Preliminary Final Results
October 23 2001 - 11:54AM
UK Regulatory
RNS Number:0244M
Exeter Smaller Co's Income Fund Ld
23 October 2001
EXETER SMALLER COMPANIES INCOME FUND LIMITED
PRELIMINARY ANNOUNCEMENT OF THE FINAL RESULTS
The Directors announce the unaudited final results for the period 1 September,
2000 to 30 September, 2001 as follows:-
SUMMARISED CONSOLIDATED STATEMENT OF OPERATIONS
of the Company (unaudited)
1 Sept 2000
to 30 Sept 2001
#'000
Income
Dividends 4,818
Bond interest 924
Bank interest 319
-------
6,061
-------
Expenses
Management fee (743)
Interest payable (2,883)
Amortisation on zero dividend
preference shares (812)
Custodian and safekeeping fees (27)
Administration fees (99)
Audit fee (6)
Directors' fees (49)
Miscellaneous expenses (69)
-------
(4,688)
-------
Income less expenses 1,373
Net Investment Losses
Realised losses on investments (6,654)
Unrealised depreciation on investments (26,538)
-------
(33,192)
-------
Net decrease in net assets
from operations (31,819)
-------
Basic deficit per ordinary share (54.58)p
Return per zero dividend
preference share 9.23p
SUMMARISED STATEMENT OF CHANGES IN NET ASSETS (unaudited)
1 Sept 2000
to30 Sept 2001
#'000
Movements in net assets
Net assets, beginning of year -
Issue of ordinary share capital 56,690
Decrease in net assets from operations (31,819)
Dividends paid and proposed (5,247)
-------
19,624
-------
SUMMARISED CONSOLIDATED BALANCE SHEET (unaudited)
As at
30 Sept 2001
#'000
Investments 59,139
Net current assets 8,997
-------
Total assets less current liabilities 68,136
7.33% Fixed rate loan 2007 (38,902)
Zero dividend preference shares (9,610)
-------
Net assets attributable to ordinary Shareholders 19,624
-------
Net asset value per ordinary share 33.66p
Net asset value per zero dividend preference share 109.23p
SUMMARISED STATEMENT OF CASH FLOW (unaudited)
1 Sept 2000
to30 Sept 2001
#'000
OPERATING ACTIVITIES
Cash received from investments 5,026
Interest received 310
Operating expense payments (3,793)
-------
Net Cash inflow from operating activities 1,543
-------
INVESTING ACTIVITIES
Purchase of investments (137,063)
Sale of investments 43,923
-------
Net cash outflow from investing activities (93,140)
-------
FINANCING ACTIVITIES
Issue of ordinary share capital 56,690
Issue of zero dividend preference shares 8,798
Draw down of fixed rate loan 38,902
Dividends paid (3,906)
--------
Net Cash inflow from financing activities 100,484
--------
INCREASE IN CASH AND CASH EQUIVALENTS 8,887
========
Notes:
In accordance with the articles of association of ESCIF Securities Limited,
the holders of the 8,798,000 zero dividend preference shares are entitled on a
winding up to an amount equal to 100p per ZDP share as increased daily at such
a compound rate as would give a final capital entitlement of 183.24p on the
ZDP Repayment Date, the first such increase occurring on 22 September 2000 and
the last on the date of actual payment.
The Company's Financial Statements have been prepared in accordance with
International Accounting Standards. An appropriation is taken to Reserves to
increase the amounts attributable to the zero dividend preference shares from
the net proceeds of their issue, to the expected redemption price on 30
September 2007 at a constant daily compound rate. The total net assets
attributable to the zero dividend preference shares at 30 September 2001
calculated in accordance with the accounting standard and shown in the Group's
balance sheet amounted to #9,610,251.
Chairman's Statement
This is the first Annual Report of Exeter Smaller Companies Income Fund
covering the period ended 30 September 2001. The distributable return per
Ordinary share was 9.97 p and the Directors have declared dividends totalling
9.0p. The first two interim dividends of 2.2p each were paid in February and
May while the third interim dividend of 2.3p was paid in August. A fourth
interim dividend of 2.3p is payable on 14 November 2001 to shareholders on the
register on 2 November 2001.
The last year has been a difficult one for equity investors in general and for
geared split funds in particular. These difficulties are reflected in the
performance of the Exeter Smaller Companies Income Fund. In the period from
the launch of the Company to end of September 2001 the FTSE All-Share Index
fell by 22.8 %. UK smaller companies fared worse falling by 38.0 % as
illustrated by the FTSE Small Cap Index. In comparison total assets fell by
35.3 % during the period. The net asset value per Ordinary share fell as a
result from 97.21p to 33.66p as the Company's capital structure magnified this
decline in total assets.
The intention from the outset has been for the Company's Portfolio to be
balanced across different managers, investment styles, assets and classes of
shares, dependant on the structure and gearing of a particular investment
trust. Despite this, the sharp fall in equity and high yield bond markets has,
due to the level of gearing inherent in split capital investment trusts, been
very detrimental to the performance of a number of the Company's holdings in
this area.
The Company's policy of investing predominantly through investment trusts has,
however, been beneficial in reducing stock specific risk over the last year.
The slowdown in the UK economy over the last year or so has resulted in a
stream of earnings disappointments from companies from a broad range of
sectors. In particular, in the technology and telecommunications sectors a
number of companies have seen their share prices fall by over 90% following a
sharp reversal in both sentiment and prospects.
The Company has taken advantage of the opportunity, as intimated in the
Prospectus, to purchase a small number of direct holdings in the shares of UK
smaller companies. This has been beneficial to performance and the underlying
liquidity of the Portfolio. It is likely therefore that this exposure will be
increased over the next six months as and when the manager finds further
attractive opportunities.
The performance of UK smaller company shares since the launch of the Company
has, however, been disappointing both in absolute terms but also relative to
larger companies as illustrated by the FTSE All-Share Index. Despite their
greater domestic earnings bias UK smaller companies have not as yet recovered
significantly following their initial falls after the tragic events of 11
September 2001.
Low inflation and falling interest rates and arguably the low valuations of
equities relative to bonds are reasons why the UK equity market should make
more positive progress over the next year. The increased buying by directors
of their own shares relative to those that have been selling, particularly of
small and mid-cap sized UK companies, is also positive.
Nevertheless equity markets are likely to continue to face uncertainties in
the short term. As a precautionary measure a number of holdings were either
sold or reduced, towards the end of the period, to increase the level of cash.
A decision was also taken to issue a further 5.8 million Ordinary shares, at
a premium to the net asset value, which raised approximately #3.2 million to
strengthen the Company's balance sheet. Trading in these new shares commenced
on 11 October 2001.
Looking forward, although the Board and the Manager remain cautiously
optimistic, there are a number of risks. In particular there are a number of
holdings in the income and ordinary shares of split capital investment trusts
that could suffer further falls in their prices and/or reductions in their
dividends. This could affect the Company's ability to maintain the current
level of dividends payable to ordinary shareholders. In light of this the
current strategy is to minimise this risk where possible and cash will only be
reinvested as and when the outlook becomes more positive.
Richard Crowder
23rd October 2001
The annual report will be issued to shareholders in November and will be
available to members of the public from the Company's registered office,
Sydney Vane House, Rue du Commerce, St Peter Port, Guernsey, GY1 3EP.
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