Half-yearly Report
Montanaro UK Smaller Companies Investment Trust PLC ("MUSCIT")
Half-yearly Report for the six months ended 30 September 2012
MUSCIT was launched in March 1995 and is listed on the London Stock Exchange.
Investment Objective
The investment objective is capital appreciation through investing in small
quoted companies listed on the London Stock Exchange or traded on the
Alternative Investment Market ("AIM") and to achieve relative outperformance of
its benchmark, the FTSE SmallCap (excluding Investment Companies) Index
("SmallCap"). No unquoted investments are permitted.
Investment Policy
The Company seeks to achieve its objective and to diversify risk by investing
in a portfolio of quoted UK smaller companies. At the time of initial
investment, a potential investee company must be profitable and smaller than
the largest constituent of the Numis Smaller Companies Index ("NSCI"), which
represents the smallest 10% of the UK Stock Market by value. At the end of
September 2012, the largest company in the NSCI had a market capitalisation of
over £2.4 billion in size. The Manager focuses on the smaller end of this
Index.
In order to manage risk the Manager will normally limit any one holding to a
maximum of 4% of the Company's investments. The portfolio weighting of each
investment is closely monitored to reflect the underlying liquidity of the
particular company. The Company's AIM exposure is also closely monitored by the
Board and is limited to 30% of total investments with Board approval required
for exposure to be above 25%.
The Manager is focused on identifying high quality niche companies operating in
growth markets. This typically leads to investment in companies that enjoy high
barriers to entry, pricing power, a sustainable competitive advantage and
strong management teams. The portfolio is therefore constructed on a "bottom
up" basis and there are no sectoral constraints placed on the Manager.
The Board, in consultation with the Manager, is responsible for determining the
gearing strategy of the Company. Gearing is used to enhance returns when the
timing is considered appropriate . The Board has agreed to limit borrowings to
25% of shareholders' funds.
Highlights
for the six months to 30 September 2012
Results
> Net Asset Value ("NAV") including current period revenue (adjusted for
dividend of 6.76p paid in the period): 7.1% (£154 million)
> Gross Assets: 4.6% (£170 million)
> Share price: 6.0%
> Gross Gearing: 9.7%
> Net Gearing : 6.3%
> FTSE SmallCap Total Return Index: 6.5%
As at As at
30 September 31 March
2012 2012
NAV per Ordinary share 460.65p 436.57p
(including current period
revenue)
Ordinary share price 369.00p 348.00p
NAV Performance vs SmallCap
(to 30 September 2012)
Since
inception
6 months 3 years 5 years March 1995
% % % %
NAV (excluding 6.3 66.3 32.5 362.8
current period
revenue)
FTSE SmallCap Index 4.5 5.0 (24.7) 57.0
Outperformance 1.8 61.3 57.2 305.8
Capital Structure
As at 30 September 2012 the Company had 33,475,958 Ordinary shares of 10p each
in issue (none of which were held in Treasury).
Benchmark
The Board has undertaken a review to assess the most appropriate benchmark
against which its performance should be measured. It has been agreed that from
1 April 2013 the Company will adopt The Numis Smaller Companies Index
(excluding investment companies) ("NSCI") as its Benchmark. However, there will
be no change in the investment approach or objectives.
The Board has undertaken a review to assess the most appropriate
Manager's Review
During the first financial quarter to the end of June 2012, the UK stock market
gave up some of its earlier gains as the economic outlook deteriorated and
speculation continued over the future of the Euro Zone. Cyclical businesses
with exposure to Europe and China suffered after a solid start to the year
which saw several companies' share prices reach new highs. The Trust was well
positioned to weather the correction, with gearing having been reduced to 1% by
the end of March from 11% three months earlier.
The market correction proved to be short-lived and by early June equity markets
were already recovering. Gearing was raised to just under 4% by the end of the
month.
SmallCap has a habit of outperforming when the market expects it the least and
the second financial quarter was no exception. Buoyed by global central bank
actions and repeated proclamations by the ECB of its commitment to the Euro,
the FTSE SmallCap ex-IT index rallied through the summer to post a second
financial quarter gain of 10%, just as global leading indicators were showing
signs of bottoming out. Over the first 6 months of the financial year the NAV
of the Trust gained 6% in Sterling terms, compared to 5% for the FTSE SmallCap
ex-IT benchmark. The All Share was broadly flat.
During the period the portfolio benefitted from two takeovers, namely Kewill, a
logistics software maker, and WSP, a consultant engineer, which were acquired
at a premium of 45% and 67% respectively. The other main positive contributions
came from Dechra, a veterinary products business and Dialight, a LED lighting
manufacturer which both rose by 31% and Domino's Pizza, the pizza delivery
company, which gained 23% over the interim period.
The Board has observed the changes to the taxation rules and the Companies Act
that now permit the distribution of realised capital reserves as dividends. At
this year's Annual General Meeting a Special Resolution was passed to amend the
Company's Articles to reflect these changes. It is not the Board's intention to
change the Company's current dividend policy but the amendments could provide
flexibility for dividends in the future.
Outlook
Despite a challenging macroeconomic environment our investee companies have
continued to express a confident, albeit prudent, view on the future. During
the second financial quarter, a large majority of the UK companies on our
Approved List reported better sales numbers than consensus, unchanged from the
previous quarter. Median sales growth remained stable at c.10% year-on-year and
the average weighted net debt-to-equity in the Trust was stable at 8%. Evidence
remains that cheap financing is readily available for quality borrowers in the
UK and across Europe. However, we remain vigilant as sluggish economic growth
could, in the short-term, affect the third quarter reporting season.
As 2012 draws to an end, we believe that investors will increasingly take
comfort in the modest global recovery expected to occur next year. In
anticipation of this we have started to raise the level of gearing and to
re-allocate funds towards high quality cyclicals.
Montanaro Asset Management
27 November 2012.
Thirty Largest Holdings
as at 30 September 2012
% of Market
Holding Sector Value cap
£'000 portfolio £m
Genus Pharmaceuticals and 6,048 3.7 913
Biotechnology
Devro Food Producers 5,740 3.5 543
Brammer Support Services 5,439 3.3 334
Dialight Electronic and Electrical 5,409 3.3 386
Equipment
James Fisher Industrial Transportation 5,337 3.2 381
Domino's Pizza Travel and Leisure 5,310 3.2 868
Victrex Chemicals 5,288 3.2 1,117
Dignity General Retailers 5,247 3.2 500
Dechra Pharmaceuticals and 5,242 3.2 506
Pharmaceuticals Biotechnology
Domino Printing Electronic and Electrical 5,120 3.1 617
Sciences Equipment
Ten Largest Holdings 54,180 32.9
RPS Group Support Services 4,980 3.0 546
NCC Group Software and Computer Services 4,790 2.9 320
EnQuest Oil and Gas Producers 4,764 2.9 921
Shaftesbury Real Estate/ Real Estate 4,752 2.9 1,328
Investment Trusts
Consort Medical Health Care Equipment and 4,719 2.9 207
Services
AG Barr Beverages 4,694 2.9 522
Fenner Industrial Engineering 4,632 2.8 747
Croda International Chemicals 4,608 2.8 3,281
Renishaw Electronic and Electrical 4,546 2.8 1,203
Equipment
Aveva Group Software and Computer Services 4,524 2.7 1,339
Twenty Largest 101,189 61.5
Holdings
Fidessa Group Software and Computer Services 4,413 2.7 546
Senior Aerospace and Defence 4,352 2.7 845
SDL Software and Computer Services 3,990 2.4 533
Oxford Instruments Electronic and Electrical 3,781 2.3 773
Equipment
Ricardo Support Services 3,681 2.2 200
Carclo Chemicals 3,657 2.2 279
Latchways Support Services 3,570 2.2 114
Mears Group Support Services 3,538 2.2 250
M.P.Evans Group Food Producers 3,498 2.1 290
Brewin Dolphin General Financials 3,360 2.0 419
Thirty Largest 139,029 84.5
Holdings
Analysis of Investment Portfolio by FTSE Classification
as at 30 September 2012
Classification % of
portfolio
UK FTSE 250 60.9
UK FTSE SmallCap 25.4
UK AIM/PLUS 5.9
UK other equities 7.8
Interim Management Report and Responsibility Statement
Interim Management Report
The important events that have occurred during the period under review and the
key factors influencing the financial statements are set out in the Manager's
Review.
The principal risks and uncertainties for the remaining six months of the
financial year are reviewed in the Outlook section of the Manager's Review. The
Company actively monitors its counterparty exposures and has been particularly
vigilant during the period.
The principal risks facing the Company are substantially unchanged since the
date of the Annual Report for the year ended 31 March 2012 and continue to be
as set out in that report on pages 14 to 16 and pages 36 to 38.
Risks faced by the Company include, but are not limited to, Investment Manager,
investment and strategy, discount volatility, credit risk, market price risk,
interest rate risk, liquidity risk, gearing, regulatory risk, operational risk
and financial risk, banking, reputational and Company viability.
Under the Listing Rules the Manager is regarded as a related party of the
Company. The amounts paid to the Manager during the period were £1,075,000 (30
September 2011: £798,000; year to 31 March 2012: £2,375,000). At 30 September
2012, the amount due to Montanaro Asset Management Limited, included in
creditors, was £435,000.
However, the existence of an independent Board of Directors demonstrates that
the Company is free to pursue its own financial and operating policies.
Therefore in terms of FRS 8 "Related Party Transactions" the Manager is not
considered a related party.
Responsibility Statement
The Directors confirm that to the best of their knowledge:
â— The condensed set of financial statements has been prepared in accordance
with the Statement on Half-yearly Financial Reports issued by the UK Accounting
Standards Board and gives a true and fair view of the assets, liabilities and
financial position of the Company;
â— The Manager's Review (constituting the interim management report) includes a
fair review of the information required by DTR 4.2.7R of the Disclosure and
Transparency Rules, 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 financial statements;
â— The Statement of Principal Risks and Uncertainties above is a fair review of
the information required by DTR 4.2.7R; and
â— The financial statements include a fair review of the information required by
DTR 4.2.8R of the Disclosure and Transparency Rules, 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.
This Half-yearly Report was approved by the Board of Directors on 27 November
2012 and the above responsibility statement was signed on its behalf by David
Gamble, Chairman.
Income Statement (unaudited)
for the six months to 30 September 2012
6 months to 30 September 2012 6 months to 30 September 2011 Year to 31 March 2012
Revenue Capital Total Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Gains /(losses) - 10,106 10,106 - (9,106) (9,106) - 6,607 6,607
on investments
designated at
fair value
through profit or
loss
Dividends and 2,209 - 2,209 1,915 - 1,915 3,667 - 3,667
interest
Management fee (409) (409) (818) (399) (399) (798) (781) (782) (1,563)
Management - (256) (256) - - - - (812) (812)
performance fee
Other expenses (173) - (173) (142) - (142) (246) - (246)
Movement in fair - (423) (423) - - - - (75) (75)
value of
derivative
financial
instruments
Net return before 1,627 9,018 10,645 1,374 (9,505) (8,131) 2,640 4,938 7,578
finance costs and
taxation
Interest payable (161) (162) (323) (48) (48) (96) (160) (160) (320)
and similar
charges
Net return before 1,466 8,856 10,322 1,326 (9,553) (8,227) 2,480 4,778 7,258
taxation
Taxation (Note 2) - - - - - - - - -
Net return after 1,466 8,856 10,322 1,326 (9,553) (8,227) 2,480 4,778 7,258
taxation
Return per 4.38p 26.45p 30.83p 3.96p (28.54)p (24.58)p 7.41p 14.27p 21.68p
Ordinary share
The total column of this statement is the profit and loss account of the
Company. The supplementary revenue and capital columns are presented under
guidance issued by the Association of Investment Companies ("AIC").
All revenue and capital items in the above statement derive from continuing
operations. No operations were acquired or discontinued in the period.
No Statement of Total Recognised Gains and Losses has been prepared as all such
gains and losses are shown in the Income Statement.
Reconciliation of Movements in Shareholders' Funds (unaudited)
for the six months to 30 September 2012
Total
Called-up Share Capital Distributable equity
share premium redemption Special Capital revenue shareholders
capital account reserve reserve reserve reserve funds
6 months to 30 £'000 £'000 £'000 £'000 £'000 £'000 £'000
September 2012
As at 1 April 2012 3,348 19,307 1,362 4,642 113,343 4,146 146,148
Fair value movement - - - - 10,106 - 10,106
of investments
Costs allocated to - - - - (827) - (827)
capital
Net revenue for the - - - - - 1,466 1,466
period
Movement in fair - - - - (423) - (423)
value of derivative
financial
instruments
Dividends paid in - - - - - (2,263) (2,263)
period
As at 30 September 3,348 19,307 1,362 4,642 122,199 3,349 154,207
2012
6 months to 30
September 2011
As at 1 April 2011 3,348 19,307 1,362 4,642 108,565 3,929 141,153
Fair value movement - - - - (9,106) - (9,106)
of investments
Costs allocated to - - - - (447) - (447)
capital
Net revenue for the - - - - - 1,326 1,326
period
Dividends paid in - - - - - (2,263) (2,263)
period
As at 30 September 3,348 19,307 1,362 4,642 99,012 2,992 130,663
2011
Year to 31 March
2012
As at 1 April 2011 3,348 19,307 1,362 4,642 108,565 3,929 141,153
Fair value movement - - - - 6,607 - 6,607
of investments
Costs allocated to - - - - (1,754) - (1,754)
capital
Net revenue for the - - - - - 2,480 2,480
year
Movement in fair - - - - (75) - (75)
value of derivative
financial
instruments
Dividends paid in - - - - - (2,263) (2,263)
the year
As at 31 March 2012 3,348 19,307 1,362 4,642 113,343 4,146 146,148
Balance Sheet (unaudited)
as at 30 September 2012
As at As at As at
30 September 30 September 31 March
2012 2011 2012
£'000 £'000 £'000
Fixed assets
Investments designated at fair value 164,603 142,732 148,373
through profit and loss
Current assets
Debtors 553 2,937 566
Cash at bank 5,241 922 13,966
5,794 3,859 14,532
Creditors: amounts falling due within
one year
Other creditors (692) (928) (1,682)
Revolving credit facility (15,000) (15,000) (15,000)
(15,692) (15,928) (16,682)
Net current liabilities (9,898) (12,069) (2,150)
Total assets less current liabilities 154,705 130,663 146,223
Creditors: amounts falling due after
more than one year
Interest rate swap (498) - (75)
Net assets 154,207 130,663 146,148
Share capital and reserves
Called-up share capital 3,348 3,348 3,348
Share premium account 19,307 19,307 19,307
Capital redemption reserve 1,362 1,362 1,362
Special reserve 4,642 4,642 4,642
Capital reserve 122,199 99,012 113,343
Distributable revenue reserve 3,349 2,992 4,146
Total equity shareholders' funds 154,207 130,663 146,148
Net asset value per Ordinary share 460.65p 390.32p 436.57p
Summarised Statement of Cash Flows (unaudited)
as at 30 September 2012
Note As at As at As at
30 September 30 September 31 March
2012 2011 2012
£'000 £'000 £'000
Net cash inflow from operating 3 456 397 962
activities
Servicing of finance
- Interest and similar charges (323) (98) (148)
paid
Net cash outflow from servicing (323) (98) (148)
of finance
Capital expenditure and
financial investment
- Purchases of investments (18,255) (13,340) (26,508)
- Sales of investments 11,660 15,820 41,517
Net cash (outflow)/ inflow from (6,595) 2,480 15,009
capital expenditure and
financial investment
Equity dividends paid (2,263) (2,263) (2,263)
(Decrease)/ increase in cash 4 (8,725) 516 13,560
Notes to the Financial Statements
as at 30 September 2012
1 Financial information
The financial information contained in this report does not constitute full
statutory accounts as defined in section 434 of the Companies Act 2006. The
financial information for the six months to 30 September 2012 and 30 September
2011 has not been audited or reviewed by the Company's Auditor pursuant to the
Auditing Practices Board guidance on such reviews.
The information for the year ended 31 March 2012 has been extracted from the
latest published audited financial statements, which have been filed with the
Registrar of Companies. The Report of the Auditors on those financial
statements was unqualified and did not contain a statement under section 498(2)
or (3) of the Companies Act 2006.
The financial statements are prepared on the basis of the accounting policies
set out in note 1 on page 29 and 30 of the annual report and accounts for the
year ended 31 March 2012.
2 Tax credit/charge on ordinary activities
The tax charge for the half-year is nil (30 September 2011: nil; year to 31
March 2012: nil) based on an estimated effective tax rate of 0% for the year
ending 31 March 2013. The estimated effective tax rate is 0% as investment
gains are exempt from tax owing to the Company's status as an investment trust
and there is expected to be an excess of management expenses over taxable
income.
3 Reconciliation of net return before finance costs and taxation to net cash
inflow from operating activities
6 months to 6 months to Year to
30 September 30 September 31 March
2012 2011 2012
£'000 £'000 £'000
Net return before finance costs 10,645 (8,131) 7,578
and taxation
(Gains) /losses on investments (10,106) 9,106 (6,607)
designated at fair value through
profit or loss
Movement in fair value of 423 - 75
derivative financial instruments
(Decrease)/increase in creditors (519) (638) 49
Decrease/(increase) in 13 60 (133)
prepayments and accrued income
Net cash inflow from operating 456 397 962
activities
4 Reconciliation of net cash flows to movements in net debt
6 months to 6 months to Year to
30 September 30 September 31 March
2012 2011 2012
£'000 £'000 £'000
(Decrease)/increase in cash in (8,725) 516 13,560
the period
Movement in net debt (8,725) 516 13,560
Net debt at beginning of period (1,034) (14,594) (14,594)
Net debt at end of period (9,759) (14,078) (1,034)
5 Analysis of net debt
As at As at
1 April 30 September
2012 Cash flows 2012
£'000 £'000 £'000
Cash at bank 13,966 (8,725) 5,241
Debt due in less than one year (15,000) - (15,000)
(1,034) (8,725) (9,759)
6 Going Concern
The Company has adequate financial resources to meet its investment commitments
and as a consequence, the Directors believe that the Company is well placed to
manage its business risks. After making appropriate enquiries and due
consideration of the Company's cash balances, the liquidity of the Company's
investment portfolio and the cost base of the Company, the Directors have a
reasonable expectation that the Company has adequate available financial
resources to continue in operational existence for the foreseeable future and
accordingly have concluded that it is appropriate to continue to adopt the
going concern basis in preparing the Half-yearly Report, consistent with
previous years.
Directors
David Gamble (Chairman)
Roger Cuming
Kathryn Matthews
Michael Moule
Principal Advisers
Manager Bankers
Montanaro Asset Management Limited HSBC International
53 Threadneedle Street PO Box 181
London EC2R 8AR 27-32 Poultry
Tel: 020 7448 8600 London EC2P 2BX
Fax: 020 7448 8601
www.montanarouksmaller.co.uk ING Bank N.V.
info@montanaro.co.uk London Branch
60 London Wall
London EC2M 5TQ
Company Secretary, Administrator and Registered Auditor
Office
Capita Sinclair Henderson Limited KPMG Audit Plc
Beaufort House 100 Temple Street
51 New North Road Bristol BS1 6AG
Exeter EX4 4EP
Tel: 01392 412 122 Solicitors
Fax: 01392 253 282 Norton Rose LLP
3 More London Riverside
Registrars London SE1 2AQ
Capita Registrars
Shareholder Services Department
The Registry
34 Beckenham Road
Beckenham
Kent BR3 4TU
Tel: 0871 664 0300
(calls cost 10p per minute plus network charges)
Fax: 020 639 2342
ssd@capitaregistrars.com
www.capitaregistrars.com
Montanaro UK Smaller Companies Investment Trust PLC
Registered in England and Wales No. 3004101
An investment company as defined under
Section 833 of the Companies Act 2006
Sources of further information
The Company's share price is listed in the Financial Times under "Investment
Companies".
Information on the Company is also available on the Manager's website:
www.montanarouksmaller.co.uk
Key Dates
March 2013 Company Year End
June 2013 Annual Results
July 2013 Annual General Meeting
November 2013 Interim Results
Frequency of NAV Publication
The Company's NAV is released to the London Stock Exchange on a daily basis.
ISA Status
The Company is fully eligible for inclusion in ISAs.
AIC
The Company is a member of the Association of Investment Companies.
National Storage Mechanism
A copy of the Half-yearly Report 2012 will be submitted shortly to the National
Storage Mechanism ("NSM") and will be available for inspection at the NSM,
which is situated at: www.morningstar.co.uk/uk/NSM
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.
END
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