Interim Results
17 Julio 2002 - 2:00AM
UK Regulatory
RNS Number:7254Y
Aberforth Geared Cap & Inc Tst PLC
16 July 2002
ABERFORTH GEARED CAPITAL & INCOME TRUST plc
INTERIM RESULTS
For the period 18 December 2001 to 30 June 2002
FEATURES
• Total Assets Total Return +8.9%
• Net Asset Value of Notional Package1 Total Return +15.6%
• Net Asset Value of Capital Shares2 +40.7%
• HGSC Index (excluding investment companies) Total Return -5.2%
• First Interim Dividend 3.0p
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 and 10.5 million Capital
Shares at £1.00 on 18 December 2001.
CHAIRMAN'S STATEMENT TO SHAREHOLDERS
I should like to commence this, my first Chairman's statement of the Company, by
extending a welcome to Shareholders and to thank you for your support in the
launch of Aberforth Geared Capital & Income Trust plc (AGCiT).
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 nearly twelve years.
AGCiT has issued Income Shares and Capital Shares 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 will be used close to
their full extent throughout the life of the Company.
The objective of AGCiT is to provide Income Shareholders with a high level of
income payable half yearly with the potential for income growth, and to provide
Capital Shareholders with geared capital growth.
The investment policy requires the creation of a diversified portfolio of small
UK quoted companies and as at 30 June 2002 AGCiT was invested in 78 companies
with an average market capitalisation of £344m. AGCiT will invest only in
companies that are, or (if the index were rebased at any time) would be,
constituents of the Hoare Govett Smaller Companies Index (excluding investment
companies) (HGSC Index (XIC)). AGCiT will not invest in unquoted companies, AiM
listed companies, or in the securities issued by investment trusts or investment
companies.
The Managers are "value investors" and have managed funds for nearly twelve
years using this philosophy. Investments selected for inclusion in AGCiT's
portfolio are likely to be trading in the stockmarket at levels below those that
the Managers consider to be their intrinsic value. Realisation of value may be
achieved in a variety of ways including greater investor interest, action by the
company's management or some form of corporate activity. The Managers attempt
to assess value using a variety of financial and qualitative techniques.
Particular attention is given to companies whose profit and cash flow
characteristics are considered to be capable of generating long term real
returns for shareholders. The Managers believe that such investments can be
found in more mature industries where product cycles are long, market shares are
relatively stable and capital spending requirements are in line with annual
depreciation charges. The Managers have extensive experience in identifying and
investing in such companies.
Opportunities can also be found where sentiment, short term trading or the
vagaries of stockmarket fashion have caused the valuation of companies or
sectors to fall to levels where the Managers consider value to be available.
The key to isolating undervalued investments is to have or to obtain sufficient
information in order to be able to make rational and informed judgements about
the relative valuations placed upon companies. The Managers are a specialist
investment management partnership which invests only in small UK quoted
companies. The Managers have seven experienced investment managers and devote
their entire resources to conducting research into and investing in small UK
quoted companies.
I believe that the combination of a clear objective, a sound and appropriate
investment philosophy and a team of dedicated specialist managers will increase
the probability of achieving superior long term investment returns.
AGCiT was launched on 18 December 2001 with 24.5m Income Shares issued at 100p
per share and 10.5m Capital Shares issued at 100p per share. Consequently equity
funds of £35m were raised, which, after costs, represented net proceeds of the
issue of £34.3m. AGCiT has arranged debt facilities totalling £34.3m from Bank
of Scotland, which are available until 31 December 2011. Of these, £30m is
linked to LIBOR and has been matched with a swap transaction, which has the
effect of fixing the rate of interest at 6.57% for the period to 30 September
2011. The balance, of £4.3m, has a variable rate of interest linked to bank
base rate and is utilised as required. This means that AGCiT currently has
facilities equivalent to the issue proceeds. The intention is to use the
facilities close to their maximum throughout the planned life of the trust.
AGCiT thus had total assets available for investment of £68.6m immediately after
the issue.
The Capital Shares have a return that is entirely in the form of capital and
they have no entitlement to income. Capital Shareholders will be entitled to all
the Company's remaining net assets at the Planned Winding Up Date after the bank
facilities have been repaid and after providing for the payment in full of the
final capital entitlement of 100p per Income Share.
All net income earned by the Company is attributable to the Income Shares. As
indicated in the prospectus the dividend yield on the Income Shares for the 12
months ended 31 December 2002 is expected to be 8 per cent on the issue price of
100p.
The interest on the bank debt and investment management costs of AGCiT are
charged 70% to the capital reserves of the Company and 30% to the revenue
account of the Company.
Finally, it is worth emphasising that AGCiT's portfolio is managed to achieve a
total return from all its assets without segregating specific assets to
accommodate either Income or Capital Shareholders separately. The Board and
Managers believe that if the single pool is managed appropriately then a return
should be generated that meets the needs of both classes of Shareholders in a
mutually beneficial manner.
The performance and valuation of the Capital Shares can be expected to be
volatile over time for two reasons.
First, the Capital Shares in themselves are highly geared and variations in
investment returns on the total invested assets will be magnified by the capital
structure.
Second, the investment returns are likely to be magnified by variations in the
level of discount that the Capital Shares trade at relative to their net asset
value.
RESULTS REVIEW
Turning to the results for the period under review, it is encouraging to be able
to report that AGCiT has made a satisfactory start. Since launch on 18 December
2001 the total return from AGCiT's assets has been +8.9%. Since AGCiT's
investment policy is to select investments from constituents of the HGSC Index
(XIC), it is worth comparing this total return with that of this index which was
-5.2% over the same period.
During this period the Company has moved from a position of 100% in cash at
launch to being fully invested having also drawn down and invested almost all of
its debt facilities.
The portfolio was invested relatively quickly and the Company was virtually
fully invested by 28 February 2002. The Managers had constructed a model
portfolio prior to the issue and, with some adjustments reflecting news flow and
/or price changes, the constituents of this portfolio were subsequently
purchased. The Managers took the view that, at the then prevailing market
prices and expected dividend yield, this portfolio would, in the absence of
unforeseen circumstances, allow the income requirements of AGCiT to be achieved.
I believe that it is both satisfactory and encouraging that since launch the
assets have produced an absolute increase in value despite having to absorb the
transaction costs of constructing the portfolio when the same period has seen a
decline in the HGSC Index (XIC).
To date the companies in the portfolio have reported dividends broadly in line
with the expectation of the Managers at the time of investment.
I am pleased therefore to report that the Directors are able to declare an
interim dividend of 3.0p per Income Share. This dividend will be paid on 29
August 2002 to Income Shareholders on the register on 26 July 2002. This
dividend is in line with the assumption included in the prospectus in December
2001.
OUTLOOK
Stockmarkets around the world have recently endured a difficult period as
previously high levels of expectation and valuation have gradually eroded. The
speed of a return to more sustainable levels of valuation is hampered by the low
level of economic activity preventing a high rate of profits growth.
There are, however, anomalies in every stockmarket circumstance and Shareholders
may be assured that the Managers remain alert to opportunities as they arise.
To date the level of dividends from the underlying investments has been, in
aggregate, as hoped and, partly as a result, the capital performance has been
satisfactory. AGCiT is a highly geared investment company and Shareholders will
be aware that the effect of gearing is to magnify, in both directions, the
return generated on the assets of the Company.
30 June 2002
Characteristics AGCiT HGSC Index (XIC)
Number of Companies 78 915
Weighted Average Market Capitalisation £344.0m £355.4m
Price Earnings Ratio (Historic) 11.5x 14.3x
Net Dividend Yield (Historic) 4.1% 2.8%
Dividend Cover (Historic) 2.1x 2.5x
AGCiT has made an encouraging start but I would caution investors against
extrapolating the level of absolute returns achieved in the reporting period. I
am, however, confident that the philosophy, stability and application of the
Managers will stand the Company in good stead over the coming years.
Alastair C Dempster
Chairman
16 July 2002
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
30 June 2002
Revenue Capital Total
£'000 £'000 £'000
Realised gains/(losses) on sales - 646 646
Unrealised gains/(losses) - 3,995 3,995
Gains/(losses) on investments - 4,641 4,641
Dividend income 1,685 140 1,825
Interest income 103 - 103
Other income 11 - 11
Investment management fee (98) (229) (327)
Other expenses (113) - (113)
Net return before finance
costs and taxation 1,588 4,552 6,140
Interest payable and similar charges (238) (554) (792)
Return attributable to
non-equity shareholders 1,350 3,998 5,348
Dividends in respect of non-equity shares (735) - (735)
Transfer to reserves 615 3,998 4,613
Returns per non-equity interest2:
Income Share 5.51p - 5.51p
Capital Share - 38.08p 38.08p
Dividends per Income Share 3.00p - 3.00p
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 and
10.5 million Capital Shares at £1.00 on 18 December 2001.
2. The calculations of revenue return per Income Share are based on net
revenue of £1.350 million and on 24.5 million Income Shares. The calculations
of capital return per Capital Share are based on net capital gains of £3.998
million and on 10.5 million Capital Shares.
SUMMARY BALANCE SHEET
(unaudited)
30 June
2002
£'000
Securities officially listed on the London Stock Exchange 70,542
Debtors 604
Creditors (1,656)
Net current liabilities (1,052)
Total assets less current liabilities 69,490
Creditors (amounts falling due after more than one year) (30,535)
Total assets less liabilities 38,955
Capital and reserves: non-equity interests
Called up share capital 363
Reserves:
Special reserve 33,979
Capital reserve - realised 3
Capital reserve - unrealised 3,995
Revenue reserve 615
38,955
Net Asset Values:
per Income Share 55.38p
per Capital Share 241.64p
NOTE
At 30 June 2002, the Company had 24.5m Income Shares, 10.5m Capital Shares and
50,000 Redeemable Preference Shares (25p paid) in issue. The Redeemable
Preference Shares will be redeemed on 16 July 2002.
SUMMARY CASH FLOW STATEMENT
(unaudited)
7 September 2001 to
30 June 2002
£'000 £'000
Net cash inflow from operating activities 914
Returns on investment and servicing of finance
Loan interest paid (771)
Loan issue costs paid (92)
Net cash outflow from returns on investment
and servicing of finance (863)
Capital expenditure and financial investment
Payments to acquire investments (72,303)
Receipts from sales of investments 7,287
Net cash outflow from capital expenditure
and financial investment (65,016)
Net cash outflow before financing (64,965)
Financing
Issue of Shares 35,013
Expenses paid in respect of the share issue (671)
Bank loan drawn down 30,623
Net cash inflow from financing 64,965
Change in cash -
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 Interim Report is expected to be posted to shareholders on 22 July
2002. Members of the public may obtain copies from Aberforth Partners, 14
Melville Street, Edinburgh EH3 7NS or from its website at www.aberforth.co.uk.
CONTACT: John Evans • Aberforth Partners • 0131 220 0733
Aberforth Partners, Secretaries - 17 July 2002
ANNOUNCEMENT ENDS
This information is provided by RNS
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