Final Results
F&C U.S. Smaller Companies PLC
25 September 2006
Date: 25 September 2006
Contact: Robert Siddles
F&C Management Limited
020 7628 8000
F&C US SMALLER COMPANIES PLC
Unaudited Preliminary Statement of Results
for the year ended 30 June 2006
HIGHLIGHTS OF RESULTS
• The net asset value (NAV) per share of the Company rose 7.6% to 318.52p
compared to an increase of 9.8% in our benchmark, the sterling-adjusted
Russell 2000 Index and 3.3% in the Standard & Poor's Composite Index,
adjusted for sterling;
• Market conditions encountered during the year, with strong performances
from higher risk stocks, particularly in commodities, did not suit the
Company's longer term, conservative investment approach;
• Although slightly behind in the year, the NAV performance has exceeded its
benchmark in eleven of the thirteen years since formation in March 1993.
Since then, the NAV per share has risen by 230.1%, whereas the
sterling-adjusted Russell 2000 Index gained 148.5%
SUMMARY OF RESULTS
30 June 2006 30 June 2005 Change
Net asset value £75.46m *£71.35m +5.8%
Net asset value per share 318.52p *296.02p +7.6%
Russell 2000 Index (sterling adjusted) 391.81 356.86 +9.8%
Share price 287.50p 263.50p +9.1%
Increase in net asset value per share since
inception on 8 March 1993 +230.1%
Increase since 8 March 1993 in the Russell 2000 Index
(sterling adjusted) +148.5%
* Restated to reflect change in accounting policy (see note 1)
Extracts from the Chairman's Statement
Dear Shareholder
I am pleased to report a good year for your Company. The net asset value (NAV)
per share of the Company rose 7.6% to 318.52p. This compared to an increase of
9.8% in our benchmark, the sterling-adjusted Russell 2000 Index and 3.3% in the
Standard & Poor's Composite Index, adjusted for sterling.
Although it is moderately disappointing that performance did not exceed the
benchmark this year it should be borne in mind that last year's performance was
very strong: NAV per share rose by over 21%, exceeding the benchmark by 11.7%.
Your Company's NAV performance has exceeded its benchmark in eleven of the
thirteen years since formation in March 1993. Since then, the NAV per share has
risen by 230.1%, whereas the sterling-adjusted Russell 2000 Index gained 148.5%.
Market Review
During the year under review the Russell 2000 rose by 13.3%, in dollar terms,
significantly better than the other major indices such as the Standard & Poors
Composite Index, which gained 6.6% and the heavily technology-orientated NASDAQ
Composite Index, which advanced by 0.5%. Once again the US smaller company
sector provided superior equity returns.
Early on in the Company's financial year, the smaller company sector retreated
as concerns about the impact of higher oil prices intensified. In October,
however, a strong rally began and the Russell 2000 rose approximately 25% to its
high in May. Robust economic conditions and a high level of mergers and
acquisitions encouraged the market. A sharp correction occurred in May as
confidence ebbed away in the US dollar and the bond market, spilling over into
equities.
Sterling investors suffered from a small fall in the US dollar over the year.
The dollar was hurt by concerns that the new Federal Reserve Chairman might not
be sufficiently timely in dealing with rising inflationary pressures.
Commodity-oriented sectors were by far the best performing in the Russell 2000,
driven by fears of supply shortages. The best performers were integrated oils,
materials and processing, and other energy. The worst performers were the lower
risk sectors: consumer discretionary, utilities and consumer staples.
Overall the year was characterised by frenzied investor enthusiasm and growing
speculation and this did not suit the Company's longer term, conservative
investment approach.
Discount and Buybacks
The price of the shares rose by 9.1% to 287.5p over the year. The discount to
NAV per share narrowed during the year from 11.0% to 9.7% and at 22 September
2006 was 10.1%. The average discount during the year was 8.9%.
The company bought back some of its own shares during the year. There were
purchases of 411,000 shares at an average discount of 12.0%.
The Board will continue to apply its policy of buying back shares at appropriate
times with a view to limiting the discount in the longer term to around 10%.
Foreign Currency Hedging Policy and Gearing Policy
It is worth reiterating the Board's policy in relation to hedging and gearing.
Although the Board has the authority to hedge out the £/$ risk for a sterling
based investor, it does not routinely do so and the portfolio is not currently
hedged.
The Company is not currently geared. The Board has the authority to gear the
Company. The Board takes the view that the asset class in which it invests is
sufficiently risky that it does not wish to compound this by adding additional
risk by borrowing. The Board believes that most of the Company's shareholders
are conservative long-term investors and that this policy suits their needs.
AGM
The Annual General Meeting will be held at 12.30pm, Tuesday 14 November 2006 and
I hope that you will attend. The meeting will be held in the offices of F&C
Management Limited at Exchange House, Primrose Street, London EC2A 2NY.
Prospects
Whilst the Board remains optimistic on the longer-term prospects for the smaller
company sector in the US, the market is going through a difficult period as it
recovers from a period of speculative excess against a background of rising
inflationary pressures. The Board believes that the Company's risk adverse
approach will continue to benefit shareholders over the longer term.
Gordon Grender
September 2006
BALANCE SHEET
at 30 June 2006 2005
Restated* Restated*
£'000s £'000s £'000s £'000s
Fixed assets
Listed investments 73,081 70,264
Current assets
Debtors 57 76
Cash at bank and short-term
deposits 2,664 1,591
2,721 1,667
Creditors: amounts falling due
within one year (338) (581)
Net current assets 2,383 1,086
Net assets 75,464 71,350
Capital and reserves
Called up share capital 5,923 6,026
Share premium account 2,468 2,468
Non-distributable reserve 841 841
Capital redemption reserve 7,429 7,326
Special reserve 4,235 5,346
Capital reserves 55,781 50,720
Revenue reserve (1,213) (1,377)
69,541 65,324
Total equity shareholders'
funds 75,464 71,350
Net asset value per ordinary
share- pence 318.52 296.02
*Restated to reflect change in accounting policy (see note 1)
INCOME STATEMENT
for the year ended 30 June 2006 2005
Restated*
Revenue Capital Total+ Revenue Capital Total+
£'000s £'000s £'000s £'000s £'000s £'000s
Gains on investments - 5,106 5,106 - 11,976 11,976
Exchange losses - (37) (37) - (39) (39)
Income 1,128 - 1,128 1,032 - 1,032
Management fee (621) - (621) (533) - (533)
Other expenses (193) (8) (201) (198) (6) (204)
Net return before finance costs and taxation 314 5,061 5,375 301 11,931 12,232
Interest payable and similar charges - - - - - -
Return on ordinary activities before taxation 314 5,061 5,375 301 11,931 12,232
Taxation on ordinary activities (150) - (150) (79) (94) (173)
Return attributable to equity shareholders 164 5,061 5,225 222 11,837 12,059
Return per ordinary share - pence 0.69 21.26 21.95 0.88 46.82 47.70
+The total column is the profit and loss account of the Company.
* Restated to reflect change in accounting policy (see note 1)
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.
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
Called
up Share Non- Capital Total
share premium distributable redemption Special Capital Revenue shareholders'
capital account reserve reserve reserve reserves reserve Funds
£'000s £'000s £'000s £'000s £'000s £'000s £'000s £'000s
Balance at 30 June
2004 (as previously
reported) 6,621 2,468 841 6,731 10,713 38,988 (1,599) 64,763
Investment valuation
restatement - - - - - (105) - (105)
Balance at 30 June
2004 (restated) 6,621 2,468 841 6,731 10,713 38,883 (1,599) 64,658
Movements during the
year ended 30 June
2005:
Shares purchased by
the Company (595) - - 595 (5,367) - - (5,367)
Return attributable to
equity shareholders
(as previously
reported) - - - - - 11,816 222 12,038
Investment valuation
restatement - - - - - 21 - 21
Balance at 30 June
2005 (restated) 6,026 2,468 841 7,326 5,346 50,720 (1,377) 71,350
Movements during the
year ended 30 June
2006:
Shares purchased by
the Company (103) - - 103 (1,111) - - (1,111)
Return attributable to
equity shareholders - - - - - 5,061 164 5,225
Balance at 30 June
2006 5,923 2,468 841 7,429 4,235 55,781 (1,213) 75,464
CASH FLOW STATEMENT
for the year ended 30 June 2006 2005
£'000s £'000s £'000s £'000s
Operating activities
Investment income received 993 1,028
Interest received 36 14
Fee paid to management company (743) (390)
Fees paid to Directors (103) (36)
Other cash payments (120) (129)
Net cash inflow from activities 63 487
Taxation
Overseas tax paid (149) (174)
Total tax paid (149) (174)
Financial investment
Purchases of investments (26,995) (20,260)
Sale of investments 29,517 25,658
Other capital expenses (8) (6)
Net cash inflow from financial investment 2,514 5,392
Net cash inflow before use of liquid
resources and financing 2,428 5,705
Management of liquid resources
Decrease in short-term deposits 21 -
Financing
Purchase of ordinary shares (1,204) (5,570)
Net cash outflow from financing (1,204) (5,570)
Increase in cash 1,245 135
Notes
1 Changes in accounting policies
With effect from 1 July 2005, the Company has adopted Financial Reporting
Standards (FRS) 21 to 26. The effect of adoption, where it has resulted in a
change in a significant accounting policy is described below.
FRS 25 (Financial Instruments: Disclosure and Presentation) and FRS 26
(Financial instruments: Measurement) - The Company has designated its assets and
liabilities as being measured at 'fair value through profit or loss'. The fair
value of fixed asset quoted investments is deemed to be the bid value of those
investments at the close of business on the relevant date. Previously, all
quoted investments were valued at middle market value. There have been no other
changes to accounting policies during the period. The accounts for the year
ended 30 June 2005 have been restated to give effect to the above change. Note 4
further explains the restatements.
2 Dividend
The directors do not propose to pay a final dividend.
3 Return per share
Year ended Year ended
30 June 2006 30 June 2005
(restated)
£'000s £'000s
Total return 5,225 12,059
Revenue return 164 222
Capital return 5,061 11,837
Weighted average
ordinary shares in
issue 23,803,464 25,278,501
Year ended
30 June 2005
As previously stated £'000s
Total return 12,038
Capital return 11,816
The total and capital returns for the year ended 30 June 2005 have been
increased by £21,000 (0.08 pence per share). This reflects the effect of the
reduction in valuation of investments, as a result of the change in accounting
policy, at 30 June 2004 by £105,000 and 30 June 2005 by £84,000.
4 Share capital
During the year 411,000 shares were purchased for cancellation at a total cost
of £1,111,000. Since the year end 763,015 ordinary shares have been purchased
at a cost of £2,033,000.
5 Restatement of opening balances
A reconciliation is given between the closing balances per the 30 June 2005 and
30 June 2004 accounts and the restated balances following the adoption of
revisions to UK GAAP.
Balance Sheet Previously reported Restated
30 June 2005 Adjustment 30 June 2005
£'000s £'000s £'000s
Fixed assets
Listed investments* 70,348 (84) 70,264
Current assets
Debtors 76 - 76
Cash at bank and short-term deposits 1,591 - 1,591
1,667 - 1,667
Current liabilities (581) - (581)
Net current assets 1,086 - 1,086
Net assets 71,434 (84) 71,350
Shareholders equity
Called up share capital 6,026 - 6,026
Share premium account 2,468 - 2,468
Non-distributable reserve 841 - 841
Capital redemption reserve 7,326 - 7,326
Special reserve 5,346 - 5,346
Capital reserves* 50,804 (84) 50,720
Revenue reserve (1,377) - (1,377)
Total equity shareholders' funds 71,434 (84) 71,350
Net asset value per ordinary share
- pence 296.37 (0.35) 296.02
Balance Sheet Previously reported Restated
30 June 2004 Adjustment 30 June 2004
£'000s £'000s £'000s
Fixed assets
Listed investments* 63,843 (105) 63,738
Current assets
Debtors 171 - 171
Cash at bank and short-term deposits 1,381 - 1,381
1,552 - 1,552
Current liabilities (632) - (632)
Net current assets 920 - 920
Net assets 64,763 (105) 64,658
Shareholders equity
Called up share capital 6,621 - 6,621
Share premium account 2,468 - 2,468
Non-distributable reserve 841 - 841
Capital redemption reserve 6,731 - 6,731
Special reserve 10,713 - 10,713
Capital reserves* 38,988 (105) 38,883
Revenue reserve (1,599) - (1,599)
Total equity shareholders' funds 64,763 (105) 64,658
Net asset value per ordinary share
- pence 244.53 (0.40) 244.13
Note to the restatement of opening balances
* Effect of revaluation of fixed asset investments from middle market to bid
value
6 Results
The above financial information comprises non-statutory accounts within the
meaning of section 240 of the Companies Act 1985. The financial information for
the years ended 30 June 2005 and 30 June 2004 has been extracted from published
accounts (except as restated) for the years ended 30 June 2005 and 30 June 2004
which have been delivered to the Registrar of Companies and on which the reports
of the auditors have been unqualified.
The audited Report and Accounts will be posted to shareholders in early October
2006. Copies may be obtained, during normal business hours from the registered
office of the Company, Exchange House, Primrose Street, London EC2A 2NY.
The Annual General Meeting will be held at the registered office of the Company,
Exchange House, Primrose Street, London EC2A 2NY on 14 November 2006 at 12.30
pm.
By order of the Board
F&C Management Limited, Secretary
Exchange House, Primrose Street, London EC2A 2NY
25 September 2006
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