Interim Results - Replacement
3i Smaller Quoted Co's Trust PLC
11 October 2001
The issuer advises that the following replaces the Interim Results
announcement released today at 08.19 under RNS number 4527L.
In the Notes to the announcement, note 2 was omitted. Note 2 in the previous
announcement has now been re-numbered note 3.
All other details remain unchanged. The full amended text appears below.
PRESS RELEASE
11 October 2001
3i Smaller Quoted Companies Trust plc
'A low risk investment strategy in difficult times'
The Board of 3i Smaller Quoted Companies Trust plc today announces interim
results for the six month period to 31 August 2001.
Results overview
* The Net Asset Value per share as at 31 August 2001 was 232.9p.
* The Net Asset Value per share of the Trust fell 17.6% over the period
under review compared to a fall of 14.8% in the benchmark index (the FTSE
SmallCap Index, excluding Investment Companies). The underperformance
against the benchmark was due to the moderate gearing in the Trust
together with a small underweight position in the General Retailers
sector.
* Earnings per share for the period under review were 2.96p compared with
3.35p for the same period last year. Earnings have fallen because a number
of companies have delayed their ex-dividend dates into the second half of
the Trust's financial year and interest rates obtained on surplus cash
have fallen.
* The Directors have declared an unchanged interim dividend of 1.71p per
share.
* The Board is committed to using its powers to buy back the Trust's
shares where it considers that there is likely to be a benefit to
shareholders. In July, the Trust bought back 155,000 shares.
* Despite lower levels of Initial Public Offerings ('IPOs') and takeovers,
portfolio activity during the reporting period was 13% which was similar
to the equivalent period last year.
Commenting on the results, Henrietta Marsh, Fund Manager, 3I Investments plc,
said:
'Share prices of UK smaller companies were already looking fragile before the
terrorist attacks in the United States on 11 September and have been hard hit
since then as fears of a worldwide slowdown grow. We remain cautious and have
adopted a low risk investment strategy which we believe will lead to a
resilient performance, relative to the benchmark, in a bear market and will
produce good returns over the market cycle.
Over the medium term, we aim to add value in three main ways - by investing in
companies at an early stage in their growth; by benefiting from 3i's in-depth
knowledge of the smaller companies market and by taking advantage of
opportunities to invest in IPOs where the Trust is well placed compared to
other investors.'
ENDS
For further information, please contact:
Henrietta Marsh or Vanessa Orr
Fund Manager Tulchan Communications
3i Investments plc 020 7353 4200
020 7975 3156
William Govett
Chairman, 3i Smaller Quoted Companies Trust plc
020 7494 0625
Chairman's statement
Current position
There has been turmoil in world stock markets since the horrendous terrorist
attacks in the United States. Volatility continues and prices of small
companies have been particularly hard hit, as would be expected in times of
crisis.
Liquidity in some of the underlying portfolio has deteriorated making it more
difficult to buy and sell shares and, at the same time, trust discounts have
widened. Since the end of August, the benchmark index has fallen by 19.9% and
the Trust's net asset value by 20.4% to 185.4p.
Review of the six months to 31 August 2001
Market conditions in the six months to 31 August 2001 were generally poor,
continuing the bear market which started in January 2000. These conditions
have reflected a deteriorating economic environment in the United States and a
slowdown in technology and other sectors which has spread to Europe. Interest
rates have been cut on several occasions in both the United States and the UK.
Whilst these have assisted temporary rallies in stock markets, overall the
trend has been downwards.
Against the background of an uncertain economic outlook, we have tried to
minimise risk in two ways. Firstly, gearing was held below the 10% level which
the Board considers appropriate in normal market conditions, and averaged 7.8%
over the six months. Secondly, the Trust's portfolio was positioned broadly in
line with that of the benchmark index in terms of sector weightings.
Earnings and dividends
Earnings per share for the six months ended 31 August 2001 were 2.96p compared
with 3.35p for the same period last year. Earnings have fallen because a
number of companies have delayed their ex-dividend dates into the second half
of the Trust's financial year and interest rates obtained on surplus cash have
fallen. In the light of this, the Directors have declared an unchanged interim
dividend of 1.71p.
Discount and share buybacks
The Board is committed to using its powers to buy back the Trust's shares
where it considers that there is likely to be a benefit to shareholders. In
July, the Trust's shares were trading at a discount to net assets of more than
20% and the Trust took the opportunity to buy back a total of 155,000 shares.
During the six months to 31 August 2001, the discount averaged 16%.
Current strategy
The sharp falls in the small companies market during September suggest that
the uncertain political and economic outlook is already reflected in share
prices. Nevertheless, at the time of writing, circumstances dictate caution.
The months ahead will determine how resilient the world economy is and whether
the positive action taken by the US Federal Reserve, the European Central Bank
and the Bank of England to counteract the negative influences in the economy
will be sufficient. With the world economy fragile and on the verge of
recession, much will now depend on consumer confidence, which is vital in
order to maintain economic momentum.
The Board is working closely with the Manager to protect shareholder interests
in these difficult times. Gearing is being kept under control; this has not
led to forced sales of any investments. Every effort will be made to position
the portfolio effectively so that it may benefit from the eventual recovery.
The current strategy is to manage risk carefully and deploy our cash back into
the market when the political and economic outlook becomes clearer.
William Govett
10 October 2001
Investment manager's review
Overall performance and strategy
The net asset value per share of the Trust fell by 17.6% to 232.9p in the six
months to 31 August 2001, compared to a fall in the benchmark index of 14.8%.
Market conditions were generally poor during the reporting period and the
strategy was to reduce risks relative to the benchmark. Gearing was maintained
below the 10% level, which is considered appropriate for normal market
conditions, and sector weightings were held broadly in line with those of the
benchmark. The underperformance of 2.8% against the benchmark resulted mainly
from the gearing in the Trust although the small underweight position in the
General Retailers sector also had an impact.
Benchmark performance
The first few months of the period were characterised by strong performances
from domestically orientated stocks such as those in the General Retailers
sector and those from defensive sectors such as Beverages. Poor performance
was seen in the Telecommunications sector where, in the smaller companies
market, it is feared some companies may become insolvent. The Information
Technology Hardware sector also performed poorly with a continued excess of
inventory in the mobile phone components supply chain. By July the prices of
many defensive and domestic stocks had peaked.
Portfolio performance
Despite the declining market, the portfolio had a number of successes. T
Clarke is an electrical contractor which is growing through consolidation and
by broadening its range of services. Its shares rose 60% in the six months to
31 August 2001 as the strength of the contracting market in general was
recognised by the stock market. Clydeport, an operator of ports in the west of
Scotland, which is benefiting from increased coal imports and property
development on former port land, saw its shares rise 33%. Budgens, a
convenience food retailer, produced results above expectations and its shares
rose 47% over the reporting period. Nestor, Holidaybreak and Ashtenne are all
former 3i unquoted investments which performed well.
Some investments which performed poorly were hit by the slowdown in technology
markets and these included Gooch and Housego, which produces optical
components, and TeleCity, a provider of internet infrastructure. Profit
warnings were announced by SVB an insurer which announced an adverse revision
to its underwriting syndicate forecast and Ultraframe, a conservatory roof
manufacturer which reported lower than expected volume growth in the summer.
Activity
Turnover (which is the average of purchases and sales of investments) in the
reporting period was 13% of average investment assets. This was in line with
turnover for the equivalent period last year despite low levels of Initial
Public Offerings ('IPO') and take-over activity. Purchases were in two main
categories. Firstly, there were domestically orientated companies with a
growth strategy. These included Alfred McAlpine, Regent Inns and Unite. Alfred
McAlpine is a business well placed to benefit from the opportunities arising
from the private finance initiative. The company has a long history in the
highway maintenance sector but has expanded into other areas. Regent Inns is
an owner and operator of pubs and comedy clubs which focuses on two formats
and plans to develop a third. Unite builds and manages housing for
universities and public agencies and is benefiting from a trend to outsourcing
the ownership and management of such properties.
Purchases in the second category were of companies with fundamentally sound
businesses but with weak share prices. In these cases we have been looking for
companies which are well known to 3i and can grow profits without a
significant upturn in their markets. Examples included ITNET, Guardian iT and
Po Na Na.
Sales were generally made on rating grounds and included Autologic, Budgens,
Rotork, Bloomsbury, Shire Pharmaceuticals, Headlam and Compco. One sale
deserves particular mention. The holding in Independent Insurance was sold
promptly on the announcement of the resignation of the Chief Executive. The
company became insolvent within two months and these sales recovered £1.0
million for the Trust.
New issue activity in the market as a whole was low during the reporting
period. The Trust invested in one new issue, PHS, the leading provider of
workplace services in the UK offering rental and servicing of workplace items.
The shares showed an 11% price rise by the end of the period. The Trust also
had the option to purchase stock directly from 3i in three instances but
declined to do so on each occasion. The option is of most value when it is
difficult to obtain a full allocation of stock and this was not generally the
case in the period under review.
Corporate activity in smaller companies was lower than last year although the
reduction was less marked than for larger companies. In the six months to 31
August 2001, there were bids for two stocks in the portfolio, Novara and
Meconic, with an average gain of 58%. This compares to the seven bids seen in
the comparable period last year.
Conclusion
The market outlook is uncertain and, in these circumstances, gearing is being
maintained at a low level and portfolio risk is being carefully managed. As at
30 September 2001 gearing was 8.2%. The largest stockholding at that date
comprised 2.9% of the portfolio and the largest sector position in absolute
terms was Support Services where the Trust had a 10.5% weighting which
compares to a 9.1% weighting for this sector in the benchmark. The largest
position relative to the benchmark was in the General Retailers sector where
the Trust was 3.6% underweight. In selecting new investments for the Trust,
the emphasis is on companies that have a reasonably secure outlook or that can
improve profits without the need for an upturn in their markets.
The Manager's strategy is to add value to the portfolio in three main ways.
The first involves seeking companies which are at an early stage in their
growth. The second is to benefit from 3i's in-depth knowledge of the smaller
companies market, particularly of companies in the Trust's and 3i's portfolios
and former portfolios. The third involves taking advantage of IPO
opportunities where the Trust is well placed compared to other investors. We
believe this strategy can lead to a resilient performance, relative to the
benchmark, in a bear market and will produce good returns over the market
cycle.
Henrietta Marsh
Fund Manager
3i Investments plc
10 October 2001
Statement of total return
for the six months ended 31 August 2001 (incorporating the Revenue Account)
6 months to 31 August 2001 6 months to 31 August 2000
(unaudited) (unaudited)
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Gains on
investments
Net realised 80 80 (3,319) (3,319)
gains/(losses)
over previous
valuation
Net unrealised (28,791) (28,791) 18,997 18,997
(depreciation)/
appreciation
(28,711) (28,711) 15,678 15,678
Income 2,299 2,299 2,479 2,479
Investment (174) (522) (696) (232) (697) (929)
management fee
Other expenses (139) (139) (149) (149)
Net return 1,986 (29,233)(27,247) 2,098 14,981 17,079
before finance costs
Interest (279) (348) (627) (163) (489) (652)
payable and
similar charges
Return on 1,707 (29,581)(27,874) 1,935 14,492 16,427
ordinary activities
for the period
Dividends (984) (984) (982) (982)
Transfer to 723 (29,581)(28,858) 953 14,492 15,445
reserves
Return per 2.96p (51.29)p (48.33)p 3.35p 25.07p 28.42p
ordinary share (pence)
Statement of total return
for the six months ended 31 August 2001 (incorporating the Revenue Account)
12 months to 28 February 2001
(audited)
Revenue Capital Total
£'000 £'000 £'000
Gains on
investments
Net realised (4,041) (4,041)
gains/(losses)
over previous
valuation
Net unrealised (24,854) (24,854)
(depreciation)
/ appreciation
(28,895) (28,895)
Income 3,857 3,857
Investment (485) (1,455) (1,940)
management fee
Other expenses (312) (312)
Net return 3,060 (30,350) (27,290)
before finance
costs
Interest payable (352) (982) (1,334)
and similar
charges
Return on 2,708 (31,332) (28,624)
ordinary activities
for the period
Dividends (2,494) (2,494)
Transfer to 214 (31,332) (31,118)
reserves
Return per 4.69p (54.25)p (49.56)p
ordinary share (pence)
All revenue and capital items in the above statement derive from continuing
operations.
No operations were acquired or discontinued during the period.
Reconciliation of total shareholders' funds
6 months to 31 6 months to 31 12 months to 28
August 2001 August 2000 February 2001
(unaudited) (unaudited) (audited)
£'000 £'000 £'000
Return on ordinary (27,874) 16,427 (28,624)
activities for the period
Dividends (984) (982) (2,494)
(28,858) 15,445 (31,118)
Purchase and cancellation of
own ordinary shares
Premium to nominal value on (253) (403) (403)
shares purchased
Nominal value of 25p (39) (50) (50)
ordinary shares purchased
Movement in total (29,150) 14,992 (31,571)
shareholders' funds
Opening total shareholders' 163,226 194,797 194,797
funds
Closing total shareholders' 134,076 209,789 163,226
funds
Balance sheet
as at 31 August 2001
31 August 31 August 28
February
2001 2000
2001
£'000 £'000 £'000
(unaudited) (unaudited) (audited)
Fixed assets
Investments 145,192 225,256 180,779
Current assets
Debtors 353 1,093 1,043
Cash and short term deposits 5,192 566 3,078
5,545 1,659 4,121
Creditors: amounts falling due within one (1,965) (2,445) (6,986)
year
Net current assets/(liabilities) 3,580 (786) (2,865)
Total assets less current liabilities 148,772 224,470 177,914
Creditors: amounts falling due after more (14,696) (14,681) (14,688)
than one year
Net assets 134,076 209,789 163,226
Capital and reserves
Called-up share capital 14,391 14,430 14,430
Share premium 38,952 38,952 38,952
Capital redemption reserve 89 50 50
Capital reserve
- realised 67,893 60,347 63,970
- unrealised 9,550 92,793 43,346
Revenue reserve 3,201 3,217 2,478
Total shareholders' funds 134,076 209,789 163,226
Net asset value per share (pence) 232.9p 363.5p 282.8p
Approved by the Board on 10 October 2001
Cash flow statement
for the six months ended 31 August 2001
31 August 31 August 28 February
2001 2000 2001
£'000 £'000 £'000
(unaudited) (unaudited) (audited)
Operating activities
Investment income received 1,940 2,124 3,790
Deposit interest received 90 29 72
Underwriting commission received 21 - 10
Investment management fees paid (1,278) (1,022) (1,685)
Secretarial fees paid (29) (29) (59)
Other cash payments (181) (167) (246)
Net cash inflow from operating activities 563 935 1,882
Servicing of finance
Interest paid (731) (620) (1,312)
Net cash outflow from servicing of finance (731) (620) (1,312)
Financial investment
Purchase of investments (17,986) (25,385) (44,308)
Sale of investments 25,572 26,968 45,635
Net cash inflow from financial investment 7,586 1,583 1,327
Equity dividends paid (1,512) (1,455) (2,442)
Financing
Purchase of ordinary shares for (292) (453) (453)
cancellation
(Repayment)/drawdown of short term loan (3,500) - 3,500
Net cash (outflow)/inflow from financing (3,792) (453) 3,047
Increase/(decrease) in cash 2,114 (10) 2,502
Notes to the financial statements
1. Reconciliation of net revenue before finance costs to net cash inflow from
operating activities
31 31 28
August August February
2001 2000 2001
£'000 £'000 £'000
Net revenue before finance costs 1,986 2,098 3,060
Scrip dividends (36) (30) (46)
Investment management fee allocated to capital (522) (697) (1,455)
reserve - realised
(Increase)/decrease in accrued income (214) (296) 61
(Decrease)/increase in creditors (637) (140) 69
(Increase)/decrease in debtors (14) - 193
Net cash inflow from operating activities 563 935 1,882
Reconciliation of net cash flow to movement in net debt
31 31 28
August August February
2001 2000 2001
£'000 £'000 £'000
Increase/(decrease) in cash in the period 2,114 (10) 2,502
Cash outflow/(inflow) from change in debt 3,500 - (3,500)
Amortised Debenture stock issue expenses (8) (7) (14)
Movement in net debt in the period 5,606 (17) (1,012)
Opening net debt (15,110) (14,098) (14,098)
Closing net debt (9,504) (14,115) (15,110)
Notes to editors
3i Smaller Quoted Companies Trust plc invests in UK smaller quoted companies
with a view to achieving capital growth.
3i Smaller Quoted Companies Trust plc is managed by the asset management
division of 3i Investments plc, which is an active fund manager seeking to
achieve returns in excess of benchmark indices through the use of fundamental
analysis. The Manager aims to use the skills and information base gained
through being part of the 3i group ('3i'). A significant proportion of the
Trust's portfolio by value is in 3i backed companies.
In the three years to 31 August 2001, the Trust's NAV per share increased by
26.5% compared to 27.0% for the FTSE SmallCap Index, excluding Investment
Companies (the 'SmallCap Index'). In the five years to 31 August 2001, the
Trust's NAV per share increased by 32.0% compared to 24.9% for the SmallCap
Index.
3i Investments plc is a wholly owned subsidiary of 3i Group plc, Europe's
leading venture capital company.
Notes to the announcement
1. The interim report for the six months to 31 August 2001 will be posted to
shareholders on 16 October 2001 and thereafter copies will be available
from 3i Investments plc, 91 Waterloo Road, London SE1 8XP.
2. The interim dividend of 1.71p per ordinary share will be paid on 9 November
2001 to holders of shares on the register of members at 19 October 2001.
3. The accounting policies used in the preparation of the interim report are
the same as those used in the statutory accounts for the year to 28
February 2001. The six month period is treated as a discrete period. The
figures for the year to 28 February 2001 are extracted from the accounts
filed with the Registrar of Companies on which the auditors issued an
unqualified report. The interim report does not constitute statutory
accounts.
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