RNS Number:7998R
F&C Emerging Markets Inv. Trust PLC
07 November 2003
Embargoed until 7.00am on 7 November 2003
Contact: Jeff Chowdhry/Nick Timberlake, F&C Emerging Markets Limited,
020 7628 8000/Lisa Stanley, Lansons Communications, 020 7294 3692
F&C EMERGING MARKETS INVESTMENT TRUST PLC
Unaudited Preliminary Statement
for the year ended 30 September 2003
Highlights
* For the second year running, emerging markets have outperformed most
developed stockmarkets.
* The NAV per share rose by 39% and the share price rose by 41.8% over
the twelve months.
* Since the start of the buy-back programme in 2000, a total of
16,650,000 have been repurchased and cancelled at an average price of 52p,
resulting in an uplift of 1p to NAV per share.
SUMMARY OF RESULTS
30 September 30 September %
2003 2002 change
Attributable to equity shareholders
Net assets #128.21m #92.46m +38.66
Net assets per share 74.80p 53.81p +39.01
Earnings per share 0.56p (0.10)p -
Share price 62.75p 44.25p +41.81
Extracts from the Chairman's Statement
I am pleased to report a significant recovery in emerging markets and the value
of your investment over the last year. This has occurred primarily during the
last six months of the financial year as the Iraq war came to an end, and while
evidence emerged that the US economy has started to recover. Meanwhile,
corporate earnings have been higher than consensus expectations. For the second
year running, emerging markets outperformed most developed stockmarkets as
investors recognised that increasing profitability, cheap valuations and low
levels of institutional ownership made a powerful argument for a re-rating.
Companies in the asset class have made significant progress in the last few
years in improving their corporate governance and moving towards international
accounting standards. At the same time, countries in the emerging market world
were able to exhibit a new found maturity; for example, the smooth handover of
political power in Brazil, China's improving relations with Taiwan and India and
the recent announcement that Russia's debt had been upgraded to investment grade
by Moody's.
Results
The undiluted net asset value per share of your Company rose by 39.0% and the
share price rose by 41.8% over the twelve months to 30 September 2003. By
comparison, the S&P/IFC Investable Composite Total Return Index rose by 38.6% in
sterling terms. I believe these results are satisfactory in light of the sharp
upward movement in stockmarkets over the last few months.
Looking forward, the Board would like to see a larger magnitude of
outperformance against the benchmark from the Manager, who has now outperformed
for three out of the last four financial years. The Board and Manager have
continued pro-actively to use tactical borrowing over the review period,
increasing gearing when markets were weak at the beginning of 2003 and
subsequently reducing gearing as markets started to rally strongly. At the end
of our financial year effective gearing stood at 4.4%. As well as the timely
use of gearing, the Manager has added value by having overweight positions in
Brazil and Russia during the review period, while the strength of the South
African rand and our underweight position in that country has been the main drag
on performance.
Discount and Buy Back Programme
The Company's share price discount to NAV has narrowed over the last year from
17.8% to 16.1%. In our opinion, no single measure in itself can lower the
discount on a closed end investment trust and keep it permanently at a low
level. We believe that a favourable market environment, good investment
performance, a pro-active share buy-back programme, relevant communication with
existing and prospective shareholders, savings schemes to attract retail
shareholders and the support of the Company's brokers can all make a
contribution. In a year where demand for our shares was higher than normal we
re-purchased and cancelled 450,000 shares, to prevent excessive discount
widening, at a weighted average discount of 19.3%.
Since the start of our buyback programme in May 2000 a total of 16,650,000
shares (8.9% of the total shares in issue at that date) have been repurchased
and cancelled at an average price of 52 pence, resulting in an uplift of 1 penny
to NAV per share.
We note with interest the recent communication from the Association of
Investment Trust Companies (AITC) in respect of the possible use of Treasury
shares. As currently outlined by the AITC, investment trusts, providing they
obtain the necessary authority from their shareholders, would in future be able
to re-purchase their own shares into Treasury and later re-issue these shares
rather than cancel them as is the current practice. Your Board has not made any
decisions in respect of this proposal and will be consulting shareholders before
any action is taken.
Corporate Governance
In July 2003 the revised Combined Code on Corporate Governance was published by
the Financial Reporting Council (FRC). Although not mandatory, the Board of
Directors is already complying with the Code in reporting on the Company's
activities for the financial year.
In September 2003, the Financial Services Authority (FSA) published certain
changes to the listing rules. These changes do not come into effect until after
the financial year end of your Company. Nevertheless, in respect of those
amendments coming in to effect as from 1 November 2003 I can confirm your
Company has complied with the necessary changes.
Update on New Initiatives
Last year I reported that the Company had begun to lend its securities as a
means of increasing its income. In addition we made a small investment in F&C
Ruby Fund Limited, of which I am director, an emerging markets absolute return
fund. It is pleasing to report a satisfactory start to both activities. During
the year, #95,000 was earned by the Company from stock lending activities while
'Ruby' has risen by 7.6% since its launch in January 2003 to 30 September, with
a very low level of volatility. The Board continues to monitor both these
initiatives on a regular basis and will keep shareholders informed of their
progress.
Prospects
The global economic picture looks a little clearer today than it has for some
time. The progress of the US economy, which accounts for 33% of the world's GDP,
remains the single most important factor. Over the last few months economic
forecasters have turned more positive and real GDP growth of approximately 4% is
expected next year. If this turns out to be the case, then I expect emerging
markets economies, on average, to grow faster than this. I also expect that the
recovery in earnings which we have experienced so far this year will continue in
2004.
Valuations of emerging stockmarkets have risen over the last year but remain at
a discount to both developed markets and low in relation to their own long-term
history. I would point out, however, as a cautionary comment, that the
geo-political situation in many parts of the world, such as the Middle East,
North Korea and the Indo-Pakistan border remains a risk, as does the ever
present threat of internal political crises and as shown by the recent events in
Russia. The current low level of gearing reflects our belief that the
significant under valuation which existed earlier in the year has passed and
markets now represent an equal balance between risk and reward. A further sharp
rise from here may see us moving to a net cash position in the Company. I look
forward with cautious optimism to the performance of emerging markets next year.
Valentine Powell
November 2003
Balance sheet
at 30 September
2003 2002
#'000s #'000s #'000s #'000s
Investments
Listed in Great Britain 43 33
Listed outside Great Britain 133,872 92,691
133,915 92,724
Subsidiary undertaking 789 789
134,704 93,513
Current assets
Debtors 1,517 1,356
Cash at bank and short-term deposits 6,236 6,829
7,753 8,185
Current liabilities
Creditors: amounts falling due within one
year
Foreign currency loans (2,889) -
Other (4,000) (1,873)
(6,889) (1,873)
Net current assets 864 6,312
Total assets less current liabilities 135,568 99,825
Creditors: amounts falling due after more
than one year
Convertible unsecured loan stock (7,363) (7,363)
Net assets 128,205 92,462
Capital and reserves
Called up equity share capital 17,140 17,185
Capital redemption reserve 1,665 1,620
Share premium 36,708 36,707
Special reserve 118,267 118,471
Warrant reserve - 9,156
Capital reserves (35,845) (79,982)
Revenue reserve (9,730) (10,695)
111,065 75,277
Total equity shareholders' funds 128,205 92,462
Net asset value per ordinary share
Basic - pence 74.80 53.81
Diluted - pence + +
+ There is no dilution
Statement of Total Return (incorporating the Revenue Account)*
for the year ended 30 September
2003 2002
Revenue Capital Total Revenue Capital Total
#'000s #'000s #'000s #'000s #'000s #'000s
Gains on investments - 35,138 35,138 - 6,291 6,291
Amounts arising on expiry of warrants - 9,156 9,156 - - -
Exchange losses on currency balances (10) (26) (36) (4) (702) (706)
Income 3,539 - 3,539 2,555 - 2,555
Management fee (1,116) - (1,116) (1,310) - (1,310)
Performance-related management fee - (35) (35) - (68) (68)
Other expenses (536) (96) (632) (529) (62) (591)
Net return before finance costs and
taxation 1,877 44,137 46,014 712 5,459 6,171
Interest payable and similar charges (547) - (547) (670) - (670)
Return on ordinary
activities before taxation 1,330 44,137 45,467 42 5,459 5,501
Taxation on ordinary activities (365) - (365) (227) - (227)
Return attributable to equity shareholders 965 44,137 45,102 (185) 5,459 5,274
Dividends on ordinary shares - - - - - -
Amount transferred to/(from) reserves 965 44,137 45,102 (185) 5,459 5,274
Return per ordinary share - pence 0.56 25.72 26.28 (0.10) 3.01 2.91
Revenue return per ordinary share
(diluted) - pence + N/A N/A + N/A N/A
* The revenue column of this statement is the profit and loss account of the
Company.
+ There is no dilution.
N/A Not applicable.
All revenue and capital items in the above statement derive from continuing
operations.
Cash Flow Statement
for the year ended 30 September
2003 2002
#'000s #'000s
Net cash inflow from operating activities 1,624 616
Net cash outflow from servicing of finance (539) (668)
Total tax paid (355) (168)
Net cash (outflow)/inflow from financial investment (4,554) 16,968
Net cash (outflow)/inflow before use of liquid resources (3,824) 16,748
and financing
Management of liquid resources 2,044 62
Net cash inflow/(outflow) from financing 2,785 (15,906)
Increase in cash 1,005 904
No dividend will be paid on the ordinary shares.
The financial information set out in the announcement does not constitute the
Company's statutory accounts for the years ended 30 September 2003 or 30
September 2002. The financial information for the year ended 30 September 2002
has been extracted 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
either Section 237(2) or Section 237(3) of the Companies Act 1985. The statutory
accounts for the year ended 30 September 2003 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 Annual General Meeting will be held at Exchange House, Primrose Street,
London EC2A 2NY on Thursday, 18 December 2003 at 12.15pm.
The Report and Accounts will be posted to shareholders during November 2003.
Copies may be obtained during normal business hours from F&C Emerging Markets
Limited, Exchange House, Primrose Street, London, EC2A 2NY.
By order of the Board
F&C Emerging Markets Limited - Secretary
6 November 2003
This information is provided by RNS
The company news service from the London Stock Exchange
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