Interim Results

Acorn Income Fund Ld 13 September 2004 ACORN INCOME FUND LIMITED PRELIMINARY ANNOUNCEMENT OF UNAUDITED INTERIM RESULTS FOR THE PERIOD ENDED 30 JUNE 2004 CHAIRMAN'S STATEMENT I am pleased to present to Shareholders our unaudited interim financial statements for the half-year ending 30 June 2004. The improved financial position of the Company recorded in 2003 has been maintained and, over the course of the first half of 2004, the net asset value per Ordinary Share (NAV) rose from 126.12 p to 133.95 p, a rise of 6.2 per cent. with the share price improving by 8.2 per cent. to 112.50p. This represents a discount to NAV per share of 16.2 per cent. compared to 17.7 per cent. at the preceding year end and 26.7 per cent. at the same time last year. The total return per ordinary share is 98.4 per cent from launch in February 1999 to 30 June 2004 compared to a return of 52.63 per cent. from the 'Extended HGSCI - Total Return index' over the same period. The Company continued its policy of paying income to Shareholders as it arises while maintaining a prudent level of reserves. Two interim dividends, each of 2.0 pence per Ordinary Share have been declared and paid in respect of the current year (2003: 1.5p) being the entire distributable profit for the period. A third interim dividend of 2.0p has been declared today and is payable on 30 September 2004 (2003:2.0p) As at 30 June 2004, the Company held a total of Â£682,000 in ordinary shares and income shares of split capital investment trusts (31 December 2003: Â£2,600,000, 30 June 2003 Â£3,131,365). Following the change of investment policy in October 2003, these investments have systematically been reduced and replaced by bonds in accordance with the new policy for the High Income Portfolio. Despite the fact that the UK stockmarket has been trading in a narrow range for some months, it is worthy of note that the Smaller Companies Investment Adviser believes that the prospects for our portfolio remain positive with good news flow from many of our holdings. Bond markets remain under pressure with yields rising as Central Banks raise rates and the High Income portfolio has been constructed against this backdrop with an emphasis on quality holdings. Your Board believes that the Company is well placed to continue meeting its investment objectives. M Bralsford Chairman 13 September 2004 INVESTMENT ADVISER'S REPORT - SMALLER COMPANIES PORTFOLIO As anticipated in our last report, UK interest rates continued to rise in the period under review. The smaller companies portfolio has benefited from your investment adviser's bias towards the industrial and business services sectors of the economy. The outlook for sectors of the economy directly financed by consumers' discretionary spend is less rosy than for some time, with increasing interest rates and indirect taxation gradually reducing disposable income. During the past six months the share prices of a number of portfolio companies have risen strongly. Pendragon, the car dealership group, performed exceptionally well as the market focused on the earnings enhancement from the acquisition of CD Bramell. Other notable performers included James Halstead, BSS Group, Wellington, Rotork and Laird Group. Corporate action continued during the period with the takeover of Wintrust, one of our long-standing investments, by Singer and Friedlander. We believe corporate activity will impact favourably on performance in the coming months as larger companies seek to acquire smaller companies ahead of cyclical recovery in profitability and share prices. During the period we have added a number of new stocks to the portfolio including TT Electronics, a manufacturer of electronic components, Fenner, the global manufacturer and distributor of conveyor belting, engineering group IMI, Electrocomponents, a distributor of electronic components and the fund management group ISIS, which was subject to a reverse takeover shortly after the period end. Disposals included Shanks Group, British Polythene and Sirdar where we feel trading conditions will remain challenging for some time. Although stock market indices have been trading in a narrow range in recent months we are encouraged by the positive news flow from many of our portfolio companies. As business confidence improves we believe that the portfolio will perform strongly in both absolute and relative terms as our decision to focus on wealth producing companies in the industrial and business service sectors is vindicated. We remain committed to a strategy of running winners and do not foresee major changes to the portfolio in the immediate future. It is encouraging to note that the trading outlook for so many of our portfolio companies is now much better than we have experienced for many years. P Webb Unicorn Asset Management Limited 13 September 2004 INVESTMENT ADVISER'S REPORT - HIGH INCOME PORTFOLIO During the review period sterling bond markets remained under intense selling pressure. As a result, yields have risen between a half and a full one percent depending upon duration and maturity. In consequence a period of consolidation followed by a modest rally seems likely. However, the long term outlook remains poor. Inflation is now the main driving mechanism for bond prices as it will dictate the pace of Central Bank interest rate tightening. Indeed, the Bank of England has already endorsed four 0.25% rate increases worried by the increasing trend in house prices and consumer debt. From a cyclical perspective yields will quickly respond to any upside in inflationary risks. The current backdrop of a rapidly growing budget deficit and a spendthrift Government, with one eye on re-election, warn of difficulties ahead. Difficulties which will be compounded by high oil prices and the revitalisation of trade union militancy. Turning now to the split capital investment trust market, sales have now reduced the weighting to just 1.1% of the overall portfolio value. We intend to continue the selling programme as and when market opportunities permit. It is worthy of note that one of the remaining four holdings is currently the subject of a bid. J Goodey Collins Stewart Asset Management Limited 13 September 2004 STATEMENT OF TOTAL RETURN (unaudited) for the six months ended 30 June 2004 Six months Year ended ended 30 31 December June 2003 2003 Six months ended 30 June 2004 (unaudited) (unaudited) (audited) Note Revenue Capital Total Total Total Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Gain on investments 3 - 3,145 3,145 5,331 13,267 Income 4 1,542 - 1,542 1,706 3,345 Management fee 5 (80) (240) (320) (243) (549) Other expenses (82) - (82) (78) (197) -------- -------- -------- -------- -------- Net return on ordinary activities before 1,380 2,905 4,285 6,716 15,866 finance costs Interest payable and similar charges (196) (587) (783) (716) (1,436) -------- -------- -------- -------- -------- Net return on ordinary activities for the 1,184 2,318 3,502 6,000 14,430 period Dividends in respect of equity shares 6 (1,184) - (1,184) (888) (2,664) -------- -------- -------- -------- -------- Transfer to reserves - 2,318 2,318 5,112 11,766 -------- -------- -------- -------- -------- Total return per Ordinary Share 7 4.00p 7.83p 11.83p 20.27p 48.75p Dividend per Ordinary Share (distributed) 6 4.00p - 4.00p 3.00p 9.00p BALANCE SHEET (unaudited) as at 30 June 2004 31 December 2003 30 June 2004 30 June 2003 Note (unaudited) (unaudited) (audited) Â£'000 Â£'000 Â£'000 Fixed assets Listed investments 8 62,275 46,759 58,795 Current assets Debtors 629 256 922 Cash at bank 3,074 9,749 3,596 -------- -------- -------- 3,703 10,005 4,518 Creditors - amounts falling due within one year Creditors (713) (471) (366) -------- -------- -------- Net current assets 2,990 9,534 4,152 -------- -------- -------- Total assets less current liabilities 65,265 56,293 62,947 Creditors - amounts falling due after more than one year Long term bank loan 9 (25,616) (25,616) (25,616) -------- -------- -------- Net asset value 39,649 30,677 37,331 -------- -------- -------- Share capital and reserves Called-up share capital 10 7,400 7,400 7,400 Share premium 11 17,079 27,079 17,079 Revenue reserve 11 1,321 1,833 1,321 Special reserve 11 10,000 - 10,000 Capital reserve 11 3,849 (5,635) 1,531 -------- -------- -------- Total shareholders' funds attributable to equity interests 39,649 30,677 37,331 -------- -------- -------- Net asset value per Ordinary Share 12 133.95p 103.64p 126.12p CASH FLOW STATEMENT (unaudited) for the six months ended 30 June 2004 Six months Six months Year ended ended 30 June ended 30 31 December 2004 June 2003 2003 Note (unaudited) (unaudited) (audited) Â£'000 Â£'000 Â£'000 Net cash inflow from operating activities 13 1,319 1,528 2,321 Servicing of finance Interest paid (780) (711) (1,568) -------- -------- -------- Net cash outflow from servicing of finance (780) (711) (1,568) Investing activities Purchase of investments (12,211) (1,342) (12,451) Sale of investments 12,334 10,110 16,906 -------- -------- -------- Net cash inflow from investing activities 123 8,768 4,455 Equity dividends paid (1,184) (888) (2,664) -------- -------- -------- Cash (outflow)/inflow before financing (522) 8,697 2,544 Net cash flow from financing - - - -------- -------- -------- (Decrease)/increase in cash in the period / year (522) 8,697 2,544 -------- -------- -------- NOTES TO THE UNAUDITED INTERIM ACCOUNTS for the six months ended 30 June 2004 1. Accounting policies The accounting policies, all of which have been applied consistently throughout the period, in the preparation of the Company's unaudited interim accounts, are set out below: a) Accounting convention The unaudited interim financial statements have been prepared under the historical cost convention, as modified by the revaluation of investments, and in accordance with applicable United Kingdom accounting standards and with the revised Statement of Recommended Practice ('SORP'), for Financial Statements of Investment Trust Companies ('ITC'), issued in January 2003. b) Investments held as fixed assets Quoted investments are valued at the mid-market price on the relevant Stock Exchange at the balance sheet date. Realised surpluses or deficits on the disposal of investments, permanent impairments in the value of investments and unrealised surpluses and deficits on the revaluation of investments are taken to the Statement of Total Return as capital. c) Income Dividends receivable on equity shares are taken into account on the ex-dividend date. Income on debt and fixed interest securities is recognised on an accruals basis. United Kingdom dividend income is shown excluding tax credits. Bank interest is accounted for on an accruals basis. d) Expenses All expenses are accounted for on an accruals basis. Expenses are charged through the revenue account except as follows: (i) expenses which are incidental to the acquisition or disposal of an investment are treated as part of the cost or proceeds of the investment; (ii) 75% of the Company's management fee and financing costs are charged to the capital reserve in line with the Board's expected long term split of returns between income and capital gains from the investment portfolio; and (iii) 100% of any performance fee is charged to the capital account. e) Capital reserve The following are accounted for in the capital reserve: (i) realised gains and losses on the realisation of investments; (ii) unrealised gains and losses on investments; and (iii) expenses charged to the capital reserve in accordance with the above accounting policies. 2. Taxation The Company has been granted exemption from Guernsey taxation under the Income Tax (Exempt Bodies) (Guernsey) Ordinance 1989 and is charged an annual exemption fee of Â£600 (2002: Â£600). 3. Gain / (loss) on investments Six months Six months Year ended 31 ended 30 June ended 30 June December 2003 2004 2003 (unaudited) (unaudited) (audited) Â£'000 Â£'000 Â£'000 Realised loss on sales (5,754) (3,907) (4,519) Movement in unrealised appreciation 8,899 9,238 17,786 -------- -------- -------- 3,145 5,331 13,267 -------- -------- -------- 4. Income Six months Six months Year ended 31 ended 30 June ended 30 June December 2003 2004 2003 (unaudited) (unaudited) (audited) Â£'000 Â£'000 Â£'000 Dividend income 1,141 1,524 2,889 Bond interest 321 90 285 Bank interest 80 92 171 -------- -------- -------- 1,542 1,706 3,345 -------- -------- -------- 5. Management fee The Manager of the Company is entitled under the Management Agreement with the Company to receive a management fee from the Company at the annual rate of 1.0% of the total assets of the Company, payable quarterly in arrears. Where any investments comprised in the assets of the Company are in funds managed by or advised by the Manager or Investment Adviser or an affiliate of either of them, the value of such investments is deducted from total assets for the purposes of calculating the management fee. In addition, the Manager is entitled to receive a performance fee, payable at the end of each financial period of the Company, at the rate of 15% of any excess of the net asset value per share over the benchmark net asset value per share as at the last calculation day in the relevant financial period, multiplied by the time weighted number of shares in issue within such period. The benchmark net asset value per share is the higher of 104.80p, compounded at 10% per annum since 31 December 1999, and the highest net asset value per share as of the last calculation day in any preceding financial period. When calculating the performance fee, the net asset value per share is reduced by the amount that the dividend per share paid during that financial year is less than 8.5 pence. As at 30 June 2004 the benchmark net asset value per share was 161.05p (30 June 2003: 146.41p). No performance fee has been paid in respect of the period ended 30 June 2004 (30 June 2003: nil, 31 December 2003: nil). The Manager has delegated the obligations for the performance of the investment management services to Unicorn Asset Management Limited ('the Smaller Companies Investment Adviser') and Collins Stewart Asset Managers ('the High Income Investment Adviser'). The agreements are between the Investment Advisers and the Manager, not the Company. All Investment Advisory fees are paid out of the management fees and performance fees received by the Manager from the Company. Both Investment Advisers are entitled to receive an annual fee at the rate of 0.5% of the total assets attributable to the investments in relation to which the Investment Adviser acts. The Smaller Companies Investment Adviser is entitled to 5/8ths of the Manager's performance fee, while the Manager may, at its discretion, pay the High Income Investment Adviser a proportion of the remaining performance fee. In addition, the Smaller Companies Investment Adviser is entitled to receive, from the Manager, a fixed annual fee of Â£7,500 in relation to marketing services provided to investors. The Investment Advisory Agreements may be terminated by the Manager or the Investment Advisers, giving not less than 12 months' notice in writing, or otherwise in circumstances where one of the parties has a receiver appointed over its assets or if an order is made or an effective resolution passed for the winding up of one of the parties. On termination the Investment Adviser shall be entitled to receive all fees accrued up to the date of the termination (or thereafter if the Investment Adviser necessarily incurs expenses arising out of the termination of the agreement) but shall not be entitled to compensation, except in the case of a wrongful termination by the Manager. 6. Dividends in respect of equity shares Six months Six months Year ended 31 ended 30 June ended 30 June December 2003 2004 2003 (unaudited) (unaudited) (audited) Â£'000 Â£'000 Â£'000 Dividends on Ordinary Shares: First interim paid of 2.00p (2003: 1.50p) 592 444 444 Second interim paid of 2.00p (2003: 1.50p) 592 444 444 Third interim paid, n/a (2003: 2.00p) - - 592 Special dividend paid, n/a (2003: 2.00p) - - 592 Fourth interim paid, n/a (2003: 2.00p) - - 592 -------- -------- -------- 1,184 888 2,664 -------- -------- -------- 7. Return per Ordinary Share The revenue return per Ordinary Share is based on net revenue of Â£1,184,444 (30 June 2003: Â£1,387,544, 31 December 2003: Â£2,651,754) and on a weighted average number of 29,600,002 (30 June 2003 and 31 December 2003: 29,600,002) Ordinary Shares in issue throughout the period. The capital return per Ordinary Share is based on the net capital return of Â£2,317,516 (30 June 2003: Â£4,612,366, 31 December 2003: Â£11,778,236) and on a weighted average number of 29,600,002 (30 June 2003 and 31 December 2003: 29,600,002) Ordinary Shares in issue throughout the period. 8. Listed investments Six months Year ended 31 ended 30 June December 2003 2003 Six months ended 30 June 2004 (unaudited) (unaudited) (audited) Smaller High Companies Income Portfolio Portfolio Total Total Total Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Opening valuation 49,924 8,871 58,795 50,175 50,175 Purchases at cost 7,346 5,210 12,556 1,342 12,451 Sales - proceeds (9,640) (2,580) (12,220) (10,089) (17,098) - realised losses (1,179) (4,575) (5,754) (3,908) (4,519) Movement in unrealised appreciation 4,638 4,260 8,898 9,239 17,786 -------- -------- -------- -------- -------- Closing valuation 51,089 11,186 62,275 46,759 58,795 -------- -------- -------- -------- -------- Closing book cost 34,647 12,925 47,572 49,501 52,990 Closing unrealised appreciation/ 16,442 (1,739) 14,703 (2,742) 5,805 (depreciation) -------- -------- -------- -------- -------- Closing valuation 51,089 11,186 62,275 46,759 58,795 -------- -------- -------- -------- -------- Previously recognised as unrealised appreciation /depreciation: Realised gains/(losses) attributable to 380 (461) (81) (344) (464) current year Amounts previously recognised as unrealised depreciation on these sales (1,559) (4,114) (5,673) (3,564) (4,055) -------- -------- -------- -------- -------- Losses realised on investments sold (1,179) (4,575) (5,754) (3,908) (4,519) -------- -------- -------- -------- -------- 9. Long term bank loan 30 June 2004 30 June 2003 31 December 2003 (unaudited) (unaudited) (audited) Â£'000 Â£'000 Â£'000 Bank of Scotland Offshore facility 25,616 25,616 25,616 -------- -------- -------- Under loan agreements dated 28 September 1999 and 21 December 2000 between the Company and Bank of Scotland Offshore, a term loan of Â£25,616,000 has been made available. The interest rates payable on the loan are based on LIBOR plus a margin of 1% plus MLA costs. 10. Share capital 30 June 2004 30 June 2003 31 December 2003 (unaudited) (unaudited) (audited) Â£'000 Â£'000 Â£'000 Authorised: 40,000,000 Ordinary Shares of 25p 10,000 10,000 10,000 -------- -------- -------- Allotted, called up and fully paid: 29,600,002 Ordinary Shares of 25p 7,400 7,400 7,400 -------- -------- -------- 11. Reserves Share premium account Special Revenue Capital reserve reserve reserve Total (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 At 1 January 2004 17,079 10,000 1,321 1,531 29,931 Return for the period - - - 2,318 2,318 -------- -------- -------- -------- -------- At 30 June 2004 17,079 10,000 1,321 3,849 32,249 -------- -------- -------- -------- -------- 12. Net asset value per Ordinary Share 30 June 2004 30 June 2003 31 December 2003 (unaudited) (unaudited) (audited) pence pence pence Net asset value per Ordinary Share 133.95 103.64 126.12p -------- -------- -------- The net asset value per Ordinary Share is based on the net assets attributable to equity Shareholders of Â£39,648,628 (30 June 2003: Â£30,676,787, 31 December 2003: Â£37,330,868) and on 29,600,002 (30 June 2003 and 31 December 2003: 29,600,002) Ordinary Shares in issue at the end of the period. 13. Reconciliation of net revenue before finance costs and taxation to net cash inflow from operating activities Six months Six months Year ended 31 ended 30 June ended 30 June December 2003 2004 2003 (unaudited) (unaudited) (audited) Â£'000 Â£'000 Â£'000 Net revenue before finance costs and taxation 1,380 1,567 3,011 Management fees charged to the capital reserve (240) (182) (412) Movement in accrued income 175 139 (306) Movement in other debtors 3 2 (5) Movement in other creditors and accruals 1 2 33 -------- -------- -------- Net cash inflow from operating activities 1,319 1,528 2,321 -------- -------- -------- 14. Related parties Details of the relationship between the Company, Collins Stewart Fund Management Limited, Collins Stewart Asset Management Limited and Collins Stewart (CI) Limited are disclosed in the Report of the Directors, contained in the Annual Report of Accounts. The Directors are not aware of any ultimate controlling party. If you have any queries please contact: Andrew Duquemin Collins Stewart Fund Management Limited 2nd Floor No 1, Le Truchot St Peter Port Guernsey GY1 4AE Tel: 01481 731 987 Fax: 01481 720 018 This information is provided by RNS The company news service from the London Stock Exchange

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