ESC.L Regulatory News (ESC)

21 Jun 2005 15:09

Exeter Smaller Co's Income Fund Ld21 June 2005 EXETER SMALLER COMPANIES INCOME FUND LIMITED PRELIMINARY ANNOUNCEMENT OF THE INTERIM RESULTS The Directors announce the unaudited interim results for the period 1 October2004 to 31 March 2005 as follows:- CONSOLIDATED STATEMENT OF OPERATIONSof the Company 1 October 2003 1 October 2004 1 October 2003to to to30 September 2004 31 March 2005 31 March 2004£'000 £'000 £'000 Income600 Dividends 314 32519 Bond interest 27 737 Bank interest 26 16 656 Total income 367 348 Expenses(76) Management fee (43) (37)(257) Interest payable (128) (129) Amortisation on zero dividend preference (546) (504)(1,031) shares(26) Custodian and safekeeping fees (13) (13)(71) Administration fees (36) (36)(25) Audit fee (12) (12)(35) Directors' fees (18) (17)(77) Miscellaneous expenses (59) (43) (1,598) Total expenses (855) (791) (942) Net loss before investment results (488) (443) (2,494) Realised losses on investments (1,324) (17)3,849 Movement in unrealised depreciation on 3,267 965 investments 413 Net profit for the period 1,455 505 0.64p Basic and diluted profit per ordinary 2.27p 0.79p share The figures to 31 March 2005 and 31 March 2004 are unaudited. The figures forthe year to 30 September 2004 are taken from the Company's full financialstatements for that year, which carry an unqualified audit report. CONSOLIDATED STATEMENT OF CHANGES IN EQUITY 1 October 2003 1 October 2004 1 October 2003to to to30 September 2004 31 March 2005 31 March 2004£'000 £'000 £'000413 Net profit for the period 1,455 505 114 Movement in unrealised loss in 19 78 revaluation of cash flow hedges in respect of the interest rate swap(5,854) Net liabilities brought forward (5,327) (5,854) (5,327) Net liabilities carried forward (3,853) (5,271) The figures to 31 March 2005 and 31 March 2004 are unaudited. The figures forthe year to 30 September 2004 are taken from the Company's full financialstatements for that year, which carry an unqualified audit report. CONSOLIDATED BALANCE SHEET As at As at As at30 September 2004 31 March 2005 31 March 2004£'000 £'000 £'0009,422 Available-for-sale investments 11,577 9,848 1,320 Cash and cash equivalents 1,135 43639 Debtors 65 6310,781 Total assets 12,777 10,347 Current liabilities26 Creditors 21 27 Non current liabilities3,500 Bank loan 3,500 3,50012,449 Zero dividend preference shares 12,995 11,922133 Interest rate swap liability 114 16916,108 Total liabilities 16,630 15,618(5,327) Net liabilities (3,853) (5,271) Represented by:6,413 Share capital 6,413 6,41353,483 Share premium 53,483 53,483(65,223) Reserves (63,749) (65,167)(5,327) Issued capital and reserves (3,853) (5,271) 64,129,999 Shares outstanding at 31 March 64,129,999 64,129,999 Net asset value per share (as per IAS 33)(8.31)p Ordinary shares (6.01)p (8.22)p141.49p ZDP shares 147.71p 135.51p Available assets per share (as per Articles)Nil Ordinary shares Nil Nil80.94p ZDP shares 103.90p 75.59p The figures at 31 March 2005 and at 31 March 2004 are unaudited. The figures at30 September 2004 are taken from the Company's full financial statements forthat financial year, which carry an unqualified audit report. CONSOLIDATED STATEMENT OF CASH FLOW 1 October 2003 1 October 2004 1 October 2003to to to30 September 2004 31 March 2005 31 March 2004£'000 £'000 £'000 Operating activities593 Dividends received 299 29656 Interest received 50 24(299) Expenses paid (194) (150)(257) Interest paid (128) (129)93 Net cash flow from operating activities 27 41 Investing activities(1,848) Purchase of investments (1,971) (1,409)2,017 Sale of investments 1,759 746169 Net cash flow from investing activities (212) (663) Increase / (decrease) in cash and cash262 equivalents (185) (622) The figures to 31 March 2005 and 31 March 2004 are unaudited. The figures forthe year to 30 September 2004 are taken from the Company's full financialstatements for that year, which carry an unqualified audit report. Notes: 1) The preliminary announcement has been prepared in conformity with TheCompanies (Guernsey) Law, 1994 and International Financial Reporting Standardsissued by the International Accounting Standards Board and interpretationsissued by the International Financial Reporting Interpretations Committee, onthe same basis as in the prior year's financial statements. The followingaccounting policies have been applied consistently in dealing with items whichare considered material in relation to the Company's preliminary announcement. 2) Going Concern The Company would only expect to be in a position to continue in operationalexistence past 30 September 2007 (the date on which the zero dividend preferenceshares mature) if the investments of the Group generate a positivereturn in excess of 19.7% per annum based on market mid prices and 20.1% basedon market bid prices in the period to 30 September 2007. This calculation is asat 31 March 2005 is based on £3.5m of bank borrowings and does not take intoaccount of any liquidation costs. It is the view of the Directors that it is unlikely that the required investmentreturn could be met, but they are of the opinion that the Company is able forthe time being to operate within the terms of the loan facility, and to settleit as it becomes due. Details of the loan and satisfaction of the covenants aregiven in note 7. Given the Company's structure and stock market uncertainties, the Directors haveconcluded that although they believe the going concern basis is stillappropriate there is a fundamental uncertainty regarding the ability of theCompany to remain in operational existence for the foreseeable future. If the financial statements had not been prepared on a going concern basis itwould have been necessary to value the Company's investments at their netrealisable values which may be lower than their period end bid prices. It wouldalso be necessary to accrue for winding-up costs which, after consulting theCompany's professional advisers, are estimated to be £335,000. The remainingbank loan would also have to be reclassified from creditors falling due afterone year to creditors falling due within one year. 3) The Company's investment management and administration fees, finance costs(including interest on the bank facility) and all other expenses are chargedthrough the consolidated statement of operations. 4) Distributions are made under the terms of the Company's Articles ofAssociation. For the six months to 31 March 2005 the amount available fordistribution was £144,909 being 0.23 pence per share (2004: £143,972, being 0.22pence per share). No distributions have been paid or declared. The retainedamount of £144,909 was included in reserves. The total amount of undistributedretained revenue from inception to 31 March 2005 of £2,565,866 is included inthe negative reserves figure of £63,749,578. 5) Reconciliation of net cash inflow from operating activities to net lossbefore investment results 1 October 2003 1 October 2004 1 October 2003to to to30 September 2004 31 March 2005 31 March 2004£'000 £'000 £'000 (942) Net loss before investment results (488) (443) Adjustment for non cash items:1,031 Finance costs on zero dividend 546 504 preference shares (Increase)/decrease in interest and- dividends receivable (18) (27)11 (Increase)/decrease in other debtors (8) 13(7) (Decrease)/increase in other creditors (5) (6) and accruals 93 Net cash inflow from operating 27 41 activities 6) In accordance with the Articles of Association of ESCIF Securities Limited,the holders of the 8,798,000 zero dividend preference shares are entitled on awinding up to an amount equal to 100p per ZDP share as increased daily at such acompound rate as would give a final capital entitlement of 183.24p on the ZDPRepayment Date, the first such increase occurring on 22 September 2000 and thelast on the date of actual payment. At 31 March 2005 the accrued value was £12,995,221. Due to a fall in the valueof the portfolio the net assets available for the ZDP shareholders amounted to£9,141,463. This is the accrued value of £12,995,221 less the net liabilities of£3,853,758. At 31 March 2005 the fair value of the ZDP shares is £8,798,000based on a market offer price of 100 pence per share. 7) Under a loan agreement dated 8 September 2000 between the Company and Bank ofScotland, a term loan facility of up to the lower of £38,902,000 and an amountequal to one third of the aggregate issue price of the ordinary and zerodividend preference shares issued under the placing has been made available. TheCompany is subject to restrictions on its loan balance and at 31 March 2005complied with all loan covenant requirements. The loan covenant requirements are as follows: (i) the permitted investments to loan ratio should not at any time be less than 1.75:1 (ii) the ratio of aggregate value of specified investments to loan shall not at any time be less than 1.10:1; and (iii) the ratio of income to total interest shall not at any time be less than 1.50:1. At 31 March 2005, the Company's ratio of permitted investments to loan balancewas 3.67:1, specified investments to loan balance was 1.85:1 and income coverageof interest was 2.87:1. Interest is payable quarterly in arrears. The loan wasdue to mature on 28 September 2007. On 26 September 2000, the Company enteredinto an interest rate swap agreement with a notional amount of £38,902,000 usedto hedge exposure to changes in interest rates. The swap expires on 28 September2007, the date of the repayment of the loan. The swap arrangement fixed theinterest rate payable at 7.33% per annum on the notional amount. In prior years the Company had repaid £35,402,000 of the loan facility as wellas breaking £35,402,000 of the swap agreement at a total cost of £2,522,243. Nofurther repayments have been made. The loan facility is £3,500,000 at 31 March2005. International Accounting Standard number 32 requires the disclosure of the fairvalue of the loan at 31 March 2004. No fair value of the loan has beendisclosed because it is impracticable to obtain an appropriate risk rate fromthe market that would apply to the bank loan and the particular issuessurrounding it. 8) The preliminary announcement of the interim results was approved by the Boardof Directors on 21 June 2005. Chairman's Statement I am relieved to report a further recovery in the assets of your Company overthe last six months on the back of the rise in the UK equity market. At the endof March 2005, total assets stood at £12.8 million, a rise of £2 million overthe half year. This equates to a rise of 18.5% as compared to the FTSE Small CapIndex, which rose by 13.7% during this period. However, as previously stated,total assets need to rise substantially year on year for the Company's ordinaryshares to have a positive net asset value. For zero dividend preferenceshareholders to be repaid their final entitlement of 183.24p per share at theend of September 2007 and the ordinary shareholders to receive a distributionpayment, total assets still need to rise in excess of 20% per annum Your Board has, for some time, believed that it is extremely unlikely that yourCompany would meet its Principal Investment Objective. Furthermore theCompany's relatively high total expense ratio is a serious impediment toperformance. It should be noted that the recovery of the portfolio from itslows in March 2003 has also been impaired by the repayment of bank debt duringprevious stock market declines. This reduction of gearing and the high expenseratio continue to affect the Company's prospects for further recovery. As aresult, in February, your Board announced that it had concluded that the mostappropriate way forward would be for the Group to be put into early liquidation. The aim of making the announcement was to allow our advisors, to consult morewidely with shareholders regarding the future of the Group. This consultationprocess has now been completed and your Board expects to write to theshareholders of the Group shortly with the proposals for the liquidation. Inanticipation of this happening, the Board served protective notice on itsService Providers on 21 June 2005, which will take effect if the liquidationresolutions are approved by the shareholders of the Group. Richard Crowder 21 June 2005 This information is provided by RNS The company news service from the London Stock Exchange