Interim Results

19th February 2003 EDINBURGH SMALL COMPANIES TRUST PLC INTERIM RESULTS INTERIM RESULTS FOR THE SIX MONTHS TO 31 DECEMBER 2002 For further information, please contact: Ian Massie Edinburgh Fund Managers plc 0131 313 1000 EDINBURGH SMALL COMPANIES TRUST CHAIRMAN'S STATEMENT Global financial markets have once again experienced considerable turbulence throughout the period under review. Share prices around the world have fallen sharply on fears of an escalation of hostilities in the Middle East, the threat of further terrorist activities and weaker than expected economic growth. The UK smaller companies sector has been particularly weak and our benchmark, the Extended Hoare Govett Smaller Companies Index (excluding investment trusts), has fallen by 19.9%. Performance During the period the trust's portfolio has fallen by 30.6% while the net asset value per share has fallen by 40.5% from 91.7p to 54.5p. This unacceptable performance is a result, not only of falling markets, but also a particularly poor performance by technology and financial stocks, combined with the effect of gearing in a falling market. Your board has become increasingly concerned over last year's poor performance and the evident further deterioration which has subsequently been recorded. As a result and following discussions with the managers last year, a number of steps have been taken. In September the company bought back £20.8m of the 7.75% debenture at a price of 108p. While the premium of £1.669m paid to buy in the stock will adversely affect the current year's performance, there will be a benefit of substantially reduced interest costs in future years. The portfolio has also been realigned substantially, reducing exposure to technology and financial services companies which have been major contributors to underperformance. The objective is to achieve long term capital growth by investment in UK quoted smaller companies. The cap of investing, at the time of purchase, in companies with a market capitalisation of below £150 million has been removed. The board has also agreed with the manager that, as from 30 September 2002, the management fee will be calculated on invested assets rather than gross assets as has been the previous practice. In addition it has been agreed with the manager that on any change of control of Edinburgh Fund Managers, the applicable notice period will be reduced to 3 months lasting for a period of 12 months after the effective date of the change of control. The board has re-affirmed the company's performance target to the managers and has emphasised the need to demonstrate sustained and meaningful progress towards attaining this goal over coming months. The manager agrees with the need to show progress and has recently announced changes to the investment management team. Gearing Following the repurchase for cancellation the amount of outstanding debenture is now £19.2m. Whilst the debenture is not due to be repaid until 2023 the manager does have the flexibility to vary the actual level of invested gearing by holding liquid investments to offset part of the debenture. As at 30 June 2002 invested gearing represented 26.3% of shareholders funds and by 30 December it had fallen to 19.5%. The average for the period was 24%. It is the directors intention to maintain gearing at around, or below, the 30 December level. Revenue Account Earnings per share are 0.15p compared with a loss of 0.35p in the six months to 31 December 2001. The position reflects the fall in interest payable following the repayment of part of the debenture issue. As in previous years no interim dividend is payable. Outlook Financial markets are being overshadowed by the geopolitical risks in the Middle East, the threat of further terrorism and slower than anticipated economic growth. Clearly an early resolution of the tensions over Iraq would improve sentiment and remove one of the biggest negative issues for investors. Since mid-September 2002 our benchmark, the Extended Hoare Govett Smaller Companies Index, has fallen by more than 40%. On 1 January 2003 the rebalanced index was valued on an historic price earnings ratio of 11.7x compared to 15.9x for the UK stockmarket as a whole. The fall in both absolute and relative terms has led to the smaller companies sector being attractive in relation to historic valuation levels and in comparison to the UK stockmarket as a whole. Until sentiment and confidence in the market returns absolute performance will be difficult. The changes initiated by the board and managers, however, are designed to have a positive short term impact on the relative performance. Donald MacDonald Chairman STATEMENT OF TOTAL RETURN for the six months to 31 December 2002 (unaudited) Revenue Capital Total £000 £000 £000 Realised net losses on - (22,034) (22,034) investments Unrealised net losses on - (720) (720) investments ------ -------- -------- Total capital losses on - (22,754) (22,754) investments Income from investments 839 - 839 Interest receivable on short 77 - 77 term deposits Other income 7 - 7 Investment management fee (148) (148) (296) Administrative expenses (144) - (144) ----- ------- -------- Net return before finance costs 631 (22,902) (22,271) and taxation Interest payable and similar (533) (1,472) (2,005) charges ----- ------- -------- Return on ordinary activities 98 (24,374) (24,276) before taxation Taxation - - - ----- ------- -------- Return on ordinary activities 98 (24,374) (24,276) after taxation Dividend in respect of equity - - - shares ----- ------- -------- 98 (24,374) (24,276) ----- ------- ------- Return per ordinary share 0.15p (36.16p) (36.01p) ----- ------- ------- Diluted return per ordinary 0.15p (36.16p) (36.01p) share ----- ------- ------- for the six months to 31 December 2001 (unaudited) Revenue Capital Total £000 £000 £000 Realised net losses on - (3,770) (3,770) investments Unrealised net losses on - (27,986) (27,986) investments ----- -------- -------- Total capital losses on - (31,756) (31,756) investments Income from investments 857 - 857 Interest receivable on short 122 - 122 term deposits Other income 14 - 14 Investment management fee (336) (336) (672) Administrative expenses (147) - (147) ------ -------- -------- Net return before finance costs 510 (32,092) (31,582) and taxation Interest payable and similar (758) (758) (1,516) charges ----- -------- -------- Return on ordinary activities (248) (32,850) (33,098) before taxation Taxation - - - ----- -------- -------- Return on ordinary activities (248) (32,850) (33,098) after taxation Dividend in respect of equity 17 - 17 shares -------- -------- -------- (231) (32,850) (33,081) ------- -------- -------- Return per ordinary share (0.36p) (48.74p) (49.10p) ------- -------- -------- Diluted return per ordinary (0.35p) (48.21p) (48.57p) share ------- -------- -------- for the year to 30 June 2002 (audited) Revenue Capital Total £000 £000 £000 Realised gains on investments - (8,683) (8,683) Unrealised losses on - (42,654) (42,654) investments -------- -------- -------- Total capital losses on - (51,337) (51,337) investments Income from investments 1,922 - 1,922 Interest receivable on short 205 - 205 term deposits Other income 21 - 21 Investment management fee (651) (651) (1,302) Administrative expenses (305) - (305) ------- -------- -------- Net return before finance costs 1,192 (51,988) (50,796) and taxation Interest payable and similar (1,524) (1,524) (3,048) charges -------- -------- -------- Return on ordinary activities (332) (53,512) (53,844) before taxation Taxation - - - -------- -------- -------- Return on ordinary activities (332) (53,512) (53,844) after taxation Dividend in respect of equity (489) - (489) shares -------- -------- -------- (821) (53,512) (54,333) -------- -------- -------- Return per ordinary share (0.49p) (78.74p) (79.23p) -------- -------- -------- Diluted return per ordinary (0.49p) (78.74p) (79.23p) share -------- -------- -------- BALANCE SHEET (unaudited) At 31 At 30 June At 31 December 2002 December 2002 2001 £000 £000 £000 Fixed assets Investments 43,919 78,032 109,533 ------- ------- -------- Current assets Debtors 689 3,091 657 AAA money market funds 3,000 11,044 - Treasury Bills 4,968 12,923 6,959 Cash and short term 3,977 3,232 7,104 deposits ------ ------- ------ 12,634 30,290 14,720 Creditors: amounts falling due within one 602 6,548 1,193 year ------ ------ ------ Net current assets 12,032 23,742 13,527 ------ ------- ------- Total assets less 55,951 101,774 123,060 current liabilities Creditors: amounts falling due after more 19,858 41,405 41,439 than one year ------ ------ ------ 36,093 60,369 81,621 ------ ------ ------ Capital and reserves Called up share capital 16,851 16,851 16,851 - equity Other reserves 19,242 43,518 64,770 ------ ------ ------ Total equity 36,093 60,369 81,621 shareholders' funds ------ ------ ------ Adjusted net asset value 54.53p 91.65p 123.19p per ordinary share ====== ====== ======= Fully diluted adjusted net asset value per n/a n/a 122.19p share ====== ====== ======= CASHFLOW STATEMENT (unaudited) At 31 At 31 At 30 June December December 2002 2002 2001 £000 £000 £000 Revenue before finance 631 510 1,192 costs and taxation Decrease in accrued income 92 204 149 Decrease/(Increase) in 11 1 (8) debtors Decrease in creditors (205) (114) (160) Tax on unfranked investment - (2) - income Expenses charged to capital (148) (335) (651) ------ ----- ----- Net cash inflow from 381 264 522 operating activities Net cash outflow from (1,506) (1,550) (3,100) servicing of finance Net cash inflow from 8,846 9,933 24,360 financial investment Equity dividends paid (506) (505) (505) ------ ------- ------ Net cash inflow before 7,215 8,142 21,277 financing Net cash outflow from (22,469) (2,568) (2,567) financing Management of liquid 15,999 (6,959) (23,967) resources ------ ------- ------- INCREASE/(DECREASE) IN CASH 745 (1,385) (5,257) ------ ------- ------- NOTES : 1. The accounts are prepared under the same accounting policies used for the year to 30 June 2002. 2. The financial information for the year ended 30 June 2002 has been extracted from the Annual Report and Accounts of the Company which have been filed with the Registrar of Companies and contained an unqualified auditors' report. 3. The statement of total return (incorporating the revenue account), balance sheet and cashflow statement set out above do not represent full accounts in accordance with Section 240 of the Companies Act 1985. 4. No interim dividend has been declared in respect of the year ending 30 June 2003. 5.The Interim Report will be posted to shareholders at the end of February 2003 and copies will be available from the registered office of the Company. Please note that past performance is not necessarily a guide to the future and that the value of investments and the income from them may fall as well as rise. Investors may not get back the amount they originally invested. For Edinburgh Small Companies Trust plc Edinburgh Fund Managers plc, Secretary Amanda Fraser Company Secretary END ------------------------------------------------------------ This information was brought to you by Waymaker http://www.waymaker.net The following files are available for download: http://www.waymaker.net/bitonline/2003/02/18/20030218BIT01050/wkr0001.doc http://www.waymaker.net/bitonline/2003/02/18/20030218BIT01050/wkr0002.pdf