Final Results

RNS Number : 4524V

Montanaro European Smaller C.TstPLC

28 May 2008

 



MONTANARO EUROPEAN SMALLER COMPANIES TRUST PLC

Date:        28 May 2008

UNAUDITED RESULTS FOR THE YEAR ENDED 31 MARCH 2008

Investment Objective

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

Highlights 

• NAV decreased by 5.9%, compared to a decrease of 11.9% in the benchmark index

• Dividend of 4.0p per share

Chairman's Statement

Against a backdrop of slowing economic growth and continuing concerns over the implications of the well publicised credit crisis, the year ended 31 March 2008 was a difficult period for Pan-European stock markets. There was a significant increase in stockmarket volatility and a sharp decrease in investor confidence. The shares of small companies suffered particularly as risk averse investors sought refuge in more liquid assets. The months of November 2007 and January 2008 saw some of the largest share price declines of quoted Pan-European small companies in many years.  

Encouragingly, companies in the portfolio have continued to report good levels of earnings, although they cannot be expected to be immune from the issues in the wider market.

The Company's net asset value ('NAV') per share decreased by 5.9% during the year to 401.56p per share (2007: 426.67p). This compares favourably to the benchmark, the MSCI Europe Small Cap Index, which fell by 11.9%. The Company performed well relative to its peers, being the best performing investment trust for the year within the European Smaller Companies Sector (source: Association of Investment Companies).

During the year the Company benefited from a 15% strengthening of the Euro against sterling. The majority of the Company's investments are Euro-denominated, therefore benefiting directly from such a movement and giving rise to an exchange gain which is included in the figure of 'Losses on investments held at fair value' on the Income Statement. However, these gains were partially offset by the effect of the currency loss arising on the Company's Euro-denominated loan, which is shown separately on the Income Statement. 

Since the appointment of Montanaro Investment Managers Limited ('Montanaro') as the Company's Manager in September 2006, the NAV per share has increased by 17.2% compared with an increase of 8.5% in the benchmark.

Share Buy Backs and Discount Management Policy

In line with the investment trust sector as a whole, the Company's discount of share price to NAV widened during the year. The discount as at 31 March 2008 was 15.3% compared with 5.3% as at 31 March 2007 and 4.5% at the interim stage. The discount level widened for a short period at the end of the year but at the time of writing is 8.1%. 

The Board has stated its intention to apply an active discount management policy, buying back shares if the discount is greater than 5% for a sustained period. In line with this policy, the Company bought back 250,000 shares during the year, equivalent to 1.4% of the Company's shares, at an average discount of 8.0%. These buybacks provided an enhancement of 0.5p per share to the NAV. The shares were bought back to be held in treasury, for subsequent re-issue or cancellation in accordance with the Company's policy on treasury shares. 

Since the end of the year, the Company has bought back a further 95,000 shares to be held in treasury.

The Company will seek to renew its share buy back authority at the Annual General Meeting. The making and timing of any share buy backs will continue to be at the absolute discretion of the Board.

Earnings and Dividends

Revenue earnings per share for the year were 4.84p. An interim dividend of 1.75p per Ordinary Share was paid on 11 January 2008 and the Board has declared a final dividend of 2.25p per Ordinary Share, payable on 25 July 2008 to shareholders on the register on 27 June 2008. This brings the total dividend for the year to 4.00p per share (2007: 4.00p). 

The primary focus of the Company is capital growth rather than income.

Borrowings

Reflecting the Manager's cautious near term view, at 31 March 2008 the Company held a net cash position. This compares to borrowings of 5.2% (net of cash) at the end of the previous year. The Company's borrowings are represented by a flexible revolving credit facility and, although there was an amount drawn down at the end of the year, this was more than offset by cash balances held.

The Board believes that one of the benefits of investment trusts is their ability to have borrowings, which can enhance investment returns. However, it is also important to have the flexibility to reduce borrowings when considered appropriate. 

VAT on Investment Management Fees

Following a ruling in June 2007 by The European Court of Justice that investment trusts should be regarded as special investment funds, investment management fees paid by the Company are no longer subject to VAT. The Board has taken the steps necessary to ensure that the Company's position is protected to enable it to recover some of the VAT paid in the past on investment management fees. In the opinion of the Directors, the amounts involved are not material to the Company's NAV per share. Furthermore, the uncertainties as to the quantum and timing of any recoveries are such that no provisions have been made in the accounts this year.  

Outlook

There are few signs of an improvement in economic conditions in the short term. Banks are likely to announce further balance sheet write downs and the need to raise capital to repair their balance sheets. The property sector, both commercial and residential, faces difficult conditions that may weigh on sentiment for some time.  

Notwithstanding these concerns, the Board continues to believe that the Company is well placed to take advantage of investment opportunities which exist within the Pan-European small companies market. Valuations are attractive and the Manager's investment focus on high quality companies in growth markets should fare well in both absolute and relative terms in these challenging markets on a medium and long term basis. 

A R Irvine

Chairman

Unaudited Consolidated Income Statement

For the Year Ended 31 March 2008

	Year ended 31 March 2008
	Revenue	Capital	Total
	£'000	£'000	£'000
Income
Investment income	1,827	-	1,827
Other operating income	242	-	242
	2,069	-	2,069
Losses on investments held at fair value	-	(2,775)	(2,775)
Exchange losses	-	(1,059)	(1,059)
Total income	2,069	(3,834)	(1,765)
Expenses
Investment management fee	(265)	(492)	(757)
Other expenses	(547)	-	(547)
Profit/(loss) before finance costs and tax	1,257	(4,326)	(3,069)
Finance costs	(212)	(393)	(605)
Net operating profit/(loss) before tax	1,045	(4,719)	(3,674)
Tax	(204)	83	(121)
Net profit/(loss)	841	(4,636)	(3,795)
Earnings per share	4.84p	(26.66)p	(21.82)p

The total column of this statement is the profit and loss account of the Group.

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

No operations were acquired or discontinued in the year.

The accompanying notes are an integral part of this statement.

  Consolidated Income Statement 

For the Year Ended 31 March 2007

	Year ended 31 March 2007
	Revenue	Capital	Total
	£'000	£'000	£'000
Income
Investment income	1,566	-	1,566
Other operating income	206	-	206
	1,772	-	1,772
Gains on investments held at fair value	-	11,632	11,632
Exchange gains	-	145	145
Total income	1,772	11,777	13,549
Expenses
Investment management fee	(134)	(271)	(405)
Other expenses	(570)	(241)	(811)
Profit before finance costs and tax	1,068	11,265	12,333
Finance costs	(123)	(228)	(351)
Net operating profit before tax	945	11,037	11,982
Tax	(20)	-	(20)
Net profit	925	11,037	11,962
Earnings per share	5.30p	63.26p	68.56p

  Unaudited Group Balance Sheet 

			As at 31 March     2008			As at 31 March  2007
			£'000			£'000
Non-current assets
Investments held at fair value			67,552			78,306
Current assets
Other receivables			223			376
Cash and cash equivalents			12,236			6,152
			12,459			6,528
Total assets			80,011			84,834
Current liabilities
Other payables			(10,950)			(10,387)
Total liabilities			(10,950)			(10,387)
Net assets			69,061			74,447
Capital and reserves
Called-up share capital			8,724			8,724
Share premium account			3,935			3,935
Capital redemption reserve			2,212			2,212
Capital reserve - realised			46,334			44,552
Capital reserve - unrealised			5,904			13,215
Revenue reserve			1,952			1,809
Shareholders' funds			69,061			74,447
Net asset value per share			401.56p			426.67p

Unaudited Consolidated Statement of Changes in Equity

for the year ended 31 March 2008

	Share capital	Share premium account	Capital redemption reserve	Capital reserve realised	Capital reserve unrealised	Revenue reserve	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Balance at 1 April 2007	8,724	3,935	2,212	44,552	13,215	1,809	74,447
Net gain on realisation of investments	-	-	-	4,081	-	-	4,081
Decrease in unrealised appreciation	-	-	-	-	(6,856)	-	(6,856)
Exchange  losses	-	-	-	(604)	(455)	-	(1,059)
Management fees charged to capital	-	-	-	(492)	-	-	(492)
Interest charged to capital	-	-	-	(393)	-	-	(393)
Retained net revenue for the year	-	-	-	-	-	841	841
Taxation	-	-	-	83	-	-	83
Ordinary shares purchased to be held in treasury	-	-	-	(893)	-	-	(893)
Dividends paid	-	-	-	-	-	(698)	(698)
Balance at 31 March 2008	8,724	3,935	2,212	46,334	5,904	1,952	69,061

  Unaudited Consolidated Statement of Changes in Equity

for the year ended 31 March 2007

	Share capital	Share premium account	Capital redemption reserve	Capital reserve realised	Capital reserve unrealised	Revenue reserve	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Balance at 1 April 2006	8,724	3,935	2,212	25,458	21,272	1,582	63,183
Net gain on realisation of investments	-	-	-	19,615	-	-	19,615
Decrease in unrealised appreciation	-	-	-	-	(7,983)	-	(7,983)
Exchange gains/(losses)	-	-	-	219	(74)	-	145
Management fees charged to capital	-	-	-	(271)	-	-	(271)
Interest charged to capital	-	-	-	(228)	-	-	(228)
Other expenses charged to capital	-	-	-	(241)	-	-	(241)
Retained net revenue for the year	-	-	-	-	-	925	925
Dividends paid	-	-	-	-	-	(698)	(698)
Balance at 31 March 2007	8,724	3,935	2,212	44,552	13,215	1,809	74,447

  Unaudited consolidated Cash Flow Statement 

	Year Ended 31 March			Year Ended 31 March
	2008			2007
	£'000			£'000
Cash flows from operating activities
(Loss)/profit before finance costs and taxation	(3,069)			12,333
Losses/(gains) on investments	2,775			(11,632)
Withholding tax	(121)			(20)
Exchange losses/(gains)	1,059			(145)
Operating cash flows before investments in working capital	644			536
(Decrease)/increase in receivables	(25)			8
Increase in payables	1			120
Net cash from operating activities	620			664
Cash flows from investing activities
Purchases of investments	(18,922)			(74,619)
Sales of investments	27,079			73,114
Net cash inflow/(outflow) in investing activities	8,157			(1,505)
Cash flows from financing activities
Dividends paid	(698)			(698)
Interest paid	(626)			(289)
Own shares purchased to be held in treasury	(893)			-
Drawdowns of borrowings	128			4,000
Net cash (outflow)/inflow financing activities	(2,089)			3,013
Net increase in cash and cash equivalents	6,688			2,172
Realised currency (losses)/gains	(604)			219
Increase in cash and cash equivalents	6,084			2,391
Cash and cash equivalents at beginning of year	6,152			3,761
Cash and cash equivalents at end of year	12,236			6,152

Notes to the Accounts

1.     Accounting Policies

The financial statements of the Group have been prepared in accordance with International Financial Reporting Standards ('IFRS'), which comprise standards and interpretations approved by the International Accounting Standards Board ('IASB'), and the International Accounting Standards and Standing Interpretations Committee interpretations approved by the International Accounting Standards Committee ('IASC') that remain in effect, and to the extent that they have been adopted by the European Union.

The accounting policies adopted in the preparation of the annual report and financial statements are consistent with those followed in the previous year. 

2.    Earnings per Ordinary Share is based on a weighted average of 17,390,589 Ordinary Shares in issue during the year (2007 - 17,448,260).  

3.    The final dividend of 2.25p per share (2007 - 2.25p) will be paid on 25 July 2008 to shareholders on the register on 27 June 2008.

4.    Excluding shares bought back and held in treasury there were 17,198,260 Ordinary Shares in issue at 31 March 2008 (2007 - 17,448,260).  

5.    These are not statutory accounts in terms of Section 240 of the Companies Act 1985. Statutory accounts for the year to 31 March 2007, which were unqualified, have been lodged with the Registrar of Companies. The statutory accounts for the year to 31 March 2008 will be delivered to the Registrar of Companies following the Company's Annual General Meeting.

For further information please contact:

Charles Montanaro

Montanaro Investment Managers Limited

Tel: [phone] 

 

END

 

 

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