Half Yearly Report

RNS Number : 5043H

F&C U.S. Smaller Companies PLC

22 February 2010

 



Date:                22 February 2010

Contact:           Robert Siddles                                               

                        F&C Management Limited                              

                        020 7628 8000                                               

F&C US Smaller Companies PLC

Unaudited statement of results

for the half-year ended 31 December 2009

Summary of Unaudited Results

Attributable to equity shareholders	31 December 2009	30 June 2009	% Change
Net assets	£73.48m	£60.61m	21.2
Net asset value per share	354.85p	292.69p	21.2
Russell 2000 Index (sterling adjusted)	387.27	308.64	25.5
Share price	304.50p	253.50p	20.1
Increase in net asset value per share since inception on 8 March 1993			267.7%
Increase in the Russell 2000 Index (sterling adjusted) since 8 March 1993			145.0%

Chairman's Statement

During the period under review the US stock market continued the rally that began in March. Shares were helped by substantial monetary stimulus and the revival was in spite of a poor economic background and rising unemployment. The exchange rate between the dollar and sterling was relatively stable.

Performance

I am pleased to report that the net asset value ("NAV") per share of your Company rose significantly in the six month period to 31 December 2009, gaining 21.2%. The Company's benchmark, the sterling-adjusted Russell 2000 Index, advanced 25.5% which was somewhat better than the NAV performance. It is worth pointing out that the six month period under review followed an extended period of strong performance by the Company compared to its benchmark: over the two years to 31 December 2009, NAV per share grew 23.2% compared to an increase of only 0.6% for the benchmark.

The recovery in the stock market is most welcome and the size of the gain was quite remarkable, rivalling the other great recovery rallies of modern history, such as the ones beginning in 1974 and 1982. The advance reflects the enormous amount of monetary and other stimuli.

Market review

During the six month period, the US equity market rallied strongly. The Russell 2000 Index gained 23.0% in dollar terms, which was more than the Standard & Poors Composite Index, which advanced 21.3% but slightly less than the technology-orientated NASDAQ Composite Index, which added 23.7%.

Sterling investors benefited slightly from the exchange rate as the US dollar gained 2.0% over the six months. The exchange rate was far more stable in this period than in the previous six months. It seems that the earlier flight from the dollar, when investors moved back into risky assets, is over.

Smaller companies paused twice in their run up in the period, firstly in early July and secondly in late October. In both cases, after a short rest, the bulls returned and pushed the Russell 2000 to new highs. Given the extraordinary low level of interest rates, this kind of behaviour is not surprising. Although the decisive turn in the market occurred in March, when credit markets eased, it was not until late summer that the first firm signs that the economy might be heading out of recession appeared. The Institute of Supply Managers Index broke through the critical level of 50 in August, indicating that manufacturing was once again expanding, after having spent 18 months below that level.

The overall sentiment in the market was towards economic recovery, and this was reflected in the leading and laggard sectors: best performing sectors were energy, materials and processing, and consumer discretionary, whereas the laggards were utilities, healthcare and consumer staples.

Portfolio review

The portfolio benefited most from ACCO Brands, Bottomline Technologies and Avocent. New management at office supplies manufacturer ACCO Brands appears to have brought the company back from the brink with drastic action on costs and underperforming businesses, as well as a successful refinancing. Bottomline Technologies began to see dramatic improvements in profitability from its new payment automation software and an alliance with Bank of America. Avocent, whose products automate data centres, received an agreed bid from Emerson Electric. On the negative side, retailer Conn's fell as a result of a weak Texas economy, discounting and the need to tighten customer credit. United Community Banks suffered from deteriorating commercial real estate conditions and the need to raise additional capital. Premiere Global Services fell as its conference calling business was hit by the lagged effect of falling employment.

Over the six months to 31 December, the manager focused on two areas for new investment, both of which had lagged the market. The first was aerospace and defence, where new stocks included Orbital Sciences, a manufacturer of small rockets, and FLIR Systems, a producer of infrared vision equipment. The second area was defensive stocks, such as, baked products company, Flowers Foods and regional telecommunications provider, NTELOS Holdings. As the oil price rose, profits were taken in energy-related stocks, and several positions were sold in their entirety, including Helmerich and Payne and Pride International, two energy service companies. Sales were also made where stocks had largely recovered from balance sheet concerns and growth prospects were thought to be limited, for example, Community Health Systems, the rural hospital operator. Very strong performance by metals-related Walter Energy (a metallurgical coal producer) also led to a sale, as did the bid for Avocent. Foundation Coal received a bid from Alpha Natural Resources, another coal mining company, and we accepted shares in Alpha because of that company's strong balance sheet and respected management.

Overall, the portfolio emphasises manufacturing, with a focus on, among others, metals and aerospace. Energy is still over-weighted but less than it was. Within financials we still favour insurance. Health and technology are underweight, reflecting the Company's risk averse investment philosophy.

Buy-backs and discount

The Company bought back no shares in the six-month period. 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%.

The discount widened from 13.4% at 30 June 2009 to 14.2% at 31 December 2009. As at 18 February 2010, the discount was 12.9%. One factor affecting the discount at the year end was the speed of the market's rise in December, which meant that the price of the Company's shares did not always keep up.

Outlook

The manufacturing side of the US economy appears to be gradually recovering; however the prospects for the consumer appear less favourable given the continuing weakness in the housing market and weak employment trends. The stock market is supported by very low interest rates and anticipation of improving corporate profits. Rates may rise and there is a danger that investor psychology may become too optimistic: either factor could lead to a correction in equities. Small companies should benefit from economic recovery and provide a hedge, should inflation accelerate. The outlook for the dollar could improve as the economy regains strength.

Gordon Grender

22 February 2010

Directors' Statement of Principal Risks and Uncertainties

The Company's assets consist mainly of listed equities and its principal risks are therefore market related.

Other key risks faced by the Company relate to investment strategy, currency, gearing, investment management resources, regulation, financial control and counterparties (including custodian default).  These risks, and the way in which they are managed, are described in more detail under the heading "Principal risks and their management" within the Directors' Report and Business Review contained within the Company's annual report for the year ended 30 June 2009.  The Company's principal risks and uncertainties have not changed materially since the date of that report and are not expected to change materially for the remainder of the Company's financial year.

Directors' Statement of Responsibilities in Respect of the Financial Statements

In accordance with Chapter 4 of the Disclosure and Transparency Rules the Directors confirm, in respect of the report and accounts for the half-year ended 31 December 2009 of which this statement is an extract, that to the best of their knowledge:

·              the condensed set of financial statements has been prepared in accordance with applicable UK Accounting Standards and gives a true and fair view of the assets, liabilities, financial position and return of the Company;

·              the half-yearly report includes a fair review of the important events that have occurred during the first six months of the financial year and their impact on the financial statements;

·              the Directors' Statement of Principal Risks and Uncertainties shown above is fair review of the principal risks and uncertainties for the remainder of the financial year; and

·              the half-yearly report includes details on related party transactions.

Signed on behalf of the Board

Gordon Grender

Chairman

22 February 2010

Unaudited Condensed Income Statement

for the half-year ended 31 December	2009			2008
	Revenue	Capital	Total	Revenue	Capital	Total
	£'000s	£'000s	£'000s	£'000s	£'000s	£'000s
Gains on investments	-	12,983	12,983	-	3,995	3,995
Foreign exchange gains	-	41	41	-	768	768
Income	319	-	319	418	-	418
Management fee	(295)	-	(295)	(249)	-	(249)
Performance fee	-	-	-	-	(10)	(10)
Other expenses	(132)	(2)	(134)	(115)	(5)	(120)
Net return before finance costs and taxation	(108)	13,022	12,914	54	4,748	4,802
Finance costs	-	-	-	-	-	-
Net return on ordinary activities before taxation	(108)	13,022	12,914	54	4,748	4,802
Taxation on ordinary activities	(41)	-	(41)	(59)	-	(59)
Net return attributable to equity shareholders	(149)	13,022	12,873	(5)	4,748	4,743
Return per share - pence	(0.72)	62.89	62.17	(0.02)	22.88	22.86

The total column 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.

Unaudited Condensed Reconciliation of Movements in Shareholders' Funds

Half-year ended 31 December 2009		Share	Non-	Capital			Total equity
	Share	premium	distributable	redemption	Capital	Revenue	shareholders'
	capital	account	reserve	reserve	reserves	reserve	funds
	£'000s	£'000s	£'000	£'000s	£'000s	£'000s	£'000s
Balance at 30 June 2009	5,177	2,468	841	8,175	45,018	(1,072)	60,607
Movements during the half-year ended 31 December 2009
Return attributable to equity shareholders	-	-	-	-	13,022	(149)	12,873
Balance at 31 December 2009	5,177	2,468	841	8,175	58,040	(1,221)	73,480

Half-year ended 31 December 2008		Share	Non-	Capital			Total equity
	Share	premium	distributable	redemption	Capital	Revenue	shareholders'
	capital	account	reserve	reserve	reserves	reserve	funds
	£'000s	£'000s	£'000	£'000s	£'000s	£'000s	£'000s
Balance at 30 June 2008	5,197	2,468	841	8,155	40,400	(1,079)	55,982
Movements during the half-year ended 31 December 2008
Shares purchased and cancelled by the Company	(12)	-	-	12	(129)	-	(129)
Return attributable to equity shareholders	-	-	-	-	4,748	(5)	4,743
Balance at 31 December 2008	5,185	2,468	841	8,167	45,019	(1,084)	60,596

Year ended 30 June 2009		Share	Non-	Capital			Total equity
	Share	premium	distributable	redemption	Capital	Revenue	shareholders'
	capital	account	reserve	reserve	reserves	reserve	funds
	£'000s	£'000s	£'000	£'000s	£'000s	£'000s	£'000s
Balance at 30 June 2008	5,197	2,468	841	8,155	40,400	(1,079)	55,982
Movements during the year ended 30 June 2009
Shares purchased and cancelled by the Company	(20)	-	-	20	(198)	-	(198)
Return attributable to equity shareholders	-	-	-	-	4,816	7	4,823
Balance at 30 June 2009	5,177	2,468	841	8,175	45,018	(1,072)	60,607

Unaudited Condensed Balance Sheet

	31 Dec 2009	31 Dec 2008	30 June 2009
	£'000s	£'000s	£'000s
Fixed assets
Listed investments	72,185	57,363	58,101
Current assets
Debtors	191	454	250
Cash at bank and short-term deposits	1,393	3,092	3,182
	1,584	3,546	3,432
Creditors: amounts falling due within one year	(289)	(313)	(926)
Net current assets	1,295	3,233	2,506
Net assets	73,480	60,596	60,607
Capital and reserves
Share capital	5,177	5,185	5,177
Share premium account	2,468	2,468	2,468
Non-distributable reserve	841	841	841
Capital redemption reserve	8,175	8,167	8,175
Capital reserves	58,040	45,019	45,018
Revenue reserve	(1,221)	(1,084)	(1,072)
Total shareholders' funds	73,480	60,596	60,607
Net asset value per share - pence	354.85	292.21	292.69

Unaudited Condensed Cash Flow Statement

	Half-year ended	Half-year ended
	31 Dec 2009	31 Dec 2008
	£'000s	£'000s
Net cash (outflow)/inflow from operating activities	(594)	15
Net cash (outflow)/inflow from financial investment	(1,200)	757
Net cash (outflow)/inflow before use of liquid resources and financing	(1,794)	772
Decrease/(increase) in short-term deposits	1,889	(612)
Net cash outflow from financing	-	(129)
Increase in cash during the period	95	31
Reconciliation of net cash flow to movement in net funds
Increase in cash	95	31
(Decrease)/increase in short-term deposits	(1,889)	612
Foreign exchange movement	41	768
Movement in net funds	(1,753)	1,411
Net funds at the beginning of the period	3,144	1,681
Net funds at the end of the period	1,391	3,092
Represented by:
Short-term deposits	1,393	3,074
(Bank overdraft)/cash at bank	(2)	18
	1,391	3,092

Notes

1    Accounting policies

These financial statements have been prepared on the basis of the accounting policies set out in the Company's financial statements at 30 June 2009. These accounting policies are expected to be followed throughout the year ending 30 June 2010.

2    Dividend

The Directors do not propose to pay an interim dividend.

3    Return per share

Return per share attributable to shareholders reflects the overall performance of the Company in the period.  Net revenue recognised in the first six months is not indicative of the total likely to be received in the full accounting year.

	Half-year ended	Half-year ended
	31 Dec 2009 £'000s	31 Dec 2008 £'000s
Revenue return	(149)	(5)
Capital return	13,022	4,748
Total return	12,873	4,743
Weighted average number of shares in issue	20,707,135	20,753,803

4    Results

The results for the half-year ended 31 December 2009 and 31 December 2008, which are unaudited, constitute non-statutory accounts within the meaning of Section 434 of the Companies Act 2006. The latest published accounts which have been delivered to the Registrar of Companies are for the year ended 30 June 2009; the report of the independent auditors thereon was unqualified and did not contain a statement under Section 498 of the Companies Act 2006. The abridged financial statements shown above for the year ended 30 June 2009 are an extract from those accounts.

5    Report and accounts

The report and accounts for the half-year ended 31 December 2009 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

22 February 2010

 

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