Interim Results
F&C Global Smaller Companies PLC
19 December 2005
Date: 19 December 2005
Contact: Peter Ewins Lisa Stanley
F&C Management Limited Lansons Communications
020 7628 8000 020 7294 3692
F&C GLOBAL SMALLER COMPANIES PLC
(formerly F&C Smaller Companies PLC)
Unaudited Interim Statement of Results
for the half-year ended 31 October 2005
HIGHLIGHTS
• Rise in NAV of 15.5%
• Rise in share price of 22.6% as discount narrows
• Interim dividend up by 3.5% to 1.49p
• Tender Offer successfully completed for 35% of the Company's shares
• Active approach to discount control going forward
SUMMARY OF RESULTS
31 October 2005 30 April 2005 % change
Net assets £303.6m *£264.4m +14.8
Net asset value per share
(debenture at nominal value) 359.61p *311.33p +15.5
Net asset value per share
(debenture at market value) 354.90p *306.81p +15.7
Share price 329.25p 268.50p +22.6
*Restated to reflect changes in accounting policies (see note 1)
6 months to 6 months to % change
31 October 2005 31 October 2004
Earnings per share 2.37p 2.16p +9.7
Interim dividend per share 1.49p 1.44p +3.5
Chairman's Statement
Dear Shareholder
This is the first statement issued under our new name 'F&C Global Smaller
Companies PLC' adopted following the EGM on 9 December 2005 and we hope that
this name will better describe the nature of your Company.
The period under review and the subsequent few weeks have been a very busy time
for your Company. We successfully completed a Tender Offer for 35% of your
Company's share capital and were pleased that a majority of our shareholders
chose not to participate in the tender.
Both our share price and Net Asset Value per share (NAV) have been at all-time
highs, thus justifying the confidence that our long-term shareholders have shown
in the future of the Company. This is particularly gratifying as many
investment trusts share prices and NAV's still remain well below early 2000
levels.
World equity markets were strong in the six months under review, with smaller
company indices in all of the main regions up by double digit percentages. Your
Company, with its global spread, benefited from this favourable backdrop, and
NAV rose by 15.5% and the share price by 22.6% following a concerted narrowing
in the discount. The share price and NAV have both risen further since the end
of the period under review.
Our benchmark rose by 18.3%. It was adopted with effect from the start of this
financial year and is a blend of the returns from the HGSC index in the UK (40%)
and the MSCI World Small Cap ex UK index (60%). NAV performance was short of the
benchmark return. While part of the shortfall was due to a change in accounting
standards related to dividend payments, as highlighted in Note 1, the majority
was due to weaker than local benchmark returns in overseas markets. Your Board
and our Manager remain focused on improving this. The Board has nevertheless
been able to recommend an above inflation increase in the dividend payment of
3.5% reflecting a good revenue out-turn in the first half and a positive outlook
for the second half. The clear intention looking to the longer term is to
maintain a progressive dividend policy.
Tender Offer
On 14 November your Board proposed a Tender Offer for 35% of the shares in your
Company, a change of name, and a renewal of our share buyback powers. These
changes were all passed at an EGM on 9 December with wide support from
shareholders. A total of 45.2% of the shares in issue were tendered, and 35%
have now been cancelled. This has led to around a 2% enhancement in NAV for
shareholders who did not tender.
As stated in the Tender Circular, we are determined to ensure in the future that
the Company's shares trade on a discount close to the level implied by the
Tender Offer. With share buy-back powers renewed, shareholders should therefore
expect to see shares repurchased by the Company from time to time. Since the
EGM a further 3,827,483 shares have been bought back. The successful completion
of the Tender Offer and subsequent additional share buy-backs should leave the
Company with a more stable shareholder base, with shorter term shareholders
having been given the chance to exit. This should have positive implications
for the ability of your Board and Manager to plan your Company's affairs on a
longer-term basis.
In light of the reduction in the size of the assets of your Company, the Board
is reviewing the appropriate level and structure of management charges going
forward.
Investment Background and Asset Allocation
As stated in the annual report, Sandy Fleming stepped down as Manager at the end
of July, to be replaced by Peter Ewins, who has worked alongside Sandy for more
than a decade. This has not led to any radical change in approach as Peter was
in no hurry to change a winning formula. The regional teams remain in charge at
the stock-picking level, with asset allocation decided by Peter with input from
the Board.
However, the Tender Offer process necessitated a period of portfolio
restructuring, with holdings sold or downsized to reflect the smaller ongoing
size of the Company. To ensure that investors were not materially disadvantaged
through this period, as a consequence of the building up of liquidity to fund
the Tender Offer, your Company purchased a number of index future contracts to
maintain a full exposure to markets through November and early December. This
decision was proved to be correct by the run-up in markets as the Tender date
approached. The futures positions have now been successfully closed out.
In terms of underlying activity in the portfolio, some changes have been made to
geographical asset allocation. The most significant was a reduction in the
exposure to the UK market. This decision was driven by three main factors;
firstly we felt that weakness in the consumer sectors in the UK was becoming
evident with a consequent impact on some companies earnings; secondly we felt
sterling might weaken; and lastly we saw better opportunities in some other
world markets. Over the six months, the UK market did slightly underperform
against most other markets, and sterling has indeed weakened against the dollar.
Offsetting this, the weighting in Europe was increased. This was principally
due to a number of interesting investment opportunities in the region being
identified. Macroeconomic news in Europe remains mixed, although there have
been some more positive indications of an upturn in the German economy recently.
As far as industrial allocation is concerned, there have not been any major
shifts with a broad spread retained, but we have recently started to reduce
exposure to resources stocks following a period of very strong performance.
Regional Performance
As for the individual markets, returns for the Company were close to the local
small cap index level in all areas apart from the Pacific ex Japan region, where
we underperformed by a wide margin due to specific problems in stock selection.
Problems in the redevelopment of Wembley Stadium, for example, hurt the
investment in the Australian based contractor Multiplex.
In the UK, still the largest part of the portfolio, performance was ahead of the
local benchmark, helped by strong showings from a number of long standing
holdings. Victrex, the specialist materials company produced strong results, as
did Chemring, which enhanced its position in its countermeasures business by way
of acquisition. Aveva Group, the IT company, which is benefiting from buoyant
orders from its customer base serving the power generation, shipping and process
plant markets, also rose strongly.
Performance in the US, Europe and Japan, while in overall terms behind the
benchmark, benefited from some good individual stock performances. Conn's, a US
retailer of household appliances, was able to offset the impact from a weaker
consumer environment in the US, and its shares rallied. In Europe, Fadesa, the
Spanish property development company gained on the back of continued strength in
the housing market in Spain. In Japan shares in Showa Aircraft surged as the
market grew keen on the potential value of its land assets.
Outlook
The mandate of investing in smaller companies on a global basis has a particular
attraction for private investors seeking more than a single regional exposure to
smaller companies. Your Board continues to believe that our mandate and
approach will deliver good returns over the long term given the wide range of
opportunities available. In the near term, the outlook remains positive for
equities, with in particular the key US economy remaining resilient. Equity
market valuations, especially at the smaller cap end have risen, but the
strength of oil prices and other commodity prices are an issue for many
companies. Despite this, your Manager still sees attractive investment
opportunities across all regions at present and consequently, your Board look to
the future with confidence.
Gerry Grimstone
December 2005
Unaudited Balance Sheet
31 October 2005 31 October 30 April
2004 2005
£'000s #Restated #Restated
£'000s £'000s
Non-current assets
Investments at fair value 256,243 253,428 283,901
Current assets
Debtors 13,831 1,419 1,253
Taxation recoverable 10 - 10
Short-term deposits 34,543 17,400 4,500
Cash at bank 11,210 795 2,312
59,594 19,614 8,075
Current liabilities
Creditors: amounts falling due within one year
Foreign currency loans - (14,599) (14,006)
Other (2,236) (5,385) (3,572)
(2,236) (19,984) (17,578)
Net current assets/(liabilities) 57,358 (370) (9,503)
Total assets less current liabilities 313,601 253,058 274,398
Creditors: amounts falling due after more than one
year
Debenture (10,000) (10,000) (10,000)
Net assets 303,601 243,058 264,398
Capital and Reserves
Called up equity share capital 21,106 21,231 21,231
Share premium 23,132 23,132 23,132
Capital redemption reserve 5,077 4,952 4,952
Capital reserves 247,354 187,190 207,658
Revenue reserve 6,932 6,553 7,425
Total equity shareholders' funds 303,601 243,058 264,398
Net asset value per ordinary share - pence 359.61 286.20 311.33
# Restated see note 1
The geographical distribution of investments at 31 October 2005 was:
United Kingdom 42.7%; North America 24.7%; Europe 14.2%; Japan 10.7%;
Pacific (ex Japan) 7.3%; Other 0.4%.
Unaudited Statement of Total Return (incorporating the Revenue Account*)
for the 6 months to 31 October
2005 2004
Revenue Capital Total Revenue Capital Total
#Restated #Restated
£'000s £'000s £'000s £'000s £'000s £'000s
Gains on investments - 43,023 43,023 - 7,703 7,703
Exchange (losses)/gains (3) (965) (968) 2 441 443
Income 2,865 - 2,865 2,635 - 2,635
Management fee (175) (408) (583) (168) (391) (559)
Other expenses (284) (29) (313) (297) (18) (315)
Net return before finance costs
and taxation 2,403 41,621 44,024 2,172 7,735 9,907
Interest payable and similar
charges (232) (541) (773) (212) (495) (707)
Return on ordinary activities
before taxation 2,171 41,080 43,251 1,960 7,240 9,200
Taxation on ordinary activities (165) - (165) (125) - (125)
Return attributable to equity
shareholders 2,006 41,080 43,086 1,835 7,240 9,075
Return per ordinary share - pence 2.37 48.62 50.99 2.16 8.52 10.68
* 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.
# Restated see note 1
Unaudited Summarised Cash Flow Statement
for the 6 months to 31 October
2005 2004
£'000s £'000s
Net cash inflow from operating activities 2,160 2,407
Interest paid (792) (706)
Taxation paid (165) (120)
Net cash inflow from financial investment 57,181 2,390
Equity dividends paid (2,499) (2,407)
Net cash inflow before use of liquid resources and
financing 55,885 1,564
Increase in short-term deposits (30,862) (4,900)
Net cash outflow from financing (15,601) (278)
Increase/(decrease) in cash during the period 9,422 (3,614)
Notes
1 Changes in accounting policies
With effect from 1 May 2005, the Company has adopted the following Financial
Reporting Standards (FRS):
FRS 21 (Events after the Balance Sheet date) - Dividends paid by the Company are
accounted for in the period in which the Company is liable to pay them.
Previously the Company accrued dividends in the period in which the net revenue
to which those dividends related, was accounted for.
FRS 25 (Financial Instruments: Disclosure and Presentation) and FRS 26
(Financial Instruments: Measurement) - The Company has designated its assets as
being measured at 'fair value through profit and 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. Fixed asset investments which are not listed are
stated at Directors' best estimate of fair value.
The 11.5% debenture stock continues to be stated at nominal value.
There have been no other changes to accounting policies during the period.
The accounts for the period ended 31 October 2004 and for the year ended 30
April 2005 have been restated to give effect to the above changes.
2 Dividend
The Board has declared an interim dividend of 1.49p per ordinary share (at a
cost of £761,000 based on 51,048,841 ordinary shares in issue at 16 December
2005) will be paid on 30 January 2006 to shareholders on the register at 30
December 2005.
Notes (continued)
3 Statement of Changes in Equity for the half-year ended 31 October 2005
Equity share Share Capital Capital Revenue
capital premium redemp-tion reserves reserve
account reserve
£'000s £'000s £'000s £'000s £'000s
Balance at 30 April 2005 (as
previously reported) 21,231 23,132 4,952 208,003 4,911
Add back accrued dividend at 30
April 2005 - - - - 2,514
Less investment valuation
changes - - - (345) -
Balance at 30 April 2005
restated 21,231 23,132 4,952 207,658 7,425
Shared repurchased by the
Company (125) - 125 (1,384) -
Dividends paid in respect of 30
April 2005 - - - - (2,499)
Realised gains on investments - - - 33,367 -
Unrealised gains on investments - - - 9,656 -
Other transfers to reserves - - - (1,943) 2,006
Balance at 31 October 2005 21,106 23,132 5,077 247,354 6,932
500,000 ordinary shares were purchased for cancellation during the period at a
cost of £1,384,000. Included within the capital reserve movement is £383,000 of
commission on purchases and sales of investments and £6,000 of dividends taken
to capital.
Notes (continued)
4 Post balance sheet events
At an Extraordinary General Meeting of the Company on 9 December 2005,
resolutions were passed: to change the Company's name to 'F&C Global Smaller
Companies PLC', to effect a tender offer for 35% of the Company's issued
ordinary share capital, and to authorise the buy-back of up to 14.99% of the
ordinary share capital outstanding after the tender offer.
On 9 December, 29,548,758 ordinary shares were purchased for cancellation at a
cost of £107,665,000, in full satisfaction of the Tender Offer. Since 9
December 2005, a further 3,827,483 ordinary shares, 7% of the issued share
capital outstanding after the Tender Offer, have been purchased for
cancellation, at a cost of £13,899,000.
In order to facilitate the tender offer, the Company started restructuring its
portfolio in October. As a consequence, balances of debtors (for investment
sales), cash at bank and short-term deposits were higher at 31 October than in
previous periods.
5 Results
The results for the half year ended 31 October 2005, which are unaudited and set
out in this announcement, 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
April 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 April 2005 are an extract
from those accounts.
6 Interim Report and Accounts
The Interim Report and Accounts will be posted to shareholders in early January
2006. Copies may be obtained during normal business hours from the Company's
Registered Office, Exchange House, Primrose Street, London, EC2A 2NY.
By order of the Board
F&C Management Limited, Secretary
19 December 2006
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