Half Yearly Report

RNS Number : 6726V

F&C Global Smaller Companies PLC

16 December 2013

 



Date:                16 December 2013

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 2013

Summary of Unaudited Results

Attributable to shareholders	31 October 2013	30 April 2013	% Change
Share price	836.00p	764.50p	+9.4
Net asset value per share (debenture at nominal value)	831.13p	756.21p	+9.9
Net asset value per share (debenture at market value)	829.68p	752.47p	+10.3
Net assets	£396.6m	£340.1m	+16.6
	Half-year ended 31 October 2013	Half-year ended 31 October 2012	% Change
Revenue return per share	5.15p	3.76p	+37.0
Interim dividend per share	2.50p*	2.00p	+25.0

* Payable on 31 January 2014 to shareholders on the register at 3 January 2014.

The Chairman, Anthony Townsend, said:

"I am delighted to report to shareholders that your Company has produced another period of strong returns, adding to the significant progress that has been made over the past five years, culminating in winning not one but two awards for "Best Global Investment Trust", from Money Observer and What Investment during the period.

Additionally, in line with our progressive policy and in order to reduce the disparity between the interim and final dividends, we have increased the interim dividend by 25%."

Manager's Review

Share prices in most markets around the world advanced in the period under review, building on the strong gains from the previous year. The key Central Banks in the US, UK, Europe and Japan persisted with policies aimed at supporting growth, providing further liquidity which lent strong support to financial markets as a whole.  Smaller company shares once again more than held their own compared to the broader equity indices as investors continued to be attracted to their superior growth dynamic.

Performance

The Company's NAV delivered a total return over the six months of 10.5% and the share price, excluding dividend income, rose by 9.4%. These gains were just behind the Benchmark total return of 10.8%*. Over the last five years the NAV total return has been 172.8% compared to the Benchmark performance of 151.7%. It is pleasing to report that the Company won both the "Money Observer" and "What Investment" Best Global Investment Trust awards for 2013, reflecting positively on performance over recent years.

The share price ended the period at a 0.8% premium to the NAV including the debenture at market value. The Company issued 2,750,000 new shares during the period to satisfy demand from the market.

* The Company's Benchmark is a blended index of the returns from the MSCI All Country World ex UK Small Cap Index (70%) and the Numis UK Smaller Companies (excluding investment companies) Index (30%).

Dividends

Many stocks held in the investment portfolio increased their dividend payments in the period and as noted in the 2013 Annual Report, the Company no longer bears F&C savings scheme costs. As a result of these favourable dynamics, and in order to reduce the disparity between the interim and final dividends, the Board has decided to raise the interim payment by 25% to 2.50p per share. This will be paid to shareholders on 31 January 2014.

Economic and market background

As usual over the course of six months, a number of economic and political factors have set the background for the performance of stock markets. Developments in the US are always important and this was certainly the case in this period. In the early Summer, the markets were shaken by the Chairman of the Federal Reserve Bank's suggestion that quantitative easing ("QE") could be tapered later in 2013 and wound down completely in 2014. The potential withdrawal of support for the US bond market led to a rapid move up in bond yields and global equity markets sold off. There was also significant pressure on the currencies of a number of the leading developing countries. Subsequently however, a weaker set of US economic data led to something of a U-turn from Ben Bernanke and tapering was delayed. Equity markets ended the period by rallying despite the distraction of the political wrangling over the US fiscal deficit in October.

Outside the US, newsflow was generally more positive. The UK economy accelerated with both the manufacturing and service sectors expanding at more normal rates commensurate with a proper economic recovery. Whilst things are not yet as rosy in Europe, even in the worst hit parts of the Continent economic activity appears to have stabilised and the euro gained against the US dollar.

Equity markets in Asia and particularly in Latin America were buffeted by the QE situation mentioned above. Economic growth in China and elsewhere in Asia has slowed and persistent high inflation in some countries, such as India, squeezed corporate profit margins. Within Latin America the largest equity market, Brazil, was undermined by civil unrest and a weakening currency.

Portfolio performance

Geographical performance (total return sterling adjusted)
for the half year ended 31 October 2013
	Portfolio	Local smaller companies index
USA	+10.5%	+13.2%
UK	+18.6%	+17.2%
Continental Europe	+15.7%	+19.1%
Japan	+1.1%	-1.0%
Rest of World	-4.7%	-4.5%  (Pacific ex Japan) -22.8%  (Latin America)
Source: F&C Management Limited

We started the new financial year on the back of two years of consistent outperformance in all five regional sub-portfolios. In the first six months we were again ahead of the local small cap indices in the UK and Japan. While our absolute returns in Europe and the US were strong, we were unable to keep up with the rising local indices over this period. Returns from the Rest of the World portfolio were disappointing, in common with the market backdrop.

While we underperformed in the US, there were nevertheless a number of good performers at the individual stock level. Retailer Conn's rose as a result of an improving product offering augmented by new store openings. ViaSat reported improving new subscriber growth for its enhanced broadband satellite service. Grand Canyon Education was lifted by strong student enrolment numbers and Alere gained as cost cuts and reduced debt levels pleased the markets. Oil stocks have generally struggled on a global basis but there are always exceptions and Rex Energy rose as the market warmed to its production growth prospects.

On the downside, the worst contributor was Allied Nevada Gold. A fall in the gold price combined with production problems and management change led us to lose confidence and the position was sold at a loss. Conferencing business Premiere Global was another underperformer as its organic revenue growth fell. Pernix Therapeutics was weak, suffering from downgrades as it sold its generic drugs business and its Chief Executive stepped down. America's Car-Mart lagged the rising market as greater availability of finance led to a switch towards new car purchases, and Allscripts Heathcare Solutions fell back as it lost an important customer.

The UK portfolio performed well. A number of our holdings with exposure to residential property rose significantly, with Workspace Group benefiting as it advanced several redevelopment schemes across its London estate. An improving consumer spending environment helped a number of companies including car dealer Vertu Motors and Restaurant Group. Enterprise Inns was strong as the market became more prepared to invest in highly leveraged stocks, and the company produced solid results. From the more recently acquired holdings Polar Capital was the star, lifted by surging fund inflows into its broadening range of equity funds. Another winner was recruitment company Robert Walters, which rose as employment trends improved.

In terms of weaker stocks in the UK, IT services and commodity related stocks were a feature. SDL, Anite and Idox all downgraded their expectations for sales and profits while generally disappointing exploration news undermined Salamander Energy and delays beset Cameroon based Bowleven. Synergy Healthcare was a laggard as new business proved slower to arrive.

Within the European portfolio generally, the areas that performed well were in either the value areas of the portfolio or the cyclical stocks. The major contributions came from financials with Aareal Bank performing particularly well. There was no stock specific news to drive this, rather an increased risk appetite that drove investors to invest in assets which had been excessively discounted. Azimut, the Italian asset manager, produced strong first half results during the Summer when they announced that they had reached their full year flow targets. The cyclical stocks that performed well were companies that sell products into either the truck or automobile market. Within this area Plastic Omnium stood out as investors took a more positive view on Europe's economic outlook, whilst also reassessing the intrinsic growth potential of the business. The other strong performer of note was Origin Enterprises, the leading agronomist in the UK, which produced strong first half results in the face of tough market conditions. They also announced that they were handing a substantial amount of cash to shareholders through a tender offer.

The two standout poor performers were Providence Resources and Andritz. Providence performed poorly due to delay of the farm-out process associated with their Barryroe oilfield. Andritz struggled following a profit warning earlier in the year, due to poor project execution. Other weak performers were C&C Group, Tomra, and Kuka which had suffered more from lagging the rally rather than any stock specific news.

We obtain exposure to Japan through collectives and we introduced a new holding in the Aberdeen Global-Japanese Smaller Companies Fund. This has a good long-term record and is managed in much the same way as the Aberdeen Global-Asian Smaller Companies Fund, which has performed well for us. This purchase was funded by the sale of the iShares Exchange Traded Fund.

Our Rest of World portfolio did not change materially over the period. Once again our holding in The Scottish Oriental Smaller Companies Trust helped our performance. This fund and the Utilico Emerging Markets fund benefited from their generally defensive country and sector positioning against the weak market background. The Advance Brazil Leblon Equities Fund by contrast was well down, although it performed satisfactorily compared to the very weak local market. We added to our holding in the Advance Frontier Markets Fund. Frontier markets have benefited from increased investor interest and this is expected to continue in the medium term.

Asset allocation

Geographical distribution of the investment portfolio
	Portfolio weighting
	31 October 2013 %	30 April 2013 %
North America	38.9	40.4
UK	30.8	27.5
Continental Europe	12.5	12.0
Rest of World	9.8	11.7
Japan	8.0	8.4
Source: F&C Management Limited

Early in the period we decided to increase our exposure to the UK market. In part, this was because we felt that a recovering UK economy could lift sterling but, more pertinently, we had also been able to identify some promising new investments in the UK market. We were overweight in Japan through the whole period on the basis that the pick-up in the local economy was likely to be supportive for both corporate earnings and hence share prices. In practice however, Japanese small caps lagged most of the other markets as some of the initial euphoria surrounding the Abe administration's agenda faded. We are sticking to our positive view on this market looking into the rest of the year.

With absolute valuations higher than elsewhere and relatively few new stock ideas coming through, we have been a little more cautious in relation to the US and the extent of our underweight stance increased during the first half. In contrast we remained overweight towards Europe, where valuations look more appealing, and the markets rewarded us by performing well. Fund managers are now more prepared to invest in Europe and flows into the markets have already experienced something of a re-rating.

With Asian and Latin American markets lagging it has been tempting to add to our Rest of World exposure. We have, however, been concerned by the path of local corporate earnings and the managers of a number of the funds in which we invest to gain exposure to these markets have themselves been cautious on near-term prospects.

Outlook

While there are still gains to be had at an individual stock level, the extent of the move up in global equity prices in 2013 argues for caution near-term. As a result at this stage the Company is ungeared, with cash balances exceeding the value of the debenture liability. We firmly believe that the Company's investment mandate continues to offer the potential for strong returns taking a longer term perspective.

Peter Ewins

16 December 2013 

Unaudited Condensed Income Statement

for the half-year ended 31 October	2013			2012
	Revenue	Capital	Total	Revenue	Capital	Total
	£'000s	£'000s	£'000s	£'000s	£'000s	£'000s
Gains on investments	-	35,740	35,740	-	13,396	13,396
Foreign exchange gains/(losses)	3	(323)	(320)	(2)	(100)	(102)
Income	3,069	-	3,069	2,515	-	2,515
Management and performance fees	(172)	(516)	(688)	(117)	(1,146)	(1,263)
Other expenses	(287)	(14)	(301)	(556)	(11)	(567)
Return before finance costs and taxation	2,613	34,887	37,500	1,840	12,139	13,979
Finance costs	(145)	(434)	(579)	(145)	(434)	(579)
Return on ordinary activities before taxation	2,468	34,453	36,921	1,695	11,705	13,400
Taxation on ordinary activities	(78)	-	(78)	(111)	-	(111)
Return attributable to shareholders	2,390	34,453	36,843	1,584	11,705	13,289
Return per share - pence	5.15	74.31	79.46	3.76	27.78	31.54

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 2013	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 2013	11,243	53,009	16,158	250,760	8,920	340,090
Movements during the half-year ended 31 October 2013
Dividends paid	-	-	-	-	(2,071)	(2,071)
Shares issued	688	21,092	-	-	-	21,780
Return attributable to equity shareholders	-	-	-	34,453	2,390	36,843
Balance at 31 October 2013	11,931	74,101	16,158	285,213	9,239	396,642

Half-year ended 31 October 2012	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 2012	10,345	29,818	16,158	182,046	8,409	246,776
Movements during the half-year ended 31 October 2012
Dividends paid	-	-	-	-	(1,676)	(1,676)
Shares issued	276	6,175	-	-	-	6,451
Return attributable to equity shareholders	-	-	-	11,705	1,584	13,289
Balance at 31 October 2012	10,621	35,993	16,158	193,751	8,317	264,840

Year ended 30 April 2013	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 2012	10,345	29,818	16,158	182,046	8,409	246,776
Movements during the year ended 30 April 2013
Dividends paid	-	-	-	-	(2,533)	(2,533)
Shares issued	898	23,191	-	-	-	24,089
Return attributable to equity shareholders	-	-	-	68,714	3,044	71,758
Balance at 30 April 2013	11,243	53,009	16,158	250,760	8,920	340,090

Unaudited Condensed Balance Sheet

	31 October 2013	31 October 2012	30 April 2013
	£'000s	£'000s	£'000s
Fixed assets
Investments	386,317	270,086	334,036
Current assets
Debtors	1,283	866	2,372
Cash at bank and short-term deposits	20,602	7,004	20,771
	21,885	7,870	23,143
Creditors: amounts falling due within one year	(1,560)	(3,116)	(7,089)
Net current assets	20,325	4,754	16,054
Total assets less current liabilities	406,642	274,840	350,090
Creditors: amounts falling due after more than one year
Debenture	(10,000)	(10,000)	(10,000)
Net assets	396,642	264,840	340,090
Capital and reserves
Called up share capital	11,931	10,621	11,243
Share premium account	74,101	35,993	53,009
Capital redemption reserve	16,158	16,158	16,158
Capital reserves	285,213	193,751	250,760
Revenue reserve	9,239	8,317	8,920
Total shareholders' funds	396,642	264,840	340,090
Net asset value per share - pence	831.13	623.35	756.21

Unaudited Condensed Cash Flow Statement

	Half-year ended	Half-year ended
	31 October 2013	31 October 2012
	£'000s	£'000s
Net cash inflow from operating activities	166	677
Cash outflow from servicing of finance	(577)	(577)
Net cash outflow from financial investment	(19,315)	(3,320)
Equity dividends paid	(2,071)	(1,676)
Net cash outflow before use of liquid resources and financing	(21,797)	(4,896)
Movement in short-term deposits	-	-
Net cash inflow from financing	21,949	6,451
Increase in cash	152	1,555
Reconciliation of net cash flow to movement in net cash/(debt)
Increase in cash	152	1,555
Movement in short-term deposits	-	-
Movement in net cash/(debt) resulting from cash flows	152	1,555
Foreign exchange movement	(321)	(101)
Movement in net cash/(debt)	(169)	1,454
Net cash/(debt) brought forward	10,771	(4,450)
Net cash/(debt) carried forward	10,602	(2,996)
Represented by:
Cash at bank	20,602	7,004
Short-term deposits	-	-
	20,602	7,004
Debenture	(10,000)	(10,000)
	10,602	(2,996)

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 2013. These accounting policies are expected to be followed throughout the year ending 30 April 2014.

2    Return per share

	Half-year ended	Half-year ended
	31 October 2013	31 October 2012
Revenue return per share - pence	5.15	3.76
Revenue return attributable to shareholders - £'000s	2,390	1,584
Capital return per share - pence	74.31	27.78
Capital return attributable to shareholders - £'000s	34,453	11,705
Weighted average number of ordinary shares in issue during the period	46,365,005	42,138,490

3    Dividends

Dividends on ordinary shares	Register date	Payment date	Half-year ended 31 October 2013 £'000s	Half-year ended 31 October 2012 £'000s
Final for the year ended 30 April 2013 of 4.50p	19 Jul 2013	16 Aug 2013	2,071	-
Final for the year ended 30 April 2012 of 4.00p	6 Jul 2012	16 Aug 2012	-	1,676
			2,071	1,676

The Directors have declared an interim dividend in respect of the year ending 30 April 2014 of 2.50p per share, payable on 31 January 2014 to all shareholders on the register at close of business on 3 January 2014. The amount of this dividend will be £1,210,000 based on 48,416,102 shares in issue at 12 December 2013. This amount has not been accrued in the results for the half-year ended 31 October 2013.

4    Management and performance fees

There have been no changes to the terms of the management and performance fee agreements with F&C Management Limited, which are set out in detail in the Report and Accounts to 30 April 2013. Management fees have been allocated 75% to capital reserves in accordance with accounting policies. No performance fee, allocated 100% to capital reserves in accordance with accounting policies, has been accrued in the period to 31 October 2013 as the Company's net asset value per share underperformed the Benchmark (half-year ended 31 October 2012: £795,000 and year ended 30 April 2013: £1,478,000).

5    Investments

	Level 1* £'000s	Level 2* £'000s	Level 3* £'000s	Total £'000s
Cost at 30 April 2013	235,330	-	1,228	236,558
Gains at 30 April 2013	95,563	-	1,915	97,478
Valuation at 30 April 2013	330,893	-	3,143	334,036
Movement in the period:
Purchases at cost	65,340	-	4	65,344
Sales proceeds	(48,803)	-	-	(48,803)
Gains on investments sold in period	12,917	-	-	12,917
Gains on investments held at period end	22,718	-	105	22,823
Valuation of investments held at 31 October 2013	383,065	-	3,252	386,317

	Level 1* £'000s	Level 2* £'000s	Level 3* £'000s	Total £'000s
Cost at 31 October 2013	264,784	-	1,232	266,016
Gains at 31 October 2013	118,281	-	2,020	120,301
Valuation at 31 October 2013	383,065	-	3,252	386,317

*Level 1 includes investments listed on any recognised stock exchange or quoted on AIM in the UK.

 Level 2 includes investments for which the quoted price has been suspended.

 Level 3 includes any unquoted investments which are held at net asset value.

6    Results

The results for the half-year ended 31 October 2013 and 31 October 2012, which are unaudited and which have not been reviewed by the Company's auditors pursuant to the Auditing Practices Board guidance on 'Review of Interim Financial Information', 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 2013; 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 2013 are an extract from those accounts.

7    Report and accounts

The report and accounts for the half-year ended 31 October 2013 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

16 December 2013

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.

In addition to the risks arising from the ongoing global financial instability, key risks faced by the Company relate to investment strategy, management and resources, regulatory issues, operational matters, financial controls, counterparty failure and custody of assets.  These risks, and the way in which they are managed, are described in more detail under the heading "Principal risks and their management" within the Directors' Report and Business Review contained within the Company's annual report for the year ended 30 April 2013.  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 Half-Yearly Financial Report

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 2013 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 on a going concern basis and gives a true and fair view of the assets, liabilities, financial position and net 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;

·              the half-yearly report includes a fair review of the related party transactions; and

·              in light of the controls and monitoring processes that are in place, the Company has adequate resources and arrangements to continue operating within its stated objective and policy for the foreseeable future. Accordingly, the accounts continue to be drawn up on the basis that the Company is a going concern.

On behalf of the Board

Anthony Townsend

Chairman

16 December 2013

 

END

 

 

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