Half Yearly Report

RNS Number : 4225W

Montanaro European Smaller C.TstPLC

18 November 2010

 



MONTANARO EUROPEAN SMALLER COMPANIES TRUST PLC

 

Date:                18 November 2010

HALF YEARLY FINANCIAL REPORT FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2010

 

Investment Objective

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

Highlights

·      Share price +7.5%

·      Net Asset Value ('NAV') per Ordinary Share +6.4%

·      Benchmark -2.9%

·      Total assets +8.0% (£87.6 million)

Chairman's Statement

The six months ended 30 September 2010 was a period of good absolute and relative performance for the Company.  The share price increased by 7.5% to 401p and the net asset value per share ('NAV') increased by 6.4%, to 456.34p, which compares to a decrease of 2.9% in the benchmark index. The discount of share price to NAV at the end of the period was 12.1%.

Looking at the longer term picture, it is very pleasing to note the consistently strong performance of the Company's NAV since the appointment of Montanaro Asset Management Limited as Manager in September 2006. The NAV outperformed the benchmark index in three out of the four years, with a cumulative total return of 35.5% making it the best performing investment trust in the AIC's European Smaller Companies sector.

Smaller company stockmarkets in Continental Europe were initially weak during the six month period as investors became concerned about the effect of fiscal austerity measures, the downgrading of Greece's government debt and the likelihood of debt restructuring or defaults spreading to other countries in the region. Latterly, however, sentiment has improved and fears of a double-dip recession receded. Concerns remain over the financial health of Greece and some of the other weaker countries in Europe, such as Spain, Italy, Portugal and Ireland, but the economies of other parts of the region are performing well: in particular Germany and Scandinavia, where export growth is strong.

The strength of company balance sheets improved and corporate profitability increased during the period. Markets also benefited from an increase in mergers and acquisition activity. The Company's portfolio performed strongly, with most of the holdings rising in value and outperforming the benchmark. This reflects the Manager's emphasis of investing in good quality companies with strong management teams and avoiding investment in companies which are significantly exposed to government spending.

Earnings and Dividends

Revenue earnings per share were 3.44p in respect of the six month period ended 30 September 2010 (2009: 3.39p). The Board has declared an unchanged interim dividend of 1.75p per Ordinary Share, payable on 7 January 2011 to shareholders on the register on 10 December 2010.

Borrowings

Reflecting the Manager's positive outlook for markets, the Company's borrowings as at 30 September 2010 amounted to £10.8 million. Borrowings, net of cash, was 12.6% of the net asset value, which compares to 11.3% as at 31 March 2010.

The Board reviews borrowings on a regular basis and receives recommendations from the Manager on gearing levels. The Company's borrowings are represented by a flexible Euro-denominated revolving credit facility which enables the gearing to be increased or decreased as considered appropriate.

Outlook

There remain uncertainties over the durability of the economic recovery in Continental Europe. Although a double-dip recession seems unlikely, it is probable that there will be a period of only low economic growth ahead. Some countries in the region are likely to continue to produce relatively strong growth while the weaker countries will continue to struggle.

Notwithstanding this uncertainty, the shares of European smaller companies remain attractive, trading below their historical average valuations. However, whilst this might  suggest further possible upside, stockmarket returns are likely to continue to be volatile in the months ahead.

The Board believes that this environment provides the opportunity for good returns by prudent stock picking in high quality companies with strong management teams.

A R IRVINE

Chairman

Consolidated Statement of Comprehensive Income

For the six months ended 30 September 2010 (unaudited)

	Revenue	Capital	Total
	£'000	£'000	£'000
Capital gains on investments
Gains on investments held at fair value	-	5,377	5,377
Exchange gains	-	242	242
	-	5,619	5,619
Revenue
Investment income	1,200	-	1,200
Other income	3	-	3
Total income	1,203	5,619	6,822
Expenditure
Management expenses	(106)	(1,062)	(1,168)
Other expenses	(258)	-	(258)
Total expenditure	(364)	(1,062)	(1,426)
Profit before finance costs and taxation	839	4,557	5,396
Finance costs	(54)	(101)	(155)
Profit before taxation	785	4,456	5,241
Taxation	(214)	-	(214)
Total comprehensive income	571	4,456	5,027
Return per share	3.44p	26.89p	30.33p

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 during the period.

All of the profit and 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 2009 (unaudited)

	Revenue	Capital	Total
	£'000	£'000	£'000
Capital gains/(losses)  on investments
Gains on investments held at fair value	-	19,599	19,599
Exchange losses	-	(372)	(372)
	-	19,227	19,227
Revenue
Investment income	1,136	-	1,136
Other income	9	-	9
Total income	1,145	19,227	20,372
Expenditure
Management expenses	(80)	(148)	(228)
Other expenses	(272)	-	(272)
Total expenditure	(352)	(148)	(500)
Profit before finance costs and taxation	793	19,079	19,872
Finance costs	(28)	(52)	(80)
Profit before taxation	765	19,027	19,792
Taxation	(204)	99	(105)
Total comprehensive income	561	19,126	19,687
Return per share	3.39p	115.40p	118.79p

Consolidated Statement of Comprehensive Income

For the year ended 31 March 2010 (audited)

	Revenue	Capital	Total
	£'000	£'000	£'000
Capital gains/(losses) on investments
Gains on investments held at fair value	-	29,246	29,246
Exchange losses	-	(135)	(135)
	-	29,111	29,111
Revenue
Investment income	1,747	-	1,747
Other income	13	-	13
Total income	1,760	29,111	30,871
Expenditure
Management expenses	(176)	(328)	(504)
Other expenses	(497)	-	(497)
Total expenditure	(673)	(328)	(1,001)
Profit before finance costs and taxation	1,087	28,783	29,870
Finance costs	(68)	(126)	(194)
Profit before taxation	1,019	28,657	29,676
Taxation	(229)	-	(229)
Total comprehensive income	790	28,657	29,447
Return per share	4.77p	172.91p	177.68p

Group Balance Sheet

	As at 30 September           2010 (unaudited)	As at 30 September           2009 (unaudited)	As at 31 March 2010 (audited)
	£'000	£'000	£'000
Non-current assets
Investments held at fair value  through profit and loss	85,181	67,084	79,114
Current assets
Other receivables	42	141	375
Cash and cash equivalents	2,347	4,600	1,563
	2,389	4,741	1,938
Total assets	87,570	71,825	81,052
Current liabilities
Other payables	(11,940)	(10,236)	(9,993)
Total liabilities	(11,940)	(10,236)	(9,993)
Net assets	75,630	61,589	71,059
Capital and reserves
Called-up share capital	8,724	8,724	8,724
Share premium account	3,935	3,935	3,935
Capital redemption reserve	2,212	2,212	2,212
Capital reserve	58,311	44,324	53,855
Revenue reserve	2,448	2,394	2,333
Shareholders' funds	75,630	61,589	71,059
Net asset value per share	456.34p	371.62p	428.76p

Consolidated Statement of Changes in Equity

for the six months ended 30 September 2010 (unaudited)

	Share capital	Share premium account	Capital redemption reserve	Capital reserve	Revenue reserve	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Balance at 1 April 2010	8,724	3,935	2,212	53,855	2,333	71,059
Total comprehensive income	-	-	-	4,456	571	5,027
Dividends paid	-	-	-	-	(456)	(456)
Balance at 30 September 2010	8,724	3,935	2,212	58,311	2,448	75,630

Consolidated Statement of Changes in Equity

for the six months ended 30 September 2009 (unaudited)

	Share capital	Share premium account	Capital redemption reserve	Capital reserve	Revenue reserve	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Balance at 1 April 2009	8,724	3,935	2,212	25,198	2,584	42,653
Total comprehensive income	-	-	-	19,126	561	19,687
Dividends paid	-	-	-	-	(751)	(751)
Balance at 30 September 2009	8,724	3,935	2,212	44,324	2,394	61,589

Consolidated Statement of Changes in Equity

for the year ended 31 March 2010 (audited)

	Share capital	Share premium account	Capital redemption reserve	Capital reserve	Revenue reserve	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Balance at 1 April 2009	8,724	3,935	2,212	25,198	2,584	42,653
Total comprehensive income	-	-	-	28,657	790	29,447
Dividends paid	-	-	-	-	(1,041)	(1,041)
Balance at 31 March 2010	8,724	3,935	2,212	53,855	2,333	71,059

Condensed Group Statement of Cash Flows

	Six months to		Six months to	Year to
	30 September		30 September	31 March
	2010		2009	2010
	(unaudited)		(unaudited)	(audited)
	£'000		£ '000	£'000
Net cash from operating activities	770		582	394
Cash flows from investing activities	(632)		(6,804)	(9,246)
Cash flows from financing activities	637		6,206	5,803
	______		______	______
	775		(16)	(3,049)
Exchange differences	9		125	121
	______		______	______
Increase/(decrease) in cash and cash equivalents	784		109	(2,928)
	______		______	______
Reconciliation of net operating profit before finance costs and tax to net cash flow from operating activities
Net operating profit before finance costs and tax		5,396	19,872	29,870
Gains on investments held at fair value		(5,377)	(19,599)	(29,246)
Exchange differences		(242)	372	135
Withholding tax		(194)	(105)	(199)
Changes in working capital and other non cash items		1,187	42	(166)
		______	______	______
Net cash from operating activities		770	582	394
		______	______	______

Notes to the accounts

1.         The accounting policies adopted in the preparation of the interim financial statements are consistent with those followed in the preparation of the Annual Report and financial statements for the year ended 31 March 2010.

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 2010			Six Months to 30 September 2009			Year ended 31 March 2010
	Revenue	Capital	Total	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Investment Management Fee - basic	106	198	304	80	148	228	176	328	504
Investment Management Fee - performance	-	864	864	-	-	-	-	-	-
	__	___	___	____	____	____	____	____	____
	106	1,062	1,168	80	148	228	176	328	504
	__	___	___	____	____	____	____	____	____

4.         Earnings per Ordinary Share is based on a weighted average of 16,573,260 Ordinary Shares in issue during the period (year end 31 March 2010: 16,573,260; six months ended 30 September 2009: 16,573,260), excluding those shares bought back and held in treasury.

5.         The interim dividend of 1.75 pence per Ordinary Share will be paid on 7 January 2011 to shareholders on the register on 10 December 2010.

6.         The net asset value per Ordinary Share is based on 16,573,260 Ordinary Shares in issue at the end of the period (31 March 2009: 16,573,260; 30 September 2009: 16,573,260), excluding those shares bought back and held in treasury.

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 2010 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 2010 have been reported on by the Company's Auditors or delivered to the Registrar of Companies. The Half Yearly Financial Report will be available on the website: www.montanaro.co.uk.

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 2010.  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 profit of the Company;

·      the Chairman's Statement (constituting the Interim Management Report) together with the Statement of Principal Risks and Uncertainties include 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; and

·      The Chairman's Statement together with the financial statements include 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

For further information contact:

Montanaro Asset Management Limited: tel. [phone]

 

END

 

 

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