Annual Financial Report

RNS Number : 6738K

F&C U.S. Smaller Companies PLC

23 August 2012

 



Date:                23 August 2012

Contact:           Robert Siddles                                               

                        F&C Management Limited                              

                        020 7628 8000                                               

F&C US Smaller Companies PLC

Audited Statement of Results

for the year ended 30 June 2012

Summary of results

Attributable to equity shareholders	30 June 2012	30 June 2011	% Change
Net assets	£99.25m	£96.20m	3.2
Net assets per share	468.32p	464.58p	0.8
Russell 2000 Index (sterling adjusted)	509.09	515.39	(1.2)
Share price	466.50p	433.88p	7.5
Gearing/(net liquidity)*	(5.6)%	(3.9)%
Increase in net asset value per share since inception   on 8 March 1993			385.3
Increase since 8 March 1993 in the Russell 2000 Index   (sterling adjusted)			222.8

*Calculated as loans less cash and investment debtors plus overdrafts and investment creditors at balance sheet value as a percentage of net assets.

Chairman's Statement

Over the last year stock markets struggled to make progress, suffering a significant downward correction last summer. Economic growth slowed around the world and even slowed in the US last autumn before briefly gaining momentum and then flattening out again.

Performance

Against this background the Net Asset Value ("NAV") per share rose only slightly, gaining 0.8% to 468.3p during the twelve months to 30 June 2012. This compared to a fall of 1.2% in our benchmark, the sterling-adjusted Russell 2000 Index and a rise of 5.6% in the sterling-adjusted Standard & Poor's Composite Index.

Since inception in March 1993, the NAV per share has risen by 385.3%, whereas the sterling-adjusted Russell 2000 Index gained 222.8%. The Company's conservative investment approach has served shareholders well over the longer term.

Market review

In dollar terms, the Russell 2000 index of smaller companies lost 3.5% during the year under review. This was in contrast to other major US equity indices, which managed to achieve small gains: the Standard & Poor's Composite Index rose 3.1% and the technology-orientated NASDAQ Composite Index advanced by 5.8%.

The US stock market suffered a significant sell-off in late summer last year firstly as worries grew about the Euro crisis and secondly as the US economy showed signs of slowing. In particular the usually reliable ISM survey of manufacturing activity fell to almost 50, the level indicating no overall growth. It subsequently briefly gained momentum but has again fallen back to 50 more recently. Since last autumn, however, there has been a significant improvement in the job market as measured by weekly initial jobless claims (another usually reliable indicator). Slowing overseas economies do though appear to be having an effect on US growth.

The market was led by the healthcare, consumer staples and financial services sectors. The laggards were energy, technology and materials and processing. These moves reflect the more defensive mood of the stock market.

Discount and buybacks

The price of the shares rose by 7.5% to 466.5p over the year. The discount to NAV per share was 0.4% at the end of the period compared to 6.6% a year earlier and the average discount during the year was 2.4%. At 21 August 2012 the price stood at a premium of 1.3%.

For the third consecutive year, the Company did not buy back any shares, reflecting a relatively narrow discount for much of the last year and occasionally a share price premium to the NAV. Instead the Company used its power to issue 485,000 shares to meet demand from the market, bringing the total shares in issue to 21,192,135 at year end. The share issuance raised £2.3m and the average premium to NAV of the shares issued was 1.4%: each issue of shares during the year was at a premium. After the year end, a further 230,000 shares were issued, also at a premium to NAV. In view of this demand the Board will therefore seek shareholder authority at the annual general meeting to issue up to 10% of the Company's shares instead of the 5% level of previous years.

The Board will continue to apply its policy of buying back shares at appropriate times with a view to limiting the discount in the longer term to around 10%.

Foreign currency hedging policy and gearing policy

It is worth reiterating the Board's policy in relation to hedging and gearing. Although the Board has the authority to hedge out the £/$ risk for a sterling based investor, it does not routinely do so and the portfolio is not currently hedged.

The Company is not currently geared. The Board takes the view that the asset class in which the Company invests is sufficiently risky and it does not wish to compound this by adding the additional risk of borrowing. The Board believes that most of the Company's shareholders are conservative long-term investors and that this policy suits their needs.

Corporate governance

The Company is committed to high standards of corporate governance and the Board believes that the Company has complied with the relevant guidance in this area. More information is included in the Corporate Governance Statement on pages 21 to 25.

Annual general meeting

The annual general meeting ("AGM") will be held at 12.30 p.m. on Thursday 4 October 2012 and I hope that you will attend. The meeting will be held in the offices of F&C Management Limited at Exchange House, Primrose Street, London EC2A 2NY. A map showing the location is included in the Notice of Annual General Meeting on page 46.

Outlook

The US smaller company sector is an exciting one and shareholders can benefit from investing alongside some of America's most entrepreneurial managers. The US economy has recovered well from the recession but growth seems to have slowed now. Prospects should be helped by falling gasoline prices, growing energy self sufficiency and manufacturing competitiveness.

Gordon Grender

Chairman

23 August 2012

Principal risks

The Company's assets consist mainly of listed equities and its principal risks are therefore market related. The specific key risks faced by the Company include the following:

Market - the Company's investments consist of quoted equity securities and it is therefore exposed to movements in the price of individual securities and the market generally. The large number of investments held and the sector diversity of the portfolio enable the Company to spread its risks with regard to individual companies and sectors, but a significant fall in US equity markets could have an adverse impact on the value of the Company's investment portfolio. The Board recognises that by its nature the US smaller companies sector can be a risky asset class to invest in and has adopted a disciplined and relatively conservative investment style that it considers appropriate to long-term investment in this sector.

Investment strategy - inappropriate investment strategy or ineffective implementation of this strategy could result in poor returns for shareholders and a widening of the discount of the share price to the NAV per share. The Board periodically reviews the investment strategy and regularly monitors the Company's investment portfolio and the investment selection, performance and operations of the Manager.

Investment management resources - the quality of the management team is a crucial factor in delivering good performance and loss by the Manager of key staff could adversely affect investment returns. The Manager has training and development programmes in place for its employees and develops its recruitment and remuneration packages in order to retain key staff.

Service providers - administrative errors or control failures by or between service providers could be damaging to the interests of investors and the Company. The Board receives regular reports from the Manager on its oversight of service providers which, for the administration of the F&C savings plans, includes audit site visits; monthly technical compliance monitoring; monthly service delivery meetings; quarterly financial crime prevention forums; and the detailed review and investigation of breaches and complaints. Arrangements are also in place to mitigate other service provider risks, including those relating to safe custody and the Manager's outsourced operational platform and its counterparties.

Regulation - failure to comply with applicable legal and regulatory requirements could result in the Company losing its listing and/or being subject to corporation tax on its capital gains. The Board reviews regular reports from the Manager on the controls in place to ensure compliance by the Company with rules and regulations. The Board also receives regular investment valuations and income forecasts as part of its monitoring of compliance with the provisions of section 1158.

Statement of Directors' Responsibilities in Respect of the Financial Statements

The Directors are responsible for preparing the Annual Report, the Directors' Remuneration Report and the financial statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have prepared the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period. In preparing these financial statements, the Directors are required to:

• select suitable accounting policies and then apply them consistently;

• make judgments and accounting estimates that are reasonable and prudent;

• state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements respectively;

• prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements and the Directors' Remuneration Report comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The financial statements are published on the www.fandcussmallers.com website, which is maintained by F&C. The content and integrity of the website maintained by F&C or any of its subsidiaries is, so far as it relates to the Company,

the responsibility of F&C. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Each of the Directors, confirms that, to the best of his knowledge:

• the financial statements, which have been prepared in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law), give a true and fair view of the assets, liabilities, financial position and return of the Company; and

• the Directors' report includes a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that it faces.

These risks and the way they are mitigated are described in more detail under the heading Internal Controls and Management of Risk in the Corporate Governance section of the Company's Annual Report for the year ended 30 June 2012. The Annual Report is published on the Company's website, www.fandcussmallers.com.

Income Statement

for the year ended 30 June	2012			2011
	Revenue	Capital	Total	Revenue	Capital	Total
	£'000s	£'000s	£'000s	£'000s	£'000s	£'000s
Gains on investments	-	1,048	1,048	-	19,562	19,562
Foreign exchange losses	-	(34)	(34)	-	(167)	(167)
Income	902	-	902	623	-	623
Management fee	(744)	-	(744)	(726)	-	(726)
Other expenses	(300)	(3)	(303)	(298)	(4)	(302)
Net return on ordinary activities before taxation	(142)	1,011	869	(401)	19,391	18,990
Taxation on ordinary activities	(135)	-	(135)	(87)	-	(87)
Net return attributable to equity shareholders	(277)	1,011	734	(488)	19,391	18,903
Return per share - pence	(1.33)	4.85	3.52	(2.36)	93.64	91.28

The total 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.

A statement of total recognised gains and losses is not required as all gains and losses of the Company have been reflected in the above statement.

Reconciliation of Movements in Shareholders' Funds

for the year ended 30 June 2012
	Called-up	Share	Non-	Capital			Total
	share	premium	distributable	redemption	Capital	Revenue	shareholders'
	capital	account	reserve	reserve	reserves	reserve	funds
	£'000s	£'000s	£'000s	£'000s	£'000s	£'000s	£'000s
Balance at 1 July 2011	5,177	2,468	841	8,175	81,407	(1,867)	96,201
Movements during the year ended 30 June 2012
Shares issued by the Company	121	2,192	-	-	-	-	2,313
Net return attributable to equity shareholders	-	-	-	-	1,011	(277)	734
Balance at 30 June 2012	5,298	4,660	841	8,175	82,418	(2,144)	99,248
for the year ended 30 June 2011
Balance at 1 July 2010	5,177	2,468	841	8,175	62,016	(1,379)	77,298
Movements during the year ended 30 June 2011
Net return attributable to equity shareholders	-	-	-	-	19,391	(488)	18,903
Balance at 30 June 2011	5,177	2,468	841	8,175	81,407	(1,867)	96,201

Balance Sheet

at 30 June	2012	2011
	£'000s	£'000s
Fixed assets
Listed investments	93,858	92,630
Current assets
Debtors	95	522
Cash at bank and short-term deposits	5,675	3,441
	5,770	3,963
Creditors: amounts falling due within one year	(380)	(392)
Net current assets	5,390	3,571
Net assets	99,248	96,201
Capital and reserves
Called-up share capital	5,298	5,177
Share premium account	4,660	2,468
Non-distributable reserve	841	841
Capital redemption reserve	8,175	8,175
Capital reserves	82,418	81,407
Revenue reserve	(2,144)	(1,867)
Total shareholders' funds	99,248	96,201
Net asset value per share - pence	468.32	464.58

Cash Flow Statement

for the year ended 30 June	2012	2011
	£'000s	£'000s
Operating activities
Investment income received	732	498
Interest received	3	3
Fee paid to management company	(739)	(688)
Fees paid to Directors	(69)	(69)
Other payments	(224)	(209)
Net cash outflow from operating activities	(297)	(465)
Return on investment and servicing of finance
Purchases of investments	(22,601)	(29,437)
Sales of investments	22,856	32,478
Other capital charges and credits	(3)	(4)
Net cash inflow from investment and servicing of finance	252	3,037
Net cash (outflow)/inflow before use of liquid resources and financing	(45)	2,572
Financing
Issue of ordinary shares	2,313	-
Management of liquid resources
Increase in short-term deposits	(2,144)	(2,388)
Increase in cash	124	184

Notes

1   Return per ordinary share

Revenue return

The revenue return per share is based on the net revenue return attributable to equity shareholders of £277,000 loss (2011: £488,000 loss).

Capital return

The capital return per share is based on the net capital return attributable to equity shareholders of £1,011,000 profit (2011: £19,391,000 profit).

Weighted average ordinary shares in issue

Both the revenue and capital returns are based on a weighted average of ordinary shares in issue during the year of 20,850,345 (2011: 20,707,135).

2    Annual general meeting

The annual general meeting will be held at Exchange House, Primrose Street, London EC2A 2NY on Thursday 4 October 2012 at 12.30 p.m.

3    Report and accounts

The report and accounts for the year ended 30 June 2012 will be posted to shareholders and made available on the website www.fandcussmallers.com shortly. Copies may also be obtained from the Company's registered office, Exchange House, Primrose Street, London EC2A 2NY.

By order of the Board

F&C Management Limited, Secretary

Exchange House, Primrose Street, London EC2A 2NY

23 August 2012

 

END

 

 

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