RNS Number:2748T
American Opportunity Trust PLC
15 December 2003
American Opportunity Trust plc
Preliminary Announcement of Results for the year ended 30 September 2003
Chairman's Statement
This Year's Results:
Performance: fully diluted NAV 100.0p, +11.0p per share; +12.4%
This year's results appear to be the antithesis of last year's. Following last
year's decline in net asset value, this year the fully diluted net asset value
rose 12.4% from 89.0p to 100.0p per share and, as capital growth is the
objective of the Company, that much can be considered satisfactory. Indeed it is
important to emphasise that the Board considers attaining absolute returns the
prime objective of the Company. In contrast to last year, however, when our net
asset value declined but when our performance was much better than that of our
peer group and benchmark, this year it lagged behind both. While it is clearly
better to make money for shareholders, if at the cost of relative
underperformance, than vice versa, we would prefer to make money, and do better
than our peer group and our benchmark. For the record, most of our peer group
and our benchmark, the Russell 2000 Index (which rose 27.4% expressed in #s),
did better than us.
There are two reasons for our underperformance, the first of which was that we
had too defensive an investment policy during the second half of the year, in
which the war in Iraq and the SARS scare came and went and the market staged a
strong recovery. During the second half of the year the Russell 2000 Index rose
by 27.3% while our net asset value increased by only 7.5%. We were too concerned
about the level of the market, which served us well during the first half of the
year; instead we should have been focused on finding good investment
opportunities. As a consequence our investment policy concentrated too much on
our investment in US Treasury Bills and put options. Though they provided a
positive return of #1.9 million or 12.1p per share for the year, this was a less
than we might have earned had we committed all of our assets to our equity
portfolio. The pity of it was that the equity portfolio, while never accounting
for much more than 40% of our assets (it was 37% at our year end), performed
quite well, adding #1.1 million or 6.9p per share. Furthermore these results
were achieved despite a weak American Dollar, declining as it did by 5.3%; it
cost our net asset value #0.9 million or 5.5p per share. The rise of 11.0p per
share can be accounted for approximately as follows:
Pence
Per share
Equities: 6.9
T-Bills 0.7
Options 11.4
Currency (5.5)
Income (2.0)
Dilution (0.5)
TOTAL 11.0
The second of the two reasons relates to the Russell 2000 Index itself. As a
consequence of the substantial decline in so many technology related shares over
the past three years, a large number of them were incorporated into the Index,
which then became much more heavily weighted in that sector. During 2003 there
has been an enormous recovery in the share prices of technology companies but it
is a sector we are not exposed to, nor likely to be. The fact that the
underlying constituents of all indices, including that of our own benchmark,
change so frequently has given the Directors cause to think about the
appropriateness of such indices as benchmarks. During the course of the current
year we will be considering the whole issue of what benchmark is appropriate for
us to judge our performance against and we will report to you later in the year
upon the results of our deliberations.
As can be seen from the table, the put option portfolio provided the greatest
part of our return for the year, in large part because the premia earned were
not offset to any significant degree by losses on positions that were assigned
to us. Put options in Cassella Waste Systems, Cryptologic, Tyco International
and Netbank all earned over #200,000 for us, and only options in Standard
Microsystems caused a loss of over #50,000. Of our equity portfolio, Colorado
Medtech and Worldport Communications contributed a return of over #200,000 each,
while Focus Enhancements lost us over the same sum.
Dividend:
Our income for the year was not enough to cover our expenses, in large part
because of a loss taken in our trading subsidiary, LOT Limited. The portfolio is
not managed for the purpose of generating an income return and therefore the
income results can and do fluctuate one year from another. We incurred a loss
of #318,000 and we are not therefore recommending the payment of a dividend to
shareholders.
Conversion of Loan Stocks: NASCIT becomes our parent company.
The last chance to convert the two classes of loan stock into ordinary shares
occurred in August this year and, as a consequence, 4.2 million new ordinary
shares were issued upon conversion; as a result there are now 16.2 million
ordinary shares outstanding. North Atlantic Smaller Companies Investment Trust
plc ("NASCIT"), which hitherto owned 36.5% of our issued shares, converted its
loan stock holding and now owns 50.1% of our shares, making it our parent
company.
Board and Management Matters:
Our manager, J O Hambro Capital Management Limited, undertook an internal
reorganisation of its business, dividing parts of their fund management business
into limited liability partnerships, all of which remain part of the J O Hambro
Capital Management Group. The purpose of the change is to provide more focus for
each group. The name of the partnership managing our Company (and some of their
other investment trust clients) is North Atlantic Value LLP and shareholders
will see reference to it throughout the annual report.
Christopher Mills, our chief executive, has strengthened our own management by
adding Paul Cameron to the team within North Atlantic Value that manages your
Company; Paul focuses his work on our portfolio, which has allowed us to uncover
some new investment opportunities that are beginning to appear amongst our list
of investments.
The past year has seen the issuance of the most enormous amount of guides,
rules, regulations etc concerning the governance of companies listed on the
Stock Exchange - including those from Mr Higgs, Sir Robert Smith and the
Association of Investment Trust Companies. The AITC Code of Corporate
Governance(c) is the one that is most relevant to investment trust companies and
we will use it as our template for our new corporate governance report to
shareholders next year. Meanwhile this year's report is based on the old
Combined Code.
Annual General Meeting: 27 January 2004:
The Annual General Meeting will be held on 27 January 2004 at the offices of
the J O Hambro Capital Management Group at Ground Floor, Ryder Court, 14 Ryder
Street, London SW1Y 6QB at 3.30pm. As I always do, I urge shareholders -
individual and institutional alike - to attend your annual meeting. If you have
concerns, comments, suggestions or questions we want to hear them; even more to
the point it is important that your co-shareholders hear them too, so that they
can be made aware of them.
This year, for the first time at our AGM, shareholders are to be asked to
approve the Directors' Remuneration Report, a new legal requirement for listed
companies. There has been no change in the remuneration, which is by way of
options. At present the Directors are not otherwise remunerated by the Company
and there are no plans to do so.
Two of the directors are retiring by rotation and are seeking re-election at the
AGM. James Nelson, who has served on the Board since the inception of the
Company brings the experience of a career investing in smaller companies,
including American ones, of investment trusts and most importantly his
experience of the Company's business. His contribution to Board discussions and
meetings is invaluable and his colleagues believe that it is very much in
shareholders' interests that he continues to serve as a director. In
considering his re-election the other directors have considered his "independent
" status and have concluded that his behaviour and his contribution at Board
Meetings are of a personal and independent nature and therefore that he performs
his duties in an independent manner; it is therefore the view of the Board that
he is an independent director, notwithstanding his length of service. We
therefore recommend to you that you vote in favour of his re-election.
John Gildea is also retiring by rotation and offering himself for re-election.
John, who is based in the US, is in the business of investing in precisely the
same sort of companies and securities as does your Company. He is of
considerable help to Christopher and Paul in the process of managing the
portfolio and to his boardroom colleagues in evaluating the investment policy
and performance. Again the other directors believe that it is in shareholders'
interest that he be re-elected and again we recommend that you vote in favour of
his re-election. John is not an independent director.
I would ask shareholders who have concerns about voting on any of the issues put
forward for the AGM or who have questions to ask about them, to contact
Christopher or me and we will do our best to address them.
Prospects:
There is not a lot that can be added to the considerable volume that is written
about the prospects for the US economy and stock markets. The government has
literally thrown the monetary and fiscal kitchen sink at turning the economy
around after the setbacks brought about by the bursting of the technology
bubble, the 9/11 terrorist attack and the war in Iraq. It would appear that the
stimulus is having its desired affect, given that some really quite encouraging
economic statistics are now being reported. Quite whether it all adds up to a
live-now-pay-later situation is difficult to assess. There are some remarkably
good productivity statistics being reported and of course the US economy
benefits from the growth of its population through immigration. That's the plus
side of the equation; the minus side is that the US continues to run very large
government budget and trade deficits that will have to be paid for one day.
There is increasing concern amongst the international foreign exchange trading
community about the size of both America's external obligations and the trade
deficit. They and an apparent benign neglect by the government are causing
concern about the value of the US Dollar and we have seen it decline
significantly in recent months. The subject matter is a complex one and of
course in turn involves the weaknesses of other economies around the world,
particularly those of Japan and Germany - the next largest two. However for the
moment it is reasonable to suppose that the Dollar will continue to decline and
because of that we had taken out a hedge on 22% of our assets at 30 September
2003; that hedge has now been increased to cover 37% of our assets. The Board
has given their approval to allow the manager to take the US dollar hedging to a
maximum of 50% of the assets if deemed appropriate.
The most important aspect of any assessment of our prospects must depend on
ourselves - on how we invest our assets, in which areas and in which companies.
We are slowly reducing our US Treasury Bill portfolio as we find new investments
that we believe will make capital gains for us. It should continue to be a good
investing environment for stock pickers and we should therefore be able to find
enough of them to achieve our goal of capital growth. We, the Directors, believe
we can and will.
R A Hammond Chambers
Chairman
15 December 2003
CONSOLIDATED STATEMENT OF TOTAL RETURN
(*incorporating the revenue account) for the year ended 30 September
2003 2002
Revenue Capital Total Revenue Capital Total
#'000 #'000 #'000 #'000 #'000 #'000
Gains/(losses) on investments - 2,145 2,145 - (714) (714)
Exchange gains/(losses) on currency and - 10 10 - (439) (439)
capital items
Dividends and interest 147 - 147 429 - 429
Other income (145) - (145) (103) - (103)
Fee payable to the manager (121) - (121) (163) - (163)
Other expenses (175) - (175) (180) - (180)
Net (loss)/return before finance costs and
taxation (294) 2,155 1,861 (17) (1,153) (1,170)
Premium on repurchase of CULS - - - - (7) (7)
Interest payable and similar charges (23) - (23) (110) - (110)
(Loss)/return on ordinary activities before
taxation (317) 2,155 1,838 (127) (1,160) (1,287)
Taxation on ordinary activities (1) - (1) (11) - (11)
(Loss)/return on ordinary activities after
taxation (318) 2,155 1,837 (138) (1,160) (1,298)
Proposed dividend to Ordinary shareholders - - - - - -
Transfer (from)/to reserves (318) 2,155 1,837 (138) (1,160) (1,298)
Return per Ordinary share
Basic (pence) (2.6) 17.4 14.8 (1.1) (9.7) (10.8)
Fully diluted (pence) + 13.6 11.6 + + +
* The revenue column of this statement is the consolidated profit and loss
account of the Group.
** The accounts have been prepared using accounting standards and policies
adopted at the previous year end.
+ In order to comply with Financial Reporting Standard No. 14: Earnings per
Share, returns per share which are not diluted have not been shown.
All revenue and capital items in the above statement derive from continuing
operations.
CONSOLIDATED BALANCE SHEET
At 30 September
2003 2002
#'000 #'000
Fixed asset investments 16,140 15,232
Current assets
Investments held by subsidiary undertaking 60 177
Debtors 35 270
Cash at bank 459 61
554 508
Creditors: amounts falling due within one year
Bank overdrafts - (186)
Other creditors and accruals (419) (1,137)
(419) (1,323)
Net current assets/(liabilities) 135 (815)
Total assets less current liabilities 16,275 14,417
Creditors: amounts falling due after more than one year
Convertible Loan Stock 2003/2006
- Series 1 - (1,937)
- Series 2 - (287)
- (2,224)
16,275 12,193
Capital and reserves:
Called up share capital 2,025 1,500
Share premium account 7,808 6,088
Capital redemption reserve 535 535
Capital reserve - realised 7,412 10,399
- unrealised (1,165) (6,307)
Revenue reserve (340) (22)
Equity shareholders' funds 16,275 12,193
Net asset value per ordinary share
Basic (pence) 100.5 101.6
Fully diluted (pence) 100.0 89.0
CONSOLIDATED CASHFLOW STATEMENT
For the year ended 30 September 2003 2002
#'000 #'000
Operating activities
Investment income received 182 481
Interest received 2 20
Administrative services fee paid (144) (121)
Other cash payments (151) (467)
Net cash outflow from operating activities (111) (87)
Servicing of finance
Interest paid (2) (135)
Net cash outflow from servicing of finance (2) (135)
Taxation
Corporation tax paid - (58)
Tax paid - (58)
Financial investments
Purchases of investments (47,827) (46,334)
Sales of investments (including option premiums) 48,479 54,329
Net cash inflow from investing activities 652 7,995
Equity dividends paid - (132)
Net cash inflow before financing 539 7,583
Financing
Repurchase of CULS for cancellation - (220)
Decrease in fixed-term borrowings - (6,993)
Net cash outflow from financing - (7,213)
Increase in cash 539 370
Reconciliation of net deficit before finance costs and
taxation to net cash outflow from operating activities
2003 2002
#'000 #'000
Net deficit before finance costs and taxation (294) (17)
Decrease/(increase) in prepayments and accrued income 4 (6)
(Decrease)/increase in other creditors (4) 135
Tax on investment income (1) (22)
Decrease/(increase) in stock of investments 184 (177)
Net cash outflow from operating activities (111) (87)
Notes:
1. The above results for the year to 30 September 2003 are audited.
2. No dividend is proposed for the year ended 30 September 2003 (2002: nil).
3. Consolidated return per
share
2003 2002
*Net return Ordinary Per share *Net return Ordinary Per share
#'000 shares (pence) #'000 shares (pence)
Revenue
Basic return per share (318) 12,361,039 (2.6) (138) 12,002,756 (1.1)
Option conversion** - - - -
Loan stock series 1*** - 3,523,915 - 3,874,184
Loan stock series 2*** - - - -
Diluted revenue return per (318) 15,884,954 (2.0)+ (138) 15,876,940 (0.9)+
share
Capital
Basic return per share 2,155 12,361,039 17.4 (1,160) 12,002,756 (9.7)
Option conversion** - - - -
Loan stock series 1*** - 3,523,915 - 3,874,184
Loan stock series 2*** - - - -
Diluted revenue return per 2,155 15,884,954 13.6 (1,160) 15,876,940 (7.3)+
share
*Net return on ordinary activities attributable to Ordinary shareholders.
** Excess of the total number of potential shares on option conversion over the
number that could be issued at fair value as calculated in accordance with
Financial Reporting Standard No. 14: Earnings per Share ("FRS 14").
*** Loan stock assumed converted unless average share price during the period
was less than the conversion price.
+ In order to comply with FRS 14, returns per share which are not diluted have
not been shown on the face of the accounts.
4. Consolidated net asset value
2003 2002
Assets Ordinary Per share Assets Ordinary Per share
#'000 shares (pence) #'000 shares (pence)
Basic 16,275 16,201,469 100.5 12,193 12,002,756 101.6
Loan stock series 1 - - 1,937 3,874,184
Loan stock series 2* - - - -
Option conversion 1,449 1,525,000 - -
Fully diluted 17,724 17,726,469 100.0 14,130 15,876,940 89.0
During the year to 30 September 2003 all the outstanding Series 1 and Series 2
Convertible Loan Stock were converted into Ordinary 12.5p Shares, therefore
there is no longer a dilutive effect on the net asset value due to loan stock
conversion.
* The diluted net asset value per Ordinary share as at 30 September 2002 is also
based on net assets and has been calculated on the basis that full conversion of
the Series 1 Loan Stock units outstanding at the year end had occurred,
resulting in a total issued share capital of 15,876,940 Ordinary Shares. The
conversion price of the Series 2 Loan Stock and the exercise price of the
management options was above the diluted net asset value at 30 September 2002
and so the diluted figure does not include conversion of the Series 2 Loan Stock
or the exercise of the management options.
5. 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 on 27 January 2004 at 3.30 pm in the Board Room, Ground Floor, Ryder
Court, 14 Ryder Street, London SW1Y 6QB. The Annual Report will be posted to
shareholders and those on the mailing list as soon as practicable after printing
and will also be available on request from the Company Secretary, J O Hambro
Capital Management Limited at Ground Floor, Ryder Court, 14 Ryder Street, London
SW1Y 6QB.
The financial information set out above does not constitute the Company's
statutory financial statements for the year ended 30 September 2003, but is
derived from and has been prepared on the same basis as those financial
statements.
The above results for the year ended 30 September 2002 are an abridged version
of the Company's full accounts which received an audit report that was
unqualified and did not contain statements under section 237(2) or (3) of the
Companies Act 1985 and which have been filed with the Registrar of Companies.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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