Final Results
Throgmorton Trust PLC
17 January 2001
THE THROGMORTON TRUST PLC
PRELIMINARY ANNOUNCEMENT
FOR THE YEAR ENDED 30 NOVEMBER 2000
* Portfolio Rebalanced for Growth Without Income Constraint
* Management Team Strengthened for New Objective
* Net Asset Value per Share at 30 November 2000 : 114.3p (1999 : 115.2p)
* Earnings per share 1.70p (1999 : 2.46p) Following Portfolio
Reorganisation
* Proposed final dividend per share 1.00p (1999 : 1.55p), Making Total
for Year 1.50p (1999 : 2.50p)
NET ASSET VALUE
30.11.2000 30.11.1999 Year on year
% change
The Throgmorton Trust PLC 114.28p 115.22p -0.82
(loan stock not converted)
FTSE SmallCap (ex Inv. Cos.) 3,157.66 2,815.50 +12.15
Hoare Govett SmallCap (ex Inv. Cos) 2,748.23 2,723.55 +0.91
FTSE All-Share 2,945.06 3,086.90 -4.59
THE CHAIRMAN, LORD STEWARTBY, COMMENTED:
Chairman's Statement
At last year's Annual General Meeting the resolution to approve a new
objective for the Trust, dispensing with a reference to income, was
overwhelmingly approved. Following this a major rebalancing of the portfolio
was undertaken, in order to position the Trust more specifically for capital
growth, and this was carried out during the first half of the year, despite a
background of severe market turbulence.
Net Asset Value
At 30 November 2000 the net asset value was 114.3p per share compared with
115.2p at the end of the previous November. This virtually unchanged outcome
was the result of two very unequal periods, with a strong rise in the first
three months followed by a very sharp correction from March onwards. The
slight decline (-0.8 per cent) in the Trust's net asset value over the twelve
months to November 2000 compares with a fall of 4.6 per cent in the FTSE
All-Share index. Over the same period the FTSE Small Cap Index (excluding
Investment Companies), heavily influenced by rebasing at the end of the March
quarter, rose by 12.2 per cent and the more representative Hoare Govett
SmallCap Index rose by 0.9 per cent. During the second half of the Trust's
year, however, following the reorganisation of the portfolio, the net asset
value rose by 1.7 per cent, ahead of the FTSE SmallCap Index, and this
favourable trend has continued since the year end.
Revenue and Dividend
The net revenue of the Trust, after tax, was £4.5 million, compared with £7.5
million in the previous year. As I explained last year, a substantial
reduction in income and a reduced dividend were expected to follow the changes
in the portfolio, as higher yielding investments were replaced by growth
stocks with a lower yield.
In line with reduced revenue, the directors recommend a final dividend of
1.00p per share (1999, 1.55p), making a total for the year of 1.50p (1999 :
2.50p).
Investment Objective and Policy
Until last year the portfolio was being managed to provide an income of around
the average for smaller companies, in line with the Trust's then objective of
producing growth in both capital and dividend income. By dispensing with the
requirement for increasing income, the managers have now been enabled to
concentrate on sectors with the greatest potential for future growth, where
yields on individual stocks are often lower.
The reorganisation of the portfolio was largely implemented between February
and May 2000, during the first half of the Trust's financial year. This was a
highly volatile period in the stockmarket, with the technology sector rising
strongly until early March and then suffering a major shake-out in both Europe
and the USA, which undermined confidence in the market as a whole.
One of the consequences of this sudden change of direction was that the FTSE
SmallCap Index, which is rebased quarterly, ceased, for the time being, to
provide a meaningful benchmark for small company stocks, since expensive
stocks were promoted to the MidCap Index while less highly rated stocks were
relegated to the SmallCap. This has caused us to reassess not only how we
should measure the performance of the Trust in future, but also how we should
define its investment universe.
A few years ago the SmallCap sector constituted approximately 10 per cent of
the London market. With the growth of massive international companies, such as
Vodafone, BP and Glaxo, in the FTSE 100 Index, the SmallCap share of the
market has recently declined to less than 5 per cent, and the capitalisation
of its largest components to around £500 million. With the new emphasis on
growth, your Board has reviewed the guidelines within which the portfolio is
operated. Our conclusion is that the managers should have flexibility to
include more stocks within the lower end of the MidCap range, where there are
many companies in higher growth service sectors. Accordingly, new guidelines
have been set, so that at least 50 per cent of the portfolio should consist of
constituents of the FTSE SmallCap Index, and 80 per cent of the portfolio to
consist of companies within the lowest 10 per cent of the market (an
investment universe more accurately represented by the Hoare Govett SmallCap
Index).
The Trust will continue to have a broadly based portfolio, with the emphasis
on sectors and companies that offer the best prospects for growth over the
next few years. In this connection we are particularly pleased to welcome the
appointment of Mr. Roger Whiteoak, who has an impressive record in the
management of SmallCap portfolios, to be head of Framlington's SmallCap team.
The Board
Mr. Michael Windsor, who joined the Board in 1990, is not seeking re-election.
We have greatly valued his advice, based on long experience of industry,
particularly during the years when the Trust was in the process of
rationalising and disposing of its former trading subsidiaries.
Outlook
In recent months there have been increasing signs of a slowing in the rate of
economic growth in both Europe and North America. This has already led to a
reduction in dollar interest rates, but in the United Kingdom there needs to
be some restraint of consumer spending, in order to accommodate the planned
increase in Government expenditure, before interest rates can safely be
lowered. Meanwhile the domestic economy remains relatively well balanced, with
inflation low, and the prospect for the coming year is for continued growth,
even if at a somewhat reduced rate. Smaller companies may be expected to
participate in this, and their valuations remain attractive relative to the
market as a whole.
MANAGER'S REVIEW
Market Review
The year under review was a highly volatile one which fell into two distinct
parts. The first three months produced a spectacular rise, driven by the
technology, media and telecommunications sectors. The remainder of the year
saw continued volatility during which all the gains and more were given back.
Volatility can cause problems as well as opportunities. At the end of each
quarter during the calendar year the constituents of the FTSE Indices are
adjusted to reflect the changes in the market capitalisation and corporate
structure of the constituents. This process is adjudicated by a committee from
the FTSE Indices and is purely arithmetic.
This resulted in significant and regular changes to the structure of the FTSE
Small Cap Index, both at company and sector level. Therefore, if fund managers
wanted to maintain neutral weightings in sectors, high levels of turnover
would have to have taken place. ABN Amro calculated that an impossible 80% of
a small companies portfolio would have needed to have been turned over in the
first eight months of 2000, just to track the Index. For example, the software
and computer services sector weighting fell from 10.24% of the FTSE SmallCap
(xIC) Index at the end of December 1999 to 6.85% at the end of March 2000. At
the end of November 2000, it again stood at 10.75%. These changes to the Index
in March alone, added 8.2% to the performance of the Index.
Such short term volatility in a benchmark index has significant consequences
for the long term investor and detracts from what is really going on in the
stockmarket. We believe that the Hoare Govett Small Cap Index, which is
rebalanced annually and is made up of the bottom 10% of companies by market
capitalisation, gives a useful comparison and smooths out the short term
problems created by the make up of the FTSE Indices.
The economic background moved from being very strong in the first half of the
year to showing signs of weakness in the second half. The UK stockmarket was
led by the United States, mainly due to its size and international influence.
Six interest rate rises in the middle of 1999 eventually slowed the US
economy, this combined with the trebling in the oil price left the economic
outlook looking difficult, which impacted upon corporate profitability.
Investors became more risk averse, resulting in a move away from corporate
bonds into government securities and a switch away from existing growth stocks
into more defensive sectors such as pharmaceuticals and into value stocks.
In Europe the problems resulting from the fall in the Euro, caused the ECB to
increase interest rates to defend the currency and combat inflation induced by
rising commodity prices. Emerging Markets have also had a difficult time due
to commodity price rises and risk aversion on the part of investors. A Middle
East crisis in October along with the uncertainty of the US elections has led
again to negative sentiment for stockmarkets and consumers alike in the short
term.
The UK smaller companies sector was influenced more by these large market
movements and sector issues than by stock specifics issues, although there was
plenty of corporate and takeover activity during the period.
Portfolio Review
The removal of the income requirement from the portfolio enabled a rebalancing
to take place, which was all but completed in the first half of the year. This
required a third of the portfolio to be sold and reinvested into existing and
new holdings. The aim was to reposition the portfolio into companies with
higher growth characteristics which should produce superior long term returns.
The timing of these changes coincided with a very volatile period in
stockmarkets and major switches in sentiment and investor behaviour. As a
consequence the move into higher growth areas was at a time when valuation
levels were being pushed to short term highs. The correction in the market had
significant ramifications. Good companies' share prices suffered along with
the bad, indeed investors moved from poor quality, preferred growth stocks to
low value poor quality stocks, areas we specifically tried to avoid.
The reorganisation of the portfolio has resulted in it having a better risk
profile and good long term growth prospects. The sector allocation, whilst
still providing a broad spread across the whole of the small company market,
has changed as a consequence of the rebalancing towards higher growth
companies. We are concentrating on sectors which we believe will be the areas
of long term growth within the economy. To that end, this has led to good
weightings within areas such as electronic and electrical equipment,
healthcare, media, support services, financials and information technology.
This has obviously resulted in underweightings in certain other sectors, which
can be characterised as those being highly competitive, commoditised, low
margin and low growth. Examples of such sectors include chemicals, engineering
and general retailers.
Within the portfolio we benefited from a number of our holdings being subject
to corporate activity, often at substantial premiums, these included Admiral,
Druid and MY Holdings. Our overweight position in the electronic and
electrical equipment sector was rewarding as the technology orientated nature
of Volex and Chloride was accepted by investors and their share prices moved
strongly ahead.
Investment Outlook
Although the short term outlook is difficult, the economic slow down and the
recent fall in the oil price should be good for inflation. With real interest
rates relatively high and the UK inflation level below the Bank of England's
2.5% target, scope for interest rate cuts is high. We feel poor sentiment
associated with the down grading process and the slow down in the economy will
dissipate next year and investors will look further into the future.
The UK economy is in reasonably good shape, government sector debt is
relatively low, the government budget is in surplus and the political climate
appears to be stable despite the forthcoming election. Personal and corporate
finances are in a good condition and banks do not appear to have loan problems
associated with this point in the economic cycle. The economy remains flexible
due to the re-structuring in the 1980s and 1990s and continues to benefit from
the investment in information technology with the flexibility and productivity
gains that this investment produces.
We believe that the success of the UK economy will continue, resulting in a
relatively stable currency which will put pressure on weak sectors, whilst
enabling investment into high value added areas and industries of the future.
These high growth niche industries will tend to consist of smaller focused
companies. The entrepreneurial attitude in the forward looking industries
along with available finance from venture capitalists, private individuals,
banks and the City should enable this growth to proceed. We will try to focus
our research in some of these areas where the UK seems to excel, such as
aerospace, electronics, software and information technology, biotechnology and
healthcare, media, outsourcing and intellectual property rights. The domestic
related companies should also benefit from a strong economy and full
employment. Areas such as property, construction, and support services should
benefit from government spending in health, education and transport as well as
local government restructuring.
Although the short term outlook is difficult, for the longer term we feel
optimistic about the smaller companies sector remaining a vibrant area in
which to invest.
Framlington Investment Management Limited
Contacts: Neil Birrell - 020 7330 6550
Roger Whiteoak - 020 7330 6551
The Throgmorton Trust PLC
Preliminary statement for the year ended 30 November 2000
Revenue Account
Year ended 30 Nov 2000 Restated* Year ended
(unaudited) £000s 30 Nov 1999 £000s
Income from fixed asset
investments
Franked income 8,045 10,790
Unfranked income 859 1,122
8,904 11,912
Other income
Interest receivable 302 575
Fees and commissions 93 37
395 612
Gross Income 9,299 12,524
Expenses and interest
Management fee 1,734 1,731
Administration expenses 309 317
Interest payable 2,616 2,797
4,659 4,845
Net revenue from ordinary 4,640 7,679
activities before taxation
Tax on net revenue from ordinary 166 200
activities
Net revenue from ordinary 4,474 7,479
activities after taxation
Dividends
Preference shares -- 25
Ordinary shares 1,294 2,886
- Interim: 0.50p 2,472 4,315
(1999: 0.95p) (Note 2)
- Proposed final: 1.00p
(1999: 1.55p) (Note 2)
3,766 7,226
Net revenue retained 708 253
Revenue reserve brought forward 3,594 3,431
Premium on cancellation of -- (90)
preference shares
Revenue reserve carried forward 4,302 3,594
Earnings per share
- Basic 1.70p 2.46p
- Assuming loan stock converted 1.79p 2.55p
*See Note 2
The Throgmorton Trust PLC
Preliminary statement for the year ended 30 November 2000
Balance Sheet
30 November 2000 Restated*
(unaudited) 30 November 1999
£000s £000s
Fixed asset investments
Portfolio investments 324,318 373,153
Subsidiary undertakings 3,285 3,577
327,603 376,730
Current assets
Debtors 580 7,964
Due from subsidiary undertakings 9 160
Cash 9,130 4,043
9,719 12,167
Creditors - due within one year
Creditors 4,106 9,643
Due to subsidiary undertakings 1,900 1,701
Proposed dividend 2,472 4,315
8,478 15,659
Total assets less current liabilities 328,844 373,238
Creditors - due after one year
Debenture stock 19,119 19,119
Convertible loan 11,008 11,008
TT Finance loan 15,000 15,000
45,127 45,127
283,717 328,111
Capital and reserves
Share capital 12,414 14,238
Share premium 35,267 35,267
Capital redemption reserve 2,776 952
Revaluation surplus 52,839 103,315
Realised capital profits 176,119 170,745
Revenue reserve 4,302 3,594
283,717 328,111
Net Asset value Per Share 114.28p 115.22p
*See Note 2.
The Throgmorton Trust PLC
Preliminary statement for the year ended 30 November 2000
Statement of Total Recognised Gains and Losses
Year to 30 November 2000
(unaudited)
Revenue Capital Total
£000s £000s £000s
Realised gains and losses - 47,010 47,010
Unrealised gains and losses - (50,476) (50,476)
Income 9,299 - 9,299
Management fee (1,734) (1,734) (3,468)
Other expenses (309) - (309)
7,256 (5,200) 2,056
Net return before finance costs and taxation
Interest payable and similar charges (2,616) (2,424) (5,040)
Return on ordinary activities before taxation 4,640 (7,624) (2,984)
Tax on ordinary activities (166) 163 (3)
Return on ordinary activities after taxation for 4,474 (7,461) (2,987)
the financial year
Dividends in respect of non-equity shares - - -
Return attributable to equity shareholders 4,474 (7,461) (2,987)
Dividend in respect of equity shares (3,766) - (3,766)
Transfer to/(from) reserves 708 (7,461) (6,753)
Return per ordinary share
- basic 1.70p (2.84p) (1.14p)
- assuming loan stock converted 1.79p (2.60p) (0.81p)
Restated*
Year to 30 November 1999
Revenue Capital Total
£000s £000s £000s
Realised gains and losses - 2,625 2,625
Unrealised gains and losses - 94,884 94,884
Income 12,524 - 12,524
Management fee (1,731) (1,731) (3,462)
Other expenses (317) - (317)
10,476 95,778 106,254
Net return before finance costs and taxation
Interest payable and similar charges (2,797) (2,652) (5,449)
Return on ordinary activities before taxation 7,679 93,126 100,805
Tax on ordinary activities (200) 209 9
Return on ordinary activities after taxation for 7,479 93,335 100,814
the financial year
Dividends in respect of non-equity shares (25) - (25)
Return attributable to equity shareholders 7,454 93,335 100,789
Dividend in respect of equity shares (7,201) - (7,201)
Transfer to/(from) reserves 253 93,335 93,588
Return per ordinary share
- basic 2.46p 30.78p 33.24p
- assuming loan stock converted 2.55p 29.66p 32.21p
The Revenue column of this statement is a summary profit and loss account of
the company.
All revenue and capital items in this statement derive from continuing
operations. No operations were acquired or discontinued during the year.
*See Note 2.
The Throgmorton Trust PLC
Preliminary statement for the year ended 30 November 2000
Cash Flow Statement
Year ended 30 Nov 2000 Year ended 30
(unaudited) Nov 1999
£000s £000s
Operating activities 10,037 12,228
Cash received from investments 321 597
Interest received 60 76
Underwriting commission (1,767) (1,679)
Management fee (120) (92)
Cash paid to and on behalf of the (203) (235)
directors
Other cash payments
Net cash inflow from operating 8,328 10,895
activities
Servicing of finance (1,920)
Interest paid - revenue (2,261) (25)
Dividend on preference shares --
(2,261) (1,945)
Taxation (33) (23)
Taxation paid
Capital expenditure and financial (101,898)
investment
Purchase of investments (136,557) 117,333
Sale of investments 183,137 (1,679)
Capital management fee (1,767) (2,652)
Interest charged to capital (2,425)
Net cash inflow from investing 42,388 11,104
activities
Dividends (5,610) (7,469)
Dividends paid - equity shares
Net cash inflow before financing 42,812 12,562
Financing (1,590)
Redemption of 7.25% cumulative first -- (16,881)
preference shares
Repurchase of ordinary shares (37,725) (6,289)
Redemption of 7.25% convertible --
unsecured loan stock 2003
Net cash outflow from financing (37,725) (24,760)
Increase/(Decrease) in cash 5,087 (12,198)
The Throgmorton Trust PLC
Preliminary statement for the year ended 30 November 2000
Notes:
1. The financial information set out in the announcement does not constititute
the company's statutory accounts for the year ended 30 November 2000. The
financial information for the year ended 30 November 1999 is derived from
the statutory accounts for the year which have been delivered to the
Registrar of Companies. The auditors reported on those accounts; their
report was unqualified and did not contain a statement under section 237
(2) or (3) of the Companies Act 1985. The statutory accounts for the year
ended 30 November 2000 will be finalised on the basis of the financial
information presented by the directors in this preliminary announcement
and will be delivered to the Registrar of Companies following the
company's annual general meeting.
This announcement is prepared on the basis of the accounting policies as
set out in the most recent published set of annual financial statements.
This statement was approved by the board of directors on 16 January 2001.
2. The statutory accounts for the year ended 30 November 1999 have been
restated as follows:
In accordance with FRS16 - Current Taxation, applicable to accounting
periods ending on or after 23 March 2001, franked investment income is now
shown net of attributable tax credits. The effect is to reduce both income
and taxation by equal amounts. There is no effect on the revenue or
capital returns per ordinary share or on the net asset value per ordinary
share.
The final dividend payable for 1999 has been restated to reflect dividends
that did not become payable as 6,365,000 shares were repurchased between
the year-end date and the ex dividend date. This reduction in dividends
payable was £98,657.
3. The directors recommend a final dividend of 1.00p per share (1999: 1.55p)
to be paid on 8 March 2001 to ordinary shareholders on the register at the
close of business on 2 February 2001. If approved, the total payment for
the year to 30 November 2000 will be 1.50p per share (1999: 2.50p).
4. The audited accounts will be posted to shareholders shortly.
5. The net asset value per ordinary share shown in this statement incorporates
market valuations of listed investments and directors' valuations of
unlisted investments.
Basic net asset value per share is based on net assets and on
248,273,592 ordinary shares, being the number of ordinary shares in
issue at the year end.