RNS Number:4639D
Framlington Income&Capital Tst PLC
06 November 2002
FRAMLINGTON INCOME & CAPITAL TRUST PLC
INTERIM STATEMENT FOR PERIOD 1 APRIL 2002 TO 30 SEPTEMBER 2002
Chairman's Statement
Shareholders will need no reminder from me both as to the volatility and overall
fall in markets experienced during the period. Looking back 12 months to the
post September 11 recovery in global markets, we were wrong in believing that
the moves made by the Federal Reserve and other central banks were adequate.
Expectations for growth in the world economy in 2002/3 began to slip. Doubts
started to emerge on the extent of US economic recovery, and markets, which were
discounting a better environment, reacted sharply against a background of both
earnings disappointment and serious issues surrounding corporate governance in
the United States.
In the UK, in spite of calls for further reduction, interest rates have remained
unchanged for nearly a year against a background of continuing house price
inflation and broadly maintained consumer expenditure; however further cuts in
global rates are now widely anticipated. Whilst the outlook for the UK economy
remains brighter than for the US and Europe, market trends continue to be
dictated by the direction of Wall Street. The threat of US military action in
Iraq remains a destabilising factor although it is beginning to be priced into
market expectations, assuming a swift outcome.
Although it is of limited comfort to capital shareholders, the Trust's portfolio
continued to outperform all three of the indices used to monitor performance.
During the six month period, the FTSE All-Share Index fell by 29.6%. On a
comparable, total return basis, the portfolio fell by 22.3%. The same numbers
for the last quarter are 20.4% and 16.1% respectively.
The investment strategy pursued by the manager has remained unchanged. The
emphasis has continued to be on defensive stocks with secure cash flows. Towards
the end of the period the cash levels in the fund were increased, which had the
effect of limiting its financial gearing despite falling equity values. At the
period end, the portfolio held 3.9% in cash.
A combination of the liquidity levels and the defensive nature of the portfolio
has enabled the Trust to avoid the worst of the September reversals which saw
the FTSE All-Share Index fall 12.0%, as compared to a fall in the overall
portfolio of 8.7%.
The revenue account for the half year shows earnings of 3.64p (2001: 3.32p) per
Income share. Whilst this represents a useful return for the six month period, I
must remind income shareholders of the difficulties being faced in the current
environment. Overall dividend growth is at best minimal and unexpected cuts by
companies are a continuing risk; the level of the final dividend will depend on
income flow during the second half of the year.
A second interim dividend of 1.25p will be paid on 29 November 2002 to income
shareholders entered on the register of members on 15 November 2002.
The Board has retained the level of structural gearing and consequently capital
shareholders have seen a reduction in the fully diluted net asset value (NAV) of
46.8% from 181.47p to 96.59p during the period. They will however benefit
proportionally from any market recovery and as at 4 November 2002 the capital
share NAV had improved to 112.02p per share.
The composite rate of interest payable on the term loans is 8.35% per annum.
This was a competitive rate when the borrowings were rescheduled in January
2000, but is clearly high in today's environment. However, under the terms of
the existing loan agreement, the breakage costs involved in rearranging it to
take advantage of current rates would be significant.
There are three financial covenants attaching to the Trust's term loan. The
ratio of UK quoted investments and cash to borrowings must exceed 200%; the
ratio of FTSE100 investments and cash to borrowings must exceed 100% and the
ratio of total income to total interest must exceed 125%. As at 30 September
these ratios stood at 212.7%, 117.8% and 146.5% respectively. The subsequent
recovery in the market has led to an improvement.
The fall in the market, together with additional weakness resulting from forced
selling by some split capital managers has led to the widening of capital share
discounts to record levels. At 30 September the discount to the fully diluted
net asset value of the Trust's capital shares was 54.4% and at 4 November it was
64.3%.
Investment in the shares of other split capital trusts represents less than 2.0%
of the portfolio.
Equity markets have staged a rally since the end of the reporting period,
against a background of better than anticipated earnings figures from a number
of major companies, both in the US and the UK, together with the realisation
that value, most especially on a dividend yield basis, is beginning to emerge in
individual company valuations. Economic recovery remains fragile and the overall
level of forecast earnings for 2003 may still be too high. Nevertheless, markets
are already discounting much of this at current levels and, political surprises
apart, there are grounds for cautious optimism.
Several directors, including myself, have invested in both classes of share
during the period and I hope that shareholders will see this as representing the
Board's confidence in the outlook for the Trust.
Simon Meredith Hardy
Chairman
6 November 2002
Statement of Total Return
6 months to 30 September 2002
(Unaudited)
Revenue Capital Total
#000s #000s #000s
Realised gains and losses - (5,575) (5,575)
Unrealised net losses - (14,434) (14,434)
Income 2,219 - 2,219
Investment management fee (152) (229) (381)
Other expenses (84) - (84)
Net return before finance costs and taxation 1,983 (20,238) (18,255)
Interest payable and similar charges (558) (837) (1,395)
Return on ordinary activities before taxation 1,425 (21,075) (19,650)
Taxation on ordinary activities - - -
Return on ordinary activities after taxation for the 1,425 (21,075) (19,650)
period
Dividends in respect of income shares (978) - (978)
Transfer to/(from) reserves 447 (21,075) (20,628)
Return per income share: 3.64p
Return per capital share: (84.88p)
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.
Figures for the periods to 30 September 2002 and 30 September 2001 are
unaudited. The figures for the year to 31 March 2002 are taken from the Trust's
full accounts for that period, which carry an unqualified report of the auditors
and have been filed with the Registrar of Companies.
Statement of Total Return - continued
6 months to 30 September 2001
(Unaudited)
Revenue Capital Total
#000s #000s #000s
Realised gains and losses - (3,098) (3,098)
Unrealised net losses - (9,705) (9,705)
Income 2,124 - 2,124
Investment management fee (182) (273) (455)
Other expenses (85) - (85)
Net return before finance costs and taxation 1,857 (13,076) (11,219)
Interest payable and similar charges (558) (836) (1,394)
Return on ordinary activities before taxation 1,299 (13,912) (12,613)
Taxation on ordinary activities - - -
Return on ordinary activities after taxation for 1,299 (13,912) (12,613)
the period
Dividends in respect of income shares (978) - (978)
Transfer to/(from) reserves 321 (13,912) (13,591)
Return per ordinary income share: 3.32p
Return per capital share (56.03)p
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.
Figures for the periods to 30 September 2002 and 30 September 2001 are
unaudited. The figures for the year to 31 March 2002 are taken from the Trust's
full accounts for that period, which carry an unqualified report of the auditors
and have been filed with the Registrar of Companies.
Statement of Total Return - continued
12 months to 31 March 2002
(Audited)
Revenue Capital Total
#000s #000s #000s
Realised gains and losses - (4,620) (4,620)
Unrealised net losses - 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 2,327 (5,819) (3,492)
the period
Dividends in respect of income shares (2,250) - (2,250)
Transfer to/(from) reserves 77 (5,819) (5,742)
Return per income share: 5.95p
Return per capital share: (23.44p)
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.
Figures for the periods to 30 September 2002 and 30 September 2001 are
unaudited. The figures for the year to 31 March 2002 are taken from the Trust's
full accounts for that period, which carry an unqualified report of the auditors
and have been filed with the Registrar of Companies.
Assets
at 30 Sept 2002 at 30 Sept 2001 at 31 Mar 2002
(Unaudited) (Unaudited) (Audited)
Net asset value per capital share, prior 104.47p 156.76p 189.35p
charges at par
Net asset value per capital share, fully 96.59p 148.88p 181.47p
diluted
The net asset value per capital share is stated first after deducting the 12.6%
debenture, long-term loan and income shares at par and secondly as above, but
also deducting 5p per share premium payable to income shareholders on
redemption.
Summarised Balance Sheet
at 30 Sept 2002 at 30 Sept 2001 at 31 Mar 2002
(Unaudited) (Unaudited) (Audited)
Fixed asset portfolio at valuation 67,046 78,558 89,789
Current assets 3,537 5,623 3,202
Creditors due within one year (915) (1,734) (2,695)
69,668 82,447 90,296
Creditors due after one year (32,802) (32,802) (32,802)
36,866 49,645 57,494
Called up share capital 15,991 15,991 15,991
Share premium account 1,208 1,208 1,208
Revenue reserves 1,141 938 694
Other reserves 18,526 31,508 39,601
36,866 49,645 57,494
Cash Flow Statement
6 months 6 months to 12 months to
to 30 Sept 2002 30 Sept 2001 31 March 2002
(Unaudited) (Unaudited) (Audited)
Operating activities
Cash received from investments 2,152 1,711 3,762
Interest received 26 106 146
Underwriting commission - - 3
Investment management fee charged to income (173) (196) (366)
Fees and expenses paid to and on behalf of directors
Other cash payments (31) (37) (77)
(74) (61) (113)
Net cash inflow from operating activities 1,900 1,523 3,355
Servicing of finance
Interest paid (1,401) (1,375) (2,774)
Taxation
Taxation credited - 36 60
Capital expenditure and financial investment
Net sales/(purchases) 3,088 (4,871) (5,497)
Investment management fee charged to capital (260) (294) (549)
Non-equity dividends
Dividends paid (1,272) (1,526) (2,505)
155 (8,030) (11,265)
Net cash inflow/(outflow) before financing 2,055 (6,507) (7,910)
Financing
Net cash inflow from financing - - -
Increase/(decrease) in cash 2,055 (6,507) (7,910)
This information is provided by RNS
The company news service from the London Stock Exchange
END
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