Half Yearly Report

RNS Number : 1604E

F&C Global Smaller Companies PLC

15 December 2009

 



Date:      15 December 2009

Contact:    Peter Ewins    

                    F&C Management Limited    

                    020 7628 8000    

F&C Global Smaller Companies PLC

Unaudited statement of results

for the half-year ended 31 October 2009

Summary of Unaudited Results

Attributable to shareholders	31 October 2009	30 April 2009	% Change
Share price	392.25p	325.00p	+20.7
Net asset value per share (debenture at nominal value)	424.67p	360.23p	+17.9
Net asset value per share (debenture at market value)	416.83p	351.06p	+18.7
	Half-year ended 31 October 2009	Half-year ended 31 October 2008	% Change
Revenue return per share	1.91p	2.58p	-26.0
Interim dividend per share	1.60p*	1.60p	-

* Payable on 29 January 2010 to shareholders on the register at 29 December 2009

F&C Global Smaller Companies PLC

Unaudited statement of results for the half-year ended 31 October 2009

Chairman's Statement

Equities around the world rose in the six months under review despite the challenging economic conditions, continuing the rally which had commenced in March. Markets were lifted by growing evidence that the concerted actions of government and monetary authorities to stimulate a global economic revival were starting to work. In addition, the speed with which many companies have cut their costs has served to protect corporate profitability which has also been supportive for equity valuations, albeit at the cost of sharply higher unemployment in much of the world.

Performance

As the stock market environment improved and investors became prepared to take on a higher level of risk, smaller company shares performed well and this fed through to the Company's investment portfolio. The net asset value ("NAV") per share total return, taking the debenture at nominal value, was 18.9%, while the share price rose 20.7% over the six months as the discount narrowed.

The Company's benchmark, which is a blended index of the returns from the Hoare Govett UK Smaller Companies Index (40%) and the MSCI World ex UK Small Cap Index (60%), produced a total return of 18.8%, so the NAV per share return was marginally better. Given the challenging environment for stock selection at a time of rapid and sometimes indiscriminate share price movements, we consider this to be a satisfactory performance. Shareholders should note that the Board intends to review the composition of the benchmark before the end of the financial year, in the light of the evolution of the portfolio and the changing structure of global small cap indices.

Dividends

As foreshadowed in last year's annual report, the environment for income from the Company's investment portfolio has become more difficult. Companies in which the portfolio is invested have had to look closely at their dividend payments, while interest received from our cash deposits has fallen sharply. However, one of the attractions of the investment trust structure is the ability to establish revenue reserves in good times, which can be used at a later stage if income returns fall. Your Company entered the financial year with the equivalent of more than three years of dividend in revenue reserve.

At this stage, the Board has decided to declare an interim dividend in line with last year's payment of 1.60p per share payable on 29 January 2010 to shareholders on the register on 29 December 2009. It will take a view on the final dividend in June next year when the full year income out-turn is known, but the aim would be to continue with a progressive policy if our portfolio permits.

Discount

Taking the NAV per share, with the debenture at market value, the discount ended the period at 5.5%, close to the Board's 5% targeted level, and down on the end of the previous financial year level of 6.3%. This was achieved at the cost of buying in 250,000 shares over the period for cancellation; which represents 0.6% of the starting share capital. 

Economic and market background

At the start of the period, investors were still worried about the state of the global financial system, but the fear of a complete implosion gradually diminished through the period as underlying economic news improved. Industrial production, which had slumped in late 2008 and early in 2009, picked up, notably in countries such as Germany, France and the US, where the impact of short-term incentives to buy cars benefited local manufacturing. Asian economies as a whole were lifted by the massive Chinese stimulus package, which, together with some speculative activity, drove some commodity prices back above previous peaks.

Less positively, the UK economy continued to shrink despite the Bank of England's efforts to stimulate the credit market with its quantitative easing programme. The rapid deterioration in the UK's fiscal position will necessitate tax increases and public spending cutbacks in the period ahead, making it likely that the UK economy will continue to be a laggard. 

The consensus view that the overall world economic outlook was improving helped, in particular for sentiment towards cyclical and geared companies, as investors started to feel more confident in taking on more risk. At a regional level, emerging markets, which have historically been regarded as higher risk, were the best performers, having been weak in 2008/9. On the other hand, the US market, which had benefited from the move to reduce risk last year, underperformed in this period.

Portfolio performance

During the six months, returns from all parts of the world were positive. We outperformed the local small cap indices in the UK and US, the two areas where we are most exposed, but underperformed elsewhere.

Geographical performance (total return)
	Portfolio %	Local smaller companies index %
UK	27.7	23.6
North America	6.7	4.5
Continental Europe	31.0	31.1
Japan	11.6	12.0
Asia Pacific (ex Japan)	32.6	35.4
Source: F&C Management Limited

It proved to be a better period for our UK portfolio following a challenging prior year. Many of the companies we hold are international in scope, lessening the impact of UK economic weakness. For example, the best contributor to performance was City of London Investment Group, an emerging market focused asset manager, which benefited from the recovery in overseas equities. Speciality chemicals company Elementis saw its share price more than double as global demand for its paint additive products showed signs of stabilisation, while McBride, which supplies own label household and personal care products on a Pan-European basis, produced good results as consumers switched to these cheaper products away from brands. Marketing and healthcare software companies Alterian and Craneware, both well placed in their niches, produced strong results. Disappointments included offshore trust company STM Group, which issued two profit warnings as it over-stretched itself, and Redhall Group, which flagged a slowdown in its nuclear industry work.

In the US, coal miners Foundation Coal Holdings and Walter Energy both performed well as coal prices improved and the former was taken over. We were also helped by the bid for IT infrastructure solutions business Avocent from Emerson Electric, while wireless telecoms company Atlantic Tele-Network rose sharply after buying assets from rival Verizon at an attractive price. Document automation business Bottomline Technologies did well following strong results, while ACCO Brands, the office supplies company, rebounded after a fund-raising eased concerns over its financial position. Fallers included appliance retailer Conn's, hurt by the weakness in the Texan economy, and Astec Industries, the road equipment supplier, which produced disappointing results as the renewal of the Federal road program was delayed. United Community Banks, also underperformed with the local Atlanta real estate market remaining weak.

In Continental Europe the markets were helped by the news that a number of countries had moved out of recession during the period. Cyclical recovery stocks led the way, with our holding in steel company Kloeckner benefiting from the improved demand for steel on the back of the car market stimulus. Two other winners were mobile towers business DMT and refrigeration equipment supplier Frigoglass, both of which had been weak in the previous period. On the other hand, our holdings in generic drug business Acino Holdings and IT services company Indra Sistemas, both defensive stocks, lagged the rally. Spanish lifts supplier Zardoya Otis was hurt by the weakness of the Spanish construction market.

The Company's Asian exposure is obtained through a portfolio of third party managed funds, and during the period these were unable to keep up with the strong regional small cap index. The best performer was the Australian New Horizons Fund which benefited from a number of positive developments for health care and biotechnology stocks within its own portfolio. Utilico Emerging Markets on the other hand lagged, as its portfolio is mainly focused on defensive infrastructure and utility companies which were not in favour in equity markets more interested in recovery stories.

For Japan, we also now use funds; here too we were unable to quite match the index return. In response to this we are looking at other collective funds in which to invest to enhance performance. The recent first change in governing party for more than 40 years has so far failed to galvanise the market, but we feel that the new administration's focus on encouraging domestic spending could be more favourable to smaller companies and the economy has moved out of recession.

Asset allocation and gearing

Over the six months we remained underweight in the UK, but to a lesser extent than before. We funded net investment in the UK mainly by reducing the US weighting. These changes were partly due to the view that sterling could rally from the low level it had reached against the dollar, but we also felt that the US market might do less well in relative terms after its stellar performance during the Company's last financial year. Over the period the switch worked in our favour, with the dollar weak against all the major currencies as its "safe haven" status worked against it.

Elsewhere we remained overweight in Asia. The macro-economic outlook continues to look rosy for the near and medium-term, though we are a little wary of share valuations at this point. We stayed underweight in Europe and Japan over the period. In the former we did not expect the overall economies to perform as well as they did and therefore were too cautious, while it was right to be underweight in Japan.

Geographical distribution of the investment portfolio
	Portfolio weighting
	31 October 2009 %	30 April 2009 %
UK	37.9	34.1
North America	36.8	43.9
Continental Europe	9.5	7.1
Japan	6.9	6.3
Rest of World	8.9	8.6
Source: F&C Management Limited

The Company was modestly geared throughout the period as we looked to benefit from rising markets, though we reduced the extent of borrowing in response to the move up in share prices. At 31 October, gearing was 1.8%.

Outlook

The global economic outlook has improved to some extent and corporate earnings are tending to beat expectations. Stimulus spending is still likely to aid growth in early 2010, notably in the US. Stock markets, however, have risen considerably from their lows and no longer look compellingly cheap compared to historical valuation levels, while longer term issues surrounding consumer and government debt in certain countries are set to hold growth back in these places. After this year's focus on recovery and cyclical shares, the Manager believes that quality and steady growth companies could be better relative performers in the period ahead.

Anthony Townsend

Chairman

15 December 2009

  Unaudited Condensed Income Statement

for the half-year ended 31 October	2009			2008
	Revenue	Capital	Total	Revenue	Capital	Total
	£'000s	£'000s	£'000s	£'000s	£'000s	£'000s
Gains/(losses) on investments	-	28,224	28,224	-	(47,277)	(47,277)
Foreign exchange (losses)/gains	-	(166)	(166)	6	1,247	1,253
Income	1,558	-	1,558	1,894	-	1,894
Management and performance fees	(84)	(197)	(281)	(99)	(231)	(330)
Recoverable VAT	-	-	-	-	-	-
Other expenses	(429)	(13)	(442)	(426)	(10)	(436)
Return before finance costs and taxation	1,045	27,848	28,893	1,375	(46,271)	(44,896)
Finance costs	(174)	(406)	(580)	(173)	(404)	(577)
Return on ordinary activities before taxation	871	27,442	28,313	1,202	(46,675)	(45,473)
Taxation on ordinary activities	(72)	(2)	(74)	(80)	(4)	(84)
Return attributable to shareholders	799	27,440	28,239	1,122	(46,679)	(45,557)
Return per share - pence	1.91	65.63	67.54	2.58	(107.53)	(104.95)

The total column of this statement is the profit and loss account of the Company. The revenue return and capital return columns are supplementary to this and are prepared under guidance published by the Association of Investment Companies. 

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.

  Unaudited Condensed Reconciliation of Movements in Shareholders' Funds

Half-year ended 31 October 2009	Called up	Share	Capital			Total
	share	premium	redemption	Capital	Revenue	shareholders'
	capital	account	reserve	reserves	reserve	funds
	£'000s	£'000s	£'000s	£'000s	£'000s	£'000s
Balance at 30 April 2009	10,479	23,132	15,704	94,022	7,657	150,994
Movements during the half-year ended  31 October 2009
Dividends paid	-	-	-	-	(1,376)	(1,376)
Shares purchased and cancelled	(63)	-	63	(915)	-	(915)
Return attributable to shareholders	-	-	-	27,440	799	28,239
Balance at 31 October 2009	10,416	23,132	15,767	120,547	7,080	176,942

Half-year ended 31 October 2008	Called up	Share	Capital			Total
	share	premium	redemption	Capital	Revenue	shareholders'
	capital	account	reserve	reserves	reserve	funds
	£'000s	£'000s	£'000s	£'000s	£'000s	£'000s
Balance at 30 April 2008	10,981	23,132	15,202	131,463	7,322	188,100
Movements during the half-year ended  31 October 2008
Dividends paid	-	-	-	-	(1,417)	(1,417)
Shares purchased and cancelled	(264)	-	264	(3,670)	-	(3,670)
Return attributable to shareholders	-	-	-	(46,679)	1,122	(45,557)
Balance at 31 October 2008	10,717	23,132	15,466	81,114	7,027	137,456

Year ended 30 April 2009	Called up	Share	Capital			Total
	share	premium	redemption	Capital	Revenue	shareholders'
	capital	account	reserve	reserves	reserve	funds
	£'000s	£'000s	£'000s	£'000s	£'000s	£'000s
Balance at 30 April 2008	10,981	23,132	15,202	131,463	7,322	188,100
Movements during the year ended 30 April 2009
Dividends paid	-	-	-	-	(2,095)	(2,095)
Shares purchased and cancelled	(502)	-	502	(6,210)	-	(6,210)
Return attributable to shareholders	-	-	-	(31,231)	2,430	(28,801)
Balance at 30 April 2009	10,479	23,132	15,704	94,022	7,657	150,994

  Unaudited Condensed Balance Sheet

	31 October 2009	31 October 2008	30 April 2009
	£'000s	£'000s	£'000s
Fixed assets
Investments	180,424	139,022	157,668
Current assets
Debtors	1,418	2,099	1,257
Cash at bank and short-term deposits	7,914	9,808	5,925
	9,332	11,907	7,182
Creditors: amounts falling due within one year	(2,814)	(3,473)	(3,856)
Net current assets	6,518	8,434	3,326
Total assets less current liabilities	186,942	147,456	160,994
Creditors: amounts falling due after more than one year
Debenture	(10,000)	(10,000)	(10,000)
Net assets	176,942	137,456	150,994
Capital and reserves
Called up share capital	10,416	10,717	10,479
Share premium account	23,132	23,132	23,132
Capital redemption reserve	15,767	15,466	15,704
Capital reserves	120,547	81,114	94,022
Revenue reserve	7,080	7,027	7,657
Total shareholders' funds	176,942	137,456	150,994
Net asset value per share - pence	424.67	320.66	360.23

  Unaudited Condensed Cash Flow Statement

	Half-year ended	Half-year ended
	31 October 2009	31 October 2008
	£'000s	£'000s
Net cash inflow from operating activities	652	1,197
Cash outflow from servicing of finance	(574)	(575)
Net cash inflow from financial investment	4,442	7,873
Equity dividends paid	(1,376)	(1,417)
Net cash inflow before use of liquid resources and financing	3,144	7,078
Movement in short-term deposits	-	-
Net cash outflow from financing	(998)	(4,342)
Increase in cash	2,146	2,736
Reconciliation of net cash flow to movement in net debt
Increase in cash	2,146	2,736
Movement in short-term deposits	-	-
Movement in net debt resulting from cash flows	2,146	2,736
Foreign exchange movement	(157)	1,250
Movement in net debt	1,989	3,986
Net debt brought forward	(4,075)	(4,178)
Net debt carried forward	(2,086)	(192)
Represented by:
Cash at bank	7,914	9,808
Short-term deposits	-	-
	7,914	9,808
Debenture	(10,000)	(10,000)
	(2,086)	(192)

  Unaudited Notes on the Condensed Accounts

1    Significant accounting policies

These financial statements have been prepared on the basis of the accounting policies set out in the Company's financial statements at 30 April 2009. These accounting policies are expected to be followed throughout the year ending 30 April 2010.

2    Return per share

	Half-year ended	Half-year ended
	31 October 2009	31 October 2008
Revenue return per share - pence	1.91	2.58
Revenue return attributable to  shareholders - £'000s	799	1,122
Capital return per share - pence	65.63	(107.53)
Capital return attributable to  shareholders - £'000s	27,440	(46,679)
Weighted average number of ordinary shares in issue during the period	41,809,635	43,409,009

3    Dividends

Dividends on ordinary shares	Register date	Payment date	Half-year ended 31 October 2009 £'000s	Half-year ended 31 October 2008 £'000s
Final for the year ended 30 April 2009 of 3.29p	3 Jul 2009	6 Aug 2009	1,376	-
Final for the year ended 30 April 2008 of 3.25p	4 Jul 2008	6 Aug 2008	-	1,417
			1,376	1,417

The Directors have declared an interim dividend in respect of the year ending 30 April 2010 of 1.60p per share, payable on 29 January 2010 to all shareholders on the register at close of business on 29 December 2009. The amount of this dividend will be £665,000 based on 41,544,918 shares in issue at 11 December 2009. This amount has not been accrued in the results for the half-year ended 31 October 2009.

  4    Results

The results for the half-year ended 31 October 2009 and 31 October 2008, which are unaudited, constitute non-statutory accounts within the meaning of Section 434 of the Companies Act 2006. The latest published accounts which have been delivered to the Registrar of Companies are for the year ended 30 April 2009; the report of the auditors thereon was unqualified and did not contain a statement under Section 498 of the Companies Act 2006. The abridged financial statements shown above for the year ended 30 April 2009 are an extract from those accounts.

5    Report and accounts

The report and accounts for the half-year ended 31 October 2009 will be posted to shareholders and made available on the website www.fandcglobalsmallers.com shortly. Copies may also be obtained from the Company's registered office, Exchange House, Primrose Street, London EC2A 2NY.

By order of the Board

F&C Management Limited, Secretary

Exchange House, Primrose Street, London EC2A 2NY

15 December 2009

Directors' Statement of Principal Risks and Uncertainties

The Company's assets consist mainly of listed equities and its principal risks are therefore market related. The large number of investments held, together with the geographic and sector diversity of the portfolio, enables the Company to spread its risk with regard to liquidity, market volatility, currency movements and revenue streams.

Other key risks faced by the Company relate to investment strategy, management and resources, regulatory issues, operational matters, financial controls, counterparties and custody of assets. These risks, and the way in which they are managed, are described in more detail under the heading "Principal risks" within the Directors' Report and Business Review contained within the Company's annual report for the year ended 30 April 2009. The Company's principal risks and uncertainties have not changed materially since the date of that report and are not expected to change materially for the remainder of the Company's financial year.  

Statement of Directors' Responsibilities in Respect of the Financial Statements

In accordance with Chapter 4 of the Disclosure and Transparency Rules the Directors confirm, in respect of the report and accounts for the half-year ended 31 October 2009 of which this statement is an extract, that to the best of their knowledge: 

• the condensed set of financial statements has been prepared in accordance with applicable UK accounting standards and gives a true and fair view of the assets, liabilities, financial position and return of the Company; 

• the half-yearly report includes a fair review of the important events that have occurred during the first six months of the financial year and their impact on the financial statements; 

• the Directors' Statement of Principal Risks and Uncertainties shown above is a fair review of the principal risks and uncertainties for the remainder of the financial year; and

• the half-yearly report includes details on related party transactions. 

On behalf of the Board

Anthony Townsend

Chairman

15 December 2009

 

END

 

 

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