RNS Number:1247T
3i European Technology Trust PLC
11 December 2003
11 December 2003
3i European Technology Trust plc
Interim results for the six months to 31 October 2003
Results overview
The Board of 3i European Technology Trust plc ("the Trust") today announces the
interim results for the six months to 31 October 2003, the key points of which
are:
* The Trust's Net Asset Value ("NAV") per share rose by 48.5% from 11.95p to
17.74p during the period. By way of comparison the Trust's benchmark
index, the FTSE eTX Innovation index (sterling adjusted), rose by 51.4%.
* During the new Fund Manager's first year, the portfolio outperformed the
index over the twelve month period to 31 October 2003.
* The underperformance over the interim period primarily reflects the
outperformance by a few of the larger benchmark constituents in a sharp
market rally at the end of the period.
* The share price discount to NAV narrowed during the period from 19.0%
to 14.0%, having varied between 25.2% and 9.0%.
* The restructuring of the Trust has now been completed, with the remaining
large company holdings and most of the underweight positions being sold,
and holdings in small and micro-capitalisation companies increased.
Investments were made in a number of new sectors, including healthcare and
industrial processing technology.
Commenting on the results, Patrick Gifford, Chairman of 3i European Technology
Trust plc, said:
'It is encouraging that the Trust has performed well. We believe that the
Trust's NAV performance was considerably better than most similar technology
investment vehicles, and this gives us confidence in our investment processes.
The business performance of the companies in our investment universe has
strengthened considerably in 2003, and we believe that corporate earnings
momentum will be maintained in 2004.'
- ends -
For further information, please contact:
Pierre-Andre Boutin or William Davidson/Kirstie Hamilton
Fund Manager Tulchan Communications
3i Asset Management
(a division of 3i Investments plc, the
Manager)
Tel: 020 7928 3131 Tel: 020 7353 4200
Notes to editors
The objective of 3i European Technology Trust plc is to achieve capital growth
by investing in quoted companies, which have a significant focus on technology
oriented activities, and which are principally based in Europe. The Trust does
not invest in life science companies.
3i European Technology Trust plc is managed by the Asset Management division of
3i Investments plc which is an active fund manager seeking to achieve returns in
excess of benchmark indices through the use of fundamental analysis.
3i Investments plc is regulated by the Financial Services Authority and is a
wholly owned subsidiary of 3i Group plc ("3i"), Europe's leading venture capital
company. The relationship with 3i brings several important benefits to 3i
Investments plc and the funds that it manages, including access to 3i's
international network, operating across 14 countries on three continents. This
provides an important source of information on local companies.
In addition to the management of 3i European Technology Trust plc, the Asset
Management division of 3i Investments plc is involved in the management of the
3i Group's own portfolio of quoted investments and manages 3i Bioscience
Investment Trust plc, 3i Smaller Quoted Companies Trust plc and the 3i Group
Pension Plan.
Chairman's statement
Performance
The Trust's NAV per share rose by 48.5% in the six months to 31 October 2003.
This compares with a rise of 51.4% in our benchmark, the FTSE eTX Innovation
index (sterling adjusted). The underperformance primarily reflects the
outperformance by a few of the larger benchmark constituents in a sharp market
rally at the end of the period. Our smaller company assets tend to lag moves of
this kind but we believe they will outperform in the long run.
Over the 12 month period to 31 October 2003, the portfolio outperformed the
benchmark in a period characterised by a sharp market reversal. This gives us
increasing confidence in our investment process. We believe that the Trust's
NAV performance was markedly ahead of most similar technology funds.
Economic background
The six months to 31 October 2003 have seen a dawning realisation in stock
markets that the fundamentals of the world economy have not dramatically
changed, and that therefore the very substantial increase in world liquidity and
the quasi-war approach to government finance of the US will have produced a
marked improvement in economic activity. Within technology, this has been most
striking in the hardware and components areas, particularly for new and
fashionable consumer products, such as digital cameras, flat-screen TVs and
broadband internet access. Corporate demand for technology products and
services has improved, but more slowly.
Stock markets were over pessimistic at the end of the last bear market,
producing extreme cheapness in some technology stocks. This has been corrected
and there has been a general rise in this high-beta area of the market. The
improvement in corporate prospects, while very real, has taken place at varying
rates, leading to anomalies and investment opportunities in the market.
Share buybacks
During the six months under review, the Trust bought back 15,050,000 shares or
4.12% of its outstanding equity at attractive discounts for the benefit of
shareholders.
Outlook
The growth in liquidity that has fuelled the acceleration in economic growth has
slowed recently. This is partly because real growth is absorbing liquidity and
partly because the US Federal Reserve, in particular, has become more cautious.
However, there is little doubt that 2004 will be a year of faster economic
growth. After the sharp recession in technology spending since early 2000, we
are confident that the business performance of companies in our universe will be
strong.
It is obviously difficult to forecast market movements. Although equities look
somewhat overbought at the time of writing, we believe that earnings momentum
should carry them upwards during 2004. Thereafter, markets may need renewed
conviction about the duration of this period of growth.
Patrick Gifford
10 December 2003
Investment Manager's review
Background
In the annual report we were cautiously positive on the market outlook for three
main reasons: cost-cutting programmes were starting to bear fruit; balance
sheets had been repaired; and take-over activity was highlighting the
discrepancy between share prices and strategic value. An upward re-rating of
technology stocks was anticipated and this occurred in the first half of the
Trust's financial year.
Portfolio activity
The restructuring of the portfolio has now been completed. The remaining large
company holdings have been sold; most underweight positions against the
benchmark were sold, enhancing our "bottom-up" style of investing; holdings in
small and micro-capitalisation companies were increased in number as well as
average size; and the number of holdings accounting for less than 0.5% of the
portfolio was cut to 7 from 17. Investments were made in a number of new
sectors, including healthcare and industrial processing technology.
Software
The software sector saw a high level of merger and acquisition activity in the
last six months. For instance, in the business intelligence market, Business
Objects, Hyperion and Actuate bought Crystal Decision, Brio, and Nimble
respectively. In the UK, iSoft* launched a bid for Torex, which is currently
under review by the competition authorities. Enquiries from the corporate
sector have picked up in the last six months, which is a strong indicator for
new licences.
Elsewhere, the Trust sold holdings in Misys and Dassault Systemes, and
reinvested the proceeds in smaller vendors which offered better potential
returns. The Trust bought shares in Merant, a provider of software development
tools, which was trading at a near cash level and which we regard as a prime
candidate for take-over. A position was also taken in Infovista, a telecom
software vendor that traded close to cash and had sharply cut operating
expenses. The Trust also bought Unit 4 Agresso, an ERP software vendor that
trades at a large discount to its competitors, and Staffware, which produces
workflow and business process management tools. A large position was taken in
Netstore, a provider of on-line backup solutions based on Microsoft Exchange.
Finally, the Trust bought Temenos, a provider of integrated financial software
for the wholesale, retail and asset management industry.
Semiconductors
In line with our expectations, the post-SARS newsflow improved over the summer
and autumn. Demand is stronger from consumers and from communication and, to a
lesser extent, automotive and computer chip manufacturers. Global semiconductor
fab (factory) utilisation is now above 90%. Taiwanese foundries, such as TSMC
and UMC, have recently started to place larger orders with semiconductor capital
equipment manufacturers.
The Trust made an investment in Micronic Laser, a Swedish manufacturer of
laser-based pattern generators for the semiconductor and computer flat-panel
screen industry. After announcing contract wins, the Micronic Laser share price
has more than tripled since the Trust first bought shares. A value-based
holding was also made in ASM International. In the UK, the Trust bought
holdings in Bede Electronic and Innovision Research and Transfer. The former is
a manufacturer of infra-red based metrology instruments, the latter is a design
house specialising in low-cost RFID (radio frequency identification tag)
transmitters. We increased the Trust's exposure to IQE as we felt the stock
price did not reflect medium-term prospects. Holdings in Elmos, Besi, Dialog
Semiconductor and Suess Microtec were partially or fully realised after strong
performance. Overall, the Trust has maintained its substantial exposure to
semiconductor stocks over the period.
Computer services
We were surprised by the strong rally in the sector as trading news was
generally poor across Europe and shorter-term prospects remain weak. Despite
this, the sector performed well, partly on hopes of US bids. We continue to
believe that the secular trend to offshore outsourcing will only accelerate,
bringing widespread margin pressure. The Trust's activity was limited; the
holding in Xansa was sold and an investment made in Teleca, a company which
offers R&D services.
Network equipment
We are increasingly optimistic on the outlook for capital spending in the
telecom and network equipment fields as initiatives on ADSL connectivity, WiFi
connectivity, IP telephony and the deployment of 3G base stations gain momentum.
For the first time in two years, forecasts for worldwide sales of handsets
have been raised.
The Trust bought shares in Filtronic, a manufacturer of power amplifiers for
base-stations and increased its holding in TTP Communications. The Trust sold
its holding in Wavecom as it became apparent that the company's business model
was changing. The position in Tandberg asa was sold on valuation grounds after
a strong performance. Tandberg Television, which makes digital broadcasting
equipment, performed well as orders picked up.
Hardware
We could not find compelling, company specific reasons to continue holding the
portfolio of European consumer orientated stocks and all the holdings, which
included Philips, Thomson Multi-media, Logitech and Gericom, were sold. We
commented on 3i-backed Kontron in the last report, and this provider of embedded
software for automation and telecom sectors continued positively to surprise
most investors over the period, and the shares performed well. Investments were
made in Pursuit Dynamics, a small provider of processing equipment based on
fluid physics which has no moving parts; and in Vianet, which provides telemetry
applications for the vending machine industry. The Trust bought Carl Zeiss
Meditec, a manufacturer of medical equipment used for the diagnosis of eye
diseases, the first significant healthcare industry holding.
Internet and e-commerce
We commented in the last report on the rapid adoption of internet services
across Europe. The sector has since enjoyed a very strong re-rating upwards.
Some profits were taken in T-Online and an investment made in Freenet, a small
German internet service provider.
Corporate activity
Corporate activity has been brisk over the period and, judging by the comments
of US players, it may be expected to continue at a satisfactory level. Private
placings are making a return. Initial public offerings have just started to
re-appear on this side of the Atlantic, led by the massively over-subscribed
offer for Wolfson Electronics.
Outlook
After a strong six months, markets will increasingly look for evidence of
revenue expansion before rewarding technology stocks with another rally. We are
confident this will be seen, and we are positive for 2004. Although cautiously
optimistic in public, companies are more upbeat in private meetings for their
medium-term prospects. Interest in software companies has increased over the
last four months; semiconductor manufacturers are working at very high capacity
levels; forecasts for global handset sales are being revised upwards; and
telecom operators are spending again. We will continue to invest on a stock
specific basis, underlying a bottom-up approach to technology markets.
3i Investments plc
10 December 2003
*Companies in bold text are or were portfolio companies during the period.
Statement of total return
for the six months ended 31 October 2003 (incorporating the revenue account)
6 months to 31 October 2003 6 months to 31 October 2002 12 months to 30 April 2003
(unaudited) (unaudited) (audited)
Revenue Capital Total Revenue Capital Total Revenue Capital Total
#'000 #'000 #'000 #'000 #'000 #'000 #'000 #'000 #'000
Gains/
(losses) on
investments
Net realised
gains/(losses)
over previous
valuation 4,669 4,669 (6,638) (6,638) (21,922) (21,922)
Net unrealised
appreciation/
(depreciation) 15,921 15,921 (40,874) (40,874) (22,856) (22,856)
Currency
(losses)/gains (76) (76) 30 30 68 68
20,514 20,514 (47,482) (47,482) (44,710) (44,710)
Income 328 328 592 592 830 830
Investment
management
fee (341) (341) (319) (319) (555) (555)
Other expenses (142) (142) (187) (187) (360) (360)
Net return
before
finance costs (155) 20,514 20,359 86 (47,482) (47,396) (85) (44,710) (44,795)
Interest
payable (1) (1) (124) (124) (147) (147)
Return on
ordinary
activities
before tax (156) 20,514 20,358 (38) (47,482) (47,520) (232) (44,710) (44,942)
Tax on
ordinary
activities (33) (33) (31) (31) 18 18
Return on
ordinary
activities for
the period (189) 20,514 20,325 (69) (47,482) (47,551) (214) (44,710) (44,924)
Transfer
to/(from)
reserves (189) 20,514 20,325 (69) (47,482) (47,551) (214) (44,710) (44,924)
Return per
share (0.05)p 5.73p 5.68p (0.02)p (12.77)p (12.79)p (0.06)p (12.12)p (12.18)p
All revenue and capital items in the above statement derive from continuing
operations.
No operations were acquired or discontinued during the period.
Reconciliation of movements in shareholders' funds
6 months to 31 6 months to 31 12 months to
October 2003 October 2002 30 April 2003
(unaudited) (unaudited) (audited)
#'000 #'000 #'000
Return on ordinary activities for the period 20,325 (47,551) (44,924)
Premium over nominal value on own shares
purchased for cancellation (1,713) (1,358) (1,562)
Nominal value of own shares purchased for
cancellation (150) (102) (126)
Movement 18,462 (49,011) (46,612)
Opening total shareholders' funds 43,647 90,259 90,259
Closing total shareholders' funds 62,109 41,248 43,647
Balance sheet
as at 31 October 2003
31 October 31 October 30 April
2003 2002 2003
(unaudited) (unaudited) (audited)
#'000 #'000 #'000
Fixed assets
Investments 60,484 42,495 42,143
Current assets
Debtors 1,803 213 846
Cash and short term deposits 1,971 1,685 1,039
3,774 1,898 1,885
Creditors: amounts falling due within one year (2,149) (645) (381)
Net current assets 1,625 1,253 1,504
Total assets less current liabilities 62,109 43,748 43,647
Creditors: amounts falling due after more than one year - (2,500) -
Net assets 62,109 41,248 43,647
Capital and reserves
Called-up share capital 3,502 3,676 3,652
Share premium 3,873 3,873 3,873
Capital redemption reserve 321 147 171
Capital reserve - realised (256,791) (185,724) (225,433)
- unrealised (47,928) (142,281) (99,800)
Special distributable reserve 361,037 363,128 362,900
Revenue reserve (1,905) (1,571) (1,716)
Total equity shareholders' funds 62,109 41,248 43,647
Net asset value per share 17.74p 11.22p 11.95p
Approved by the Board on 10 December 2003
Cash flow statement
for the six months ended 31 October 2003
6 months to 6 months to 12 months to
31 October 31 October 30 April
2003 2002 2003
(unaudited) (unaudited) (audited)
Notes #'000 #'000 #'000
Operating activities
Investment income received 387 500 691
Income from money market funds 26 67 94
Deposit interest received 1 2 5
Investment management fees paid (286) (280) (699)
Other cash payments (179) (226) (382)
Net cash (outflow)/inflow from operating
activities 1 (51) 63 (291)
Taxation paid (28) (49) (55)
Servicing of finance
Interest paid (1) (247) (270)
Net cash outflow from servicing of finance (1) (247) (270)
Financial investment
Purchase of investments (23,753) (11,130) (23,716)
Sale of investments 26,704 14,433 29,446
Currency (losses)/gains (76) 30 68
Net cash inflow from financial investment 2,875 3,333 5,798
Net cash inflow before financing 2,795 3,100 5,182
Financing
Purchase of ordinary shares for cancellation (1,863) (1,460) (1,688)
Repayment of loan facility - (2,500) (5,000)
Net cash outflow from financing (1,863) (3,960) (6,688)
Increase/(decrease) in cash 2 932 (860) (1,506)
Notes to the financial statements
1 Reconciliation of net revenue before finance costs to net cash (outflow)/
inflow from operating activities
6 months to 31 6 months to 31 12 months to
October 2003 October 2002 30 April 2003
(unaudited) (unaudited) (audited)
#'000 #'000 #'000
Net revenue before finance costs (155) 86 (85)
Decrease/(increase) in accrued income 85 (23) (40)
Increase/(decrease) in creditors 39 16 (166)
Increase/(decrease) in debtors (20) (16) -
Net cash (outflow)/inflow from operating activities (51) 63 (291)
2 Reconciliation of net cash flow to movement in net funds
6 months to 31 6 months to 31 12 months to
October 2003 October 2002 30 April 2003
(unaudited) (unaudited) (audited)
#'000 #'000 #'000
Increase/(decrease) in cash in the period 932 (860) (1,506)
Cash outflow from change in debt - 2,500 5,000
Change in net funds resulting from cash flows 932 1,640 3,494
Opening net funds 1,039 (2,455) (2,455)
Closing net funds 1,971 (815) 1,039
Independent review report of the auditors
Independent review report to 3i European Technology Trust plc ("the Company")
Introduction
We have been instructed by the Company to review the financial information for
the six months ended 31 October 2003 which comprises Statement of total return,
Reconciliation of movements in total shareholders' funds, Balance sheet, Cash
flow statement and the related notes 1 and 2 and the Basis of preparation. We
have read the other information contained in the Interim report and considered
whether it contains any apparent misstatements or material inconsistencies with
the financial information.
This report is made solely to the Company in accordance with guidance contained
in Bulletin 1999/4 'Review of interim financial information' issued by the
Auditing Practices Board. To the fullest extent permitted by law, we do not
accept or assume responsibility to anyone other than the Company, for our work,
for this report or for the conclusions we have formed.
Directors' responsibilities
The Interim report, including the financial information contained therein, is
the responsibility of, and has been approved by, the Directors. The Directors
are responsible for preparing the Interim report in accordance with the Listing
Rules of the Financial Services Authority which require that the accounting
policies and presentation applied to the interim figures should be consistent
with those applied in preparing the preceding annual accounts except where any
changes, and the reasons for them, are disclosed.
Review work performed
We conducted our review in accordance with guidance contained in Bulletin 1999/4
issued by the Auditing Practices Board for use in the United Kingdom. A review
consists principally of making enquiries of management and applying analytical
procedures to the financial information and underlying financial data and, based
thereon, assessing whether the accounting policies and presentation have been
consistently applied unless otherwise disclosed. A review excludes audit
procedures such as tests of controls and verification of assets, liabilities and
transactions. It is substantially less in scope than an audit performed in
accordance with United Kingdom Auditing Standards and therefore provides a lower
level of assurance than an audit. Accordingly, we do not express an audit
opinion on the financial information.
Review conclusion
On the basis of our review, we are not aware of any material modifications that
should be made to the financial information as presented for the six months
ended 31 October 2003.
Ernst & Young LLP
London
10 December 2003
Notes to the announcement
1 The Interim report for the six months to 31 October 2003 will be posted
to shareholders on 17 December 2003 and thereafter copies will be available
from 3i Investments plc, 91 Waterloo Road, London, SE1 8XP.
2 The accounting policies used in the preparation of the Interim report
are the same as those used in the statutory accounts for the year ended 30
April 2003 and those expected to be used for the year to 30 April 2004. The
revised Statement of Recommended Practice: Financial Statement of Investment
Trust Companies issued in January 2003 has been adopted for this Interim
report; it's adoption had no effect on the results for the period. The six
month period is treated as a discrete period except insofar as tax in the
revenue account is charged on the basis of an estimated annual effective
rate. The figures for the year to 30 April 2003 are extracted from the
accounts filed with the Registrar of Companies on which the auditors issued
an unqualified report. The Interim report and this announcement do not
constitute statutory accounts.
This information is provided by RNS
The company news service from the London Stock Exchange
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