Final Results

MONTANARO UK SMALLER COMPANIES INVESTMENT TRUST PLC PRELIMINARY ANNOUNCEMENT OF AUDITED ANNUAL RESULTS The Directors announce the audited statement of results for the year ended 31 March 2005 as follows:- STATEMENT OF TOTAL RETURN (incorporating the revenue account*) of the Company 1 April 2004 to 31 March 1 April 2003 to 31 March 2005 2004 Revenue Capital Total Revenue Capital Total £'000 £'000 £'000 £'000 £'000 £'000 Capital gains on investments - 14,752 14,752 - 21,002 21,002 Dividends and interest 1,729 - 1,729 2,158 - 2,158 receivable Investment management (440) (440) (880) (394) (395) (789) fee Other expenses (248) - (248) (214) - (214) Net return before financing costs and taxation 1,041 14,312 15,353 1,550 20,607 22,157 Interest payable and similar charges (221) (221) (442) (231) (355) (586) Return on ordinary activities before taxation 820 14,091 14,911 1,319 20,252 21,571 Taxation on ordinary - - - - - - activities Return on ordinary 820 14,091 14,911 1,319 20,252 21,571 activities after taxation Dividend paid and (978) - (978) (1,050) - (1,050) proposed** Transfer (from)/to reserves after dividends proposed (158) 14,091 13,933 269 20,252 20,521 Pence Pence Pence Pence Pence Pence Return per ordinary 2.36 40.53 42.89 3.56 54.75 58.31 share*** * The revenue column of this statement is the revenue account of the Company. ** The Company repurchased and cancelled 320,000 ordinary shares following the 31 March 2004 year end, prior to the ex-dividend date of the final dividend. As no dividend is payable on shares that have been repurchased the dividends due on such shares, totalling £9,000, reverted back to the Company. *** The calculation of returns per ordinary share exclude shares held in treasury, so the weighted average number of shares in issue during the year has been adjusted to reflect this. All revenue and capital items in the above statement derive from continuing operations. No operations were acquired or discontinued in the year. SUMMARISED BALANCE SHEET As at As at 31 March 31 March 2005 2004 £'000 £'000 Investments 83,882 63,430 Net current (liabilities)/assets (1,261) 8,032 Total assets less current liabilities 82,621 71,462 Creditors - amounts falling due after more than one year (7,500) (7,500) Net assets 75,121 63,962 Share capital 3,652 3,684 Share premium account 18,937 18,680 Capital redemption reserve 1,058 1,026 Special reserve 11,075 11,518 Capital reserve - realised 29,378 26,983 Capital reserve - unrealised 12,778 1,082 Revenue reserve 831 989 Own shares held in treasury (2,588) - Shareholders' funds 75,121 63,962 Net asset value per ordinary share (debt at par value)* 216.98p 173.63p * Net asset values per share are calculated based on the number of ordinary shares in issue at the year end, excluding shares held in treasury. SUMMARISED STATEMENT OF CASHFLOWS Year to 31 Year to 31 March March 2005 2004 £'000 £'000 Net cash inflow from operating activities 695 1,159 Servicing of finance - Interest and similar charges paid (442) (481) - Loan breakage costs - (124) Net cash outflow from servicing of finance (442) (605) Capital expenditure and financial investment - Purchases of investments (30,149) (28,684) - Sales of investments 24,931 31,150 Net cash (outflow)/inflow from capital expenditure and financial investment (5,218) 2,466 Equity dividends paid (1,041) (929) Net cash (outflow)/inflow before financing (6,006) 2,091 Financing - Ordinary shares purchased for cancellation (443) (557) - Ordinary shares purchased and held in treasury (3,752) - - Ordinary shares sold from treasury 1,421 - - Repayment of credit facility - (2,500) Net cash outflow from financing (2,774) (3,057) Decrease in cash (8,780) (966) The financial information set out above which does not constitute the Company's statutory accounts for the years ended 31 March 2004 or 2005, has been based on the accounting policies used in the statutory accounts for the year ended 31 March 2004. Statutory accounts for 2004 have been delivered to the Registrar of Companies, whereas those for 2005 will be delivered following the Company's Annual General Meeting. The auditors have reported on those accounts; their reports were unqualified and did not contain a statement under section 237 (2) or (3) of the Companies Act 1985. CHAIRMAN'S STATEMENT Chairman's Statement Background I am pleased to present the tenth annual report of the Montanaro UK Smaller Companies Investment Trust PLC ('the Company') and my first as Chairman. The Company was launched on 16 March 1995. In 1996, the initial £25 million Company was increased in size through a £30 million 'C' share issue. Net assets now stand at £75 million. An investment trust is as an attractive vehicle for shareholders to invest in quoted UK 'smaller' companies, which are less well researched and more illiquid than larger, blue chip companies. Performance In the year to 31 March 2005, the NAV per share of the Company increased by 25% to 216.98p in comparison with a 9% gain by the SmallCap. Since launch, the NAV per share of the Company has increased by 120% in comparison with a 70% gain by the SmallCap. Share Buy Backs The Board is responsible for the implementation of the share buy back programme, which is undertaken at arm's length from the Manager. The Board continues to consider share buy backs as and when appropriate. Since launch, 13,333,470 shares of the Company have been bought back. Details of shares bought back during the year will be included in the Directors' report. Approval to renew the Directors' authority to buy back shares, either for cancellation or for placing into treasury, will be put to shareholders at the forthcoming Annual General Meeting. Holding Shares in Treasury As an alternative to cancellation, new regulations came into force on 1 December 2003 that allow companies, including investment trusts, to buy back shares and hold them in treasury for re-issue at a later date. This has the benefit of improving liquidity as well as retaining the opportunity to enhance the net asset value. 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. Therefore, shares held in Treasury will only be re-issued at a lower discount than when they were originally purchased and to produce a positive absolute return. Any shares held in Treasury for a period in excess of twelve months will be cancelled. This policy is in accordance with the recommendations of the AITC in their paper 'Treasury Shares - A Guide to The Commercial and Technical Issues' dated 28 August 2003. Indeed, it goes further than their recommendations in seeking both absolute and relative returns for investors. More information of the Board's treasury share policy will be included in the Annual Report and Accounts. The Directors will seek the authority to issue shares, including those from treasury, up to an aggregate amount of 10% of the Company's issued shares at the forthcoming Annual General Meeting. The Directors will also seek the authority to issue shares from treasury at a discount to net asset value. Gearing The Board reviews the level of gearing considered appropriate for the Company in discussion with the Manager. One of the benefits of investment trusts is the ability to hold prudent levels of gearing, which can enhance investment returns. ING Bank provides a borrowing facility of up to £10 million at a fixed rate of 5.73%. The facility will mature on 1 August 2007. Dividend The Company's primary focus is on capital growth rather than income. Accordingly, the Board proposes an unchanged final dividend of 2.85p per ordinary share. The final dividend will be payable on 29 July 2005 to shareholders on the register at the close of business on 10 June 2005. In future, the Board will recommend a dividend based on a 90% payout from annual revenues. Corporate Governance The Directors have thoroughly reviewed the recommendations of the 2003 Combined Code on Corporate Governance ('the Code') and have implemented new Board procedures where appropriate, such as an annual evaluation of the Board's performance. Consequently, the Company has complied with the Code throughout the year except where compliance would be inappropriate given the size and nature of the Company. Full disclosure of the Company's compliance with the Code will be included in the Annual Report and Accounts. During the year Antony Hardy was elected as Chairman of the Audit Committee. Directors On behalf of the Board I would like to thank Sir Brandon Gough who retired as our Chairman in January 2005. Over many years he has presided over the Board with a sure and intelligent touch. He has been a strong supporter of the Company and we will miss him. I am delighted to welcome Michael Moule to the Board. He is a well known figure in the City and a highly successful fund manager with many years of experience. We are all looking forward to working with him. Continuation Vote Approval for the Company to be released from the obligation to convene an EGM in 2006 for the purpose of winding up the Company, as required by the Articles of Association, will be put to shareholders at the forthcoming Annual General Meeting. The Board unanimously recommends shareholders to vote in favour of this Resolution. The individual members of the Board intend to do so in the case of their personal holdings of the Company. Outlook Last year's performance for UK SmallCap was respectable, Montanaro's performance was excellent. Quoted UK small companies deserve a place in most equity portfolios at all times. In summary: they are companies often operating in niche markets less sensitive to the global economy; they offer unique investments and exposure to interesting sector themes; they are younger, typically more dynamic companies with entrepreneurial, flexible management with higher earnings growth potential; they may well be attractive take-over targets. They are an under researched, inefficient market offering good stock pickers a vast array of investment opportunities. To quote Deutsche Bank in January 2005: 'As an area for stock pickers and alpha seekers, we still see small/mid cap as an attractive hunting ground'. This is where good stock selection by able fund managers can make a meaningful difference to investor returns. Personally, I very much favour management groups who have a substantial part of their wealth in both the management company and the Company - Montanaro really does have its `money where its mouth is'. The Company is celebrating its tenth anniversary, no mean achievement in itself, and has outperformed its benchmark in eight out of ten years. More impressively, it has given investors NAV returns 61% greater than the FTSE-AllShare Index and 50% greater than its benchmark the SmallCap. I sincerely believe that we can look forward to the future with confidence. DAVID GAMBLE Chairman 2 June 2005

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