Half Yearly Report

RNS Number : 6976R

Montanaro European Smaller C.TstPLC

21 November 2012

 



MONTANARO EUROPEAN SMALLER COMPANIES TRUST PLC

 

Date:                21 November 2012

HALF YEARLY FINANCIAL REPORT FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2012

 

Investment Objective

Montanaro European Smaller Companies Trust plc aims to achieve capital growth by investing principally in Continental European quoted smaller companies.

Highlights

·      Share price -0.6%

·      Net asset value ('NAV') per Ordinary Share -2.2%

·      Benchmark index -5.3%

·      Total assets -5.5% (£88.9 million)

Chairman's Statement

During the six month period ended 30 September 2012, the Company's net asset value ('NAV') fell by 10.5p per share, or 2.2%, to 461.1p per share. The most significant influence on the NAV performance was the decline in the sterling value of the Euro and the Swiss Franc, which cost the NAV approximately 12p per share, whilst share buy backs (see below) contributed 2.6p per share. For comparison, the Company's benchmark index, the MSCI Europe Small Cap (ex UK) Index, fell by 5.3% in sterling terms.

The share price fell by 0.6% during the period, to 402.5p, as the discount narrowed slightly from 14.1% to 12.7%. 

Since the appointment of Montanaro Asset Management Limited as Investment Manager in September 2006, the NAV per share has risen by 34.0% compared with a fall of 0.7% in the benchmark index.

European stock markets have continued to be affected by concerns over sovereign debt and ongoing speculation as to the future of the Eurozone. Following repeated proclamations by the European Central Bank of its commitment to the Euro, sentiment improved as the period progressed and European stock markets performed better than all other developed world stock markets in the third quarter of 2012. 

Most of the companies within the portfolio have reported profits ahead of expectations and continue to express a cautiously confident view on the future. The portfolio remains comprised of high quality growth companies, which are predominantly located in Northern Europe.

Share Buy Backs and Treasury Shares

During the period the Company bought back 600,000 Ordinary Shares to be held in Treasury, providing an enhancement of 2.6p to the NAV per share. At the end of the period the Company held 815,000 Ordinary Shares in Treasury, available to be re-issued. The Board's stated policy on treasury shares is to re-issue shares at a discount to the NAV per share provided that such discount is narrower than the weighted average discount to the NAV per share at the time the shares were bought back by the Company.

Earnings and Dividends

Revenue earnings per share for the period were 6.9p (2011: 6.2p). The Board has declared an unchanged interim dividend of 1.75p per Ordinary Share, payable on 11 January 2013 to shareholders on the register on 14 December 2012.

Borrowings

The Company has a flexible €15 million revolving credit facility which enables gearing to be increased or decreased as appropriate. The level of gearing was 6.8% as at 30 September 2012, compared to 1.5% at the beginning of the period, reflecting a more positive outlook by the Investment Manager.

Outlook

Markets are likely to remain volatile as investors remain concerned about the prospects for Europe, both in terms of the economic outlook and the future for the Euro. Valuations of shares of European smaller companies are, however, generally attractive. With the Investment Manager's continued approach of investing in companies with strong management, sound balance sheets and good business franchises, the Board believes that the Company remains well positioned to deliver attractive returns for shareholders over the longer term.

A R IRVINE

Chairman

Consolidated Statement of Comprehensive Income

for the six months ended 30 September 2012 (unaudited)                                                                   

	Revenue	Capital	Total
	£'000	£'000	£'000
Capital losses on investments
Losses on investments held at fair value	-	(2,451)	(2,451)
Exchange gains	-	74	74
	-	(2,377)	(2,377)
Revenue
Investment income	1,754	-	1,754
Other operating income	6	-	6
Total income	1,760	(2,377)	(617)
Expenditure
Management expenses	(111)	(206)	(317)
Other expenses	(249)	-	(249)
Total expenditure	(360)	(206)	(566)
Profit/(loss) before finance costs and taxation	1,400	(2,583)	(1,183)
Finance costs	(76)	(140)	(216)
Profit/(loss) before taxation	1,324	(2,723)	(1,399)
Taxation	(177)	-	(177)
Total comprehensive income	1,147	(2,723)	(1,576)
Return per share	6.9p	(16.3)p	(9.4)p

The total column of this statement represents the Group's Income Statement and Statement of Comprehensive Income, prepared in accordance with IFRS.

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.

All of the profit/(loss) and total comprehensive income for the period is attributable to the owners of the Company.

Consolidated Statement of Comprehensive Income

for the six months ended 30 September 2011 (unaudited)

	Revenue	Capital	Total
	£'000	£'000	£'000
Capital losses on investments
Losses on investments held at fair value	-	(25,945)	(25,945)
Exchange gains	-	261	261
	-	(25,684)	(25,684)
Revenue
Investment income	1,751	-	1,751
Other operating income	37	-	37
Total income	1,788	(25,684)	(23,896)
Expenditure
Management expenses	(128)	(237)	(365)
Other expenses	(240)	-	(240)
Total expenditure	(368)	(237)	(605)
Profit/(loss) before finance costs and taxation	1,420	(25,921)	(24,501)
Finance costs	(80)	(149)	(229)
Profit/(loss) before taxation	1,340	(26,070)	(24,730)
Taxation	(296)	-	(296)
Total comprehensive income	1,044	(26,070)	(25,026)
Return per share	6.2p	(153.9)p	(147.7)p

The total column of this statement represents the Group's Income Statement and Statement of Comprehensive Income, prepared in accordance with IFRS.

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.

All of the profit/(loss) and total comprehensive income for the period is attributable to the owners of the Company.

Consolidated Statement of Comprehensive Income

For the Year Ended 31 March 2012 (audited)

	Revenue	Capital	Total
	£'000	£'000	£'000
Capital losses on investments
Losses on investments held at fair value	-	(10,737)	(10,737)
Exchange gains	-	310	310
	-	(10,427)	(10,427)
Revenue
Investment income	2,309	-	2,309
Other operating income	26	-	26
Total income	2,335	(10,427)	(8,092)
Expenditure
Management expenses	(241)	(447)	(688)
Other expenses	(515)	-	(515)
Total expenditure	(756)	(447)	(1,203)
Profit/(loss) before finance costs and taxation	1,579	(10,874)	(9,295)
Finance costs	(172)	(319)	(491)
Profit/(loss) before taxation	1,407	(11,193)	(9,786)
Taxation	(289)	-	(289)
Total comprehensive income	1,118	(11,193)	(10,075)
Return per share	6.5p	(65.3)p	(58.8)p

The total column of this statement represents the Group's Income Statement and Statement of Comprehensive Income, prepared in accordance with IFRS.

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.

All of the profit/(loss) and total comprehensive income for the year is attributable to the owners of the Company.

Group Balance Sheet

As at 30 September 2012

		As at 30 September 2012 (unaudited)	As at 30 September 2011 (unaudited)	As at 31 March 2012 (audited)
		£'000	£'000	£'000
Non-current assets
Investments held at fair value through profit and loss		81,945	75,324	82,502
Current assets
Trade and other receivables		117	17	192
Cash and cash equivalents		6,805	5,297	11,301
		6,922	5,314	11,493
Total assets		88,867	80,638	93,995
Current liabilities
Trade and other payables		(12,170)	(13,261)	(12,717)
Total liabilities		(12,170)	(13,261)	(12,717)
Net assets		76,697	67,377	81,278
Capital and reserves
Called-up share capital		8,724	8,724	8,724
Share premium account		5,178	3,935	5,178
Capital redemption reserve		2,212	2,212	2,212
Capital reserve		57,473	49,688	62,577
Revenue reserve		3,110	2,818	2,587
Shareholders' funds		76,697	67,377	81,278
Net asset value per share		461.1p	386.2p	471.6p

Consolidated Statement of Changes in Equity

For the six months ended 30 September 2012 (unaudited)

	Share capital	Share premium account	Capital redemption reserve	Capital reserve	Revenue reserve	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Balance at 1 April 2012	8,724	5,178	2,212	62,577	2,587	81,278
Total comprehensive income	-	-	-	(2,723)	1,147	(1,576)
Shares repurchased	-	-	-	(2,381)	-	(2,381)
Dividends paid	-	-	-	-	(624)	(624)
Balance at 30 September 2012	8,724	5,178	2,212	57,473	3,110	76,697

Consolidated Statement of Changes in Equity

For the six months ended 30 September 2011 (unaudited)              

	Share capital	Share premium account	Capital redemption reserve	Capital reserve	Revenue reserve	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Balance at 1 April 2011	8,724	3,935	2,212	71,736	2,230	88,837
Total comprehensive income	-	-	-	(26,070)	1,044	(25,026)
Issue of shares from treasury	-	-	-	4,022	-	4,022
Dividends paid	-	-	-	-	(456)	(456)
Balance at 30 September 2011	8,724	3,935	2,212	49,688	2,818	67,377

Consolidated Statement of Changes in Equity

For the year ended 31 March 2012 (audited)

	Share capital	Share premium account	Capital redemption reserve	Capital reserve	Revenue reserve	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Balance at 1 April 2011	8,724	3,935	2,212	71,736	2,230	88,837
Total comprehensive income	-	-	-	(11,193)	1,118	(10,075)
Shares repurchased	-	-	-	(744)	-	(744)
Shares issued from treasury	-	1,243	-	2,778	-	4,021
Dividends paid	-	-	-	-	(761)	(761)
Balance at 31 March 2012	8,724	5,178	2,212	62,577	2,587	81,278

Condensed Group Statement of Cash Flows

	Six months to		Six months to		Year to
	30 September		30 September		31 March
	2012		2011		2012
	(unaudited)		(unaudited)		(audited)
	£'000		£'000		£'000
Net cash outflow from operating activities	(737)		(11,913)		(4,279)
Cash flows from financing activities	(3,281)		5,559		4,238
					_
	(4,018)		(6,354)		(41)
Exchange differences	(478)		(135)		(444)
Decrease increase in cash and cash equivalents	(4,496)		(6,489)		(485)

Reconciliation of loss before finance costs and tax to net cash outflow from operating activities
Loss before finance costs and tax	(1,183)		(24,501)		(9,295)
Losses on investments held at fair value	2,451		25,945		10,737
Exchange differences	(74)		(261)		(310)
Withholding tax	(285)		(296)		(341)
Purchases of investments	(17,988)		(20,264)		(29,850)
Sales of investments	16,141		8,045		25,599
Changes in working capital and other non cash items	201		(581)		(819)
Net cash outflow from operating activities	(737)		(11,913)		(4,279)

Statement of Principal Risks and Uncertainties

The principal risk faced by the Company is that it fails to produce the capital appreciation stated as its objective, and its net asset value does not rise over the longer-term.  The risks which might give rise to this can be categorised as external, manager, investment and strategy, portfolio liquidity, gearing, regulatory, operational, financial, banking and reputational.  In addition, shareholders face the risks of liquidity of the Company's shares and discount volatility.

These risks, and the way in which they are mitigated, are described in more detail under the heading Principal Risks and Risk Mitigation in the Report of the Directors in the Company's Annual Report for the year ended 31 March 2012.  The Company's principal risks and uncertainties have not changed materially since the date of that report and are not expected to change materially for the remaining six months of the Company's financial year.

Directors' Responsibility Statement in Respect of the Half Yearly Financial Report

We confirm that to the best of our knowledge:

·      the condensed set of consolidated financial statements has been prepared in accordance with IAS 34 'Interim Financial Reporting' and give a true and fair view of the assets, liabilities, financial position and loss of the Company;

·      the Chairman's Statement (constituting the Interim Management Report) includes a fair review of the information required by the Disclosure and Transparency Rules ('DTR') 4.2.7R, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of consolidated financial statements;

·      the Statement of Principal Risks and Uncertainties shown above is a fair review of the information required by DTR 4.2.7R; and

·      The condensed set of financial statements includes a fair review of the information required by DTR 4.2.8R, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the Company during that period, and any changes in the related party transactions described in the last Annual Report that could do so.

On behalf of the Board

A R IRVINE

Director

Notes to the Accounts

1.         The unaudited interim financial statements have been prepared on the basis of the accounting policies set out in the statutory financial statements of the Group for the year ended 31 March 2012 and in accordance with International Accounting Standard ('IAS') 34 'Interim Financial Reporting'.

2.         Earnings for the first six months should not be taken as a guide to the results for the full year.

3.         Management expenses

	Six Months to 30 September 2012			Six Months to 30 September 2011			Year ended 31 March 2012
	Revenue	Capital	Total	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Investment Management Fee - basic	111	206	317	128	237	365	241	447	688
	__	___	___	__	___	___	____	____	____
	111	206	317	128	237	365	241	447	688
	__	___	___	____	____	____	____	____	____

4.         Earnings per Ordinary Share is based on a weighted average of 16,739,337 Ordinary Shares in issue during the period (year end 31 March 2012: 17,140,801; six months ended 30 September 2011: 16,943,452), excluding those shares bought back and held in treasury.

5.         The interim dividend of 1.75 pence per Ordinary Share will be paid on 11 January 2013 to shareholders on the register on 14 December 2012.

6.         The net asset value per Ordinary Share is based on 16,633,260 Ordinary Shares in issue at the end of the period (31 March 2012: 17,233,260; 30 September 2011: 17,448,260), excluding those shares bought back and held in treasury.  As at 30 September 2012 there were 815,000 shares held in treasury (31 March 2012: 215,000; 30 September 2011: nil).  600,000 shares were bought back during the period at a cost of £2.4 million.

7.         The Group results consolidate those of MESCT Securities Limited, a wholly owned non-trading subsidiary.

8.         These are not statutory accounts in terms of Section 434 of the Companies Act 2006 and have not been audited or reviewed by the Company's auditors.  The information for the year ended 31 March 2012 has been extracted from the latest published financial statements which received an unqualified audit report and have been filed with the Registrar of Companies.  No statutory accounts in respect of any period after 31 March 2012 have been reported on by the Company's Auditors or delivered to the Registrar of Companies. The Half-Yearly Financial Report is available on the Manager's website: www.montanaro.co.uk.

For further information please contact:

Montanaro Asset Management Limited

Tel: [phone]

 

END

 

 

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