Interim Results
F&C U.S. Smaller Companies PLC
15 March 2006
Date: 15 March 2006
Contact: Robert Siddles
F&C Management Limited
020 7628 8000
F&C US SMALLER COMPANIES PLC
Unaudited Interim Statement of Results
for the half-year ended 31 December 2005
HIGHLIGHTS OF RESULTS
• The NAV per share rose 10.3%, compared to a rise of 9.9% in the benchmark,
the sterling adjusted Russell 2000 Index.
• The Russell 2000 Index rose 5.3% in dollar terms, compared to 4.8% for the
S&P500.
SUMMARY OF UNAUDITED RESULTS FOR THE HALF-YEAR TO 31 DECEMBER 2005
31 December 2005 30 June 2005 Change
Net assets £77.4m *£71.4m +8.4%
Net asset value per share 326.57p *296.02p +10.3%
Russell 2000 Index (sterling adjusted) 392.15 356.86 +9.9%
Share price 294.75p 263.50p +11.9%
Increase in net asset value per share since
inception on 8 March 1993 +238.2%
Increase since 8 March 1993 in the Russell 2000 Index
(sterling adjusted) +148.7%
* Restated for change in accounting policy (see note 1)
Chairman's Statement
Dear Shareholder
I am pleased to report an increase of 10.3% in the net assets per share of your
Company, in the six month period to 31 December 2005, exceeding the rise of 9.9%
in the Company's benchmark, the sterling-adjusted Russell 2000 Index.
Although the degree of out-performance was modest, the performance is pleasing
given the very strong performance in the fiscal year ending 30 June 2005 and the
rally in smaller technology shares, which began last May. The Company's
conservative investment approach means that it tends to avoid investing in what
we believe to be the more risky technology sector.
Market Review
During the period of six months under review, the Russell 2000 Index rose 5.3%
in dollar terms, slightly more than the Standard & Poors Composite Index, which
gained 4.8% but less that the more technology-orientated NASDAQ Composite Index,
which moved ahead 7.2%.
Sterling investors benefited from a rise in the US dollar over the six months.
Rising interest rates and robust economic growth helped to support the US
currency, which has continued to advance against sterling following the low
reached in December 2004.
Strength in smaller companies stocks at the beginning of the six month period
faded and the Russell 2000 declined to a low in October. A rally subsequently
took hold, carrying the Index to record highs in December. Optimism centred
around declining oil prices and an expectation that interest rates did not have
much further to rise.
The best performing sectors were commodity related, specifically integrated
oils, other energy, and materials and processing. The laggards were consumer
staples, utilities and the consumer discretionary sector.
Portfolio Review
The portfolio continues to be substantially overweight in the consumer
discretionary sector (which includes both business and consumer services) but
underweight in technology, reflecting the Company's risk averse style. In the
financials sector, banks and REITs are under-weighted because of the potential
impact of rising rates (instead commercial finance and insurance is emphasised).
In the last six months, the manager used share price strength to reduce
materials and processing stocks and to move from an overweight position in
energy closer to a neutral weight. The portfolio has been overweight in energy
for several years because of expected supply constraints but the sharp run up in
share prices last Autumn suggested a more cautious approach is now appropriate.
The positions in the St Joe Company and Shaw Group were sold in their entirety.
The autos and transportation sector has become an area of increased emphasis,
and the manager added trucking stocks following an economic scare earlier in the
year which provided a buying opportunity. A variety of factors are constraining
new supply in the long distance trucking industry, favouring pricing. Freight
forwarder, EGL, a recent purchase, was reduced after a strong recovery.
Although the consumer discretionary sector remains an area of focus, several
stocks were sold: direct marketer, Harte-Hanks, arts and crafts retailer
Michaels Stores (both expensive) and Furniture Brands. The last failed to live
up to expectations and the manager is moving away from consumer cyclical shares
where risks will increase.
The manager added several inexpensive stocks with steady growth characteristics
that should do well as the rate of growth in corporate profits decelerates. An
example is TNS, which operates a specialised data communication network.
The biggest contributions to performance came from freight forwarder EGL and
retailer Conn's. The latter made a big contribution in the last fiscal year too.
Others were from Genesee and Wyoming, the operator of short line railroads and
LKQ, which recycles car parts. Poor performers included Lifepoint Hospitals,
where a recent acquisition appears to have overstretched its management
resources and Andrew, the manufacturer of wireless base station subsystems,
which was impacted by high copper prices.
Buy-backs and discount
The Company bought back 411,000 of its own shares in the six-month period at an
average discount of 12.0%. 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 narrowed slightly from 11.0% at 30 June 2005 to 9.7% at 31 December
2005. As at 14 March 2006, the discount was 5.2%.
Continuation Vote
At the Annual General Meeting on 15 November 2005, shareholders voted in favour
of an ordinary resolution that the Company continue as an investment trust. It
is the Board's intention that similar resolutions will be put forward every
three years, the next occasion being the AGM in 2008.
Outlook
Smaller companies have rallied to new record highs after the end of the period
of this review. Some consolidation is to be expected in the short term but there
seem to be no signs yet that the secular bull market in small companies that
began six years ago has ended. The strength of the technology sector since last
May could mean that the Company's performance lags that of the market, because
of the Company's risk averse approach. The Board, however, believes this
approach will continue to benefit shareholders over the long term.
Gordon Grender
March 2006
UNAUDITED INCOME STATEMENT (incorporating the revenue account+)
6 months to 31 December 2005 6 months to 31 December 2004
Restated*
Revenue Capital Total Revenue Capital Total
£'000s £'000s £'000s £'000s £'000s £'000s
Gains on investments - 6,936 6,936 - 2,615 2,615
Exchange gains/(losses) on currency balances - 30 30 - (116) (116)
Income 667 - 667 706 - 706
Management fee (302) - (302) (259) - (259)
Other expenses (96) (4) (100) (100) (3) (103)
Net return before finance costs and taxation 269 6,962 7,231 347 2,496 2,843
Interest payable and similar charges - - - - - -
Return on ordinary activities before taxation 269 6,962 7,231 347 2,496 2,843
Taxation on ordinary activities (98) - (98) (106) - (106)
Return attributable to equity shareholders 171 6,962 7,133 241 2,496 2,737
Return per ordinary share - pence 0.72 29.11 29.83 0.93 9.58 10.51
+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.
* Restated for change in accounting policy (see note 1)
UNAUDITED RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS FUNDS
Share Non- Capital Total
Share premium distributable redemption Special Capital Revenue Shareholders'
capital account reserve reserve reserve reserves reserve Funds
£'000s £'000s £'000s £'000s £'000s £'000s £'000s £'000s
Balance at 30 June 2004
(as previously reported) 6,621 2,468 841 6,731 10,713 38,988 (1,599) 64,763
Investment valuation
restatements* - - - - - (105) - (105)
Balance at 30 June 2004
(restated) 6,621 2,468 841 6,731 10,713 38,883 (1,599) 64,658
Shares repurchased during
year ended 30 June 2005 (595) - - 595 (5,367) - - (5,367)
Return attributable to equity
shareholders during year
ended 30 June 2005
(as previously reported) - - - - - 11,816 222 12,038
Investment valuation
restatements* - - - - - 21 - 21
Balance at 30 June 2005
(restated) 6,026 2,468 841 7,326 5,346 50,720 (1,377) 71,350
Shares repurchased during
the period (103) - - 103 (1,111) - - (1,111)
Return attributable to equity
shareholders during the
period - - - - - 6,962 171 7,133
Balance carried forward at
31 December 2005 5,923 2,468 841 7,429 4,235 57,682 (1,206) 77,372
* Restated for change in accounting policy (see note 1)
UNAUDITED BALANCE SHEET
At 31 Dec 2005 At 31 Dec 2004 At 30 June 2005
Restated* Restated*
£'000s £'000s £'000s
Fixed assets
Investments held at fair value 75,979 64,498 70,264
Current assets
Debtors 238 110 76
Cash at bank and short-term deposits 1,343 1,355 1,591
1,581 1,465 1,667
Current liabilities (188) (437) (581)
Net current assets 1,393 1,028 1,086
Net assets 77,372 65,526 71,350
Shareholders equity
Called up share capital 5,923 6,392 6,026
Share premium account 2,468 2,468 2,468
Non-distributable reserve 841 841 841
Capital redemption reserve 7,429 6,960 7,326
Special reserve 4,235 8,844 5,346
Capital reserves 57,682 41,379 50,720
Revenue reserve (1,206) (1,358) (1,377)
Total equity shareholders' funds 77,372 65,526 71,350
Net asset value per ordinary share
- pence 326.57 256.26 296.02
Restated for change in accounting policy (see note 1)
UNAUDITED CASH FLOW STATEMENT
6 months to 6 months to
31 December 2005 31 December 2004
£'000s £'000s
Net cash (outflow)/inflow from operating activities (116) 308
Total tax paid (63) (97)
Net cash inflow from purchases and sales of investments 1,219 1,833
Net cash inflow before use of liquid resources and financing 1,040 2,044
Decrease in short-term deposits 21 -
Net cash outflow from financing (1,204) (1,954)
(Decrease)/increase in cash during the period (143) 90
Reconciliation of net cash flow to movement in net funds
(Decrease)/increase in cash during the period (143) 90
Decrease in short-term deposits (21) -
Exchange movement 30 (116)
Movement in net funds in the period (134) (26)
Net funds at the beginning of the period 1,477 1,381
Net funds at the end of the period 1,343 1,355
Notes
1 ACCOUNTING POLICIES
Changes in Accounting Policy
With effect from 1 July 2005, the Company has adopted Financial Reporting
Standards (FRS) 21 to 26. The effects of adoption are described briefly below.
FRS 25 (Financial Instruments: Disclosure and Presentation) and FRS 26
(Financial instruments: Measurement) - The Company has designated its assets and
liabilities as being measured at 'fair value through profit or loss'. The fair
value of fixed asset listed investments is deemed to be the bid value of those
investments at the close of business on the relevant date. Previously, all
listed investments were valued at mid value.
There have been no other changes to accounting policies during the period.
2 DIVIDEND
The directors do not propose to pay an interim dividend.
3 RETURN PER ORDINARY SHARE
Returns per ordinary share attributable to ordinary shareholders reflects the
overall performance of the Company in the period. Net revenue recognised in the
first six months is not reflective of the total likely to be received in the
full accounting year.
6 months to 6 months to Year to
31 Dec 2005 31 Dec 04 30 June 05
(Restated) (Restated)
£'000s £'000s £'000s
Total return 7,133 2,737 12,059
Revenue return 171 241 222
Capital return 6,962 2,496 11,837
Weighted average ordinary shares in issue 23,912,845 26,037,692 25,278,501
6 months to Year to
31 Dec 04 30 June 05
As previously stated £'000s £'000s
Total return 2,736 12,038
Capital return 2,495 11,816
The total and capital returns for the six months to 31 December 2004 and year to
30 June 2005 have been increased by £1,000 (nil pence per share) and £21,000
(0.08 pence per share) respectively. This reflects the effect of the decrease
in valuation of investments, as a result of the change in accounting policy, at
1 July 2004 by £105,000, 31 December 2004 by £104,000 and 30 June 2005 by
£84,000.
4 RESTATEMENT OF OPENING BALANCES
Balance Sheet Previously reported Restated
31 December 2004 Adjustment 31 December 2004
£'000s £'000s £'000s
Fixed assets
Investments held at fair value* 64,602 (104) 64,498
Current assets
Debtors 110 - 110
Cash at bank and short-term deposits 1,355 - 1,355
1,465 - 1,465
Current liabilities (437) - (437)
Net current assets 1,028 - 1,028
Net assets 65,630 (104) 65,526
Shareholders equity
Called up share capital 6,392 - 6,392
Share premium account 2,468 - 2,468
Non-distributable reserve 841 - 841
Capital redemption reserve 6,960 - 6,960
Special reserve 8,844 - 8,844
Capital reserves* 41,483 (104) 41,379
Revenue reserve (1,358) (1,358)
Total equity shareholders' funds 65,630 (104) 65,526
Net asset value per ordinary share
- pence 256.67 (0.41) 256.26
Note to the restatement of opening balances
* Effect of revaluation of fixed asset investments from mid to bid value
Balance Sheet Previously reported Restated
30 June 2005 Adjustment 30 June 2005
£'000s £'000s £'000s
Fixed assets
Investments held at fair value* 70,348 (84) 70,264
Current assets
Debtors 76 - 76
Cash at bank and short-term deposits 1,591 - 1,591
1,667 - 1,667
Current liabilities (581) - (581)
Net current assets 1,086 - 1,086
Net assets 71,434 (84) 71,350
Shareholders equity
Called up share capital 6,026 - 6,026
Share premium account 2,468 - 2,468
Non-distributable reserve 841 - 841
Capital redemption reserve 7,326 - 7,326
Special reserve 5,346 - 5,346
Capital reserves* 50,804 (84) 50,720
Revenue reserve (1,377) - (1,377)
Total equity shareholders' funds 71,434 (84) 71,350
Net asset value per ordinary share
- pence 296.37 (0.35) 296.02
Note to the restatement of opening balances
* Effect of revaluation of fixed asset investments from mid to bid value
5 RESULTS
The results for the six months to 31 December 2005 and 31 December 2004, which
are unaudited, constitute non-statutory accounts within the meaning of Section
240 of the Companies Act 1985. The latest published accounts which have been
delivered to the Registrar of Companies are for the year ended 30 June 2005; the
report of the auditors thereon was unqualified and did not contain a statement
under Section 237 of the Companies Act 1985. The abridged financial statements
shown above for the year ended 30 June 2005 are an extract from those accounts
(except as noted above).
By order of the Board
F&C Management Limited, Secretary
Exchange House, Primrose Street, London EC2A 2NY
15 March 2006
This information is provided by RNS
The company news service from the London Stock Exchange
Latest directors dealings
- 2 hours ago Urban Logistics Reit
- 2 hours ago Ocado Group
- 2 hours ago AJ Bell
- 2 hours ago Foresight Enterprise VCT
- 2 hours ago Mitie Group