Interim Results
MONTANARO UK SMALLER COMPANIES INVESTMENT TRUST PLC
PRELIMINARY ANNOUNCEMENT OF UNAUDITED INTERIM RESULTS
The Directors announce the unaudited statement of results for the six months to
30 September 2006 as follows:-
INCOME STATEMENT (UNAUDITED)
6 months 6 months Year to 31 March 2006
to 30 September 2006 to 30 September 2005
Revenue Capital Total Revenue Capital Total Revenue Capital Total
£000 £000 £000 £000 £000 £000 £000 £000 £000
(Losses)/gains - (155) (155) - 13,893 13,893 - 33,354 33,354
on investments
at fair value
Dividends and 1,254 - 1,254 1,129 - 1,129 1,986 - 1,986
interest
Management fee (339) (339) (678) (269) (566) (835) (592) (1,296) (1,888)
Other expenses (180) - (180) (160) - (160) (336) - (336)
Net return 735 (494) 241 700 13,327 14,027 1,058 32,058 33,116
before finance
costs and
taxation
Interest payable (142) (142) (284) (119) (119) (238) (258) (258) (516)
and similar
charges
Net return 593 (636) (43) 581 13,208 13,789 800 31,800 32,600
before and after
taxation
Return per 1.67p (1.79)p(0.12)p 1.67p 38.00p 39.67p 2.30p 91.57p 93.87p
ordinary share*
* The calculation of returns per ordinary share excludes shares held in
Treasury, so the weighted average number of shares in issue during the period
has been adjusted to reflect this. No shares were held in Treasury in the
current period.
The total column of this statement is the profit and loss account of the
Company. The supplementary revenues 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.
SUMMARISED RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS (UNAUDITED)
for the six months to 30 September 2006
Called-up Share Capital Special Capital Revenue Own Total equity
share premium redemption reserve reserves reserve shares shareholders'
capital account reserve held in funds
Treasury
£000 £000 £000 £000 £000 £000 £000 £000
6 months to 30
September 2006
As at 1 April 3,561 19,307 1,149 9,835 73,298 1,611 - 108,761
2006
Net loss on - - - - (155) - - (155)
investments
Costs allocated - - - - (481) - - (481)
to capital
Net revenue for - - - - - 593 - 593
the period
Dividends paid in - - - - - (819) - (819)
period
As at 30 3,561 19,307 1,149 9,835 72,662 1,385 - 107,899
September 2006
Called-up Share Capital Special Capital Revenue Own Total equity
share premium redemption reserve reserves reserve shares shareholders'
capital account reserve held in funds
Treasury
£000 £000 £000 £000 £000 £000 £000 £000
6 months to 30
September 2005
As at 1 April 3,652 18,937 1,058 11,075 41,498 1,818 (2,588) 75,450
2005
Net gains on - - - - 13,893 - - 13,893
investments
Costs allocated - - - - (685) - - (685)
to capital
Repurchase and - - 91 (1,240) - - - (1,149)
cancellation of
ordinary shares
from Treasury
Cancellation of (91) - - - - - 2,588 2,497
ordinary shares
from Treasury
Premium on sale - 370 - - - - - 370
of ordinary
shares from
Treasury
Retained net - - - - - 581 - 581
revenue for the
period
Dividends paid in - - - - - (1,007) - (1,007)
period
As at 30 3,561 19,307 1,149 9,835 54,706 1,392 - 89,950
September 2005
Called-up Share Capital Special Capital Revenue Own Total equity
share premium redemption reserve reserves reserve shares shareholders'
capital account reserve held in funds
Treasury
£000 £000 £000 £000 £000 £000 £000 £000
Year to 31 March
2006
As at 31 March 2005 3,652 18,937 1,058 11,075 41,498 1,818 (2,588) 75,450
Net gains on - - - - 33,354 - - 33,354
investments
Costs allocated to - - - - (1,554) - - (1,554)
capital
Cancellation of (91) - 91 (1,240) - - 1,240 -
ordinary shares
from Treasury
Resale of ordinary - - - - - - 1,348 1,348
shares from
Treasury
Premium on sale of - 370 - - - - - 370
ordinary shares
from Treasury
Dividends paid in - - - - - (1,007) - (1,007)
the year
Net revenue for the - - - - - 800 - 800
year
As at 31 March 2006 3,561 19,307 1,149 9,835 73,298 1,611 - 108,761
SUMMARISED BALANCE SHEET (UNAUDITED)
as at 30 September 2006
As at As at As at
30 September 30 September 31 March
2006 2005 2006
£'000 £'000 £'000
Fixed Assets
Investments at fair value 117,378 98,958 115,939
Net current (liabilities)/assets (1,979) (1,508) 322
Revolving credit facility (7,500) (7,500) (7,500)
Net assets 107,899 89,950 108,761
Share capital and reserves
Called-up share capital 3,561 3,561 3,561
Share premium account 19,307 19,307 19,307
Capital redemption reserve 1,149 1,149 1,149
Special reserve 9,835 9,835 9,835
Capital reserves 72,662 54,706 73,298
Revenue reserve 1,385 1,392 1,611
Total Equity shareholders' funds 107,899 89,950 108,761
Less: current period revenue (593) (581) -
Dividend adjustments* - 20 -
Total net assets for the purpose of 107,306 89,389 108,761
calculating the net asset value per
ordinary share
Net asset value per ordinary share 301.34p 251.02p 305.43p
* See note 1
SUMMARISED STATEMENT OF CASH FLOWS (UNAUDITED)
for the 6 months to 30 September 2006
6 months to 6 months to Year to
30 September 30 September 31 March
2006 2005 2006
£'000 £'000 £'000
Net cash (outflow)/inflow from (298) 506 540
operating activities
Servicing of finance
- Interest and similar charges paid (245) (218) (500)
Net cash outflow from servicing of (245) (218) (500)
finance
Investing activities
- Purchases of investments (13,412) (22,430) (53,721)
- Sales of investments 11,868 18,948 53,659
Net cash outflow from investing (1,544) (3,482) (62)
activities
Equity dividends paid (819) (1,007) (1,007)
Net cash outflow before financing (2,906) (4,201) (1,029)
Financing
- Proceeds of short-term credit - 2,500 2,500
facility
- Ordinary shares sold from Treasury - 1,719 1,718
Net cash inflow from financing - 4,219 4,218
(Decrease)/increase in cash (2,906) 18 3,189
Notes to the Financial Statements:
as at 30 September 2006
1. DIVIDEND ADJUSTMENTS
Prior to the dividend record date of 10 June 2005, the Company re-sold 700,000
shares which had been held in treasury at 31 March 2005. The holders of such
shares therefore became entitled to receive a dividend, which was not the case
when the shares were held in Treasury. As a result, the total paid in respect
of the final dividend relating to the year ended 31 March 2005 was £20,000 more
than previously disclosed.
2. FINANCIAL INFORMATION
The financial information contained in this report does not constitute full
statutory accounts as defined in section 240 of the Companies Act 1985. The
financial information for the six months ended 30 September 2006 and 30
September 2005 has not been audited.
The information for the year ended 31 March 2006 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 contained no qualification or statement under sections 237 (2) or
(3) of the Companies Act 1985.
INVESTMENT MANAGER'S REPORT
PERFORMANCE
Over the six months ended 30 September 2006, the Company's net asset value
(NAV) was broadly in line with its benchmark the FTSE Small Cap (excluding
investment companies) Index.
From the launch of the Company in March 1995 to the end of September 2006, the
NAV has increased 206% compared with 104% by the Small Cap.
REVIEW
The headline figures for the half year mask some of the turbulence that was
seen in the period. This was definitely a tale of two quarters. The buoyant
start to the year, which saw the market come within a whisker of a new all time
high, came to an abrupt halt during May. Investor sentiment became unsettled by
high oil prices, inflationary fears and a multitude of geo-political concerns.
A correction that we anticipated would take place over the course of the summer
was seen in the space of just five weeks as the market fell almost 10% - the
first significant fall since March 2003. This sell off left the Small Cap
market down 6% in the quarter ended 30 June 2006.
The second fiscal quarter ended 30 September 2006 proved to be rather
different. As can happen, the investment community took their summer holidays
and came back feeling refreshed and more positive in their outlook. Oil prices
started to fall and the geopolitical risks subsided. Additionally, expectations
for a positive September results season helped stimulate interest. With this
supportive backdrop, the Small Cap market rose 5%. So over two quarters,
markets yo-yoed and ended broadly where they started.
OUTLOOK
While there remains a degree of caution in the market, we maintain a positive
outlook. Seventeen consecutive increases in interest rates by the Federal
Reserve Board have raised concerns over the state of the US housing market and
the possibility of an economic slowdown. However, the UK economy is proving
resilient and we are encouraged by what our companies are saying. The recent
earnings season met or exceeded market expectations. Indeed we had trading
updates or results from 43 of our 73 investments in September alone that were
upbeat in both tone and outlook.
The takeover theme we have discussed for the past two years has remained a
feature in the markets throughout 2006. During the first half, we lost three
portfolio companies (Richmond Foods, IFX and Radstone Technology). With the
cost of borrowing low by historic standards it remains more attractive for
larger companies to buy rather than build. Additionally there is a considerable
amount of private equity money in circulation. KPMG data suggests that in the
six months from March to September 2006, the total value of the UK buyout
market was £18bn, up 33% on a year ago.
We continue to believe that the next year will see further takeovers with the
focus remaining on those well managed, quality businesses, which form the core
of the portfolio.
In a historic context, the smaller company market remains attractively priced
on 14.2x 2007 forecast price/earnings. With cash levels high and further
consolidation likely, we believe that good stock selection in the smaller
companies market will continue to be well rewarded. Given this view we enter
the second half with our £10m debt facility fully utilised, leaving gearing at
9%.
Dan Harlow
Montanaro Investment Managers Limited
24 November 2006
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