Final Results
Merrill Lynch Br. SmallerCo Tst PLC
02 May 2006
2 May 2006
MERRILL LYNCH BRITISH SMALLER COMPANIES TRUST plc
Preliminary announcement of results in respect of the year
ended 28 February 2006
Consistent strong outperformance
Performance to 28 February 2006 1 year 3 years 5 years
(calculated on capital only basis)
Net asset value per share +27.0% +156.0% +27.7%
Ordinary share price +36.2% +184.3% +30.3%
FTSE SmallCap Index (ex Investment Companies) +18.1% +102.2% +9.2%
Source: Merrill Lynch Investment Managers, Datastream.
• The net asset value per share at 28 February 2006 was 361.17p
(2005: 284.38p).
• The net asset value increase of 27.0% exceeds its benchmark the FTSE
SmallCap Index by 8.9% and the FTSE 100 Index by 10.4%.
• The Directors recommend the payment of a final dividend of 2.83p (2005:
2.77p), an increase of 2.2% on last year, payable on 13 June 2006 to
shareholders on the register on 5 May 2006.
• The Company has had an excellent first year under the management of
Merrill Lynch Investment Managers ('MLIM').
For further information please contact:
Jonathan Ruck Keene, Managing Director Investment Trusts - 020 7743 2178
Mike Prentis, Fund Manager - 020 7743 2312
Nigel Webb, Director Media & Communications - 020 7743 5938
Merrill Lynch Investment Managers
Or
William Clutterbuck
The Maitland Consultancy - 020 7379 5151
The Chairman, Richard Brewster, comments:
Review of the year to 28 February 2006
'This is my first annual statement to shareholders since succeeding William
Govett upon his retirement last June and I am delighted to report that the
Company has finished its year with an increase in net asset value ('NAV') of
27.0%, exceeding its benchmark, the FTSE SmallCap Index, by 8.9%. The
performance in the final few months was particularly strong. It is also pleasing
to note that the share price has increased by 36.2% over the same period.
Earnings and dividends
'Earnings per share for the year amounted to 4.46p compared with 4.59p for the
previous year. The slight reduction is due to further sales of the Company's
highest yielding holdings and reinvestment in lower yielding growth stocks.
'The Board is recommending a final dividend of 2.83p per share (2005: 2.77p)
making a total for the year of 4.62p (2005: 4.52p), a 2.2% increase on last
year.
Gearing
'The Company maintained net borrowing in the range of £12.6 million to £15.2
million during the year (8.1% to 11.1% of shareholders' funds), reflecting the
favourable view of the sector and equity markets as a whole, by both the Board
and the Investment Manager. Net borrowing at 28 February 2006 stood at £12.6
million.
'Gearing is reviewed regularly with the Investment Manager and currently stands
at 8%.
Discount and share buy backs
'During the year the ordinary shares traded at a discount to NAV of between
20.7% and the year end low of 13.6%. The discount has narrowed by 5.1 percentage
points over the course of the year.
'The Company bought back 600,000 shares for cancellation during the year,
representing 1.2% of the share capital. These were bought in at an average
discount of 14.7%. Your Board, will continue to work with the Investment Manager
in order to manage the discount effectively.
Investment Manager
'This has been the first full year that your Company's investments have been
managed by Merrill Lynch Investment Managers ('MLIM'). The Board are pleased
with the way the integration has worked and believe that the investment
performance has benefited from the additional skilled resources available. It is
most encouraging to see that over the six month, one year and three year
periods, your Company's net asset performance has been in the upper quartile of
the smaller companies sector. Your Board and the Investment Manager will seek
to maintain an investment strategy that delivers upper quartile performance on a
consistent basis.
'It was announced on 15 February 2006 that MLIM is to merge with BlackRock, the
American based investment management business. BlackRock is a well-known and
respected investment management firm with assets under management of US$463
billion. It is expected that the direct impact on your Company will be minimal
but after the close of the transaction the name of our Investment Manager will
be BlackRock. The transaction is scheduled to complete in the second half of
2006.
Outlook
'Global GDP growth remains at attractive levels helped by the continued strength
of the Chinese economy and the resilience of the US economy. Supporting this
there are encouraging signs of recovery in Japan and in some Continental
European economies. In the UK, GDP growth has been below trend levels. Over the
last six months there has been some evidence of a global trend towards rising
interest rates and this may be set to continue. Whilst an environment of
generally increasing global interest rates would not usually be considered
positive for equity markets, if sensitively handled to moderate strong GDP
growth, the impact on markets may not be negative.
'The outlook for the UK economy is not especially positive with consumer
spending fairly subdued as household disposable incomes have been under
pressure. Government spending remains high but the outlook for private sector
investment is mixed. Fortunately there is a wide range of stocks available for
investment by the Company and the Investment Manager can still find areas where
growth is strong and where well managed companies meet the Company's investment
criteria. On this basis I believe we can continue to look forward with
confidence.'
Commenting upon the outlook for the Company, Mike Prentis of Merrill Lynch
Investment Managers, the Investment Manager, notes:
'Larger holdings in the Company's portfolio are, in most cases, core investments
which meet our key criteria and should continue to grow earnings in the current
climate, in some cases ahead of current market expectations. We usually meet the
management of these companies twice each year. Valuations are not as low as they
were a few years ago, but neither are they expensive by historical standards or
in comparison to the FTSE100 if one strips out the banks and oil and gas
producers sectors.'
INCOME STATEMENT
for the year ended 28 February 2006
Revenue Return Capital Return Total
2006 2005 2006 2005 2006 2005
Notes £'000 £'000 £'000 £'000 £'000 £'000
Gains on investments held at fair value through
profit or loss - - 40,509 24,435 40,509 24,435
Income from investments held at fair value
through profit or loss 2 2,962 3,148 - - 2,962 3,148
Other Income 2 119 117 - - 119 117
Investment management fees 3 (197) (183) (1,099) (950) (1,296) (1,133)
Operating expenses 4 (243) (336) - - (243) (336)
------- ------- ------- ------- ------- -------
Net return before finance costs and
taxation
2,641 2,746 39,410 23,485 42,051 26,231
Finance costs (383) (381) (795) (796) (1,178) (1,177)
------- ------- ------- ------- ------- -------
Return on ordinary activities before
taxation
2,258 2,365 38,615 22,689 40,873 25,054
Taxation - - - - - -
------- ------- ------- ------- ------- -------
Return on ordinary activities after
taxation
2,258 2,365 38,615 22,689 40,873 25,054
===== ===== ===== ===== ===== =====
Return per ordinary share 6 4.46p 4.59p 76.31p 44.01p 80.77p 48.60p
===== ===== ===== ===== ===== =====
The total column of this statement represents the profit and loss account of the Company. The supplementary revenue and
capital return columns are both prepared under guidance published by the Association of Investment Trust Companies. The
Company had no recognised gains or losses other than those disclosed in the Income Statement and the Reconciliation of
Movements in Shareholders' Funds. All items in the above statement derive from continuing operations.
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
for the year ended 28 February 2006
Share Share Capital Capital Revenue Total
capital premium redemption reserve reserve
account reserve
Notes £'000 £'000 £'000 £'000 £'000 £'000
For the year ended 28 February 2005
At 28 February 2004 as restated 8 13,410 38,952 1,070 69,726 4,153 127,311
Return for the period - - - 22,689 2,365 25,054
Shares purchased and cancelled (619) - 619 (4,567) - (4,567)
Dividends paid and declared (see (a) below) - - - - (2,298) (2,298)
---------- ---------- ---------- ---------- ---------- ----------
At 28 February 2005 12,791 38,952 1,689 87,848 4,220 145,500
---------- ---------- ---------- ---------- ---------- ----------
For the year ended 28 February 2006
At 28 February 2005 as restated 8 12,791 38,952 1,689 87,848 4,220 145,500
Return for the period - - - 38,615 2,258 40,873
Shares purchased and cancelled (150) - 150 (1,446) - (1,446)
Dividends paid and declared (see (b) below) - - - - (2,306) (2,306)
---------- ---------- ---------- ---------- ---------- ----------
At 28 February 2006 12,641 38,952 1,839 125,017 4,172 182,621
---------- ---------- ---------- ---------- ---------- ----------
(a) Final dividend of 2.71p for the year ended 28 February 2004, declared on 26
April 2004 and paid on 17 June 2004 and interim dividend of 1.75p for the six
months ended 31 August 2004, declared on 13 October 2004 and paid on 8 November
2004.
(b) Final dividend of 2.77p for the year ended 28 February 2005, declared on 21
April 2005 and paid on 10 June 2005 and interim dividend of 1.79p for the six
months ended 31 August 2005, declared on 10 October 2005 and paid on 7 November
2005.
BALANCE SHEET
as at 28 February 2006
Note Year ended Year ended
28 February 28 February
2006 2005
£'000 £'000
(audited) (audited)*
Non-current assets
Investments held at fair value through profit or loss 195,077 161,163
Current assets
Debtors 1,820 680
Cash and cash funds 2,166 1,546
---------- ----------
3,986 2,226
Creditors - amounts falling due within one year (1,681) (3,058)
---------- ----------
Net current assets/(liabilities) 2,305 (832)
---------- ----------
Total assets less current liabilities 197,382 160,331
Creditors - amounts falling due after more
than one year (14,761) (14,831)
---------- ----------
Net assets 182,621 145,500
====== ======
Capital and reserves
Share capital 12,641 12,791
Share premium account 38,952 38,952
Capital redemption reserve 1,839 1,689
Capital reserves 125,017 87,848
Revenue reserves 4,172 4,220
---------- ----------
Total equity shareholders' funds 182,621 145,500
====== ======
Net asset value per ordinary share 7 361.17p 284.38p
====== ======
*Restated - see note 8.
CASH FLOW STATEMENT
for the year ended 28 February 2006
Note Year ended Year ended
28 February 28 February
2006 2005
£'000 £'000
(audited) (audited)
Net inflow from operating activities 4(b) 1,167 2,566
--------- ---------
Return on investment and servicing of finance (1,163) (1,163)
Tax received/(paid) - -
--------- ---------
Capital expenditure and financial investment:
Purchase of investments (100,478) (70,409)
Proceeds from sale of investments 104,848 73,676
--------- ---------
Net cash inflow from capital expenditure and financial
investment 4,370 3,267
--------- ---------
Equity dividends paid (2,306) (2,298)
--------- ---------
Net cash inflow before financing 2,068 2,372
--------- ---------
Financing
Purchase of ordinary shares (1,446) (4,567)
--------- ---------
Net cash outflow from financing (1,446) (4,567)
--------- ---------
Increase/(decrease) in cash in the period 622 (2,195)
===== =====
NOTES TO THE PRELIMINARY RESULTS
1. Accounting policies
(a) Basis of preparation
The financial statements have been prepared under the historical cost
convention, modified to include the revaluation of investments and in accordance
with UK Generally Accepted Accounting Practice ('UK GAAP') and with the
Statement of Recommended Practice 'Financial Statements of Investment Trust
Companies' ('SORP') issued in December 2005. All of the Company's operations are
of a continuing nature.
The same accounting policies used for the year ended 28 February 2005 have been
applied with the following exceptions which have arisen from new accounting
regulations which apply for the financial year ended 28 February 2006. Under
FRS21 - Events after the Balance Sheet date final dividends are recognised from
the date they are approved by shareholders and interim dividends are recognised
from the date on which they are paid. As a result of this change, the financial
statements for the years ended 28 February 2004 and 2005 have been restated and
this restatement is recognised in the Reconciliation of Movements in
Shareholders' Funds. In addition, the Company has adopted a change in the basis
of measurement of the valuation of listed investments to comply with FRS26 -
Financial instruments: Recognition and Measurement.
Following the introduction of FRS 26 for accounting periods beginning on or
after 1 January 2005, listed investments are now valued at bid market prices
instead of middle market prices. Unlisted investments are fair valued by the
Directors. The effect of this change is to decrease by £197,000 the value of
listed investments at 28 February 2006 and the net return on ordinary activities
after taxation for the year ended 28 February 2006. As permitted by FRS 26,
comparatives have not been restated for the change in basis of valuation from
mid to bid prices. However, if investments at 28 February 2005 had been
restated, this would have resulted in a decrease in valuation of £300,000. As
comparatives were not restated, the impact of the change in the basis of
valuation on investments at 28 February 2005 has been taken instead through the
Income Statement and resulted in a decrease in gains on investments of £300,000
in the year to 28 February 2006 to £40,509,000.
(b) Presentation of Income Statement
In order to better reflect the activities of an investment trust company and in
accordance with guidance issued by the AITC, supplementary information which
analyses the Income Statement between items of a revenue and capital nature has
been presented alongside the Income Statement. In accordance with the Company's
status as a UK investment company under section 266 of the Companies Act 1985,
net capital returns may not be distributed by way of dividend.
(c) Segmental reporting
The Directors are of the opinion that the Company is engaged in a single segment
of business being investment business.
(d) Income
Dividends receivable on equity shares are treated as revenue for the year on an
ex-dividend basis. Where no ex-dividend date is available dividends receivable
on or before the year end are treated as revenue for the year. Fixed returns on
non-equity securities are recognised on a time apportionment basis. Interest
income is accounted for on an accruals basis.
(e) Expenses
All expenses are accounted for on an accruals basis. Expenses have been treated
as revenue except as follows:
- expenses which are incidental to the acquisition of an investment are
added to the cost of the investment or deducted from the sale proceeds;
- the investment management fees have been allocated 75% to capital reserve
- realised and 25% to revenue account in line with the Board's expected
long-term split of returns, in the form of capital gains and income
respectively, from the investment portfolio;
- performance fees have been allocated 100% to capital reserve - realised as
performance has been predominantly generated through capital returns of the
investment portfolio.
(f) Finance costs
Finance costs are accounted for on an accruals basis. Finance costs are
allocated, insofar as they relate to the financing of the Company's investments,
75% to capital reserve - realised and 25% to revenue account, in line with the
Board's expected long-term split of returns, in the form of capital gains and
income respectively, from the investment portfolio.
(g) Taxation
Deferred tax is recognised in respect of all temporary differences at the
Balance Sheet date, where transactions or events that result in an obligation to
pay more tax in the future or right to pay less tax in the future have occurred
at the Balance Sheet date. This is subject to deferred tax assets only being
recognised if it is considered more likely than not that there will be suitable
profits from which the future reversal of the temporary differences can be
deducted.
(h) Investments designated as held at fair value through profit or loss
Purchases of investments are recognised on a trade date basis and designated
upon initial recognition as held at fair value through profit or loss. Sales of
these assets are recognised at the trade date of the disposal. Proceeds will be
measured at fair value which will be regarded as the proceeds of sale less any
transaction costs.
The fair value of the financial instruments is based on their quoted bid price
at the Balance Sheet date, without deduction for the estimated future selling
costs. Unquoted investments are valued by the Directors using primary valuation
techniques such as earnings multiples, recent transactions and net assets.
Changes in the value of investments held at fair value through profit or loss
and gains and losses on disposal are recognised in the Income Statement as '
Gains or Losses on investments held at fair value through profit or loss'. Also
included within this heading are transaction costs in relation to the purchase
or sale of investments.
(i) Dividends payable
Under FRS 21 final dividends should not be accrued in the financial statements
unless they have been approved by shareholders before the Balance Sheet date.
Interim dividends are recognised within the financial statements when they are
paid. Dividends payable to equity shareholders are recognised in the
Reconciliation of Movement in Shareholders' Funds when they have been approved
by the shareholders and become a liability of the Company. There is no impact
from this change on the recognised gains and losses in either 2005 or 2006.
However the net assets at 28 February 2005 and 28 February 2006 have been
impacted as disclosed in note 8.
2. Income Year ended Year ended
28 February 28 February
2006 2005
£'000 £'000
(audited) (audited)
Investment income:
UK listed dividends 2,775 3,074
Unfranked interest 33 48
Overseas dividends 154 -
Scrip dividends - 26
-------- --------
2,962 3,148
-------- --------
Other operating income:
Deposit interest 117 116
Underwriting commission 2 1
-------- --------
119 117
-------- --------
Total income 3,081 3,265
===== =====
Total income comprises:
Dividends 2,929 3,100
Interest 33 48
Other income 119 117
-------- --------
3,081 3,265
===== =====
3. Management fees
2006 2005
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Investment management fees 169 506 675 156 466 622
Performance fees - 434 434 - 342 342
Irrecoverable VAT thereon 28 159 187 27 142 169
------- ------- ------- ------- ------- -------
197 1,099 1,296 183 950 1,133
==== ==== ==== ==== ==== ====
Performance fees have been allocated wholly to capital reserve - realised as the performance has been
predominately generated through capital returns of the investment portfolio. A performance fee of £434,000
excluding VAT is payable to MLIM (2005: £270,000 excluding VAT payable to 3i Investment Managers and £72,000 to
MLIM).
4. Operating activities Year ended Year ended
28 February 28 February
2006 2005
£'000 £'000
(a) Operating expenses
Secretarial fee - 47
Auditor's remuneration:
- audit services 14 13
- non audit services 11 14
Registrar's fee 18 18
Directors' remuneration* 89 106
Other administrative costs 111 138
----- -----
243 336
=== ===
The Company's total expense ratio ('TER'), calculated as a percentage of
average net assets and using expenses, excluding interest costs, after
relief for taxation was: 0.9% 1.1%
(b) Reconciliation of net return before finance costs and taxation to net
cash flow from operating activities
Net return before finance costs and taxation 2,641 2,746
Investment management and performance fees capitalised (1,099) (950)
Increase in accrued income (49) (3)
Increase in debtors (11) (3)
(Decrease)/increase in creditors (315) 802
Scrip dividend included in investment income - (26)
------- -------
Net cash inflow from operating activities 1,167 2,566
==== ====
*The aggregate emoluments of the Directors, excluding VAT, where applicable, for the year ended 28 February 2006
were £89,000 (2005: £106,000). The emoluments of the Chairman, who was also the highest paid Director, were
£20,730 (2005: £29,500). The Company does not have a share option scheme or any incentive scheme. No pension
contributions were made in respect of the Directors. There were no employees other than the Directors.
5. Dividends
Year ended Year ended
28 February 28 February
2006 2005
£'000 £'000
Dividends paid or proposed on equity shares:
Interim paid 1.79p (2005: 1.75p) 905 895
Final proposed of 2.83p (2005: 2.77p)* 1,431 1,401
Over accrued in previous year - (17)
-------- --------
2,336 2,279
-------- --------
* Based upon 50,563,523 (2005: 50,563,523) ordinary shares in issue on 28 April 2006.
6. Return per ordinary share
Basic revenue and capital returns per share are shown below and have been calculated using the following:
Year ended Year ended
28 February 28 February
2006 2005
Net revenue attributable to ordinary shareholders (£'000) 2,258 2,365
Net capital gains attributable to ordinary shareholders (£'000) 38,615 22,689*
Equity shareholders' funds (£'000) 182,621 145,500*
The weighted average number of ordinary shares in issue during
each year, on which the return per ordinary share was calculated,
was 50,602,153 51,546,742
Actual number of shares in issue at the year end 50,563,523 51,163,523
2006 2005
Revenue Capital Total Revenue Capital Total
p p p p p p
Earnings per share
Calculated on weighted shares 4.46 76.31 80.77 4.59 44.01 48.60
Calculated on actual shares 4.47 76.37 80.84 4.62 44.35 48.97
-------- --------
Net asset value per share 361.17 284.38
===== =====
* Restated - see note 8.
7. Net Asset Value per ordinary share
Year ended Year ended
28 February 28 February
2006 2005
Net assets attributable to ordinary shareholders (£'000) 182,621 145,500*
The actual number of ordinary shares in issue at the end of each year, on which the
return per ordinary share was calculated, was 50,563,523 51,163,523
Net asset value per ordinary share 361.17p 284.38p*
Share price 312.00p 229.00p
*Restated - see note 8.
8. Change in presentation and restatement
The Income Statement no longer reflects payments of dividends; these are now shown in the Reconciliation of Movements
in Shareholders' Funds during the period in which they are approved by shareholders, in the case of final dividends. For
interim dividends these are recognised in the period in which they are paid. The Income Statement, Revenue reserve and
Reconciliation of Movements in Shareholders' Funds for the year ended 28 February 2005 have been restated accordingly.
The effect on the Balance Sheet at 28 February 2005 £'000 per ordinary share
Net assets as at 28 February 2005 as previously stated 144,099 281.64p
Add back 2005 final dividend declared on 21 April 2005 1,401 2.74p
---------- -----------
Restated net assets as at 28 February 2005 145,500 284.38p
---------- -----------
The effect on the Balance Sheet at 28 February 2004 £'000 per ordinary share
Net assets as at 28 February 2004 as previously stated 125,891 234.70p
Add back 2004 final dividend declared on 26 April 2004 1,420 2.65p
---------- -----------
Restated net assets as at 28 February 2004 127,311 237.35p
---------- -----------
9. Publication of non-statutory accounts
The financial information contained in this preliminary statement does not constitute statutory accounts as defined in
section 240 of the Companies Act 1985.
The figures set out above have been reported upon by the auditor. The comparative figures are extracts from the
audited financial statements of Merrill Lynch British Smaller Companies Trust plc for the year ended 28 February 2005,
which have been filed with the Registrar of Companies. The report of the auditor for the years ended 28 February 2005,
as restated, and 28 February 2006 contain no qualification or statement under section 237(2) or (3) of the Companies
Act 1985.
The 2006 annual report will be filed with the Registrar of Companies after the Annual General Meeting.
Copies of the annual report will be sent to members shortly and will be available from the registered office, c/o The
Company Secretary, Merrill Lynch British Smaller Companies Trust plc, 33 King William Street, London EC4R 9AS. This
report will also be available on the Merrill Lynch Investment Manager's website at www.mlim.co.uk/its
The Annual General Meeting of the Company will be held at 33 King William Street, London EC4R 9AS on Monday 5 June 2006
at 10:30am.
2 May 2006
33 King William Street
London EC4R 9AS
This information is provided by RNS
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