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ABERFORTH GEARED CAPITAL & INCOME TRUST plc PRELIMINARY RESULTS For the period 18 December 2001 to 31 December 2002 FEATURES Total Returns - Total Assets -7.1% - Net Asset Value of Notional Unit1 -19.1% - Net Asset Value of Capital Shares2 -88.4% - HGSC (XIC) -22.5% - First Interim Dividend 3.0p - Second Interim Dividend 5.0p 1 Notional Package is made up of 70% Income Shares and 30% Capital Shares. 2 Capital Shares asset performance assumes Income Shares have a capital entitlement of 100p each. Aberforth Geared Capital & Income Trust plc invests only in small UK quoted companies, does not invest in any unquoted securities, AiM listed securities or securities issued by investment trusts or investment companies. The Company was incorporated on 7 September 2001 and commenced business following the £35.0 million issue of 24.5 million Income Shares at £1.00 per share and 10.5 million Capital Shares at £1.00 per share on 18 December 2001. CHAIRMAN'S STATEMENT TO SHAREHOLDERS INTRODUCTION This is the first financial period for Aberforth Geared Capital & Income Trust plc (AGCiT) and covers the period from 7 September 2001 (when the Company was incorporated) to 31 December 2002. However, AGCiT commenced business on 18 December 2001, following the receipt of the proceeds of the issue. AGCiT is a Split Capital Investment Trust, which invests only in small UK quoted companies and has a planned life lasting until 31 December 2011. AGCiT is managed by Aberforth Partners, an investment management partnership that has specialised in investing in small UK quoted companies for over 12 years. AGCiT has Income and Capital Shares in issue and currently has bank facilities equivalent to 100% of the net proceeds of the funds raised by the issue - being £34.3m. It is intended that these facilities be used close to their full extent throughout the life of the Company. INVESTMENT OBJECTIVE To provide Income Shareholders with a high level of income payable half yearly with the potential for income growth, and to provide the Capital Shareholders with geared capital growth. RESULTS REVIEW The period since AGCiT's launch has seen substantial declines in stock market values around the world. In the UK the FTSE-All Share Index has recorded a total return of minus 21.5%, while the Hoare Govett Smaller Companies Index (Excluding Investment Companies) (HGSC (XIC)), which defines AGCiT's investment universe, has shown a decline of 22.5%, on a comparable basis. For AGCiT the relevant number to compare to these index returns is the Total Return on Total Assets, which was minus 7.1%. Thus, while the total assets have performed relatively well compared to the relevant stock market indices, AGCiT is a highly leveraged company and the effect of the structure is to exaggerate total asset returns for Shareholders in either direction. Consequently the Net Asset Value Total Return of a Notional Unit (on the basis of the ratio of shares in issue, being 30% Capital shares and 70% Income shares) is minus 24.5%. The net asset value of the Capital Share (assuming that an Income Share has a capital entitlement of 100.0p) has declined by 88.4% since launch. These returns are disappointing, though some solace should be taken from the fact that the total asset performance has been significantly better than that of the HGSC (XIC). This has helped to mitigate the effects of a declining market on the Company. It is inevitable however that in a period of negative returns the gearing in the Company acts against the interests of Shareholders. DIVIDENDS The dividends declared by portfolio investments have, in aggregate, been in line with the expectations of your Managers. I am therefore pleased to report that the Directors are able to declare a second interim dividend of 5.0p per Income Share. This dividend will be paid on 27 February 2003 to Shareholders on the register on 31 January 2003. The total dividends for the year are therefore 8.0p per Income Share which is the level of payment illustrated in the prospectus. The Income Shares were issued at a value of £1 each and thus the income return to the original Shareholders has been at the 8.0% yield level illustrated in the prospectus. As can be seen from the Statement of Total Return, the revenue earned for the year was equivalent to 9.06p per Income Share. It is the Directors' intention to retain £260,000 in reserves, which will assist to smooth dividend payments in the future, should there be periods in which the income performance of the portfolio is less robust than in the time since the Company's launch. OUTLOOK 2002 was the third consecutive year of negative returns from the UK stockmarket - an infrequent occurrence. The scale of the declines has, by historic standards, been unusually high. This has not been a propitious background against which to have a highly geared investment vehicle. Against such a background, AGCiT's portfolio has a number of features that have stood it in good stead. The portfolio has been carefully invested in a group of smaller companies that, in aggregate, have a dividend yield greater than that of AGCiT's Investment Universe, but that still have the capacity to grow their dividends - as has been demonstrated in the period since listing. Your Board and Managers believe that if the Company continues to earn its income in an appropriate manner then this, over the longer term, will stimulate rather than stifle capital performance. While the first year of your Company's life has seen negative returns I believe there are a number of reasons to remain optimistic about its future. First, your Managers' view of the potential long-term rates of return from the UK equity market remains unchanged, at between 5% and 7% per annum in real terms. If achieved, these rates are more than sufficient to allow the Company to generate the required hurdle rates discussed above. Second, while the assets have declined in the period since launch they have declined by less than the HGSC (XIC). This outperformance has been achieved against a background of narrowing PE and yield differentials between companies in the smaller company universe. Consequently, AGCiT now has the opportunity to invest in many companies of a high quality which previously were too highly valued to be considered for the portfolio. Your Managers thus have the opportunity to invest in a broader range of companies than at the time of the listing. Finally, while the capital performance has recently been negative, the income performance of the assets has been robust and small companies do appear relatively well placed to generate dividend growth from a position of good dividend cover relative to larger companies. The UK economy appears to be in a more robust position than some of its European peers and this gives rise to some modest economic optimism. This, together with the breadth of the opportunity base and the clear objective and strategy of AGCiT, allows me to look to the future with a degree of confidence. Alastair C Dempster Chairman 22 January 2003 The Statement of Total Return, summary Balance Sheet and summary Cash Flow Statement are set out below: - STATEMENT OF TOTAL RETURN (Incorporating the Revenue Account 1) (unaudited) 7 September 2001 - to - 31 December 2002 Revenue Capital Total £'000 £'000 £'000 Realised gains/(losses) on sales - (766) (766) Unrealised gains/(losses) - (6,449) (6,449) ------------------------- Gains/(losses) on investments - (7,215) (7,215) Dividend income 2,971 245 3,216 Interest income 154 - 154 Other income 11 - 11 Investment management fee (181) (422) (603) Other expenses (181) - (181) ------- ------ ------- Net return before finance costs and 2,774 (7,392) (4,618) taxation Interest payable and similar charges (554) (1,293) (1,847) ------- ------- ------- Return on ordinary activities before 2,220 (8,685) (6,465) tax Tax on ordinary activities - - - ------- ------- ------- Return attributable to non-equity 2,220 (8,685) (6,465) shareholders Dividends and other appropriations in (1,960) (69) (2,029) respect of non-equity shares ------- ------- ------- Transfer to / (from) reserves 260 (8,754) (8,494) ======= ======= ======= Returns per non-equity interest Income Share 9.06p - 9.06p ------- ------- ------- Capital Share - (82.71p) (82.71p) ------- ------- ------- NOTES 1. The revenue column of this statement is the profit and loss account of the Company. All revenue and capital items in the above statement derive from continuing operations. No operations were acquired or discontinued in the period. The Company was incorporated on 7 September 2001 and commenced business following the £35.0 million issue of 24.5 million Income Shares at £1.00 per share and 10.5 million Capital Shares at £1.00 per share on 18 December 2001. 2. The calculations of revenue return per Income Share are based on net revenue of £2.22 million and on 24.5 million Income Shares. The calculations of capital return per Capital Share are based on net capital losses of £8.685 million and on 10.5 million Capital Shares. SUMMARY BALANCE SHEET (unaudited) 31 December 2002 £'000 Securities officially listed on 59,685 the London Stock Exchange ------- Debtors 349 Cash at bank 1 Creditors (1,258) ------- Net current liabilities (908) ------- Total assets less current 58,777 liabilities Creditors (amounts falling due (32,873) after more than one year) -------- Total assets less current 25,904 liabilities ======= Capital and reserves: non-equity interests Called up share capital 350 Reserves: Capital redemption reserve 50 Special reserve 33,929 Capital reserve - realised (2,236) Capital reserve - unrealised (6,449) Revenue reserve 260 ------- 25,904 ======= Net Asset Values: - per Income Share 56.65p - per Capital Share 114.52p NOTE At 31 December 2002, the Company had 24.5m Income Shares and 10.5m Capital Shares in issue. SUMMARY CASH FLOW STATEMENT (unaudited) 7 September 2001 - to- 31 December 2002 £'000 CASH FLOW STATEMENT Net cash inflow from operating 2,274 activities ------- Returns on investment and servicing of finance Non-equity dividends paid (735) Interest and other finance costs (1,840) paid -------- Net cash outflow from returns on investment and servicing of finance (2,575) -------- Capital expenditure and financial investment Payments to acquire investments (87,058) Receipts from sales of 20,158 investments --------- Net cash outflow from capital expenditure and financial investment (66,900) --------- Net cash outflow before (67,201) financing activities --------- Financing activities Issue of shares 35,050 Redemption of shares (50) Expenses paid in respect of (671) share issue Loans drawn down 32,873 --------- Net cash inflow from financing 67,202 activities --------- Change in cash during the period 1 ======= NOTES 1. The foregoing do not comprise Statutory Accounts (as defined in section 240(5) of the Companies Act 1985) of the Company. The Company was incorporated on 7 September 2001 and, as yet, has not lodged Statutory Accounts. 2. The Annual Report is expected to be posted to shareholders on 27 January 2003. Members of the public may obtain copies from Aberforth Partners, 14 Melville Street, Edinburgh EH3 7NS or from its website at CONTACT: John Evans Aberforth Partners 0131 220 0733 Aberforth Partners, Secretaries - 22 January 2003 ANNOUNCEMENT ENDS ------------------------------------------------------------ This information was brought to you by Waymaker The following files are available for download: