Annual Financial Report
Montanaro European Smaller Companies Trust plc (the "Company'')
LEI: 213800CWSC5B8BG3RS21
Financial Results
RESULTS FOR THE YEAR ENDED 31 MARCH 2021
The Directors are pleased to present the Annual Financial Results of the Company for the year ended 31 March 2021.
The information set out below does not constitute the Company's full statutory accounts for the year ended 31 March 2021 in terms of Section 434 of the Companies Act 2006 but is derived from those accounts. Statutory accounts for the year ended 31 March 2021 will be posted to Shareholders and delivered to the Registrar of Companies, in due course. The Auditors have reported on those accounts; their report was (i) unqualified, (ii) did not include a reference to any matters to which the Auditors drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under Section 498 (2) or (3) of the Companies Act 2006. The text of the Auditors' report can be found in the Company's full Annual Report and Accounts. Audited statutory accounts for the year to 31 March 2020, which were unqualified, have been lodged with the Registrars of Companies.
Investment Objective
The investment objective of Montanaro European Smaller Companies Trust plc (the 'Company') is to achieve capital growth by investing principally in Continental European quoted smaller companies.
Highlights
for the year ended 31 March 2021
Performance
|
Capital Returns%( 1) |
1 year |
3 year |
5 year |
10 year |
MAM* |
|
Ordinary share price |
83.0 |
101.3 |
198.1 |
244.8 |
404.4 |
|
Net Asset Value ('NAV') per Ordinary share** |
66.1 |
76.5 |
149.6 |
195.3 |
364.9 |
|
Benchmark (Composite) (2) ** |
55.6 |
23.9 |
70.9 |
122.9 |
245.5 |
|
Total Returns%( 1) |
1 year |
3 year |
5 year |
10 year |
MAM* |
|
Ordinary share price |
84.2 |
106.4 |
213.0 |
287.4 |
506.8 |
|
NAV per Ordinary share** |
67.2 |
80.6 |
161.1 |
229.1 |
448.3 |
|
Benchmark (Composite) (2) ** |
57.9 |
30.6 |
86.9 |
168.1 |
276.8 |
Sources: Morningstar Direct, Association of Investment Companies ('AIC'), MAM.
|
|
As at 31 March 2021 |
As at 31 March 2020 |
12 month % change |
|
Ordinary share price |
1,610.0p |
880.0p |
83.0 |
|
NAV per Ordinary share** |
1,589.0p |
956.9p |
66.1 |
|
Premium/(discount) to NAV (1) |
1.3% |
(8.0%) |
|
|
Gross assets** (£'000s) |
284,560 |
168,932 |
68.4 |
|
Net assets** (£'000s) |
276,065 |
160,123 |
72.4 |
|
Market capitalisation** (£'000s) |
279,709 |
147,253 |
90.0 |
|
Net gearing employed (1) |
2.4% |
5.8% |
|
|
|
Year 31 March 2021 |
Year 31 March 2020 |
12 month % change |
|
Revenue return per Ordinary share |
3.1p |
11.9p |
(73.9) |
|
Divided per Ordinary share |
9.25p |
9.25p |
0.0 |
|
Ongoing charges (1) |
1.2% |
1.2% |
|
|
Portfolio turnover** |
22% |
14% |
|
* From 5 September 2006, when Montanaro Asset Management ('MAM') were appointed as Investment Manager.
** Details provided in the glossary
in the full Annual Report and Accounts
.
(1) Refer to Alternative Performance Measures
in the full Annual Report and Accounts.
(2)
From 5 September 2006, the benchmark was the MSCI Europe SmallCap Index. The benchmark was changed on 1 June 2009 to the MSCI Europe ex-UK
SmallCap Index (in sterling terms).
Chairman's Statement
for the year ended 31 March 2021
Results
In a time of extraordinary difficulty and indeed crisis for people around the world, investors in European smaller companies could not have faced a more contradictory outcome. The MSCI Europe (ex-UK) Small Cap Index (in Sterling terms) rose by 55.6% for the financial year ended 31 March 2021. In comparison, the Net Asset Value ("NAV") of your Company rose by 66.1% to 1,589.0p per share. Shareholders benefitted as the discount of 8% moved to a premium of 1.3%. As a result, the share price of the Company provided a return of 83.0%.
Over the medium and longer term, performance has been exceptional. Once again, your Trust was ranked 1st amongst all European investment trusts over 3 years and 5 years. Since the appointment of Montanaro Asset Management Limited ("Montanaro") in September 2006, the NAV per share has provided a total return of 448%, compared with 277% for the benchmark index. A review of the investment philosophy, process, and a further analysis of performance are set out in the Manager's Report together with more detail on some of the businesses in which the Company is invested.
Earnings and Dividends
In the 2020 Annual Report, we highlighted that it was likely that income from your investee companies would decline from the high levels seen in the previous year. This has proved to be the case given the impacts of the Covid-19 pandemic as well as political pressure to limit distributions in light of the government support schemes that were put in place. Revenue earnings per share for the period were 3.1p (2020: 11.9p).
Despite this reduction in income, we remain confident about the long-term prospects of your investee companies. In addition, the Company holds substantial revenue reserves which are available for distribution to smooth short-term income volatility.
An interim dividend of 2p per share was paid on 4 January 2021. The Board recommends the payment of a final dividend of 7.25p per share payable on 15 September 2021 to shareholders on the register on 13 August 2021. Subject to shareholder approval, this would bring the total dividends for the year to 9.25p per share, which is unchanged from the previous year.
Borrowings
The Board, in discussion with the Manager, regularly reviews the gearing strategy of the Company and approves the arrangement of any gearing facility. Gearing increases (or decreases) the returns from underlying profits or losses generated by the investment portfolio.
The Board has set a maximum limit on borrowing (net of cash) of 30% of shareholders' funds at the time of borrowing. At the end of the fiscal year, the Company had borrowings (net of cash) of 2.4% compared to 5.8% at the beginning of the year. The Company currently has borrowings in the form of a €10 million fixed rate loan and a €15 million revolving credit facility, both of which are due to mature on 13 September 2023.
The Board
The Board consists solely of independent Non-Executive Directors with a good balance of skills, experience, diversity and knowledge of the Company and its business.
We are fortunate to have welcomed Gordon Neilly to the Board in September 2020. Gordon has a wealth of experience and expertise in investment management and specifically investment trusts. He is already making an important contribution to Board discussions.
Following Gordon's appointment, Merryn Somerset Webb retired from the Board at the end of the calendar year after 9 years of service. I would like to thank Merryn for her outstanding contribution and commitment to the Board.
Treasury Shares
During the year, the Company issued 640,000 shares from treasury. 75,000 shares remained in treasury as of 31 March 2021. Since then, a further 25,000 shares have been issued from treasury, leaving 50,000 shares remaining in treasury. The Board's stated treasury shares policy is included in the Annual Report and Accounts. The Board will seek to renew the Company's share buyback and share issuance authorities at the forthcoming Annual General Meeting.
Proposed sub-division of the Company's Share Capital
The Board is proposing to implement a sub-division of the Company's share capital. This may increase the attractiveness of the Company's shares to potential investors and increase the liquidity in the market for the Company's shares.
The Directors are recommending a ten for one share split which will increase the number of ordinary shares in issue by a factor of ten. Of course, this will not affect the overall value of the Company.
Based on the closing share price of 1,610 pence per share as at 31 March 2021, each shareholder will receive ten new shares for every one ordinary share previously held and the new shares would be expected to trade at 161 pence per share. The market price of the shares, both before and after completion of the proposed sub-division, will vary depending on market conditions at the time. The proposed sub-division of the Company's share capital is subject to shareholder approval at the Annual General Meeting.
Further information on the proposed sub-division can be found on page 26 and on pages 77 and 78 of the full Annual Report and Accounts.
Management Fee Arrangements
The Company has grown strongly since Montanaro were appointed as the Company's Manager in 2006. Montanaro have also invested significantly in their research capabilities over this time. As the Company increases in size, the Board and the Manager are keen to ensure that shareholders benefit from the ensuing economies of scale.
In consultation with the Manager, the Board is pleased to announce that, with effect from 1 April 2021 , the management fee rate will decrease as the market capitalisation of the Company increases, as detailed on page 22 of the full Annual Report and Accounts . The Board believes that this new tiered approach will ensure that shareholders benefit from a competitive fee structure.
Coronavirus Pandemic
Since the end of February 2020, global financial markets have seen considerable disruption due to the rapid spread of Covid-19. All the Company's service providers have enacted their respective business continuity plans and continue to operate normally.
Annual General Meeting
The Board currently expects that the AGM will be held at the offices of Montanaro Asset Management Limited, 53 Threadneedle Street, London EC2R 8AR, on 9 September 2021 at 12.30pm.
Due to the ongoing uncertainty around COVID-related restrictions imposed by the Government, this is subject to possible change. Shareholders will be advised of any planned changes via the Company's website and the London Stock Exchange, where applicable.
Given the above, we recommend that all shareholders vote by proxy in advance of the AGM, appointing me, as the Chair of the meeting, as their proxy. I urge you to submit your proxy votes in good time for the meeting. Further details of this year's AGM, including information on how to vote, can be found on pages 68 to 78 of the full Annual Report and Accounts.
Arrangements are being made to enable shareholders to see the presentation which will be given by the Investment Manager at the AGM. This is being done in the event that the AGM might not be able to proceed in person, to ensure that all shareholders have the chance to see the update and engage with the Company. The presentation will be filmed and published at www.montanaro.co.uk/trust/mesct in advance of the AGM. Should you wish to ask the Board or the Investment Manager any questions, we request that you do so by either email to: MESCT@linkgroup.co.uk , or by post, by writing to: The Company Secretary, Link Company Matters Limited, 6th floor, 65 Gresham St, London EC2V 7NQ. Those questions which are submitted before Friday 3 September 2021 will be answered ahead of the AGM, and we will endeavour to answer any questions subsequently received as soon as possible.
Outlook
The last couple of years have shown how hard it is to predict the future. The Montanaro team avoids trying to forecast macroeconomic developments, preferring instead to focus on the fundamentals of your individual investee companies: Do they have structural growth prospects? Are they high quality businesses? Are they run by honest and hardworking management teams? Can they thrive when times are good yet withstand unexpected shocks?
This approach works particularly well when levels of uncertainty are high and, we believe, over time horizons that are long enough to allow the effect of high returns and growth to compound. However, there are times when such a "quality growth" style falls out of favour. This has historically been the case when there has been a rapid improvement in economic growth prospects or when the consensus perception is that risks are falling, often at the end of a Bear Market. In such periods, "a rising tide lifts all boats" meaning that high quality, structural growth companies can underperform. We have seen this a few times over recent decades and we did so again in the months following the announcements of successful vaccine trial results last year.
Montanaro believes timing such shifts accurately to be almost impossible and thus prefers to stick to high quality, growing companies for the long term. It is notable that a large number of companies in the portfolio are today worth many times their original cost. We believe this demonstrates that the long term success the Company has enjoyed is primarily due to good stock picking rather than shorter term style or economic cycles. It is this unwavering approach that has delivered the strong absolute and relative returns since Montanaro were appointed and which enables us to look forward to the future with confidence.
R M CURLING
Chairman
17 June 2021
Manager's Report
The Attractions of Quoted European Smaller Companies ('SmallCap')
The key attraction of investing in smaller companies is their long-term record of delivering higher returns to investors than large companies. In the UK, over the last 66 years, this has amounted to an average of 3.4% per annum ("the SmallCap Effect"). £1 invested in UK large companies in 1954 would now be worth £1,030 whereas the same £1 invested in smaller companies would now be worth over £7,900 - more than 7 times more.
We have less comprehensive data on Europe - it only goes back to 2000. However, this suggests that the SmallCap Effect is even more pronounced on the Continent: European "small" companies have outperformed by over 6% per annum.
The market for European smaller companies is inefficient. While some large companies are analysed by more than 50 brokers, many smaller companies in Europe have little or no coverage at all. This makes it easier for those with a high level of internal resources to identify attractive, undervalued investment opportunities that are undiscovered by the wider investing community. This in turn makes it possible to deliver long-term performance over and above that of the benchmark.
Montanaro
Montanaro was established in 1991. We have one of the largest and most experienced specialist teams in the UK dedicated exclusively to researching and investing in quoted small companies. Our team of 35 includes ten nationalities, which gives us the breadth of resources to conduct thorough in-house research.
At 31 March 2021, we were looking after almost £4 billion of assets.
Investment Philosophy and Approach
We specialise in researching and investing in quoted small companies.
We have a disciplined, two-stage investment process. Firstly, we identify "good businesses" within our investable universe. In the second stage, we determine the intrinsic value of each company to ensure they will make a "good investment" (the two are not always the same). When we consider that we have identified a good company, it must pass our stringent quality and ESG checklists and be approved by
our Investment Committee before it can be added to the "Approved List". ESG has been integrated into our disciplined investment process for almost two decades. Only the most attractive companies make it on to the Approved List and it is from these that we construct your portfolio.
We have an in-house team of eleven analysts who are sector specialists. Utilising their industry knowledge and a range of proprietary screens, they are continually searching for new ideas. With around 4,000 companies to choose from, we are spoiled for choice.
We look for high quality companies in markets that are growing. They must be profitable; have good and experienced management; deliver sustainably high returns on capital employed; enjoy high and ideally growing profit margins reflecting pricing power and a strong market position; and provide goods and services that are in demand and likely to remain so.
We prefer companies that can deliver self-funded organic growth and remain focused on their core areas of expertise, rather than businesses that spend a lot of time on acquisitions.
Conversely, we avoid those with stretched balance sheets; poor free cash flow generation; incomprehensible or heavily adjusted accounts; unproven or unreliable management; or that face structurally challenged business models with stiff competition.
We believe that a deep understanding of a company's business model and the way it is managed are essential. In normal circumstances, we visit our investee companies on a regular basis, although this has not been possible during the pandemic. We are looking forward to these visits resuming, although it is worth stating that company access during the year has remained excellent: you get a different perspective talking to a CEO while they sit at home rather than in the formal setting of a board room.
Management's past track record is examined in detail as we seek to understand their goals and aspirations. In smaller companies, the decisions of the entrepreneurial management can make or break a company (which is why meeting them is so important). We look closely at the board structure; the level of insider ownership; and examine remuneration and corporate governance policies.
Once a company has been added to the portfolio, our team conducts ongoing analysis. We will sell a holding if we believe that the company's underlying quality is deteriorating or if there has been a fundamental change to the investment case or management.
In summary, we invest in well managed, high quality, growing companies bought at sensible valuations. We keep turnover and transaction costs low and follow our companies closely over many years. We would rather pay more for a higher quality, more predictable company that can be valued with greater certainty. Finally, we align our interests with our investors by investing meaningful amounts of our own money alongside yours. We are significant shareholders in the Trust.
Environmental, Social & Governance ("ESG")
Montanaro became a B Corporation in June 2019. "B Corps" are businesses that meet the highest standard of verified social and environmental performance, public transparency and legal accountability to balance profit and purpose. We also joined the "Net Zero Asset Managers Initiative" in early 2021, further cementing our commitment to achieving "net zero carbon" for our business.
As part of our due diligence work, we place a great deal of emphasis on Ethical and ESG factors. We work closely with our companies to encourage sustainable business practices, which we believe play an integral part in the creation of long-term shareholder value.
Montanaro believes there is a clear correlation between how well a business fares on Environmental, Social and Corporate Governance grounds and the value it creates for its shareholders. Therefore, ESG considerations form an integral part of our assessment of a company's "Quality" and are fully integrated into our investment process. All the ESG research is done in-house by our Analysts.
In addition, we engage with companies in an effort to improve corporate behaviour. As responsible shareholders, we believe that it is our duty to engage with our investee companies. In our experience, active and constructive engagement can help to foster positive long-term change in the way businesses are run.
We do not invest in companies that generate a significant proportion of sales from products with negative societal impact such as tobacco, gambling, armaments, alcohol, high-interest-rate lending and fossil fuels. Similarly, we do not invest in companies that conduct animal testing, unless it is required by law for healthcare or regulatory purposes. With the "sustainability" trend a growing feature of the investment landscape, we believe that we are ahead of the curve. In SmallCap, it is particularly important to engage with companies to influence the impact they have on the world. Our high level of in-house resources makes this possible and we recently hired an ESG & Impact Specialist to support the work of our Investment Team.
We conducted a number of engagements with our investee companies during the year. This included discussing the use of single-use plastics in Sartorius Stedim's product suite. The CEO, Dr Joachim Kreuzburg, explained that Sartorius want to be pioneers by only developing products where the environmental and health benefits align, strengthening our conviction in the value-led proposition of its offering. We were also encouraged to hear that the Chief Technology Officer is leading a plastics working group to reduce plastic consumption across the business. We also discussed climate change with a number of our companies as we encouraged them to set ambitious environmental targets. We were delighted that after our engagement, Thule signed up to the Science Based Targets Initiative, a publicly defined climate related goal that supports the aims of The Paris Agreement on Climate Change.
How to invest
We have invested a great deal of time to make the Trust readily available to all investors. We have continued to grow our presence across the UK's investment platforms and are delighted to see a steady increase, year after year, in the Trust's retail following. Together with the Board, we have appointed Marten & Co to provide sponsored research - you can find the initiation report published in March 2019 here: https://www.montanaro.co.uk/mesct-quality-business/ and an update report published in October 2020 here:
For further details about how to invest, please refer to the website: https://www.montanaro.co.uk/trust/mesct
The Portfolio
At 31 March 2021, the portfolio consisted of 55 companies of which the top ten holdings represented 33% of the investment portfolio. Sector and country distribution within the portfolio is driven by stock selection. Although weightings relative to the market are monitored, overweight and underweight positions are held based on where the greatest value and upside are perceived to be.
Performance Attribution
The year to 31 March 2021 saw some strong performances from our largest investments.
Fortnox provides cloud-based accounting systems to companies in Sweden. The company delivered yet another year of exceptional growth and margin expansion. In addition, the stock received research coverage from the sell-side for the first time, which may have helped bring it to the attention of the wider investment community - albeit a number of years after our in-house team had identified it as an attractive company.
Avanza is the leading online savings and investments platform in Sweden. The company had an extraordinary year with both new customers and transactions per customer rising significantly. Combined with operating leverage, this caused earnings per share to almost triple in 2020.
MIPS sells a patented insert for helmets which protects against rotational motion. The company persuaded more manufacturers to include MIPS in their helmets last year while existing customers expanded the inclusion of MIPS into a wider range of models. A tougher market in winter sports was more than offset by booming demand for cycle helmet products as more people took up cycling, driving significant growth for the group.
The year was such a strong one for European equities that some of the largest detractors to our relative performance were companies whose shares rose in the period, but not by as much as the market:
CTS Eventim is the market leading ticketing company in Europe. The company endured a torrid year as the lack of concerts meant ticket sales disappeared almost entirely. We do not believe this will be a "new normal" and expect concert attendance to rebound when restrictions on travel and gatherings are removed. Moreover, thanks to the strong balance sheet, we expect CTS to emerge in a strong competitive position and potentially to take market share from weaker competitors.
VZ Holding is a Swiss independent financial consultant and wealth manager. The company delivered a characteristically strong fundamental performance during the year, but the shares failed to keep up with the market as a whole despite rising in absolute terms.
Belimo develops and manufactures electrical motorised control devices (actuators) for air and water applications. The company's revenues and profits declined slightly on an underlying basis as the disruptive effects of the Covid-19 pandemic were combined with currency headwinds. We do not consider these issues to be structural in nature.
Portfolio Changes
We try to keep portfolio turnover as low as possible. Nevertheless, we typically make a few changes each year as we identify new ideas that we think will provide stronger long-term returns than existing holdings. Companies that become too large, are acquired or where the investment case deteriorates are also replaced with new ideas from our Approved List.
In the year to 31 March 2021, we exited positions in companies including Industria Macchine Automatiche (IMA) , the developer of packaging equipment which received an offer to be taken private at a significant premium to the share price immediately ahead of the announcement. Nemetschek, which develops software for the architecture, engineering and construction industry was sold on valuation grounds in light of our belief that the company needs additional investment to integrate its variety of different products into a unified suite. Intertrust, the provider of trust and corporate services, was sold following a management change and evidence of an increasingly competitive environment.
New additions to the portfolio included Invisio , which develop high end communication systems and Endor, which makes racing simulation hardware for gaming under its FANATEC brand.
Gearing
The Alternative Investment Fund Manager ("AIFM"), in consultation with the Board, is responsible for determining the net gearing level of the Company. The company ended the fiscal year with gearing of 2.4% (31 March 2020: 5.8%).
MONTANARO ASSET MANAGEMENT LIMITED
17 June 2021
EXTRACTS FROM STRATEGIC REPORT
Principal and Emerging Risks and Uncertainties and Risk Mitigation
In accordance with the AIC Code of Corporate Governance, the Board has an established process for identifying, evaluating and managing the emerging and principal risks faced by the Company. The Board carefully considers the Company's principal and emerging risks and seeks to mitigate these risks through continued and regular review, policy setting, compliance with and enforcement of contractual obligations and active communication with the Manager, the Administrator and shareholders.
Most of the principal and emerging risks that could threaten the Company's objective, strategy, future returns and solvency are market related and comparable to those of other investment trusts investing primarily in quoted securities.
The Report of the Audit Committee in the full Annual Report and Accounts summarises the Company's internal control and risk management arrangements. By means of the procedures set out in that summary, and in accordance with the Guidance on Risk Management, Internal Control and Related Financial and Business Reporting, issued by the Financial Reporting Council, the Board has established an ongoing process for identifying, evaluating and managing the significant risks faced by the Company. It has also regularly reviewed the effectiveness of the Company's risk management and internal control systems for the period. During the year, the Board have carried out a robust assessment of the principal and emerging risks facing the Company, including those that would threaten its business model, future performance, solvency or liquidity.
The principal risks and uncertainties faced by the Company, and the Board's mitigation approach are described below.
Notes 16 to 20 to the accounts provide detailed explanations of the risks associated with the Company's financial instruments and their management.
|
Principal Risks |
Mitigation |
|
Investment and strategic risk: Inappropriate strategy, including country and sector allocation and stock selection could lead to poor returns for shareholders.
No material change in overall risk in year |
At each Board Meeting, the Manager discusses portfolio performance and strategy with the Directors and performance against the benchmark and the peer group is reviewed. The Manager also provides the Board with monthly reports. The portfolio is well diversified with typically 45-55 holdings, thereby reducing stock-specific risk. The Board formally reviews the performance of the Manager and its terms of appointment annually .
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Gearing: One of the benefits of an investment trust is its ability to use borrowings, which can enhance returns to shareholders in a rising stock market. However, gearing exacerbates movements in the NAV both positively and negatively and will exaggerate declines in NAV when share prices of investee companies are falling.
No change in overall risk in year |
The Board is responsible for setting the gearing range within which the Manager may operate and has set a maximum limit on borrowing, net of cash, of 30% of shareholders' funds at the time of borrowing. The Company currently has borrowing facilities in the form of a fixed rate loan facility of €10 million and a €15 million revolving credit facility, both of which mature in September 2023. As at 31 March 2021, €10 million was drawn down from these facilities.
The Board receives recommendations on gearing levels from the Manager, and monitors and discusses with the Manager the appropriate level of gearing at each Board Meeting. |
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Other financial risks: The Company invests principally in Continental European quoted smaller companies and its principal risks are therefore market related with short term risk arising from the volatility in the prices of the Company's investments and foreign exchange. Events such as terrorism, disease (such as a global pandemic), protectionism, inflation or deflation, changes in regulation and taxation, excessive stock market speculation, economic recessions, political instability and movements in interest rates and exchange rates could affect share prices in particular markets.
As with all small company investment trusts, there is liquidity risk at times when the liquidity of the underlying portfolio is poor, such as when smaller companies are out of favour or during periods of adverse financial conditions. The portfolio is focused on investments in smaller European companies where the opportunities may be more attractive than in larger companies but where overall portfolio liquidity may be more challenging. This may result in difficulties in buying or selling individual holdings in difficult markets. In addition, illiquid stock markets may impact the discount of the Company's share price to the NAV per share.
Remains increased due to continued potential impacts from global pandemic
|
Portfolio diversification, both geographical and sectoral, can mitigate the consequences of such risky events and the Board reviews the portfolio with the Manager on a regular basis. It is not the Company's policy to hedge currency risk. The Board has also set investment restrictions and guidelines which are adhered to and reported on by the Manager. If required, it is also possible to raise the level of cash held, thereby reducing the risk of declining share prices and the effect of gearing on lower portfolio valuations. The portfolio's liquidity is not managed on the basis of timing short-term market fluctuations.
One of the benefits of an investment trust is that the Manager is rarely forced to buy or sell individual holdings at inopportune times. The Manager constantly reviews the underlying liquidity of the portfolio, which is well diversified, and deals with a wide range of brokers to enhance its ability to execute and minimise liquidity risk.
The liquidity of the portfolio is monitored by the Manager and reported to the Board, and market conditions and their impacts are considered.
Further details on the financial risks arising from the Company's financial instruments, together with the policies for managing these risks are included in notes 16 to 20 to the accounts. |
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Discount/premium volatility : As with all small company investment trusts, discounts can fluctuate significantly both in absolute terms and relative to their peer group.
No material change in overall risk in year |
The Board and Manager actively monitor any discount or premium of share price to NAV per share and seek to influence this through liaising closely with the Company's Broker, share buybacks, share issuances and effective marketing. The Board has stated its commitment to an active discount management policy, such that it will consider a buyback of shares where the discount of the share price to the NAV per share is greater than 10% for a sustained period of time and is significantly wider than the average for similar trusts. Any such transaction must be value enhancing for shareholders and the Board will take into consideration the effect of the buyback on the liquidity of the Company's shares. The Board encourages the Manager to market the Company to new investors to increase demand for the Company's shares, which may help to reduce the discount.
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Regulatory: The Company carries on business as an investment trust and has been approved as such by HM Revenue & Customs subject to it continuing to meet eligibility conditions and ongoing requirements. As a result, it is not liable to corporation tax on capital gains. Breach of Section 1158 of the Corporation Tax Act 2010 could lead to the Company being subject to tax on chargeable gains.
Breach of regulatory rules could also lead to suspension of the Company's Stock Exchange listing, financial penalties or a qualified audit report.
No change in overall risk in year
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The Administrator monitors the Company's compliance with Section 1158 of the Corporation Tax Act 2010 including revenue forecasts and the amount of proposed dividends to ensure the rules are not breached. The results are reported to the Board at each meeting.
The Administrator monitors compliance with the Listing Rules of the UK Listing Authority and compliance with the principal rules is reviewed by the Directors at each Board Meeting.
The Board and AIFM also monitor changes in legislation which may have an impact on the Company. |
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Operational : In common with most other investment trust companies, the Company has no employees. The Company is therefore reliant on the services provided by third parties such as the Manager, the Administrator and the Custodian (as a delegate of the Depositary). Disruption or failure of the Manager's or Administrator's systems, or those of other third-party service providers could lead to an inability to provide accurate reporting and monitoring of the Company's financial position or a breach of regulatory and legal regulations.
Cyber security risks, the General Data Protection Regulation and their impact on data security are inherent in the operations undertaken by the Company's third-party suppliers and risk disruption to business operations or financial loss.
Remains increased due to continued potential impacts of the global pandemic on business as usual operations across all third party service providers and the Manager.
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The Board and the Audit Committee receive regular reports on the operation of internal controls to mitigate against the risk of failure, including those at the Manager, the Administrator and the Custodian as explained in more detail within the section on Risk Management and Internal Control in the full Annual Report and Accounts . These reports include controls over risks of cyber security. These have been tested and monitored throughout the year which is evidenced from their control reports regarding their internal controls which are reported on by their reporting accountants. Quarterly reports are also received from the Depositary which is responsible for the safekeeping of all custodial assets of the Company.
Business continuity plans at all service providers have been implemented and services have continued with no disruption. The Manager has been in regular contact with the Board and has reported no matters of concern in continuity of operations. |
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Manager: Should the Manager not be in a position to continue to manage the Company, performance may be impacted.
Increased risk due to impact of global pandemic on business as usual operations across all third party service providers and the Manager.
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Montanaro has one of the largest specialist teams in the UK focusing on quoted European smaller companies. Montanaro operates a team approach in the management of the investment portfolio which mitigates against the impact of the departure of any one member of the investment team. The Manager keeps the Board informed of developments within its business. |
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Environmental, Social and Governance: A consideration of ESG factors when undertaking an investment has become increasingly important in recent years. Climate change in particular has started to have a major impact on the performance of different sectors of the stock market and there is a risk of being invested in the wrong sectors.
New risk during the year.
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ESG considerations are fully embedded in the investment process and the Manager will aim to avoid investing in certain sectors. The Manager is a B Corporation which recognises its high ESG standards.
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Viability Assessment and Statement
In accordance with the AIC Code of Corporate Governance, the Directors have assessed the prospects of the Company over the coming three years in order to assess the viability of the Company, the Board is required to assess its future prospects and has considered that a number of characteristics of its business model and strategy were relevant to this assessment:
· The Company's objective is to achieve capital growth.
· The Company's investment policy, which is subject to regular Board monitoring, means that the Company is invested principally in the securities of Continental European quoted smaller companies.
· The Company is a closed-end investment trust, whose shares are not subject to redemptions by shareholders.
· The Company's business model and strategy is not time limited.
Also relevant were a number of aspects of the Company's operational arrangements:
· The Company retains title to all assets held by the Custodian under the terms of a formal agreement with the Depositary and Custodian.
· The borrowing facilities, which remain available until September 2023, are also subject to formal agreements, including fi nancial covenants with which the Company complied in full during the year.
· Revenue and expenditure forecasts are reviewed by the Directors at each Board Meeting.
In considering the viability of the Company, the Directors carried out a robust assessment of the principal and emerging risks and uncertainties which could threaten the Company's objective and strategy, future performance, liquidity and solvency, including the impact of a significant fall in equity markets or adverse currency movements on the Company's investment portfolio. They also considered the impact of the Covid-19 pandemic on the quality and continuity of the Manager's operations and those of third-party service providers. These risks, their mitigations and the processes for monitoring them are set out above, in the Report of the Audit Committee in the full Annual Report and Accounts and in the notes to the accounts below.
The Directors have also considered:
· The level of ongoing charges incurred by the Company, which are modest and predictable, have not been covered entirely by investment income this year owing to the ongoing impact of the global Covid-19 pandemic. However, the Board expects this situation to improve as investment income recovers in 2022 and beyond;
· Future revenue and expenditure projections and the potential impact of reduced dividend income in the short term as a result of market conditions;
· The Company's borrowing in the form of a fi xed rate loan facility of €10 million, which is due to mature in September 2023, noting that the Company has a large margin of safety over the covenants on this debt. This loan was covered 33 times by the Company's total assets at 31 March 2021. The Company also has a €15 million revolving credit facility which also matures on 13 September 2023. The Board anticipates its borrowing facilities will be renewed on similar terms when the current facilities mature. As at 31 March 2021, the revolving credit facilities were undrawn;
· The Company's ability to meet liquidity requirements given its investment portfolio consists principally of Continental European quoted smaller companies which can be sold if required. The Manager has estimated that approximately 94% of the portfolio could be liquidated under normal conditions in 10 business days;
· The ability to undertake share buybacks if required;
· That the Company's objective and investment policy continue to be relevant to investors; and
· The Company has no employees, having only non-executive Directors and consequently does not have redundancy or other employment related liabilities (including pensions) or responsibilities.
These matters were assessed over a three year period to June 2024, including through the use of sensitivity analysis and stress testing, and the Board will continue to assess viability over three year rolling periods, taking account of severe but plausible scenarios. In the absence of any adverse change to the regulatory environment and to the treatment of UK investment trusts a rolling three year period represents the horizon over which the Directors do not expect there to be any significant change to the Company's principal and emerging risks or their mitigation and they believe they can form a reasonable expectation of the Company's prospects.
Based on their assessment, and in the context of the Company's business model, strategy and operational arrangements set out above, the Directors have a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the three year period to June 2024. For this reason, the Board also considers it appropriate to continue adopting the going concern basis in preparing the Report and Accounts.
LINK COMPANY MATTERS LIMITED
Company Secretary
65 Gresham Street
London EC2V 7NQ
17 June 2021
Related Party Transactions
The following are considered related parties: the Board of Directors. The Directors of the Company received fees for their services and dividends from their shareholdings in the Company. None of the Directors has a service contract with the Company. For the year ended 31 March 2021, the Chairman received an annual fee of £35,000, the Chairman of the Audit Committee received an annual fee of £30,000 and the other Directors received an annual fee of £25,000.
The related party transactions with the Directors are set out in the Directors' Remuneration Report contained within the Company's full Annual Report and Accounts for the year ended 31 March 2021.
As at 31 March 2021 and 2020, the Directors' interests in the Company's Ordinary shares were as follows:
|
|
|
2021 |
2020 |
|
|
|
Ordinary Shares |
Ordinary Shares |
|
R M Curling |
Beneficial |
10,000 |
10,000 |
|
C A Roxburgh^ |
Beneficial |
5,728 |
5,483 # |
|
M R Somerset Webb* |
Beneficial |
4,114 |
4,095 |
|
G Neilly** |
Beneficial |
6,128 |
N/A |
^ Includes 214 shares held in Ms Roxburgh's spouse's name
* Retired on 31 December 2020
** Appointed on 21 September 2020. Mr Neilly acquired 4,895 of his shares in the Company prior to appointment. His shareholding subsequently increased to 6,128 shares pursuant to a dividend reinvestment plan, as announced on 6 January 2021 and a purchase of shares, as announced on 8 March 2021.
# It has been identified that the Annual Report and Accounts for the year ended 31 March 2020 incorrectly stated Ms Roxburgh's beneficial holding as being 6,182 ordinary shares. The figures shown in the table above reflect the correct beneficial holdings at their respective dates. The Company confirms that all announcements released via a regulatory news service in relation to Ms Roxburgh's shareholdings were correct.
Directors' Responsibilities Statement in Relation to the Financial Statements
The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable United Kingdom law and those International Accounting Standards in conformity with the Companies Act 2006. The Directors are also required to prepare a Strategic Report, Directors' Report, Directors' Remuneration Report and Corporate Governance Statement.
Under company law, the Directors must not approve the financial statements unless they are satisfied that they present a fair, balanced and understandable report and provide the information necessary for shareholders to assess the Company's performance, business model and strategy. In preparing the financial statements, the Directors are required to:
· select suitable accounting policies in accordance with IAS 8: 'Accounting Policies, Changes in Accounting Estimates and Errors' and then apply them consistently;
· present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;
· provide additional disclosures when compliance with the specific requirements in International Accounting Standards in conformity with the Companies Act 2006 is insufficient to enable users to understand the impact of particular transactions, other events and conditions on the Company's financial position and financial performance;
· state that the Company has complied with International Accounting Standards in conformity with the Companies Act 2006, subject to any material departures disclosed and explained in the financial statements;
· make judgements and estimates that are reasonable and prudent; and
· prepare the financial statements on a going concern basis unless it is inappropriate to assume that the Company will continue in business.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
Responsibility Statements under the Disclosure Guidance and Transparency Rules
Each of the Directors con fi rms that to the best of his or her knowledge:
· the fi nancial statements, prepared in accordance with International Accounting Standards in conformity with the Companies Act 2006, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company;
· the Strategic Report (comprising the Chairman's Statement, Manager's Report, Twenty Largest Holdings, Analysis of Investment Portfolio by Sector and Business Model and Strategy) and the Report of the Directors include a fair review of the development and performance of the business and the position of the Company together with a description of the principal risks and uncertainties that it faces;
· taken as a whole, the Annual Report and fi nancial statements are fair, balanced and understandable and provide the information necessary for shareholders to assess the Company's position and performance, business model and strategy;
· the fi nancial statements include details on related party transactions; and
· having assessed the principal and emerging risks and other matters discussed in connection with the Viability Statement, it is appropriate to adopt the going concern basis in preparing the fi nancial statements.
The Annual Report and Accounts were approved by the Board and the above responsibility statement was signed on its behalf by:
R M CURLING
Director
17 June 2021
Statement of Comprehensive Income (audited)
for the year ended 31 March 2021
|
|
|
Year to 31 March 2021 |
Year to 31 March 2020 |
||||
|
|
Notes |
Revenue £'000 |
Capital £'000 |
Total £'000 |
Revenue £'000 |
Capital £'000 |
Total £'000 |
|
Capital gains/(losses) on investments |
|
|
|
|
|
|
|
|
Gains/(losses) on investments held at fair value |
9 |
- |
108,742 |
108,742 |
- |
(8,126) |
(8,126) |
|
Exchange losses |
|
- |
(109) |
(109) |
- |
(211) |
(211) |
|
|
|
|
|
|
|
|
|
|
Revenue |
|
|
|
|
|
|
|
|
Investment income |
2 |
2,166 |
- |
2,166 |
3,497 |
- |
3,497 |
|
Total income |
|
2,166 |
108,633 |
110,799 |
3,497 |
(8,337) |
(4,840) |
|
Expenditure |
|
|
|
|
|
|
|
|
Management expenses |
3 |
(766) |
(1,422) |
(2,188) |
(564) |
(1,047) |
(1,611) |
|
Other expenses |
4 |
(646) |
- |
(646) |
(595) |
- |
(595) |
|
Total expenditure |
|
(1,412) |
(1,422) |
(2,834) |
(1,159) |
(1,047) |
(2,206) |
|
Return before finance costs and taxation |
|
754 |
107,211 |
107,965 |
2,338 |
(9,384) |
(7,046) |
|
Finance costs |
5 |
(56) |
(105) |
(161) |
(48) |
(85) |
(133) |
|
Return before taxation |
|
698 |
107,106 |
107,804 |
2,290 |
(9,469) |
(7,179) |
|
Taxation |
6 |
(169) |
- |
(169) |
(291) |
- |
(291) |
|
Return after taxation |
|
529 |
107,106 |
107,635 |
1,999 |
(9,469) |
(7,470) |
|
Return per share |
8 |
3.1p |
632.4p |
635.5p |
11.9p |
(56.6p) |
(44.7p) |
The total column of this statement represents the Company's Income Statement and Statement of Comprehensive Income, prepared to International Accounting Standards in conformity with the Companies Act 2006.
The supplementary revenue return and capital return columns are both prepared under guidance published by the Association of Investment Companies.
All revenue and capital items in the above statement derive from continuing operations.
No operations were acquired or discontinued in the year.
The accompanying notes are an integral part of the financial statements.
Balance Sheet
a s at 31 March 202 1
|
|
|
31 March 2021 |
31 March 2020 |
||
|
|
Notes |
£'000 |
£'000 |
£'000 |
£'000 |
|
Non-current assets |
|
|
|
|
|
|
Investment held at fair value through profit and loss |
9 |
|
282,575 |
|
169,018 |
|
Current assets |
|
|
|
|
|
|
Trade and other receivables |
10 |
782 |
|
615 |
|
|
Cash and cash equivalents |
10 |
1,767 |
|
405 |
|
|
|
|
2,549 |
|
1,020 |
|
|
Total assets |
|
285,124 |
|
170,038 |
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
Trade and other payables |
11 |
(564) |
|
(222) |
|
|
Revolving credit facility |
11 |
- |
|
(884) |
|
|
|
|
(564) |
|
(1,106) |
|
|
Non-current liabilities |
|
|
|
|
|
|
Interest-bearing bank loan |
12 |
(8,495) |
|
(8,809) |
|
|
Total liabilities |
|
(9,059) |
|
(9,915) |
|
|
Net assets |
|
|
276,065 |
|
160,123 |
|
|
|
|
|
|
|
|
Capital and reserves |
|
|
|
|
|
|
Called-up share capital |
13 |
|
8,724 |
|
8,724 |
|
Share premium account |
|
|
12,707 |
|
5,283 |
|
Capital redemption reserve |
|
|
2,212 |
|
2,212 |
|
Capital reserve |
|
|
249,185 |
|
139,641 |
|
Revenue reserve |
|
|
3,237 |
|
4,263 |
|
Shareholders' funds |
|
|
276,065 |
|
160,123 |
|
Net asset value per share |
|
|
1,589.0p |
|
956.9p |
The financial statements above and below were approved and authorised for issue by the Board of Directors on 17 June 2021 and signed on its behalf by:
R Curling
Director
Company Registered Number: SC074677
The accompanying notes are an integral part of the financial statements.
Statement of Changes in Equity
for the year ended 31 March 2021
|
Year to 31 March 2021 |
Notes |
Share capital £'000 |
Share premium account £'000 |
Capital redemption reserve £'000 |
Capital reserve £'000 |
Revenue reserve £'000 |
Total £'000 |
|
As at 1 April 2020 |
|
8,724 |
5,283 |
2,212 |
139,641 |
4,263 |
160,123 |
|
Return after taxation |
|
- |
- |
- |
107,106 |
529 |
107,635 |
|
Share issues |
|
- |
7,424 |
- |
2,438 |
- |
9,862 |
|
Dividends paid |
7 |
- |
- |
- |
- |
(1,555) |
(1,555) |
|
As at 31 March 2021 |
|
8,724 |
12,707 |
2,212 |
249,185 |
3,237 |
276,065 |
|
Year to 31 March 2020 |
Notes |
Share capital £'000 |
Share premium account £'000 |
Capital redemption reserve £'000 |
Capital reserve £'000 |
Revenue reserve £'000 |
Total £'000 |
|
Balance at 1 April 2019 |
|
8,724 |
5,283 |
2,212 |
149,110 |
3,812 |
169,141 |
|
Return after taxation |
|
- |
- |
- |
(9,469) |
1,999 |
(7,470) |
|
Dividends paid |
7 |
- |
- |
- |
- |
(1,548) |
(1,548) |
|
Balance at 31 March 2020 |
|
8,724 |
5,283 |
2,212 |
139,641 |
4,263 |
160,123 |
The accompanying notes are an integral part of the financial statements.
Cash Flow Statement
for the year ended 31 March 2021
|
|
Notes |
31 March 2021 £'000 |
31 March 2020 £'000 |
|
Cash fl ows from operating activities |
|
|
|
|
Pro fi t/(loss) before taxation |
|
107,804 |
(7,179) |
|
Investment (gains)/losses |
|
(108,742) |
8,126 |
|
Exchange losses |
|
109 |
211 |
|
Finance costs |
|
161 |
133 |
|
Withholding tax |
|
(136) |
(291) |
|
Investment income |
|
(2,166) |
(3,497) |
|
Dividends received |
|
2,056 |
3,502 |
|
Decrease in receivables |
|
3 |
99 |
|
Increase in payables |
|
346 |
15 |
|
Purchases of investments |
|
(57,443) |
(33,739) |
|
Sales of investments |
|
52,578 |
26,361 |
|
Net cash outflow from operating activities |
|
(5,430) |
(6,259) |
|
|
|
|
|
|
Cash fl ows from financing activities |
|
|
|
|
(Repayments)/drawdown of loans |
|
(866) |
844 |
|
Proceeds from the issue of treasury shares |
|
9,862 |
- |
|
Dividends paid |
7 |
(1,555) |
(1,548) |
|
Interest paid |
|
(164) |
(131) |
|
Net cash inflow/(out fl ow) from fi nancing activities |
|
7,277 |
(835) |
|
|
|
|
|
|
Net increase/(decrease) in cash and cash equivalents |
|
1,847 |
(7,094) |
|
Exchange (losses)/gains |
|
(485) |
56 |
|
|
|
|
|
|
Increase/(decrease) in cash and cash equivalents |
|
1,362 |
(7,038) |
|
Cash and cash equivalents at beginning of year |
|
405 |
7,443 |
|
Cash and cash equivalents at end of year |
10 |
1,767 |
405 |
The accompanying notes are an integral part of the financial statements.
Notes to the Financial Statements
at 31 March 2021
1 Accounting Policies
A summary of the principal accounting policies is set out below.
BASIS OF ACCOUNTING
The financial statements of the Company have been prepared in accordance with International Accounting Standards in conformity with the Companies Act 2006. The annual financial statements have been prepared in accordance with the Statement of Recommended Practice issued by the Association of Investment Companies ("AIC SORP") for the financial statements of investment trust and venture capital trusts, except to any extent where it is not consistent with the requirements of International Accounting Standards in conformity with the Companies Act 2006.
The functional and presentational currency of the Company is Pounds Sterling and has been determined on the basis of the currency of the Company's share capital and the currency in which dividends and expenses are paid.
The financial statements have been prepared on a going concern basis and on the expectation that approval as an investment trust company will continue to be met.
The Directors have made an assessment of the Company's ability to continue as a going concern and are satisfied that the Company has the resources to continue in business for the foreseeable future, for the period to 30 June 2022, which is at least twelve months from the date of approval of these accounts. As part of this review, the Directors have reviewed a forecast for the period to 30 June 2022. The Directors noted that the Company holds a portfolio of highly liquid listed investments. The Company is a closed end fund, where assets are not required to be liquidated to meet redemptions. Whilst the economic impact from the pandemic is uncertain, the Directors believe it is possible that the Company could continue to experience reductions in income and/or market value, and that this should not be to a level which would threaten the Company's ability to continue as a going concern. The Directors, the Manager and other service providers have had contingency plans operating for over a year to minimise disruption and these measures remain in place. Furthermore, the Directors are not aware of any material uncertainties that may cast doubt upon the Company's ability to continue as a going concern. Therefore, the financial statements have been prepared on a going concern basis. Further detail is included in the Report of the Directors in the full Annual Report and Accounts. In addition to the Going Concern assessment the Directors have assessed the longer term viability of the Company as set out in the viability assessment and statement above.
ACCOUNTING DEVELOPMENTS
In the current year, the Company has applied a number of amendments to IFRS, issued by the International Accounting Standards Board. These include annual improvements to IFRS, changes in standards, legislative and regulatory amendments, changes in disclosure and presentation requirements.
The adoption of the changes to accounting standards has had no material impact on the current or prior years' financial statements.
There are amendments to standards that will be applied from 1 April 2021 as follow:
IAS 8 Accounting Policies, changes for estimates and errors. The Directors do not anticipate the adoption of the above standard will have a material impact on the financial statements.
CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY.
The preparation of financial statements in conformity with International Accounting Standards in conformity with the Companies Act 2006, requires management to make judgements, estimates and assumptions that affect the application of policies and the reported amounts in the Balance Sheet, the Income Statement and the disclosure of contingent assets and liabilities at the date of the financial statements. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.
The areas requiring the most significant judgement and estimation in the preparation of the financial statements are: recognising and classifying unusual or special dividends received as either revenue or capital in nature; and setting the levels of dividends paid and proposed in satisfaction of both the Company's long-term objective and its obligations to adhere to investment trust status rules under Section 1158 of the Corporation Tax Act 2010.
Dividends received which appear to be unusual in size or circumstance are assessed on a case-by-case basis, based on interpretation of the investee companies' relevant statements, to determine their allocation in accordance with the SORP to either the revenue account or capital reserves. Dividends which have clearly arisen out of the investee company's reconstruction or reorganisation are usually considered to be capital in nature and allocated to capital reserves. Investee company dividends which appear to be paid in excess of current year profits will still be considered as revenue in nature unless evidence suggests otherwise.
The estimates and underlying assumptions are reviewed on an ongoing basis. Any revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future period if the revision affects both current and future periods. There are significant judgements or estimates in these financial statements.
SEGMENTAL REPORTING
The Board is of the view that the Company is engaged in a single segment of business, of investing in European quoted smaller companies, and that therefore the Company has only a single operating segment.
PRESENTATION OF STATEMENT OF COMPREHENSIVE INCOME
In order to better reflect the activities of an investment trust company and in accordance with guidance issued by the AIC, supplementary information which analyses the Statement of Comprehensive Income between items of a revenue and capital nature has been presented alongside the Statement of Comprehensive Income. The net revenue return is the measure the Directors believe appropriate in assessing the Company's compliance with certain requirements set out in Section 1158 of the Corporation Tax Act 2010.
INCOME
Dividends are recognised as income on the date that the related investments are marked ex-dividend.
Dividends receivable on equity shares where no ex-dividend date is quoted are recognised when the Company's right to receive payment is established.
Special dividends are taken to the revenue or capital account depending on their nature. In deciding whether a dividend should be regarded as a capital or revenue receipt, the Board reviews all relevant information as to the reasons for the sources of the dividend on a case-by-case basis.
Where the Company has elected to receive its dividends in the form of additional shares rather than cash, the amount of the cash dividend foregone is recognised as income.
All other income is accounted for on a time apportioned basis.
EXPENSES AND FINANCE COSTS
All expenses and finance costs are accounted for on an accruals basis and are charged against revenue, except where incurred in connection with the maintenance or enhancement of the value of the Company's assets and taking account of the expected long-term returns as follows:
− finance costs payable are allocated 35% to revenue and 65% to capital.
− management expenses payable are allocated 35% to revenue and 65% to capital.
TAXATION
The tax expense represents the sum of the tax currently payable and movements in deferred tax. Tax payable is based on the taxable profit for the year and withholding tax payable. Taxable profit differs from profit before tax as reported in the Statement of Comprehensive Income because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Company's liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.
In line with the recommendations of the SORP, the allocation method used to calculate tax relief on expenses presented against capital returns in the supplementary information in the Statement of Comprehensive Income is the 'marginal basis'. Under this basis, if taxable income is capable of being offset entirely by expenses presented in the revenue return column of the Statement of Comprehensive Income, then no tax relief is transferred to the capital return column.
Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised.
The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.
Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax is charged or credited in the Statement of Comprehensive Income, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity.
Investment trusts which have approval under Section 1158 of the Corporation Tax Act 2010 are not liable to taxation on capital gains.
INVESTMENTS
The Company's business is investing in financial assets with a view to profiting from their total return in the form of income and capital growth. This portfolio of financial assets is managed and its performance evaluated on a fair value basis in accordance with the documented investment strategy and information is provided internally on that basis to the Company's Board of Directors and other key management personnel.
The investments held by the Company are designated by the Company as 'at fair value through profit or loss'.
All gains and losses are allocated to the capital return within the Statement of Comprehensive Income as 'Gains or losses on investments held at fair value through profit or loss'. Also included within this heading are transaction costs in relation to the purchase or sale of investments. When a sale or purchase is made under a contract, the terms of which require delivery within the timeframe of the relevant market, the investments concerned are recognised or derecognised on the trade date.
All investments are classified upon initial recognition as held at fair value through profit or loss, and are measured at subsequent reporting dates at fair value, which is the bid price or the last traded price depending on the convention of the exchange on which the investment is listed. The Company derecognises a financial asset only when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity. On derecognition of a financial asset, the difference between the asset's carrying amount and the sum of consideration received and receivable and the cumulative gain or loss that had been accumulated is recognised in profit or loss.
All investments for which a fair value is measured or disclosed in the financial statements are categorised within the fair value hierarchy levels set out in note 15.
CASH AND CASH EQUIVALENTS
Cash comprises bank balances and cash held by the Company. Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.
LOANS
The loans are valued at amortised cost. Costs in relation to arranging the debt finance have been capitalised and are amortised over the term of the finance. Hence, amortised cost is the par value less the amortised cost of issue.
The Euro loan is shown at amortised cost with the exchange difference on the principal amounts to be repaid reflected. Any gains or losses arising from changes in exchange rate between Euro and Sterling is included in the capital reserves and shown in the capital column of the Statement of Comprehensive Income.
RESERVES
Share Premium Account
The following are included in this reserve:
· premium on the issue of shares.
· surplus arising on the sale of Ordinary Shares from treasury.
· costs associated with the issue of equity.
Capital Redemption Reserve
The nominal value of Ordinary Shares bought back for cancellation is added to this reserve. This reserve is non-distributable.
Capital Reserve
The following are included in this reserve:
· gains and losses on the realisation of investments.
· increases and decreases in the valuation of investments held at the year end.
· exchange differences of a capital nature.
· special dividends of a capital nature.
· expenses and finance costs, together with the related taxation effect, charged in accordance with the above policies.
· cost of purchasing Ordinary Shares to be held in treasury or cancelled.
· proceeds from the issue of Ordinary Shares held in treasury equivalent to the weighted average cost of the repurchase.
In addition, the Company's Articles of Association permit it to distribute from the Capital Reserve any surplus arising from the realisation of its investments.
Revenue Reserve
The net profit arising in the revenue column of the Statement of Comprehensive Income is added to this reserve. Dividends paid during the year may be deducted from this reserve.
FINANCIAL INSTRUMENTS
Financial assets and financial liabilities are recognised on the Balance Sheet of the Company when the Company becomes a party to the contractual provisions of the instrument. The Company shall offset financial assets and financial liabilities if it has a legally enforceable right to set off the recognised amounts and intends to settle on a net basis. As at 31 March 2021, no financial assets or financial liabilities had been offset (31 March 2020: nil).
FOREIGN CURRENCIES
Monetary assets and liabilities expressed in foreign currencies are translated into sterling at rates of exchange ruling at the balance sheet date. Non-monetary items expressed in foreign currencies held at fair value are translated into sterling at rates of exchange ruling at the date the fair value is measured. Transactions in foreign currencies are converted to sterling at the rate ruling at the date of the transaction. Exchange gains and losses are taken to the Statement of Comprehensive Income as a capital or revenue item depending on the nature of the underlying item.
Exchange gains and losses on investments are included within 'Gains/(losses) on investments held at fair value' and are taken to the Capital Reserve. Exchange differences on other financial instruments are included in the Statement of Comprehensive Income as 'Exchange losses'.
|
Rates of exchange (per Pound Sterling) |
31 March 2021 |
31 March 2020 |
Change % |
|
Danish Krone |
8.56 |
8.44 |
1.4 |
|
Euro |
1.15 |
1.13 |
1.8 |
|
Norwegian Krone |
12.04 |
13.02 |
(7.5) |
|
Swedish Krona |
11.74 |
12.28 |
(4.4) |
|
Swiss Franc |
1.26 |
1.20 |
5.0 |
2 Income
|
|
Year to £'000 |
Year to 31 March 2020 £'000 |
|
Investment income |
|
|
|
Overseas dividend income |
2,175 |
3,472 |
|
Exchange (losses)/gains |
(10) |
25 |
|
Other income |
1 |
- |
|
Total |
2,166 |
3,497 |
3 Management fee
|
|
Year to 31 March 2021 |
Year to 31 March 2020 |
||||
|
|
Revenue £'000 |
Capital £'000 |
Total £'000 |
Revenue £'000 |
Capital £'000 |
Total £'000 |
|
Investment management fee |
748 |
1,390 |
2,138 |
546 |
1,015 |
1,561 |
|
AIFM fee |
18 |
32 |
50 |
18 |
32 |
50 |
|
|
766 |
1,422 |
2,188 |
564 |
1,047 |
1,611 |
Details of the management fee arrangements during the year are contained within the Report of the Directors in the full Annual Report and Accounts and details of fees owed to the Manager at the balance sheet date are included in note 11.
4 Other Expenses
|
|
Year to 31 March 2021 |
Year to 31 March 2020 |
||||
|
|
Revenue £'000 |
Capital £'000 |
Total £'000 |
Revenue £'000 |
Capital £'000 |
Total £'000 |
|
Directors' fees |
97 |
- |
97 |
85 |
- |
85 |
|
Auditor's remuneration for: |
|
|
|
|
|
|
|
- statutory audit1 |
38 |
- |
38 |
30 |
- |
30 |
|
Secretarial and administration fees |
144 |
- |
144 |
149 |
- |
149 |
|
Legal, professional and advisory fees |
48 |
- |
48 |
23 |
- |
23 |
|
Custody and depositary fees |
83 |
- |
83 |
74 |
- |
74 |
|
Bank charges - negative interest |
- |
- |
- |
34 |
- |
34 |
|
Credit facility commitment fee |
59 |
- |
59 |
59 |
- |
59 |
|
Other |
177 |
- |
177 |
141 |
- |
141 |
|
|
646 |
- |
646 |
595 |
- |
595 |
1 Auditor's remuneration paid excludes VAT.
5 Finance Costs
|
|
Year to 31 March 2021 |
Year to 31 March 2020 |
||||
|
|
Revenue £'000 |
Capital £'000 |
Total £'000 |
Revenue £'000 |
Capital £'000 |
Total £'000 |
|
Interest payable on bank borrowings |
56 |
105 |
161 |
48 |
85 |
133 |
6 Taxation
|
|
Year to 31 March 2021 |
Year to 31 March 2020 |
||||
|
|
Revenue £'000 |
Capital £'000 |
Total £'000 |
Revenue £'000 |
Capital £'000 |
Total £'000 |
|
Overseas Tax |
169 |
- |
169 |
291 |
- |
291 |
FACTORS AFFECTING TAX CHARGE FOR THE YEAR
The tax charge for the year is lower than the standard rate of corporation tax in the UK. The differences are explained below:
|
|
Year to £'000 |
Year to 31 March 2020 £'000 |
|
Profit/(loss) on ordinary activities before taxation |
107,804 |
(7,179) |
|
Corporation tax at standard rate of 19% (2020: 19%) |
20,483 |
(1,364) |
|
Effects of: |
|
|
|
Non-taxable (gains)/losses on investments |
(20,661) |
1,544 |
|
Movement in unutilised expenses |
569 |
419 |
|
Non-taxable overseas income |
(412) |
(604) |
|
Exchange losses |
21 |
5 |
|
Overseas tax |
169 |
291 |
|
Total tax charge for the year |
169 |
291 |
As at 31 March 2021, the Company had unutilised management expenses for taxation purposes of £29,778,000 (2020: £29,220,000). A deferred tax asset of £5,658,000 (2020: £5,552,000) has not been recognised on the unutilised expenses as it is unlikely that there will be suitable taxable profits from which the future reversal of the deferred tax could be deducted.
7 Dividends
|
|
Year to £'000 |
Year to 31 March 2020 £'000 |
|
Final dividend for the year ended 31 March 2019 of 7.25p per share |
- |
1,213 |
|
Interim dividend for the year ended 31 March 2020 of 2.00p per share |
- |
335 |
|
Final dividend for the year ended 31 March 2020 of 7.25p per share |
1,213 |
- |
|
Interim dividend for the year ended 31 March 2021 of 2.00p per share |
342 |
- |
|
|
1,555 |
1,548 |
|
|
|
|
|
Amounts relating to the year but not paid at the year end: |
|
|
|
Final dividend for the year ended 31 March 2020 of 7.25p per share |
- |
1,213 |
|
Final dividend for the year ended 31 March 2021 of 7.25p per share |
1,261 |
- |
|
|
1,261 |
1,213 |
The Directors have proposed a final dividend in respect of the year ended 31 March 2021 of 7.25 p per share, payable on 15 September 2021 to all shareholders on the register on 13 August 2021. The final dividend is subject to approval by shareholders at the Annual General Meeting.
The attributable revenue and the dividends paid and proposed for the purposes of the income retention test for section 1159 of the Income and Corporation Tax Act 2010, are set out below:
|
|
Year to £'000 |
Year to 31 March 2020 £'000 |
|
Revenue attributable to equity shareholders |
529 |
1,999 |
|
Interim dividend for the year ended 31 March 2020 of 2.00p per share |
- |
(335) |
|
Proposed final dividend for the year ended 31 March 2020 of 7.25p per share |
- |
(1,213) |
|
Interim dividend for the year ended 31 March 2021 of 2.00p per share |
(342) |
- |
|
Proposed final dividend for the year ended 31 March 2021 of 7.25p per share |
(1,261) |
- |
|
Net movement in revenue |
(1,074) |
451 |
8 Return per Share
|
|
Year to 31 March 2021 |
Year to 31 March 2020 |
||||
|
|
Revenue |
Capital |
Total |
Revenue |
Capital |
Total |
|
Basic |
3.1p |
632.4p |
635.5p |
11.9p |
(56.6)p |
(44.7)p |
Basic total return per Ordinary Share is based on the total comprehensive gain for the financial year of £107,635,000 (2020: loss £7,470,000) and on 16,936,095 (2020: 16,733,260) Ordinary Shares, being the weighted average number of Ordinary Shares in issue during the year, excluding those shares bought back and held in treasury.
Basic revenue return per Ordinary Share is based on the net revenue return on ordinary activities after taxation of £529,000 (2020: £1,999,000), and on 16,936,095 (2020: 16,733,260) Ordinary Shares, being the weighted average number of Ordinary Shares in issue during the year, excluding those shares bought back and held in treasury.
Basic capital return per Ordinary Share is based on the net capital return for the financial year of £107,106,000 (2020: net capital loss £9,469,000), and on 16,936,095 (2020: 16,733,260) Ordinary Shares, being the weighted average number of Ordinary Shares in issue during the year, excluding those shares bought back and held in treasury.
9 Investments at Fair Value Through Profit and loss
|
|
Year to £'000 |
Year to 31 March 2020 £'000 |
|
Opening cost |
121,712 |
107,172 |
|
Holding gains |
47,306 |
62,656 |
|
Opening fair value |
169,018 |
169,828 |
|
Purchases at cost |
57,443 |
33,739 |
|
Sales - proceeds |
(52,628) |
(26,423) |
|
- gains on sales |
18,952 |
7,224 |
|
Holding gains/(losses) |
89,790 |
(15,350) |
|
Closing fair value |
282,575 |
169,018 |
|
|
|
|
|
Closing cost |
145,479 |
121,712 |
|
Holding gains |
137,096 |
47,306 |
|
Closing valuation |
282,575 |
169,018 |
Net gains on the realisation of investments during the year represents the difference between the net proceeds of sale and the book cost of investment sold.
Movement in fair value represents the decrease in the difference between book cost of investments held and their market value at 31 March 2021 compared with the difference between the book cost of investments held and their market value at 31 March 2020.
TRANSACTION COSTS
The Company incurred transaction costs on the purchase of investments of £46,000 and sale of investments of £34,000 (2020: £23,000 on purchases and £13,000 on sales).
|
|
Year to £'000 |
Year to 31 March 2020 £'000 |
|
Gains on sales |
18,952 |
7,224 |
|
Increase/(decrease) in holding gains |
89,790 |
(15,350) |
|
Gains/ (losses ) on investments held at fair value |
108,742 |
(8,126) |
10 Current Assets
|
|
Year to £'000 |
Year to 31 March 2020 £'000 |
|
Due from brokers |
121 |
62 |
|
Prepayments and accrued income |
221 |
81 |
|
Overseas tax recoverable |
440 |
472 |
|
|
782 |
615 |
The carrying value of the balances above approximates to fair value. There are no amounts which are past due at the year end (2020: £nil).
CASH AND CASH EQUIVALENTS
These comprise bank balances and cash held by the Company. The carrying amount of these assets approximates to their fair value.
|
|
Year to £'000 |
Year to 31 March 2020 £'000 |
|
Cash at bank and on hand |
1,767 |
405 |
11 Current Liabilities
|
|
Year to £'000 |
Year to 31 March 2020 £'000 |
|
Trade and other payables |
|
|
|
Investment management and AIFM fee |
432 |
115 |
|
Other creditors |
132 |
107 |
|
|
564 |
222 |
The Company has a €15 million five year secured revolving credit facility with ING which will mature on 13 September 2023. Drawdowns from the facility are charged at margin over the relevant EUROBOR rate. As at 31 March 2021, €nil of the facility was drawn (2020: €1,000,000 (£884,000)), at a rate of 1.2%, with €15 million available to be drawn (31 March 2020: €14 million).
Once drawn, the facility will be measured at amortised cost and revalued for exchange rate movements. Any gain or loss arising from changes in exchange rates is included in the capital reserve and shown in the capital column of the Statement of Comprehensive Income. Interest costs are charged to capital and revenue in accordance with the Company's accounting policies.
The carrying value of the balances above approximates to fair value.
12 Interest-Bearing Bank Loans
|
|
Year to £'000 |
Year to 31 March 2020 £'000 |
|
Opening balance |
8,809 |
8,572 |
|
Loan repaid during the year |
- |
- |
|
Amortisation of set-up c osts |
11 |
10 |
|
Non-cash foreign currency movements |
(325) |
227 |
|
Closing balance |
8,495 |
8,809 |
The Company has a €10 million five year secured loan with ING Bank N.V. at a fixed rate of 1.33% per annum. This loan will mature on 13 September 2023.
The Company also has a €15 million five year secured revolving credit facility with ING which will also mature on 13 September 2023.
Under the bank covenants relating to the loans, the Company is to ensure that at all times the total borrowings of the Company do not exceed 40% of the Adjusted Net Asset Value (as defined in the loan agreements) and that the Adjusted Net Asset Value does not fall below £45 million (2020: £45 million). The Company met all covenant conditions during the year.
The carrying value of the balances above approximates to fair value.
13 Share Capital
|
|
Listed |
Held in treasury |
In issue |
|||
|
|
Number |
£'000 |
Number |
£'000 |
Number |
£'000 |
|
Allotted, issued and fully paid: |
|
|
|
|
|
|
|
Ordinary shares of 50p each |
|
|
|
|
|
|
|
Balance at 1 April 2020 |
17,448,260 |
8,724 |
(715,000) |
(358) |
16,733,260 |
8,366 |
|
Shares issued from treasury |
- |
- |
640,000 |
320 |
640,000 |
320 |
|
Balance at 31 March 2021 |
17,448,260 |
8,724 |
(75,000) |
(38) |
17,373,260 |
8,686 |
During the year, the Company issued 640,000 shares from treasury (2020: nil).
CAPITAL MANAGEMENT
The Company's capital is represented by the issued Share Capital, Share Premium Account, Capital Redemption Reserve, Capital Reserve, Revenue Reserve and external debt financing. Details of the movement through each reserve are shown in the Statement of Changes in Equity. The Company is not subject to any externally imposed capital requirements other than those associated with the loan finance.
The Company's capital is managed in accordance with its investment policy, in pursuit of its investment objective, both of which are detailed in the Business Model and Strategy. The Company's capital structure is also explained in the Report of the Directors in the full Annual Report and Accounts.
14 Net Asset Value per Ordinary Share
|
|
Net Asset value per share |
Net asset value |
||
|
|
2021 p |
2020 p |
2021 £'000 |
2020 £'000 |
|
Net asset value per Ordinary Share |
1,589.0 |
956.9 |
276,065 |
160,123 |
The net asset value per share is based on net assets at the year end and on 17,373,260 (2020: 16,733,260) Ordinary Shares, being the number of Ordinary Shares in issue at the year end, excluding those shares bought back and held in treasury.
15 Financial Instruments
The Company's financial instruments comprise its investment portfolio, cash balances, bank loans, and debtors and creditors that arise directly from its operations. As an investment trust the Company holds a portfolio of financial assets in pursuit of its investment objective. The Company makes use of borrowings, as detailed in note 12 and the Chairman's Statement, to achieve improved performance in rising markets.
The Company's principal risks are described in the Business Model and Strategy above.
Financial risks arising from the Company's financial instruments are:
(i) market price risk, being the risk that the value of investment holdings will fluctuate as a result of changes in market prices caused by factors other than interest rate or currency rate movements;
(ii) interest rate risk, being the risk that the future cash flows of a financial instrument will fluctuate because of changes in market interest rates;
(iii) foreign currency risk, being the risk that the value of investment holdings, investment purchases, investment sales, bank loans and accrued income will fluctuate because of movements in currency rates;
(iv) credit risk, being the risk that a counterparty to a financial instrument will fail to discharge an obligation or commitment that it has entered into with the Company; and
(v) liquidity risk, being the risk that the Company may not be able to liquidate quickly its investments to meet obligations associated with its financial liabilities.
FAIR VALUE HIERARCHY
The Company measures fair values using the following fair value hierarchy that reflects the significance of the inputs used in making the measurements.
Categorisation within the hierarchy has been determined on the basis of the lowest level input that is significant to the fair value measurement of the relevant assets as follows:
· Level 1 - valued using quoted prices unadjusted in active markets for identical assets or liabilities
· Level 2 - valued by reference to valuation techniques using observable inputs for the asset or liability other than quoted prices included within Level 1.
· Level 3 - valued by reference to valuation techniques using inputs that are not based on observable market data for the asset or liability.
The tables below set out fair value measurements of financial instruments as at the year end, by the level in the fair value hierarchy into which the fair value measurement is categorised.
The Company held the following categories of financial instruments as at 31 March 2021:
|
|
Level 1 £'000
|
Level 2 £'000
|
Level 3 £'000
|
2021 Total £'000 |
Level 1 £'000
|
Level 2 £'000
|
Level 3 £'000
|
2020 Total £'000 |
|
Financial Instruments |
|
|
|
|
|
|
|
|
|
Investments |
282,575 |
- |
- |
282,575 |
169,018 |
- |
- |
169,018 |
|
Loan |
- |
(8,495) |
- |
(8,495) |
- |
(8,809) |
- |
(8,809) |
There were no transfers between levels in the fair value hierarchy in the year ended 31 March 2021 (2020: none).
The investments held are valued at fair value through profit or loss. The loans are recognised as amortised cost.
16 Market Price Risk
Market price risk (i.e. changes in market prices other than those arising from currency risk or interest rate risk) may affect the value of investments.
The Board manages the risks inherent in the investment portfolio by ensuring full and timely reporting of relevant information from the Manager. Investment performance and exposure are reviewed at each Board meeting.
The maximum exposure to market price risk is the fair value of investments of £282,575,000 (2020: £169,018,000).
If the investment portfolio valuation fell by 10% from the amount detailed in the financial statements as at 31 March 2021, it would have the effect, with all other variables held constant, of reducing the net capital return before taxation by £28,257,000 (2020: £16,902,000). An increase of 10% in the investment portfolio valuation would have an equal and opposite effect on the net capital return before taxation. The analysis is based on closing balances only and is not representative of the year as a whole.
17 Interest Rate Risk
FIXED RATE
The Company has a €10 million fully drawn fixed rate term loan with ING Bank N.V., with a Sterling equivalent of £8.5 million as at 31 March 2021, at a rate of interest of 1.33% per annum. An interest rate sensitivity analysis has not been performed as the Company has borrowed at a fixed rate of interest.
FLOATING RATE
When the Company retains cash balances, the cash is primarily held in accounts at the custodian. Interest received or paid on cash balances and bank overdrafts is at market rates and is monitored and reviewed by the Investment Manager and the Board. As at 31 March 2021, the cash position of the Company was £1.8 million (2020: £0.4 million).
If interest rates had increased by 1.0%, the impact on the profit or loss and the net asset value would have been positive £18,000 (2020: positive £4,000). If interest rates had decreased by 1.0%, the impact on the profit or loss and the net asset value would have been negative £18,000 (2020: negative £4,000). The calculations are based on the floating rate balances as at the respective balance sheet dates.
18 Foreign Currency Risk
The Company invests in overseas securities and holds foreign currency cash balances and foreign currency borrowings which give rise to currency risks. It is not the Company's policy to hedge this risk.
Foreign currency exposure:
|
2021 |
Investments £'000 |
Trade and other receivables £'000 |
Cash £'000 |
Trade and other
payables |
Loans* |
Net |
|
Danish Krone |
12,182 |
104 |
- |
- |
- |
12,286 |
|
Euro |
133,542 |
148 |
1,474 |
- |
(8,495) |
126,669 |
|
Norwegian Krone |
20,690 |
50 |
- |
- |
- |
20,740 |
|
Swedish Krona |
88,058 |
121 |
- |
- |
- |
88,179 |
|
Swiss Franc |
28,103 |
138 |
- |
- |
- |
28,241 |
|
Total |
282,575 |
561 |
1,474 |
- |
(8,495) |
276,115 |
|
2020 |
Investments £'000 |
Trade and other receivables £'000 |
Cash £'000 |
Trade and other
payables |
Loans* |
Net |
|
Danish Krone |
6,111 |
96 |
- |
- |
- |
6,207 |
|
Euro |
93,820 |
144 |
372 |
- |
(9,693) |
84,643 |
|
Norwegian Krone |
13,276 |
45 |
- |
- |
- |
13,321 |
|
Swedish Krona |
37,391 |
62 |
- |
- |
- |
37,453 |
|
Swiss Franc |
18,420 |
187 |
- |
- |
- |
18,607 |
|
Total |
169,018 |
534 |
372 |
- |
(9,693) |
160,231 |
*Par value excluding amortised Costs
If the value of Sterling had weakened by 5% (2020: 5%) against each of the currencies in the portfolio, the impact on the profit or loss and the net asset value would have been positive £14,230,000 (2020: positive £8,496,000). If the value of Sterling had strengthened by 5% (2020: 5%) against each of the currencies in the portfolio, the impact on the profit or loss and the net asset value would have been negative £13,806,000 (2020: negative £8,012,000). These calculations are based on the foreign currency exposure balances as at the respective balance sheet dates.
19 Credit Risk
Credit risk is the risk that a counterparty to a financial instrument will fail to discharge an obligation or commitment that it has entered into with the Company. The Company has in place a monitoring procedure in respect of counterparty risk which is reviewed on an ongoing basis. The carrying amounts of financial assets best represent the maximum credit risk exposure at the balance sheet date.
The Company had the following categories of financial assets exposed to credit risk as at 31 March 2021.
|
|
Year to 31 March 2021 £'000 |
Year to 31 March 2020 £'000 |
|
Cash and cash equivalents |
1,767 |
405 |
|
Due from brokers and accrued income |
317 |
124 |
|
|
2,084 |
529 |
Credit risk arising on transactions with brokers relates to transactions awaiting settlement. Risk relating to unsettled transactions is considered to be small due to the short settlement period involved and the financial stability and credit quality of the brokers used, which are monitored on an ongoing basis by the Manager. The Manager also monitors the quality of service provided by the brokers used to further mitigate this risk.
There were no significant concentrations of credit risk to counterparties at 31 March 2021 or 31 March 2020. No individual investment exceeded 4.5% of the investment portfolio at 31 March 2021 (2020: 4.3%).
A significant majority of the assets of the Company, including those that are traded on a recognised exchange, are held in segregated accounts on behalf of the Company by The Bank of New York Mellon SA/NV (London Branch), the Company's custodian. Bankruptcy or insolvency of this or other custodians may cause the Company's rights with respect to securities held by the custodians to be delayed. The Board monitors the Company's risk by reviewing the custodian's internal control reports.
20 Liquidity Risk
The Company does not hold unlisted securities (2020: £nil). The Company's listed securities are considered to be readily realisable.
However, as with all smaller company investment trusts, there are times when the liquidity of the underlying portfolio is poor, such as when smaller companies are out of favour or during periods of adverse economic conditions. The Manager focuses on smaller companies where the opportunities may be more attractive but this can decrease overall underlying liquidity. This may result in the Manager being unable to buy or sell individual holdings within the portfolio. The Manager constantly reviews the underlying liquidity of the portfolio and deals with a wide range of brokers to enhance its ability to execute transactions and minimise liquidity risk. The Company's overall exposure to liquidity risks is monitored on a regular basis by the Board.
Liquidity risk is mitigated as the Company maintains sufficient cash to pay accounts payable and accrued expenses. As at 31 March 2021, the cash position of the Company was £1.8 million (2020: £0.4 million) and the Company has undrawn bank facilities of £12.8 million (2020: £12.4 million).
CONTRACTUAL MATURITY ANALYSIS FOR FINANCIAL LIABILITIES
|
As at 31 March 2021 |
Within one month £'000 |
Between one and three months £'000 |
Between three and twelve months £'000 |
Between one and five years £'000 |
Total £'000 |
|
Current liabilities: |
|
|
|
|
|
|
Other creditors |
461 |
101 |
2 |
- |
564 |
|
Revolving credit facility |
- |
- |
- |
- |
- |
|
Loan and loan interest |
- |
- |
121 |
8,520 |
8,641 |
|
Total liabilities |
461 |
101 |
123 |
8,520 |
9,205 |
|
As at 31 March 2020 |
Within one month £'000 |
Between one and three months £'000 |
Between three and twelve months £'000 |
Between one and five years £'000 |
Total £'000 |
|
Current liabilities: |
|
|
|
|
|
|
Other creditors |
129 |
52 |
41 |
- |
222 |
|
Revolving credit facility |
884 |
- |
- |
- |
884 |
|
Loan and loan interest |
- |
- |
120 |
9,142 |
9,262 |
|
Total liabilities |
1,013 |
52 |
161 |
9,142 |
10,368 |
21 Related Parties and Transactions with the Manager
The following are considered related parties: the Board of Directors. The Directors of the Company received fees for their services and dividends from their shareholdings in the Company. Further details are provided above and in the Directors' Remuneration Report in the full Annual Report and Accounts.
Transactions between the Company and the Manager are detailed in note 3 on management fees and note 11 on fees owed to the Manager at the balance sheet date. The existence of an independent Board of Directors demonstrates that the Company is free to pursue its own financial and operating policies and therefore, under the AIC SORP, the Manager is not considered to be a related party.
22 Securities financing transactions ("SFT")
The Company has not, in the year to 31 March 2021 (2020: same), participated in any: repurchase transactions; securities lending or borrowing; buy-sell back transactions; margin lending transactions; or total return swap transactions (collectively called SFT). As such, it has no disclosure to make in satisfaction of the EU regulations on transparency of SFT, issued in November 2015.
23 Post Balance Sheet Events
Since the year end, the Board has decided to propose to implement a sub-division of the Company's share capital. This may increase the attractiveness of the Company's shares to potential investors and increase the liquidity in the market for the Company's shares. Further details about the share split can be found on page 26 and pages 77 and 78 of the full Annual Report and Accounts.
Advisers
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Investment Manager and Alternative Investment Fund Manager ('AIFM') MONTANARO ASSET MANAGEMENT LIMITED 53 Threadneedle Street London EC2R 8AR Tel: 020 7448 8600 Fax: 020 7448 8601 enquiries@montanaro.co.uk
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Stockbroker CENKOS SECURITIES PLC 6-8 Tokenhouse Yard London EC2R 7AS |
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Administrator LINK ALTERNATIVE FUND ADMINISTRATORS LIMITED Beaufort House 51 New North Road Exeter EX4 4EP
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Depositary THE BANK OF NEW YORK MELLON (INTERNATIONAL) LIMITED One Canada Square London E14 5AL |
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Company Secretary LINK COMPANY MATTERS LIMITED 65 Gresham Street London EC2V 7NQ Tel: 0207 954 9531 Contact: mesct@linkgroup.co.uk
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Custodian BANK OF NEW YORK MELLON SA/NV One Canada Square London E14 5AL |
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Registered Office 16 Charlotte Square Edinburgh EH2 4DF
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Bankers ING BANK N.V., LONDON BRANCH 60 London Wall London EC2M 5TQ |
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Registrar EQUINITI LIMITED Aspect House Spencer Road Lancing West Sussex BN99 6DA
Registrar's Shareholder Helpline Tel: 0371 384 2461*
Registrar's Broker Helpline Tel: 0906 559 6025
* Lines are open 8.30am to 5.30pm, Monday to Friday. |
Auditor ERNST & YOUNG LLP Atria One 144 Morrison Street Edinburgh EH3 8EX
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Solicitor DICKSON MINTO W.S. 16 Charlotte Square Edinburgh EH2 4DF |
The full audited Annual report and Accounts for the year ended 31 March 2021 will shortly be available on the Company's website https://montanaro.co.uk/trust/montanaro-european-smaller-companies-trust/ . It will also be submitted to the National Storage Mechanism ("NSM") shortly and will be available for inspection there, situated at: https://data.fca.org.uk/#/nsm/nationalstoragemechanism
A copy of the Annual Report and Accounts, which includes the Notice of Annual General Meeting, will be posted to shareholders shortly.
For further information, please contact:
Montanaro Asset Management Limited
Tel: 020 7448 8600
Neither the contents of the Company's website nor the contents of any website accessible from hyperlinks on this announcement (or any other website) is incorporated into, or forms part of, this announcement.
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