Framlington Income & Capital Trust PLC
Preliminary Announcement for Year Ended 31 March 2006
Chairman's Statement
In writing to shareholders I am aware that we are now entering the last two
full years of the Trust's life. In my recent annual statements, I have sought
to remind capital shareholders of the highly leveraged nature of their
investment and I make no apology for doing so once again. Over the financial
year, capital shareholders have once again enjoyed significant further capital
appreciation.
Against this reducing timescale your Board has considered the possibility of a
shift in investment strategy in order to protect the net asset value per share,
should the UK equity market suffer a major setback. The Board has concluded
that such a change could, however, be in conflict with the stated objective of
the Trust. In arriving at this decision, shareholder opinion and feedback have
been taken into account. Capital shareholders should be prepared therefore for
periods of higher volatility such as we are currently experiencing.
The earnings outcome of 6.10 pence per share for the year to 31 March 2006
compares with earnings for the previous year of 5.76 pence, an increase of
5.9%. The Board considers that it would be appropriate to pay out to income
shareholders a proportion of the revenue reserve brought forward from prior
years, whilst remaining conscious of the need to retain a reasonable, albeit
reducing, sum over the final period of the Trust's life. The Board has decided
therefore to declare a final dividend of 2.5 pence per share. This means that �
119,000 of the revenue reserve will be utilised, while still retaining a sum of
�395,000. This final dividend, if approved by shareholders at the annual
general meeting, means that the dividend for the year will be 6.4 pence per
share, representing an increase of 8.5%. Subject to such approval, the final
dividend will be paid on 1 August 2006 to income shareholders on the register
on 30 June.
At the closing price of 41.50 pence per share on 22 May and on the basis of the
above dividend, the running yield on the income shares was 15.4% while the
yield to redemption was 7.5%. This latter figure takes account of the fact that
the income shares carry the right to be redeemed at the projected winding up in
September 2008 at 30p per share including a premium of 5p per share.
Total assets less current liabilities have risen from �92.6m on 31 March 2005
to �110.5m on 31 March 2006; representing an increase of 19.3% during the year.
Over the same period the fully diluted net asset value of the Trust's capital
shares has increased by 38.1% to 259.94p.
In the year to 31 March 2006 the portfolio showed a total return of 26.8%
compared with 28.0% for the FTSE All-Share Index. The year saw very strong
performance in mining and resources stocks, many of which are not natural
investments for this Trust due to their low yield. As usual we also monitor our
performance against both the FTSE Small Cap (excluding Investment Companies)
and the FTSE 350 Higher Yield. The total return of these two indices was 23.5%
and 26.0% respectively.
As I noted last year, the Board recognises the contribution made by Paul
Branigan as manager of the Trust's portfolio, especially during the last three
years. It was announced on 25 January that Paul has decided to pursue his
career elsewhere in the investment management industry and he leaves us both
with our thanks and our best wishes for the future. We welcome Richard Peirson,
who brings with him a wealth of experience together with a proven performance
record. His review of the year is set out in the report and accounts.
Shareholders will notice certain changes in the accounts this year as a result
of our adoption of the Statement of Recommended Practice "Financial Statements
of Investment Trust Companies" issued by the AITC in December 2005. The main
changes are that we now value the Trust's investments at bid, rather than mid,
market value, and that dividends paid to shareholders are accounted for in the
period in which they are paid and not that to which they relate. There have
also been some changes in presentation so that the Income Statement, which
replaces the Statement of Total Return, no longer reflects dividends paid and
these appear only in the reconciliation of movement in shareholders' funds.
As shareholders will be aware from my interim statement, the Trust's manager is
now owned by AXA Investment Managers and the Board is pleased with the
transition to new ownership. Prior to this change, however, the Board was aware
of the uncertainty surrounding the future of Framlington Group. Consequently an
agreement was reached, reducing the term of the management agreement from 12
months to 3 months for a period of one year. This reduced term will end on 1
September 2006, when the agreement will revert to 12 months for the remaining
life of the Trust.
It is now a requirement that every listed company includes an operational
financial statement or a business review in its annual report. The Board has
chosen the latter course of action and this can be found in the directors'
report in the report and accounts. Amongst the matters addressed you will find
details on a number of issues including gearing, key performance indicators and
risks associated with an investment in the Trust.
The Board decided to review the role of its appointed broker against the
background of the reducing life of the Trust. As a result of this exercise we
are pleased to announce that Winterflood Securities have now been retained as
advisers. This is an important new appointment for the Trust.
The UK equity market has enjoyed a very strong recovery during the past three
years and the Trust's portfolio has benefited accordingly, with net assets
(total assets less current liabilities) rising by nearly 70% over this period.
The recent correction in global equity markets has damaged investor confidence.
Levels of share price valuations are being challenged as investors seek to
reduce their overall levels of perceived risk exposure. This sell off, while
led by mining and commodity stocks, has been indiscriminate. Furthermore it
would appear to have been fuelled by the unwinding of significant derivative
positions, leading to increased volatility. It is however worth reminding
ourselves that a deflation of the commodity bubble, together with a drop in the
oil price, would have a benign economic effect.
The Board considers that there is value to be found in the UK equity market and
remains confident of the Manager's ability to position the portfolio for
changing and more difficult market conditions.
Simon Meredith Hardy
Chairman
25 May 2006
Income Statement
for the year ended 31 March 2006
(unaudited)
Revenue Capital Total
�000s �000s �000s
Realised gains - 8,194 8,194
Unrealised gains - 11,903 11,903
Income 4,151 - 4,151
Investment management fee (407) (611) (1,018)
Other expenses (230) - (230)
Net return before finance costs and 3,514 19,486 23,000
taxation
Interest payable and similar (1,128) (1,692) (2,820)
charges
Return on ordinary activities before 2,386 17,794 20,180
taxation
Taxation on ordinary activities - - -
Return attributable to equity 2,386 17,794 20,018
shareholders
Return per income share 6.10p
Return per capital share 71.66p
for the year ended 31 March 2005
(audited)
Revenue Capital Total
Restated* Restated*
Restated*
�000s �000s �000s
Realised gains - 2,735 2,735
Unrealised gains - 10,044 10,044
Income 3,973 - 3,973
Investment management fee (349) (523) (872)
Other expenses (237) - (237)
Net return before finance costs and 3,387 12,256 15,643
taxation
Interest payable and similar (1,132) (1,692) (2,824)
charges
Return on ordinary activities before 2,255 10,564 12,819
taxation
Taxation on ordinary activities - - -
Return attributable to equity 2,255 10,564 12,819
shareholders
Return per income share 5.76p
Return per capital share 42.55p
* Restated for changes in accounting policies.
All revenue and capital items in this statement derive from continuing
operations. No operations were acquired or discontinued in the year.
Reconciliation of Movement in
Shareholders Funds
Share Capital Capital
Share Premium Reserve Reserve Revenue
Capital Account Unrealised Realised Reserve Total
�000s �000s �000s �000s �000s �000s
Balance brought forward
31 March 2004 (as 15,991 1,208 6,999 23,786 568 48,552
previously reported)
Add back accrued - - - - 783 783
dividend at 31 March
2004
Less investment - - (58) - - (58)
valuation restatements
Balance at 31 March 2004 15,991 1,208 6,941 23,786 1,351 49,277
(restated)
Dividends paid during - - - - (783) (783)
year re 2004
Return attributable to - - 10,201 520 2,255 12,976
equity shareholders in
2005 (as previously
stated)
Less investment - - (157) - - (157)
valuation restatements
Dividends paid during - - - - (1,467) (1,467)
year re 2005
Balance at 31 March 2005 15,991 1,208 16,985 24,306 1,356 59,846
(restated)
Dividends paid during - - - - (842) (842)
year re 2005
Return attributable to - - 11,903 5,891 2,386 20,180
equity shareholders in
2006
Dividends paid during - - - - (1,527) (1,527)
year re 2006
Balance at 31 March 2006 15,991 1,208 28,888 30,197 1,373 77,657
Summarised Balance Sheet
as at 31 March
�000s 2006 Restated* 2005
(unaudited) �000s (audited)
�000s Restated*
�000s
Fixed assets
Investment portfolio
Listed - Full listing 106,853 90,249
- Aim listing - 1,043
106,853 91,292
Current assets
Debtors 992 1,044
Cash at bank 3,111 830
4,103 1,874
Creditors: amounts falling due (497 ) (518 )
within one year
Net current assets 3,606 1,356
Total assets less current 110,459 92,648
liabilities
Creditors: amounts falling due after more than
one year
Debenture stock and bank loans (32,802) (32,802)
Net assets 77,657 59,846
Called up share capital 15,991 15,991
Capital reserves
Share premium account 1,208 1,208
Capital reserves - unrealised 28,888 16,985
Capital reserves - realised 30,197 24,306
60,293 42,499
Revenue reserve 1,373 1,356
Shareholders' funds 77,657 59,846
Net asset value per share
Income shares 33.51p 33.46p
Capital shares
Fully-diluted 259.94p 188.27p
* Restated for changes in accounting policies.
Cash Flow Statement
for the year ended 31 March
2006 2005
(unaudited) (audited)
�000s �000s �000s �000s
Net cash inflow from operating 3,582 3,178
activities
Servicing of finance
Interest paid (2,820) (2,839)
Capital expenditure and financial
investment
Net sales 4,471 2,254
Investment management fee charged to (584) (507)
capital
Net cash inflow from investment 3,887 1,747
activities
Equity Dividends
Dividends paid (2,368) (2,250)
Increase/(decrease) in cash in the 2,281 (164)
year
Reconciliation of operating profit to net cash inflow from operating
activities:
2006 2005
(unaudited) (audited)
�000s �000s
Net revenue from operating activities 3,514 3,387
before interest payable and taxation
Decrease/(increase) in debtors 52 (245)
Increase in creditors 16 36
Net cash inflow from operating 3,582 3,178
activities
The financial information set out in the announcement does not constitute the
Trust's statutory accounts for the years ended 31 March 2006 or 2005. The
financial information for the year ended 31 March 2005 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 s237(2) or (3) Companies Act
1985. The statutory accounts for the year ended 31 March 2006 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 financial information has
been prepared on the basis of the accounting policies set out in the Trust's
financial statements for the year ended 31 March 2005, except that the Trust's
investments have been designated as being measured as "fair value through
profit and loss" and valued at bid market value at close of business on the
balance sheet date; and dividends payable are accounted for in the period in
which they are paid, not in the period to which they relate.
END
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