Final Results for Year & Other News
Throgmorton Trust PLC
19 January 2000
* New growth objective for portfolio proposed
* Share buy-back programme to be extended
* Net asset value per ordinary share at 30 November 1999: 115.19p
(1998: 82.76p) (see table below for comparisons)
* Earnings per share: 2.46p (1998: 2.45p)
* Proposed final dividend per share: 1.55p (1998: 1.50p), making a total
for year of 2.50p (1998: 2.42p)
NET ASSET VALUE
30.11.99 30.11.98 Year on year
% change
The Throgmorton Trust PLC 115.19p 82.76p +39.19
(loan stock not converted)
FTSE SmallCap (ex Inv. Cos.) 2,815.50 2,017.00 +39.59
FTSE All-Share 3,086.90 2,626.86 +17.51
THE CHAIRMAN, LORD STEWARTBY, COMMENTED:
Last year produced a very strong performance by smaller companies, lifting the
net asset value of the Trust's shares to record levels. But far-reaching
structural developments in the economy have altered the relative prospects of
different sectors in ways which call for a revision of investment policy in
order to enhance performance and obtain the best return in future years.
Net Asset Value
At 30 November 1999 the net asset value was 115.19p per share compared with
82.76p at the end of the previous November. This represents an increase of
39.19%, compared with increases of 39.59% in the FTSE SmallCap (ex Investment
Companies) Index and 17.51% in the FTSE All-Share Index over the same period.
Share prices of small companies rose strongly during 1999. Until early
September higher-yielding 'value' stocks were chiefly favoured, but thereafter
there was a good recovery by stocks with better prospects of growth. Against
this background the Trust's portfolio underperformed against the SmallCap
benchmark during the six months to 31 May 1999, but recovered most of the
shortfall by outperformance during the six months to 30 November 1999.
Revenue and Dividend
Revenue of the Trust, after tax, was £7.5million, similar to the previous
year. Growth in dividends received was offset by the loss of income on some
investments sold to finance the repurchase of the Trust's shares. The net
effect was a slight increase in earnings per share to 2.46p, from 2.45p in
1998.
The directors recommend a final dividend of 1.55p per share (1998: 1.50p),
making a total for the year of 2.50p (1998: 2.42p).
If the new investment objective of the Trust, as described below, is approved
by the annual general meeting, revenue will be substantially lower, requiring
a reduction in the dividend. Since the current financial year has begun with
the existing portfolio, the full effect on the Trust's income will not be felt
until 2001.
Investment Objective and Policy
Since 1996, when the costly diversification of the 1980s had been unwound and
the company had been brought back to the format of an orthodox investment
trust, the portfolio has been managed to provide an income around the average
for smaller companies. In terms of capital performance this has also resulted
in an outturn close to that of the SmallCap index over the past three years.
However, with profound structural changes now taking place in the economy, the
Board believes that the Trust's investment policy should be adjusted in order
to take fuller advantage of opportunities in sectors with the greatest
potential for future growth.
Continued expansion of the service economy, at the expense of many areas of
traditional manufacturing, has been a significant feature of the past year,
enhancing the relative prospects of companies involved in technological
change. Such companies frequently limit distribution by way of dividend in
order to conserve resources for investment and expansion. We are accordingly
proposing that a new objective should be adopted for the Trust, dispensing
with a specific reference to income, in order to enable the managers to
operate the portfolio so as to achieve a superior total return, without the
constraint of an income target. It is intended that the Trust should continue
to have a broadly based portfolio, but with emphasis concentrated on sectors
and companies that offer the best prospects for growth over the next few
years. Such a portfolio is expected to have a yield of between 1.5 and 2.0
per cent.
Since this would mean a substantial reduction in the Trust's own dividend, the
Board considers that the proposed change in investment objective should be
subject to a resolution on which shareholders may vote at the forthcoming
annual general meeting. In recent years the managers have shown an ability to
outperform the SmallCap Index with funds that are not subject to income
considerations, and the Board believes that the performance of such a
portfolio should produce an improvement in relative capital return for the
Trust greater than any reduction of income. The proposed new objective will
be to provide shareholders with capital growth and an attractive total return
from investment predominantly in listed UK smaller companies.
Capital Structure
During the year a number of changes were made to the capital structure of the
Trust.
As a result of Budget changes, the cost to the Trust of the 7.25% coupon on
its preference shares would have increased from 6 April 1999 because the
dividend would have had to be paid in full instead of net of tax. The
£1.5million of preference capital was accordingly redeemed on 1 April 1999.
In November the Trust obtained authority from shareholders and holders of
7.25% Convertible Unsecured Loan Stock 2003 to buy back ordinary shares up to
a total of 14.9 per cent of its ordinary share capital. By the balance sheet
date a total of 19,033,000 ordinary shares, equivalent to 6.3 per cent of its
previous capital, had been repurchased. Since shares are only repurchased at
a discount this has the effect of enhancing net asset value; and repurchase
can also be a useful means of taking surplus shares off the market from time
to time. Authority will therefore be sought at the annual general meeting to
extend the power to repurchase for a further twelve months.
Following a request from holders of a substantial quantity of Convertible
Unsecured Loan Stock, the Trust made a tender offer to redeem stock at par on
30 November 1999. This offer was accepted to the extent of £6,285,155,
leaving £11,007,762 of the stock in issue.
The Board
In November Mr. Simon Stevens was appointed a director. Mr. Stevens, who is
already making a valuable contribution to the Board, was formerly head of
investment trust business at Invesco Asset Management Ltd. and has extensive
experience in both industry and fund management.
Outlook
The United Kingdom economy, having avoided the recession that was widely
anticipated in 1998, performed well in 1999, with growth reaching 1.9% over
the past year. The rate of growth is likely to rise further this year, with
some consequent concern that stronger earnings growth may lead to inflationary
pressures. In order to contain these, the Bank of England's Monetary Policy
Committee can be expected to raise interest rates further in the coming months
on a precautionary basis, but there is still a good prospect that the economy
will perform well overall in the year 2000. A significant setback in the
United States could have adverse consequences elsewhere but, apart from this,
the prospects for 2000 and beyond remain positive. Smaller companies in the
UK should therefore have further opportunity to recover their relative market
position in the coming year.
MANAGER'S REVIEW
Market Review
The year started with the traditional New Year optimism, fuelled by a
background of falling interest rates. However, the central theme driving the
small company market through the majority of the year was corporate activity.
In most cases substantial premiums were paid for control of the target
companies. The companies that received most attention from corporate buyers
and industrial investors were the so called 'value' stocks at the expense of
the stronger companies with better growth prospects, a factor which was
highlighted in the interim report.
These conditions persisted until 8 September 1999 when interest rates were
increased by 0.25% to 5.25%. Investors then quickly de-rated cyclical stocks
as the interest rate cycle had turned earlier than expected and concentrated
on defensive stocks, with a recognised trend back to growth orientated
companies, with telecommunications and technology stocks leading the way.
Further rises in interest rates in November and January, to 5.75%, have
reinforced this trend.
Portfolio Review
The UK domestic economy's earnings are today split between a diminishing
manufacturing base and an increasing service sector. The Trust, for some
time, has been increasing its exposure to the newer and developing industries,
such as outsourcing, information technology and telecommunications, whilst
maintaining its exposure to the media sector. Examples of this are increased
holdings in UMECO, which provides value added distribution services primarily
to the aerospace industry, and Druid, a provider of information technology
management consulting services. Holdings in Baltimore Technology (previously
called Zergo), one of the global leaders in consultancy, design and
development of security systems for electronically delivered information and
commerce, and Atlantic Telecom, the telecommunication system provider, which
recently signed a joint venture with Marconi to deliver its systems throughout
the UK, are further illustrations of this policy.
The Trust's exposure to the manufacturing base is weighted towards the
construction sector, principally housebuilders. In the early part of the year
stocks such as Crest Nicholson and Countryside Properties performed well but
have shown weakness since the turn of the interest rate cycle. The current
valuation put on the stocks by the market is very close to asset value and is
not representative of ongoing demand and affordability for housing within the
economy.
As already mentioned, the market focus during the year was towards value
orientated corporate action. Despite this, the Trust has benefited from
corporate take-overs. The automotive manufacturer, Adwest and airport baggage
handler, Servisair, both received bids in the first half of the year. The
second half saw Birkby, the provider of storage solutions, taken over by
Mentmore Abbey. Salehurst, a provider of speciality paper, was taken private
and Servomex, Sedgemoor and Partco also lost their independence.
Investment Outlook
The UK economy has moved quickly back to a strong growth path.
GDP growth is expected to be around 3% for 2000 and core inflation is likely
to remain below the government's target of 2.5%. These features have positive
implications for smaller company earnings.
The stock market valuation of smaller companies in the last two months of 1999
has risen sharply, which may well mean that the traditional New Year rally has
come early. It is difficult to assess at this stage whether demand in many
areas of the economy is sustainable in the New Year, or whether many companies
will find themselves overstocked as fears concerning supply over the
Millennium subside.
Overall, the outlook for next year shows strong positive signs for smaller
companies, especially against the current economic backdrop. The managers
believe that, although the existing portfolio is well positioned to benefit,
an enhanced performance could be expected if the new growth objective is
adopted.
REVENUE ACCOUNT
Year to Year to
30 Nov 1999 30 Nov 1998
(unaudited)
£000's £000's
Income from fixed asset investments
Franked income 12,138 12,324
Unfranked income 1,122 1,517
------------------------------
13,260 13,841
------------------------------
Other Income
Interest receivable 575 906
Fees and commissions 37 157
------------------------------
612 1,063
------------------------------
Gross Income 13,872 14,904
------------------------------
Expenses and interest
Management fee 1,731 1,697
Administration expenses 317 283
Interest payable 2,797 2,803
------------------------------
4,845 4,783
------------------------------
Net revenue from ordinary activities
before taxation 9,027 10,121
------------------------------
Tax on net revenue from ordinary activities 1,548 2,608
------------------------------
Net revenue from ordinary activities
after taxation 7,479 7,513
------------------------------
Dividends
Preference shares 25 76
Ordinary shares:
- Interim : 0.95p (1998:0.92p)(Note 2) 2,886 2,795
- Proposed final: 1.55p (1998:1.50p)(Note 2) 4,414 4,557
------------------------------
7,325 7,428
------------------------------
Net revenue retained 154 85
Revenue reserve brought forward 3,431 3,346
Premium on cancellation of preference shares (90) 0
------------------------------
Revenue reserve carried forward 3,495 3,431
------------------------------------------------------------------------------
Earnings per share
- basic 2.46p 2.45p
- diluted 2.55p 2.54p
==============================================================================
STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
YEAR TO 30 NOV 1999
(unaudited)
Revenue Capital Total
£000's £000's £000's
Realised gains & losses - 2,625 2,625
Unrealised gains & losses - 94,884 94,884
Income 13,872 - 13,872
Management fee (1,731) (1,731) (3,462)
Other expenses (317) - (317)
---------------------------------------
Net return before finance costs
and taxation 11,824 95,778 107,602
Interest payable and similar charges (2,797) (2,652) (5,449)
---------------------------------------
Return on ordinary activities before
taxation 9,027 93,126 102,153
Tax on ordinary activities (1,548) 209
(1,339)
---------------------------------------
Return on ordinary activities after
taxation for the financial year 7,479 93,335 100,814
Dividends in respect of non-equity
shares (25) - (25)
---------------------------------------
Return attributable to equity
shareholders 7,454 93,335 100,789
Dividends in respect of equity shares (7,300) - (7,300)
---------------------------------------
Transfer to/(from) reserves 154 93,335 93,489
---------------------------------------
Return per ordinary share
- basic 2.46p 30.78p 33.24p
- diluted 2.55p 29.66p 32.21p
==============================================================================
YEAR TO 30 NOV 1998
Revenue Capital Total
£000's £000's £000's
Realised gains & losses - 23,471 23,471
Unrealised gains & losses - (56,921) (56,921)
Income 14,904 - 14,904
Management fee (1,697) (1,697) (3,394)
Other expenses (283) - (283)
----------------------------------------
Net return before finance costs
and taxation 12,924 (35,147) (22,223)
Interest payable and similar charges (2,803) (2,652) (5,455)
----------------------------------------
Return on ordinary activities before
taxation 10,121 (37,799) (27,678)
Tax on ordinary activities (2,608) 358
(2,250)
----------------------------------------
Return on ordinary activities after
taxation for the financial year 7,513 (37,441) (29,928)
Dividends in respect of non-equity
shares (76) - (76)
----------------------------------------
Return attributable to equity
shareholders 7,437 (37,441) (30,004)
Dividends in respect of equity shares (7,352) - (7,352)
----------------------------------------
Transfer to/(from) reserves 85 (37,441) (37,356)
----------------------------------------
Return per ordinary share
- basic 2.45p (12.32p) (9.87p)
- diluted 2.54p (11.59p) (9.05p)
==============================================================================
The revenue column of this statement is the profit and loss account of the
company. All revenue and capital items in this statement derive from
continuing operations. No operations were acquired or discontinued during the
year.
CASH FLOW STATEMENT
Year ended Year ended
30 Nov 1999 30 Nov 1998
(unaudited)
£000's £000's
Operating activities
Cash received from investments 12,228 10,557
Interest received 597 1,073
Underwriting commission 76 88
Management fee (1,679) (1,727)
Cash paid to and on behalf of the directors (92) (102)
Other cash payments (235) (305)
-------------------------------
Net cash inflow from operating activities 10,895 9,584
-------------------------------
Servicing of finance
Interest paid - revenue (1,920) (3,017)
Dividend on preference shares (25) (76)
-------------------------------
(1,945) (3,093)
-------------------------------
Taxation
Taxation (paid)/recovered (23) 567
-------------------------------
Capital expenditure and financial investment
Purchase of investments (101,898) (83,472)
Sale of investments 117,333 84,954
Capital management fee (1,679) (1,727)
Interest charged to capital (2,652) (2,652)
Liquidation of subsidiary undertakings - 242
-------------------------------
Net cash inflow/(outflow) from investing
activities 20,031 (2,655)
-------------------------------
Dividends
Dividends paid - equity shares (7,469) (7,200)
-------------------------------
Net cash inflow/(outflow) before financing 12,562 (2,797)
-------------------------------
Financing
Redemption of 7.25% cumulative first
preference shares (1,590) -
Repurchase of ordinary shares (16,881) -
Redemption of 7.25% convertible unsecured
loan stock 2003 (6,289) -
-------------------------------
Net cash (outflow) from financing (24,760) -
-------------------------------
Decrease in cash (12,198) (2,797)
==============================================================================
NOTES:
1. The financial information set out in the announcement does not constitute
the company's statutory accounts for the year ended 30 November 1999. The
financial information for the year ended 30 November 1998 is derived from the
statutory accounts for the year which have been delivered to the Registrar of
Companies. The auditors reported on those accounts; their report was
unqualified and did not contain a statement under section 237(2) or (3) of the
Companies Act 1985. The statutory accounts for the year ended 30 November
1999 will be finalised on the basis of the financial information presented by
the directors in this preliminary announcement and will be delivered
announcement and will be delivered to the Registrar of Companies following the
company's annual general meeting.
This announcement is prepared on the basis of the accounting policies as set
out in the most recent published set of annual financial statements.
This statement was approved by the board of directors on 18 January 2000.
2. The Directors recommend a final dividend of 1.55p per share (1998: 1.50p)
to be paid on 28 February 2000 to ordinary shareholders on the register at the
close of business on 4 February 2000. If approved, the total payment for the
year to 30 November 1999 will be 2.50p per share (1998: 2.42p).
3. The audited accounts will be posted to shareholders shortly.
4. In summary, the company balance sheet will show:
As at As at
30 Nov 1999 30 Nov 1998
(unaudited)
£000's £000's
Fixed asset investments
Listed: United Kingdom 363,813 280,984
Elsewhere 40 45
Unlisted: Subsidiary undertakings 3,577 3,374
Other 9,300 7,600
---------------------------------
376,730 292,003
Net current (liabilities)/assets (3,591) 12,404
---------------------------------
Total assets less current liabilities 373,139 304,407
Debenture stock (19,119) (19,119)
Convertible unsecured loan stock (11,008) (17,297)
Amount owed to subsidiary (15,000) (15,000)
---------------------------------
Financed by shareholders' funds 328,012 252,991
---------------------------------
Net asset value per ordinary share of
5p loan stock not converted 115.19p 82.76p
------------------------------------------------------------------------------
5. The net asset value per ordinary share shown in this statement incorporates
market valuations of listed investments and directors' valuations of unlisted
investments.
Basic net asset value per share is based on net assets and on 284,766,842
ordinary shares, being the number of ordinary shares in issue at the year end.
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