Interim Results - Six Months to 31 July 1999
North Atlantic Smaller Companies Investment Trust PLC
10 November 1999
NORTH ATLANTIC SMALLER COMPANIES INVESTMENT TRUST PLC -
RESULTS FOR THE SIX MONTHS TO 31 JULY 1999.
Manager's Review
During the six month period the Trust's fully-diluted net asset value per
ordinary share increased by 18.2% to 590.0p. This compares with a rise in the
sterling-adjusted Russell 2000 of 5.9%.
Interim Results
The results for the six months to 31 July 1999 show a net revenue profit after
tax of £372,000 (1998 - net revenue profit of £28,000). The Directors do not
recommend the payment of a dividend (1998 - nil).
Unquoted Investments
There has been one new investment since the beginning of February, a US
telecommunications company, Wildfire, and one disposal, the Norwegian telecom
network company, Enitel, which was floated and the holding subsequently sold
at an uplift of 27% over cost.
Wildfire
This Company, established in 1992, develops, sells and supports
consumer-oriented, voice-activated products which enhance personal
communication. Effectively it provides voice-activated personal organiser
services on cellular phones. Industry experts anticipate the world-wide
market for these services will be $200mn in 1999 rising to $675mn by the year
2000. The product has already been introduced by Pacific Bell Wireless in
California, Bell Mobility in Canada, and Orange Personal Communications
Services (2mn users) in the UK. This is expected to be the last round of
financing prior to an IPO.
There has also been considerable activity amongst the existing investments:
Santa Maria
Santa Maria continues to show strong growth and is now facing capacity
constraints. To fund the building of a new prosciutto plant additional shares
were placed at C$24 with a new institutional investor RoyNat. This represents
an uplift of nearly four times original cost and a 60 per cent increase since
the yearend. NASCIT did not invest in this round of financing.
Alliance One
The fund followed on its original equity investment by making a significant
investment of $4mn in the subordinated debt offering (with warrants) of this
roll up of debt collection businesses in the USA. The integration of the
original five businesses continues ahead of schedule, and will create
substantial savings. The Company is actively developing its strategic
alliance with Banc One which has committed to providing $80mn of accounts
receivable for collection.
Message Link
This Atlanta-based company was set up at the end of last year to consolidate
the reselling sector of the paging and wireless messaging industry. The $5bn
paging industry has demonstrated great resilience in the face of the emerging
cellular and personal communications industry, growing 28% per annum over the
last five years. This growth is expected to continue, albeit at a slower rate
of 15-20% per annum. The fund followed its initial investment by subscribing
for the subordinated debt offering.
Southern Dental
This Mississippi-based roll-up of dental practices faced trading problems
which became evident in the first quarter of the year after the original
strategy of turning round under-performing practices proved difficult to
implement. The company has been repositioned to focus on consolidating
smaller practices around a larger, keystone dental practice, and thereafter
extending opening hours, and adding hygiene programmes and other specialist
services to increase profitability. The company is now cash-flow positive.
However, the holding has been written down by approximately 33%.
Quoted Investments
The quoted portfolio continues to suffer from lack of interest in smaller
companies. In the UK the rise in the smaller companies index has been heavily
influenced by takeover bids and company restructurings. In the US interest in
smaller industrial companies is extremely limited. Banks have also performed
poorly due to the recent rise in interest rates.
Derivative Portfolio
The Trust maintained its derivative portfolio policy of selling put options
with a view to investing in companies it finds attractive but which it feels
are marginally overpriced. The portfolio has, however, been reduced further
since the yearend.
Repurchase of Convertible Unsecured Loan Stock
During the period the Company purchased for cancellation 2,400,000 units of
loan stock for a total consideration of £9.9million. The purchase was made at
a significant discount to the fully diluted net asset value per share with a
consequent benefit to all shareholders.
Market Outlook
Since the end of the period the US market has drifted downwards. Once again,
the principal area of interest remains big blue chips and internet stocks.
Nevertheless, your Board and Manager are relatively optimistic the second half
of the year will produce a satisfactory performance for the Trust as there are
a number of special situations in the portfolio which are expected to mature
in the next six months.
C H B Mills
Chief Executive
Statement of Total Return of the Group (Unaudited)
Six months ended 31st July 1999
31 July 1999 31 July 1998
Revenue Capital Total Revenue Capital Total
£000 £000 £000 £000 £000 £000
Gains on
investments - 7,003 7,003 - 4,108 4,108
Income 1,878 - 1,878 1,841 - 1,841
Investment
management fee (376) - (376) (375) - (375)
Other expenses (538) - (538) (564) - (564)
Net return before
finance costs
and taxation 964 7,003 7,967 902 4,108 5,010
Interest payable
and similar charges (505) - (505) (742) - (742)
Return on
ordinary activities
before tax 459 7,003 7,462 160 4,108 4,268
Tax on ordinary
activities (87) - (87) (132) - (132)
Return on ordinary
activities after
tax for the
financial year 372 7,003 7,375 28 4,108 4,136
Transfer
to/(from)reserves 372 7,003 7,375 28 4,108 4,136
Return per ordinary share
Basic 3.45p 65.08p 68.53p 0.27p 39.03p 39.30p
Diluted 1.91p 33.73p 35.64p 0.25p 17.66p 17.91p
Distribution of Assets
31 July 1999 31 Jan 1999
£'000 % £'000 %
Fixed Asset Investments
Listed at market value:
Overseas 38,178 28.8 36,071 28.8
United Kingdom 37,503 28.3 36,142 28.9
Listed at Directors' valuation 9,445 7.1 8,885 7.1
Total Listed Investments 85,126 64.2 81,098 64.8
Unlisted at market value 13,058 9.9 20,113 16.1
Unlisted at Directors' valuation 36,763 27.8 28,889 23.1
134,947 101.9 130,100 104.0
Net current liabilities (2,482) (1.9) (4,975) (4.0)
Total assets less current
liabilities 132,465 100.0 125,125 100.0
Performance Statistics
31 July 99 31 Jan 99 Change
(Unaudited) (Audited) (%)
Net asset value per
Ordinary Share:
Loan Stock converted;options
unconverted 602.0p 507.0p 18.7
Fully diluted 590.9p 499.0p 18.2
Middle market quotation per
Ordinary Share 465.5p 371.5p 25.3
Standard & Poor's Composite
Index* 820.40 778.04 5.4
Russell 2000 Index* 274.96 259.76 5.9
Exchange Rate (US$:£) 1.6196 1.6447 -1.5
*Adjusted for exchange rate movement
Notes:
1. The Statements of Total Return for the six months ended 31 July 1999 and
31 July 1998 have been prepared in accordance with the Statement of
Recommended Practice 'Financial Statements of Investment Trust Companies'
which has been adopted by the Company.
2. The Statements of Total Return includes the results of the Company and
its subsidiaries and, together with the summary statement of distribution of
assets at 31 July 1999, are unaudited and do not constitute full accounts
within the meaning of the Companies Act 1985. The figures for the year
ended 31 January 1999 have been extracted from the full accounts for that
year which received an unqualified audit report which did not contain
statements under Section 237(2) or (3) of the Companies Act 1985 and have been
delivered to the Registrar of Companies.
3. The basic return per ordinary share for the six months ended 31 July
1999 has been calculated using 10,761,580 ordinary shares (1998: 10,526,236)
being the weighted average number of shares in issue during the period.
The diluted returns per share have been calculated in accordance with FRS 14 -
Earnings per share. The comparatives have been calculated accordingly.
The diluted return per ordinary share assumes both the conversion of all the
convertible loan stock 2013 into ordinary shares as well as the exercise of
all outstanding options. The weighted average number of shares assumed to be
in issue during the period amounted to 20,763,657 (1998:23,260,000).
4. The Manager uses software and related computer technologies essential to
its operation that may be affected by the year 2000 issue and formed a project
team in 1997 to assess its vulnerability and to take action to mitigate year
2000 risks. Review, testing and making software and hardware repairs and/or
upgrades to those systems and programmes that may be impacted by the year 2000
issue, along with contingency planning has been completed with final checks
and reviews now under way.
The costs of the Manager's year 2000 project are being borne by the Manager
and appropriate assurances have been sought from significant suppliers to deal
with the year 2000 issue.
While the Board believes that the Manager will achieve an acceptable state of
readiness, it is not possible, given the complexity of the problem, and
dependence on third party suppliers, for any organisation to guarantee year
2000 compliance.
5. The figures for the half year to 31 July 1999 have been prepared on a basis
consistent with the accounting policies set out within the audited accounts
for the year ended 31 January 1999.
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