Final Results

MONTANARO UK SMALLER COMPANIES INVESTMENT TRUST PLC PRELIMINARY ANNOUNCEMENT OF AUDITED ANNUAL RESULTS The Directors announce the audited statement of results for the year ended 31 March 2004 as follows:- STATEMENT OF TOTAL RETURN (incorporating the revenue account*) of the Company 1 April 2003 to 31 March 1 April 2002 to 31 March 2004 2003 Revenue Capital Total Revenue Capital Total £'000 £'000 £'000 £'000 £'000 £'000 Capital gains/(losses) on investments - 21,002 21,002 - (29,413) (29,413) Dividends and interest 2,158 - 2,158 2,179 - 2,179 receivable Investment management (394) (395) (789) (386) (387) (773) fee Other expenses (214) - (214) (238) - (238) Net return before financing costs and taxation 1,550 20,607 22,157 1,555 (29,800) (28,245) Interest payable and similar charges (231) (355) (586) (299) (299) (598) Return on ordinary activities before taxation 1,319 20,252 21,571 1,256 (30,099) (28,843) Taxation on ordinary - - - - - - activities Return on ordinary 1,319 20,252 21,571 1,256 (30,099) (28,843) activities after taxation Dividend proposed (1,050) - (1,050) (928) - (928) Transfer to/(from) reserves after dividends proposed 269 20,252 20,521 328 (30,099) (29,771) Pence Pence Pence Pence Pence Pence Return per ordinary 3.56 54.75 58.31 3.37 (80.72) (77.35) share * The revenue column of this statement is the revenue account of the Company. All revenue and capital items in the above statement derive from continuing operations. No operations were acquired or discontinued in the year. SUMMARISED BALANCE SHEET As at As at 31 March 31 March 2004 2003 £'000 £'000 Investments 63,430 44,728 Net current assets 8,032 9,270 Total assets less current liabilities 71,462 53,998 Creditors - amounts falling due after more than one year (7,500) (10,000) Net assets 63,962 43,998 Net asset value per ordinary share 173.63p 118.00p SUMMARISED STATEMENT OF CASHFLOWS Year to 31 Year to 31 March March 2004 2003 £'000 £'000 Net cash inflow from operating activities 1,159 1,179 Servicing of finance - Interest and similar charges paid (481) (615) - Loan breakage costs (124) - Net cash outflow from servicing of finance (605) (615) Taxation - Taxation recovered - 2 Net inflow from taxation - 2 Capital expenditure and financial investment - Purchases of investments (28,684) (16,560) - Sales of investments 31,150 20,589 Net cash inflow from capital expenditure and financial investment 2,466 4,029 Equity dividends paid (929) (690) Net cash inflow before financing 2,091 3,905 Financing - (Repayment)/proceeds of credit facility (2,500) 2,500 - Ordinary shares purchased for cancellation (557) - Net cash (outflow)/inflow from financing (3,057) 2,500 (Decrease)/increase in cash (966) 6,405 The financial information set out above does not constitute the Company's statutory accounts for the years ended 31 March 2003 or 2004. Statutory accounts for 2003 have been delivered to the Registrar of Companies, whereas those for 2004 will be delivered following the Company's Annual General Meeting. The auditors have reported on those accounts; their reports were unqualified and did not contain a statement under section 237 (2) or (3) of the Companies Act 1985. CHAIRMAN'S STATEMENT Background I am pleased to present the ninth annual report of the Montanaro UK Smaller Companies Investment Trust PLC ('the Company'). The Company was launched on 16 March 1995. In 1996, the initial £25 million Company was increased in size through a £30 million 'C' share issue. Net assets now stand at £64 million. An investment trust is an attractive vehicle for shareholders to invest in quoted UK 'smaller' companies, which are less well researched and more illiquid than larger, blue chip companies. The investment policy remains to focus on the 'smaller' end of the quoted UK small companies market. Performance In the year to 31 March 2004, the NAV of the Company increased by 47 % to 173.6p in comparison with a 62 % gain by the FTSE SmallCap (excluding investment companies) Index (' SmallCap'). Since launch, the NAV of the Company has outperformed the SmallCap, its benchmark, increasing by 76 % in comparison with a 57 % gain by the SmallCap. Last year was a turbulent period for investors as global stock markets suffered ahead of the Iraq War only to stage a dramatic recovery once it had started and been won. The three-year bear market saw its low point during this time in March 2003. Although most assets - whether bonds, property, commodities or equities - all saw strong gains, UK quoted small companies fared particularly well, significantly outperforming large companies. Although underperforming the SmallCap last year, the Company nonetheless produced very strong absolute returns. Discount The discount of the Company's share price to NAV was 23% on 31 March 2004 (2003: 21%). This compares with the sector average of 21% (Source: Bloomberg). Share Buy Backs The Board is responsible for the implementation of the share buy back programme, which is undertaken at arm's length from the Manager. The Board continues to consider share buy backs as and when appropriate. Since launch, a total of 10,583,470 shares of the Company have been purchased for cancellation, including 320,000 that have been purchased since 31 March 2004. Approval to renew this authority will be sought at the forthcoming Annual General Meeting. Holding Shares in Treasury As an alternative to cancellation, new regulations came into force on 1 December 2003 that allow companies, including investment trusts, to buy back shares and hold them in treasury for re-issue at a later date. This has the benefit of improving liquidity as well as retaining the opportunity to enhance net asset value through buybacks. The new regulations allow up to 10% of the issued share capital to be held in treasury at any one time. Approval to issue shares from treasury will be sought at the forthcoming Annual General Meeting. Gearing The Board reviews the level of gearing considered appropriate for the Company in discussion with the Manager. One of the benefits of investment trusts is the ability to hold prudent levels of gearing, which can enhance investment returns. ING Bank provides a borrowing facility of up to £10 million at a fixed rate of 5.73%, which expires on 1 August 2007. £2.5 million was repaid during the period and as at 31 March 2004 £7.5 million was drawn down under the facility. Dividend Although t he Company's primary focus is on capital growth rather than income, the Board is aware that certain shareholders have a requirement for income as well. Accordingly, t he Board proposes a final dividend of 2.85p (2003: 2.49p) per ordinary share, representing an increase of over 14%. The final dividend will be payable on 30 July 2004 to shareholders on the register at the close of business on 28 May 2004. Corporate Governance The Board has reviewed the revised disclosure requirements for annual reports following release of the revised Combined Code on Corporate Governance. The Company already complies with most requirements and will report fully on its compliance with this code in its annual report and financial statements for the year ended 31 March 2005. Outlook At the time of writing last year, the SmallCap had halved in value from its peak and 'investors had suffered one of the most extreme and longest bear markets in living memory'. Since then, UK quoted small companies have produced the third highest returns in almost fifty years. The economic outlook for the UK remains encouraging, supported by historically low interest rates, a buoyant housing market and benign inflation outlook. However, the prospects for equities appear less certain than a year ago when valuations appeared more compelling. Certainly sentiment has changed considerably. Record selling of equities in 2003 has been followed recently by record buying on a scale last seen in March 2000, just before the previous peak. At the very least, shareholders should not expect to see a repeat of the returns of last year. UK quoted small companies perform well when the domestic economy is in good shape, as it appears to be today. Historically, at such times they have produced positive absolute returns for investors. Although stock markets may pause to digest the gains of last year, UK quoted small companies appear broadly attractive relative to their larger counterparts. However, whereas last year saw exceptional gains from most forms of investment, future returns are likely to depend more on careful stock selection. As a Board, we are confident that the Company is well placed in this regard due to the experience and high level of in-house resources of the Manager. Sir Brandon Gough Chairman 18 May 2004

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