Final Results
November 11 2003 - 12:27PM
UK Regulatory
FALCON INVESTMENT TRUST PLC
PRELIMINARY ANNOUNCEMENT OF AUDITED ANNUAL RESULTS
The Directors announce the audited statement of results for the year to 30
September 2003 as follows:
John Moxon, Chairman of Falcon Investment Trust PLC, commented:
During the period under review, the Company's net asset value ("NAV")
appreciated by 22.1% to 94.12p. The Company's benchmark, the Hoare Govett
Smaller Companies Index (excluding Investment Companies), increased by 30.4%
and the FTSE All Share Index rose by 12.6%. The company generated income of �
1.283m and revenue after taxation of �0.850m. The Directors recommend a final
dividend of 2.4p, payable on 31 January 2004 to Shareholders on the register as
at 14 November 2003.
Stock Market conditions remained extremely testing during the Company's
financial year. The deteriorating situation in Iraq weighed heavily on
sentiment, delayed recovery and led to increased share price volatility. Share
prices recovered during the second half of the period under review and it
appears that investors are now more willing to extend their investment time
horizons. Even so, economic conditions are likely to remain challenging and UK
interest rates look set to rise further.
As explained in the Manager's overview, the Company's investment portfolio has
little exposure to the debt-driven sectors of the economy that have been the
beneficiaries of an unprecedented consumer boom. This spend, spend, spend
mentality has been fuelled by increasingly high levels of personal borrowings
and record levels of mortgage equity withdrawal. In a period of rising interest
rates and increasing personal taxation the Board do not believe that this
situation is sustainable.
During the period the Company purchased 4,050,000 Ordinary shares for
cancellation at a total cost of �2,509,000 (including expenses) at an average
price of 61.9p. As at 30 September 2003, �5.408 million of the Company's �10
million borrowing facility was utilised, reflecting a reasonably cautious
approach and providing flexibility to increase the Company's equity exposure
should suitable investment opportunities arise in the coming months.
MANAGER'S OVERVIEW
At the time of the last annual report we believed that share price valuations
offered considerable scope for improvement. Notwithstanding the destabilising
effects of war in Iraq and other geopolitical uncertainties, our belief that it
would be possible to make positive progress in the year under review was
justified. It is disappointing to report that this progress has not matched the
growth in the Company's benchmark. However, we believe that our contrarian
stance and the greater number of investment opportunities that have arisen as
the Stock Market has stabilised has provided a solid foundation from which
strong relative out-performance can be achieved.
We continue to believe that our commitment to the industrial and business
services sectors of the market will benefit from a cyclical improvement in
demand and that the profitability of many of the companies within the portfolio
will improve significantly.
As mentioned at the interim stage, we have been seriously concerned about the
sustainability of growth in consumer expenditure and the excesses of the
investment led boom in the commercial and residential property markets. This
prompted us to sell our investments in consumer sensitive companies such as
Wolverhampton & Dudley, Findel and Vardy (Reg) and our property related
exposure via Mowlem, Marshalls and Heywood Williams Group. In the second half
of the financial year we sold our investments in Securicor, DS Smith and
ebookers and reduced our exposure to Pendragon.
Our choice of new investment opportunities has increased greatly in recent
months as sentiment has improved and more companies have become eligible for
inclusion in the portfolio. Our investment universe, which had included a
number of relatively uninspiring companies when the Stock Market was depressed,
has been refreshed by more dynamic growth companies at the lower end of our
market capitalisation range. New investments have been made in McBride, ISIS
Asset Management, BSS Group, Incepta, Liontrust, Informa and ITNET.
Although the economic environment remains challenging we believe that the
recent recovery in Stock Markets is not without foundation. There is
encouraging evidence to support our view that a cyclical recovery in the
industrial and business services sectors is underway. There has been a
significant improvement in the trading environment for recruitment shares,
where industry statistics confirm that activity has increased in recent months.
Prospects for the electronics sector also appear to be improving as industry
begins to invest in inventory for the next cycle. As confidence in the trading
outlook for companies that have been de-rated improves we would expect
corporate activity to play a major role in unlocking value in the market.
Peter Webb
Unicorn Asset Management Limited
STATEMENT OF TOTAL RETURN (Incorporating the Revenue Account*) of the Company
1 October 2002 to 24 August 2001 to
30 September 2003 30 September 2002
Revenue Capital Total Revenue Capital Total
�'000 �'000 �'000 �'000 �'000 �'000
Gains/(losses) on - 5,595 5,595 - (8,104) (8,104)
investments
Dividends and interest 1,283 - 1,283 1,477 - 1,477
Investment management (192) (193) (385) (228) (227) (455)
fee
Other expenses (186) - (186) (181) - (181)
Net return on ordinary 905 5,402 6,307 1,068 (8,331) (7,263)
activities
before finance costs and
taxation
Interest payable and (55) (55) (110) (77) (78) (155)
similar charges
Return on ordinary 850 5,347 6,197 991 (8,409) (7,418)
activities before and
after taxation
Dividend proposed (841) - (841) (977) - (977)
Transfer to/(from) 9 5,347 5,356 14 (8,409) (8,395)
reserves
pence pence pence pence pence pence
Return per Ordinary 2.26 14.24 16.50 2.55 (21.61) (19.06)
share
*The revenue column of this statement is the revenue account of the Company.
The accounts have been prepared on the basis of the accounting policies at the
previous period end.
All revenue and capital items in the above statement derive from continuing
operations.
BALANCE SHEET
As at 30 September As at 30 September
2003 2002
�'000 �'000
(audited) (audited)
Fixed assets
Investments 39,132 31,239
Current assets
Debtors 170 213
Cash at bank 12 17
182 230
Creditors - amounts falling due (6,343) (1,342)
within one year
Net current liabilities (6,161) (1,112)
Net assets 32,971 30,127
Represented by
Share capital 350 391
Capital redemption reserve 41 -
Special reserve 35,619 38,131
Capital reserve - realised (3,930) (392)
- unrealised 868 (8,017)
Revenue reserve 23 14
Shareholder' funds - equity 32,971 30,127
interests
pence pence
Net asset value per Ordinary share 94.12 77.09
SUMMARISED STATEMENT OF CASH FLOWS
1 October 2002 24 August 2001
to 30 September 2003 to 30 September
2002
Net cash inflow from operating 765 705
activities
Net cash outflow from servicing of (117) (141)
finance
Capital expenditure and financial
investment
Purchases of investments (23,593) (55,664)
Sales of investments 21,295 16,321
Net cash outflow from capital (2,298) (39,343)
expenditure and financial investment
Equity dividends paid (977) -
Net cash outflow before financing (2,627) (38,779)
Financing
Gross proceeds of share issue - 39,200
Share issue expenses paid (3) (678)
Purchase of shares for cancellation (2,509) -
Net cash (outflow)/inflow from (2,512) 38,522
financing
Decrease in cash (5,139) (257)
NOTES
1 The Company was incorporated on 24 August 2001 and commenced operations on
31 October 2001.
2 The audited financial information set out above does not constitute the
Company's statutory accounts as defined in section 240 of the Companies
Act 1985. Statutory accounts for the period ended 30 September 2002 have
been delivered to the Registrar of Companies. The Auditors have reported
on those accounts; their report was unqualified and did not contain
statements under section 237 (2) or (3) of the Companies Act 1985. The
statement of total return, balance sheet and summarised statement of
cashflows have been prepared using the accounting standards and policies
adopted at 30 September 2002.
Statutory accounts for the year ended 30 September 2003 will be filed with
the Registrar of Companies following the Company's Annual General Meeting.
3 The Directors recommend the payment of a final dividend of 2.4p per share,
payable on 31 January 2004, to the holders on the Register as at 21
November 2003.
4 The revenue and capital return per Ordinary share is based on earnings of
�850,000 (2002: �991,000) and net capital gains of �5,347,000 (2002:
losses �8,409,000) respectively, and on 37,559,568 (2002: 38,907,451)
Ordinary shares being the weighted average number of Ordinary shares in
issue during the year.
5 An amount of �248,000 (2002: �305,000) has been charged to capital in
respect of management fees and finance costs in accordance with the
Company's accounting policy.
6 It is the intention of the Directors to conduct the affairs of the Company
so that it satisfies the conditions for approval as an investment trust
company set out in section 842 of the Income and Corporation Taxes Act
1988.
J Moxon
Chairman
11 November 2003
END