RNS Number:3977J
F&C Global Smaller Companies PLC
07 December 2007
Date: 6 December 2007
Contact: Peter Ewins
F&C Management Limited
020 7628 8000
F&C GLOBAL SMALLER COMPANIES PLC
Unaudited Interim Statement of Results
for the half-year ended 31 October 2007
KEY POINTS
• Portfolio outperformed in the UK and Europe, but underperformed the
overall Benchmark
• Interim dividend increased by 3.3%
• More difficult market conditions for smaller company shares
• Share price fell by 5.8% and the net asset value per share total return
fell by 3.4%
SUMMARY OF UNAUDITED RESULTS FOR THE HALF-YEAR ENDED 31 OCTOBER 2007
Attributable to equity shareholders 31 October 2007 30 April 2007 % Change
Share price 445.75p 473.25p -5.8
Net asset value per share (debenture at nominal value) 491.35p 512.21p -4.1
Net asset value per share (debenture at market value) 484.48p 505.14p -4.1
Half-year ended Half-year ended
31 October 2007 31 October 2006 % Change
Revenue return per share 2.81p 2.41p +16.6
Interim dividend per share* 1.58p 1.53p +3.3
* Payable on 30 January 2008 to shareholders on the register at 4 January 2008.
Chairman's Statement
The six months to the end of October 2007 proved difficult for equity markets
worldwide. As the scale of losses emanating from securities linked to the US
mortgage market became apparent, turbulence in credit markets, together with the
ensuing well publicised problems of Northern Rock in the UK, fed through to
falling share prices. At such times, smaller company shares tend to lose favour
reflecting their inherent lower liquidity and perceived higher risk.
Your Company has not been immune to these trends, and the share price and
net asset value ("NAV") per share total return fell by 5.8% and 3.4%
respectively over the period. It is disappointing to report that these falls
exceeded the 1.6% fall in the Company's Benchmark, which is a blended index of
the returns from the Hoare Govett UK Smaller Companies Index (40%) and the MSCI
World ex UK Small Cap Index (60%). However, the longer-term perspective
indicates a strong performance record.
Despite the difficult markets, revenue in the form of dividends from
stocks held in the portfolio has continued to be healthy, and the Board is
therefore in a position to declare another increase in your Company's own
interim dividend to 1.58p per share, up 3.3% on the 2006/7 payment.
Discount
Taking the NAV per share calculated with the debenture at market value, the
discount ended the period at 8.0%, compared to 6.3% at the end of the previous
financial year. The Board's aim is to keep the discount measured in this way at
close to 5% and it uses its share buyback powers to try to achieve this, with
the result that during the period 3.8% of the issued share capital was bought in
and cancelled.
In the last few months the discounts on a number of smaller company
investment trusts have risen, some to the high teens in percentage terms. When
these trusts fail to buy in shares to moderate their discounts, this can impact
on those that do, which become the source of liquidity if there are investors
looking to reduce their exposure to smaller companies. When markets are
particularly weak and volatile, it is sometimes sensible to stand back from
buying in, but the Board continues to believe that it is appropriate to be
active in more stable market conditions to ensure that shareholders do not
suffer from a prolonged, meaningful widening in the discount.
Market background
While banks and other investment entities investing in credit instruments were
the initial losers from the US sub-prime mortgage market fall-out, the broader
concern for stock markets has been that banks will become less willing to lend
to the corporate sector. This could ultimately lead to reduced business activity
across a broader spectrum.
In terms of macro-economic news, growth in the US economy slowed as
weakness in the housing market took its toll, and the Federal Reserve cut
interest rates in response. This action served to put further pressure on an
already weak US dollar in the currency markets, but it did lead to a rally in
stock market sentiment later in the period under review. The Japanese economy
also appears to have slowed. Growth continued to be respectable in the UK and
Europe, and significantly more dynamic in Asia where many regional stock markets
reached new highs. Inflation is now perceived to be more of a threat given
continuing high oil, base metal and food prices.
Portfolio performance
In each market or region we compare performance to a relevant local small cap
benchmark. We outperformed in the UK and Europe, but were behind in North
America, Japan and the rest of Asia. All returns are measured in sterling terms,
with the main currency impact in this period being on US returns given the
substantial weakening of the dollar.
While the UK still represents the largest individual part of the
portfolio, we also have a large exposure to the US small cap market given its
size and scope, and it is here that relative underperformance cost the most
against the overall Benchmark. Underperformance in Japan and the rest of Asia,
while more marked, affected the overall relative performance less, as these are
smaller parts of the portfolio and the Benchmark.
In the UK portfolio, the largest individual contributor to outperformance
was Aveva Group, the software company, which remains the Company's biggest
holding. We benefited from good stock selection in engineering, and from being
underweight to UK focused real estate stocks, which fell heavily on evidence
that domestic commercial property values had peaked. Weak and volatile equity
markets impacted a number of our financial stocks, but we gained from a number
of takeover approaches for holdings including oil service technology company
Sondex, retailer Dobbies Garden Centres and miner Consolidated Minerals.
The European portfolio also beat its benchmark with winners coming from a
range of sectors. Odim, which provides winding equipment to oil services
companies using seismic equipment, rose significantly as the industry benefited
from the high oil price. Q-Cells, involved in solar power markets, Outotec, the
mining technology company, and Frigoglass, which provides refrigeration
equipment for the beverage market, were also strong.
US performance was undermined in the summer by selling pressure on some of
our holdings, as hedge funds focused on the value end of the market were forced
to cut their positions in view of the credit market situation. We also suffered
from some stock specific issues. Beacon Roofing, a distributor of materials for
the building market, was hit harder than we expected by the housing market
slowdown, while Dollar Thrifty, the car rental company, and dealership operator
Lithia Motors, also produced poor results.
Japanese performance was disappointing as our focus on the consumer side
of the market at the expense of industrials failed to pay off in the period. The
yen remained weak, benefiting exporters. Two of our retail holdings, Bookoff,
which sells books and music, and Jin, a chain of opticians, both suffered from
increased competition.
In the Asian portfolio, where we invest in specialist small cap funds, we
lagged the benchmark, although it should be recalled that this followed a good
2006/7. We were under-exposed to some of the best performing markets in the
region. Some markets, such as China, look over-heated in terms of stock market
valuations. As with all parts of the portfolio we will keep a close eye on
performance of the funds in case changes need to be made.
Asset allocation and gearing
We reduced the scale of the UK overweight position against the Benchmark as we
have become slightly less positive about the domestic economy, and topped up the
US to closer to a neutral position, as valuations in parts of this market became
more attractive. We also increased the weighting to Asia during the period and
would expect this part of the portfolio to grow further over the long-term.
Gearing on the portfolio fell from 2.7% to just 1.6% over the period as we
became less optimistic about the immediate outlook for markets.
VAT
Her Majesty's Revenue and Customs has recently accepted the European Court of
Justice ruling that investment trusts should be regarded as special investment
funds with the consequence that the Company will not be subject to VAT in future
on its investment management fees. It is also probable that at least some of the
VAT suffered in the past on such fees will be recovered. The Board is in
discussion with the Manager and the Association of Investment Companies on this
issue, and a number of legal and procedural matters need to be resolved. No
asset is as yet being recognised given the uncertainties.
Board
Gerry Grimstone and Bruce Farmer retired from the Board after the Annual General
meeting on 30 July 2007 having given five and eight years service respectively.
I would like to take this first opportunity to place on record the Board's
thanks for their invaluable contributions over the years. We shall miss their
experience and wise counsel. Andrew Adcock and Mark White joined the Board at
that point and have already made their impact. They bring many years' investment
skills to our deliberations and we are fortunate to have secured their services.
Outlook
Markets have been very unsettled in the early weeks of the second half and the
scale of recent gyrations in equity, credit, commodity and currency markets is
indicative of uncertain times. In the near-term, clarity on the economic outlook
for the US is important, as is the likely trend in interest rates here and
elsewhere. Smaller companies are not currently top of the priority list for many
investors and this is likely to continue until the markets as a whole are more
settled.
However, volatile times can present some good opportunities. The Manager
is continuing to focus on companies with strong balance sheets and the potential
to deliver good growth. Investors are favouring companies which do not have
near-term funding requirements given the current situation in bond and equity
markets.
The Board and Manager continue to believe that investors will be well
served over the long-term by having exposure to the greater growth that small
stocks deliver.
Anthony Townsend
Chairman
December 2007
UNAUDITED INCOME STATEMENT
Half-year ended 31 October 2007 Half-year ended 31 October 2006
Revenue Capital Total* Revenue Capital Total*
£'000s £'000s £'000s £'000s £'000s £'000s
Losses on investments - (9,525) (9,525) - (6,565) (6,565)
Exchange losses - (200) (200) (1) (42) (43)
Income 2,183 - 2,183 1,977 - 1,977
Management fee (148) (345) (493) (129) (303) (432)
Performance fee - - - - (138) (138)
Other expenses (406) (23) (429) (324) (32) (356)
Return before finance costs and taxation 1,629 (10,093) (8,464) 1,523 (7,080) (5,557)
Finance costs (178) (409) (587) (178) (415) (593)
Return on ordinary activities before taxation 1,451 (10,502) (9,051) 1,345 (7,495) (6,150)
Taxation on ordinary activities (156) 25 (131) (183) 53 (130)
Return attributable to equity shareholders 1,295 (10,477) (9,182) 1,162 (7,442) (6,280)
Return per share - pence 2.81 (22.73) (19.92) 2.41 (15.45) (13.04)
*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.
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 RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
Half-year ended 31 October 2007 Called up Share Capital Total equity
share premium redemption Capital Revenue shareholders'
capital account reserve reserves reserve funds
£'000s £'000s £'000s £'000s £'000s £'000s
Balance at 30 April 2007 11,693 23,132 14,490 183,286 6,973 239,574
Movements during the half-year ended
31 October 2007
Return attributable to equity - - - (10,477) 1,295 (9,182)
shareholders
Dividends paid - - - - (1,460) (1,460)
Shares purchased by the Company (449) - 449 (7,944) - (7,944)
Balance at 31 October 2007 11,244 23,132 14,939 164,865 6,808 220,988
Half-year ended 31 October 2006 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 2006 12,088 23,132 14,095 170,960 7,377 227,652
Movements during the half-year ended
31 October 2006
Return attributable to equity - - - (7,442) 1,162 (6,280)
shareholders
Dividends paid - - - - (1,944) (1,944)
Shares purchased by the Company (119) - 119 (1,865) - (1,865)
Balance at 31 October 2006 11,969 23,132 14,214 161,653 6,595 217,563
Year ended 30 April 2007 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 2006 12,088 23,132 14,095 170,960 7,377 227,652
Movements during the year ended
30 April 2007
Return attributable to equity - - - 19,039 2,270 21,309
shareholders
Dividends paid - - - - (2,674) (2,674)
Shares purchased by the Company (395) - 395 (6,713) - (6,713)
Balance at 30 April 2007 11,693 23,132 14,490 183,286 6,973 239,574
UNAUDITED BALANCE SHEET
31 October 2007 31 October 2006 30 April 2007
£'000s £'000s £'000s
Fixed assets
Investments 224,693 223,716 246,970
Current assets
Debtors 1,681 744 3,050
Taxation recoverable 9 9 19
Cash at bank and short-term deposits 6,459 5,404 5,548
8,149 6,157 8,617
Creditors: amounts falling due within one year (1,854) (2,310) (6,013)
Net current assets 6,295 3,847 2,604
Total assets less current liabilities 230,988 227,563 249,574
Creditors: amounts falling due after more than one year
Debenture (10,000) (10,000) (10,000)
Net assets 220,988 217,563 239,574
Capital and reserves
Called up share capital 11,244 11,969 11,693
Share premium account 23,132 23,132 23,132
Capital redemption reserve 14,939 14,214 14,490
Capital reserves 164,865 161,653 183,286
Revenue reserve 6,808 6,595 6,973
Total equity shareholders' funds 220,988 217,563 239,574
Net asset value per ordinary share - pence 491.35 454.43 512.21
UNAUDITED SUMMARY CASH FLOW STATEMENT
Half-year ended Half-year ended
31 October 2007 31 October 2006
£'000s £'000s
Net cash inflow from operating activities 594 1,633
Cash outflow from servicing of finance (577) (591)
Total tax paid (121) (129)
Net cash inflow from financial investment 10,610 8,900
Equity dividends paid (1,460) (1,944)
Net cash inflow before use of liquid resources and financing 9,046 7,869
Increase in short-term deposits (4,210) (1,000)
Net cash outflow from financing (7,938) (4,865)
(Decrease)/increase in cash (3,102) 2,004
Reconciliation of net cash flow to movement in net debt
(Decrease)/increase in cash (3,102) 2,004
Increase in short-term deposits 4,210 1,000
Decrease in short-term loans - 3,000
Movement in net debt resulting from cash flows 1,108 6,004
Exchange movement (197) (44)
Movement in net debt 911 5,960
Net debt brought forward (4,452) (10,556)
Net debt carried forward (3,541) (4,596)
Represented by:
Cash at bank 249 3,404
Short-term deposits 6,210 2,000
6,459 5,404
Debenture (10,000) (10,000)
(3,541) (4,596)
Notes
1 ACCOUNTING POLICIES
These results have been prepared on the basis of the accounting policies set out
in the Company's financial statements at 30 April 2007. These accounting
policies are expected to be followed in the year ending 30 April 2008.
2 RETURN PER ORDINARY SHARE
Revenue return
The revenue return per share for the half-year ended 31 October 2007 is based on
the revenue return attributable to equity shareholders of £1,295,000 profit
(half-year ended 31 October 2006: £1,162,000 profit).
Capital return
The capital return per share for the half-year ended 31 October 2007 is based on
the capital return attributable to equity shareholders of £10,477,000 loss
(half-year ended 31 October 2006: £7,442,000 loss).
Weighted average number of shares in issue
Both the revenue and capital returns per share for the half-year ended 31
October 2007 are based on a weighted average number of 46,103,339 shares in
issue (half-year ended 31 October 2006: 48,176,100).
3 DIVIDEND
The Directors have declared an interim dividend of 1.58p per ordinary share,
payable on 30 January 2008 to shareholders on the register at close of business
on 4 January 2008. The amount of this dividend will be £708,000 based on
44,779,781 shares in issue at 6 December 2007. This amount has not been accrued
in the results for the half-year ended 31 October 2007.
4 RESULTS
The results for the half-year ended 31 October 2007 and for the half-year ended
31 October 2006, which are unaudited, 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 2007; 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 2007 are
an extract from those accounts.
5 REPORT AND ACCOUNTS
The Report and Accounts for the half-year will be posted to shareholders later
this month. 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
6 December 2007
This information is provided by RNS
The company news service from the London Stock Exchange
END
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