Final Results
Legg Mason Investrs AIM DistTst PLC
17 May 2002
LEGG MASON INVESTORS AIM DISTRIBUTION TRUST PLC
PRELIMINARY ANNOUNCEMENT OF RESULTS
The Directors announce the unaudited statement of results for the year ended 31
March 2002 as follows:
FINANCIAL HIGHLIGHTS
Year ended Year ended
31 March 2002 31 March 2001
Total loss after tax* (£6,460,418) (£12,281,770)
Total loss per share* (38.67)p (73.37)p
Movement in net assets** (32.4)% (39.3)%
Movement in FTSE AIM Index (28.2)% (48.1)%
Revenue dividends per share 0.35p 1.75p
Capital dividends per share nil p 9.00p
Cumulative dividends per share*** 47.8p 47.45p
Extracts from balance sheet:
Net assets £13,069,454 £19,588,352
Net asset value per share 78.22p 117.23p
* Total loss represents the total profit on ordinary activities
together with losses on investments.
** Includes adjustments to exclude the effects of the capital dividends.
*** Includes reclaimable tax credits paid to eligible shareholders prior to
the abolition of ACT in 1999.
FUND OBJECTIVE
To combine the growth opportunities offered by investments in smaller companies,
principally those whose shares are traded on AIM with the substantial tax
reliefs available for investors in Venture Capital Trusts ('VCTs').
CHAIRMAN'S STATEMENT
I have pleasure in presenting the Company's sixth annual report for the year
ended 31 March 2002. The portfolio continues to be invested in a range of AIM
qualifying stocks and continues to meet the requirement of VCT rules. At the
date of this report, qualifying investments are 82%, comfortably in excess of
the 70% minimum.
I commented at the interim stage on the events of 11 September. The view then
was that there remained a degree of caution, and that smaller companies were
worst hit following a flight to perceived quality in the form of bonds and large
blue chip companies. However, at that time, recovery of global equity markets
was anticipated to take place in 2002.
In the event, the broad based recovery of most indices following the initial
impact of the events of 11 September tailed off in December. The combination of
Enron and Global Crossing each filing for bankruptcy triggered a bout of
nervousness that saw markets post significant losses in January and February.
The major global indices staged a strong recovery in early March, however the
FTSE AIM index, which historically lags the main markets, has not yet recovered
significantly from the lows of early October.
Balance Sheet and Net Assets
The net asset value per share of the Company fell 33.3% over the year, from
117.23p to 78.22p.
This compares to a fall in the FTSE AIM index of 28.2%, although as in previous
periods because of the allocation of the portfolio between AIM investments,
fixed income stocks, and OFEX companies, the Company's performance cannot be
directly compared to any single market index.
VCT deal flow started the year strongly, but slowed during the summer months and
is only now starting to show signs of improvement. Despite this the Company has
been able to liquidate significant fixed income stocks, underperforming equities
and equities which have reached a satisfactory price and purchase new qualifying
holdings and other investments. Sale proceeds from disposals totalled £7.6m. A
total of £6.7m investments were made during the year, of which £4.3m were in
companies traded on the AIM market. Of the AIM investments made, £2.4m were in
VCT qualifying investments.
The report of the manager outlines the performance of the portfolio.
Results and dividend
Total income for the period amounted to £299,224 (2001: £599,715).
The fall in the value of investments during the year resulted in net capital
losses. This is in line with markets in general. However, in accordance with
VCT regulations, the Company will distribute 85% of income from shares and
securities. Accordingly, the Directors declare a revenue dividend of 0.35p per
share payable on 28 June 2002 to shareholders on the register at the close of
business on 31 May 2002. As noted above, as a result of net capital losses for
the year, a capital dividend will not be paid.
Change of name and company secretarial arrangements
During the year, the name of the Company was changed to Legg Mason Investors AIM
Distribution Trust plc. This change reflected the fact that the investments are
now managed by Legg Mason Investors, part of the Legg Mason Inc. group, one of
the largest financial services companies in the US with $177 billion under
management as at 31 March 2002.
The Board have decided to appoint Cogent Secretarial Services Limited ('Cogent')
to act as Company Secretary of the Company. All future correspondence in
relation to the Trust should be directed to Cogent.
Shareholder Relations
Shareholders who wish to know the latest published net asset value at any time
may call Legg Mason Investors on 020 7070 7400. Alternatively, the Legg Mason
Investors website includes this and other information on the Company. The
address of the website is www.leggmasoninvestors.com.
Prospects
Since the year end, the FTSE AIM index has fallen from 841.15 on 31 March 2002
to 833.42, a decrease of 0.92%, and to 834.98 on 13 May 2002, a decrease of
0.73%. The Company's net asset value has decreased by 0.88% in April 2002, to
77.57p per share as at 30 April 2002.
It is typical of this phase of the market cycle that companies at the smaller
end of the market capitalisation spectrum lag their larger counterparts. As the
market recovery process matures and we start to see smaller companies
participate in the rally the Company will be well positioned for the anticipated
return to growth.
Future of the Company
When the Company was launched it was envisaged that all realised profits of an
income or capital nature would be distributed to Shareholders. Initially the
investment focus was on generating income for revenue distributions, however as
the AIM market became more established the new entrants were predominantly '
growth' companies with little or no dividend payout policy. As a result of this,
your Board changed the strategy to focus on investments that would deliver the
potential for capital gains.
Since inception the Company has distributed revenue and capital dividends
totalling 47.8p per share, free of tax, which taken together with net assets of
78.2p as at 31 March 2002 represents 126.0p total value for Shareholders. For a
Shareholder who claimed both income tax relief and capital gains tax deferral,
thereby having an effective original cost of 40.0p per share, this is a
substantial return, equivalent to an estimated internal rate of return of 9.1%
compound per annum for all original Shareholders increasing to 17.6% compound
per annum for those Shareholders who were also able to defer the maximum capital
gains tax liability.
The Company has had and continues to have advantageous tax breaks, even for
investors who buy shares already in issue - in particular both revenue and
capital distributions are tax free. For this reason it was envisaged that the
Company should not have a fixed life. However, in the event that circumstances
should change, for example the tax reliefs available to this type of Company,
Article 26 of the Articles of Association allows Shareholders to review the
future of the Company every five years. The corresponding resolution allows for
Shareholders to require the Directors to draw up proposals for the voluntary
liquidation, unitisation or other reorganisation of the Company, to be submitted
to Shareholders at an Extraordinary General Meeting within nine months of the
ordinary resolution not being passed.
The Inland Revenue are proposing to introduce legislation in the Finance Act
2002 to enable the mergers of VCTs and the liquidation of VCTs within a certain
time period, without the loss of tax reliefs for the VCT and its investors. The
Board and its advisers are actively considering the implications of this
proposed legislation.
The Board believes that when the AIM market recovers the Company will again be
able to distribute realised capital gains to shareholders on a tax free basis.
Closing the fund in the short term could result in returns to shareholders below
the net asset value because of the current lack of liquidity in the stocks of
some of the investee companies on the AIM market, and the high costs of
liquidation. Furthermore, closing the fund would crystallise capital gains tax
liabilities which have been deferred by shareholders. Therefore, the Board does
not consider that now would be a good time to liquidate the fund, especially
whilst the tax consequences of doing so remain untested. Accordingly, the Board
urges shareholders to vote in favour of the resolution to continue for five
years, at which time there will be another opportunity to vote on the issue.
Sir Aubrey Brocklebank
Chairman
Legg Mason Investors AIM Distribution Trust plc
17 May 2002
STATEMENT OF REVENUE AND CAPITAL RETURNS
Year Ended Year Ended
31 March 2002 31 March 2001
Revenue Capital Total Revenue Capital Total
£ £ £ £ £ £
Losses on investments - (6,674,212) (6,674,212) - (11,792,147) (11,792,147)
Dividend and interest income 244,579 - 244,579 537,154 - 537,154
Other income 54,645 - 54,645 62,561 - 62,561
Investment management fees (65,203) 123,374 58,171 (100,067) (807,155) (907,222)
Other expenses (143,587) - (143,587) (167,466) - (167,466)
Losses on ordinary activities
before finance costs and tax 90,434 (6,550,838) (6,460,404) 332,182 (12,599,302) (12,267,120)
Interest payable and similar
charges (14) - (14) (667) - (667)
Losses on ordinary activities
before tax 90,420 (6,550,838) (6,460,418) 331,515 (12,599,302) (12,267,787)
Taxation on ordinary activities - - - (13,983) - (13,983)
Losses attributable to equity
shareholders 90,420 (6,550,838) (6,460,418) 317,532 (12,599,302) (12,281,770)
Dividends in respect of equity
shares (58,480) - (58,480) (292,402) - (292,402)
Capital dividend - - - - (1,503,783) (1,503,783)
Transfer to/(from) reserves 31,940 (6,550,838) (6,518,898) 25,130 (14,103,085) (14,077,955)
pence pence pence pence pence pence
Return/(loss) per ordinary
share 0.54 (39.21) (38.67) 1.90 (75.27) (73.37)
In order to enable the Company to make capital distributions, the Company has
revoked its investment company status and is accordingly unable to take
advantage of the accounting exemptions that status permits. The results of the
Company have been prepared in accordance with the requirements of Schedule IV of
the Companies Act 1985. This statement of revenue and capital returns has been
included to enable investors to compare the results of the Company against those
of other Venture Capital Trusts and Investment Trusts and also to show the
taxation basis of returns. This statement does not form part of the financial
statements.
Basic revenue return per ordinary share is based on the net revenue on ordinary
activities after taxation of £90,420 (2001: £317,532) divided by 16,708,698
(2001: 16,739,931), being the weighted average number of ordinary shares in
issue during the year.
Basic capital return per ordinary share is based on net capital loss for the
year of £6,550,838 (2001: loss £12,599,302) divided by 16,708,698 (2001:
16,739,931), being the weighted average number of ordinary shares in issue
during the year.
INVESTMENT ADVISER'S REPORT
Performance
In the six months since our interim report, the net asset value of the Company
fell by 1% to 78.22p. This compares to a rise in the FTSE AIM index of 2.5%
over the same period.
Over the year this equates to a fall of 33.3% compared with a fall of 28.2% in
the FTSE AIM index.
Market Review
After the first six months in which markets continued to be entrenched in the
bear market that started in March 2000, the last six months has been a tale of
two halves as the market digested and reacted to the tragic events in the US on
September 11.
After the initial reaction to these events, world markets picked up across the
board in the fourth quarter of 2001 as investors sought to increase cyclical
exposure and rediscovered an appetite for risk. UK markets were no exception
with the FTSE All-Share index rising 7.8% in the quarter.
As we entered 2002 the markets started with a reasonably optimistic background
but the Enron situation overshadowed the positive tenor of most company
announcements and the market quickly turned negative. The focus of investors'
worries shifted from growth to balance sheet and accounting concerns and, as is
usually the case in times of uncertainty, small growth stocks suffered
disproportionately. This was irrational as many of these businesses have fairly
simple accounts based on one or two products with well funded balance sheets but
such was the mood of the market.
This grim tone continued into February and it was not until we entered March and
the full flow of the reporting season that markets started to recover their
poise.
Portfolio Review
Deal flow for VCT qualifying securities started the year strongly, although this
slowed over the summer months and is only now starting to show signs of life.
Good progress has been made in replacing some underperfoming investments with
new holdings.
Aero Inventory provide customised paperless procurement and inventory management
solutions to companies in the aerospace industry with the aim of reducing costs
in the civil aircraft market. In March a major five year contract was signed
with Taikoo Aircraft Engineering Company Ltd.
Atlantic Global has developed timesheet and resource management software
enabling companies to monitor their project costs. Results showed excellent
progress and the company is well placed for a stepped change in contract sizes
which will highlight its derisory rating.
Neutech Pharma are developing antibodies to treat life threatening infections
either in place of or in conjunction with antibiotics, which are increasingly
ineffective when used in isolation as bacteria become resistant. Efficacy
trials are underway in Europe for their lead product, with results expected in
the fourth quarter of 2002.
Medical House have licensed a needle-free liquid injection system to market in
Europe for insulin. The product, which was launched in January, offers reduced
pain for patients and therefore better compliance. The early market is likely
to be needle phobics but, thereafter, we would expect rapid take up, although
the extent of this will depend upon whether the product receives approval for
distribution by the NHS.
One of the major contributors to the poor performance in the last year has been
the Company's largest holding, Transense Technologies. During the period
Transense Technologies was a perfect example of a company caught in the early
stage of development with a lack of news flow in a very nervous and increasingly
short term market. However, despite the disappointing share price the company
has made good progress over the last twelve months. In June 2001 a licensing
agreement was announced with Michelin for its tyre pressure monitoring and
towards the end of the period we have had an announcement to the effect that the
company will be in volume production this year, along with clarification of the
supply arrangements for the SAWS (Surface Acoustic Wave Devices) which are used
to sense tyre pressure. We remain confident of the company's positioning in
this market, which we believe will ultimately be reflected in the company's
share price.
Other investments held at the start of the period include Connaught who reported
a strong set of results with a high level of repeat business and a record order
book of £150m. The AGM in January highlighted a slowdown in the Interiors
division post September 11 but, with enquiry levels improving, the outlook for
the year remains positive.
CRC Group also announced positive results, with record volumes of mobile
handsets and set top boxes being serviced in the year. Their relationship with
Nokia stands them in good stead as they continue to reinforce their dominant
position in the mobile handset market. Repairs of out of warranty set top boxes
should also drive growth as the large installed base ages.
Transcomm restructured their business during the year to focus on the Mobitex
data network. This has now been completed and connections to the network are
progressing well which, with a lower cost base, gives a clear path to
profitability.
There have been some disappointments over the course of the last year. Access
Plus saw weakness in direct mail and marketing activity and this stock has now
been sold. Ongoing concerns over saturation has led to continued weakness in
Coffee Republic's share price.
Giardino announced a profit warning in January due to a significant decline in
footfall in shopping centres. This undermined our belief that the product
offering was sufficiently differentiated to provide protection in a slower High
Street environment and as such we sold our entire holding.
Blooms of Bressingham also released a profit warning in January based on over
ambitious expectations which marred an otherwise respectable trading
performance. Action has now been taken to reduce overheads and this, combined
with the benefit of a full year's trading at newly refurbished sites, gives us
confidence that this will not be repeated and we have therefore maintained our
stake.
We have, though, disposed of our entire positions in Knowledge Management
Software, Topnotch Health Clubs, Xpertise Group, Pennant, ID Data, and
Getmapping.
Outlook
Economic signals continue to improve, signalling a strong initial bounce back in
the US economy which, as the engine of the world economy, should drive a global
recovery through 2002 and beyond. In fact, the statistics have been so strong
that the focus has now shifted to the likelihood of rises in interest rates on
both sides of the Atlantic.
We feel talk of interest rate rises is premature. Whilst not complacent to the
threat posed by a higher oil price, economic recovery and continued strength in
consumer spending, we do feel that both the Federal Reserve and the Monetary
Policy Committee are aware of the dangers of stifling the recovery before it has
really got underway with early rises in interest rates.
As the recovery continues investor sentiment should improve and, with it, an
appetite for risk which has been the major drag on the portfolio with smaller
company stocks hit hardest in times of uncertainty. The final piece in the
jigsaw is newsflow and, with a series of positive announcements expected from
the Company's holdings over the coming quarter, we are confident that we are
well placed to recover some of the lost ground over the coming months.
LeggMason Investors Asset Managers plc
17 May 2002
PROFIT AND LOSS ACCOUNT
Year ended Year ended
31 March 2002 31 March 2001
£ £ £ £
Revenue received on investments 299,224 599,715
Administrative expenses
Investment management fees 58,171 (907,222)
Other expenses (143,587) (167,466)
(85,416) (1,074,688)
Net revenue/(loss) 213,808 (474,973)
Income from fixed asset investments
(Losses)/gains on investments (1,073,114) 610,654
(Loss)/profit before interest and tax (859,306) 135,681
Interest payable and similar charges (14) (667)
(Loss)/profit before tax (859,320) 135,014
Tax on ordinary activities - (13,983)
(Loss)/profit on ordinary activities after (859,320) 121,031
taxation
Dividends
Revenue (58,480) (292,402)
Capital - (1,503,783)
(58,480) (1,796,185)
Retained loss (917,800) (1,675,154)
Transfer from capital reserve 949,740 1,700,284
Retained revenue profits 31,940 25,130
Earnings per share (5.14)p 0.72p
STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
Year ended Year ended
31 March 2002 31 March 2001
£ £
(Loss)/profit for the year (859,320) 121,031
Unrecognised losses for the year (5,601,098) (12,402,801)
Total recognised losses during the
year (6,460,418) (12,281,770)
Total recognised loss per share (38.67)p (73.37)p
NOTE OF HISTORICAL PROFITS AND LOSSES
Year ended Year ended
31 March 2002 31 March 2001
£ £
Reported (loss)/profit on ordinary activities before (859,320) 135,014
taxation
Realisation of investment revaluation gains
recognised in previous periods 739,242 1,778,288
(120,078) 1,913,302
Historical cost (loss)/profit for the year retained after
taxation and dividends (178,558) 103,134
BALANCE SHEET
As at As at
31 March 2002 31 March 2001
£ £
Fixed assets
Investments 12,638,260 20,246,939
Current assets
Debtors 94,879 332,608
Cash at bank and in hand 490,291 1,905,710
585,170 2,238,318
Creditors: amount falling due within one year (153,976) (2,577,921)
Net current assets/(liabilities) 431,194 (339,603)
Total assets less current liabilities 13,069,454 19,907,336
Provisions for liabilities and charges - (318,984)
13,069,454 19,588,352
Capital and reserves:
Called up share capital 4,177,174 4,177,174
Special reserve 12,328,362 12,328,362
Capital reserve - realised 2,573,714 2,784,212
Capital reserve - unrealised (6,148,221) 192,119
Capital redemption reserve 23,750 23,750
Revenue reserve 114,675 82,735
Equity shareholders' funds 13,069,454 19,588,352
Net asset value per share
Ordinary shares 78.22p 117.23p
CASH FLOW STATEMENT
Year ended Year ended
31 March 2002 31 March 2001
£ £
Operating activities
Investment income received 218,540 583,450
Deposit interest received 78,077 93,008
Underwriting commission received 193 -
Investment Management fees paid (473,095) (1,447,947)
Other expenses paid (149,091) (157,341)
Net cash outflow (325,376) (928,830)
Servicing of finance
Interest paid (14) (669)
Taxation
Income tax recovered 237,414 -
Capital expenditure and financial investment
Purchase of investments (7,274,739) (4,622,442)
Disposal of investments 7,618,166 7,235,762
Net cash inflow 343,427 2,613,320
Dividends
Equity dividends paid (1,670,870) (3,754,594)
Net cash outflow before financing (1,415,419) (2,070,773)
Financing
Cost of share repurchase - (121,516)
Net cash outflow from financing - (121,516)
Decrease in cash (1,415,419) (2,192,289)
NOTES:
1. Presentation of financial statements
In order to enable the Company to make capital distributions, the Company has
revoked its investment company status and is accordingly unable to take
advantage of the accounting exemptions that status permits. The results of the
Company have been prepared in accordance with the requirements of Schedule IV of
the Companies Act 1985.
Going concern
As referred to in the Chairman's Statement and the Directors' Report, a
resolution regarding the continuation of the Company will be put to Shareholders
at the Annual General Meeting on 21 August 2002. The Directors are recommending
that Shareholders vote in favour of the resolution that the Company should
continue in its current form. However, it is possible that Shareholders will
vote against this resolution and that the Directors will be required to draw up
proposals for consideration by Shareholders for the voluntary liquidation,
unitisation or other reorganisation of the Company.
In light of their recommendation to Shareholders, the Directors believe that it
is appropriate for the accounts to be prepared on a going concern basis.
Accordingly, the accounts do not include any adjustments which might arise from
the liquidation and re-organisation of the Company. Such adjustments could
result in a material reduction in the reported net asset value per share
attributable to ordinary Shareholders.
Investments
Investments are treated as fixed assets and are shown in the balance sheet at
Directors' valuation on the following basis: Listed investments, including
those traded on the Alternative Investment Market ('AIM') and off-exchange ('
OFEX'), are valued at mid-market price as at the balance sheet date. The
Directors are conscious of the fact that because shares are traded on AIM and
OFEX this does not guarantee their liquidity. The nature of AIM and OFEX
investments is such that the prices can be volatile and realisation may not
achieve current book value, especially when such sale represents a significant
proportion of that company's market capital. Nevertheless, on the grounds that
the investments are not intended for immediate realisation, they regard
mid-market price as the most objective and appropriate method of valuation.
Unlisted fixed interest securities are at Directors' valuation based on the
assumption that they will be held to maturity. To the extent that such
securities are purchased at a premium to nominal value, the premium is amortised
to revenue over the remaining life of the security in such a way as to maintain
a consistent return for the Company over the period the securities are held. If
there is no fixed period of investment for a security no adjustment is made in
respect of any premium paid.
2. Revenue
Dividends receivable on quoted equity shares and undated non-equity shares are
brought into account on the ex-dividend date.
Fixed returns on non-equity shares are recognised on a time apportionment basis
so as to reflect the effective yield on the shares.
The return on fixed interest securities is recognised on a time apportionment
basis from the date of purchase so as to reflect the effective yield on the
securities.
3. Expenses
All expenses are accounted for on an accruals basis. Expenses are charged
through the revenue account except as follows: expenses which are incidental to
the disposal of an investment are included within the cost of the investment;
expenses which are incidental to the disposal of an investment are deducted from
the disposal proceeds of the investment.
4. Taxation
The tax charge for taxation is based on the revenue before taxation for the
year. Deferred taxation is recognised in respect of all timing differences that
have been originated but not reversed at the balance sheet date.
5. Dividends
Year ended Year ended
31 March 2002 31 March 2001
£ £
Revenue dividends on equity shares:
Interim paid of nil p per share (2001: 0.75p) - 125,315
Second interim declared of 0.35p per share
(2001: 1.0p) 58,480 167,087
Capital dividends on equity shares:
Interim dividend paid of nil p per share (2001: - 1,503,783
9p)
58,480 1,796,185
6. Earnings per share
Basic earnings per ordinary share is based on the retained loss on ordinary
activities after taxation of £859,320 (2001: £121,031) divided by 16,708,698
(2001: 16,739,931) being the weighted average number of ordinary share in issue
during the year.
7. Net asset value per share
Net asset value per share has been calculated by reference to net assets of
£13,069,454 (2001: £19,588,352) and 16,708,698 (2001: 16,708,698) ordinary
shares.
The above financial information for the year ended 31 March 2002 does not
constitute statutory accounts as defined in Section 240 of the Companies Act
1985. This preliminary statement of results has been agreed with our auditors,
PricewaterhouseCoopers. The comparative financial information is based on the
statutory financial statements for the year ended 31 March 2001. Those
financial statements, upon which the auditors issued an unqualified opinion,
have been delivered to the Registrar of Companies. Statutory financial
statements for the year ended 31 March 2002 will be delivered to the Registrar.
The annual report will be sent to Shareholders in June and will be available to
members of the public from the Registered Office at 55 Moorgate, London EC2R
2PA. The Annual General Meeting of the Company will be held at 10.00 am on 21
August 2002 at 32 Harbour Exchange Square, London E14 9GE.
This information is provided by RNS
The company news service from the London Stock Exchange
Monday, 20th May 2024
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