RNS Number : 7017A
F&C UK Select Trust PLC
05 August 2008
To: RNS
From: F&C UK Select Trust plc
Date: 5 August 2008
Interim Results for the six months to 30 June 2008
* Net asset value total return of -16.2 per cent over the six months to 30 June 2008
* FTSE All-Share Index total return of -11.2 per cent over the six months to 30 June 2008
* Share price total return of -17.8 per cent over the six months to 30 June 2008
* Average discount over the six months to 30 June 2008 of 4.8 per cent.
The Chairman, Mr Geoffrey Maddrell, said:
Introduction
In November last year, shareholders were invited to vote on the Company's future and overwhelmingly endorsed the investment strategy
adopted in December 2006. The key features of this strategy are its emphasis on stock selection and portfolio structure, comprising up to 25
of the highest conviction ideas of Phil Doel and his team with broadly equal portfolio weightings.
Investment Performance
It would under any circumstances be disappointing to report that the Company's net asset value total return had fallen by 16.2 per cent
over a six month period; it is especially so given recent shareholder endorsements. That disappointment is not mitigated by the 11.2 per
cent decrease in the benchmark FTSE All-Share Index (total return) over the same period.
Almost all of the underperformance accrued in April, with the dominant feature being a 40 per cent fall in the share price of Findel
after a profit warning. Additional pressures included an underweight position relative to the index in the resource sectors, an overweight
position in financials, and the indiscriminate markdown of whole sectors without regard to the quality of specific underlying companies -
the property sector being a prime example.
Shareholder Value
We are now six months into a two year period which will go a long way to deciding the Company's future, although it is important to
recognise that six months is far too short a period to assess a long term investment strategy, especially in the context of turbulent equity
markets.
When shareholders voted on the Company's continuation in November 2007, the Board said that the performance would be measured over the
two calendar years 2008 and 2009; if, over that two year period, the net asset value total return per share outperforms the total return on
the FTSE All-Share Index, the Company will continue as an investment trust. If, however, the net asset value total return per share does not
outperform the total return on the FTSE All-Share Index then the Board will propose a reconstruction of the Company involving an entitlement
for shareholders to elect for a full cash exit at close to net asset value.
I re-asserted the Board's commitment to an active discount management policy in my statement at the year end; this policy aims at
limiting the discount to net asset value at which the Company's shares trade to less than 5 per cent. The Company bought back 4,305,000
shares for cancellation, at a cost of �3.9 million, during the first six months of 2008, 7.2 per cent of those in issue at the previous year
end, and the shares traded at an average discount of 4.8 per cent. The Board intends to continue to pursue this active discount management
policy.
Outlook
The slowdown triggered by the credit crunch has continued to spread through the US economy, with a significant impact on the UK and
Europe through reduced credit availability. This has been particularly marked with regard to mortgages, but has also extended to more
general corporate lending.
While we wait to discover whether the banks have raised sufficient funds to see them through the economic slowdown, commodity prices are
at last showing some signs of weakness. In particular, the oil price has fallen back: this is likely to be a key driver for equity markets
over the coming months. If it falls significantly further, inflationary pressures will ease and there may be scope for interest rate cuts
which could stimulate the more cyclical stocks; if it rebounds then the short term pressures on markets will remain intense.
We expect equities to remain volatile in the short term; the market's historically modest rating in yield and price earnings terms,
especially when allied to the amount of money waiting to be invested, gives some grounds for optimism over the medium term.
For further information contact:
Phil Doel F&C Asset Management plc, tel. 0207 628 8000
Martin Cassels F&C Asset Management plc, tel. 0207 628 8000
Income Statement (Unaudited)
Six months to 30 June 2008
�'000 �'000 �'000
Revenue Capital Total
Losses on investments - (10,977) (10,977)
Income 1,497 - 1,497
Investment management fee (51) (153) (204)
Other expenses (161) - (161)
------ ------ ------
Net return before finance costs and taxation 1,285 (11,130) (9,845)
Finance costs:
* Term loan interest (55) (164) (219)
------ ------ ------
Return on ordinary activities before tax 1,230 (11,294) (10,064)
------ ------ ------
Tax on ordinary activities - - -
------ ------ ------
Return attributable to shareholders 1,230 (11,294) (10,064)
------ ------ ------
Return per ordinary share:
Basic 2.13p (19.60)p (17.47)p
Income Statement (Unaudited)
Six Months to 30 June 2007
�'000 �'000 �'000
Revenue Capital Total
Gains on investments - 2,611 2,611
Realised exchange differences - (4) (4)
Income 1,151 - 1,151
Investment management fee (51) (288) (339)
Other expenses (170) - (170)
--------- --------- ---------
Net return before finance costs and 930 2,319 3,249
taxation
Finance costs:
* Term loan interest (45) (254) (299)
* Change in fair valuation of - 42 42
interest rate swap
* Dividends and appropriations in (41) - (41)
respect of fixed rate annuity shares
--------- --------- ---------
Return on ordinary activities before 844 2,107 2,951
tax
--------- --------- ---------
Tax on ordinary activities - - -
--------- --------- ---------
Return attributable to ordinary 844 2,107 2,951
shareholders
--------- --------- ---------
Return per fixed rate annuity share: 0.50p - 0.50p
Return per ordinary share:
Basic 1.28p 3.20p 4.48p
Income Statement (Audited)
Year to 31 December 2007
�'000 �'000 �'000
Revenue Capital Total
Gains on investments - 1,865 1,865
Realised exchange differences - (28) (28)
Income 2,114 - 2,114
Investment management fee (90) (508) (598)
Other expenses (433) - (433)
------ ------ ------
Net return before finance costs and taxation 1,591 1,329 2,920
Finance costs:
* Term loan interest (87) (494) (581)
* Bank loan interest (3) - (3)
* Change in fair valuation of interest rate - 40 40
swap
* Dividends and appropriations in respect of (52) - (52)
fixed rate annuity shares
------ ------ ------
Return on ordinary activities before tax 1,449 (454) 2,324
------ ------ ------
Tax on ordinary activities - - -
------ ------ ------
Return attributable to shareholders 1,449 875 2,324
------ ------ ------
Return per fixed rate annuity share: 0.64p - 0.64p
Return per ordinary share:
Basic 2.23p 1.35p 3.58p
Balance Sheet (Unaudited)
As at As at As at
30/6/08 30/6/07 31/12/07
(audited)
�'000 �'000 �'000
Fixed Assets
Investments 48,709 75,264 67,417
Current assets
Debtors 2,607 99 274
Cash at bank and on deposit 3,046 4,192 2,698
------- ------ ------
5,653 4,291 2,972
Creditors: amounts falling due within one (5,350) (9,959) (7,221)
year
--------- ------ ------
Net current assets/(liabilities) 303 (5,668) (4,249)
--------- ------ ------
Total assets less current liabilities 49,012 69,596 63,168
---------- ------ ------
Net assets
49,012 69,596 63,168
--------- -------- --------
Capital and reserves
Called-up share capital 615 662 658
Special reserve 35,457 45,177 39,376
Capital reserves 3,890 16,416 15,184
Capital redemption reserve 164 117 121
Revenue reserve 8,886 7,224 7,829
--------- ------ ------
Shareholders' funds 49,012 69,596 63,168
--------- ------- --------
Net asset value per ordinary share
Basic 88.1p 106.4p 105.4p
Diluted 88.1p 106.3p 105.4p
Unaudited Reconciliation of Movements in Shareholders' Funds
Six months to Six months to Year to
30 June 30 June 31 December
2008 2007 2007
(audited)
�'000 �'000 �'000
Opening shareholders' funds 63,168 66,942 66,942
Return attributable to ordinary (10,064) 2,951 2,324
shareholders
Dividends paid (173) - -
Ordinary shares bought back for (3,919) - (387)
cancellation
Ordinary shares bought back for - (297) (5,711)
treasury
Closing shareholders' funds 49,012 69,596 63,168
Summarised Unaudited Statement of Cash Flows
Six months to
Six months
to
Year to
30 June 30 June 31 December
2008 2007 2007
(audited)
�'000 �'000 �'000
Net cash flow from operating 844 532 969
activities
Servicing of finance (220) (340) (696)
Capital expenditure and financial 7,816 (1,625) 5,285
investments
Dividends paid (173) - -
Net cash flow before financing 8,267 (1,433) 5,558
Financing (7,919) (1,014) (9,503)
Increase/(decrease) in cash 348 (2,447) (3,945)
Reconciliation of net cash flow to movement in net debt
Increase/(decrease) in cash 348 (2,447) (3,945)
Decrease in Fixed Rate Annuity - 717 1,212
Share Liability
Change in fair valuation of - 42 40
interest rate swap
Exchange movements - (4) -
Loan repaid 4,000 - 9,000
Loan drawn down - - (7,000)
Opening net debt (4,302) (3,609) (3,609)
Closing net cash/(debt) 46 (5,301) (4,302)
Six months to
Six months
to
Reconciliation of operating Year to
(loss)/profit to net cash
flow from operating activities 30 June 30 June 31 December
2008 2007 2007
(audited)
�,000 �'000 �'000
Net return before finance costs (9,845) 3,249 2,920
and taxation
Losses/(gains) on investments 10,977 (2,611) (1,865)
Changes in working capital and (288) (106) (86)
other non-cash items
Net cash flow from operating 844 532 969
activities
Principal Risks and Uncertainties
The Company's assets consist mainly of listed securities and its principal risks are therefore market related. Other risks faced by the
Company include external, investment and strategic, regulatory, operational, and financial risks. These risks, and the way in which they are
managed, are described in more detail under the heading Principal Risks and Risk Management within the Business Review in the Company's
Annual Report for the year ended 31 December 2007. The Company's principal risks and uncertainties have not changed materially since the
date of that report and are not expected to change for the remaining six months of the Company's financial year.
Statement of Directors' Responsibilities in Respect of the Interim Results
We confirm that to the best of our knowledge:
* the condensed financial statements have been prepared in accordance with the Statement 'Half-Yearly Financial Reports' issued by
the UK Accounting Standards Board and give a true and fair view of the assets, liabilities, financial position and return of the Company;
* the Chairman's Statement (constituting the Interim Management Report) includes a fair review of the information required by the
Disclosure and Transparency Rules ("DTR") 4.2.7R, being an indication of important events that have occurred during the first six months of
the financial year and their impact on the financial statements;
* the Statement of Principal Risks and Uncertainties shown above is a fair review of the information required by DTR 4.2.7R; and
* the condensed financial statements include a fair review of the information required by DTR 4.2.8R, being related party
transactions that have taken place in the first six months of the financial year and that have materially affected the financial position or
performance of the Company during the period, and any changes in the related party transactions described in the last Annual Report that
could do so.
On behalf of the Board
G K Maddrell
Director
5 August 2008
Notes
1. The unaudited interim results have been prepared on the basis of the accounting policies set out in the statutory
accounts of the Company for the year ended 31 December 2007.
The annual financial statements of the Company are prepared in accordance with United Kingdom Generally Accepted Accounting Practice. The
condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with the Accounting
Standard Board Statement *Half-Yearly Financial Reports*.
2. The Treasury share reserve has been amalgamated with the Special Reserve, in line with emerging market practice, in relation to
the treatment of Ordinary Share Repurchases for treasury.
3. Management fees payable and finance costs in respect of the six months ended 30 June 2008 have been allocated 25 per cent to
revenue and 75 per cent to capital (31 December 2007 and 30 June 2007 15 per cent to revenue and 85 per cent to capital). The change
reflects the Board*s expected long term split of return in the form of income and capital gains respectively from the Company*s investment
portfolio.
4. Earnings for the first six months should not be taken as a guide to the results of the full year.
5. Derivatives are employed solely to manage the Company*s gearing level.
6. All the Fixed Rate Annuity Shares were held by Friends Provident plc. The Fixed Rate Annuity Shares were entitled to a fixed
dividend of 18.57p per annum per Fixed Rate Annuity Share.
On 31 October 2007 the Fixed Rate Annuity Shares converted into Ordinary Shares of 1p each on a basis of one Ordinary Share for every one
thousand Fixed Rate Annuity Shares.
Return per Fixed Rate Annuity Share was based on 8,171,165 Fixed Rate Annuity Shares in issue as at 31 December 2007 and 30 June 2007.
7. Revenue return per Ordinary share is based on a weighted average of 57,610,071 Ordinary Shares in issue (31 December 2007:
64,909,781, 30 June 2007: 65,908,365) and �1,230,000 (31 December 2007: �1,449,000, 30 June 2007: �844,000) being net revenue on ordinary
activities after taxation and deduction of fixed rate appropriations.
8. During the six months ended 30 June 2008 the Company bought 4,305,000 Ordinary Shares for cancellation at a cost of �3,919,000
(six months ended 30 June 2007 * 300,000 Ordinary shares to be held in Treasury at a cost of �297,000 and year ended 31 December 2007 *
400,000 Ordinary Shares for cancellation at a cost of �387,000 and 5,840,000 Ordinary Shares to be held in Treasury at a cost of
�5,711,000).
9. The basic net asset value per share and the basic net asset value attributable to the Ordinary Shares calculated in accordance
with their entitlements in the Articles of Association is 88.1p (31 December 2007: 105.4p; 30 June 2007: 106.4p) and is based on net assets
of �49,012,000 (31 December 2007: �63,168,000; 30 June 2007: �70,091,000), and on 55,654,961 (31 December 2007: 59,959,961; 30 June 2007:
65,899,961) Ordinary Shares, being the number or Ordinary Shares in issue assuming the conversion of all Fixed Rate Annuity Shares.
The basic net asset value per share and the basic net asset value attributable to the Ordinary Shares calculated in accordance
with the provisions of UK GAAP as at 30 June 2007 were as follows: 105.6p and is based on net assets of �69,596,000 and on 65,899,961
Ordinary Shares being the number of Ordinary Shares in issue assuming the conversion of all Fixed Rate Annuity Shares.
Diluted net asset value as at 30 June 2007 assumed the conversion of 1,687,714 warrants into ordinary shares on a 1 for 1 basis
at an exercise price of 104p.
The difference between the two net asset values results from treating the Fixed Rate Annuity Shares as non-equity shares
(Articles Basis and Accounting Basis until 31 December 2004) or as a liability (Accounting Basis from 1 January 2005).
The effect of this was to reduce the value of the shareholders* funds as at 30 June 2007 from �70,091,000 to �69,596,000 on an
Accounting Basis.
10. Contingent Asset
The Association of Investment Companies and JPMorgan Claverhouse Investment Trust plc lodged a joint appeal in 2004 for the
payment of management fees by investment trusts to be treated as exempt from VAT. In June 2007 the European Court of Justice (*ECJ*) found
in favour of the appellants, declaring that investment trusts should be treated as special investment funds and thus exempted from VAT on
management fees. HM Revenue & Customs (*HMRC*) has announced that it will not appeal against the ECJ decision.
The Managers have submitted protective claims to HMRC in respect of all prior periods which might fall within the scope of the
ECJ ruling and in which VAT was collected from the Company by the Managers. The Company expects to recover VAT of approximately �150,000
paid on management fees since May 2005. The mechanics and, in particular, the timing of any recovery is uncertain, however, and it has not
been recognised as an asset in the accounts. A further recovery is expected to be made of VAT paid on management fees before May 2005. In
addition to the uncertainties referred to above the amount of this further recovery is currently not known. It has not been recognised as an
asset in the accounts.
11. These are not full statutory accounts in terms of Section 240 of the Companies Act 1985. The full audited accounts for the year to
31 December 2007, which were unqualified and contained no statement under Section 237(2) or (3) of the Companies Act 1985, have been lodged
with the Registrar of Companies. No statutory accounts in respect of any period after 31 December 2007 have been reported on by the
Company*s auditors or delivered to the Registrar of Companies. A full interim report will be sent to shareholders in August 2008 and,
together with this statement, will be available at the Company*s website address www.fcukselecttrust.co.uk .
This information is provided by RNS
The company news service from the London Stock Exchange
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