Final Results
Montanaro European Smaller C.TstPLC
24 May 2007
MONTANARO EUROPEAN SMALLER COMPANIES TRUST PLC
Date: 24 May 2007
UNAUDITED RESULTS FOR THE YEAR ENDED 31 MARCH 2007
Investment Objective
Montanaro European Smaller Companies Trust plc aims to achieve capital growth by
investing principally in European quoted smaller companies.
Highlights
- Net Asset Value ('NAV') increased by 17.8% to 426.67 pence per share
- Share price increased by 29.2% to 404.0 pence per share, reflecting a
significant narrowing of the discount
Chairman's Statement
Background
The Company was originally launched in 1981 with an objective to invest in
companies listed on the Unlisted Securities Market, and subsequently in smaller
companies quoted on the London Stock Exchange. At the Company's Annual General
Meeting held on 4 September 2006, shareholders approved overwhelmingly the
proposal to broaden the Company's investment policy to permit investment in
Continental European quoted smaller companies and to amend its investment
objective accordingly.
Shareholders also approved the proposal to change the Company's name to '
Montanaro European Smaller Companies Trust plc' and Montanaro Investment
Managers Limited ('Montanaro') was appointed as the Company's Manager.
Results for Year Ended 31 March 2007
During the year under review, the NAV per share increased by 17.8% to 426.67
pence per share (2006: 362.12p); the share price increased by 29.2% to 404.0
pence (2006: 312.75p). Performance has been shown separately below for the
periods before and after the changes in the management arrangements.
During the period from 31 March 2006 to 4 September 2006, the NAV per share
decreased by 5.3% compared with a decrease of 2.3% in the previous benchmark,
the Hoare Govett Smaller Companies (ex Investment Companies) Index.
During the period from 4 September 2006 to 31 March 2007, following the
appointment of Montanaro, the NAV per share increased by 24.5% compared with an
increase of 23.1% in the Company's new benchmark, the MSCI Europe Small Cap
Index.
Discount Management Policy and Share Buy Backs
In order to improve and sustain the rating of the Company's shares, the Board
has stated its intention to apply an active discount management policy, buying
back shares if the market price is at a discount greater than 5% to the NAV per
share for a sustained period. This policy came into effect following approval
by shareholders of the change of investment objective. However, the making and
timing of any share buy-backs will be at the absolute discretion of the Board.
No shares were bought back during the year.
The Company will seek to renew its authority to buy back up to 14.99% of its
issued share capital at the forthcoming Annual General Meeting and, in the event
that this authority is fully used, will seek further approval to renew the
authority.
The Board is encouraged by the reaction of the share price to the recent
changes. These have resulted in a significant narrowing of the discount to 5.3%
at 31 March 2007 compared to 13.6% at 31 March 2006.
Holding Shares in Treasury
As an alternative to cancellation, investment trusts are able to buy back shares
and hold them in treasury for re-issue at a later date. This has the benefit of
improving liquidity as well as retaining the opportunity to enhance the NAV per
share.
The Board has actively and carefully considered the use of treasury shares. Our
policy is to ensure that shareholders receive a tangible benefit above and
beyond an enhanced ability to manage the liquidity of the shares of the Company.
The Directors will seek authority at the forthcoming Annual General Meeting to
issue shares, including those from treasury, up to an aggregate amount of 10% of
the Company's issued shares. Shares held in treasury may be re-issued at a
premium to NAV or at a lower discount than when they were originally purchased.
Shares which have been held in treasury for more than 18 months will be
cancelled.
No shares are currently held in treasury.
Dividends
An interim dividend of 1.75 pence per Ordinary Share was paid on 5 January 2007
to shareholders on the register on 8 December 2006. Subject to shareholder
approval, it is proposed that a final dividend of 2.25 pence per Ordinary Share
will be payable on 6 July 2007 to shareholders on the register on 8 June 2007.
This would bring the total dividend for the year to 4.00 pence per Ordinary
Share (2006: 4.00p).
Since its appointment, the Manager has realigned the portfolio so that the
majority is invested in Continental European quoted smaller companies. It is
possible that the investment income generated from these new holdings might be
less than the income from the portfolio prior to the change in investment
objective. The Board therefore might declare lower levels of dividends in the
future to allow it to place emphasis on the Company's capital growth objective.
Gearing
The level of gearing, net of cash, at 31 March 2007 was 5.2% compared with 4.1%
at 31 March 2006. The Company's borrowings are represented by a £10 million
revolving credit facility which was drawn down in full at the year end. Since
September 2006, the Company has drawn down its borrowings in euros.
The Board reviews the level of gearing considered appropriate for the Company in
discussion with the Manager. One of the benefits of investment trusts is the
ability to have borrowings, which can enhance investment returns.
Savings Plans
The Company's savings plans have been transferred to Alliance Trust Savings ('
ATS') ATS is one of the country's leading multi-channel plan providers with
over 44,000 ISA, PEP, investment plan and pension customers. ATS is well-known
for its value for money and strong customer service ethic and will be
introducing various new initiatives which it expects to be of great value to
shareholders.
Comment
This has been one of the most significant and eventful periods in the history of
the Company. During the year, the Board considered a broad range of proposals
for the Company's future and consulted with its largest shareholders. By
appointing Montanaro as Manager, broadening the Company's investment mandate
and adopting an active discount management policy, the Board has succeeded in
attracting new shareholders. This has led to a significant re-rating of the
shares and enabled several long standing shareholders to realise their
investment at a price closer to NAV than would have been possible before. We
thank them for their support in the past and welcome the many new shareholders
to the Company.
In addition, we would like to thank Intelli Corporate Finance for their sound
advice. The decisions taken last year were both innovative and inspirational.
We are pleased that the Board will continue to benefit from their input,
supported by Cenkos Securities, who have been appointed as the Company's
Stockbroker.
The Board has enjoyed working with Montanaro, who have made an encouraging
start. Returns for the Company over the year have been strong, the majority
coming under the tenure of the new Manager. The Company is enjoying a new lease
of life and is uniquely positioned within the investment trust industry,
offering investors opportunities in Pan-European quoted smaller companies at an
attractive time.
A R Irvine
Chairman
Unaudited Consolidated Income Statement
For the Year Ended 31 March 2007
Year ended 31 March 2007
Revenue Capital Total
£'000 £'000 £'000
Income
Investment income 1,566 - 1,566
Other operating income 206 - 206
1,772 - 1,772
Gains on investments held at fair value - 11,632 11,632
Exchange gains - 145 145
Total income 1,772 11,777 13,549
Expenses
Investment management fee (134) (271) (405)
Other expenses (570) (241) (811)
Profit before finance costs and tax 1,068 11,265 12,333
Finance costs (123) (228) (351)
Net operating profit before tax 945 11,037 11,982
Tax (20) - (20)
Net profit 925 11,037 11,962
Earnings per share 5.30p 63.26p 68.56p
The total column of this statement is the profit and loss account of the Group.
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 this statement.
Consolidated Income Statement
For the Year Ended 31 March 2006
Year ended 31 March 2006
Revenue Capital Total
£'000 £'000 £'000
Income
Investment income 1,264 318 1,582
Other operating income 235 - 235
1,499 318 1,817
Gains on investments held at fair value - 12,751 12,751
Total income 1,499 13,069 14,568
Expenses
Investment management fee (216) (401) (617)
Other expenses (403) - (403)
Profit before finance costs and tax 880 12,668 13,548
Finance costs (144) (268) (412)
Net operating profit before tax 736 12,400 13,136
Tax - - -
Net profit 736 12,400 13,136
Earnings per share 3.95p 66.62p 70.57p
Unaudited Group Balance Sheet
As at 31 March As at 31
March
2007 2006
£'000 £'000
Non current assets
Investments held at fair value 78,306 65,803
Current assets
Investments held by dealing subsidiary - 61
Other receivables 376 160
Cash and cash equivalents 6,152 3,761
6,528 3,982
Total assets 84,834 69,785
Current liabilities
Other payables (10,387) (6,602)
Total liabilities (10,387) (6,602)
Net assets 74,447 63,183
Capital and reserves
Called-up share capital 8,724 8,724
Share premium account 3,935 3,935
Capital redemption reserve 2,212 2,212
Capital reserve realised 44,552 25,458
Capital reserve unrealised 13,215 21,272
Revenue reserve 1,809 1,582
Shareholders' funds 74,447 63,183
Net asset value per share 426.67p 362.12p
Unaudited Consolidated Statement of Changes in Equity
For the year ended 31 March 2006 Share Share Capital Capital Capital Revenue
Capital Premium Redemption Reserve Reserve Reserve
Account Reserve Realised Unrealised
£'000 £'000 £'000 £'000 £'000 £'000
Balance as at 1 April 2005 10,777 3,935 159 28,559 16,441 1,744
Net gain on realisation of - - - 7,920 - -
investments
Increase in unrealised appreciation - - - - 4,831 -
Share buy-backs (2,053) - 2,053 (10,670) - -
Management fees charged to capital - - - (401) - -
Interest charged to capital - - - (268) - -
Special dividend credited to capital 318
Retained net revenue for the year - - - - - 736
Dividends paid - - - - - (898)
Balance as at 31 March 2006 8,724 3,395 2,212 25,458 21,272 1,582
For the year ended 31 March 2007 Share Share Capital Capital Capital Revenue
Capital Premium Redemption Reserve Reserve Reserve
Account Reserve Realised Unrealised
£'000 £'000 £'000 £'000 £'000 £'000
Balance as at 1 April 2006 8,724 3,935 2,212 25,458 21,272 1,582
Net gain on realisation of - - - 19,615 - -
investments
Decrease in unrealised appreciation - - - - (7,983) -
Exchange gains - - - 219 (74) -
Management fees charged to capital - - - (271) - -
Interest charged to capital - - - (228) - -
Other expenses charged to capital - - - (241) - -
Retained net revenue for the year - - - - - 925
Dividends paid - - - - - (698)
Balance as at 31 March 2007 8,724 3,935 2,212 44,552 13,215 1,809
Unaudited consolidated Cash Flow Statement
Year Ended 31 Year Ended 31
March March
2007 2006
£'000 £'000
Cash flows from operating activities
Profit before tax and financing 12,333 13,548
Gains on investments (11,632) (12,840)
Interest received (175) (146)
Exchange gains (145) -
Operating cash flows before investments in working capital 381 562
Decrease in receivables (21) 98
Increase in payables 100 10
Net cash from operating activities 460 670
Cash flows from investing activities
Purchases of investments (74,619) (12,504)
Sales of investments 73,114 26,932
Net cash used in investing activities (1,505) 14,428
Cash flows from financing activities
Dividends paid (698) (898)
Interest received 204 117
Interest paid (289) (428)
Own shares acquired - (10,670)
Drawdowns/(repayments) of borrowings 4,000 (1,000)
Net cash from financing activities 3,217 (12,879)
Net increase in cash and cash equivalents 2,172 2,219
Realised currency gains 219 -
Increase in cash and cash equivalents 2,391 2,219
Cash and cash equivalents at beginning of year 3,761 1,542
Cash and cash equivalents at end of year 6,152 3,761
Notes to the Accounts
1. Accounting Policies
The financial statements of the Group have been prepared in accordance with
International Financial Reporting Standards ('IFRS'), which comprise standards
and interpretations approved by the International Accounting Standards Board ('
IASB'), and the International Accounting Standards and Standing Interpretations
Committee interpretations approved by the International Accounting Standards
Committee ('IASC') that remain in effect, and to the extent that they have been
adopted by the European Union.
The accounting policies adopted in the preparation of the annual report and
financial statements are consistent with those followed in the previous year.
2. Earnings per Ordinary Share is based on a weighted average of
17,448,260 Ordinary Shares in issue during the year (2006 - 18,613,479).
3. The final dividend of 2.25p (2006 - second interim dividend 2.25p)
will be paid on 6 July 2007 to shareholders on the Register on 8 June 2007.
4. There were 17,448,260 Ordinary Shares in issue at 31 March 2007 (2006
- 17,448,260).
5. These are not statutory accounts in terms of Section 240 of the
Companies Act 1985. Statutory accounts for the year to 31 March 2006, which were
unqualified, have been lodged with the Registrar of Companies. The statutory
accounts for the year to 31 March 2007 will be delivered to the Registrar of
Companies following the Company's Annual General Meeting.
For further information please contact:
Charles Montanaro
Montanaro Investment Managers Limited
Tel: 020 7448 8600
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