Annual Financial Report

RNS Number : 8628B
Montanaro UK Smlr Cos Inv Tst PLC
15 June 2021
 

MONTANARO UK SMALLER COMPANIES INVESTMENT TRUST PLC

(LEI: 213800UDDXXTXIF29P85)

Annual Results announcement for the year ended 31 March 2021

Highlights

for the year ended 31 March 2021

Performance

Total Returns 1

1 year

3 year

5 year

10 year

Since launch

Ordinary share price

50.0%

47.8%

87.5%

165.7%

1,089.3%

Net Asset Value ("NAV")

35.8%

22.6%

51.1%

120.0%

979.8%

Benchmark (Composite)

65.6%

21.2%

51.4%

155.3%

560.1%

Sources: Morningstar Direct, AIC, Numis, Bloomberg, Montanaro Asset Management Limited ("Montanaro" or "the Manager").

All returns are shown with dividends reinvested.

The Benchmark is a composite index with the NSCI used since 1 April 2013.

 

2021

2020

% change

For the year ended 31 March

 

 

 

Revenue return per Ordinary share

1.2p

2.7p

(55.6%)

Dividend per Ordinary share

5.5p

5.3p

3.8%

Ongoing charges1

0.82%

0.81%

 

Portfolio turnover1

27.8%

30.6%

 

 

As at 31 March

 

 

 

Ordinary share price

145.0p

101.0p

+43.5%

NAV per Ordinary share2

148.6p

113.8p

+30.6%

Discount to NAV1

2.4%

11.2%

 

Gross assets1

£268.7m

£210.4m

+27.7%

Net assets

£248.7m

£190.4m

+30.6%

Market capitalisation

£242.7m

£169.1m

+43.5%

Net gearing employed1

4.0%

4.2%

 

1 Details provided in Alternative Performance Measures on pages 60-61 of the full Annual Report and Accounts .

2 Details provided in the glossary contained on page 62 of the full Annual Report and Accounts.

I am pleased to present the twenty-sixth annual report of Montanaro UK Smaller Companies Investment Trust PLC ("MUSCIT" or the "Company") for the year ended 31 March 2021.

In the year to 31 March 2021, the total return on net assets of MUSCIT was 36%. As a result of the narrowing of the discount of MUSCIT's share price to NAV over this period, the share price increased by 50% on a total return basis. In comparison, the Numis Smaller Companies (excluding investment companies) Index climbed by an even more remarkable 66%.

 

As explained in the Outlook section below, the Financial Year saw one of the sharpest rotations into Value and Low Quality on record. MUSCIT invests in high quality, growth companies that, as expected, fared less well in such an environment. The sharp underperformance registered during the year follows a year of strong performance during which MUSCIT outperformed by more than 17%. As a result, there is merit in looking at the past two Financial Years together. On that basis, MUSCIT has outperformed by c.2% on a NAV basis and by c.27% in share price terms.

 

Since inception in 1995, the Company has delivered a cumulative Net Asset Value ("NAV") total return of 980%, which compares to a return of 560% for the Benchmark.

 

The Board is delighted to confirm that Charles Montanaro has agreed to continue managing the Company for a minimum of 5 more years. Since returning as named manager in 2016, Charles has managed to outperform the benchmark by 8% in terms of NAV and by 55% in share price terms despite the recent Value rally. He is also a major shareholder in MUSCIT which, when combined with the holding of Montanaro Asset Management, means that it is his largest personal listed investment.

The Company's investment objective is to generate capital growth and this remains unchanged despite the amended dividend policy introduced in July 2018. Dividends are paid each quarter equivalent to 1% of the Company's NAV on the last business day of the preceding financial quarter, being the end of March, June, September and December.

 

During the Financial Year, the Company paid four quarterly dividends amounting to a total of 5.52p, equivalent to 5.5% of the share price at the start of the year. MUSCIT remains the highest yielding UK SmallCap investment trust in the market.

 

Over the last financial year, the discount of MUSCIT's share price to NAV, as shown in the graph on page 3 of the full Annual Report and Accounts, narrowed from 11% to 2%. For the first time in more than 20 years, MUSCIT's shares briefly traded at a premium to NAV. The Board and the Manager have worked hard to make MUSCIT more attractive to private clients, including a five for one share split, an attractive dividend policy, and reducing costs. These initiatives appear to be bearing fruit.

 

The Board is responsible for the implementation of share buy-backs which are undertaken at arms' length from Montanaro. No shares were bought back during the period. The Company's policy is to buy back shares when the Board believes it is in the best interests of shareholders as a whole.

The Board consists solely of independent Non-Executive Directors with a good balance of skills, experience, diversity and knowledge of the Company and its business.

 

The Board is delighted to have welcomed Barbara Powley as a Non-Executive Director on 18 November 2020. Barbara brings more than 30 years of experience in the investment trust industry combined with a strong corporate governance and accountancy background.

 

The Board are supportive of Montanaro's ESG efforts and more information on their approach to this can be found in the Manager's Report.

 

AGM
The Board currently expects that the AGM will be held in person at the offices of Montanaro Asset Management Limited, 53 Threadneedle Street, London EC2R 8AR, on Thursday, 12 August 2021 at 12 noon.

 

However, due to the ongoing uncertainty around COVID-related restrictions imposed by the Government, this is subject to possible change. Shareholders will be advised of any planned changes as soon as practicable.

 

Given the above, we recommend that all shareholders vote by proxy in advance of the AGM, appointing me, as the Chair of the meeting, as their proxy. I urge you to submit your proxy votes in good time for the meeting. Further details of this year's AGM, including information on how to vote, can be found on pages 63 to 72 of the full Annual Report and Accounts.

 

Arrangements are being made to enable shareholders to see the presentation which will be given by the Investment Manager at the AGM. This is being done in the event that the AGM might not be able to proceed in person, to ensure that all shareholders have the chance to see the update and engage with the Company. The presentation will be published on our website www.montanaro.co.uk/trust/muscit in advance of the AGM. Should you wish to ask the Board or the Investment Manager any questions, we request that you do so by either email to: MUSCIT_CoSec@linkgroup.co.uk, or by post by writing to: The Company Secretary, Link Company Matters Limited, 6th floor, 65 Gresham St, London EC2V 7NQ. Those questions which are submitted before Friday, 6 August 2021 will be answered ahead of the AGM, and we will endeavour to answer any questions subsequently received as soon as possible.

 

All the Company's service providers have continued to operate normally for the past year despite the need to work from home.

 

Under the Articles of the Company, the Directors will propose a resolution at this year's Annual General Meeting to remove the obligation that they put a resolution to shareholders at the Annual General Meeting in 2022 to wind up the Company.

 

If passed, this will allow the Company to continue as an investment trust for a further five years.

 

In light of the strong long-term track record of MUSCIT and the commitment of Charles Montanaro to stay at the helm for at least 5 more years, the Board unanimously recommends that all Shareholders vote in favour of Resolution 12 at the Annual General Meeting, as they intend to do themselves.

News of the Pfizer vaccine in November 2020 brought much-needed hope to the world. However, it also unleashed the most dramatic style rotation in equity markets in living memory. Value and Low Quality bounced back strongly at the expense of Growth and High Quality. The speed with which this rotation has unfolded is unprecedented.

 

Given MUSCIT's "Quality Growth" style and overweight in technology, the underperformance since last November is unsurprising. Indeed, it shows that the Manager has stuck to its knitting and has not deviated from its investment style. The Manager invests in profitable, well managed companies in growth markets and avoids highly cyclical areas such as high street retail, restaurants, hotels, airlines, oil & gas, materials, and metals & mining which helped performance going into COVID. These lower quality Value companies suffered when the pandemic first broke out but have bounced back sharply in recent months.

 

These style rotations are typical of the recovery period that comes immediately after a Bear Market - think of March 2003, March 2009 and 2012/13. The Board is confident that the Manager will remain committed to the "Quality Growth" style that it has implemented so successfully since 1995. It believes that, in spite of the current uncertainties, shareholders can look forward to the future of MUSCIT with confidence and optimism.

 

Chairman

14 June 2021

The key attraction of investing in smaller companies is their long-term record of delivering higher returns to investors than large companies. In the UK, over the last 66 years, this has amounted to an average of 3.4% per annum ("the SmallCap Effect"). £1 invested in UK large companies in 1954 would now be worth £1,030 whereas the same £1 invested in smaller companies would now be worth over £7,900 - over 7 times more.

 

The market for UK smaller companies is inefficient. While some large companies are analysed by more than 50 brokers, many smaller companies have little or no such coverage. We believe that this makes it easier for those with a high level of internal resources to identify attractive, undervalued and unrecognised investment opportunities. This in turn makes it possible to deliver long-term performance over and above that of the benchmark.

 

Montanaro was established in 1991 and we will shortly be celebrating our 30th Anniversary. We have one of the largest and most experienced specialist teams in the UK dedicated exclusively to researching and investing in quoted small companies. Our team of 35 gives us the breadth of resources and scope to conduct thorough in-house research.

 

At 31 March 2021, we were looking after almost £4 billion of assets.

 

We specialise in researching and investing in quoted small companies.

 

We have a disciplined, two-stage investment process. Firstly, we identify "good businesses" within our investable universe. In the second stage, we determine the intrinsic value of each company to ensure they will make a "good investment" (the two are not always the same). When we consider that we have identified a good company, it must pass our stringent Quality and ESG Checklists and be approved by our Investment Committee before it can be added to the "Approved List". ESG has been integrated in our disciplined investment process for almost two decades. Only the most attractive companies make it on to the Approved List and it is from these that we construct your Portfolio.

 

We have an in-house team of eleven Analysts who are sector specialists. This is one of the largest such specialist teams in the country. Utilising their industry knowledge and a range of proprietary screens, they are continually searching for new ideas. With around 2,000 companies to choose from, we are spoiled for choice.

 

We look for high quality companies in markets that are growing. They must be profitable; have good and experienced management; deliver sustainably high returns on capital employed; enjoy high and ideally growing profit margins reflecting pricing power and a strong market position; and provide goods and services that are in demand and likely to remain so.

 

We prefer companies that can deliver self-funded organic growth and remain focused on their core areas of expertise, rather than businesses that spend a lot of time on acquisitions.

 

Conversely, we avoid those with stretched balance sheets; poor free cash flow generation; incomprehensible or heavily adjusted accounts; unproven or unreliable management; or that face structurally challenged business models with stiff competition.

 

We believe that a deep understanding of a company's business model and the way it is managed are essential. In normal circumstances, we visit our investee companies on a regular basis, although this has not been possible during the pandemic. We are looking forward to these visits resuming, although it is worth stating that company access during the year has remained excellent: you get a different perspective talking to a CEO while they sit at home rather than in the formal setting of a board room.

 

Management's past track record is examined in detail as we seek to understand their goals and aspirations. In smaller companies, the decisions of the entrepreneurial management can make or break a company (which is why meeting them is so important). We look closely at the Board structure; the level of insider ownership; and examine remuneration and corporate governance policies.

 

Once a company has been added to the Portfolio, our analysts conduct ongoing analysis. We will sell a holding if we believe that the company's underlying quality is deteriorating or if there has been a fundamental change to the investment case or management. We will sometimes get things wrong.

 

In summary, we invest in well managed, high quality, growing companies bought at sensible valuations. We keep turnover and transaction costs low and follow our companies closely over many years. We would rather pay more for a higher quality, more predictable company that can be valued with greater certainty. Finally, we align ourselves with our investors by investing meaningful amounts of our own money alongside yours. We are significant shareholders in MUSCIT.

 

Montanaro became a B Corporation in June 2019. "B Corps" are businesses that meet the highest standards of verified social and environmental performance, public transparency and legal accountability to balance profit and purpose. We also joined the "Net Zero Asset Managers Initiative" in early 2021, further cementing our commitment to achieving "net zero carbon" for our business.

 

As part of our due diligence work, we place a great deal of emphasis on Ethical and ESG factors. We work closely with our companies to encourage sustainable business practices, which we believe play an integral part in the creation of long-term shareholder value.

 

Montanaro believes there is a clear correlation between how well a business fares on Environmental, Social and Corporate Governance grounds and the value it creates for its shareholders. Therefore, ESG considerations form an integral part of our assessment of a company's "Quality" and are fully integrated into our investment process. All the ESG research is done in-house by our Analysts.

 

In addition, we engage with companies in an effort to improve corporate behaviour. As responsible shareholders, we believe that it is our duty to engage with our investee companies. In our experience, active and constructive engagement can help to foster positive long-term change in the way businesses are run.

 

We do not invest in companies that generate a significant proportion of sales from products with negative societal impact such as tobacco, gambling, armaments, alcohol, high-interest-rate lending and fossil fuels. Similarly, we do not invest in companies that conduct animal testing, unless it is required by law for healthcare or regulatory purposes. With the "sustainability" trend a growing feature of the investment landscape, we believe that we are ahead of the curve. In SmallCap, it is particularly important to engage with companies to influence the impact they have on the world. Our high level of in-house resources makes this possible and we recently hired an ESG & Impact Specialist to support the work of our Investment Team.

 

We have invested a great deal of time to make MUSCIT readily available to all investors. We have continued to grow our presence across the UK's investment platforms and are delighted to see a steady increase, year after year, in MUSCIT's retail following.

 

Together with the Board, we have appointed Marten & Co to provide sponsored research. The latest report published in April 2021 is available here: https://montanaro.co.uk/news-and-views/

 

For further details about how to invest, please refer to the website:

https://montanaro.co.uk/trust/montanaro-uk-smaller-companies-investment-trust/

At 31 March 2021, the Portfolio consisted of 50 companies of which the top ten holdings represented 35%. MUSCIT held 26 companies traded on AIM, representing 39% of the Portfolio by value. Sector distribution within the Portfolio is driven by stock selection. Although weightings relative to the market are monitored, overweight and underweight positions are held based on where the greatest value and upside are perceived to be.

 

Gearing

Montanaro, the Alternative Investment Fund Manager ("AIFM"), in consultation with the Board, is responsible for determining the net gearing level of the Company. At 31 March 2021 gearing stood at 4.0%. The current borrowing facilities expire on 19 December 2021. The renewal of this facility is currently being reviewed.

 

The NAV gained 36% on a total return basis (share price: +50%), which compares to an extraordinary increase of 66% for the benchmark. The magnitude of the increase can be explained by the fact that MUSCIT's Financial Year began only a few days after the COVID-induced Bear Market reached its trough.

 

As the market recovery took hold and the successful rollout of the COVID vaccines started to turn the tide of pessimism, investors increasingly favoured those companies that had suffered the most during the pandemic - typically those in highly cyclical sectors with fragile balance sheets which we avoid. These Value companies outperformed Growth companies by 17% during the Financial Year while Low Quality SmallCap outperformed High Quality by a whopping 27%, making FY21 one of the most extreme "dash-for-trash" periods in MUSCIT's history.

 

However, despite this unusual period, the Company remains ahead of its benchmark over the past two and three years (and significantly ahead in share price terms).

 

The year to 31 March 2021 saw some strong performances from our largest contributors:

 

Treatt, the manufacturer of fragrances and flavourings, saw its share price rise by more than 140% during the period as the business continued to go from strength to strength. In particular, the move into higher valued-added products resulted in margin expansion, new capacity being filled up quickly and a greater frequency of business wins.

 

Kainos (share price: +127%), the software company headquartered in Belfast that specialises in digital transformation, had an exceptional year which saw strong demand for digitisation projects both from Government and corporate clients. Meanwhile, the company significantly curtailed its cost base by slowing down recruitment, enabling staff to work from home and saving on travel and entertainment. As a result, profits more than doubled during the year.

 

XP Power (share price: +80%), the UK provider of power solutions, benefited from a sustained uptick in orders as COVID generated demand for critical care equipment and semiconductors. The business enjoyed record earnings, reduced its debt and reinstated the dividend from the second quarter of 2020 as visibility began to improve.

 

The year was such a strong one for UK SmallCap that two of MUSCIT's three largest detractors were companies whose shares lagged the market despite posting double-digit returns:

 

Big Yellow (share price: +11%), the market leader in the UK self-storage sector, enjoyed an 11% share price gain. Ironically, the shares lagged the rest of the market as the business demonstrated good resilience through the pandemic. Big Yellow had also been one of the strongest performers in 2019.

 

Cranswick (share price: -2%), the leading UK supplier of fresh pork meat products, saw its share price edge 2% lower despite evidence of solid trading, which included an upgrade to the company's full year guidance in February 2021. As a beneficiary of COVID (people stayed at home and thus cooked more often), Cranswick was the best performing holding in MUSCIT during the first quarter of 2020.

 

Despite a 17% share price gain, Marshalls, the UK's leading hard landscaping manufacturer, made a negative contribution to performance as it represented a large off-benchmark position in the portfolio. After a tricky first half, the company started to see a sustained increase in its order book as demand for their residential products including patios and driveways) increased. The company also reinstated its dividend for the full year 2020.

 

This is the second review written from home, the last written in the early weeks of the first lockdown when many thought we would be back in the office by the end of the summer. Now, with the arrival of the vaccines, a resumption of more "normal life" looks eminently possible - a return to the office and hopefully a summer holiday too. What an impact the vaccines have had, not just in containing the pandemic, but on the trajectory of equity markets too.

 

It is strange to think back to the early days of April 2020 with stock markets collapsing and consider that, no sooner had the beginning of the Financial Year started, a new Bull Market was born. This seemed at odds with the day to day reality of the most serious pandemic for at least a century: locked down populations; collapsed economies; and mounting death tolls. Investors have recovered their losses in just over a year - the quickest recovery from a Bear Market ever.

 

Yet as the world shut up shop and economies crashed, Governments and Central Banks unleashed an unprecedented level of monetary and fiscal stimulus, estimated at some $15 trillion across the G10 countries plus China. Plummeting interest rates pushed investors into riskier assets that offered a return on their investment. "Don't fight the Fed", as the adage goes.

 

As a second wave of COVID cases grew over the autumn months of 2020, the outlook for consumer businesses that rely on customer footfall - restaurants, hotels, cinemas, theatres - looked particularly bleak. Conversely, the fortunes of Healthcare and Technology companies, many of which continued to operate as normal, looked far better. MUSCIT fared relatively well during this period.

 

Monday, 9 November 2020 changed this market dynamic entirely. This was the day when Pfizer and BioNTech announced the first effective Covid-19 vaccine, a great day for humanity but also for investors in those businesses which had suffered most from the economic consequences of Covid-19. It unleashed the most dramatic rotation in equity markets in living memory. Value and Low Quality bounced back strongly at the expense of Quality and Growth, a dynamic that continued unabated until the end of the Financial Year.

 

Within UK SmallCap, Growth underperformed Value by 24% between November 2020 and March 2021, which compares to a c.30% underperformance experienced in both 2009 and 2013. So if history is any guide, the current rotation may be almost complete. To add weight to this view, a recent survey published by Bank of America suggested that, by mid-March 2021, most Fund Managers were heavily overweight in Cyclicals and Commodities with the largest underweight in Technology since the start of the Bull Market in 2009. In a recent letter to investors, we urged our clients to remain calm in the face of the market rotation that has occurred. This is a message that we reiterate here.

 

We have been through several such periods before - after all, Montanaro is celebrating its 30th anniversary this year. Today, we are more convinced than ever that investing in high quality, small growth companies with experienced management teams will deliver excellent returns over any medium term period. We believe that we serve our shareholders best by remaining true to our "Quality Growth" style as we have always done.

 

There will be a continuation vote at the AGM this year. We would like to thank you, our investors, many who have been with us on this journey for over 25 years, and of course your Board. With your support, we hope to build on MUSCIT's strong, long-term track record in the coming years. It has been a privilege and very rewarding to see MUSCIT grow and thrive.

 

CHARLES MONTANARO

14 June 2021

 

Twenty Largest Holdings

as at 31 March 2021

1. NCC Group

a provider of software escrow and cyber security consulting services.

8. Dechra Pharmaceuticals
an animal health specialist.

15. Hilton Food Group
a leading food packaging business.

 

2. Discoverie

a designer and manufacturer of components for electronic applications.

 

9. Liontrust Asset Management

a specialist asset manager launched in 1995.

 

16. Avon Rubber
a leading protection equipment maker for the armed forces.

3. Kainos Group

a software developer headquartered in Belfast that specialises in digital transformation.

 

10. Ideagen

a supplier of Governance, Risk and Compliance software for highly regulated industries.

 

17. Judges Scientific
a company specialising in the design and production of scientific instruments.

4. Treatt
a leading manufacturer of fragrances and flavourings.

 

11. Big Yellow Group

a real estate investment trust focused on the self-storage market.

18. Clarkson

a leading shipping brokerage business.  

 

 

 

5. XP Power

a provider of power solutions.

 

12. Diploma
a supplier of specialised consumables in industrial seals, control systems and

healthcare mainly in Europe and North America.

 

19. Porvair
an industrial filtration and environmental technology specialist.

6. Marshalls
the UK's leading provider of hard landscaping products.

 

13. Integrafin Holdings
the provider of the Transact platform for UK IFAs.
 

20. Tristel
a manufacturer of high-level disinfectants used for medical infection control.

7. 4imprint Group
a supplier of promotional merchandise.

 

14. Yougov
an Internet-based market research and data analytics company.

 

 

 

 

 

Holding

 

 

 

Sector

 

 

Value
£'000

 

 

Market cap

£m

% of portfolio 31 March 2021

% of portfolio

31 March 2020

NCC Group

Software and Computer Services

10,320

724

3.9

2.8

Discoverie

Electronic and Electrical Equipment

10,050

599

3.8

3.5

Kainos Group

Software and Computer Services

9,698

1,830

3.7

1.2

Treatt

Chemicals

9,500

566

3.6

2.0

XP Power

Electronic and Electrical Equipment

9,400

923

3.6

2.7

Marshalls

Construction and Materials

9,241

1,369

3.5

3.7

4Imprint Group

Media

8,575

688

3.3

3.2

Dechra Pharmaceuticals

Pharmaceuticals and Biotechnology

8,575

3,710

3.3

2.4

Liontrust Asset Management

Financial Services

8,520

867

3.2

2.2

Ideagen

Software and Computer Services

8,160

686

3.1

3.7

Big Yellow Group

Real Estate Investment Trusts

7,805

1,961

3.0

3.1

Diploma

Support Services

7,644

3,174

2.9

2.5

Integrafin Holdings

Financial Services

7,605

1,680

2.9

4.5

Yougov

Media

7,350

1,084

2.8

2.0

Hilton Food Group

Food Producers

6,444

880

2.5

4.6

Avon Rubber

Aerospace and Defence

6,320

980

2.4

-

Judges Scientific

Electronic and Electrical Equipment

5,670

397

2.2

1.2

Clarkson

Industrial Transportation

5,500

836

2.1

2.4

Porvair

Industrial Engineering

5,460

252

2.1

2.6

Tristel

Healthcare Equipment and Services

5,355

296

2.0

2.1

Twenty Largest Holdings

 

157,192

 

59.9

 

 

A full portfolio listing is available on request from the Manager.

 

All investments are in Ordinary shares.

 

As at 31 March 2021, the Company did not hold any equity interests comprising more than 3% of any company's share capital.

 

Analysis of Investment Portfolio by Industrial or Commercial Sector

as at 31 March 2021

 

31 March 2021

31 March 2020

Sector

% of portfolio

% of NSCI

% of portfolio

% of NSCI

Software and Computer Services

19.5

5.3

15.4

3.8

Technology Hardware and Equipment  

3.8

0.8

4.8

0.8

Technology

23.3

6.1

20.2

4.6

Telecommunications Equipment

-

0.3

-

1.5

Telecommunications Service Providers

-

1.9

-

3.6

Telecommunications

-

2.2

-

5.1

Health Care Providers

2.9

0.6

3.1

0.5

Medical Equipment and Services  

-

0.3

2.6

0.4

Pharmaceuticals and Biotechnology

7.4

2.4

4.8

2.2

Health Care

10.3

3.3

10.5

3.1

Banks

-

2.3

-

1.5

Finance and Credit Services

-

2.1

-

2.4

Investment Banking and Brokerage Services

9.5

8.2

12.3

8.8

Life Insurance

-

1.0

-

1.1

Non-life Insurance

-

1.0

-

3.3

Financials

9.5

14.6

12.3

17.1

Real Estate Investment and Services Development

-

4.6

-

7.4

Real Estate Investment Trusts

2.9

4.3

4.3

1.8

Real Estate

2.9

8.9

4.3

9.2

Automobiles and Parts

-

0.9

-

1.3

Consumer Services

-

0.3

-

0.3

Household Goods and Home Construction

-

1.4

0.6

1.4

Leisure Goods

3.2

0.1

-

0.2

Personal Goods

-

1.3

-

0.6

Media

7.9

1.7

6.9

4.9

Retailers

-

3.9

-

3.8

Travel and Leisure

-

12.8

0.6

8.1

Consumer Discretionary  

11.1

22.4

8.1

20.6

Beverages

-

1.3

-

1.5

Food Producers

5.1

2.6

9.1

3.4

Personal Care, Drug and Grocery Stores

-

0.9

-

1.0

Consumer Staples

5.1

4.8

9.1

5.9

Construction and Materials

5.0

4.9

7.0

5.4

Aerospace and Defense

2.4

3.2

-

3.1

Electronic and Electrical Equipment

10.3

2.4

7.3

2.3

General Industrials

-

1.0

-

1.0

Industrial Engineering

1.5

1.5

-

1.2

Industrial Support Services

10.0

8.2

13.7

4.5

Industrial Transportation

3.5

2.6

4.6

3.1

Industrials

32.7

23.8

32.6

20.6

Industrial Materials

-

0.1

-

0.1

Industrial Metals and Mining

-

2.9

-

2.5

Precious Metals and Mining

-

2.5

-

3.1

Chemicals

3.6

1.0

2.0

1.6

Basic Materials

3.6

6.5

2.0

7.3

Oil, Gas and Coal

-

4.6

-

4.1

Energy

-

4.6

-

4.1

Electricity

-

2.0

-

1.7

Waste and Disposal Services

1.5

0.8

0.9

0.7

Utilities

1.5

2.8

0.9

2.4

Total

100.0

100.0

100.0

100.0

 

The investment portfolio comprises 50 traded or listed UK equity holdings.

The Company carries on business as an investment trust and its objective and investment policy are set out below. Its Ordinary Shares are traded on the Main Market of the London Stock Exchange.

MUSCIT's investment objective is capital appreciation through investing in small quoted companies listed on the London Stock Exchange or traded on AIM and to outperform its benchmark, the NSCI.

 

No unquoted investments are permitted.

The Company seeks to achieve its objective and to manage risk by investing in a diversified portfolio of quoted UK small companies. At the time of initial investment, a potential investee company must be profitable and no bigger than the largest constituent of the NSCI, which represents the smallest 10% of the UK Stock Market by value. At the start of 2021, this was any company below £1.50 billion in size.

 

In order to manage risk, the Manager limits any one holding to a maximum of 4% of the Company's investments at the time of initial investment. 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 40% of total investments at the time of investment, with Board approval required for exposure above 35%.

 

The Manager is focused on identifying high-quality, niche companies operating in growth markets. This typically leads the Manager to invest in companies that enjoy high barriers to entry, pricing power, a sustainable competitive advantage and strong management teams. The portfolio is constructed on a "bottom up" basis.

 

The AIFM, in consultation with the Board, is responsible for determining the gearing levels of the Company and has determined that the Company's borrowings should be limited to a maximum of 25% of shareholders' funds. Gearing is used to enhance returns when the timing is considered appropriate.

 

The Company will not invest more than 10%, in aggregate, of the value of its total assets at the time of investment in other investment trusts or investment companies admitted to the Official List of the UK Listing Authority.

 

All material changes to the policy will require shareholder and FCA approval.

 

The Company complies at all times with Section 1158 of the Corporation Tax Act 2010 ("Section 1158") such that it does not suffer UK Corporation Tax on capital gains, and ensures that it submits correct taxation returns annually to HMRC and settles promptly any taxation due. The Board is fully committed to complying with applicable legislation and statutory guidelines, including the UK's Criminal Finances Act 2017, designed to prevent tax evasion in the jurisdictions in which the Company operates.

 

The Board carefully considers the Company's principal and emerging risks and seeks to mitigate these risks through regular review, policy setting, compliance with and enforcement of contractual obligations and active communication with the Manager, the Administrator and other third party service providers. A core element of this process is the Company's risk register which identifies the Company's key risks, the likelihood and potential impact of each risk and the controls for mitigation.

 

The Board has carried out a robust assessment of the principal and emerging risks facing the Company, including those that would threaten its business model, future performance, solvency or liquidity.

 

A summary of the Company's risk management and internal control processes can be found in the Corporate Governance Statement within the full Annual Report and Accounts. Details of the principal and emerging risks and how these are mitigated are set out below. The principal financial risks are summarised in Note 15 to the financial statements.

 

Principal Risks

Mitigation

 

Liquidity and Discount Management:

The Company's share price performance lags NAV due to poor performance, or because "Quality Growth" investment style or SmallCap are out of favour.

 

The Company may be at risk from arbitrageurs or a sale from a sizeable shareholder.

 

Decreased risk due to the discount narrowing considerably during the year.

 

The Board regularly reviews:

• the relative level of discount against the sector;

• investment performance

− relative to the competition; and

− the benchmark;

• the underlying liquidity of the portfolio; and

• the share register.

 

The Company may buy back shares when it considers it to be in shareholders' best interests.

 

The dividend policy was amended in July 2018 with the intention of attracting new investors and reducing the discount, since when the discount has narrowed considerably.

 

 

Poor Investment Performance:

Returns achieved are reliant primarily on the performance of the portfolio. Underperformance relative to the benchmark and/or peer group may result in a loss of capital together with dissatisfied shareholders.

 

Increased during the year due to under performance relative to the benchmark.

 

To manage the risk, a review is undertaken at each Board meeting with the Manager of portfolio performance against the benchmark and the peer group.

 

The Board will seek:

• to understand the reasons for any underperformance; and

• comfort over the consistency of investment approach and style.

 

Ultimately, the Board can terminate the Investment Management Agreement if unsatisfactory performance is considered irreversible and the causes cannot be rectified.

 

The Company's shares have underperformed relative to the benchmark during the year, due to value shares outperforming growth shares, with Montanaro being a growth manager. The Board is satisfied and accepts the reasons for this underperformance. Despite this, the discount has narrowed considerably during the year.

 

 

Risk Oversight:

The Manager is taking too much risk in the portfolio leading to unacceptable volatility in performance or excessive portfolio turnover.

 

No material change in overall risk in year.

 

 

Risk oversight is primarily the responsibility of the AIFM, but the Board provides additional oversight through portfolio reviews at each Board meeting. Portfolio turnover is also reviewed at each Board meeting.

 

 

Gearing:

One of the benefits of an investment trust is its ability to use borrowings, which can enhance returns to shareholders in a rising stock market. However, gearing exacerbates movements in the NAV both positively and negatively and will exaggerate declines in NAV when share prices of investee companies are falling.

 

No change in overall risk in year.

 

 

The AIFM, in consultation with the Board, is responsible for determining the gearing levels of the Company, which is monitored at each Board meeting.

 

Key Man Risk:

A change in the key investment management personnel involved in the management of the portfolio could impact on future investment performance and lead to loss of investor confidence.

 

No change in overall risk in year.

 

The Manager operates a team approach in the management of the portfolio which mitigates against the impact of the departure of any one member of the investment team.

 

There is an identified lead manager within Montanaro offering continuity of communication with the Company's shareholders. The Board is in regular contact with Montanaro and its designated Manager and will be asked for their approval to any proposed change in the lead manager.

 

During the year, the Manager has nominated a designated back-up fund manager.

 

 

Operational Risk:

The Company has no employees, in common with most other investment trusts, and relies on services provided by third parties. It is therefore dependent on the control systems of the AIFM, depositary, custodian and administrator who maintain the Company's assets, dealing procedures and accounting records.

 

Key operational risks include:

• transactions not subject to best execution;

• counterparty risk;

• errors in settlement, title and corporate actions;

• misstatement of NAV; and

• breach of the Investment Policy.

 

No change in overall risk in year.

 

The Board monitors operational issues and reviews them in detail at each Board meeting.

 

All third party service providers are subject to annual review by the Audit and Management Engagement Committee as part of which their internal control reports are reviewed.

 

The Company's assets are subject to a liability regime. Unless the Depositary is able to demonstrate that any loss of financial assets held in custody was the consequence of an event beyond its reasonable control, it must return assets of an identical type or the corresponding amount.

 

Business continuity plans at all service providers have been implemented in light of the Covid-19 pandemic and services have continued with no disruption. The Manager has been in regular contact with the Board and has reported no matters of concern in continuity of operations.

 

Cyber Risk:

The threat of cyber attack is regarded as being as important as more traditional physical threats to business continuity and security.

 

The Company has limited direct exposure to cyber risk. However, the Company's operations or reputation could be affected if any of its service providers suffered a major cyber security breach.

 

No change in overall risk in year.

 

 

 

 

 

The Board monitors the preparedness of its service providers and is satisfied that the risk is given due priority and consideration in Board Meetings

 

The AIFM provides a report to the Board at each meeting that includes cyber risk. The Company benefits from the network and information technology controls of the Manager around the security of data.

 

Breach of Regulation:

The Company must comply with the provisions of the

Companies Act 2006, the Listing Rules and Disclosure, Guidance & Transparency Rules, the UK Market Abuse Regulation and the Alternative Investment Fund Manager's Directive. Any serious breach could result in the Company and/or the Directors being fined or the subject of criminal proceedings.

 

The Company has been accepted by HM Revenue & Customs as an investment trust, subject to continuing to meet the relevant eligibility conditions and operates as an investment trust in accordance with the Corporation Tax Act 2010. As such, the Company is exempt from capital gains tax on profits realised from the sale of investments. Any breach of the relevant eligibility conditions could lead to the loss of investment trust status.

 

No change in overall risk in year.

 

 

 

The Company Secretary and the Company's professional advisers provide reports to the Board in respect of compliance with all applicable rules and regulations.

 

Compliance with the accounting rules affecting MUSCIT is closely monitored.

 

During the year under review, the Company complied with all applicable rules and regulations including AIFMD, the Packaged Retail and Insurance-based Products Regulation and the second Markets in Financial Instruments Directive (MiFID II).

 

Financial:

The Company's investment activities expose it to a variety of financial risks that include interest rate and liquidity risk.

 

Events such as global pandemics could affect the level of share prices.

 

No change in overall risk in year.

 

 

The liquidity of the portfolio is monitored by the Manager and reported to the Board, and market conditions and their impacts are considered.

 

Further details on liquidity risk and interest rate risk are disclosed in note 15 to the financial statements.

Environmental, Social and Governance:

 

A consideration of ESG factors when undertaking an investment has become increasingly important in recent years. Climate change in particular has started to have a major impact on the performance of different sectors of the stock market and there is a risk of being invested in the wrong sectors.

 

New risk during the year.

 

 

 

ESG considerations are fully embedded in the investment

process and the Manager will aim to avoid investing in certain sectors. The Manager is a B Corporation which recognises its high ESG standards.

At each Board meeting, the Directors review performance by reference to a number of KPIs. The KPIs considered most relevant are those that demonstrate the Company's success in achieving its objectives.

 

The principal KPIs used to measure the progress and performance of the Company are set out below:

 

Performance to 31 March

%

 

2021 1

  20201

NAV per share total return2

35.8

(8.5)

Share price total return2

50.0

(0.3)

Relative NAV3 per share

 

 

performance vs benchmark

(29.8)

17.4

Discount to NAV2,3,4

2.4

11.2

Ongoing charges ratio2

0.82

0.81

 

1 Returns for both 2020 and 2021 are Total Returns, i.e. including dividends reinvested.

2 Alternative performance measures. Please see pages 60 and 61 of the full Annual Report and Accounts for further information.

3 London Stock Exchange closing price.

4 The percentage difference between the share price and the NAV.

 

At each meeting, the Board reviews the performance of the portfolio as well as the NAV and share price. Performance is reviewed against the benchmark and compared with the performance of other companies in the peer group. Information on the Company's performance is given in the Highlights above.

The Board monitors the level of the Company's premium or discount to NAV on an ongoing basis. The share price discount to NAV as at 31 March 2021 was 2.4%. During the year, the shares traded at an average discount to NAV of 9%.

 

Further details setting out how the discount or premium at which the Company's shares trade is calculated is provided in the Alternative Performance Measures on pages 60 and 61 of the full Annual Report and Accounts.

The Board reviews the ongoing charges and monitors the expenses incurred by the Company on an ongoing basis. Full details of how the ongoing charges ratio is calculated is included in the Alternative Performance Measures on page 60 of the full Annual Report and Accounts.

In accordance with the AIC Code of Governance, the Directors have assessed the prospects of the Company over a period longer than the twelve months required by the 'Going Concern' provision and reviewed the viability of the Company and its future prospects over the five-year period to 31 March 2026.

 

In the absence of any adverse change to the regulatory environment and to the treatment of UK investment trusts, the rolling five-year period was determined by the Directors to:

 

· represent the horizon over which they do not expect there to be any significant change to the Company's principal risks or their mitigation; and

· the period over which they can form a reasonable expectation of the Company's prospects.

 

In its assessment, the Board took into account the Company's current financial position, its ability to meet liabilities as they fell due and the principal risks as set out above. In reviewing the financial position, the following factors were taken into consideration:

 

· the portfolio is comprised solely of cash balances and equity securities listed or traded on the London Stock Exchange;

· analysis suggests the current portfolio could be liquidated to the extent of 66% within five trading days and there is no expectation that the nature of the investments held within the portfolio will be materially different in future;

· future revenue and expenditure projections:

-  the expenses and interest payments of the Company are predictable and relatively small; and

-  there are no expected capital outlays.

 

In addition to considering the Company's principal risks and the financial position of the Company as referenced above, the Directors also took account of the following assumptions in considering the Company's longer-term viability:

 

· the Board and the Manager will continue to adopt a long-term view when making investments;

· it is reasonable to believe that the Company will maintain the credit facilities currently provided by ING Bank, and that even if it didn't, the Company has sufficient liquidity to repay the facilities if required;

· the Company invests principally in the securities of quoted UK small companies to which investors will wish to continue to have exposure;

· the Company has a large margin of safety over the covenants on its debt;

· there will continue to be demand for investment trusts;

· that resolutions 12 at this year's AGM that the Directors be released from the obligation to convene a General Meeting during 2022 for the purpose of providing for the Company to be wound-up on a voluntary basis as stated in the Company's Articles of Association, is passed;

· regulation will not increase to a level that makes the running of the Company uneconomic; and

· the performance of the Company will be satisfactory.

 

Since the global outbreak of COVID-19 in 2020, all necessary actions have been undertaken to preserve the financial condition of the Company and to ensure that it is able to operate effectively. Since 18 March 2020, the majority of the Manager's employees have been working from home in accordance with government requirements. The Company has successfully continued to manage its portfolios and the associated administration. Despite continued market volatility, the Board considers that the Company's available resources are more than sufficient to ensure its continuing viability.

 

Based on the results of their analysis and in the context of the consideration given to the Company's business model, strategy and operational arrangements, the Directors have a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the five-year period of the assessment.

 

The Board's main focus is the achievement of capital appreciation and outperformance of the benchmark. The future of the Company is dependent upon the success of the Company's investment strategy. The Company's outlook is discussed in the Chairman's Statement and the Manager's Report above.

 

As an investment trust, the Company does not provide goods or services in the normal course of business and does not have customers. Accordingly, the Directors consider that the Company is not required to make any slavery or human trafficking statement under the Modern Slavery Act 2015.

 

As at 31 March 2021, the Board of Directors comprised two male and two female non-executive Directors. Diversity is an important consideration in ensuring that the Board and its committees have the right balance of skills, experience, independence and knowledge necessary to discharge their responsibilities. The Board is composed solely of non-executive Directors and as mentioned above has 50% female representation. The Board's approach to the appointment of non-executive Directors is based on its belief in the benefits of having a diverse range of experience, skills, length of service and backgrounds. The Board therefore continues to consider that it would be inappropriate to set a target and will always appoint the best person for the job based on merit, and will not discriminate on the grounds of gender, race, ethnicity, religion, sexual orientation, age, physical ability or social background. The right blend of perspective is critical to ensuring an effective Board and successful company.

 

The Board recognises the requirement under section 414C of the Companies Act 2006 to provide information about employees, human rights and community issues, including information in respect of any of its policies in relation to these matters and their effectiveness. These requirements do not apply to the Company as it has no employees, all of the Directors are non-executive and it has outsourced all of its functions to third-party providers. The Company has not, therefore, reported further in respect of these provisions.

 

On behalf of the Board

 

Chairman

14 June 2021

The following are considered related parties: the Board of Directors. The Directors of the Company received fees for their services and dividends from their shareholdings in the Company. None of the Directors has a service contract with the Company.  For the year ended 31 March 2021, the Chairman received an annual fee of £35,000, the Chairman of the Audit and Management Engagement Committee received an annual fee of £28,000 and the other Directors received an annual fee of £24,000. 

 

The related party transactions with the Directors are set out in the Directors' Remuneration Report contained within the Company's full Annual Report and Accounts for the year ended 31 March 2021. 

 

As at 31 March 2021 and 1 April 2020, the Directors' interests in the Company's Ordinary shares were as follows:

 

 

As at

As at

 

31 March 2021

No. of shares

1 April 2020

No. of shares

Arthur Copple1

125,000

125,000

Catriona Hoare

7,339

7,250

James Robinson2

40,000

40,000

Barbara Powley3

11,567

-

 

1  Includes 25,000 shares held by Mrs Copple.

2  Held jointly by Mr and Mrs Robinson.

3  Appointed on 18 November 2020. Mrs Powley acquired 11,238 of her shares in the Company prior to  appointment. Her shareholding subsequently increased to 11,567 shares pursuant to a dividend reinvestment plan, as announced on 23 November 2020, 1 March 2021 and 21 May 2021.

 

Under the Listing Rules, the Manager is regarded as a related party of the Company. The amounts paid to the Manager are disclosed in note 3 below.

in respect of the full Annual Report and the Financial Statements

 

The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations.

 

Company law requires the Directors to prepare financial statements for each financial year. Under that law, they have elected to prepare the financial statements in accordance with UK Accounting Standards and applicable law (UK Generally Accepted Accounting Practice) including FRS 102 "The Financial Reporting Standard applicable in the UK and Republic of Ireland".

 

Under company law, the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period. In preparing these financial statements, the Directors are required to:

 

· select suitable accounting policies and then apply them consistently;

· make judgements and estimates that are reasonable and prudent;

· state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements; and

· prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.

 

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies Act 2006. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Company and to prevent and detect fraud and other irregularities.

 

Under applicable law and regulations, the Directors are also responsible for preparing a Strategic Report, Directors' Report, Directors' Remuneration Report and Corporate Governance Statement that comply with that law and those regulations.

 

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

 

The Directors confirm to the best of their knowledge that:

· the financial statements, prepared in accordance with UK Accounting Standards, give a true and fair view of the assets, liabilities, financial position and return of the Company; and

· the Strategic Report and the Directors' Report include a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that it faces.

 

In the opinion of the Board, the Annual Report and financial statements, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Company's position and performance, business model and strategy.

 

On behalf of the Board

Chairman

14 June 2021

 

Income Statement

for the year to 31 March 2021

 

 

Year to 31 March 2021

Year to 31 March 2020

 

 

Notes

Revenue £'000

Capital
£'000

Total
£'000

Revenue £'000

Capital
£'000

Total
£'000

Gains/(losses) on investments designated as fair value through profit or loss

 

 

9

-

66,370

66,370

 

 

-

 

 

(19,776)

 

 

(19,776)

Investment Income

2

2,994

-

2,994

5,596

-

5,596

Management fee

3

(320)

(960)

(1,280)

(330)

(989)

(1,319)

Other expenses

4

(557)

-

(557)

(527)

-

(527)

Net return before finance costs and taxation

 

2,117

65,410

67,527

4,739

(20,765)

(16,026)

Interest payable and similar charges

 

5

(154)

(462)

(616)

(160)

(480)

(640)

Net return before taxation

 

1,963

64,948

66,911

4,579

(21,245)

(16,666)

Taxation

6

-

-

-

(8)

-

(8)

Net return after taxation

 

1,963

64,948

66,911

4,571

(21,245)

(16,674)

Return per Ordinary share: Basic and Diluted

8

1.18p

38.80p

39.98p

2.73p

(12.69p)

(9.96p)

 

The total column of this statement is the Statement of Total Comprehensive Income of the Company prepared in accordance with FRS 102 "The Financial Reporting Standard applicable in the UK and Republic of Ireland". The supplementary revenue return and capital return columns are prepared in accordance with the Statement of Recommended Practice issued by the Association of Investment Companies ("AIC SORP").

 

All revenue and capital items in the above statement derive from continuing operations.

 

There are no items of other comprehensive income and therefore the net loss after taxation is both the profit/loss and the total comprehensive income for the year.

 

No operations were acquired or discontinued in the year.

 

The notes below form part of these financial statements.

 

Statement of Changes in Equity

for the year to 31 March 2021

 

 

Year to 31 March 2021

 

 

 

Notes

Called-up share capital £'000

Share premium

account

£'000

Capital redemption

reserve

£'000

 

Special reserve**

£'000

 

Capital reserve*

£'000

Distributable

revenue 

  reserve*

£'000

Total equity

shareholders' funds

£'000

As at 31 March 2020

 

3,348

19,307

1,362

4,642

159,757

1,993

190,409

Total comprehensive income:

 

 

 

 

 

 

 

 

Fair value movement of investments

 

9

 

-

 

-

 

-

 

-

66,370

-

66,370

Costs allocated to capital

 

 

-

 

-

 

-

 

-

(1,422)

-

(1,422)

Net revenue for the year

 

 

-

 

-

 

-

 

-

-

1,963

1,963

 

 

-

-

-

-

64,948

1,963

66,911

Dividends paid in the year

 

7

 

-

 

-

 

-

 

-

(4,891)

(3,763)

(8,654)

As at 31 March 2021

 

3,348

19,307

1,362

4,642

219,814

193

248,666

 

 

 

 

 

 

 

 

 

 

 

Year to 31 March 2020

 

 

 

Notes

Called-up share capital £'000

Share premium

account

£'000

Capital redemption

reserve

£'000

 

Special reserve**

£'000

 

Capital reserve*

£'000

Distributable

revenue 

reserve*

£'000

Total equity

shareholders' funds

£'000

As at 31 March 2019

 

3,348

19,307

1,362

4,642

184,267

3,296

216,222

Total comprehensive income:

 

 

 

 

 

 

 

 

Fair value movement of investments

 

9

 

-

 

-

 

-

 

-

 

(19,776)

 

-

 

(19,776)

Costs allocated to capital

 

 

-

 

-

 

-

 

-

 

(1,469)

 

-

 

(1,469)

Net revenue for the year

 

 

-

 

-

 

-

 

-

 

-

 

4,571

 

4,571

 

 

-

-

-

-

(21,245)

4,571

(16,674)

Dividends paid in the year

 

7

 

-

 

-

 

-

 

-

 

(3,265)

 

(5,874)

 

(9,139)

As at 31 March 2020

 

3,348

19,307

1,362

4,642

159,757

1,993

190,409

 

* These reserves, excluding any unrealised capital reserve are distributable. As at 31 March 2021 distributable reserves totalled £141,267,000 (2020: £149,577,000).

** The special reserve can be used for the repurchase of the Company's own shares.

 

The notes below form part of these financial statements.

 

Balance Sheet

as at 31 March 2021

 

 

31 March 2021

31 March 2020

 

Notes

£'000

£'000

£'000

£'000

Fixed assets

 

 

 

 

 

Investments at fair value

9

 

262,436

 

195,593

Current assets

 

 

 

 

 

Debtors

10

787

 

3,049

 

Cash at bank

 

10,031

 

12,097

 

 

 

10,818

 

15,146

 

Creditors: amounts falling due within one year

 

 

 

 

 

Fixed rate term loan

11

(20,000)

 

-

 

Other creditors

12

(4,588)

 

(330)

 

 

 

(24,588)

 

(330)

 

Net current (liabilities)/assets

 

 

(13,770)

 

14,816

Total assets less current liabilities

 

 

248,666

 

210,409

Creditors: amounts falling due after more than one year

 

 

 

 

 

Fixed rate term loan

11

 

-

 

(20,000)

Net assets

 

 

248,666

 

190,409

Share capital and reserves

 

 

 

 

 

Called-up share capital

13

 

3,348

 

3,348

Share premium account

 

 

19,307

 

19,307

Capital redemption reserve

 

 

1,362

 

1,362

Special reserve

 

 

4,642

 

4,642

Capital reserve

 

 

219,814

 

159,757

Distributable revenue reserve

 

 

193

 

1,993

Total equity shareholders' funds

 

 

248,666

 

190,409

Net asset value per Ordinary share: Basic and Diluted

 

 

148.56p

 

 

113.76p

 

These financial statements were approved and authorised for issue by the Board of Directors on 14 June 2021.

 

ARTHUR COPPLE

Chairman

 

Company Registered Number: 3004101

 

The notes below form part of these financial statements.

at 31 March 2021

 

1 Accounting Policies 

Montanaro UK Smaller Companies Investment Trust plc ("MUSCIT") is a company incorporated and registered in England and Wales. The principal activity of the Company is that of an investment trust company within the meaning of Sections 1158/1159 of the Corporation Tax Act 2010. The registered office of the Company is 6th Floor, 65 Gresham Street, London, EC2V 7NQ.

ACCOUNTING CONVENTION 
The financial statements are prepared on a going concern basis under the historical cost convention as modified by the revaluation of fixed asset investments and in accordance with UK applicable accounting standards and the Statement of Recommended Practice regarding the Financial Statements of Investment Trust Companies and Venture Capital Trusts ("SORP") issued in November 2014 and updated in October 2019. The financial statements have been prepared under FRS 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland'. Following the adoption of  FRS 102, the Company elected not to present the statement of cash flows per paragraph 7.1.A. The principal accounting policies adopted in the preparation of these financial statements are set out below. These policies have been consistently applied throughout the year and the preceding year.

GOING CONCERN

The financial statements have been prepared on a going concern basis and on the basis that approval as an investment trust company will continue to be met.

 

The Directors have made an assessment of the Company's ability to continue as a going concern and are satisfied that the Company has the resources to continue in business for the foreseeable future, being a period of at least 12 months from the date these financial statements were approved. Furthermore, the Directors are not aware of any material uncertainties that may cast significant doubt upon the Company's ability to continue as a going concern, having taken into account the liquidity of the Company's investment portfolio and the Company's financial position in respect of its cash flows, borrowing facilities and investment commitments (of which there are none of significance). In particular, the Directors considered the impact of disruptions arising from the global pandemic on the Company's liquidity, market values, bank covenants and continuity of operations in reaching their conclusion and they continue to adopt the going concern basis in preparing the financial statements.

 

The Manager is currently in discussion with several providers to secure new borrowing facilities upon expiry of the current facilities on 19 December 2021. The Manager does not anticipate any issues in securing new facilities on attractive terms. The Company's Articles of Association ("Articles") contain a requirement for shareholders to vote on the continuation of the Company at regular intervals. At the Company's AGM held on 17 July 2017, shareholders voted to remove the obligation to convene a General Meeting during 2018 for the purpose of voluntarily winding up the Company. The Board is proposing Resolution 12, at the next AGM to remove the obligation to convene a General Meeting during 2022 for the purpose of providing for the Company to be wound-up on a voluntary basis as stated in the Articles of Association.

 

SEGMENTAL REPORTING
The Company has one reportable segment being invested primarily in a portfolio of quoted UK small companies.

Dividends receivable on quoted equity shares are taken to revenue on an ex-dividend basis. Dividends receivable on equity shares where no ex-dividend date is quoted are brought into account when the Company's right to receive payment is established. Fixed returns on non-equity shares are recognised on a time-apportioned basis.

 

Dividends from overseas companies are shown gross of any non-recoverable withholding taxes, which are presented separately in the Income Statement.

 

Special dividends are taken to revenue or capital account depending on their nature. In deciding whether a dividend should be regarded as a capital or revenue receipt, the Board reviews all relevant information as to the reasons for the sources of the dividend on a case-by-case basis.

 

When the Company has elected to receive scrip dividends in the form of additional shares rather than in cash, the amount of the cash dividend forgone is recognised as income. Any excess in the value of the cash dividend is recognised in the capital column.

 

EXPENSES AND FINANCE COSTS 
All expenses and finance costs are accounted for on an accruals basis. On the basis of the Board's expected long-term split of total returns, the Company charges 75% of its management fee and finance costs to capital.

 

Expenses directly incurred in relation to arranging debt and loan facilities have been amortised over the term of the finance. Expenses incurred directly in relation to issue or redemption of shares are deducted from equity and charged to the share premium account. All other expenses are allocated in full to the revenue account.

 

The Company's business is investing in financial assets with a view to profiting from their total return in the form of income and capital growth. This portfolio of financial assets is managed and its performance evaluated on a fair value basis, in accordance with a documented investment strategy, and information about the portfolio is provided internally on that basis to the Company's Board of Directors. The Company has fully adopted sections 11 and 12 of FRS 102.

 

All investments are classified upon initial recognition as financial assets at fair value through profit or loss and are measured at subsequent reporting dates at fair value, which is the bid price or the closing price for the Stock Exchange Electronic Trading Service - quotes and crosses ('SETSqx'). The Company derecognises a financial asset either when the contractual rights to the cash flows from the asset expire or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity. On derecognition of a financial asset, the difference between the asset's carrying amount and the sum of consideration received and receivable and the cumulative gain or loss that had been accumulated is recognised in profit or loss.

 

All investments for which fair value is measured in the financial statements are categorised within the fair value hierarchy in note 9.

 

Cash and cash equivalents (which are presented as a single class of asset on the Statement of Financial Position) comprise cash at bank and in hand.

 

The carrying value of these assets approximates their fair value.

 

UK corporation tax payable is provided on taxable profits at the current rate.

 

Provision is made for deferred taxation, without discounting, on all timing differences and is calculated using substantively enacted tax rates.

 

This is subject to deferred tax assets only being recognised if it is considered more likely than not that there will be suitable profits from which the future reversal of the underlying timing differences can be deducted.

DIVIDENDS PAYABLE TO SHAREHOLDERS

Final dividends are recognised in the year in which they have been approved by shareholders in a general meeting. Interim dividends are recognised in the period in which they have been declared and paid.

BANK LOANS AND BORROWINGS 
All bank loans and borrowings are carried at amortised cost. Costs in relation to arranging debt finance have been amortised over the term of the instrument.

 

The preparation of the Company's financial statements requires the Directors to make judgements, estimates and assumptions that affect the reported amounts recognised in the financial statements and disclosure of contingent liabilities. However, uncertainty about these assumptions and estimates could result in outcomes that could require a material adjustment to the carrying amount of the asset or liability affected in future periods. There have been no significant judgements, estimates or assumptions which have had a significant impact on the financial statements for the current or preceding financial year.

Share premium

The account represents the accumulated premium paid for shares issued in previous periods above their nominal value less expenses of issuance.

 

Capital redemption reserve

The capital redemption reserve accounts for amounts by which the issued capital is diminished through the repurchase and cancellation of the Company's own shares.

 

Special reserve 
The special reserve was created by a reduction in the share premium account by order of the High Court in August 1998. It can be used for the repurchase of the Company's Ordinary shares.

 

Revenue reserve

The revenue reserve represents retained profits from the income derived from holding investment  assets less the costs and interest on cash balances associated with running the company. This reserve can be distributed.

 

Capital reserve 
The following are accounted for in this reserve:

· gains and losses on the realisation of investments;

· net movement arising from changes in the fair value of investments;

· net movement from changes in the fair value of derivative financial instruments;

· expenses, together with related taxation effect, charged to this account in accordance with the above policies;

· Dividends paid from the realised Capital Reserve.

 

The Company's Articles of Association permit it to distribute from the Capital Reserve any surplus arising from the realisation of its investments.

 

2 Income

 

Year to
31 March 2021
£'000

Year to

31 March 2020

£'000

UK dividend income

2,834

5,346

Overseas dividend income

160

250

Income from investments

2,994

5,596

Total income

2,994

5,596

 

 

 

Total income comprises

 

 

Dividends from financial assets designated at fair value through profit or loss

2,994

5,596

Dividends

2,994

5,596

 

3 Management fee

 

Year to 31 March 2021

Year to 31 March 2020

 

Revenue £'000

Capital

£'000

Total

£'000

Revenue £'000

Capital

£'000

Total

£'000

Management fee

307

923

1,230

317

952

1,269

AIFMD fee

13

37

50

13

37

50

 

320

960

1,280

330

989

1,319

 

The Manager received a monthly management fee equivalent to 1/12 of 0.50% (2020: 0.50%) of the gross assets of the Company valued at the close of business on the last business day of each month.

 

At 31 March 2021, £135,000 (2020: £88,000) was due for payment to the Manager.

 

4 Other Expenses

 

Year to

31 March 2021

£'000

Year to

31 March 2020

£'000

Administration

78

76

Company secretarial fees

55

46

Directors' fees†

96

96

Depositary fee

51

64

Registrar fee

57

51

Auditor's remuneration for:

· audit

 

31

 

30

Custody and other bank charges

21

22

Legal fees

4

9

Other expenses (including VAT)

164

133

 

557

527

† A breakdown of the Directors' remuneration is set out above and in the Directors' Remuneration Report of the full Annual Report and Accounts.

The Company has no employees.

5 Interest Payable and Similar Charges

 

Year to 31 March 2021

Year to 31 March 2020

 

 

Revenue £'000

Capital

£'000

Total

£'000

Revenue £'000

Capital

£'000

Total

£'000

Interest payable on loan

143

429

572

152

456

608

Loan commitment fee

11

33

44

8

24

32

 

154

462

616

160

480

640

 

6 Taxation

 

Year to 31 March 2021

Year to 31 March 2020

 

Revenue £'000

Capital

£'000

Total

£'000

Revenue £'000

Capital

£'000

Total

£'000

Current tax:

 

 

 

 

 

 

Overseas tax suffered

-

-

-

(8)

-

(8)

 

-

-

-

(8)

-

(8)

The taxation charge for the year is different from the standard rate of Corporation Tax in the UK of 19% (2020: 19%). The differences are explained below.

 

 

Year to 31 March 2021

Year to 31 March 2020

 

 

Revenue £'000

Capital

£'000

Total

£'000

Revenue £'000

Capital

£'000

Total

£'000

Net return/(loss) before taxation

1,963

64,948

66,911

4,579

(21,245)

(16,666)

Theoretical tax at UK corporation tax rate of 19% (2020: 19%)

 

373

 

12,340

 

12,713

 

870

 

(4,037)

 

(3,167)

Effects of:

 

 

 

 

 

 

- UK dividends that are not taxable

(539)

-

(539)

(1,016)

-

(1,016)

- Foreign dividends that are not taxable

(30)

-

(30)

(47)

-

(47)

- Non-taxable investment losses

-

(12,610)

(12,610)

-

3,757

3,757

- Irrecoverable overseas tax

-

-

-

8

-

8

- Unrelieved excess expenses

196

270

466

193

280

473

Taxation charge for the year

-

-

-

8

-

8

 

Deferred tax is not provided on capital gains and losses arising on the revaluation or disposal of investments because the Company meets (and intends to continue for the foreseeable future to meet) the conditions for approval as an Investment Trust company. At 31 March 2021, based on current estimates and including the accumulation of net allowable losses, the Company had unrelieved losses of £50,004,000 (2020: £47,788,000) that are available to offset future taxable revenue. A deferred tax asset of £9,501,000 (2020: £9,080,000) has not been recognised because the Company is not expected to generate sufficient taxable income in future periods in excess of the available deductible expenses and accordingly, the Company is unlikely to be able to reduce future tax liabilities through the use of existing surplus losses.

 

7 Dividends

 

Year to

31 March 2021

£'000

Year to

31 March 2020

£'000

In respect of the previous period:

 

 

Paid

 

 

2020 fourth quarter dividend of 1.14p (2019 1.29p)

1,908

2,159

In respect of the year under review:

 

 

Paid

 

 

2021 first quarter dividend of 1.26p (2020 1.32p)

2,109

2,209

2021 second quarter dividend of  1.31p (2020 1.31p)

2,193

2,193

2021 third quarter dividend of 1.46p (2020 1.54p)

2,444

2,578

Dividends distributed during the year

8,654

9,139

Declared:

 

 

2021 fourth quarter dividend of 1.49p (2020: 1.14p)

2,494

1,908

 

The quarters referred to in the table above relate to the Company's financial year.

 

 

Year to 31 March 2021

Year to 31 March 2020

 

Revenue

Capital

Total

Revenue

Capital

Total

Ordinary share

1.18p

38.80p

39.98p

2.73p

(12.69p)

(9.96p)

 

Revenue return per Ordinary share is based on the net revenue after taxation of £1,963,000 (2020: £4,571,000) and 167,379,790 (2020: 167,379,790) Ordinary shares, being the weighted average number of Ordinary shares, excluding any shares held in treasury.

 

Capital return/(loss) per Ordinary share is based on net capital gains/(losses) for the year of £64,948,000 (2020: £(21,245,000)), and on 167,379,790 (2020: 167,379,790) Ordinary shares, being the weighted average number of Ordinary shares, excluding any shares held in treasury.

 

Basic and diluted return/(loss) per share are the same as there are no dilutive elements on share

capital.

 

9 Investments

 

Year to

31 March 2021

£'000

Year to

31 March 2020

£'000

Total investments at fair value

262,436

195,593


The investment portfolio comprises 50 (2020: 49) traded and listed UK equity holdings.

 

Year to

31 March 2021

£'000

Year to

31 March 2020

£'000

Opening book cost

183,422

189,029

Opening investment holding gains

12,171

40,447

Opening valuation

195,593

229,476

Movements in the year

 

 

Purchases at cost

66,065

66,685

Sales - proceeds

(65,592)

(80,792)

  - realised (losses)/gains on sale against book cost

(199)

8,500

Increase/(decrease) in investment holding gains

66,569

(28,276)

Closing valuation

262,436

195,593

Closing book cost

183,696

183,422

Closing investment holding gains

78,740

12,171

 

262,436

195,593

 

Financial assets of the Company are carried in the Balance Sheet at their fair value or approximation of fair value. The fair value is the amount at which the asset could be sold in an ordinary transaction between market participants, at the measurement date, other than a forced or liquidation sale. The Company measures fair values using the following hierarchy that reflects the significance of the inputs used in making the measurements.

 

Categorisation within the hierarchy has been determined on the basis of the lowest level input that is significant to the fair value measurement of the relevant asset as follows:

 

· Level 1 - Valued using quoted prices, unadjusted in active markets for identical assets and liabilities.

· Level 2 - Valued by reference to valuation techniques using observable inputs for the asset or liability other than quoted prices included in level 1.

· Level 3 - Valued by reference to valuation techniques using inputs that are not based on observable market data for the asset or liability. Assessing the significance of a particular input requires judgement, considering factors specific to the asset or liability.

 

The table below sets out the fair value measurement of financial assets and liabilities in accordance with the fair value hierarchy.

 

 

31 March 2021

31 March 2020

 

Level 1

£'000

Level 2

£'000

Total

£'000

Level 1

£'000

Level 2

£'000

Total

£'000

Equity investments

262,436

-

262,436

195,593

-

195,593

 

262,436

-

262,436

195,593

-

195,593

 

There were no level 2 or 3 investments.

 

TRANSACTION COSTS 
During the year, the Company incurred transaction costs of £163,000 (2020: £226,000) and £40,000 (2020: £35,000) on purchases and sales of investments respectively. These amounts are deducted in determining gains on investments at fair value as disclosed in the Income Statement.

 

 

Year to

31 March 2021

£'000

Year to

31 March 2020

£'000

Net gains on investments at fair value

 

 

(Losses)/gains on sales

(199)

8,500

Changes in fair value

66,569

(28,276)

 

66,370

(19,776)

 

A list of the twenty largest holdings by market value and an analysis of the investment portfolio by industrial or commercial sector can be found above.

 

 

Year to

31 March 2021

£'000

Year to

31 March 2020

£'000

Prepayments and accrued income

50

59

Due from brokers

579

2,692

Dividends receivable

158

298

 

787

3,049

 

11 Fixed Rate Term and Floating Rate Revolving Credit Facilities

 

Year to

31 March 2021

£'000

Year to

31 March 2020

£'000

Falling due within  one year

20,000

-

Falling due after more than one year

-

20,000

 

On 19 December 2016, the Company agreed a £20,000,000 Fixed Rate Term Loan Facility with ING Bank N.V. At the same time, the Company also entered into a £10,000,000 Floating Rate Revolving Credit Facility.

 

The Fixed Rate Term Loan Facility is available for a five-year term from 19 December 2016 to 19 December 2021. The loan was fully drawn down at 31 March 2021 and 31 March 2020. Interest is payable at a fixed rate of 2.68% per annum in both the current and prior year.

 

The Floating Rate Revolving Credit Facility is available for a five-year term from 19 December 2016 to 19 December 2021. None of this facility was utilised at 31 March 2021 and 31 March 2020. When drawn down, interest is payable at LIBOR plus a margin of 1.65% per annum and mandatory costs. A Commitment fee is payable on the daily undrawn balance at 0.55% per annum in the event that the average utilisation is less than 50% during the applicable quarter or 0.40% per annum in the event that the average utilisation is greater than 50% during the applicable quarter.

 

The facilities contain covenants which require that total borrowing will not at any time exceed 30% of the adjusted NAV, which itself shall not fall below £80,000,000 in respect of both facilities. The Company remained compliant with these covenants throughout the year.

 

The Manager is currently in discussion with several providers to secure new borrowing facilities upon expiry of the current facility on 19 December 2021. The Manager does not anticipate any issues in securing new facilities on attractive terms.

 

12 Other Creditors

 

Year to

31 March 2021

£'000

Year to

31 March 2020

£'000

Due to brokers

4,202

-

Accruals

386

330

 

4,588

330

 

 

 

31 March 2021

£'000

31 March 2020

£'000

Allotted, called-up and fully paid:

 

 

167,379,790 Ordinary shares of 2p each (2020: 167,379,790)

3,348

3,348

At the AGM on 31 July 2020, the Company was granted the authority to purchase 25,090,230 Ordinary shares. This authority is due to expire at the conclusion of the next AGM.

 

There were no shares held in treasury at any time during the year (2020: nil) and no shares purchased during the year (2020: nil).

 

The Net asset value per share of 148.56p (2020: 113.76p) is based on net assets of £248.6 million (2020: £190.4 million) and on 167,379,790 (2020: 167,379,790) Ordinary shares, being the number of Ordinary shares in issue at the year end.

 

The Company's investment objective and policy are detailed above.

 

The Company's investing activities in pursuit of its investment objective involve certain inherent risks. The Company's financial instruments can comprise:

 

· shares and debt securities held in accordance with the Company's investment objective and policies;

· derivative instruments for efficient portfolio management, gearing and investment purposes; and

· cash, liquid resources and short-term debtors and creditors that arise from its operations.

 

The risks identified arising from the Company's financial instruments are market risk (which comprises market price risk, interest rate risk and foreign currency exposure risk), liquidity risk and credit and counterparty risk. The Company may enter into derivative contracts to manage risk. The Board reviews and agrees policies for managing each of these risks, which are summarised below.

 

These policies have remained unchanged since the beginning of the accounting period.

 

Market risk arises mainly from uncertainty about future prices of financial instruments used in the Company's business. It represents the potential loss the Company might suffer through holding market positions by way of price movements, interest rate movements and exchange rate movements. The Manager assesses the exposure to market risk when making each investment decision and these risks are monitored by the Manager on a regular basis and the Board at quarterly meetings with the Manager.

 

Market price risk (i.e. changes in market prices other than those arising from currency risk or interest rate risk) may affect the value of investments.

 

The Board manages the risks inherent in the investment portfolio by ensuring full and timely reporting of relevant information from the Manager. Investment performance and exposure are reviewed at each Board meeting.

 

The maximum exposure to market price risk is the fair value of investments of £262,436,000 (2020: £195,593,000).

 

If the investment portfolio valuation fell by 10% from the amount detailed in the financial statements as at 31 March 2021, it would have the effect, with all other variables held constant, of reducing the net capital return before taxation by £26,240,000 (2020: £19,960,000). An increase of 10% in the investment portfolio valuation would have an equal and opposite effect on the net capital return before taxation. The analysis is based on closing balances only and is not representative of the year as a whole.

Any income denominated in a foreign currency is converted into Sterling upon receipt. At the Balance Sheet date, all the Company's assets were denominated in Sterling and accordingly the only currency exposure the Company currently has is through the trading activities of its investee companies.

Changes in interest rates may cause fluctuations in the income and expenses of the Company. The Company has a Fixed Rate Term Loan Facility (see note 11) so this would not be affected by any changes in interest rates. The Company also has a Floating Rate Revolving Credit Facility. This was undrawn at the year end so would not yet be affected by any changes in interest rates.

 

The Company received no interest on cash deposits in the year (2020: £nil).

 

If interest rates had reduced by 1% from those paid as at 31 March 2021, it would have the effect, with all other variables held constant, of increasing the net revenue return before taxation on an annualised basis by £nil (2020: £nil). If there was an increase in interest rates of 1%, the net revenue return before taxation on an annualised basis would have decreased by £nil (2020: £nil).

 

Liquidity risk is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities. The Manager does not invest in unlisted securities on behalf of the Company. The investments consist of UK small companies which, whilst less liquid than quoted large companies, are quoted and tradeable on a recognised stock exchange.

 

The Company's liquidity risk is managed on a daily basis by the Manager in accordance with established policies and procedures in place. The Manager reviews daily forward-looking cash reports which project cash obligations. These reports allow it to manage its obligations as they fall due.

 

Contractual maturities of the financial liabilities at undiscounted amount at the year end, based on the earliest date on which payment can be required, are detailed below.

 

Credit risk is the risk of financial loss to the Company if the contractual party to a financial instrument fails to meet its contractual obligations.

 

The Company's listed and traded investments and cash balances are held on its behalf by The Bank of New York Mellon, the Company's custodian. Bankruptcy or insolvency of the custodian may cause the Company's rights with respect to securities held by the custodian to be delayed. The Board monitors the Company's risk by reviewing the custodian's internal controls report.

 

Investment transactions are carried out with a number of brokers whose creditworthiness is reviewed by the Manager.

 

Transactions are ordinarily undertaken on a delivery versus payment basis within CREST, whereby the transaction will only settle if the Company and counterparty details are matching.

 

The maximum exposure to credit risk at 31 March 2021 was:

 

 

31 March 2021

£'000

31 March 2020

£'000

Cash at bank (held at Bank of New York Mellon)

10,031

12,097

Debtors and prepayments

787

3,049

 

10,818

15,146

 

None of the Company's assets are past due or impaired.

Gearing can have amplified effects on the NAV of the Company. It can have a positive or negative effect depending on portfolio performance. It is the Company's policy to determine the level of gearing appropriate to its own risk profile.

 

The AIFM, in consultation with the Board, is responsible for determining the gearing level of the Company, which is disclosed above. The Directors receive financial information on a regular basis which is used to identify and monitor risk.

 

FINANCIAL ASSETS 
The Company's financial assets consist of listed and traded equity shares, which neither pay interest nor have a maturity date, cash at bank and short-term debtors. No fixed interest assets were held at 31 March 2021 (31 March 2020: £Nil) or at any time during the year. All financial assets are in Sterling.

 

FINANCIAL LIABILITIES 
The Company finances its operations through equity, retained profits and bank borrowings (see note 11).

 

The interest rate risk profile of the financial liabilities of the Company as at 31 March 2021 was as follows:

 

 

 

 

Total

£'000

Weighted average interest rate

%

 

Period until maturity

Years

Amounts drawn down under Fixed Rate Term Loan Facility

 

20,000

 

2.7

 

0.7

Amounts drawn down under Floating Rate Revolving Credit Facility

 

-

 

-

 

-

Financial liabilities upon which no interest is paid

4,588

-

-


The interest rate risk profile of the financial liabilities of the Company as at 31 March 2020 was as follows:

 

 

 

 

Total

£'000

Weighted average interest rate

%

 

Period until maturity

Years

Amounts drawn down under Fixed Rate Term Loan Facility

 

20,000

 

2.7

 

1.7

Amounts drawn down under Floating Rate Revolving Credit Facility

 

-

 

-

 

-

Financial liabilities upon which no interest is paid

330

-

-


The maturity profile of the Company's financial liabilities at undiscounted amount is as follows:

 

 

31 March 2021

£'000

31 March 2020

£'000

In three months or less

4,673

423

In more than three months but not more than one year

20,288

432

In more than one year but not more than three years

-

20,383

In more than three years but not more than five years

-

-

 

24,961

21,238

 

The structure of the Company's capital is described in the full Annual Report and Accounts and details of the Company's reserves are shown in the Statement of Changes in Equity.

 

The Company's capital management objectives are:

 

· to ensure that it will be able to continue as a going concern;

· to achieve capital growth through a focused portfolio of investments, particularly in UK small companies; and

· to maximise the return to shareholders while maintaining a capital base to allow the Company to operate effectively and meet obligations as they fall due.

 

The Board and the AIFM regularly monitor and review the capital on an ongoing basis. These reviews include:

 

· the level of gearing, which takes account of the Company's position and the Manager's views on the market; and

· the extent to which revenue in excess of that which is required to be distributed should be retained.

 

The Company's objectives, policies and processes for managing capital are unchanged from last year.

 

The Company is subject to externally imposed capital requirements:

 

As a public company, the Company is required to have a minimum share capital of £50,000; and

 

In accordance with the provisions of Sections 832 and 833 of the Companies Act 2006, the Company as an investment company:

 

· is only able to make a dividend distribution to the extent that the assets of the Company are equal to at least one and a half times its liabilities after the dividend payment has been made; and

· is required to make a dividend distribution each year such that it does not retain more than 15% of the income that it derives from shares and securities.

 

These requirements are unchanged since last year and the Company has complied with them at all times.

 

At 31 March 2021, there were no capital commitments or contingent liabilities (2020: nil).

 

Under the Listing Rules, the Manager is regarded as a related party and deemed to be Key Management Personnel of the Company. The amounts paid to the Manager are disclosed in note 3 above.

 

The related party transactions with the Directors are set out above and in the Directors' Remuneration Report in the full Annual Report and Accounts.

 

Principal Advisers

 

Investment Manager and Alternative Investment Fund Manager ('AIFM')
MONTANARO ASSET MANAGEMENT LIMITED
53 Threadneedle Street
London EC2R 8AR
Tel: 020 7448 8600
Fax: 020 7448 8601
Website: www.montanaro.co.uk
Email: enquiries@montanaro.co.uk
 

Depositary
THE BANK OF NEW YORK MELLON (INTERNATIONAL) LIMITED
One Canada Square
London E14 5AL

Administrator
LINK ALTERNATIVE FUND ADMINISTRATORS LIMITED
Beaufort House
51 New North Road
Exeter EX4 4EP
Tel: 01392 477500
Fax: 01392 498288
 

Custodian
BANK OF NEW YORK MELLON SA/NV
One Canada Square
London E14 5AL

Company Secretary and Registered Office
LINK COMPANY MATTERS LIMITED
65 Gresham Street
London EC2V 7NQ
Tel: 0207 954 9531
Email: Muscit_Cosec@linkgroup.co.uk
 

Banker
ING BANK N.V.
London Branch
60 London Wall
London EC2M 5TQ

Registrar
LINK GROUP

Shareholder Services Department

The Registry
10th Floor

Central Square

29 Wellington Street

Leeds LS1 4DL
Tel: 0371 664 0300
(calls will cost 12p per minute plus network charges)

Email: shareholderenquiries@link.co.uk
Website: https://www.linkgroup.eu/

Broker
CENKOS SECURITIES PLC
6.7.8 Tokenhouse Yard
London EC2R 7AS

 

 

Auditor
BDO LLP

55 Baker Street

London W1U 7EU

 

Lawyers

GOWLING WLG

4 More London Riverside

London SE1 2AU

 

The information set out in this announcement does not constitute the Company's full statutory accounts for the year ended 31 March 2021 in terms of Section 434 of the Companies Act 2006 but is derived from those accounts. Statutory accounts for the year ended 31 March 2021 will be posted to Shareholders and delivered to the Registrar of Companies, in due course. The Auditors have reported on those accounts; their report was (i) unqualified, (ii) did not include a reference to any matters to which the Auditors drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under Section 498 (2) or (3) of the Companies Act 2006. The text of the Auditors' report can be found in the Company's full Annual Report and Accounts. Audited statutory accounts for the year to 31 March 2020, which were unqualified, have been lodged with the Registrar of Companies.

 

The full audited Annual Report and Accounts for the year ended 31 March 2021 will be posted to shareholders shortly and will be available on the Company's website www.montanaro.co.uk /trust/muscit. It will also be shortly submitted to the to the National Storage Mechanism ("NSM") and will be available for inspection there, situated at: https://data.fca.org.uk/#/nsm/nationalstoragemechanism .

 

For further information, please contact:

 

Montanaro Asset Management Limited

Tel: 020 7448 8600

 

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.

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