Final Results
28 Gennaio 2002 - 6:44PM
UK Regulatory
RNS Number:5961Q
Framlington Global Fin & Inc Fd Ld
28 January 2002
FRAMLINGTON GLOBAL FINANCIAL & INCOME FUND LIMITED
PRELIMINARY ANNOUNCEMENT OF RESULTS FOR THE PERIOD ENDED
30 NOVEMBER 2001
CHAIRMAN'S STATEMENT
Introduction
The first year of the Fund has been problematic. Volatility in the markets
coupled with the US recession have impacted severely on the Fund's assets. The
bank debt which was drawn down on launch is an integral part of the structure
but falls in markets have left the Fund heavily geared. Over the period to 30
November 2001 the net asset value per ordinary share has declined from 96.25p to
50.26p a fall of 47.8%.
The Financial Portfolio
The financial portfolio returned -11.2% during the period from the Fund's launch
to 30 November 2001. During the same period the MSCI Finance Index saw a return
of -14.2%. A negative absolute return is obviously disappointing but the Fund
did absorb the costs of investing the initial cash and equity markets were weak
and volatile over the period.
The Fund was launched against a background of slower growth in the US and
concerns about a possible recession in 2001. The interest rate outlook, however,
was favourable and a decision was taken to invest almost all of the financial
portfolio monies immediately. The portfolio was broadly invested geographically
with approximately 20% in the UK, 35% in Europe, 37% in the US and 8% in Japan
and with an equally broad spread across the various financial sectors. In terms
of the emphasis in the initial portfolio we were overweight in general insurance
rather than life insurance and within banking, overweight in retail banks rather
than investment banks.
The US Federal Reserve's move to cut interest rates twice in January 2001
triggered a sharp rise in the more interest rate sensitive financials such as
brokers and investment banks and a correction in the more defensive areas such
as life assurance. The overall strength, however, proved short lived as dull
markets reduced new issue activity and market volumes impacted many companies as
the year wore on. All of the major equity markets were weak during the summer
months while the tragic events of 11 September not surprisingly had a severe
impact on equity markets as the consensus moved rapidly to the view that a US
recession was inevitable. The central banks responded rapidly by cutting
interest rates and markets recovered usefully from their lows by the Fund's year
end. During the initial panic, investors sought comfort in cash, bonds and
within equities in larger companies and more defensive sectors such as
pharmaceuticals, consumer staples and utilities. Financials had proved
relatively resilient during the markets' decline in the summer but fell very
sharply immediately after 11 September. Initially the focus was on the non-life
insurance companies as the companies themselves and analysts struggled to
estimate their likely losses. In recent weeks many of the stocks which fell the
fastest in the immediate panic both in insurance and in areas such as fund
management, have recovered very strongly.
Income Portfolio
The income portfolio has provided sufficient revenues for the Fund to maintain
its dividend commitments, as set out in the launch prospectus and a small
revenue reserve of £164,000 has been built up. The Fund declared four interim
dividends totalling 8.0p per share for the period ending 30 November 2001. The
Fund's ability to increase or maintain future dividends may be adversely
affected in the event of investee companies announcing a reduction or a
temporary or permanent cessation in the level of dividend that is payable by
them.
I reported in my interim statement that the first half had been a poor period
for the asset values and prices of income shares. After stabilising in the
summer the sector again suffered badly as a consequence of the reaction of
investors to the events of 11 September. As markets declined the gearing of
these funds exacerbated losses and led to some funds experiencing banking
covenant pressures. This served to unsettle investors and led share prices to
decline further.
However, many of these geared funds are taking action to rectify the problems in
the sector by strengthening their balance sheets, renegotiating bank loans or
merging with other funds. This has helped to improve sentiment and share prices
appear to have stabilised.
Balance Sheet
As a consequence of falling assets in the first half of the year your board felt
uncomfortable with the resulting level of gearing. In conjunction with the fund
manager and our advisors, a fundraising was initiated. This took the form of a
placing of 20 million new ordinary shares and 10 million zero dividend
preference shares, a new class of share issued through a newly formed
subsidiary.
This placing was completed on 10 September and the new shares were admitted to
the official lists in the UK and the Channel Islands with effect from 13
September. This timely action has served shareholders well as the proceeds of
the issue that were destined for the growth portfolio were held in cash as
markets tumbled. The need to generate income to pay the dividends meant that the
income share portfolio was added to.
As at 17 January 2002 the asset to debt cover stood at 2.16:1, comfortably clear
of the Fund's banking covenant limit of 1.70:1.
Outlook
The Board and the investment manager believe that the outlook for financial
services companies remains attractive. Decisive action this year from the US
Federal Reserve, assisted by significant tax cuts, should ensure that the US
economy returns to a trend rate of growth later in 2002. Elsewhere around the
world, growth will be less buoyant than of late but a recession looks unlikely.
The long term case for the sector remains in place with demographic trends
encouraging long term savings. In addition, corporate activity will remain a
feature and although it is something the Fund does not invest for specifically,
from time to time the portfolio is likely to benefit from takeover activity.
The Fund's portfolio is now invested 44% in financial shares, 12% in cash (which
is yet to be invested in financial shares) and 44% in the income portfolio. It
is the Board's intention to keep the exposure to other income shares below 50%
of the portfolio.
John Hallam
Chairman
28 January 2002
CONSOLIDATED STATEMENT OF OPERATIONS
For the period from 3 November 2000 to 30 November 2001
2001
£000's
INCOME
Dividends receivable 5,042
Interest receivable 342
TOTAL INCOME 5,384
EXPENSES
Audit fees 16
Directors' fees and expenses 49
Administration fees 86
Registration fees 18
Management fees 1,033
Custodian fees 27
Miscellaneous expenses 44
Interest payable 2,652
TOTAL EXPENSES 3,925
NET INVESTMENT RESULT 1,459
Net realised loss on sales of investments (6,116)
Net realised gain on currency exchange 82
Movement in unrealised depreciation on investments (24,443)
Attributable capital growth of zero dividend preference shares (186)
DECREASE IN NET ASSETS AS A RESULT OF OPERATIONS (29,204)
BASIC AND DILUTED DEFICIT PER ORDINARY SHARE (45.34p)
All revenue and capital items in the above statement are derived from continuing
operations.
STATEMENT OF NET ASSETS
As at 30 November 2001
2001
£000's
ASSETS
Investments at market value 79,361
Investment in subsidiary undertaking -
Current assets:
Cash at bank and in hand 10,235
Debtors 2,285
TOTAL ASSETS 91,881
LIABILITIES
Current liabilities:
Creditors 1,491
Non-current liabilities:
Long term loan 40,000
Unsecured subordinated loan note 10,186
TOTAL LIABILITIES 51,677
TOTAL NET ASSETS 40,204
Represented by:
Share capital 20,000
Share premium 52,948
Reserves (32,744)
40,204
Equivalent to a net asset value per ordinary share outstanding of: 50.26p
Ordinary shares outstanding at 30 November 2001: 80,000,000
CONSOLIDATED STATEMENT OF CHANGES IN NET ASSETS
For the period from 3 November 2000 to 30 November 2001
2001
£000's
NET ASSETS AT START OF PERIOD -
Net investment result 1,459
Net realised loss on sales of investments (6,116)
Net realised gain on currency exchange 82
Movement in unrealised depreciation on investments (24,443)
Capital Growth attributed to zero dividend preference shares (186)
Decrease in net assets as a result of operations (29,204)
Net funds received from ordinary shareholders 72,948
Dividends paid (3,540)
NET ASSETS AT THE END OF PERIOD 40,204
CONSOLIDATED CASHFLOW STATEMENT
For the period from 3 November 2000 to 30 November 2001
2001
£000's
OPERATING ACTIVITIES
Dividends received 4,267
Interest received 271
Expenses paid (1,017)
Interest paid (2,097)
NET CASH INFLOW FROM OPERATING ACTIVITIES 1,424
INVESTING ACTIVITIES
Purchases of investments (153,677)
Sales of investments 42,998
NET CASH OUTFLOW FROM INVESTING ACTIVITIES (110,679)
FINANCING ACTIVITIES
Proceeds on ordinary shares issued on 11 December 2000 60,000
Formation expenses paid (2,250)
Proceeds on ordinary shares issued on 13 September 2001 15,660
Proceeds on zero dividend preference shares issued on 13
September 2001 10,000
Issue expenses paid (462)
Long term loan drawdown 40,000
Dividends paid (3,540)
NET CASH INFLOW FROM FINANCING ACTIVITIES 119,408
INCREASE IN CASH AND CASH EQUIVALENTS 10,153
This information is provided by RNS
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