Interim Results
North Atlantic Smlr Co Inv Tst PLC
25 September 2003
NORTH ATLANTIC SMALLER COMPANIES INVESTMENT TRUST PLC
PRELIMINARY RESULTS FOR THE SIX MONTHS ENDED 31 JULY 2003
FINANCIAL HIGHLIGHTS
31 July 31 January
2003 2003 %
Unaudited Audited Change
Net asset value per Ordinary Share:*
Basic 1,035p 982p 5.4
Fully diluted 638p 598p 6.7
Middle market quotation per 5p Ordinary Share 520.0p 462.5p 12.4
Discount to fully diluted net asset value 18.5% 22.7% -
Standard & Poor's Composite Index ** 616.1 520.6 18.3
Russell 2000 Index ** 296.1 226.4 30.8
Exchange rate (US$/£) 1.6075 1.6437 2.2
*After retained deficit for the period
** Adjusted for exchange rate movement
CHIEF EXECUTIVE'S REVIEW
During the six months to the end of July, equity markets were volatile with
large falls in both US and UK markets in the period immediately preceding the
Iraq War. Following its conclusion, these declines were more than reversed,
with the Standard & Poors Composite Index (sterling adjusted) showing a rise of
18.3% over the period. Your Trust produced a modest rise of 6.7% in its fully
diluted net asset value for the same period reflecting the lack of short term
correlation between the Trust's portfolio and major market indices.
The background to the Trust's investment performance is discussed in more detail
below.
Listed equities
In the Interim Report to shareholders last year I commented that the US equity
market was over-valued. I remain of that view and in consequence little
additional investment in US equities was made during the period.
The Trust made a number of selective investments in UK equities with positions
being created or added to in companies such as Mentmore, Whatman, and Highway
Insurance Holdings. In each I believe that the actions being undertaken by
incumbent management have the potential to create significant value for
shareholders.
We disposed of all of our holding in Biocompatibles International during the
period at a good profit.
Of the Trust's other major listed investments, Primary Health Properties PLC
('PHP'), in which the Trust was a founder investor over six years ago, has once
again announced excellent results. PHP now has a portfolio of properties valued
at in excess of £100 million. The continued growth of PHP is an example of the
success of the Trust's long-term approach to value creation.
Unlisted equities
Our unlisted investments, both in the UK and US, are generally performing well.
Of particular note is the performance of Nationwide Accident Repair Services,
the largest car repair business in the United Kingdom, where new management has
revitalised the business.
Two new private equity investments were made during the period. Hi Tech Hose Inc
is based in Massachusetts, USA and is a specialist manufacturer and distributor
of flexible hose, tube and ducting products which have industrial and medical
applications. The Trust invested in a leveraged buyout with existing management.
The Company has a large order book and is performing to budget.
Jaffer Holdings is based in Florida and is a leading provider of water well
drilling services to municipalities, general contractors and property owners in
Southern Florida. We believe there are further opportunities for growth and
consolidation in this sector and have participated in the acquisition of the
business.
Outlook
The portfolio remains defensively invested with significant cash and borrowing
facilities available to take advantage of further investment opportunities as
they arise. The Trust's long-term approach to investment should continue to
benefit investors in the months ahead.
C H B Mills
Chief Executive
25 September 2003
CONSOLIDATED STATEMENT OF TOTAL RETURN (UNAUDITED)
(*incorporating the revenue account) for the six months ended 31 July
Revenue Capital Total Revenue Capital Total
2003 2003 2003 2002 2002 2002
£'000 £'000 £'000 £'000 £'000 £'000
Gains/(losses) on investments - 8,973 8,973 - (12,597) (12,597)
Exchange differences on - (501) (501) - 1,622 1,622
capital items
Dividends and interest 1,559 - 1,559 2,094 - 2,094
Other income 7 - 7 - - -
Trading losses (72) - (72) (261) - (261)
Investment management fee** (760) - (760) (872) - (872)
Cost of purchase and
cancellation of options*** - - - (3,508) - (3,508)
Other expenses (245) - (245) (272) - (272)
Net return before
finance costs and taxation 489 8,472 8,961 (2,819) (10,975) (13,794)
Premium paid on repurchase of
CULS - - - - (3,387) (3,387)
Interest payable and similar (717) - (717) (846) - (846)
charges
Net return on ordinary
activities
before taxation (228) 8,472 8,244 (3,665) (14,362) (18,027)
Taxation on ordinary (13) - (13) (43) - (43)
activities
Net return on ordinary
activities after taxation for
the period (241) 8,472 8,231 (3,708) (14,362) (18,070)
Return per ordinary share: pence pence pence pence pence pence
Basic (see note 2) (1.98) 69.76 67.78 (31.55) (122.22) (153.77)
Diluted (see note 2)+ (1.11) 42.50 41.39 (18.02) (70.19) (88.21)
*The revenue column of this statement is the consolidated revenue account of the
Group.
** See note 4.
*** See note 6.
+ Although Financial Reporting Standard No. 14: Earnings per Share states that
Returns per share which are not diluted should not be disclosed, they have been
shown here for information.
All revenue and capital items in the above statement derive from continuing
operations.
CONSOLIDATED BALANCE SHEET
31 July 31 January 31 July
2003 2003 2002
Unaudited Audited Unaudited
£'000 £'000 £'000
Fixed assets
Investments (see note 3) 135,894 131,511 140,859
Current assets
Investments 161 175 231
Debtors 769 3,448 7,709
Cash at bank 15,383 9,282 6,227
16,313 12,905 14,167
Creditors: amounts falling due within one year
Short term bank loans 10,105 9,935 10,107
Other creditors and accruals 908 1,830 2,669
11,013 11,765 12,776
Net current assets 5,300 1,140 1,391
Total assets less current liabilities 141,194 132,651 142,250
Creditors: amounts falling due after
more than one year
Bank loans 13,985 13,673 14,383
Debenture loan - Convertible Unsecured
Loan Stock 2013 384 393 393
126,825 118,585 127,474
Capital and reserves:
Called up share capital 613 604 604
Share premium account 629 629 629
Capital reserve - realised 118,061 116,732 127,613
Capital reserve - unrealised 12,564 5,421 2,240
Revenue reserve (5,042) (4,801) (3,612)
Equity shareholders' funds 126,825 118,585 127,474
SUMMARISED CONSOLIDATED STATEMENT OF CASHFLOWS (UNAUDITED)
for the six months ended 31 July
2003 2002
£'000 £'000
Net cash outflow from operating activities (593) (3,067)
Servicing of finance
Bank interest paid (782) (823)
Net cash outflow from servicing of finance (782) (823)
Investing activities
Purchases of fixed asset investments (19,869) (24,986)
Purchases of Treasury Bills (11,743) (65,307)
Proceeds from sale of fixed asset investments
(including option premiums) 16,881 19,445
Proceeds from sale of Treasury Bills 19,576 78,804
Repayment of loan made to Ryder Court Investments
Limited 2,667 -
Net cash inflow from investing activities 7,512 7,956
Net cash inflow before financing 6,137 4,066
Financing
Cost of repurchase of CULS for cancellation - (3,415)
Repayment of fixed term borrowings - (2,500)
Net cash outflow from financing - (5,915)
Increase/(decrease) in cash 6,137 (1,849)
Notes:
The unaudited Interim Report for the six months to 31 July 2003 will be
finalised on the basis of the financial information presented by the Directors
in this preliminary announcement and will be posted to shareholders and those
individuals on the Company's mailing list as soon as practicable after printing
and will also be available on request from the Company Secretary, J O Hambro
Capital Management Limited, Ground Floor, Ryder Court, 14 Ryder Street, London
SW1Y 6QB.
1. Basis of preparation
The figures for the six months to 31 July 2003 have been prepared on a basis
consistent with the accounting policies adopted in the audited financial
statements for the year ended 31 January 2003, save that the Trust has adopted
the 2003 Statement of Recommended Practice ('SORP') for Investment Trust
Companies.
2. Return per share
Revenue Capital
* Net return Ordinary Per * Net return Ordinary Per
£'000 shares share £'000 shares share
(pence) (pence)
Six months to
31 July 2003
Basic return per share (241) 12,144,440 (1.98) 8,472 12,144,440 69.76
Option conversion ** - - - -
Loan Stock 2013 *** 19 7,787,612 - 7,787,612
(222) 19,932,052 (1.11) 8,472 19,932,052 42.50
Six months to
31 July 2002
Basic return per share (3,708) 11,751,673 (31.55) (14,362) 11,751,673 (122.22)
Option conversion ** - 197,842 - 197,842
Loan Stock 2013 *** 21 8,510,636 - 8,510,636
(3,687) 20,460,151 (18.02) (14,362) 20,460,151 (70.19)
Basic return per share has been calculated using the weighted average number of
Ordinary Shares in issue during the period.
* Net return on ordinary activities attributable to Ordinary Shareholders.
** Excess of the total number of potential shares on option conversion over the
number that could be issued at fair value as calculated in accordance with
Financial Reporting Standard No. 14: Earnings per Share.
*** Loan Stock assumed converted as share price during the year was greater than
the conversion price.
3. Distribution of fixed asset investments
31 July 2003 31 January 2003 31 July 2002
(Unaudited) (Audited) (Unaudited)
£'000 £'000 £'000
Listed at market value:
United Kingdom 48,492 43,149 41,332
Europe 973 972 1,207
North America 18,997 18,773 19,544
Listed at Directors' valuation 8,259 7,414 7,776
Total listed investments 76,721 70,308 69,859
Treasury Bills 5,902 13,058 20,790
Unlisted at Directors' valuation
- United Kingdom 16,213 16,861 19,345
- North America 37,058 31,284 30,865
Total fixed asset investments 135,894 131,511 140,859
4. Performance fees
Under the new 2003 Statement of Recommended Practice for Investment Trust
Companies provision is made for any performance fee payable based on the best
estimate of the fee that would be due at the balance sheet date. Previously, any
fee payable would only be provided for at the year end. In addition, the fee,
being deemed to be attributable to capital performance, is charged 100% to
capital (previously 100% revenue). The fee is only payable if the investment
portfolio outperforms the Sterling adjusted Standard & Poor's Composite Index,
and is limited to a maximum payment of 0.5% of Shareholders' Funds.
As at 31 July 2003 no performance fee was payable and therefore no accrual is
included in these accounts (31 July 2002: nil).
5. Consolidated net asset value per Ordinary Share
The fully diluted net asset value per Ordinary Share is based on net assets,
including current period revenue, of £126,825,000 plus £384,000, being the
increase in net assets that would have occurred if full conversion of the 2013
Loan Stock had taken place. The total issued share capital used in the
calculation of 19,932,052 Ordinary Shares has been calculated on the basis that
(a) full conversion of all of the 2013 Loan Stock outstanding at the period end
had occurred, and (b) the 495,000 outstanding management options were not
exercised at the prevailing exercise price as the net asset value is less than
the exercise price.
The fully diluted net asset value at 31 January 2003 has been calculated on the
basis that (a) full conversion of all of the 2013 Loan Stock outstanding at the
year end had occurred resulting in a total issued share capital of 19,932,052
Ordinary shares, and (b) the 495,000 outstanding management options were not
exercised at the prevailing exercise price as the net asset value was less than
the exercise price.
6. Cost of purchase and cancellation of options
At the Annual General Meeting in July 1998 the Directors were granted authority
to purchase for cancellation up to 800,000 share options granted to Mr C H B
Mills at any time prior to their expiry. The price to be paid was not to exceed
the difference between the fully diluted net asset value per share at the time
of buying in and the exercise price per share of the option.
During the period to 31 July 2002, the Directors exercised this authority. Based
on the formula above, a total of £3,508,000 became payable to Mr Mills. As
required, Mr Mills used that amount, net of taxation and expenses, to purchase
shares in the Company.
7. Directors' remuneration
With effect from 1 February 2003, the Directors emoluments were increased to
£20,000 (previously £12,000) per annum for the Chairman and £16,000 (previously
£10,000) per annum for the other Directors. Prior to this the Directors
emoluments were last increased on 1 February 1999.
8. Financial information
The financial information shown in this interim report does not constitute full
statutory accounts as defined in Section 240 of the Companies Act 1985. The
financial information for the six months ended 31 July 2003 and 31 July 2002 has
not been audited.
The information for the year ended 31 January 2003 has been extracted from the
latest published audited financial statements, which have been filed with the
Registrar of Companies. The report of the auditors on those financial statements
contained no qualification or statement under sections 237(2) or (3) of the
Companies Act 1985.
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