Proposed Reconstruction
14 Março 2003 - 6:00AM
UK Regulatory
Stock Exchange Announcement.
Proposed reconstruction of Liontrust Knowledge Economy Trust PLC (the
"Company")
* The Directors have resolved to propose to shareholders a scheme of
unitisation of the Company, which will involve a members' voluntary
liquidation and the transfer of the Company's assets to a unit trust
managed by Liontrust Investment Funds Limited, The Liontrust Intellectual
Capital Trust (the "Trust").
* The Company and the Trust are managed according to the same investment
process by the same fund manager and their portfolios are substantially the
same.
* Shareholders representing over 70 per cent of the Company's issued share
capital have indicated their support for this course of action.
* The Company's investment manager, Liontrust Investment Services Limited,
fully endorses the proposed course of action.
* The Company's net asset value has outperformed its benchmark index since
flotation, but the Directors believe that the current and historic levels
of discount to net asset value at which the Company's shares trade, and the
illiquidity of the shares, do not best serve shareholder value.
* Whilst the Company's Articles of Association provide for a continuation
vote to be put to Shareholders at the Annual General Meeting in 2004, it is
unlikely that any proposals, following the failure of a continuation vote,
could be implemented until late 2004 or early 2005 and the Directors
believe shareholders would favour action at the present time.
* The full text of a letter sent to shareholders today is attached to this
announcement. A document giving details of the scheme of unitisation is
expected to be sent to shareholders within the next few weeks.
Contacts:
Nigel Legge, Joint Managing Director, Liontrust Investment Services Limited,
020-7412 1700
Jonathan Harbottle, Marketing Director, Liontrust Investment Services Limited,
020-7412 1700
Ends.
Letter to Shareholders of Liontrust Knowledge Economy Trust plc dated 14th
March 2003:
Dear Shareholder,
Proposed reconstruction of Liontrust Knowledge Economy Trust PLC (the
"Company")
Introduction
When I wrote to you in January with the Company's interim accounts for the six
months to 31st October 2002, I said that your Board was concerned at the
current and historic levels of discount to net asset value at which the
Company's ordinary shares (the "Shares") traded and that a number of options
were under review. As at 12th March 2003, that discount stood at 24.8 per cent
to net asset value and the discount has, historically, been as high as 29.9 per
cent. The Board has continued to review the options available, including taking
no action until the Annual General Meeting in 2004 when shareholders would have
the opportunity to vote on the Company continuing as an investment trust.
Your Board has concluded that the current lack of liquidity in the Shares and
the level of the discount to net asset value at which the Shares are trading
favours taking action now and the purpose of my writing to you today is to set
out an outline of what we propose to put to shareholders at a forthcoming
Extraordinary General Meeting. We were also mindful that the implementation of
any scheme adopted following the failure of a continuation vote at the Annual
General Meeting in 2004 would not be effective until late 2004 or early 2005,
and the Directors believe that shareholders would favour action at the present
time.
Scheme of Unitisation
It is anticipated that you will receive full details of a unitisation scheme in
a document to be sent to you within the next few weeks. That document will set
out a full timetable of events and guidance on the action you are required to
take.
Technically speaking, a unitisation scheme will involve a members' voluntary
liquidation, under which it is proposed that the Company's assets will be
transferred to a unit trust managed by Liontrust Investment Funds Limited, The
Liontrust Intellectual Capital Trust (the "Trust"), further details of which
are set out below. Under the scheme, shareholders will receive units in the
Trust in return for their Shares. The calculations to be applied to this
conversion will be set out in full in the scheme. Unlike Shares in the Company,
whose market price depends on the level of supply and demand for those Shares,
the price of units in a unit trust is more closely based on the value of the
underlying investments. One of the benefits of the proposed unitisation is
that, by acquiring units in the Trust, shareholders should see the discount to
net asset value at which their investment in the Company currently stands
substantially eliminated.
The Board's deliberations
The Board has taken into account the aims of the original flotation prospectus
(dated March 2001), the investment manager's performance, the Company's
investment objective and the interests of small and large shareholders.
Whilst there is the power to buy in Shares under the Articles of Association,
the Board believes that this route might further reduce liquidity in the Shares
and possibly provide only a short-term solution to the current discount. We
have also considered putting forward proposals for a complete liquidation of
the Company. In the latter regard, the Board was concerned that in current
stock market conditions it would be particularly difficult to realise at proper
value the Company's investments in smaller companies.
On your behalf the investment managers set out to outperform the capital
performance of the FTSE Small Cap. (excluding Investment Trusts) Total Return
Index. You can see from the table below that this asset performance objective
has been achieved, although share price returns to shareholders have suffered,
on a relative basis, because of the discount to net asset value. Clearly, the
overall weakness in stock market conditions since flotation has also played a
major part in the absolute performance of the Company.
Liontrust 2nd April 31st % 30th % 31st % 12th %
Knowledge 2001 October change April change October change March change
Economy 2003
Trust PLC ( Date of 2001 2002 2002
first NAV
calculation
after
flotation)
Share 100.0p 62.0p -38.0% 70.0p +12.9% 47.5p -32.1% 49.0p +3.2%
price (Launch,
(mid 30.3.01)
price)
NAV per 97.0p 78.3p -19.3% 86.1p +10.0% 62.6p -27.2% 65.2p +4.2%
share
FTSE 2869.1 2298.0 -19.9% 2564.6 +11.6% 1777.7 -30.7% 1654.0 -7.0%
Small
Cap.
Index
Source: Liontrust Investment Services Limited and Datastream�.
The Board has also reviewed options that would give shareholders an ongoing
exposure to Liontrust's UK smaller companies investment process, known as The
Cross Report, which has, to date, outperformed the benchmark index. The Trust
is managed in accordance with this investment process and has the same
investment objective as the Company.
The table below sets out the performance statistics relating to the Trust.
The Liontrust 31st 31st % 30th % 31st % 12th %
Intellectual March October change April change October change March change
Capital Trust 2001
2001 2002 2002 2003
Unit price 215.6p 172.5p -20.0% 191.1p +10.8% 140.4p -26.5% 145.8p +3.8%
(bid price)
Source: Liontrust Investment Funds Limited, bid to bid basis.
Thus, the cumulative returns of the both the Company and the Trust since the
Company's launch on 30th March 2001 until 12th March 2003 are as follows:
Liontrust Knowledge Economy Trust PLC - share -51.0%
price
Liontrust Knowledge Economy Trust PLC - NAV -32.8%
per share
The Liontrust Intellectual Capital Trust -32.4%
FTSE Small Cap. Total Return (ex. IT) Index -42.4%
Source: Datastream � and Liontrust Investment Funds Limited.
The Trust has total assets of some �42.9 million, compared to the Company's
assets of some �10.9 million. An analysis of the top ten holdings of both
portfolios is shown in the Appendix to this letter. We have also reviewed the
total expenses incurred by shareholders in comparison with the expenses which
would be borne in the Trust; there will be a substantial saving to
shareholders.
The future of the Company has also been discussed with a number of shareholders
since the publication of the last interim accounts. Whilst there is no strong
pressure to pursue change, the Board believes there is a strong preference for
the proposal it is planning to put to shareholders. Indeed, shareholders
representing over seventy per cent of the Company's issued share capital have
indicated their support for the Board's proposed scheme.
These proposals are fully endorsed by Liontrust Investment Services Limited,
the Company's investment managers.
Conclusion
Whilst it is with regret that, within two years after listing, and against good
relative investment performance, the Board will be proposing a scheme involving
the liquidation of the Company, the Board believes that there is no point in
battling against a lack of liquidity and investment trust sector discounts.
I will therefore be writing again to you in due course with full details of the
proposed scheme of unitisation, with your Board's formal recommendation, with a
timetable (including the date for an Extraordinary General Meeting to approve
the scheme) and with guidance on the action which you will be asked to take.
If you are in any doubt as to the action you should take at this point, or in
the future, you should consult an independent adviser authorised under the
Financial Services and Markets Act 2000.
Yours sincerely,
James Barclay
Chairman
END
