Interim Results
Merrill Lynch Br. SmallerCo Tst PLC
10 October 2006
10 October 2006
MERRILL LYNCH BRITISH SMALLER COMPANIES TRUST plc
Interim announcement of results in respect of the six months
ended 31 August 2006
Performance to 31 August 2006 6 months 1 year 3 years 5 years
(calculated on capital only basis)
Net asset value per share +0.3% +19.6% +74.9% +55.1%
Ordinary share price -2.9% +21.4% +78.2% +59.1%
FTSE SmallCap Index (ex IC's) -3.0% +9.5% +37.6% +24.4%
Source: BlackRock Investment Management (UK) Limited, Datastream.
• The Company's net asset value per share increased by 0.3% compared with a fall in the benchmark, the FTSE
SmallCap Index (excluding investment companies), of 3.0%.
• Earnings per share amounted to 3.05p for the period (2005: 2.95p).
• The Directors have declared an interim dividend of 1.83p per share, a 2.2% increase on the 1.79p interim
dividend paid last year, payable on 6 November 2006 to shareholders on the register on 20 October 2006.
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
BlackRock Merrill Lynch Investment Managers
Or
William Clutterbuck
The Maitland Consultancy - 020 7379 5151
The Chairman, Richard Brewster, comments:
'The first six months of the Company's year was a mixed experience for equity markets. Early strength in the UK smaller
companies sector went into sharp reverse in May on the back of rising interest rate expectations fuelled by inflation
fears. Although markets have recovered since midsummer, the benchmark index used by the Company for the six months
ended 31 August 2006 declined by 3%. The Company's net asset value ('NAV') per share was virtually unchanged closing at
362.34p.
'Earnings per share were 3.05p for the period, a rise of 3.4% compared to the interim stage in the preceding year. The
Directors have declared an interim dividend of 1.83p, an increase of 2.2% from 2005. This dividend is payable on 6
November 2006 to shareholders on the register on 20 October 2006.
'Net borrowing ranged between 4.9% and 8.8% of NAV for the period under review and stood at 4.9% on 31 August 2006.
This has now risen to 8.5% as at the time of writing, reflecting the more positive outlook held by the Board and the
Investment Manager.
'The discount to NAV on the ordinary shares on a capital only basis with debt at fair value widened from 11.1% to 14.0%
during the period. Since the period end the Company has purchased 370,000 shares for cancellation. The Board remains
mindful of the discount and is pleased to report that this has now narrowed to 12.4% based on the NAV with debt at fair
value.
'As noted in the most recent annual report, the name of the Investment Manager was changed on
29 September 2006 from Merrill Lynch Investment Managers Limited to BlackRock Investment Management (UK) Limited. This
may have implications for the name of the Company and will be the subject of discussions between the Board and the
Investment Manager. I will report on the outcome of these discussions in due course.
'There is a risk that interest rates may be increased in the short term, although there appears to be no compelling
reason for a sustained tightening and no major inflation problem. Whilst there may be some short term volatility, the
long term outlook should be positive for markets on the expectation that interest rates will start to fall during 2007.
The great majority of our portfolio companies remain optimistic about their prospects and that in turn gives us
confidence for the future.'
Commenting upon the outlook for the Company, Mike Prentis of BlackRock Merrill Lynch Investment Managers, the
Investment Manager, notes:
'Interest rates have risen globally this year which has had some moderating impact on GDP growth, particularly in the
US. Nevertheless the overall level of growth remains robust and the recent fall in the oil price is likely to have a
welcome impact on inflationary pressures.
'In this environment we remain cautiously optimistic on the outlook for stockmarkets. We believe that investor appetite
is likely to shift away from more cyclical companies towards companies capable of top line growth and have positioned
the portfolio accordingly. The great majority of companies in which we are invested are talking positively about
current trading and we expect the premium that the market is prepared to pay for such companies will widen as lower
quality companies suffer. This gives us confidence in the future.'
INCOME STATEMENT
for the six months ended 31 August 2006
Revenue £'000 Capital £'000 Total £'000
Six Six Six Six Six Six
months months Year months months Year months months Year
ended ended ended ended ended ended ended ended ended
31.08.06 31.08.05 28.02.06 31.08.06 31.08.05 28.02.06 31.08.06 31.08.05 28.02.06
(unaudited) (unaudited) (audited) (unaudited) (unaudited) (audited) (unaudited) (unaudited) (audited)
Gains on
investments held
at fair value through
profit or loss - - - 1,582 9,880 40,509 1,582 9,880 40,509
Income from
investments
held at fair value
through profit or
loss 1,991 1,812 2,962 - - - 1,991 1,812 2,962
Other income 77 68 119 - - - 77 68 119
Investment
management fees (156) (53) (197) (710) (389) (1,099) (866) (442) (1,296)
Operating expenses (166) (136) (243) - - - (166) (136) (243)
-------- -------- -------- -------- -------- -------- -------- -------- --------
Net return before
finance costs
and taxation 1,746 1,691 2,641 872 9,491 39,410 2,618 11,182 42,051
-------- -------- -------- -------- -------- -------- -------- -------- --------
Finance costs (199) (199) (383) (390) (396) (795) (589) (595) (1,178)
-------- -------- -------- -------- -------- -------- -------- -------- --------
Return on ordinary
activities before
taxation 1,547 1,492 2,258 482 9,095 38,615 2,029 10,587 40,873
Taxation on
ordinary
activities (7) - - - - - (7) - -
-------- -------- -------- -------- -------- -------- -------- -------- --------
Return on
ordinary
activities after
taxation
(note 3) 1,540 1,492 2,258 482 9,095 38,615 2,022 10,587 40,873
-------- -------- -------- -------- -------- -------- -------- -------- --------
Return per
ordinary share
(note 3) 3.05p 2.95p 4.46p 0.95p 17.96p 76.31p 4.00p 20.91p 80.77p
======== ======== ======== ======== ======== ======== ======== ======== ========
The total column of this statement represents the profit and loss account of the Company. The supplementary revenue and
capital return columns are both prepared under guidance published by the Association of Investment Companies ('AIC').
The Company has no recognised gains or losses other than those disclosed in the Income Statement and the Reconcilation
of Movements in Shareholders' Funds. All items in the above statement derive from continuing operations.
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
for the six months ended 31 August 2006
Capital
Share Share premium redemption Capital Revenue
capital account reserve reserve reserve Total
£'000 £'000 £'000 £'000 £'000 £'000
For the six months ended 31 August 2005
(unaudited)
At 28 February 2005 12,791 38,952 1,689 87,848 4,220 145,500
Return for the period - - - 9,095 1,492 10,587
Shares purchased and cancelled (150) - 150 (1,446) - (1,446)
Dividends paid and declared (see
(a) below) - - - - (1,401) (1,401)
--------- --------- -------- ---------- -------- ----------
At 31 August 2005 12,641 38,952 1,839 95,497 4,311 153,240
--------- --------- -------- ---------- -------- ----------
For the year ended 28 February 2006
(audited)
At 28 February 2005 12,791 38,952 1,689 87,848 4,220 145,500
Return for the year - - - 38,615 2,258 40,873
Shares purchased and cancelled (150) - 150 (1,446) - (1,446)
Dividends paid and declared (see
(b) below) - - - - (2,306) (2,306)
--------- --------- -------- ---------- -------- ----------
At 28 February 2006 12,641 38,952 1,839 125,017 4,172 182,621
--------- --------- -------- ---------- -------- ----------
For the six months ended 31 August
2006 (unaudited)
At 28 February 2006 12,641 38,952 1,839 125,017 4,172 182,621
Return for the period - - - 482 1,540 2,022
Shares purchased and cancelled - - - - - -
Dividends paid and declared (see
(c) below) - - - - (1,431) (1,431)
--------- --------- -------- ---------- -------- ----------
At 31 August 2006 12,641 38,952 1,839 125,499 4,281 183,212
--------- --------- -------- ---------- -------- ----------
(a) Final dividend of 2.77p for the year ended 28 February 2005, declared on 21 April 2005 and paid on 10 June 2005.
(b) Final dividend of 2.77p for the year ended 28 February 2005, declared on 21 April 2005 and paid on 10 June 2005 and
the interim dividend of 1.79p
for the six months ended 31 August 2005, declared on 10 October 2005 and paid on 7 November 2005.
(c) Final dividend of 2.83p for the year ended 28 February 2006, declared on 28 April 2006 and paid on 13 June 2006.
BALANCE SHEET
as at 31 August 2006
Note 31 August 31 August 28 February
2006 2005 2006
£'000 £'000 £'000
(unaudited) (unaudited) (audited)
Non-current assets
Investments held at fair value through profit or loss 195,468 167,050 195,077
Current assets
Debtors 879 660 1,820
Cash and cash funds 5,822 1,688 2,166
---------- ---------- ----------
6,701 2,348 3,986
Creditors - amounts falling due within one year (4,189) (1,404) (1,681)
---------- ---------- ----------
Net current assets 2,512 944 2,305
---------- ---------- ----------
Total assets less current liabilities 197,980 167,994 197,382
Creditors - amounts falling due after more
than one year
(14,768) (14,754) (14,761)
---------- ---------- ----------
Net assets 183,212 153,240 182,621
========== ========== ==========
Capital and reserves
Share capital 12,641 12,641 12,641
Share premium account 38,952 38,952 38,952
Capital redemption reserve 1,839 1,839 1,839
Capital reserve - realised 85,197 60,592 70,016
Capital reserve - unrealised 40,302 34,905 55,001
Revenue reserve 4,281 4,311 4,172
---------- ---------- ----------
Total equity shareholders' funds 183,212 153,240 182,621
========== ========== ==========
Net asset value per ordinary share 4 362.34p 303.06p 361.17p
========== ========== ==========
The notes to the Interim Report form part of these financial statements.
CASH FLOW STATEMENT
for the six months ended 31 August 2006
Notes Six months ended Six months ended Year ended
31 August 31 August 28 February
2006 2005 2006
£'000 £'000 £'000
(unaudited) (unaudited) (audited)
Net cash inflow from operating activities 5 1,152 425 1,167
Return on investment and servicing
of finance (582) (581) (1,163)
Tax received/(paid) - - -
Capital expenditure and financial
investment
Purchase of investments (49,399) (47,632) (100,478)
Proceeds from the sale of investments 53,917 50,777 104,848
---------- ---------- -----------
Net cash inflow from capital expenditure
and financial investment 4,518 3,145 4,370
---------- ---------- -----------
Equity dividends paid (1,431) (1,401) (2,306)
---------- ---------- -----------
Net cash inflow before financing 3,657 1,588 2,068
---------- ---------- -----------
Financing
Purchase of ordinary shares - (1,446) (1,446)
---------- ---------- -----------
Net cash outflow from financing - (1,446) (1,446)
---------- ---------- -----------
Increase in cash in the period 6 3,657 142 622
========== ========== ===========
Notes to the Interim Report
1. Principal activity
The Company conducts its business so as to qualify as an investment trust Company within the meaning of section
842 of the Income and Corporation Taxes Act 1988.
2. Basis of preparation
The financial statements have been prepared on the same basis as the accounting policies set out in the Company's
financial statements at 28 February 2006.
3. Return per ordinary share
Six months Six months
ended ended Year ended
31 August 31 August 28 February
2006 2005 2006
£'000 £'000 £'000
(unaudited) (unaudited) (audited)
The return per ordinary share is based on the
following figures:
Revenue return 1,540 1,492 2,258
Capital return 482 9,095 38,615
Total return on ordinary activities after taxation 2,022 10,587 40,873
Weighted average number of ordinary shares in issue 50,563,523 50,640,153 50,602,153
Revenue return per ordinary share 3.05p 2.95p 4.46p
Capital return per ordinary share 0.95p 17.96p 76.31p
Total return per ordinary share 4.00p 20.91p 80.77p
4. Net asset value per ordinary share
Net asset value per ordinary share is calculated on attributable assets at 31 August 2006 of £183,212,000 (28
February 2006: £182,621,000 and 31 August 2005: £153,240,000) and 50,563,523 being the number of ordinary shares
in issue at 31 August 2006 (28 February 2006 and 31 August 2005: 50,563,523).
During the six months to 31 August 2006 no ordinary shares were purchased and cancelled (six months to 28
February 2006: nil; six months to 31 August 2005: 600,000). The total cost of purchasing these shares was nil
(six months to 28 February 2006: nil; six months to 31 August 2005: £1,446,000).
5. Reconciliation of net return before finance costs and taxation to net cash inflow from
operating activities
Six months Six months
ended ended Year ended
31 August 31 August 28 February
2006 2005 2006
£'000 £'000 £'000
(unaudited) (unaudited) (audited)
Net return before finance costs and taxation 1,746 1,691 2,641
Investment management and performance fees (710) (389) (1,099)
capitalised
Increase in accrued income (155) (205) (49)
Decrease/(increase) in debtors 5 (1) (11)
Increase/(decrease) in creditors 273 (671) (315)
Overseas withholding tax suffered (7) - -
Net cash inflow from operating activities 1,152 425 1,167
6. Movement in net debt
Six months Six months
ended ended Year ended
31 August 31 August 28 February
2006 2005 2006
£'000 £'000 £'000
(unaudited) (unaudited) (audited)
Reconciliation of net cash flow to movement in net debt
Increase in cash for the period 3,657 142 622
Foreign exchange movements (1) - (2)
Amortised Debenture stock issue expenses (7) (8) (15)
Change in net cash in the period 3,649 134 605
Net debt at the beginning of the period (12,595) (13,200) (13,200)
Net debt at the end of the period (8,946) (13,066) (12,595)
7. 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 2006 and 31 August 2005 has
not been audited.
The information for the year ended 28 February 2006 has been extracted from the latest published audited financial
statements 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.
10 October 2006
33 King William Street
London EC4R 9AS
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