Final Results
ISIS Smaller Companies Trust PLC
15 May 2006
ISIS Smaller Companies Trust plc
To: RNS
From: ISIS Smaller Companies Trust plc
Date: 15 May 2006
UNAUDITED RESULTS FOR THE YEAR ENDED 31 MARCH 2006
Investment Objective
To achieve capital growth by investing primarily in a portfolio of smaller
companies quoted on the London Stock Exchange.
Benchmark Index
The benchmark index is the Hoare Govett Smaller Companies (ex Investment
Companies) Index.
Financial Highlights
• Net asset value per share increased by 26.7 per cent.
• Share price increased by 28.8 per cent.
• 19.0 per cent of Ordinary Shares bought back for cancellation enhancing net
asset value by 7.4p per share.
• Unchanged dividend for the year of 4.0p per share.
Chairman's Statement
Results
For the year ended 31 March 2006, the net asset value per share increased by
26.7 per cent. This compares to an increase of 30.4 per cent in the Company's
benchmark, the Hoare Govett Smaller Companies (ex Investment Companies) Index.
Whilst underperforming the benchmark index during the year, the Company remained
significantly ahead for the three years to 31 March 2006. Over this period the
Company experienced strong net asset value per share growth of 161.3 per cent,
which compares to an increase of 138.2 per cent in the benchmark.
Markets were in a confident mood for most of 2005 as corporate earnings and
dividends grew strongly, aided by interest rate stability and steady economic
growth. A marked increase in corporate activity helped bolster confidence that
equities were still fairly priced.
Within the portfolio many of the Company's long-standing investments made
notable contributions to the uplift in net asset value. In particular, Paladin
Resources (through the recommended takeover by Talisman Resources), Restaurant
Group (disposal and payment of a special dividend), and MTL Instruments
(recovery in oil industry capital spending) posted significant gains. There were
disappointments in the form of Healthcare Enterprise where product delays and
poor stock control pushed the company into losses, and Consolidated Minerals
which was adversely impacted by volatility in the Manganese price.
Earnings and Dividends
Group revenue earnings per Ordinary Share were 3.95 pence, compared to 4.73
pence per share for the previous year. The decrease arose from an increase in
expenditure during the year, which included a higher management fee as the
portfolio increased in value, and as a result of the need to report under
International Financial Reporting Standards for the first time.
Income from investments decreased by 18.2 per cent. A material factor behind the
reduction was the significant use of the Company's share buy back powers during
the year. Within the portfolio the rate of dividend increases were comfortably
ahead of projections, an encouraging sign of investee companies' underlying
financial health.
An interim dividend of 1.75 pence per Ordinary Share was paid on 6 January 2006.
As I explained in my interim Chairman's Statement, this interim dividend was
higher than that paid in previous years so as to change the balance between the
two dividend payments made in the year in order to reduce the differential
between them.
The Board has declared a second interim dividend of 2.25 pence per share,
payable on 7 July 2006 to shareholders on the register on 9 June 2006. This
makes a total dividend for the year of 4.00 pence per share, unchanged from the
previous year.
Shareholder Value
The Ordinary Share price increase by 28.8 per cent during the year, to 312.75
pence per share reflecting the increase in the net asset value and the narrowing
of the discount to 13.6 per cent as at 31 March 2006 compared to 15.1 per cent
at the end of the previous year.
The Company made significant use of its share buy back powers during the year,
buying back 4,105,000 Ordinary Shares at a cost of £10.7 million. This
represented 19.0 per cent of the shares in issue at the previous year end.
These buy backs enhanced the net asset value by 7.4 pence per share. The Board
believes that it is important to have a share buy-back facility in place and
will therefore seek to renew the facility at the Annual General Meeting.
Gearing
With markets rising strongly during the year, the Company benefited from its
geared position. As at 31 March 2006, the level of gearing net of cash was 5.2
per cent which compares to 9.7 per cent as at 31 March 2005. The Company's
borrowings are represented by a £10 million revolving credit facility, £6
million of which was drawn down at the year end.
Management
As recently announced, the Board has been advised by F&C Asset Management plc ('
F&C') that Stephen Grant, the Company's lead fund manager, will be leaving F&C.
The Board is reviewing the Company's management arrangements and will make a
further announcement in due course. In the meantime, Catherine Stanley, Head of
UK Small Cap at F&C, is managing the Company's portfolio.
Board
As reported in my interim Chairman's Statement, Mr James Laurenson retired as a
Director on 30 September 2005 having served on the Board since 1983. On behalf
of the Board I would like to thank Mr Laurenson for his significant contribution
over this period. We subsequently sought to recruit a new independent
non-executive Director and I am very pleased to report that Mr Richard Martin
was appointed on 1 February 2006. Mr Martin has a significant amount of
investment experience and other skills which are particularly relevant to the
Company's circumstances.
International Financial Reporting Standards
Following changes to accounting regulations, the Company is now required to
prepare its accounts in accordance with International Financial Reporting
Standards ('IFRS'). In previous years the Company's accounts were prepared in
accordance with UK Generally Accepted Accounting Principles ('UK GAAP'). Under
IFRS, the Company's investments are required to be valued at bid prices and not
middle market prices as had been the treatment under UK GAAP. In addition, under
IFRS, dividends paid by the Company are only recognised in the accounts when
paid to shareholders. The second interim dividend for the year is therefore not
provided for in the accounts. Comparative figures have been restated
accordingly.
Outlook
Investors in smaller companies have enjoyed excellent returns over the past
three years. However, current market behaviour is consistent with the latter
stages of a bull market and there appears to be a discernable increase in the
willingness of investors to contemplate riskier business propositions.
At present the Board views the business climate with a degree of caution,
principally because of concerns over consumer expenditure, the funding of
pension obligations and a possible rise in interest rates. However, these
challenges are not unique to smaller companies and the Managers have established
a credible track record of selecting businesses capable of negotiating such
obstacles. The Board believes that by adhering to its core investment beliefs
of backing companies with strong business models, robust finances and able
management, the Company will continue to deliver increases in shareholder value
over the longer term.
A R Irvine
Chairman
Unaudited Consolidated Income Statement
For the Year Ended 31 March 2006
Year ended 31 March 2006
Revenue Capital Total
£'000 £'000 £'000
Income
Investment income 1,264 318 1,582
Other operating income 235 - 235
1,499 318 1,817
Gains on investments held at fair value - 12,751 12,751
Total income 1,499 13,069 14,568
Expenses
Investment management and secretarial fees (268) (401) (669)
Other expenses (351) - (351)
Profit before finance costs and tax 880 12,668 13,548
Finance costs (144) (268) (412)
Net operating profit before tax 736 12,400 13,136
Tax - - -
Net profit 736 12,400 13,136
Earnings per share 3.95p 66.62p 70.57p
The total column of this statement represents the Group Income Statement,
prepared in accordance with IFRS. The supplementary revenue and capital return
columns are both prepared under guidance published by the Association of
Investment Trust Companies. All items in the above statement derive from
continuing operations.
Under IFRS the Income Statement is the equivalent of the Statement of Total
Return as reported previously
Consolidated Income Statement
For the Year Ended 31 March 2005
Year ended 31 March 2005
(restated)
Revenue Capital Total
£'000 £'000 £'000
Income
Investment income 1,545 - 1,545
Other operating income 145 - 145
1,690 - 1,690
Gains on investments held at fair value - 13,186 13,186
Total income 1,690 13,186 14,876
Expenses
Investment management and secretarial fee (244) (348) (592)
Other expenses (268) - (268)
Profit before finance costs and tax 1,178 12,838 14,016
Finance costs (158) (293) (451)
Net operating profit before tax 1,020 12,545 13,565
Tax - - -
Net profit 1,020 12,545 13,565
Earnings per share 4.73p 58.17p 62.90p
Group Balance Sheet
Unaudited As at 31
As at 31 March March 2005
2006 (restated)
£'000 £'000
Non current assets
Investments held at fair value through 65,803 67,062
profit or loss
Current assets
Investments held by dealing subsidiary 61 343
Other receivables 160 456
Cash and cash equivalents 3,761 1,542
3,982 2,341
Total Assets 69,785 69,403
Current liabilities
Other payables (6,602) (7,788)
Total liabilities (6,602) (7,788)
Net assets 63,183 61,615
Capital and reserves
Called-up share capital 8,724 10,777
Share premium account 3,935 3,935
Capital redemption reserve 2,212 159
Capital reserve realised 25,458 28,559
Capital reserve unrealised 21,272 16,441
Revenue reserve 1,582 1,744
Shareholders' funds 63,183 61,615
Net asset value per share 362.12p 285.87p
Unaudited Consolidated Statement of Changes in Equity
For the year ended 31 March 2005 Share Capital Share Capital Capital Capital Revenue
Premium Redemption Reserve Reserve Reserve
Account Reserve Realised Unrealised
£'000 £'000 £'000 £'000 £'000 £'000
Balance as at 1 April 2004 10,811 3,935 125 26,010 7,173 939
IFRS Adjustments - - - - (615) 649
Restated balance as at 1 April 2004 10,811 3,935 125 26,010 6,558 1,588
Net gain on realisation of - - - 3,303 - -
investments
Increase in unrealised appreciation - - - - 9,883 -
Share buy-backs (34) - 34 (113) - -
Management fees charged to capital - - - (348) - -
Interest charged to capital - - - (293) - -
Retained net revenue for the year - - - - - 1,020
Dividends paid - - - - - (864)
Balance as at 31 March 2005 10,777 3,935 159 28,559 16,441 1,744
For the year ended 31 March 2006 Share Capital Share Capital Capital Capital Revenue
Premium Redemption Reserve Reserve Reserve
Account Reserve Realised Unrealised
£'000 £'000 £'000 £'000 £'000 £'000
Balance as at 1 April 2005 10,777 3,935 159 28,559 16,441 1,744
Net gain on realisation of - - - 7,920 - -
investments
Increase in unrealised appreciation - - - - 4,831 -
Share buy-backs (2,053) - 2,053 (10,670) - -
Management fees charged to capital - - - (401) - -
Interest charged to capital - - - (268) - -
Special dividend credited to capital - - - 318 - -
Retained net revenue for the year - - - - - 736
Dividends paid - - - - - (898)
Balance as at 31 March 2006 8,724 3,935 2,212 25,458 21,272 1,582
Consolidated Cash Flow Statement
Unaudited
Year Ended 31 Year Ended 31
March March
2006 2005
(restated)
£'000 £'000
Cash flows from operating activities
Profit before tax and financing 13,548 14,016
Adjustment for gains on investments (12,751) (13,186)
797 830
Interest paid (429) (468)
Operating cash flows before investments in working capital 368 362
Decrease/(increase) in receivables 349 (245)
Increase in payables 12 10
Net cash from operating activities 729 127
Cash flows from investing activities
Purchases of investments (11,336) (18,948)
Sales of investments 25,394 20,270
Net cash from investing activities 14,058 1,322
Cash flows from financing activities
Dividends paid (898) (864)
Own shares acquired (10,670) (113)
Repayments of borrowings (1,000) -
Net cash used in financing activities (12,568) (977)
Net increase in cash and cash equivalents 2,219 472
Cash and cash equivalents at beginning of year 1,542 1,070
Cash and cash equivalents at end of year 3,761 1,542
Notes to the Interim Report
1. Accounting Policies
The financial statements have been prepared on the basis of the recognition and
measurement requirements of International Financial Reporting Standards ('IFRS')
issued by the International Accounting Standards Board ('IASB'), and
interpretations issued by the International Reporting Interpretations Committee
of the IASB ('IFRIC').
These are the first annual financial statements prepared on this basis.
Previously the annual financial statements were prepared in accordance with UK
Generally Accepted Accounting Principles ('UK GAAP') including the Statement of
Recommended Practice 'Financial Statements of Investment Trust Companies'. UK
GAAP differs in certain respects from IFRS. When preparing the financial
statements for the year 31 March 2006 the Directors have amended certain
accounting and valuation methods applied in the UK GAAP financial statements.
Reconciliations of Balance Sheet, Statement of Total Return to the Income
Statement and Cash Flow Statement at date of conversion (1 April 2004) and
previously reported periods are shown in notes 2 and 3.
2. Restatement of opening balances at 1 April 2004
In accordance with IFRS1, 'First Time Adoption of Financial Reporting
Standards', the following is a reconciliation of the figures at 1 April 2004
previously reported under the applicable UK Accounting Standards and with the
Statement of Recommended Practice.
Previously reported
1 April 2004 Restated
Adjustments 1 April 2004
£'000 £'000 £'000
Non-current assets
Investments held at fair value through profit 55,688 (615) 55,073
or loss
Current assets 1,307 - 1,307
Current liabilities (8,002) 649 (7,353)
Net assets 48,993 34 49,027
Capital and reserves
Called-up share capital 10,811 - 10,811
Reserves 38,182 34 38,216
Equity shareholders' funds 48,993 34 49,027
Net asset value per share 226.61p 0.15p 226.76p
Investments are classified as held at fair value under IFRS and are carried at
bid prices which equates to their fair value of £55,073,000 as at 1 April 2004.
They were carried at mid prices previously. The resultant difference of
£615,000 is deducted from capital reserve unrealised.
No provision has been made for the final dividend for the year ended 31 March
2004, of £649,000. Under IFRS this is not recognised until paid. This amount is
added to the revenue reserve.
3(a) Restatement of balances at 31 March 2005
In accordance with IFRS1, 'First Time Adoption of Financial Reporting
Standards', the following is a reconciliation of the figures at 31 March 2005
previously reported under the applicable UK Accounting Standards and with the
Statement of Recommended Practice.
Previously reported Restated
31 March 2005 Adjustments 31 March 2005
£'000 £'000 £'000
Non-current assets
Investments held at fair value through profit 67,695 (633) 67,062
or loss
Current assets 2,341 - 2,341
Current liabilities (8,435) 647 (7,788)
Net assets 61,601 14 61,615
Capital and reserves
Called-up share capital 10,777 - 10,777
Share premium account 3,935 - 3,935
Capital redemption reserve 159 - 159
Capital reserve - realised 28,559 - 28,559
- unrealised 17,074 (633) 16,441
Revenue reserve 1,097 647 1,744
Equity shareholders' funds 61,601 14 61,615
Net asset value per share 285.81p 0.06p 285.87p
Investments are classified as held at fair value under IFRS and are carried at
bid prices which equates to their fair value of £67,062,000 as at 31 March 2005.
They were carried at mid prices previously. The resultant difference of
£633,000 is deducted from capital reserve unrealised.
No provision has been made for the final dividend for the year ended 31 March
2005, of £647,000. Under IFRS this is not recognised until paid. This amount
is added to the revenue reserve.
(b) Reconciliation of the Statement of Total Return for the year ended 31
March 2005 to the Income Statement
Under IFRS the Income Statement is the equivalent of the Statement of Total
Return as reported previously.
Per share
£'000 P
Total transfer to reserves per Statement of Total Return 12,721 58.99
Change from mid to bid basis at 1 April 2004 615 2.85
Change from mid to bid basis at 31 March 2005 (633) (2.94)
Interim dividend for the year ended 31 March 2005 215 1.00
Final dividend for the year ended 31 March 2005 647 3.00
Net profit per Income Statement 13,565 62.90
Note to the reconciliation
Investments at 1 April 2004 and 31 March 2005 are required to be valued at bid
prices which equates to their fair value under IFRS. They were valued at mid
prices previously. These values differ from the previous valuations by £615,000
and £633,000 respectively.
3(c) Reconciliation of the Cash Flow Statement for the year ended 31 March 2005
Previously
Reported Effect of Adjusted
Cash flows transition to Cash flows
2005 IFRS 2005
£'000 £'000 £'000
Net cash inflow from operating activities 595 (468) 127
Servicing of finance (468) 468 -
Capital expenditure and financial investment 1,322 - 1,322
Dividends paid (864) 864 -
Net cash flow before financing 585 864 1,449
Financing (113) (864) (977)
Increase in cash 472 - 472
In accordance with IFRS bank interest paid is now shown under operating
activities rather than servicing of finance.
4. Earnings per Ordinary Share is based on a weighted average of 18,613,479
Ordinary Shares in issue during the year (2005 - 21,567,115).
5. The second interim dividend of 2.25p (2005 - final dividend 3.00p) will be
paid on 7 July 2006 to shareholders on the Register on 9 June 2006.
6. There were 17,448,260 Ordinary Shares in issue at 31 March 2006 (2005
- 21,553,260). During the year 4,105,000 Ordinary Shares of 50p each were
purchased for cancellation at an aggregate cost of £10,670,000.
7. These are not statutory accounts in terms of Section 240 of the Companies
Act 1985. Statutory accounts for the year to 31 March 2005, which were
unqualified, have been lodged with the Registrar of Companies. The statutory
accounts for the year to 31 March 2006 will be delivered to the Registrar of
Companies following the Company's Annual General Meeting.
For further information please contact:
G R Hay Smith
F&C Asset Management plc: Tel. 0131 465 1000
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