Interim Results

MONTANARO UK SMALLER COMPANIES INVESTMENT TRUST PLC PRELIMINARY ANNOUNCEMENT OF UNAUDITED INTERIM RESULTS The Directors announce the unaudited statement of results for the period 1 April 2004 to 30 September 2004 as follows:- SUMMARISED STATEMENT OF TOTAL RETURN (incorporating the revenue account*) 1 April 2004 1 April 2003 to 30 September 2004 to 30 September 2003 Revenue Capital Total Revenue Capital Total £'000 £'000 £'000 £'000 £'000 £'000 Capital gains on - 1,857 1,857 - 14,262 14,262 investments Dividends and 1,009 - 1,009 1,191 - 1,191 interest Investment (205) (205) (410) (189) (189) (378) management fee Other expenses (119) - (119) (108) - (108) Return before interest and taxation 685 1,652 2,337 894 14,073 14,967 Interest payable and (110) (110) (220) (122) (246) (368) similar charges Return on ordinary 575 1,542 2,117 772 13,827 14,599 activities before and after taxation Dividend** 9 - 9 - - - Transfer to reserves 584 1,542 2,126 772 13,827 14,599 Return per ordinary 1.63p 4.38p 6.01p 2.10p 37.53p 39.63p share*** * The revenue column of this statement is the revenue account of the Company. ** The Company repurchased and cancelled 320,000 ordinary shares following the 31 March 2004 year end, prior to the ex-dividend date of the final dividend. As no dividend is payable on shares that have been repurchased the dividends due on such shares, totalling £9,000, reverted back to the Company. *** The calculation of returns per ordinary share exclude shares held in treasury, so the weighted average number of shares in issue during the period been adjusted to reflect this. The financial statements have been prepared using accounting standards and policies adopted at the previous year end. All revenue and capital items in the above statement derive from continuing operations. No operations were acquired or discontinued in the period. These financial statements are unaudited and are not the Company's statutory financial accounts. SUMMARISED BALANCE SHEET As at As at As at 30 31 March 30 September September 2004 2004 2003 £'000 £'000 £'000 Fixed asset investments 66,394 63,430 56,317 Net current assets 2,999 8,032 9,222 Long term credit facility (7,500) (7,500) (7,500) Net assets 61,893 63,962 58,039 Share capital and reserves Share capital 3,652 3,684 3,684 Share premium account 18,680 18,680 18,680 Capital redemption reserve 1,058 1,026 1,026 Special reserve 11,075 11,518 11,518 Capital reserve - realised 27,157 26,983 27,094 Capital reserve - unrealised 2,450 1,082 (5,455) Revenue reserve 1,573 989 1,492 Own shares held in treasury (3,752) - - Shareholders' funds 61,893 63,962 58,039 less current period revenue (584) - (772) Total net assets for the purpose of 61,309 63,962 57,267 calculating the net asset value per ordinary share Net asset value per ordinary share* 181.56p 173.63p 155.46p * Net asset values per share are calculated based on the number of ordinary shares in issue at the period end excluding shares held in treasury. SUMMARISED STATEMENT OF CASHFLOWS 1 April 2004 to 1 April 2003 to 30 September 30 September 2004 2003 £'000 £'000 Net cash inflow from operating activities 528 756 Servicing of finance - Interest and similar charges paid (218) (260) Net cash outflow from servicing of finance (218) (260) Capital expenditure and financial investment - Purchases of investments (15,440) (15,246) - Sales of investments 13,876 17,697 Net cash (outflow)/inflow from capital expenditure and financial investment (1,564) 2,451 Equity dividends paid (1,041) (928) Net cash (outflow)/inflow before financing (2,295) 2,019 Financing - Ordinary shares repurchased and cancelled (443) (558) - Ordinary shares repurchased and held in (3,752) - treasury - Repayment of credit facility - (2,500) - Loan breakage costs - (124) Net cash outflow from financing (4,195) (3,182) Decrease in cash (6,490) (1,163) These financial statements are unaudited and are not the Company's statutory accounts. Full financial statements for the year ended 31 March 2004 include an unqualified audit report and have been delivered to the Registrar of Companies. INVESTMENT MANAGER'S REPORT Charles Montanaro commented: 'PERFORMANCE Over the six months ended 30 September 2004, the Company's net asset value ('NAV') increased by 5% compared with a fall of more than 4% by the SmallCap, outperforming its benchmark by 9%. From the launch of the Company in March 1995 to the end of September 2004, the NAV has risen by 84% compared with a gain by the benchmark of 50%. REVIEW There are occasions, thankfully, when markets are quiet. In contrast with the turbulence and volatility of last year, the UK small company market was subdued over the past six months. The SmallCap declined by 2% over the first quarter ended 30 June 2004 and by a further 2% over the quarter ended 30 September 2004. In comparison, the FTSE All-Share rose by 3% over the past six months. Investors could go safely on holiday (if they could find any sunshine in the UK) and return to find UK equity markets pretty much unchanged. As always, we actively search for attractive investment opportunities irrespective of market conditions. It is pleasing to report that the Company achieved healthy outperformance over this period as a result of good stock selection. Although very little happened in UK equity markets over the past six months, a great deal was happening elsewhere. To curb an overheating housing market, the Bank of England increased interest rates three times from 4% to 4.75% - UK property prices in August recorded their first decline in two years. The geo-political situation continued to be difficult with Iraq and the Middle East remaining unsettled. The oil price rose from $35 to almost $50 per barrel, an increase of more than 40%, and commodity prices continued to rise. Against this background, equity markets held up well. OUTLOOK Recently, small companies have reported earnings that overall have met or exceeded market expectations, which augurs well for the coming months - particularly since valuations appear reasonable. One of the striking features of the UK small company market has been an increase in take-over activity. No less than three portfolio companies have disappeared (Yates, Synstar, Linx Printing) and others are involved in take-over discussions. This is an unusually high level of activity by historic standards and reflects that company balance sheets appear strong - there is plenty of cash around. We would expect this trend to continue as large companies find top line growth difficult to achieve in a low inflationary environment and look to acquire more dynamic companies as a solution to the problem. Cash from such realisations and exceptional dividends is likely to be recycled into the UK small companies market. Take-over activity has been focused on well-managed, quality businesses, which form the core of the portfolio. It is here that we believe our research and skill in stock selection can make a significant difference to achieving attractive returns in a very stock specific market, such as we have seen over the past six months.' CHARLES MONTANARO Montanaro Investment Managers Limited SIR BRANDON GOUGH Chairman 22 November 2004

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