RNS Number:6917W
Framlington Income&Capital Tst PLC
30 May 2002
Framlington Income & Capital Trust PLC
Preliminary Announcement for Year Ended 31 March 2002
Chairman's Statement
Shareholders will be only too aware of the extraordinarily difficult economic,
political and market background against which the Managers have had to run the
portfolio during the twelve months ended 31 March 2002. In my interim statement
I wrote of the climate of profound uncertainty following the attacks of 11
September. The political background is now much clearer, due largely to decisive
US leadership, even if we appear to be still far from a resolution of the
situation in the Middle East. Economically, the US and most other major
economies, stimulated by very low interest rates, have demonstrated considerable
resilience. Market levels have held steady, following their recovery during the
final months of 2001, albeit within a framework of sector volatility.
In terms of share prices, it has been a disappointing year for shareholders and
this has been exacerbated by the problems that a number of trusts in the sector
have experienced. This in turn has led to indiscriminate selling pressure, as
certain institutional investors have needed to raise liquidity levels.
Consequently we have seen significant price movement in both classes of share
and in the case of the capital shares a discount to net asset value of 40% until
very recently. It is pleasing to note that the income share price which stood at
40p at the year end has subsequently recovered to 50p.
The total return on the Trust's portfolio showed an increase of 0.5% as against
a decline in the FTSE All-Share Index of 3.2% on the same basis. I believe that
these figures, as during the previous financial year, continue to demonstrate
the quality of the portfolio during a bear market of such prolonged intensity.
With regard to the other two indices which we monitor, the FTSE Small-Cap
(excluding Investment Companies) fell by 9.3%, while the FTSE 350 High Yield
Index rose 7.1%, measured in terms of total return. This latter index has a much
higher weighting in oil and bank shares than would be appropriate for the
Trust's portfolio, but it remains a useful indicator.
While the Trust's portfolio is primarily invested in UK based FTSE 100 companies
together with a mix of medium sized and smaller UK companies, and although the
Managers have recently been focusing strongly on companies dependent on UK
domestic earnings, a significant proportion of overall earnings are ultimately
generated through the presence of many of these companies in the United States.
The outlook for the US economy through the second half of this calendar year and
for 2003, when growth could reach 3.5%, according to the latest OECD and other
forecasts, is encouragingly robust. Improving expectations have been reflected
most sharply in positive business manager surveys on both sides of the Atlantic,
suggesting that either order books are beginning to grow or that cost cutting is
already having a positive effect on cash flow. Interest rates in the US, UK and
continental Europe would appear to have stabilised and the next move looks
certain to be upwards. Consumer demand is already at high levels in the UK,
although some indicators are showing signs of weakness. The UK housing market
recovered very quickly from its setback following the events of 11 September and
indeed its continuing strength may well influence the Bank of England's Monetary
Policy Committee towards an upward move in rates.
Turning to the revenue account, the Trust's earnings have risen to 5.95p per
income share from 5.49p. The Board recommends a final dividend of 2.00p making a
total for the year of 5.75p, representing an increase of 1.77% over the previous
year. The Board has decided not to use any of the accumulated revenue reserves
from previous years but to carry forward the balance of £617,000, together with
£77,000 of undistributed reserves for the current year. Income shareholders will
be aware that, during the last financial year, the Board has increased each of
the three interim dividends, thus ensuring a more even distribution through the
year.
There has been much discussion in the press in recent months on the issues
surrounding the split capital trust sector. I hope that the following points
will clarify the situation with regard to Framlington Income & Capital Trust.
• The capital shares have a median level of gearing, obtained both through
the Trust's inherent capital structure and borrowings. The details of these
are clearly set out on pages 12 and 13 of the annual report. At 31 March
2002, borrowings totalled £32.8 million as against gross assets of £90.2
million at the same date.
• The Trust has pursued a very cautious approach to investment in other
split capital investment trusts, which now represent less than two per cent
of gross assets. The income from these assets will be lower this year, but
this will be absorbed within the overall portfolio framework.
• The gross yield on the portfolio at 31 March 2002 was 4.36%. The Board
believes this to be a fair level in balancing the requirements of both
income and capital shareholders.
The Board is now composed of five directors, following the retirement on 31
March of Nicholas Roskill, who joined the Board in 1991. We will miss his wise
counsel, wide investment knowledge and keen eye for detail and we wish him well
for the future. It is your Board's intention to remain at its current size.
During the course of the year, the management agreement between the Trust and
Framlington Investment Management was extensively reviewed and updated. There
was no change in termination period, management fees or cost allocation.
I have referred above to the relatively strong economic outlook and this is
examined in more detail in the Managers' report. Nevertheless, investor
confidence remains fragile and company results still have some capacity to
disappoint. Consequently I would caution shareholders not to expect too much
from markets in the near term. I believe however that we must look past current
difficulties. The Trust's portfolio is well structured both to take advantage of
cyclical changes in the market and to benefit from a more general upturn in
share prices, the timing of which may well prove to be sudden and unexpected.
Simon Meredith Hardy
Chairman
30 May 2002
Statement of Total Return
for the year ended 31 March 2002
(unaudited)
Revenue Capital Total
£000s £000s £000s
Realised losses - (4,620) (4,620)
Unrealised gains - 1,011 1,011
Income 3,981 - 3,981
Investment management fee (360) (540) (900)
Other expenses (181) - (181)
Net return before finance costs and taxation 3,440 (4,149) (709)
Interest payable and similar charges (1,113) (1,670) (2,783)
Return on ordinary activities before taxation 2,327 (5,819) (3,492)
Taxation on ordinary activities - - -
Return on ordinary activities after
taxation for the financial year 2,327 (5,819) (3,492)
Dividends in respect of income shares (2,250) - (2,250)
Transfer from reserves 77 (5,819) (5,742)
Return per income share 5.95p
Return per capital share (23.44p)
for the year ended 31 March 2001
(audited)
Revenue Capital Total
£000s £000s £000s
Realised gains - 6,027 6,027
Unrealised losses - (10,003) (10,003)
Income 3,894 - 3,894
Investment management fee (411) (616) (1,027)
Other expenses (219) - (219)
Net return before finance costs and taxation 3,264 (4,592) (1,328)
Interest payable and similar charges (1,115) (1,673) (2,788)
Return on ordinary activities before taxation 2,149 (6,265) (4,116)
Taxation on ordinary activities - - -
Return on ordinary activities after
taxation for the financial year 2,149 (6,265) (4,116)
Dividends in respect of income shares (2,210) - (2,210)
Transfer from reserves (61) (6,265) (6,326)
Return per income share 5.49p
Return per capital share (25.23p)
The Revenue column of this statement is the profit and loss account of the
Trust. All revenue and capital items in this statement derive from continuing
operations. No operations were acquired or discontinued in the year.
Summarised Balance Sheet
as at 31 March
2002 2001
(unaudited) £000s (audited)
£000s £000s £000s
Fixed asset Investment portfolio
Listed - Full listing 89,581 86,558
- Aim Listing 208 608
89,789 87,166
Current assets
Debtors 2,545 1,806
Cash at bank 657 8,567
3,202 10,373
Creditors: amounts falling due within one year
Creditors 1,912 464
Dividends payable 783 1,037
2,695 1,501
Net current assets 507 8,872
Total assets less current liabilities 90,296 96,038
Creditors: amounts falling due after more than one year
Debenture stocks and bank loan (32,802) (32,802)
57,494 63,236
Called up share capital 15,991 15,991
Capital reserves
Share premium account 1,208 1,208
Capital reserves - unrealised 1,581 570
Capital reserves - realised 38,020 44,850 46,628
40,809
Revenue reserve 694 617
"Non-equity" shareholders' funds 57,494 63,236
Net asset value per share
Income shares 31.77p 31.58p
Capital shares
Basic 189.35p 212.79p
Fully-diluted 181.47p 204.91p
Cash Flow Statement
for year ended 31 March
2002 2001
£000s £000s £000s £000s
Operating activities
Cash received from investments 3,762 3,868
Interest received 146 163
Underwriting commission 3 5
Investment management fee charged to income (366) (417)
Fees and expenses paid to and on behalf of directors (77) (73)
Other cash payments (113) (142)
Net cash inflow from operating activities 3,355 3,404
Servicing of finance
Interest paid (2,774) (2,788)
Taxation
Taxation recovered/(paid) 60 (12)
Capital expenditure and financial investment
Net (purchases)/sales (5,497) 9,858
Investment management fee charged to capital (549) (626)
Non-equity dividends
Dividends paid (2,505) (2,152)
Net cash (outflow)/inflow before financing (7,910) 7,684
This preliminary announcement, which has been agreed with the auditors, was
approved by the Board on 30 May 2002.
The financial information set out in this announcement does not constitute the
company's statutory accounts for the years ended 31 March 2002 or 2001. The
financial information for the year ended 31 March 2001 is derived from the
statutory accounts for that year which have been delivered to the Registrar of
Companies. The auditors reported on those accounts: their report was unqualified
and did not contain a statement under S.237(2) or (3) Companies Act 1985. The
statutory accounts for the year ended 31 March 2002 will be finalised on the
basis of the financial information presented by the directors in this
preliminary announcement and will be delivered to the Registrar of Companies
following the company's annual general meeting.
The Board of directors has recommended the payment of a final dividend of 2.00p
per income share in respect of the year ended 31 March 2002. Subject to approval
at the Annual General Meeting, the dividend will be paid on 24 July 2002 to
income shareholders on the register on 14 June 2002.
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