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.

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