Final Results

Merrill Lynch Br. SmallerCo Tst PLC 22 April 2005 22 April 2005 MERRILL LYNCH BRITISH SMALLER COMPANIES TRUST plc Preliminary announcement of results in respect of the year ended 28 February 2005 Performance to 28 February 2005 12 months 3 years 5 years (calculated on capital only basis) Net asset value per share +20.0% +33.1% -16.1% Ordinary share price +25.1% +34.7% -18.2% FTSE SmallCap Index (ex IC's) +7.2% +19.4% -11.2% Source: Merrill Lynch Investment Managers, Datastream. • On 13 December 2004 the Board of directors announced that it had appointed Merrill Lynch Investment Managers ('MLIM') as investment manager to the Company. • The net asset value per share at 28 February 2005 was 281.64p (2004: 234.70p). • Increased earnings of 4.59p per share (2004: 4.32p). • The directors recommend the payment of a final dividend of 2.77p (2004: 2.71p), an increase of 2.2% on last year, payable on 10 June 2005 to shareholders on the register on 29 April 2005. • A total of 2,475,000 shares were bought in for cancellation by the Company during the year, representing 4.6% of the equity at the start of the year. Subsequent to the year end, the Company repurchased, for cancellation, a further 600,000 shares representing 1.2% of the issued share capital. • On 6 April 2005 the Company initiated a savings plan which will be marketed alongside the other investment trusts managed by 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, William Govett, comments: I am pleased to report that over the year to 28 February 2005 the Company's net asset value (NAV) and share price increased by 20.0% and 25.1%, respectively. By comparison the FTSE SmallCap Index, against which your Company's performance is measured, grew by 7.2%. During the year the shares traded at a discount to NAV of between 14.9% and 24.1%, standing at 18.7% by the Company year end. Whereas investment performance has been at the upper end of the Company's peer group of the AITC's UK Smaller Companies Investment Trusts, the discount is higher than average and the Board, in concert with the new Manager, has the reduction of the discount as a high priority for the coming year. I believe that the macro economic environment is broadly favourable for many UK smaller companies, with the exception of some exposed to the retail sector. I expect the Company's management team to continue to find good opportunities for investment. Following this year's Annual General Meeting I will be stepping down as Chairman, having completed ten years in the role. I have enjoyed my time enormously and should like to thank my colleagues and those many shareholders who have been so supportive through the often extreme market conditions which marked my tenure. Richard Brewster moves into the Chair, having served on the Board since 1998. I have every confidence in his leadership and wish both him and the Company every success in the future. Commenting upon the outlook for the Company, Mike Prentis of Merrill Lynch Investment Managers, the Investment Manager, notes: Smallcap markets have now enjoyed two strong years; valuations are no longer cheap. Whilst some commentators expect large caps to outperform smallcaps during 2005, especially if UK GDP growth slows, our experience is that most of the smallcap companies we meet are trading well. Most are run by management teams that remain confident. Many of these can realistically expect good rates of growth over the next few years, in absolute terms and relative to their larger brethren. This should support share prices and we do not expect any prolonged underperformance compared to larger companies. M & A activity could also act as a spur to many smaller companies, although the Company has not recently benefited from many takeovers of its investments, probably because they are growth orientated. We remain positive about the prospects for the companies the Company invests in, and believe there are sufficient attractive opportunities to deliver gains to shareholders in the current year, albeit probably at levels lower than the last two years. REVENUE ACCOUNT & STATEMENT OF TOTAL RETURN for the year ended 28 February 2005 Revenue Capital Total 2005 2004 2005 2004 2005 2004 £'000 £'000 £'000 £'000 £'000 £'000 Gains on investments - - 24,435 51,825 24,435 51,825 Income 3,265 3,392 - - 3,265 3,392 Investment management fees (183) (214) (950) (642) (1,133) (856) Operating expenses (336) (322) - - (336) (322) ------- ------- ------- ------- ------- ------- Net return before finance costs and taxation 2,746 2,856 23,485 51,183 26,231 54,039 Interest payable and similar charges (381) (459) (796) (718) (1,177) (1,177) ------- ------- ------- ------- ------- ------- Return on ordinary activities before taxation 2,365 2,397 22,689 50,465 25,054 52,862 Taxation on ordinary activities - - - - - - ------- ------- ------- ------- ------- ------- Return on ordinary activities after taxation 2,365 2,397 22,689 50,465 25,054 52,862 Dividends in respect of equity shares (2,279) (2,376) - - (2,279) (2,376) ------- ------- ------- ------- ------- ------- Transfer to reserves 86 21 22,689 50,465 22,775 50,486 ------- ------- ------- ------- ------- ------- Return per ordinary share 4.59p 4.32p 44.01p 91.01p 48.60p 95.33p ------- ------- ------- ------- ------- ------- Dividend per ordinary share 4.52p 4.42p - - 4.52p 4.42p ------- ------- ------- ------- ------- ------- All revenue and capital items in the above statement derive from continuing operations. No operations were acquired or discontinued during the year. BALANCE SHEET as at 28 February 2005 Year ended Year ended 28 February 29 February 2005 2004 £'000 £'000 (audited) (audited) Fixed assets Investments at valuation 161,163 140,419 Current assets Debtors 680 49 Cash and cash funds 1,546 3,745 ---------- ---------- 2,226 3,794 Creditors - amounts falling due within one year (4,459) (3,590) ---------- ---------- Net current (liabilities)/assets (2,233) 204 ---------- ---------- Total assets less current liabilities 158,930 140,623 Creditors - amounts falling due after more than one year (14,831) (14,732) ---------- ---------- Net assets 144,099 125,891 ========== ========== Capital and reserves Share capital 12,791 13,410 Share premium 38,952 38,952 Capital redemption reserve 1,689 1,070 Capital reserves - realised 52,848 45,720 Capital reserves - unrealised 35,000 24,006 ---------- ---------- 141,280 123,158 Revenue reserve 2,819 2,733 ---------- ---------- Total equity shareholders' funds 144,099 125,891 ========== ========== Net asset value per ordinary share 281.64p 234.70p ========== ========== CASH FLOW STATEMENT for the year ended 28 February 2005 Year ended Year ended 28 February 29 February 2005 2004 £'000 £'000 (audited) (audited) Net cash flow from operating activities 2,566 2,223 Returns on investments and servicing of finance: Interest payable and similar charges (1,163) (1,163) --------- --------- Net cash outflow from servicing of finance (1,163) (1,163) Capital expenditure and financial investment: Purchase of fixed asset investments (70,409) (65,877) Proceeds from the sale of fixed asset investments 73,676 65,021 --------- --------- Net cash inflow/(outflow) from capital expenditure and financial investment 3,267 (856) --------- --------- Equity dividends paid (2,298) (2,422) --------- --------- Net cash inflow/(outflow) before use of liquid resources and financing 2,372 (2,218) --------- --------- Financing Purchase of ordinary shares (4,567) (4,665) --------- --------- Net cash outflow from financing (4,567) (4,665) --------- --------- Decrease in cash in the period (2,195) (6,883) ========= ========= RECONCILIATION OF NET RETURN BEFORE FINANCE COSTS AND TAXATION TO NET CASH FLOW FROM OPERATING ACTIVITIES Year ended Year ended 28 February 29 February 2005 2004 £'000 £'000 (audited) (audited) Net return before finance costs and taxation 2,746 2,856 Investment management and performance fees capitalised (950) (642) (Increase)/decrease in accrued income (3) 35 (Increase)/decrease in debtors (3) 1 Increase/(decrease) in creditors 802 (27) Scrip dividend included in investment income (26) - ------- ------- Net cash inflow from operating activities 2,566 2,223 ======= ======= NOTES TO THE PRELIMINARY RESULTS 1. Principal activity The principal activity of the Company is that of an investment trust company within the meaning of section 842 of the Income and Corporation Taxes Act 1988. 2. Basis of preparation The preliminary financial statements have been prepared on the basis of the accounting policies set out in the Company's financial statements at 28 February 2005. Income and operating expenses have been accrued in accordance with the same principles used in the preparation of the previous year's financial statements. 3. Income Year ended Year ended 28 February 29 February 2005 2004 £'000 £'000 (audited) (audited) Income from investments Dividends: Franked dividends 3,074 3,159 Unfranked interest 48 5 Scrip dividends 26 - -------- -------- 3,148 3,164 -------- -------- Interest receivable and other income: Deposit and cash fund interest 116 219 Underwriting commission 1 9 -------- -------- 117 228 -------- -------- Total income 3,265 3,392 ======== ======== 4. Dividend The directors are recommending a final dividend of 2.77p per share (2004: 2.71p). The dividend will be paid on 10 June 2005 to the shareholders on the register of members at the close of business on 29 April 2005. The shares will be quoted ex-dividend on 27 April 2005. 5. Investment management fees 2005 2004 Revenue Capital Total Revenue Capital Total £'000 £'000 £'000 £'000 £'000 £'000 Investment management fees 156 466 622 182 546 728 Performance fees - 342 342 - - - Irrecoverable VAT thereon 27 142 169 32 96 128 ------- ------- ------- ------- ------- ------- 183 950 1,133 214 624 856 ======= ======= ======= ======= ======== ======= 6. Operating expenses Year ended Year ended 28 February 29 February 2005 2004 £'000 £'000 (audited) (audited) Secretarial fee 47 59 Auditor's remuneration: - audit services 13 12 - other services (including taxation compliance and advice and the interim review) 14 10 Directors' emoluments 106 71 Registrar's fees and other administrative costs 156 170 ----- ----- 336 322 ===== ===== 7. Ordinary shares 28 February 2005 29 February 2004 The number of ordinary shares in issue at the year end on which the net asset value per ordinary share has been calculated was: 51,163,523 53,638,523 The weighted average number of shares in issue during the year on which the earnings per Ordinary shares has been calculated was: 51,546,742 55,448,564 Share price 229.00p 183.00p 8. Gearing ratio. As at 28 February 2005 the ratio of borrowings to net assets was 11.8% (2004: 11.5%). 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. 10. The figures set out above have been reported upon by the auditor. The comparative figures are extracts from the audited financial statements of 3i Smaller Quoted Companies Trust plc (renamed as Merrill Lynch British Smaller Companies Trust plc) for the year ended 29 February 2004, which have been filed with the Registrar of Companies. The report of the auditor for the years ended 29 February 2004 and 28 February 2005 contain no qualification or statement under section 237(2) or (3) of the Companies Act 1985. The 2005 annual report will be filed with the Registrar of Companies after the Annual General Meeting. 11. 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 12. The Annual General Meeting of the Company will be held at 33 King William Street, London EC4R 9AS on Thursday 2 June 2005 at 10:30am. 22 April 2005 33 King William Street London EC4R 9AS This information is provided by RNS The company news service from the London Stock Exchange

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