Half Yearly Report

RNS Number : 6738T

F&C Global Smaller Companies PLC

17 December 2012

 



Date:                17 December 2012

Contact:           Peter Ewins                                                   

                        F&C Management Limited                              

                        020 7628 8000                                               

F&C Global Smaller Companies PLC

Unaudited statement of results

for the half-year ended 31 October 2012

Summary of Unaudited Results

Attributable to shareholders	31 October 2012	30 April 2012	% Change
Share price	611.50p	588.00p	+4.0
Net asset value per share (debenture at nominal value)	623.35p	596.35p	+4.5
Net asset value per share (debenture at market value)	618.82p	590.60p	+4.8
Net assets	£264.8m	£246.8m	+7.3
	Half-year ended 31 October 2012	Half-year ended 31 October 2011	% Change
Revenue return per share	3.76p	3.41p	+10.3
Interim dividend per share	2.00p*	1.63p	+22.7

* Payable on 31 January 2013 to shareholders on the register at 28 December 2012.

Manager's Review

The tough macroeconomic backdrop which held back share prices in the 2011/12 financial year, continued to create a headwind in the early months of the current year. However, despite this, the value of the Company's investment portfolio rose as share prices received a lift from the concerted efforts of the world's Central Banks to bolster the global economic outlook.

Performance and the discount

The Company's Benchmark is a blended index of the returns from the Numis UK Smaller Companies (excluding investment companies) Index (30%) and the MSCI World All Country ex UK Small Cap Index (70%), and in the period this showed a total return of 2.5%. Strong stock selection meant that the net asset value per share ("NAV") total return for the period was ahead of this, at 5.2%. In recognition of good performance in recent years, we were pleased to hear that the fund had won the Global Investment Trust of the year for 2012 award from Money Observer magazine.

Over the six months, the share price rose by 4%. The discount to NAV, taking the debenture at fair value and including current period income, ended the period at 1.2%. During the period, 1,105,326 new shares were issued (2.7% of the initial share capital), on occasions when the share price was standing at a premium to the prevailing NAV, to meet demand for the shares in the market. It is pleasing that the Company's shares have for some time now been trading close to NAV and the Board is keen to use issuance and potentially buyback powers in the future to ensure that this continues to be the case.

Dividends

After a strong year for income in 2011/12, the new period has maintained this trend with many of the stocks on our portfolio paying higher dividends. In the Report and Accounts for 2011/12, the Chairman flagged that the Board was looking to reduce the disparity between the Company's interim and final dividend payments. As a consequence of this and the encouraging start to the year for the revenue account, the interim dividend for this year is being increased by 22.7%, which should represent a higher proportion of the total year's dividend.

Economic and market background

The travails of Europe continued to weigh heavily in the period, with the well versed problems of Greece being mirrored elsewhere in the Eurozone, most critically in Spain, with tax rises and government spending reductions having a predictably negative impact on unemployment and the housing market. The high level of Spain's and several other countries' government bond interest rates, prompted moves from the European authorities towards potentially unlimited European Central Bank directed government bond purchases. It remains possible that some countries may be forced to leave the Eurozone in due course.

The US economy made progress in the period, although the pace of expansion slowed during the Summer in the run-up to the presidential election. More positively, there are signs that the housing market may be improving and jobs are being created, with positive repercussions for consumer confidence and the banks. Closer to home, the UK economy pulled out of a short technical recession in the summer, but the weakness of European export markets continues to hamper progress and we have yet to see the full effect of the austerity squeeze.

Elsewhere the leading Asian and Latin American economies are also facing challenges. The investment and export driven boom of China is slowing at the same time that the political leadership of the country is changing. The moderation of pace is not a surprise given the rapid development of the last few years, and may indeed be a positive if the bubble in some parts of the real estate market deflates in a controlled fashion. Japan's economy appears to have gone back into reverse in recent months with exports under pressure, confounding our earlier hopes that the post 2011 earthquake rebuilding process would lift the economy for a more prolonged period. The commodity driven economy of Brazil is experiencing a much weaker period, not helped by government interference in a number of sectors, though a series of interest rate cuts in 2012 should help the outlook.

The downbeat global economic news was unhelpful for equity markets, but the move in the US to another round of quantitative easing, mirrored by similar moves in the UK and Japan, and the initiatives by the ECB to underpin the stability of the Eurozone, led to a much improved performance in the latter part of the six months.

Portfolio performance

In the 2011/12 financial year, all five regional portfolio blocs were ahead of the local small cap indices, and it is good to be able to report that we have again delivered consistent outperformance in the first six months of the year.

Geographical performance (total return sterling adjusted)
for the half year ended 31 October 2012
	Portfolio	Local smaller companies index
USA	+5.7%	+1.8%
UK	+9.2%	+6.5%
Continental Europe	+6.8%	+2.1%
Japan	-3.9%	-5.1%
Rest of World	+4.2%	+1.0%  (Pacific ex Japan) +3.5%  (Latin America)
Source: F&C Management Limited

In the US the best contribution came from a retailer, Conn's, which benefited from good sales in furniture and bedding lines. We have been generally cautious on banks, but Cardinal Financial is one in which we have confidence, and this was repaid as the company posted strong results with low credit losses and accelerating lending growth. A number of housing related stocks were lifted by signs of improvement in the underlying market, and Mohawk Industries, the flooring supplier rose as its profit margins jumped. LKQ, a distributor of recycled car parts did well, with the market warming to the potential of its recent acquisitions in the US and UK. It was pleasing to see that the purchase of Vail Resorts, a ski resort operator, gave us an early positive return. We had bought in after the shares fell back as a consequence of unhelpful winter weather. On the downside, two consultancy businesses FTI Consulting and ICF International underperformed, the latter due to fears of government related business falling away. Elsewhere The Andersons, an agribusiness fell back on the back of the disappointing US grain harvest.

The UK portfolio produced the best return over the period. Two of the more important contributors to this were Lupus Capital, which supplies window related products, and plant hire company Ashtead Group. Both have significant businesses in the US and have benefited from the tentative upturn in the US construction market. Shares in marine services business James Fisher jumped as on-going investment in port infrastructure in Asian countries and an upturn in spending in offshore markets lifted its performance. Car sales in the UK have been surprisingly strong, helping Vertu Motors' performance while of the recent new holdings, Quindell Portfolio, a software and consultancy business serving the telecoms and insurance sector, did particularly well as it expanded its contract base. There has been some consolidation in the North Sea, and Nautical Petroleum was taken over at a good premium to the prevailing price. Among the weaker performers were translation software business SDL, where growth has slowed, causing a de-rating of the shares, and Hargreaves Services, where geological problems at a mine led to a profits warning.

Despite the macro issues besetting Continental Europe, we were again able to record some good gains as individual companies prospered. Glanbia, which we highlighted in the last two Report and Accounts rose again as the Company reported further good results. It also announced a significant JV with its Irish dairy operations which has led analysts and investors to focus on the more exciting nutritional products side of the business. We have been cautious on European cyclical industrial stocks on the basis that margins in many businesses may have peaked, but Andritz which supplies capital equipment mainly into the pulp and paper markets did well as it announced a positively received acquisition. Another capital equipment business Kuka which makes robotic automation technology for the automotive sector was strong against a weak backdrop for this sector; it appears to be winning an increased market share. Our move to increase our exposure to financial stocks earlier in the year proved to be timely, with shares picking up after the ECB initiatives eased concerns about the European financial system. Azimut, an Italian based fund manager, was strong as its assets under management benefited from new product launches. Topdanmark, the Danish insurer, also produced solid results. Of the weaker performers in the period, SAF Holland and Kendrion were both hit by underlying market weakness in the truck and automotive areas, with Kendrion, unlike Kuka, seeing some of its automotive industry orders cancelled.

We continue to use third party managed funds to gain exposure to Japan, Asia and Latin America, as we believe we get better returns from these than from selecting a portfolio of individual holdings in these markets. Returns in Japan were disappointing in the six months, but at least our fund holdings beat the local small cap market return. Once again theAberdeen Global-Asian Smaller Companies Fund and The Scottish Oriental Smaller Companies Trust performed strongly, but the best return came from the holding in Utilico Investments Limited.

Asset allocation and gearing

The underlying pattern of macroeconomic news is largely unchanged, so we remained content with the geographic mix of the portfolio. We did add to our European holdings gradually over the period on the basis that sentiment towards the region could not get much worse. In the US we ended the period a little below the Benchmark in terms of weighting. The budget deficit of the US is comparable in scale to that of many European countries, and political wrangling as to how this should be addressed continues. It is likely that a combination of spending cuts and tax rises will be agreed, but these will hamper the performance of the US economy in 2013.

The slowdown in the major Asian and Latin American economies is causing problems for corporate earnings in these markets. Over the long term, we are likely to increase our exposure to these faster growing parts of the world, but in this period we took a relatively cautious approach.

Our overweight stance to Japan did not pay off in the first half of the year. We continue to feel that stock valuations in this market are attractive at multi-year lows, and while the current political spat with China is unhelpful, we expect the market to do better in the months ahead.

Geographical distribution of the investment portfolio
	Portfolio weighting
	31 October 2012 %	30 April 2012 %
North America	39.7	39.8
UK	29.4	29.0
Rest of World	11.9	12.6
Continental Europe	11.6	10.8
Japan	7.4	7.8
Source: F&C Management Limited

The Company ended the period with relatively modest gearing of 1.5%.

Outlook

At this stage it seems likely that global GDP growth in 2013 will be sluggish as the fiscal brakes are applied at last in the US. Despite the present challenges, it is encouraging just how well a lot of smaller companies are doing at the moment. We continue to believe that prudent stock selection within the universe of global small cap companies should deliver positive returns over the medium term.

Peter Ewins

17 December 2012

Unaudited Condensed Income Statement

for the half-year ended 31 October	2012			2011
	Revenue	Capital	Total	Revenue	Capital	Total
	£'000s	£'000s	£'000s	£'000s	£'000s	£'000s
Gains/(losses) on investments	-	13,396	13,396	-	(21,845)	(21,845)
Foreign exchange losses	(2)	(100)	(102)	(4)	(46)	(50)
Income	2,515	-	2,515	2,239	-	2,239
Management and performance fees	(117)	(1,146)	(1,263)	(106)	(996)	(1,102)
Other expenses	(556)	(11)	(567)	(502)	(6)	(508)
Return before finance costs and taxation	1,840	12,139	13,979	1,627	(22,893)	(21,266)
Finance costs	(145)	(434)	(579)	(145)	(436)	(581)
Return on ordinary activities before taxation	1,695	11,705	13,400	1,482	(23,329)	(21,847)
Taxation on ordinary activities	(111)	-	(111)	(106)	-	(106)
Return attributable to shareholders	1,584	11,705	13,289	1,376	(23,329)	(21,953)
Return per share - pence	3.76	27.78	31.54	3.41	(57.75)	(54.34)

The total column of this statement is the profit and loss account of the Company. The revenue return and capital return columns are supplementary to this and are prepared under guidance published by the Association of Investment Companies.

All revenue and capital items in the above statement derive from continuing operations.

A statement of total recognised gains and losses is not required as all gains and losses of the Company have been reflected in the above statement.

Unaudited Condensed Reconciliation of Movements in Shareholders' Funds

Half-year ended 31 October 2012	Called up	Share	Capital			Total
	share	premium	redemption	Capital	Revenue	shareholders'
	capital	account	reserve	reserves	reserve	funds
	£'000s	£'000s	£'000s	£'000s	£'000s	£'000s
Balance at 30 April 2012	10,345	29,818	16,158	182,046	8,409	246,776
Movements during the half-year ended 31 October 2012
Dividends paid	-	-	-	-	(1,676)	(1,676)
Shares issued	276	6,175	-	-	-	6,451
Return attributable to equity shareholders	-	-	-	11,705	1,584	13,289
Balance at 31 October 2012	10,621	35,993	16,158	193,751	8,317	264,840

Half-year ended 31 October 2011	Called up	Share	Capital			Total
	share	premium	redemption	Capital	Revenue	shareholders'
	capital	account	reserve	reserves	reserve	funds
	£'000s	£'000s	£'000s	£'000s	£'000s	£'000s
Balance at 30 April 2011	10,025	23,132	16,158	184,606	7,683	241,604
Movements during the half-year ended 31 October 2011
Dividends paid	-	-	-	-	(1,403)	(1,403)
Shares issued	194	3,917	-	-	-	4,111
Return attributable to equity shareholders	-	-	-	(23,329)	1,376	(21,953)
Balance at 31 October 2011	10,219	27,049	16,158	161,277	7,656	222,359

Year ended 30 April 2012	Called up	Share	Capital			Total
	share	premium	redemption	Capital	Revenue	shareholders'
	capital	account	reserve	reserves	reserve	funds
	£'000s	£'000s	£'000s	£'000s	£'000s	£'000s
Balance at 30 April 2011	10,025	23,132	16,158	184,606	7,683	241,604
Movements during the year ended 30 April 2012
Dividends paid	-	-	-	-	(2,073)	(2,073)
Shares issued	320	6,686	-	-	-	7,006
Return attributable to equity shareholders	-	-	-	(2,560)	2,799	239
Balance at 30 April 2012	10,345	29,818	16,158	182,046	8,409	246,776

Unaudited Condensed Balance Sheet

	31 October 2012	31 October 2011	30 April 2012
	£'000s	£'000s	£'000s
Fixed assets
Investments	270,086	228,170	252,184
Current assets
Debtors	866	980	2,007
Cash at bank and short-term deposits	7,004	5,281	5,550
	7,870	6,261	7,557
Creditors: amounts falling due within one year	(3,116)	(2,072)	(2,965)
Net current assets	4,754	4,189	4,592
Total assets less current liabilities	274,840	232,359	256,776
Creditors: amounts falling due after more than one year
Debenture	(10,000)	(10,000)	(10,000)
Net assets	264,840	222,359	246,776
Capital and reserves
Called up share capital	10,621	10,219	10,345
Share premium account	35,993	27,049	29,818
Capital redemption reserve	16,158	16,158	16,158
Capital reserves	193,751	161,277	182,046
Revenue reserve	8,317	7,656	8,409
Total shareholders' funds	264,840	222,359	246,776
Net asset value per share - pence	623.35	543.98	596.35

Unaudited Condensed Cash Flow Statement

	Half-year ended	Half-year ended
	31 October 2012	31 October 2011
	£'000s	£'000s
Net cash inflow from operating activities	677	1,166
Cash outflow from servicing of finance	(577)	(576)
Net cash outflow from financial investment	(3,320)	(1,614)
Equity dividends paid	(1,676)	(1,403)
Net cash outflow before use of liquid resources and financing	(4,896)	(2,427)
Movement in short-term deposits	-	-
Net cash inflow from financing	6,451	3,916
Increase in cash	1,555	1,489
Reconciliation of net cash flow to movement in net debt
Increase in cash	1,555	1,489
Movement in short-term deposits	-	-
Movement in net debt resulting from cash flows	1,555	1,489
Foreign exchange movement	(101)	(51)
Movement in net debt	1,454	1,438
Net debt brought forward	(4,450)	(6,157)
Net debt carried forward	(2,996)	(4,719)
Represented by:
Cash at bank	7,004	5,281
Short-term deposits	-	-
	7,004	5,281
Debenture	(10,000)	(10,000)
	(2,996)	(4,719)

Unaudited Notes on the Condensed Accounts

1    Significant accounting policies

These financial statements have been prepared on the basis of the accounting policies set out in the Company's financial statements at 30 April 2012. These accounting policies are expected to be followed throughout the year ending 30 April 2013.

2    Return per share

	Half-year ended	Half-year ended
	31 October 2012	31 October 2011
Revenue return per share - pence	3.76	3.41
Revenue return attributable to shareholders - £'000s	1,584	1,376
Capital return per share - pence	27.78	(57.75)
Capital return attributable to shareholders - £'000s	11,705	(23,329)
Weighted average number of ordinary shares in issue during the period	42,138,490	40,397,864

3    Dividends

Dividends on ordinary shares	Register date	Payment date	Half-year ended 31 October 2012 £'000s	Half-year ended 31 October 2011 £'000s
Final for the year ended 30 April 2012 of 4.00p	6 Jul 2012	16 Aug 2012	1,676	-
Final for the year ended 30 April 2011 of 3.50p	1 Jul 2011	8 Aug 2011	-	1,403
			1,676	1,403

The Directors have declared an interim dividend in respect of the year ending 30 April 2013 of 2.00p per share, payable on 31 January 2013 to all shareholders on the register at close of business on 28 December 2012. The amount of this dividend will be £854,000 based on 42,709,410 shares in issue at 13 December 2012. This amount has not been accrued in the results for the half-year ended 31 October 2012.

4    Management and performance fees

There have been no changes to the terms of the management and performance fee agreements with F&C Management Limited, which are set out in detail in the Report and Accounts to 30 April 2012. Management fees have been allocated 75% to capital reserves in accordance with accounting policies. A performance fee of £795,000, allocated 100% to capital reserves in accordance with accounting policies, has been accrued in the period to 31 October 2012 as the Company's net asset value per share outperformed the Benchmark (half-year ended 31 October 2011: £677,000 and year ended 30 April 2012: £893,000).

5    Results

The results for the half-year ended 31 October 2012 and 31 October 2011, which are unaudited and which have not been reviewed by the Company's auditors pursuant to the Auditing Practices Board guidance on 'Review of Interim Financial Information', constitute non-statutory accounts within the meaning of Section 434 of the Companies Act 2006. The latest published accounts which have been delivered to the Registrar of Companies are for the year ended 30 April 2012; the report of the auditors thereon was unqualified and did not contain a statement under Section 498 of the Companies Act 2006. The abridged financial statements shown above for the year ended 30 April 2012 are an extract from those accounts.

6    Report and accounts

The report and accounts for the half-year ended 31 October 2012 will be posted to shareholders and made available on the website www.fandcglobalsmallers.com shortly. Copies may also be obtained from the Company's registered office, Exchange House, Primrose Street, London EC2A 2NY.

By order of the Board

F&C Management Limited, Secretary

Exchange House, Primrose Street, London EC2A 2NY

17 December 2012

Directors' Statement of Principal Risks and Uncertainties

The Company's assets consist mainly of listed equities and its principal risks are therefore market related. The large number of investments held, together with the geographic and sector diversity of the portfolio, enables the Company to spread its risk with regard to liquidity, market volatility, currency movements and revenue streams.

In addition to the risks arising from the ongoing global financial instability, key risks faced by the Company relate to investment strategy, management and resources, regulatory issues, operational matters, financial controls, counterparty failure and custody of assets.  These risks, and the way in which they are managed, are described in more detail under the heading "Principal risks and their management" within the Directors' Report and Business Review contained within the Company's annual report for the year ended 30 April 2012.  The Company's principal risks and uncertainties have not changed materially since the date of that report and are not expected to change materially for the remainder of the Company's financial year. 

Statement of Directors' Responsibilities in Respect of the Financial Statements

In accordance with Chapter 4 of the Disclosure and Transparency Rules the Directors confirm, in respect of the report and accounts for the half-year ended 31 October 2012 of which this statement is an extract, that to the best of their knowledge:

·              the condensed set of financial statements has been prepared in accordance with applicable UK accounting standards and gives a true and fair view of the assets, liabilities, financial position and return of the Company;

·              the half-yearly report includes a fair review of the important events that have occurred during the first six months of the financial year and their impact on the financial statements;

·              the Directors' Statement of Principal Risks and Uncertainties shown above is a fair review of the principal risks and uncertainties for the remainder of the financial year; and

·              the half-yearly report includes details on related party transactions.

On behalf of the Board

Anthony Townsend

Chairman

17 December 2012

 

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