RNS Number:5287L
Leggmason Investors Enterprise PLC
27 May 2003
LeggMason Investors Enterprise plc
Unaudited interim results for the half year ended 31 March 2003
Chairman's Statement
The half year to 31 March 2003 has seen continued volatility in global stock
markets, with the conflict in Iraq, uncertainty over oil prices, and the lack of
economic growth all contributing to a lack of investor confidence. In the
circumstances, I am pleased to report that the Company outperformed its
benchmark by 4.2%.
The period has also brought significant change for the Company. In January 2003,
Legg Mason Investments (Europe) Limited ("Legg Mason"), the Company's then
Investment Manager, announced the closure of their Glasgow office and the Board
decided to bring forward its review of proposals to enhance shareholder value
which we previously announced in December 2002. Following this review by the
Board working with our advisers, we were pleased to announce earlier this month
that Schroder Investment Management Limited ("Schroders") had been appointed as
the new Investment Manager of the Company with effect from 1 May 2003.
The Board is also very pleased that Schroders will be managing the redirection
of the Company towards a mid and small cap focus. This is an area in which
Schroders has an excellent investment track record, and the Board hopes that the
change of direction will offer the prospect of improved returns and an enhanced
rating for the Company's shares over the medium to longer term.
Since the announcement referred to above, and my letter to shareholders dated 2
May 2003, progress has been made with the transition arrangements, helped by the
ongoing support of Legg Mason who agreed to relinquish their investment
management role 6 months earlier than contracted. While the transfer of the
Company's investment management to Schroders has been completed, the complete
handover of operations to the new Manager will not be effective until the
transfer of its remaining administration and secretarial functions on 1 June
2003.
The name of the Company will change to 'Schroder UK Mid & Small Cap Fund plc',
subject to approval at the Extraordinary General Meeting to be held on 29 May
2003.
Finally the Board would like to take this opportunity to thank John Johnston of
Legg Mason, and previously Murray Johnstone Limited, for his assistance as our
investment manager for the last 5 years: we wish him well for the future.
Professor P K Timms CBE
Chairman
23 May 2003
Investment Manager's Report
For the period ended 31 March 2003
Company performance
As at 31 March 2003, the Company's net asset value stood at 81.8 pence per
share, a 4.6% decline over the past six months. This performance compares with
the FTSE Small Cap (Ex. Investment Companies) index, which fell by 6.6%, and the
FTSE techMARK 100 index, which fell by 7.2%. Whilst investors remained extremely
risk averse at the beginning of the period, towards the end of the period we
detected the first signs of investors' appetite for risk returning. In this
context the outperformance, although small, is nevertheless significant. The
portfolio has a large proportion of high beta (high volatility) securities and
one might reasonably expect negative sentiment to hit such stocks hardest. We
regard this resilience in a mature bear market as a sign that markets in general
may have bottomed and as an encouraging sign for higher risk/reward situations
in particular.
Market review
The concern over the integrity of accounting practices and corporate governance
in 2002 had a disproportionately negative effect on smaller capitalised stocks.
Generally speaking, transparency of smaller company accounts and newsflow is
considered to be inferior compared with that of larger capitalised companies
because of lower listing and reporting requirements and less coverage by
brokers. In contrast, however, it could be argued that the accounts of smaller
capitalised companies have less room for manipulation as they tend to have fewer
streams of revenues and tend to be less acquisitive (on account of more
difficulty accessing new finance). We have tended to concentrate on companies
which have a significant competitive advantage because of their proprietary
knowledge or technical expertise and which are growing organically, rather than
on companies that are growing predominantly through acquisition.
The portfolio has been concentrated in securities at the very small end of the
market capitalisation spectrum. Again the extreme level of investor risk
aversion has meant that income has been highly prized over the past year and
investors have shunned earlier stage companies that tend to retain earnings for
reinvestment in the business. Interestingly, the fall in the value of small cap
equities caused the historically negligible dividend yield to increase to more
than 1% on the FTSE AIM market in mid March.
Portfolio review
A number of stocks in the portfolio have announced positive progress over the
last six months but investors lack of appetite for risk has meant that good news
has been ignored. Since mid-March we have seen a sea change in attitudes and
interest is starting to trickle down to the lower end of the smaller cap market
and for technology stocks. We highlight below some of the stocks that have risen
strongly from their recent lows.
Gyrus, one of the larger holdings in the portfolio, fell to a low of 150p in
late September and struggled to make progress for most of the period closing at
169p at the period end, despite announcing full year figures that showed top
line growth of 49% and earnings per share growth of 160%. Buying interest
returned to the stock in April and the shares recovered to around 200p at the
end of April. In our view this company has the potential to be a significant
player in the medical devices market.
Royalblue provides electronic dealing systems to financial institutions and has
therefore suffered as the newsflow from major financial institutions went from
bad to worse. However, the company's results showed resilience with profits and
cash generation actually up on the previous year. The shares almost doubled to
292.5p at the end of March from the low point of 150p in October and have
continued to be strong, rising to around 350p at the end of April.
Shire Pharmaceuticals was hit by fears that generic competition would hit the
new once a day formulation of their lead product Adderrall XR. In the event
these fears were exaggerated. The shares hit a low of 300p at the end of
February and have since recovered to more than 400p.
Alterian, the provider of high performance data analysis software, hit a share
price low of 25p in mid October, at which level it stood at a significant
discount to the net cash on its balance sheet. The company had been scheduled to
move into positive cash generation in the first half of this financial year and
we had no reason to believe that this would not happen and were therefore at a
loss to understand the share price movement. The shares rose sharply during the
latter half of April.
The short list above details some of the more significant movements but there
have been other stocks that have suddenly come to life over the last few months
as well: J. Fisher up 20% from the lows of February, Biotrace has risen 65% from
its low point in November, and Autonomy has almost doubled from its low point of
90p in October.
This list is not exhaustive and there have been several disappointing situations
where share prices have thus far not responded to the improvement in sentiment
but it does illustrate two points: firstly, that there is a change in mood and
secondly, that when share prices react, the moves can be substantial.
Outlook
The gloom pervading most sectors of the equity market, heightened by the
conflict in Iraq, masks some improvement in the underlying global economy. The
retrenchment by companies over the last couple of years and low interest rates
are leading to increased margins and an improvement in corporate profitability,
notably in the US. With the US being the global engine of growth, this
improvement is expected to flow through to other markets. We are in the initial
stages of an equity market recovery on the back of better earnings news. As one
would expect, larger capitalised companies are outperforming in this first phase
of the market rally but attention is starting to shift to the small
capitalisation sectors. This is evidenced by the poor performance of the AIM
market against the FTSE Small Cap index, and in turn, the underperformance of
both these indices relative to the FTSE All Share index since the March 12 low.
The FTSE techMARK 100 index, on the other hand, has modestly outperformed the
FTSE All Share index over the same period. As we mention in the portfolio review
above, on a stock-by-stock basis, higher beta and smaller capitalised companies
are beginning to see a return to favour.
Legg Mason Investments (Europe) Limited
30 April 2003
Statement of total return
(incorporating the revenue account)
for the half year to 31 March 2003
(Unaudited) (Unaudited) (Audited)
Half year ended Half year ended Year ended
31 March 2003 31 March 2002 30 September 2002
Revenue Capital Total Revenue Capital Total Revenue Capital Total
#'000 #'000 #'000 #'000 #'000 #'000 #'000 #'000 #'000
Total capital
(losses)/gains
on investments - (876) (876) - 4,829 4,829 - (16,078) (16,078)
Income from
fixed asset
investments 62 - 62 93 - 93 276 - 276
Other interest
receivable and
similar income 12 - 12 30 - 30 57 - 57
------------ ---------- ---------- ---------- ---------- ------------ ------------ ------------ ------------
Gross revenue
and capital
(losses) /gains 74 (876) (802) 123 4,829 4,952 333 (16,078) (15,745)
Management fee (11) (99) (110) (23) (207) (230) (37) (329) (366)
Other
administrative
expenses (146) - (146) (303) - (303) (448) - (448)
------------ ---------- ---------- ---------- ---------- ------------- ------------ ------------ ------------
Net (loss)/
return on
ordinary
activities
before interest
payable and
taxation (83) (975) (1,058) (203) 4,622 4,419 (152) (16,407) (16,559)
Interest payable - (4) (4) (8) (74) (82) (12) (106) (118)
------------ ---------- ---------- ---------- ---------- ------------ ------------ ------------ ------------
(Loss)/return
attributable to
equity
shareholders (83) (979) (1,062) (211) 4,548 4,337 (164) (16,513) (16,677)
Dividends
declared - - - - - - - - -
------------ ---------- ---------- ---------- ---------- ------------ ------------ ------------ ------------
Transfer (from)/
to reserves (83) (979) (1,062) ( 211) 4,548 4,337 (164) (16,513) (16,677)
======= ====== ====== ====== ====== ======= ======= ======= =======
(Loss)/return
per ordinary
share (note 1) (0.3p) (3.6p) (3.9p) (0.8p) 17.6p 16.8p (0.6p) (62.4p) (63.0p)
======= ====== ====== ====== ====== ======= ======= ======= =======
The revenue columns of this statement represent the revenue account of the
Company.
All revenue and capital items in the above statement derive from continuing
operations.
Balance sheet
at 31 March 2003
(Unaudited) (Unaudited) (Audited)
31 March 2003 31 March 2002 30 September 2002
#'000 #'000 #'000
Fixed asset investments
Listed at market value in Great Britain 21,538 45,991 22,511
Unquoted at Directors' valuation 186 564 650
------------- ------------- --------------
21,724 46,555 23,161
Current assets
Debtors 32 693 46
Cash and short term deposits 577 874 489
------------ ------------ -------------
609 1,567 535
Creditors: amounts falling due within one year (142) (3,856) (443)
------------- ------------- -------------
Net current assets/(liabilities) 467 (2,289) 92
------------- ------------- -------------
Total net assets 22,191 44,266 23,253
======= ======= =======
Capital and reserves
Called-up share capital 6,780 6,780 6,780
Capital redemption reserve 50 50 50
Share premium account 3,431 3,431 3,431
Merger reserve 2,184 2,184 2,184
Realised capital reserve 25,558 39,660 34,082
Unrealised capital losses (32,959) (25,022) (40,504)
Special distributable reserve 17,095 17,095 17,095
Revenue reserve 52 88 135
------------ ------------ ------------
Total equity shareholders' funds 22,191 44,266 23,253
======= ======= =======
Net asset value per ordinary share (note 2) 81.8p 163.2p 85.7p
This report was approved by the Board of Directors on 23 May 2003.
Professor P K Timms, CBE
Chairman
Cash Flow Statement
for the half year to 31 March 2003
(Unaudited) (Unaudited) (Audited)
Half year ended Half year ended Year ended
31 March 2003 31 March 2002 30 September 2002
#'000 #'000 #'000
Net cash (outflow)/inflow from
operating activities (204) (22) 48
Net cash outflow from servicing of
finance (5) (110) (148)
Net cash inflow/(outflow) from
financial investment 297 (3,049) (467)
Equity dividends paid - (511) (511)
------------- ------------- -------------
Net cash inflow/(outflow) before
financing 88 (3,692) (1,078)
Net cash inflow from financing - 3,744 745
------------- ------------- -------------
Increase/(decrease) in cash 88 52 (333)
======= ======= =======
Reconciliation of operating revenue
to net cash (outflow)/inflow from
operating activities
Net loss before finance costs (83) (203) (152)
(Increase)/decrease in accrued
income (9) 26 35
Decrease/(increase) in other
debtors 8 4 (3)
(Decrease)/increase in creditors (21) (7) 51
Investment management fees charged
to capital (99) (207) (329)
Adjustment for expenses not
involving the movement of cash - 365 446
------------- ------------- -------------
Net cash (outflow)/inflow from
operating activities (204) (22) 48
======== ======== ========
Reconciliation of net cash flow to
movement in net funds/(debt)
Increase/(decrease) in cash as
above 88 52 (333)
Cash outflow from movement in debt - - 3,000
------------- ------------- -------------
Movement in net funds 88 52 2,667
Net funds/(debt) at start of period 489 (2,178) (2,178)
------------- ------------- -------------
Net funds/(debt) at end of period 577 (2,126) 489
======== ======== ========
Represented by:
Cash 577 874 489
Debt due within one year - (3,000) -
------------- ------------- -------------
577 (2,126) 489
======== ======== ========
Notes to the accounts
1 (Loss)/return per ordinary share
Revenue loss per ordinary share is based on the revenue loss attributable to
ordinary shares of #83,000 (half year ended 31 March 2002: #211,000 loss; year
ended 30 September 2002: #164,000 loss) and on the 27,118,657 (half year ended
31 March 2002: 25,785,893; year ended 30 September 2002: 26,451,461) weighted
average number of ordinary shares in issue during the period.
Capital return per ordinary share is based on the capital loss attributable to
ordinary shareholders of #979,000 (half year ended 31 March 2002: #4,548,000
gain; year ended 30 September 2002: #16,513,000 loss) and on the weighted
average number of ordinary shares in issue during the period as above.
2 Net asset value per ordinary share
The net asset value per ordinary share is based on the net assets attributable
to ordinary shares of #22,191,000 (31 March 2002: #44,266,000; 30 September
2002: #23,253,000) and on the 27,118,657 ordinary shares in issue at 31 March
2003 (31 March 2002 and 30 September 2002: 27,118,657).
3 Interim dividend
The Directors have not declared an interim dividend payable for the half year
ended 31 March 2003 (2002: #nil).
4 Comparative information
The figures and financial information for the year ended 30 September 2002 are
an extract from the latest published accounts of the Company and do not
constitute statutory accounts for that year. Those accounts have been delivered
to the Registrar of Companies and included the report of the auditors which was
unqualified and did not contain a statement under either section 237(2) or 237
(3) of the Companies Act 1985.
The interim report will be issued to shareholders at the beginning of June 2003
and further copies will be available from the Company Secretary.
For further information, please contact:
Cogent Secretarial Services Limited
Tel: 020 7410 4942
27 MAY 2003
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR EAPSDAFXDEFE
