Interim Results
Merrill Lynch Br. SmallerCo Tst PLC
11 October 2005
11 October 2005
MERRILL LYNCH BRITISH SMALLER COMPANIES TRUST plc
Interim announcement of results in respect of the six months
ended 31 August 2005
Performance to 31 August 2005 6 months 1 year 3 years 5 years
(calculated on capital only basis)
Net asset value per share +6.6% +38.9% +71.2% -17.0%
Ordinary share price +9.0% +42.2% +78.9% -17.1%
FTSE SmallCap Index (ex IC's) +4.7% +23.9% +50.1% -12.8%
Source: Merrill Lynch Investment Managers, Datastream.
• The Company's net asset value per share increased by 6.6% outperforming
its benchmark, the FTSE SmallCap Index (excluding investment companies)
by 1.9%.
• Earnings per share amounted to 2.95p for the period (2004: 3.09p).
• The Directors have declared an interim dividend of 1.79p per share, a
2.3% increase on the 1.75p interim dividend paid last year.
• The discount to NAV narrowed over the period from 18.7% as at 28
February 2005 to 17.7% as at 31 August 2005, and has narrowed further
since.
• The Company purchased and cancelled 600,000 shares during the period at
an average price of 239.50p and a discount to NAV of 14.7%.
For further information please contact:
Jonathan Ruck Keene, Managing Director Investment Trusts - 020 7743 2178
Mike Prentis, Fund Manager - 020 7743 2312
Nigel Webb, Director Media & Communications - 020 7743 5938
Merrill Lynch Investment Managers
Or
William Clutterbuck
The Maitland Consultancy - 020 7379 5151
The Chairman, Richard Brewster, comments:
'The UK Smaller Companies sector experienced something of a roller coaster ride
for the six months ended 31 August 2005. The weak initial performance, prompted
somewhat by concerns over retail spending, gave way to renewed investor
confidence on the back of good news from the non-consumer sectors. Your
Company's net asset value ('NAV') increased by 6.6%, outperforming its benchmark
the FTSE SmallCap Index (ex investment companies) which returned 4.7%. The
Company's share price rose by 9.0%, closing the half-year at 249.50p.
'Earnings per share amounted to 2.95p for the period, a fall of 4.5% on the
corresponding six months in 2004 due to the sale of the Company's highest
yielding holdings and reinvestment in high quality, lower yielding, growth
stocks. The directors have declared an interim dividend of 1.79p, a 2.3%
enhancement on last year (1.75p).
'The UK equity market remains attractive on a variety of measurements and stands
at a substantial discount compared with the US market. Some discount is
appropriate given the lower potential growth rate of the UK economy but the
current valuation gap remains unusually wide. Investors remain concerned by the
potential impact of a housing slow down on the consumer and banking sectors
although these fears appear to have been overdone. The long awaited correction
of household balance sheets is under way and a likely outcome is slower
consumption growth rather than outright recession. Interest rates may have
passed their most aggressive phase, job creation and average earnings remain
solid, and any weakness of sterling may help UK exporters.
'Your Board maintains its belief that the Company's portfolio is well-placed to
make the most of the current economic environment, with emphasis on high quality
growth companies, an overweight position in resources stocks, and an underweight
position in consumer cyclical stocks. On this basis, the Board believes the
portfolio should continue to outperform its benchmark.'
Commenting upon the outlook for the Company, Mike Prentis of Merrill Lynch
Investment Managers, the Investment Manager, notes:
'US and UK GDP growth have moderated in recent months, in part due to higher oil
prices. We expect oil prices to remain high, relative to those a few years ago,
for some time. In the US, the Federal Reserve has steadily increased interest
rates, and this too will impact on the US consumer; the full impact of past
interest rate increases is unlikely to have been felt yet, and rates are likely
to continue to increase. This could well lead to a further slowing of the US
economy, although we do not expect a dramatic slowdown.
'In the UK, it looks as though interest rates have peaked. The housing market
has cooled and looks likely to be subdued for some time. Consumer spending has
clearly slowed but employment levels are high and, as in the US, we do not
expect a further significant downturn in consumer spending. UK Government
spending remains at a high level and at some stage less politically sensitive
spending is likely to be delayed or cut. Chinese GDP growth continues to be
strong and at a high level. We expect this to continue, although an unexpected
dramatic slowdown in spending by US consumers would likely have a significant
impact in China. The global macro economic position has an important bearing on
our stock selection.
'The Company's emphasis on investment in companies which are benefiting from
strong fundamentals and current, good demand for their products or services,
should serve shareholders well. Valuations are not cheap, as they were two years
ago, but we are seeing many of our holdings produce good trading statements and
results, leading to upgraded earnings expectations.'
REVENUE ACCOUNT & STATEMENT OF TOTAL RETURN
for the six months ended 31 August 2005
Revenue £'000 Capital £'000 Total £'000*
Six months Six months Year Six months Six months Year Six months Six months Year ended
ended ended ended ended ended ended ended ended
(Restated (Restated (Restated (Restated
see note 3)see note 3) see note 3) see note 3)
31.08.05 31.08.04 28.02.05 31.08.05 31.08.04 28.02.05 31.08.05 31.08.04 28.02.05
(unaudited) (unaudited) (audited) (unaudited) (unaudited) (audited) (unaudited) (unaudited) (audited)
Gains/(losses) - - - 9,880 (10,066) 24,435 9,880 (10,066) 24,435
on investments
Income 1,880 2,069 3,265 - - - 1,880 2,069 3,265
Investment
management
fees (53) (110) (183) **(389) (333) (950) (442) (443) (1,133)
Operating
expenses (136) (164) (336) - - - (136) (164) (336)
-------- -------- -------- -------- -------- -------- -------- -------- --------
Return/(loss)
on ordinary
activities before
finance 1,691 1,795 2,746 9,491 (10,399) 23,485 11,182 (8,604) 26,231
costs and
taxation
Interest payable
and similar (199) (192) (381) (396) (401) (796) (595) (593) (1,177)
charges
-------- -------- -------- -------- -------- -------- -------- -------- --------
Return/(loss)
on ordinary
activities
before 1,492 1,603 2,365 9,095 (10,800) 22,689 10,587 (9,197) 25,054
taxation
Taxation on
ordinary - - - - - - - - -
activities
-------- -------- -------- -------- -------- -------- -------- -------- --------
Return/(loss)
on ordinary
activities
after 1,492 1,603 2,365 9,095 (10,800) 22,689 10,587 (9,197) 25,054
taxation
-------- -------- -------- -------- -------- -------- -------- -------- --------
Return/(loss)
per ordinary
share (Note 5) 20.91p (17.71p) 48.60p
===== ===== =====
All revenue and capital items in the above statement derive from continuing
operations.
No operations were acquired or discontinued during the period.
The final dividend of 2.77p per ordinary share in respect of the year ended 28
February 2005 was declared on 21 April 2005 and paid on 10 June 2005.
*The total column represents the Company's Profit and Loss account.
** A performance fee of £231,000 has been accrued for the period.
BALANCE SHEET
as at 31 August 2005
Notes 31 August 2005 (Restated see (Restated see
note 3) note 3)
£'000 28 February
(unaudited) 31 August 2005
£'000
2004 (audited)
£'000
(unaudited)
Non current assets
Investments at fair value 2 167,050 124,058 161,163
Current assets
Debtors 660 225 680
Cash and cash funds 1,688 3,551 1,546
---------- ---------- ----------
2,348 3,776 2,226
Creditors - amounts falling due within one year (1,404) (968) (3,058)
---------- ---------- ----------
Net current assets/(liabilities) 944 2,808 (832)
---------- ---------- ----------
Total assets less current liabilities 167,994 126,866 160,331
Creditors - amounts falling due after more
than one year (14,754) (14,739) (14,831)
---------- ---------- ----------
Net assets 153,240 112,127 145,500
====== ====== ======
Capital and reserves
Share capital 12,641 12,791 12,791
Share premium account 38,952 38,952 38,952
Capital redemption reserve 1,839 1,689 1,689
Capital reserve - realised 60,592 45,455 52,848
Capital reserve - unrealised 34,905 8,904 35,000
---------- ---------- ----------
148,929 107,791 141,280
Revenue reserve 4,311 4,336 4,220
---------- ---------- ----------
Total equity shareholders' funds 153,240 112,127 145,500
====== ====== ======
Net asset value per ordinary share 6 303.06p 219.15p 284.38p
====== ====== ======
CASH FLOW STATEMENT
for the six months ended 31 August 2005
Note Six months ended Six months ended Year ended
28 February
31 August 31 August 2005
£'000
2005 2004 (audited)
£'000 (unaudited) £'000 (unaudited)
Net cash inflow from operating activities 7 425 1,310 2,566
--------- --------- ---------
Returns on investment and servicing
of finance
Interest payable and similar charges (581) (581) (1,163)
--------- --------- ---------
Net cash outflow from servicing of finance (581) (581) (1,163)
Capital expenditure and financial
investment
Purchase of investments (47,632) (30,637) (70,409)
Proceeds from the sale of investments 50,777 35,701 73,676
--------- --------- ---------
Net cash inflow from capital expenditure
and financial investment 3,145 5,064 3,267
--------- --------- ---------
Equity dividends paid (1,401) (1,420) (2,298)
--------- --------- ---------
Net cash inflow before financing 1,588 4,373 2,372
--------- --------- ---------
Financing
Purchase of ordinary shares (1,446) (4,567) (4,567)
--------- --------- ---------
Net cash outflow from financing (1,446) (4,567) (4,567)
--------- --------- ---------
Increase/(decrease) in cash in the period 142 (194) (2,195)
===== ===== =====
Notes to the Interim Report
1. Principal activity
The principal activity of the Company is that of an investment company within
the meaning of section 266 of the Companies Act 1985.
2. Basis of Preparation
The financial statements have been prepared under the historical cost
convention, modified to include the revaluation of investments and in accordance
with applicable accounting standards and with the Statement of Recommended
Practice 'Financial Statements of Investment Trust Companies' issued in January
2003. All of the Company's operations are of a continuing nature.
The same accounting policies used for the year ended 28 February 2005 have been
applied with the following exceptions which have arisen from new accounting
regulations which apply for the year to 28 February 2006. Under FRS 21 - Events
after the Balance Sheet date, dividends should not be recognised in the
financial statements unless they have been declared and paid before the Balance
Sheet date. Dividends are therefore recognised in the period in which they are
declared and paid. As a result of this change the financial statements for the
year ended 28 February 2005 and the six months ended 31 August 2004 have been
restated as per note 3.
Additionally the Company has adopted a change in the basis of measurement of the
valuation of listed investment to comply with FRS 26 - Financial Instruments:
Recognition and Measurement.
Prior to 1 January 2005, listed investments were valued at middle market prices.
Following the introduction of FRS 26, listed investments are now valued at bid
market prices. Unlisted investments are fair valued by the Board in accordance
with the accounting policies set out in the year ended 28 February 2005
financial statements.
The effect of this change is to decrease by £239,000 the value of listed
investments at 31 August 2005 and the net return on ordinary activities after
taxation for the six months ended 31 August 2005. As permitted by FRS 26,
comparatives have not been restated for the change in basis of valuation from
mid to bid prices. However if investments at 28 February 2005 had been restated
this would have resulted in a decrease in valuation of £300,000. As
comparatives were not restated, the impact of the change in basis of valuation
on investments at 28 February 2005 has been taken instead through the Statement
of Total Return and resulted in a decrease in gains on investments of £300,000
in the current period to £9,880,000.
Purchase transaction costs for the six months ended 31 August 2005 were
£237,000. These costs comprise mainly stamp duty and commission.
3. Restatement in respect of dividends
(a) The Statement of Total Return
In accordance with FRS21, the Statement of Total Return no longer reflects
payment of dividends, these are now shown in the Statement of Changes in Equity
during the period in which they are declared and paid. The Statements of Total
Return for the year ended 28 February 2005 and the six months ended 31 August
2004 have been restated accordingly.
(b) Balance Sheet
Year ended Six months ended Year ended
28 February 28 February
2005 31 August 2004
£'000 £'000
2004
£'000
Net assets as previously stated 144,099 111,232 125,891
Add back dividends declared and payable 1,401* 895 1,420
----------- ----------- -----------
Restated net assets 145,500 112,127 127,311
====== ====== ======
*based on 50,563,523 ordinary shares in issue on 28 April 2005
4. Statement of Changes in Equity
Share Share Capital Capital Revenue Total
capital premium redemption reserve reserve £'000
£'000 account reserve £'000 £'000
£'000 £'000
(a) For the six months ended
31 August 2005
At 28 February 2005 as restated
in Note 3 and above 12,791 38,952 1,689 87,848 4,220 145,500
Net profit from operating
activities - - - 9,095 1,492 10,587
Shares purchased and cancelled (150) - 150 (1,446) - (1,446)
Dividends paid and declared* - - - - (1,401) (1,401)
----------- ----------- ----------- ----------- ----------- -----------
At 31 August 2005 12,641 38,952 1,839 95,497 4,311 153,240
====== ====== ====== ====== ====== ======
(b) For the year ended
28 February 2005
At 28 February 2004 as restated
in Note 3 13,410 38,952 1,070 69,726 4,153 127,311
Net profit from operating
activities - - - 22,689 2,365 25,054
Shares purchased and cancelled (619) - 619 (4,567) - (4,567)
Dividends paid and declared** - - - - (2,298) (2,298)
----------- ----------- ----------- ----------- ----------- -----------
At 28 February 2005 12,791 38,952 1,689 87,848 4,220 145,500
====== ====== ====== ====== ====== ======
(c) For the six months ended
31 August 2004
At 28 February 2004 as restated
in Note 3 13,410 38,952 1,070 69,726 4,153 127,311
Net (loss)/profit from operating
activities - - - (10,800) 1,603 (9,197)
Shares purchased and cancelled (619) - 619 (4,567) - (4,567)
Dividends paid and declared*** - - - - (1,420) (1,420)
----------- ----------- ----------- ----------- ----------- -----------
At 31 August 2004 12,791 38,952 1,689 54,359 4,336 112,127
====== ====== ====== ====== ====== ======
* Final dividend for the year ended 28 February 2005, declared on 21 April 2005 and paid on 10 June 2005.
** Interim dividend for the six months ended 31 August 2004, declared 13 October 2004 and paid on
8 November 2004 and final dividend for the year ended 28 February 2004, declared 26 April 2004 and paid on 17
June 2004.
*** Final dividend for the year ended 28 February 2004, declared 26 April 2004 and paid on 17 June 2004.
5. Return/(loss) per ordinary share
Six months ended Six months ended Year ended
31 August 31 August 28 February
2005 2004 2005
£'000 £'000 £'000
(unaudited) (unaudtied) (audited)
The return/(loss) per ordinary share is based
on the following figures:
Revenue return 1,492 1,603 2,365
Capital return/(loss) 9,095 (10,800) 22,689
--------------- --------------- ---------------
Total return/(loss) 10,587 (9,197) 25,054
--------------- --------------- ---------------
Weighted average number of ordinary shares
in issue 50,640,153 51,923,713 51,546,742
Revenue return per ordinary share 2.95p 3.09p 4.59p
Capital return/(loss) per ordinary share 17.96p (20.80p) 44.01p
--------------- --------------- ---------------
Total return/(loss) per ordinary share 20.91p (17.71p) 48.60p
======== ======== ========
6. Net asset value per ordinary share and issued share capital
Net asset value per ordinary share is calculated on attributable assets at 31
August 2005 of £153,240,000 (28 February 2005: £145,500,000 as restated and 31
August 2004: £112,127,000 as restated) and 50,563,523 being the number of
ordinary shares in issue at 31 August 2005 (28 February 2005 and 31 August 2004:
51,163,523).
During the six months to 31 August 2005, 600,000 ordinary shares were purchased
and cancelled (2004: 2,475,000). The total cost of purchasing these shares was
£1,446,000 (2004: £4,567,000).
7. Reconciliation of net return before finance costs and taxation to net
cash inflow from operating activities
Six months ended Six months ended Year ended
31 August 31 August 28 February
2005 2004 2005
£'000 £'000 £'000
(unaudited) (unaudited) (audited)
Net return before finance costs and taxation 1,691 1,795 2,746
Investment management and performance
fees capitalised (389) (332) (950)
Increase in accrued income (205) (152) (3)
(Increase)/decrease in debtors (1) 23 (3)
(Decrease)/increase in creditors (671) (24) 802
Scrip dividend included in investment income - - (26)
--------- --------- ---------
Net cash inflow from operating activities 425 1,310 2,566
===== ===== =====
8. Movement in net debt
Six months ended Six months ended Year ended
31 August 31 August 28 February
2005 2004 2005
£'000 £'000 £'000
(unaudited) (unaudited) (audited)
Reconciliation of net cash flow to
movement in net debt
Increase/(decrease) in cash in the period 142 (194) (2,195)
Foreign exchange movements - - (4)
Amortised Debenture stock issue expenses (8) (7) (14)
--------- --------- ---------
Movement in net debt in the period 134 (201) (2,213)
Opening net debt (13,200) (10,987) (10,987)
--------- --------- ---------
Closing net debt (13,066) (11,188) (13,200)
===== ===== =====
9. Publication of non statutory accounts
The financial information contained in this interim report does not constitute
statutory accounts as defined in section 240 of the Companies Act 1985. The
financial information for the six months ended 31 August 2005 and 31 August 2004
has not been audited.
The information for the year ended 28 February 2005 has been extracted from the
latest published audited financial statements (and restated to reflect the
changes to accounting policies disclosed in note 3) which have been filed with
the Registrar of Companies. The report of the independent auditors on those
financial statements contained no qualification of statement under section 237
(2) or (3) of the Companies Act 1985.
11 October 2005
33 King William Street
London EC4R 9AS
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