Final Results
ABERFORTH GEARED CAPITAL & INCOME TRUST plc
PRELIMINARY RESULTS
For the period 18 December 2001 to 31 December 2002
FEATURES
Total Returns
- Total Assets -7.1%
- Net Asset Value of Notional Unit1 -19.1%
- Net Asset Value of Capital Shares2 -88.4%
- HGSC (XIC) -22.5%
- First Interim Dividend 3.0p
- Second Interim Dividend 5.0p
1 Notional Package is made up of 70% Income Shares and 30% Capital
Shares.
2 Capital Shares asset performance assumes Income Shares have a capital
entitlement of 100p each.
Aberforth Geared Capital & Income Trust plc invests only in small UK
quoted companies, does not invest in any unquoted securities, AiM listed
securities or securities issued by investment trusts or investment
companies. The Company was incorporated on 7 September 2001 and
commenced business following the £35.0 million issue of 24.5 million
Income Shares at £1.00 per share and 10.5 million Capital Shares at
£1.00 per share on 18 December 2001.
CHAIRMAN'S STATEMENT TO SHAREHOLDERS
INTRODUCTION
This is the first financial period for Aberforth Geared Capital & Income
Trust plc (AGCiT) and covers the period from 7 September 2001 (when the
Company was incorporated) to 31 December 2002. However, AGCiT commenced
business on 18 December 2001, following the receipt of the proceeds of
the issue.
AGCiT is a Split Capital Investment Trust, which invests only in small
UK quoted companies and has a planned life lasting until 31 December
2011. AGCiT is managed by Aberforth Partners, an investment management
partnership that has specialised in investing in small UK quoted
companies for over 12 years.
AGCiT has Income and Capital Shares in issue and currently has bank
facilities equivalent to 100% of the net proceeds of the funds raised by
the issue - being £34.3m. It is intended that these facilities be used
close to their full extent throughout the life of the Company.
INVESTMENT OBJECTIVE
To provide Income Shareholders with a high level of income payable half
yearly with the potential for income growth, and to provide the Capital
Shareholders with geared capital growth.
RESULTS REVIEW
The period since AGCiT's launch has seen substantial declines in stock
market values around the world. In the UK the FTSE-All Share Index has
recorded a total return of minus 21.5%, while the Hoare Govett Smaller
Companies Index (Excluding Investment Companies) (HGSC (XIC)), which
defines AGCiT's investment universe, has shown a decline of 22.5%, on a
comparable basis. For AGCiT the relevant number to compare to these
index returns is the Total Return on Total Assets, which was minus 7.1%.
Thus, while the total assets have performed relatively well compared to
the relevant stock market indices, AGCiT is a highly leveraged company
and the effect of the structure is to exaggerate total asset returns for
Shareholders in either direction. Consequently the Net Asset Value Total
Return of a Notional Unit (on the basis of the ratio of shares in issue,
being 30% Capital shares and 70% Income shares) is minus 24.5%. The net
asset value of the Capital Share (assuming that an Income Share has a
capital entitlement of 100.0p) has declined by 88.4% since launch.
These returns are disappointing, though some solace should be taken from
the fact that the total asset performance has been significantly better
than that of the HGSC (XIC). This has helped to mitigate the effects of
a declining market on the Company. It is inevitable however that in a
period of negative returns the gearing in the Company acts against the
interests of Shareholders.
DIVIDENDS
The dividends declared by portfolio investments have, in aggregate, been
in line with the expectations of your Managers.
I am therefore pleased to report that the Directors are able to declare
a second interim dividend of 5.0p per Income Share. This dividend will
be paid on 27 February 2003 to Shareholders on the register on 31
January 2003.
The total dividends for the year are therefore 8.0p per Income Share
which is the level of payment illustrated in the prospectus. The Income
Shares were issued at a value of £1 each and thus the income return to
the original Shareholders has been at the 8.0% yield level illustrated
in the prospectus. As can be seen from the Statement of Total Return,
the revenue earned for the year was equivalent to 9.06p per Income
Share. It is the Directors' intention to retain £260,000 in reserves,
which will assist to smooth dividend payments in the future, should
there be periods in which the income performance of the portfolio is
less robust than in the time since the Company's launch.
OUTLOOK
2002 was the third consecutive year of negative returns from the UK
stockmarket - an infrequent occurrence. The scale of the declines has,
by historic standards, been unusually high. This has not been a
propitious background against which to have a highly geared investment
vehicle. Against such a background, AGCiT's portfolio has a number of
features that have stood it in good stead. The portfolio has been
carefully invested in a group of smaller companies that, in aggregate,
have a dividend yield greater than that of AGCiT's Investment Universe,
but that still have the capacity to grow their dividends - as has been
demonstrated in the period since listing.
Your Board and Managers believe that if the Company continues to earn
its income in an appropriate manner then this, over the longer term,
will stimulate rather than stifle capital performance.
While the first year of your Company's life has seen negative returns I
believe there are a number of reasons to remain optimistic about its
future. First, your Managers' view of the potential long-term rates of
return from the UK equity market remains unchanged, at between 5% and 7%
per annum in real terms. If achieved, these rates are more than
sufficient to allow the Company to generate the required hurdle rates
discussed above. Second, while the assets have declined in the period
since launch they have declined by less than the HGSC (XIC). This
outperformance has been achieved against a background of narrowing PE
and yield differentials between companies in the smaller company
universe. Consequently, AGCiT now has the opportunity to invest in many
companies of a high quality which previously were too highly valued to
be considered for the portfolio. Your Managers thus have the opportunity
to invest in a broader range of companies than at the time of the
listing. Finally, while the capital performance has recently been
negative, the income performance of the assets has been robust and small
companies do appear relatively well placed to generate dividend growth
from a position of good dividend cover relative to larger companies.
The UK economy appears to be in a more robust position than some of its
European peers and this gives rise to some modest economic optimism.
This, together with the breadth of the opportunity base and the clear
objective and strategy of AGCiT, allows me to look to the future with a
degree of confidence.
Alastair C Dempster
Chairman
22 January 2003
The Statement of Total Return, summary Balance Sheet and summary Cash
Flow Statement are set out below: -
STATEMENT OF TOTAL RETURN
(Incorporating the Revenue Account 1)
(unaudited)
7 September 2001
- to -
31 December 2002
Revenue Capital Total
£'000 £'000 £'000
Realised gains/(losses) on sales - (766) (766)
Unrealised gains/(losses) - (6,449) (6,449)
-------------------------
Gains/(losses) on investments - (7,215) (7,215)
Dividend income 2,971 245 3,216
Interest income 154 - 154
Other income 11 - 11
Investment management fee (181) (422) (603)
Other expenses (181) - (181)
------- ------ -------
Net return before finance costs and 2,774 (7,392) (4,618)
taxation
Interest payable and similar charges (554) (1,293) (1,847)
------- ------- -------
Return on ordinary activities before 2,220 (8,685) (6,465)
tax
Tax on ordinary activities - - -
------- ------- -------
Return attributable to non-equity 2,220 (8,685) (6,465)
shareholders
Dividends and other appropriations in (1,960) (69) (2,029)
respect of non-equity shares ------- ------- -------
Transfer to / (from) reserves 260 (8,754) (8,494)
======= ======= =======
Returns per non-equity interest
Income Share 9.06p - 9.06p
------- ------- -------
Capital Share - (82.71p) (82.71p)
------- ------- -------
NOTES
1. The revenue 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. No operations were acquired or
discontinued in the period. The Company was incorporated on 7 September
2001 and commenced business following the £35.0 million issue of 24.5
million Income Shares at £1.00 per share and 10.5 million Capital Shares
at £1.00 per share on 18 December 2001.
2. The calculations of revenue return per Income Share are based on net
revenue of £2.22 million and on 24.5 million Income Shares. The
calculations of capital return per Capital Share are based on net
capital losses of £8.685 million and on 10.5 million Capital Shares.
SUMMARY BALANCE SHEET
(unaudited)
31
December
2002
£'000
Securities officially listed on 59,685
the London Stock Exchange
-------
Debtors 349
Cash at bank 1
Creditors (1,258)
-------
Net current liabilities (908)
-------
Total assets less current 58,777
liabilities
Creditors (amounts falling due (32,873)
after more than one year) --------
Total assets less current 25,904
liabilities
=======
Capital and reserves: non-equity
interests
Called up share capital 350
Reserves:
Capital redemption reserve 50
Special reserve 33,929
Capital reserve - realised (2,236)
Capital reserve - unrealised (6,449)
Revenue reserve 260
-------
25,904
=======
Net Asset Values:
- per Income Share 56.65p
- per Capital Share 114.52p
NOTE
At 31 December 2002, the Company had 24.5m Income Shares and 10.5m
Capital Shares in issue.
SUMMARY CASH FLOW STATEMENT
(unaudited)
7 September 2001
- to-
31 December
2002
£'000
CASH FLOW STATEMENT
Net cash inflow from operating 2,274
activities -------
Returns on investment and
servicing of finance
Non-equity dividends paid (735)
Interest and other finance costs (1,840)
paid --------
Net cash outflow from returns on
investment
and servicing of finance (2,575)
--------
Capital expenditure and
financial investment
Payments to acquire investments (87,058)
Receipts from sales of 20,158
investments ---------
Net cash outflow from capital
expenditure
and financial investment (66,900)
---------
Net cash outflow before (67,201)
financing activities ---------
Financing activities
Issue of shares 35,050
Redemption of shares (50)
Expenses paid in respect of (671)
share issue
Loans drawn down 32,873
---------
Net cash inflow from financing 67,202
activities ---------
Change in cash during the period 1
=======
NOTES
1. The foregoing do not comprise Statutory Accounts (as defined in
section 240(5) of the Companies Act 1985) of the Company. The Company
was incorporated on 7 September 2001 and, as yet, has not lodged
Statutory Accounts.
2. The Annual Report is expected to be posted to shareholders on 27
January 2003. Members of the public may obtain copies from Aberforth
Partners, 14 Melville Street, Edinburgh EH3 7NS or from its website at
www.aberforth.co.uk.
CONTACT: John Evans Aberforth Partners 0131 220 0733
Aberforth Partners, Secretaries - 22 January 2003
ANNOUNCEMENT ENDS