Final Results
MONTANARO UK SMALLER COMPANIES INVESTMENT TRUST PLC
PRELIMINARY ANNOUNCEMENT OF UNAUDITED ANNUAL RESULTS
The Directors announce the unaudited statement of results for the year ended 31
March 2006 as follows:-
HIGHLIGHTS
* NAV +40% (£109 million)
* Gross assets + 41% (£120 million)
* FTSE SmallCap +21%
* Share price +42%
INCOME STATEMENT
for the year to 31 March 2006
Year to 31 March 2006 Year to 31 March 2005
(restated *)
Revenue Capital Total Revenue Capital Total
£000 £000 £000 £000 £000 £000
Gains on investments
at fair value - 33,354 33,354 - 14,714 14,714
Dividends and interest 1,986 - 1,986 1,729 - 1,729
Management fee (592) (1,296) (1,888) (440) (440) (880)
Other expenses (336) - (336) (248) - (248)
Net return before
finance costs
and taxation 1,058 32,058 33,116 1,041 14,274 15,315
Interest payable and
similar charges (258) (258) (516) (221) (221) (442)
Net return before
taxation 800 31,800 32,600 820 14,053 14,873
Taxation - - - - - -
Net return after
taxation 800 31,800 32,600 820 14,053 14,873
Return per ordinary 2.30p 91.57p 93.87p 2.36p 40.42p 42.78p
share**
The total column of this statement is the profit and loss account of the
Company.
* For details of the restatement of the Company's comparative figures please
refer to note 1.
** The calculation of returns per ordinary share excludes shares held in
Treasury; the weighted average number of shares in issue during the year has
been adjusted to reflect this.
All revenue and capital items in the above statement derive from continuing
operations. No operations were acquired or discontinued in the year.
STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
for the year to 31 March 2006
Year to 31 March Year to 31 March
2006 2005
£000 £000
Net return after taxation 32,600 14,911
Total recognised gains during the year 32,600 14,911
Prior period adjustment (see note 1) (658) -
Total recognised gains and losses since
last annual report 31,942 14,911
Total recognised gain per share 91.97p 42.89p
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
for the year to 31 March 2006
Capital Own
Called-up Share Capital reserve Capital shares Total equity
share premium redemption Special - reserve - Revenue held in shareholders'
capital account reserve reserve realised unrealised reserve Treasury funds
£000 £000 £000 £000 £000 £000 £000 £000 £000
Year to 31 March
2006
As at 31 March 2005* 3,652 18,937 1,058 11,075 29,378 12,120 1,818 (2,588) 75,450
Net gains on
realisation of
investments - - - - 12,854 - - - 12,854
Unrealised
appreciation on
investments before
transfer on disposal - - - - 12,854 20,500 - - 20,500
Transfer on disposal
of investments - - - - 1,344 (1,344) - - -
Costs allocated to
capital - - - - (1,554) - - - (1,554)
Cancellation of -
ordinary shares from
Treasury (91) - 91 (1,240) - - - 1,240 -
Resale of ordinary
shares from Treasury - - - - - - - 1,348 1,348
Premium on sale of
ordinary shares from
Treasury - 370 - - - - - - 370
Dividends paid in
the year - - - - - - (1,007) - (1,007)
Net revenue for the
year - - - - - - 800 - 800
As at 31 March 2006 3,561 19,307 1,149 9,835 42,022 31,276 1,611 - 108,761
Capital Own
Called-up Share Capital reserve Capital shares Total equity
share premium redemption Special - reserve - Revenue held in shareholders'
capital account reserve reserve realised unrealised reserve Treasury funds
£000 £000 £000 £000 £000 £000 £000 £000 £000
Year to 31 March
2005
As at 1 April 2004* 3,684 18,680 1,026 11,518 26,983 462 2,039 - 64,392
Net gains on
realisation of
investments - - - - 2,163 - - - 2,163
Unrealised
appreciation on
investments before
transfer on disposal - - - - - 12,551 - - 12,551
Transfer on disposal
of investments - - - - 893 (893) - - -
Costs allocated to
capital - - - - (661) - - - (661)
Repurchase and
cancellation of
ordinary shares (32) - 32 (443) - - - - (443)
Purchase of ordinary
shares into Treasury - - - - - - - (3,752) (3,752)
Resale of ordinary
shares from Treasury - - - - - - - 1,164 1,164
Premium on sale of
ordinary shares from
Treasury - 257 - - - - - - 257
Dividends paid in
the year - - - - - - (1,041) - (1,041)
Net revenue for the
year - - - - - - 820 - 820
As at 31 March 2005* 3,652 18,937 1,058 11,075 29,378 12,120 1,818 (2,588) 75,450
* Restated - For details of the restatement of the Company's comparative
figures please refer to note 1.
BALANCE SHEET
as at 31 March 2006
31 March 31 March
2006 2005
(restated*)
£000 £000 £000 £000
Fixed assets
Investments at fair value 115,939 83,224
Current assets
Debtors 231 1,486
Cash at bank 3,905 716
4,136 2,202
Creditors: amounts falling due within
one year
Other creditors (1,314) (2,476)
Revolving credit facility (2,500) -
(3,814) (2,476)
Net current assets/(liabilities) 322 (274)
Total assets less current liabilities 116,261 82,950
Creditors: amounts falling due after
more than one year
Revolving credit facility (7,500) (7,500)
Net assets 108,761 75,450
Share capital and reserves
Called-up share capital 3,561 3,652
Share premium account 19,307 18,937
Capital redemption reserve 1,149 1,058
Special reserve 9,835 11,075
Capital reserve
- realised 42,022 29,378
- unrealised 31,276 12,120
Revenue reserve 1,611 1,818
Own shares held in Treasury - (2,588)
Total equity shareholders' funds 108,761 75,450
Net asset value per ordinary share ** 305.43p 217.93p
* For details of the restatement of the Company's comparative figures please
refer to note 1.
** See note 2
STATEMENT OF CASH FLOWS
for the year to 31 March 2006
Year to 31 March 2006 Year to 31 March 2005
£000 £000 £000 £000
Operating activities
Investment income received 1,897 1,628
Deposit interest received 110 190
Management fees paid (978) (758)
Company secretarial fees paid (60) (49)
Other cash expenses (429) (316)
Net cash inflow from operating
activities 540 695
Servicing of finance
Interest and similar charges paid (500) (442)
Net cash outflow from servicing
of finance (500) (442)
Investing activities
Purchases of investments (53,721) (30,149)
Sales of investments 53,659 24,931
Net cash outflow from investing
activities (62) (5,218)
Equity dividends paid (1,007) (1,041)
Net cash outflow before financing (1,029) (6,006)
Financing
Ordinary shares purchased for
cancellation - (443)
Ordinary shares purchased and
held in Treasury - (3,752)
Ordinary shares sold from
Treasury 1,718 1,421
Proceeds of short-term credit
facility 2,500 -
Net cash inflow/(outflow) from
financing 4,218 (2,774)
Increase/(decrease) in cash 3,189 (8,780)
Notes:
1. CHANGES IN ACCOUNTING POLICIES AND RESTATEMENT OF PRIOR YEAR FIGURES
The financial information set out above has been prepared using new accounting
standards which have been issued to begin the process of converging UK
Financial Reporting Standards (FRSs) with International Financial Reporting
Standards. With effect from 1 April 2005, the Company has adopted the new
Financial Reporting Standards (`revised UK GAAP'), and the comparative figures
have been restated accordingly for the following:
FRS 21: EVENTS AFTER THE BALANCE SHEET DATE
a. Dividends paid by the Company are accounted for in the period in which the
dividend has been paid. Previously, the Company recognised dividends in the
period in which net revenue, to which those dividends related, was
accounted for.
FRS 25: FINANCIAL INSTRUMENTS: DISCLOSURE AND PRESENTATION; AND
FRS 26: FINANCIAL INSTRUMENTS: MEASUREMENT
b. All investments held by the Company are designated as at `fair value
through profit or loss'. For investments actively traded in organised
financial markets, fair value is generally determined by reference to Stock
Exchange quoted market bid prices at the close of business on the balance
sheet date. Previously all listed investments were valued using closing mid
market prices at the balance sheet date.
The financial effects of these changes to the Company's accounting policies as
at 31 March 2004 and 31 March 2005 are set out in the tables below:
as at 31 March Previously Adjustment Restated
2004 reported
£000 £000 £000
Investments at
fair value (b) 63,430 (620) 62,810
Other creditors (a) (1,802) 1,050 (752)
Capital reserve -
unrealised (b) 1,082 (620) 462
Revenue reserve (a) 989 1,050 2,039
as at 31 March Previously Adjustment Restated
2005 reported
£000 £000 £000
Investments at
fair value (b) 83,882 (658) 83,224
Other creditors (a) (3,463) 987 (2,476)
Capital reserve -
unrealised (b) 12,778 (658) 12,120
Revenue reserve (a) 831 987 1,818
The resulting effect of these changes on the net asset value as at 31 March
2005 is laid out in the table in note 2.
The financial effects of these changes to the Company's results for the year
ended 31 March 2006 are not material.
2. NET ASSET VALUE PER SHARE
Net asset values per share are calculated based on the number of ordinary
shares in issue at the period end excluding shares held in Treasury at that
date. In accordance with AITC guidance the net asset value per share published
in respect of 31 March 2005 was calculated on the basis of accounting policies
in use prior to the introduction of the new accounting standards referred to in
note 1.
A reconciliation from net asset values as published to net asset values as
presented in the 31 March 2006 report under the new accounting standards is
shown below:
31 March 31 March
2005 2005
£000 Pence
Net assets (as originally
stated) 75,121 216.98
Increase due to dividend
accounting change 987 2.85
Reduction due using bid
prices (658) (1.90)
Net assets per revised UK
GAAP 75,450 217.93
3. DIVIDEND
The Directors propose a dividend for the year ended 31 March 2006 of 2.30p per
ordinary share to be paid on 25 July 2006 to shareholders on the register on 9
June 2006.
4. FINANCIAL INFORMATION
The financial information set out above does not constitute the Company's
statutory accounts for the years ended 31 March 2005 or 2006, and has been
based on the accounting policies used in the statutory accounts for the year
ended March 2005, except as noted above. Statutory accounts for 2005 have been
delivered to the Registrar of Companies, whereas those for 2006 will be
delivered following the Company's Annual General Meeting. The auditors have
reported on the 2005 accounts; their report was unqualified and did not contain
a statement under section 237 (2) or (3) of the Companies Act 1985.
CHAIRMAN'S STATEMENT
Chairman's Statement
Background
I am pleased to present the eleventh annual report of Montanaro Smaller
Companies Investment Trust ("MUSCIT") which was launched on 16 March 1995. In
1996, the initial investment of £25 million was increased in size through a £30
million "C" share issue. Net assets now stand at £109 million.
An investment trust is an attractive vehicle for shareholders to invest in
quoted UK "smaller" companies, which are less well researched and more illiquid
than larger, blue chip companies.
Performance
In the year to 31 March 2006, the NAV of MUSCIT increased by 40% to 305.43p in
comparison with a 21% gain by the SmallCap, outperforming by 19%.
Since launch, the NAV of MUSCIT has increased by 210% in comparison with a gain
of 106% by the SmallCap, outperforming by 104%.
Discount
The discount of MUSCIT's share price to NAV narrowed to 13.2% on 31 March 2006
(2005: 14.2%) in comparison with the sector average of 12.3% (Source: Close
Wins Investment Trusts).
Share Buy Backs
The Board is responsible for the implementation of the share buy back
programme, which is undertaken at arms length from the Manager.
The Board continues to consider share buy backs as and when appropriate. Since
launch, 13,333,470 shares of MUSCIT have been bought back. Full details of
shares bought back during the year are included in the Directors' report, in
the Annual Report.
Approval to renew the Directors' authority to buy back shares, either for
cancellation or for placing into Treasury, is included as Resolution 6 in the
notice of the forthcoming Annual General Meeting.
Holding Shares in Treasury
As an alternative to cancellation, new regulations came into force on 1
December 2003 that allow companies, including investment trusts, to buy back
shares and hold them in Treasury for re-issue at a later date. This has the
benefit of improving liquidity as well as retaining the opportunity to enhance
the net asset value.
The Board has actively and carefully considered the use of Treasury Shares and
has been among the industry's pioneers. Our policy is to ensure that
shareholders receive a tangible benefit above and beyond an enhanced ability to
manage the liquidity of the shares of MUSCIT. Shares held in Treasury will only
be re-issued at a lower discount than when they were originally purchased and
to produce a positive absolute return. Shares not re-issued will be cancelled
within one year from purchase.
This policy is in accordance with the recommendations of the AITC in their
paper "Treasury Shares - A Guide to The Commercial and Technical Issues" dated
28 August 2003. Indeed, it goes further than their recommendations in seeking
both absolute and relative returns for investors.
During the year, 988,280 shares were re-issued from Treasury and 908,120 were
cancelled. No further shares were bought back during the year and currently
there are no shares held in Treasury.
The Directors will seek the authority to issue shares, including those from
Treasury, up to an aggregate amount of 10% of MUSCIT's issued shares as
Resolution 8 at the forthcoming Annual General Meeting. The Directors will also
seek the authority to issue shares from Treasury at a discount to net asset
value as Resolution 9.
Gearing
The Board reviews the level of gearing considered appropriate for MUSCIT in
discussion with the Manager. One of the benefits of investment trusts is the
ability to hold prudent levels of gearing, which can enhance investment
returns.
ING Bank provides a borrowing facility of up to £10 million at a weighted
average rate of 5.60% as at 31 March 2006. The facility will mature on 1 August
2007.
At 31 March 2006, net gearing was 9.2%.
Dividend
The Company's primary focus is on capital growth rather than income.
Accordingly, the Board proposes a final dividend of 2.30p per ordinary share
payable on 25 July 2006 to shareholders on the register at the close of
business on 9 June 2006.
Corporate Governance
The Directors have reviewed the recommendations of the 2003 Combined Code on
Corporate Governance ("Code") and have implemented new Board procedures where
appropriate, such as an annual evaluation of the Board performance.
Consequently, MUSCIT has complied with the Code throughout the year except
where compliance would be inappropriate given the size and nature of MUSCIT.
Full disclosure of MUSCIT's compliance with the Code is included in the
Directors' Report, in the Annual Report.
Continuation Vote
More than 97% of shareholders voting at the Annual General Meeting held on 15
July 2005 elected for MUSCIT to continue.
Chairman's Comment
Strategists have been recommending a switch out of small stocks into large for
two years now on the basis that small companies are now trading at a premium.
They continue to be wrong, mistakenly thinking that relative valuation is a
guide to relative performance - it is not. Small companies commanded a premium
for much of the 1980s, a period when generally they enjoyed good out
performance supported by higher earnings growth, much as today.
The great thing about the small company market is that it allows good stock
selectors to add value. MUSCIT has outperformed in nine out of eleven years and
produced an annualised NAV return of 11%, a return 4% p.a. more than the
SmallCap market and 5% p.a. more than the FTSE-100. Put another way, £100
invested in the portfolio at launch (excluding dividends) would be worth £310
today compared with £206 if invested in the FTSE SmallCap and £190 in the
FTSE-100.
In recent times, there has been an increasing awareness of non-correlated,
alternative assets as a means of risk reduction and diversification.
Consultants are talking about different management approaches such as Portable
Alpha, liability driven mandates or unconstrained equity mandates. Yet it is
ironic, in light of the well documented historic returns over the past fifty
years, that few are recommending UK and European small companies. Surely it is
high time for quoted SmallCap to be recognised as a separate asset class in its
own right.
As Myners pointed out in 2003: "There is no obvious relationship between size
and performance…[there are] opportunities for trustees to select managers that
are non-consensual and add value, but to do this successfully, trustees will
have to be more rigorous in their conduct of duties". I believe that both
quoted small companies and small company boutiques should feature more
prominently in asset allocation decisions by pension funds and consultants
alongside the currently more fashionable choices of private equity and hedge
funds.
Montanaro have delivered impressive consistency in steering MUSCIT to
outperformance in nine out of eleven years with returns almost double those of
the SmallCap. On behalf of the Board and shareholders, I extend my
congratulations to them for these achievements.
DAVID GAMBLE
Chairman
30 May 2006
Latest directors dealings
- 11 hours ago Lindsell Train Inv Trust
- 11 hours ago Lindsell Train Inv Trust
- 11 hours ago RIT Capital Partners
- 12 hours ago BAE Systems
- 13 hours ago Softcat