Final Results

ISIS Smaller Companies Trust PLC 15 May 2006 ISIS Smaller Companies Trust plc To: RNS From: ISIS Smaller Companies Trust plc Date: 15 May 2006 UNAUDITED RESULTS FOR THE YEAR ENDED 31 MARCH 2006 Investment Objective To achieve capital growth by investing primarily in a portfolio of smaller companies quoted on the London Stock Exchange. Benchmark Index The benchmark index is the Hoare Govett Smaller Companies (ex Investment Companies) Index. Financial Highlights • Net asset value per share increased by 26.7 per cent. • Share price increased by 28.8 per cent. • 19.0 per cent of Ordinary Shares bought back for cancellation enhancing net asset value by 7.4p per share. • Unchanged dividend for the year of 4.0p per share. Chairman's Statement Results For the year ended 31 March 2006, the net asset value per share increased by 26.7 per cent. This compares to an increase of 30.4 per cent in the Company's benchmark, the Hoare Govett Smaller Companies (ex Investment Companies) Index. Whilst underperforming the benchmark index during the year, the Company remained significantly ahead for the three years to 31 March 2006. Over this period the Company experienced strong net asset value per share growth of 161.3 per cent, which compares to an increase of 138.2 per cent in the benchmark. Markets were in a confident mood for most of 2005 as corporate earnings and dividends grew strongly, aided by interest rate stability and steady economic growth. A marked increase in corporate activity helped bolster confidence that equities were still fairly priced. Within the portfolio many of the Company's long-standing investments made notable contributions to the uplift in net asset value. In particular, Paladin Resources (through the recommended takeover by Talisman Resources), Restaurant Group (disposal and payment of a special dividend), and MTL Instruments (recovery in oil industry capital spending) posted significant gains. There were disappointments in the form of Healthcare Enterprise where product delays and poor stock control pushed the company into losses, and Consolidated Minerals which was adversely impacted by volatility in the Manganese price. Earnings and Dividends Group revenue earnings per Ordinary Share were 3.95 pence, compared to 4.73 pence per share for the previous year. The decrease arose from an increase in expenditure during the year, which included a higher management fee as the portfolio increased in value, and as a result of the need to report under International Financial Reporting Standards for the first time. Income from investments decreased by 18.2 per cent. A material factor behind the reduction was the significant use of the Company's share buy back powers during the year. Within the portfolio the rate of dividend increases were comfortably ahead of projections, an encouraging sign of investee companies' underlying financial health. An interim dividend of 1.75 pence per Ordinary Share was paid on 6 January 2006. As I explained in my interim Chairman's Statement, this interim dividend was higher than that paid in previous years so as to change the balance between the two dividend payments made in the year in order to reduce the differential between them. The Board has declared a second interim dividend of 2.25 pence per share, payable on 7 July 2006 to shareholders on the register on 9 June 2006. This makes a total dividend for the year of 4.00 pence per share, unchanged from the previous year. Shareholder Value The Ordinary Share price increase by 28.8 per cent during the year, to 312.75 pence per share reflecting the increase in the net asset value and the narrowing of the discount to 13.6 per cent as at 31 March 2006 compared to 15.1 per cent at the end of the previous year. The Company made significant use of its share buy back powers during the year, buying back 4,105,000 Ordinary Shares at a cost of £10.7 million. This represented 19.0 per cent of the shares in issue at the previous year end. These buy backs enhanced the net asset value by 7.4 pence per share. The Board believes that it is important to have a share buy-back facility in place and will therefore seek to renew the facility at the Annual General Meeting. Gearing With markets rising strongly during the year, the Company benefited from its geared position. As at 31 March 2006, the level of gearing net of cash was 5.2 per cent which compares to 9.7 per cent as at 31 March 2005. The Company's borrowings are represented by a £10 million revolving credit facility, £6 million of which was drawn down at the year end. Management As recently announced, the Board has been advised by F&C Asset Management plc (' F&C') that Stephen Grant, the Company's lead fund manager, will be leaving F&C. The Board is reviewing the Company's management arrangements and will make a further announcement in due course. In the meantime, Catherine Stanley, Head of UK Small Cap at F&C, is managing the Company's portfolio. Board As reported in my interim Chairman's Statement, Mr James Laurenson retired as a Director on 30 September 2005 having served on the Board since 1983. On behalf of the Board I would like to thank Mr Laurenson for his significant contribution over this period. We subsequently sought to recruit a new independent non-executive Director and I am very pleased to report that Mr Richard Martin was appointed on 1 February 2006. Mr Martin has a significant amount of investment experience and other skills which are particularly relevant to the Company's circumstances. International Financial Reporting Standards Following changes to accounting regulations, the Company is now required to prepare its accounts in accordance with International Financial Reporting Standards ('IFRS'). In previous years the Company's accounts were prepared in accordance with UK Generally Accepted Accounting Principles ('UK GAAP'). Under IFRS, the Company's investments are required to be valued at bid prices and not middle market prices as had been the treatment under UK GAAP. In addition, under IFRS, dividends paid by the Company are only recognised in the accounts when paid to shareholders. The second interim dividend for the year is therefore not provided for in the accounts. Comparative figures have been restated accordingly. Outlook Investors in smaller companies have enjoyed excellent returns over the past three years. However, current market behaviour is consistent with the latter stages of a bull market and there appears to be a discernable increase in the willingness of investors to contemplate riskier business propositions. At present the Board views the business climate with a degree of caution, principally because of concerns over consumer expenditure, the funding of pension obligations and a possible rise in interest rates. However, these challenges are not unique to smaller companies and the Managers have established a credible track record of selecting businesses capable of negotiating such obstacles. The Board believes that by adhering to its core investment beliefs of backing companies with strong business models, robust finances and able management, the Company will continue to deliver increases in shareholder value over the longer term. A R Irvine Chairman Unaudited Consolidated Income Statement For the Year Ended 31 March 2006 Year ended 31 March 2006 Revenue Capital Total £'000 £'000 £'000 Income Investment income 1,264 318 1,582 Other operating income 235 - 235 1,499 318 1,817 Gains on investments held at fair value - 12,751 12,751 Total income 1,499 13,069 14,568 Expenses Investment management and secretarial fees (268) (401) (669) Other expenses (351) - (351) Profit before finance costs and tax 880 12,668 13,548 Finance costs (144) (268) (412) Net operating profit before tax 736 12,400 13,136 Tax - - - Net profit 736 12,400 13,136 Earnings per share 3.95p 66.62p 70.57p The total column of this statement represents the Group Income Statement, prepared in accordance with IFRS. The supplementary revenue and capital return columns are both prepared under guidance published by the Association of Investment Trust Companies. All items in the above statement derive from continuing operations. Under IFRS the Income Statement is the equivalent of the Statement of Total Return as reported previously Consolidated Income Statement For the Year Ended 31 March 2005 Year ended 31 March 2005 (restated) Revenue Capital Total £'000 £'000 £'000 Income Investment income 1,545 - 1,545 Other operating income 145 - 145 1,690 - 1,690 Gains on investments held at fair value - 13,186 13,186 Total income 1,690 13,186 14,876 Expenses Investment management and secretarial fee (244) (348) (592) Other expenses (268) - (268) Profit before finance costs and tax 1,178 12,838 14,016 Finance costs (158) (293) (451) Net operating profit before tax 1,020 12,545 13,565 Tax - - - Net profit 1,020 12,545 13,565 Earnings per share 4.73p 58.17p 62.90p Group Balance Sheet Unaudited As at 31 As at 31 March March 2005 2006 (restated) £'000 £'000 Non current assets Investments held at fair value through 65,803 67,062 profit or loss Current assets Investments held by dealing subsidiary 61 343 Other receivables 160 456 Cash and cash equivalents 3,761 1,542 3,982 2,341 Total Assets 69,785 69,403 Current liabilities Other payables (6,602) (7,788) Total liabilities (6,602) (7,788) Net assets 63,183 61,615 Capital and reserves Called-up share capital 8,724 10,777 Share premium account 3,935 3,935 Capital redemption reserve 2,212 159 Capital reserve realised 25,458 28,559 Capital reserve unrealised 21,272 16,441 Revenue reserve 1,582 1,744 Shareholders' funds 63,183 61,615 Net asset value per share 362.12p 285.87p Unaudited Consolidated Statement of Changes in Equity For the year ended 31 March 2005 Share Capital Share Capital Capital Capital Revenue Premium Redemption Reserve Reserve Reserve Account Reserve Realised Unrealised £'000 £'000 £'000 £'000 £'000 £'000 Balance as at 1 April 2004 10,811 3,935 125 26,010 7,173 939 IFRS Adjustments - - - - (615) 649 Restated balance as at 1 April 2004 10,811 3,935 125 26,010 6,558 1,588 Net gain on realisation of - - - 3,303 - - investments Increase in unrealised appreciation - - - - 9,883 - Share buy-backs (34) - 34 (113) - - Management fees charged to capital - - - (348) - - Interest charged to capital - - - (293) - - Retained net revenue for the year - - - - - 1,020 Dividends paid - - - - - (864) Balance as at 31 March 2005 10,777 3,935 159 28,559 16,441 1,744 For the year ended 31 March 2006 Share Capital Share Capital Capital Capital Revenue Premium Redemption Reserve Reserve Reserve Account Reserve Realised Unrealised £'000 £'000 £'000 £'000 £'000 £'000 Balance as at 1 April 2005 10,777 3,935 159 28,559 16,441 1,744 Net gain on realisation of - - - 7,920 - - investments Increase in unrealised appreciation - - - - 4,831 - Share buy-backs (2,053) - 2,053 (10,670) - - Management fees charged to capital - - - (401) - - Interest charged to capital - - - (268) - - Special dividend credited to capital - - - 318 - - Retained net revenue for the year - - - - - 736 Dividends paid - - - - - (898) Balance as at 31 March 2006 8,724 3,935 2,212 25,458 21,272 1,582 Consolidated Cash Flow Statement Unaudited Year Ended 31 Year Ended 31 March March 2006 2005 (restated) £'000 £'000 Cash flows from operating activities Profit before tax and financing 13,548 14,016 Adjustment for gains on investments (12,751) (13,186) 797 830 Interest paid (429) (468) Operating cash flows before investments in working capital 368 362 Decrease/(increase) in receivables 349 (245) Increase in payables 12 10 Net cash from operating activities 729 127 Cash flows from investing activities Purchases of investments (11,336) (18,948) Sales of investments 25,394 20,270 Net cash from investing activities 14,058 1,322 Cash flows from financing activities Dividends paid (898) (864) Own shares acquired (10,670) (113) Repayments of borrowings (1,000) - Net cash used in financing activities (12,568) (977) Net increase in cash and cash equivalents 2,219 472 Cash and cash equivalents at beginning of year 1,542 1,070 Cash and cash equivalents at end of year 3,761 1,542 Notes to the Interim Report 1. Accounting Policies The financial statements have been prepared on the basis of the recognition and measurement requirements of International Financial Reporting Standards ('IFRS') issued by the International Accounting Standards Board ('IASB'), and interpretations issued by the International Reporting Interpretations Committee of the IASB ('IFRIC'). These are the first annual financial statements prepared on this basis. Previously the annual financial statements were prepared in accordance with UK Generally Accepted Accounting Principles ('UK GAAP') including the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies'. UK GAAP differs in certain respects from IFRS. When preparing the financial statements for the year 31 March 2006 the Directors have amended certain accounting and valuation methods applied in the UK GAAP financial statements. Reconciliations of Balance Sheet, Statement of Total Return to the Income Statement and Cash Flow Statement at date of conversion (1 April 2004) and previously reported periods are shown in notes 2 and 3. 2. Restatement of opening balances at 1 April 2004 In accordance with IFRS1, 'First Time Adoption of Financial Reporting Standards', the following is a reconciliation of the figures at 1 April 2004 previously reported under the applicable UK Accounting Standards and with the Statement of Recommended Practice. Previously reported 1 April 2004 Restated Adjustments 1 April 2004 £'000 £'000 £'000 Non-current assets Investments held at fair value through profit 55,688 (615) 55,073 or loss Current assets 1,307 - 1,307 Current liabilities (8,002) 649 (7,353) Net assets 48,993 34 49,027 Capital and reserves Called-up share capital 10,811 - 10,811 Reserves 38,182 34 38,216 Equity shareholders' funds 48,993 34 49,027 Net asset value per share 226.61p 0.15p 226.76p Investments are classified as held at fair value under IFRS and are carried at bid prices which equates to their fair value of £55,073,000 as at 1 April 2004. They were carried at mid prices previously. The resultant difference of £615,000 is deducted from capital reserve unrealised. No provision has been made for the final dividend for the year ended 31 March 2004, of £649,000. Under IFRS this is not recognised until paid. This amount is added to the revenue reserve. 3(a) Restatement of balances at 31 March 2005 In accordance with IFRS1, 'First Time Adoption of Financial Reporting Standards', the following is a reconciliation of the figures at 31 March 2005 previously reported under the applicable UK Accounting Standards and with the Statement of Recommended Practice. Previously reported Restated 31 March 2005 Adjustments 31 March 2005 £'000 £'000 £'000 Non-current assets Investments held at fair value through profit 67,695 (633) 67,062 or loss Current assets 2,341 - 2,341 Current liabilities (8,435) 647 (7,788) Net assets 61,601 14 61,615 Capital and reserves Called-up share capital 10,777 - 10,777 Share premium account 3,935 - 3,935 Capital redemption reserve 159 - 159 Capital reserve - realised 28,559 - 28,559 - unrealised 17,074 (633) 16,441 Revenue reserve 1,097 647 1,744 Equity shareholders' funds 61,601 14 61,615 Net asset value per share 285.81p 0.06p 285.87p Investments are classified as held at fair value under IFRS and are carried at bid prices which equates to their fair value of £67,062,000 as at 31 March 2005. They were carried at mid prices previously. The resultant difference of £633,000 is deducted from capital reserve unrealised. No provision has been made for the final dividend for the year ended 31 March 2005, of £647,000. Under IFRS this is not recognised until paid. This amount is added to the revenue reserve. (b) Reconciliation of the Statement of Total Return for the year ended 31 March 2005 to the Income Statement Under IFRS the Income Statement is the equivalent of the Statement of Total Return as reported previously. Per share £'000 P Total transfer to reserves per Statement of Total Return 12,721 58.99 Change from mid to bid basis at 1 April 2004 615 2.85 Change from mid to bid basis at 31 March 2005 (633) (2.94) Interim dividend for the year ended 31 March 2005 215 1.00 Final dividend for the year ended 31 March 2005 647 3.00 Net profit per Income Statement 13,565 62.90 Note to the reconciliation Investments at 1 April 2004 and 31 March 2005 are required to be valued at bid prices which equates to their fair value under IFRS. They were valued at mid prices previously. These values differ from the previous valuations by £615,000 and £633,000 respectively. 3(c) Reconciliation of the Cash Flow Statement for the year ended 31 March 2005 Previously Reported Effect of Adjusted Cash flows transition to Cash flows 2005 IFRS 2005 £'000 £'000 £'000 Net cash inflow from operating activities 595 (468) 127 Servicing of finance (468) 468 - Capital expenditure and financial investment 1,322 - 1,322 Dividends paid (864) 864 - Net cash flow before financing 585 864 1,449 Financing (113) (864) (977) Increase in cash 472 - 472 In accordance with IFRS bank interest paid is now shown under operating activities rather than servicing of finance. 4. Earnings per Ordinary Share is based on a weighted average of 18,613,479 Ordinary Shares in issue during the year (2005 - 21,567,115). 5. The second interim dividend of 2.25p (2005 - final dividend 3.00p) will be paid on 7 July 2006 to shareholders on the Register on 9 June 2006. 6. There were 17,448,260 Ordinary Shares in issue at 31 March 2006 (2005 - 21,553,260). During the year 4,105,000 Ordinary Shares of 50p each were purchased for cancellation at an aggregate cost of £10,670,000. 7. These are not statutory accounts in terms of Section 240 of the Companies Act 1985. Statutory accounts for the year to 31 March 2005, which were unqualified, have been lodged with the Registrar of Companies. The statutory accounts for the year to 31 March 2006 will be delivered to the Registrar of Companies following the Company's Annual General Meeting. For further information please contact: G R Hay Smith F&C Asset Management plc: Tel. 0131 465 1000 This information is provided by RNS The company news service from the London Stock Exchange

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