Six months Year ended ended 30 June 31 December 2005 2005 Six months ended 30 June 2006 (unaudited) (unaudited) (audited) Note Revenue Capital Total Total Total £'000 £'000 £'000 £'000 £'000 Gains and losses on investments Realised gain on investments 8 - 1,247 1,247 2,842 3,947 Movement in unrealised gain on investments 8 - 3,561 3,561 579 8,230 -------- -------- -------- -------- -------- Net Investment gain - 4,808 4,808 3,421 12,177 Income 3 1,661 - 1 ,661 1,779 3,391 Management fee 4 (103) (308) (411) (342) (705) Other expenses 5 (98) (73) (171) (123) (269) -------- -------- -------- -------- -------- Net return on ordinary activities before 1,460 4,427 5,887 4,735 14,594 finance costs Interest payable and similar charges (183) (548) (731) (748) 1,493 -------- -------- -------- -------- -------- Net return for the period 1,277 3,879 5,156 3,987 13,101 -------- -------- -------- -------- -------- Return per Ordinary Share 7 4.32p 13.10p 17.42p 12.46p 24.14p Dividend per Ordinary Share (distributed) 6 4.00p - 4.00p 4.00p 9.00p The total columns of this statement represent the Income Statement of the Company. The accompanying notes form an integral part of these unaudited interim results. These results are unaudited and are not the Company's statutory accounts. RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS For the six months ended 30 June 2006 (unaudited) Note Share Share Revenue Special Capital Capital premium reserve reserve reserve Total £'000 £'000 £'000 £'000 £'000 £'000 Balance as at 1 January 2006 7,400 17,079 902 10,000 16,046 51,427 Return for the period - - 1,277 - 3,879 5,156 Dividends Paid 6 - - (1,184) - - (1,184) ---------- ---------- ---------- ---------- ---------- ---------- Balance as 30 July 2006 7,400 17,079 995 10,000 19,925 55,399 ---------- ---------- ---------- ---------- ---------- ---------- For the six months ended 30 June 2005 (unaudited) Note Share Share Revenue Special Capital Capital Premium reserve reserve reserve Total £'000 £'000 £'000 £'000 £'000 £'000 Balance as at 1 January 2005 7,400 17,079 882 10,000 5,629 40,990 Return for the period - - 1,426 - 2,561 3,987 Dividends Paid 6 - - (1,184) - - (1,184) ---------- ---------- ---------- ---------- ---------- ---------- Balance as 30 June 2005 7,400 17,079 1,124 10,000 8,190 43,793 ---------- ---------- ---------- ---------- ---------- ---------- For the year ended 31 December 2005 (audited) Note Share Share Revenue Special Capital Capital premium reserve reserve reserve Total £'000 £'000 £'000 £'000 £'000 £'000 Balance as at 1 January 2005 7,400 17,079 882 10,000 5,629 40,990 Return for the year - - 2,684 - 10,417 13,101 Dividends Paid 6 - - (2,664) - - (2,664) ---------- ---------- ---------- ---------- ---------- ---------- Balance as 31 December 2005 7,400 17,079 902 10,000 16,046 51,427 ---------- ---------- ---------- ---------- ---------- ---------- The accompanying notes form an integral part of these unaudited interim results. These results are unaudited and are not the Company's statutory accounts. BALANCE SHEET as at 30 June 2006(unaudited) 31 December 30 June 2006 30 June 2005 2005 Note (unaudited) (unaudited) (audited) £'000 £'000 £'000 Fixed assets Listed investments 8 75,156 62,795 72,075 Current assets Debtors 440 385 651 Cash at bank 5,895 6,640 5,238 -------- -------- -------- 6,335 7,025 5,889 Creditors - amounts falling due within one year Creditors (476) (411) (921) Bank loan 9 (25,616) (25,616) (25,616) -------- -------- -------- (26,092) (26,027) (26,537) -------- -------- -------- Net current liabilities (19,757) (19,002) (20,648) -------- -------- -------- Net assets 55,399 43,793 51,427 -------- -------- -------- Share capital and reserves Called-up share capital 10 7,400 7,400 7,400 Share premium 17,079 17,079 17,079 Special reserve 10,000 10,000 10,000 Revenue reserve 995 1,124 902 Capital reserve 19,925 8,190 16,046 -------- -------- -------- Total shareholders' funds attributable to equity interests 55,399 43,793 51,427 -------- -------- -------- Net asset value per Ordinary Share 11 187.15p 147.95p 173.74p The accompanying notes form an integral part of these unaudited interim results. These results are unaudited and are not the Company's statutory accounts. CASH FLOW STATEMENT For the six months ended 30 June 2006(unaudited) Six months Six months Year ended ended 30 ended 30 31 December June 2006 June 2005 2005 Note (unaudited) (unaudited) (audited) £'000 £'000 £'000 Net cash inflow from operating activities 12 1,261 1,608 2,533 Servicing of finance Interest paid (671) (908) (1,607) -------- -------- -------- Net cash outflow from servicing of finance (671) (908) (1,607) Investing activities Purchase of investments at fair value through profit and loss (14,646) (8,129) (16,377) Sale of investments at fair value through profit and loss 15,897 11,011 19,111 -------- -------- -------- Net cash inflow from investing activities 1,251 2,882 2,734 Equity dividends paid 6 (1,184) (1,184) (2,664) -------- -------- -------- Cash inflow before financing 657 2,398 996 Net cash flow from financing - - - -------- -------- -------- Increase in cash in the period 657 2,398 996 -------- -------- -------- Opening cash balance 5,238 4,242 4,242 Increase in cash in the year 657 2,398 996 -------- -------- -------- Closing cash balance 5,895 6,640 5,238 -------- -------- -------- The accompanying notes form an integral part of these unaudited interim results. These results are unaudited and are not the Company's statutory accounts. NOTES TO THE UNAUDITED INTERIM RESULTS for the six months ended 30 June 2006 1. Accounting policies The accounting policies, all of which have been applied consistently throughout the period, in the preparation of the Company's unaudited interim results, are set out below: a) Accounting convention The unaudited interim results have been prepared under the historical cost convention, as modified by the revaluation of investments, and in accordance with applicable United Kingdom accounting standards and with the revised Statement of Recommended Practice ('SORP'), for Financial Statements of Investment Trust Companies (' ITC'), issued in December 2005. b) Income Dividends receivable on equity shares are taken into account on the ex-dividend date. Income on debt and fixed interest securities is recognised on an accruals basis. Dividends received from United Kingdom registered companies are accounted for net of implied tax credits. Bank interest is accounted for on an accruals basis. c) Expenses All expenses are accounted for on an accruals basis. Expenses are charged through the revenue account except as follows: (i) 75% of the Company's management fee and financing costs are charged to the capital reserve in line with the Board's expected long-term split of returns between income and capital gains from the investment portfolio; and (ii) 100% of any performance fee is charged to the capital account. d) Capital reserve The following are accounted for in the capital reserve: (i) realised gains and losses on the realisation of investments; (ii) unrealised gains and losses on investments; (iii) transaction costs (see 1(e)); and (iv) expenses charged to the capital reserve in accordance with the above accounting policies. e) Transaction costs In accordance with FRS 26 Financial Instruments: Measurement ('FRS 26'), transaction costs are charged through the Income Statement to the capital reserve in the period in which they are incurred. f) Investments Classification In accordance with FRS 26, all investments are classified as 'fair value through profit and loss'. Recognition The Company recognises financial assets held as fair value through profit and loss assets on the date it commits to purchase the instruments. From this date, any gains and losses arising from the changes in fair value of the assets are recognised. Measurement Fair value through profit and loss assets are initially recognised at cost, being the fair value of the consideration given, excluding transaction costs associated with the investment (see note 1(e)). Subsequent to initial recognition, all fair value through profit and loss assets are measured at fair value with changes in value being recognised in the Income Statement and taken to the capital reserve. For investments actively traded in organised financial markets, fair value is determined by reference to Stock Exchange quoted market bid prices as at the close of business on the Balance Sheet date. Derecognition A fair value through profit and loss asset is derecognised when the Company loses control over the contractual rights that comprise that asset. This occurs when rights are realised, expire or are surrendered. Realised gains and losses on fair value through profit and loss assets sold are calculated as the difference between the sales proceeds (excluding transaction costs (see note 1(e))) and costs. Fair value through profit and loss assets that are sold are derecognised and corresponding receivables from the buyer for the payment are recognised as of the date the Company commits to sell the assets. The Company uses the weighted average method to determine realised gains and losses on derecognition. 2. Taxation The Company has been granted exemption from Guernsey taxation under the Income Tax (Exempt Bodies) (Guernsey) Ordinance 1989 and is charged an annual exemption fee of £600 (2005: £600). 3. Income Six months Six months Year ended 31 ended 30 ended 30 December 2005 June 2006 June 2005 (unaudited) (unaudited) (audited) £'000 £'000 £'000 Dividend income 1,188 1,342 2,512 Bond interest 325 311 634 Bank interest 148 126 245 -------- -------- -------- 1,661 1,779 3,391 -------- -------- -------- 4. Management fee The Manager of the Company is entitled under the Management Agreement with the Company to receive a management fee from the Company at the annual rate of 1.0% of the total assets of the Company, valuing investments using mid market prices, payable quarterly in arrears. Where any investments comprised in the assets of the Company are in funds managed by or advised by the Manager or Investment Adviser or an affiliate of either of them, the mid market value of such investments is deducted from total assets for the purposes of calculating the management fee. In addition, the Manager is entitled to receive a performance fee, payable at the end of each financial period of the Company, at the rate of 15% of any excess of the net asset value per share (valuing investments using mid market prices) over the benchmark net asset value per share as at the last calculation day in the relevant financial period, multiplied by the time weighted number of shares in issue within such period. The benchmark net asset value per share is the higher of 104.80p, compounded at 10% per annum since 31 December 1999, and the highest net asset value per share as of the last calculation day in any preceding financial period. When calculating the performance fee, the net asset value per share is reduced by the amount that the dividend per share paid during that financial year is less than 8.50p. As at 30 June 2006 the benchmark net asset value per share was 194.94p (30 June 2005: 177.15p, 31 December 2005: 185.66p). No performance fee has been paid or accrued in respect of the period ended 30 June 2006 (30 June 2005: nil, 31 December 2005: nil). The Manager has delegated the obligations for the performance of the investment management services to Unicorn Asset Management Limited ('the Smaller Companies Investment Adviser') and Collins Stewart Asset Management Limited ('the High Income Investment Adviser'). The agreements are between the Investment Advisers and the Manager, not the Company. All Investment Advisory fees are paid out of the management fees and performance fees received by the Manager from the Company. Both Investment Advisers are entitled to receive from the Manager an annual fee at the rate of 0.5% of the total assets attributable to the investments based on mid market prices in relation to which the Investment Adviser acts. The Smaller Companies Investment Adviser is entitled to 5/8ths of the Manager's performance fee, while the Manager may, at its discretion, pay the High Income Investment Adviser a proportion of the remaining performance fee. In addition, the Smaller Companies Investment Adviser is entitled to receive, from the Manager, a fixed annual fee of £7,500 in relation to marketing services provided to investors. The Investment Advisory Agreements may be terminated by the Manager or the Investment Advisers, giving not less than 12 months' notice in writing, or otherwise in circumstances where one of the parties has a receiver appointed over its assets or if an order is made or an effective resolution passed for the winding up of one of the parties. On termination, the Investment Adviser shall be entitled to receive all fees accrued up to the date of the termination (or thereafter if the Investment Adviser necessarily incurs expenses arising out of the termination of the agreement) but shall not be entitled to compensation, except in the case of a wrongful termination by the Manager. 5. Other expenses Six months Six months ended 30 June 2006 ended 30 June Year ended 31 (unaudited) 2005 December 2005 Revenue Capital Total (unaudited) (audited) £'000 £'000 £'000 £'000 £'000 Custody and settlement fees 23 - 23 18 39 Auditors' remuneration 8 - 8 5 9 Directors' remuneration 20 - 20 20 40 Transaction charges - 73 73 43 111 Other expenses 47 - 47 37 70 -------- -------- -------- -------- -------- 98 73 171 123 269 -------- -------- -------- -------- -------- 6. Dividends in respect of equity shares Six months Six months ended 30 ended 30 Year ended 31 June 2006 June 2005 December 2005 (unaudited) (unaudited) (audited) £'000 £'000 £'000 Dividends on Ordinary Shares: First interim paid of 2.00p (2005: 2.00p) 592 592 592 Second interim paid of 2.00p (2005: 2.00p) 592 592 592 Third interim paid, n/a (2005: 2.00p) - - 592 Special dividend paid, n/a (2005: 1.00p) - - 296 Fourth interim paid, n/a (2005: 2.00p) - - 592 -------- -------- -------- 1,184 1,184 2,664 -------- -------- -------- 7. Return per Ordinary Share The revenue return per Ordinary Share is based on net revenue of £1,277,402 (30 June 2005: £1,425,805, 31 December 2005: £2,684,205) and on a weighted average number of 29,600,002 (30 June 2005 and 31 December 2005: 29,600,002) Ordinary Shares in issue throughout the period. The capital gain per Ordinary Share is based on the net capital gain of £3,878,990 (30 June 2005: £2,561,160, 31 December 2005: £10,416,826) and on a weighted average number of 29,600,002 (30 June 2005 and 31 December 2005: 29,600,002) Ordinary Shares in issue throughout the period. 8. Fair value through profit and loss investments Six months Six months ended 30 June ended 30 June Year ended 31 2006 2005 December 2005 (unaudited) unaudited audited £'000 £'000 £'000 Opening valuation 72,075 61,616 61,616 Purchases at cost 14,146 8,490 17,185 Sales - proceeds (15,873) (10,732) (18,903) - realised gains 1,247 2,842 3,947 Movement in unrealised appreciation 3,561 579 8,230 -------- -------- -------- Closing valuation 75,156 62,795 72,075 -------- -------- -------- Closing book cost 45,779 44,630 46,259 Closing unrealised appreciation 29,377 18,165 25,816 -------- -------- -------- Closing valuation 75,156 62,795 72,075 -------- -------- -------- 9. Bank loan 30 June 2006 30 June 2005 31 December 2005 (unaudited) (unaudited) (audited) £'000 £'000 £'000 Bank of Scotland International facility 25,616 25,616 25,616 -------- -------- -------- Under loan agreements dated 28 September 1999 and 21 December 2000 between the Company and Bank of Scotland International, a term loan of £25,616,000 has been made available. The loan is due for repayment on 31 October 2006. The interest rates payable on the loan are based on LIBOR plus a margin of 1% plus Mandatory Liquid Asset ('MLA') costs. 10. Share capital 30 June 2006 30 June 2005 31 December 2005 (unaudited) (unaudited) (audited) £'000 £'000 £'000 Authorised: 40,000,000 Ordinary Shares of 25p 10,000 10,000 10,000 -------- -------- -------- Allotted, called up and fully paid: 29,600,002 Ordinary Shares of 25p 7,400 7,400 7,400 -------- -------- -------- 11. Net asset value per Ordinary Share The net asset value per Ordinary Share is based on the net assets attributable to equity Shareholders of £55,398,767 (30 June 2005: £43,793,000, 31 December 2005: £51,427,357) and on 29,600,002 (30 June 2005 and 31 December 2005: 29,600,002) Ordinary Shares in issue at the end of the period. 12. Reconciliation of net revenue before finance costs and taxation to net cash inflow from operating activities Six months Six months Year ended 31 ended 30 ended 30 December 2005 June 2006 June 2005 (unaudited) (unaudited) (audited) £'000 £'000 £'000 Net revenue before finance costs and taxation 1,460 1,613 3,057 Management fees charged to the capital reserve (308) (256) (529) Other expenses charged to the capital reserve (73) (43) (111) Decrease in accrued income 186 295 102 Decrease in other debtors - 4 1 (Decrease)/increase in other creditors and accruals (4) (5) 13 -------- -------- -------- Net cash inflow from operating activities 1,261 1,608 2,533 -------- -------- -------- If you have any queries please contact: Collins Stewart Fund Management Limited 2nd Floor No. 1 Le Truchot St Peter Port Guernsey GY1 4AE Tel: 01481 731 987 This information is provided by RNS The company news service from the London Stock Exchange ND IR AKFKNQBKDNCB

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