Half Yearly Report

RNS Number : 4585S

Montanaro European Smaller C.TstPLC

21 November 2011

 



MONTANARO EUROPEAN SMALLER COMPANIES TRUST PLC

 

Date:                21 November 2011

HALF YEARLY FINANCIAL REPORT FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2011

 

Investment Objective

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

Highlights

·      Share price -23.0%

·      Net asset value ('NAV') per Ordinary Share -27.9%

·      Benchmark index -28.1%

·      Total assets -21.3% (£80.7 million)

Chairman's Statement

During the six month period ended 30 September 2011, the Company's net asset value ('NAV') per share fell by 27.9% to 386.2p. This compares to a fall of 28.1% in the benchmark index, the MSCI Europe Small Cap (ex UK) Index. The share price at the end of the period was 359.5p, representing a discount of 6.9% to the NAV per share.

Despite the fall in the NAV per share during the period under review, it is pleasing to report that it is now more than five years since Montanaro Asset Management was appointed as the Company's Manager and, during the period since its appointment in September 2006, the NAV per share increased by 13.0% compared with a fall of 7.2% in the benchmark index.

During the period under review, the significant decline in stock markets across Europe, and hence in the Company's NAV per share, was attributable to increasing concerns about the sovereign debt and banking crises in the Eurozone. The uncertainties and concerns escalated towards the end of the period as politicians sought solutions to the problems, leading to a sharp fall in stock market valuations and a significant increase in volatility. 

However, throughout the period, trading results from companies generally have continued to be somewhat ahead of expectations. Following significant cost cutting and restructuring during the financial crisis in 2008 and 2009, companies have established strong balance sheets, thereby providing some protection from the current uncertainties.

Treasury Shares

During the period, the Company sold its entire holding of 875,000 Ordinary Shares from treasury at a price of 459.6p per share. These shares were issued in accordance with the Board's stated policy, which is to issue shares at a discount to the NAV per share provided that such discount is narrower than the weighted average discount to the NAV per share at the time the shares were bought back by the Company.

The sale of shares from treasury increased the number of shares in issue by 5.3%.

Earnings and Dividends

Revenue earnings per share for the period were 6.2p (2010: 3.4p). Despite the significant macro economic uncertainties, company results were, as stated above, generally ahead of expectation during the period, resulting in increased dividend payments from many of the companies within the portfolio.

The Board has declared an unchanged interim dividend of 1.75p per Ordinary Share, payable on 6 January 2012 to shareholders on the register on 9 December 2011.

Borrowings

The Company's level of gearing, net of cash, was 11.8% as at 30 September 2011.

Outlook

The months ahead will be dominated by the resolve and ability of politicians to deal with the crisis in the Eurozone. The outcome will impact the outlook for global economic growth. Stock markets are already discounting an economic slowdown within Europe and, until investor confidence returns, markets are likely to remain volatile.

The companies that we are invested in have strong managements, sound finances and good business franchises. During this period of uncertainty, the Company will continue to focus on investing in such quality smaller companies where the Board continues to believe there are attractive opportunities for good long term returns.

A R IRVINE

Chairman

Consolidated Statement of Comprehensive Income

for the six months ended 30 September 2011 (unaudited)

	Revenue	Capital	Total
	£'000	£'000	£'000
Capital gains/(losses) on investments
Losses on investments held at fair value	-	(25,945)	(25,945)
Exchange gains	-	261	261
	-	(25,684)	(25,684)
Revenue
Investment income	1,751	-	1,751
Other operating income	37	-	37
Total income	1,788	(25,684)	(23,896)
Expenditure
Management expenses	(128)	(237)	(365)
Other expenses	(240)	-	(240)
Total expenditure	(368)	(237)	(605)
Profit/(loss) before finance costs and taxation	1,420	(25,921)	(24,501)
Finance costs	(80)	(149)	(229)
Profit/(loss) before taxation	1,340	(26,070)	(24,730)
Taxation	(296)	-	(296)
Total comprehensive income	1,044	(26,070)	(25,026)
Return per share	6.2p	(153.9)p	(147.7)p

The total column of this statement represents the Group's Income Statement and Statement of Comprehensive Income, prepared in accordance with IFRS.

The supplementary revenue return and capital return columns are both prepared under guidance published by the Association of Investment Companies.

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

No operations were acquired or discontinued in the year.

All of the profit/(loss) and total comprehensive income for the year is attributable to the owners of the Company.

Consolidated Statement of Comprehensive Income

for the six months ended 30 September 2010 (unaudited)                                                                   

	Revenue	Capital	Total
	£'000	£'000	£'000
Capital gains on investments
Gains on investments held at fair value	-	5,377	5,377
Exchange gains	-	242	242
	-	5,619	5,619
Revenue
Investment income	1,200	-	1,200
Other operating income	3	-	3
Total income	1,203	5,619	6,822
Expenditure
Management expenses	(106)	(1,062)	(1,168)
Other expenses	(258)	-	(258)
Total expenditure	(364)	(1,062)	(1,426)
Profit before finance costs and taxation	839	4,557	5,396
Finance costs	(54)	(101)	(155)
Profit before taxation	785	4,456	5,241
Taxation	(214)	-	(214)
Total comprehensive income	571	4,456	5,027
Return per share	3.4p	26.9p	30.3p

The total column of this statement represents the Group's Income Statement and Statement of Comprehensive Income, prepared in accordance with IFRS.

The supplementary revenue return and capital return columns are both prepared under guidance published by the Association of Investment Companies.

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

No operations were acquired or discontinued in the year.

All of the profit and total comprehensive income for the year is attributable to the owners of the Company.

Consolidated Statement of Comprehensive Income

For the Year Ended 31 March 2011 (audited)

	Revenue	Capital	Total
	£'000	£'000	£'000
Capital gains on investments
Gains on investments held at fair value	-	19,045	19,045
Exchange gains	-	417	417
	-	19,462	19,462
Revenue
Investment income	1,676	-	1,676
Other operating income	10	-	10
Total income	1,686	19,462	21,148
Expenditure
Management expenses	(241)	(1,358)	(1,599)
Other expenses	(477)	-	(477)
Total expenditure	(718)	(1,358)	(2,076)
Profit before finance costs and taxation	968	18,104	19,072
Finance costs	(120)	(223)	(343)
Profit before taxation	848	17,881	18,729
Taxation	(205)	-	(205)
Total comprehensive income	643	17,881	18,524
Return per share	3.9p	107.9p	111.8p

The total column of this statement represents the Group's Income Statement and Statement of Comprehensive Income, prepared in accordance with IFRS.

The supplementary revenue return and capital return columns are both prepared under guidance published by the Association of Investment Companies.

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

No operations were acquired or discontinued in the year.

All of the profit and total comprehensive income for the year is attributable to the owners of the Company.

Group Balance Sheet

As at 30 September 2011

		As at 30 September 2011 (unaudited)		As at 30 September 2010 (unaudited)		As at 31 March 2011 (audited)
		£'000		£'000		£'000
Non-current assets
Investments held at fair value through profit and loss		75,324		85,181		90,483
Current assets
Trade and other receivables		17		42		244
Cash and cash equivalents		5,297		2,347		11,786
		5,314		2,389		12,030
Total assets		80,638		87,570		102,513
Current liabilities
Trade and other payables		(13,261)		(11,940)		(13,676)
Total liabilities		(13,261)		(11,940)		(13,676)
Net assets		67,377		75,630		88,837
Capital and reserves
Called-up share capital		8,724		8,724		8,724
Share premium account		3,935		3,935		3,935
Capital redemption reserve		2,212		2,212		2,212
Capital reserve		49,688		58,311		71,736
Revenue reserve		2,818		2,448		2,230
Shareholders' funds		67,377		75,630		88,837
Net asset value per share		386.2p		456.3p		536.0p

Consolidated Statement of Changes in Equity

For the six months ended 30 September 2011 (unaudited)              

	Share capital	Share premium account	Capital redemption reserve	Capital reserve	Revenue reserve	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Balance at 1 April 2011	8,724	3,935	2,212	71,736	2,230	88,837
Total comprehensive income	-	-	-	(26,070)	1,044	(25,026)
Issue of shares from treasury	-	-	-	4,022	-	4,022
Dividends paid	-	-	-	-	(456)	(456)
Balance at 30 September 2011	8,724	3,935	2,212	49,688	2,818	67,377

Consolidated Statement of Changes in Equity

For the six months ended 30 September 2010 (unaudited)

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

Consolidated Statement of Changes in Equity

For the year ended 31 March 2011 (audited)

	Share capital	Share premium account	Capital redemption reserve	Capital reserve	Revenue reserve	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Balance at 1 April 2010	8,724	3,935	2,212	53,855	2,333	71,059
Total comprehensive income	-	-	-	17,881	643	18,524
Dividends paid	-	-	-	-	(746)	(746)
Balance at 31 March 2011	8,724	3,935	2,212	71,736	2,230	88,837

Condensed Group Statement of Cash Flows

	Six months to			Six months to		Year to
	30 September			30 September		31 March
	2011			2010		2011
	(unaudited)			(unaudited)		(audited)
	£'000			£ '000		£'000
Net cash(outflow)/inflow from operating activities	(11,913)			138		9,645
Cash flows from financing activities	5,559			637		159
						_
	(6,354)			775		9,804
Exchange differences	(135)			9		419
(Decrease)/increase in cash and cash equivalents	(6,489)			784		10,223
Reconciliation of net operating profit/(loss) before finance costs and tax to net cash (outflow)/inflow from operating activities
Net operating (loss)/profit before finance costs and tax		(24,501)		5,396		19,072
Losses/(gains) on investments held at fair value		25,945		(5,377)		(19,045)
Exchange differences		(261)		(242)		(417)
Withholding tax		(296)		(194)		(185)
Purchases of investments		(20,264)		(13,798)		(21,276)
Sales of investments		8,045		13,166		30,505
Changes in working capital and other non cash items		(581)		1,187		991
Net cash (outflow)/inflow from operating activities		(11,913)		138		9,645

 Statement of Principal Risks and Uncertainties

The principal risk faced by the Company is that it fails to produce the capital appreciation stated as its objective, and its net asset value does not rise over the longer-term.  The risks which might give rise to this can be categorised as external, manager, investment and strategy, portfolio liquidity, gearing, regulatory, operational, financial, banking and reputational.  In addition, shareholders face the risks of liquidity of the Company's shares and discount volatility.

These risks, and the way in which they are mitigated, are described in more detail under the heading Principal Risks and Risk Mitigation in the Report of the Directors in the Company's Annual Report for the year ended 31 March 2011.  The Company's principal risks and uncertainties have not changed materially since the date of that report and are not expected to change materially for the remaining six months of the Company's financial year.

Directors' Responsibility Statement in Respect of the Half Yearly Financial Report

We confirm that to the best of our knowledge:

·      the condensed set of consolidated financial statements has been prepared in accordance with IAS 34 'Interim Financial 
Reporting' and give a true and fair view of the assets, liabilities, financial position and loss of the Company;

·      the Chairman's Statement (constituting the Interim Management Report) includes a fair review of the information 
required by the Disclosure and Transparency Rules ('DTR') 4.2.7R, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of consolidated financial statements;

·      the Statement of Principal Risks and Uncertainties shown above is a fair review of the information required by DTR 
4.2.7R; and

·      The condensed set of financial statements includes a fair review of the information required by DTR 4.2.8R, being 
related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the Company during that period, and any changes in the related party transactions described in the last Annual Report that could do so.

On behalf of the Board

A R IRVINE

Director

Notes to the Accounts

1.         The unaudited interim finacial statements have been prepared on the basis of the accounting policies set out in the 
statutory financial statements of the Group for the year ended 31 March 2011 and in accordance with International Accounting Standard ('IAS') 34 'Interim Financial Reporting'.

2.         Earnings for the first six months should not be taken as a guide to the results for the full year.

3.         Management expenses

	Six Months to 30 September 2011			Six Months to 30 September 2010			Year ended 31 March 2011
	Revenue	Capital	Total	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Investment Management Fee - basic	128	237	365	106	198	304	241	448	689
Investment Management Fee - performance	-	-	-	-	864	864	-	910	910
	__	___	___	__	___	___	____	____	____
	128	237	365	106	1,062	1,168	241	1,358	1,599
	__	___	___	____	____	____	____	____	____

4.         Earnings per Ordinary Share is based on a weighted average of 16,943,452 Ordinary Shares in issue during the period (year end 31 March 2011: 16,573,260; six months ended 30 September 2010: 16,573,260), excluding those shares bought back and held in treasury.

5.         The interim dividend of 1.75 pence per Ordinary Share will be paid on 6 January 2012 to shareholders on the register on 9 December 2011.

6.         The net asset value per Ordinary Share is based on 17,448,260 Ordinary Shares in issue at the end of the period (31 March 2011: 16,573,260; 30 September 2010: 16,573,260), excluding those shares bought back and held in treasury.  As at 30 September 2011 there were no shares held in treasury (31 March 2011: 875,000; 30 September 2010: 875,000).

7.         The Group results consolidate those of MESCT Securities Limited, a wholly owned non-trading subsidiary.

8.         These are not statutory accounts in terms of Section 434 of the Companies Act 2006 and have not been audited or reviewed by the Company's auditors.  The information for the year ended 31 March 2011 has been extracted from the latest published financial statements which received an unqualified audit report and have been filed with the Registrar of Companies.  No statutory accounts in respect of any period after 31 March 2011 have been reported on by the Company's Auditors or delivered to the Registrar of Companies. The Half-Yearly Financial Report is available on the Manager's website: www.montanaro.co.uk.

For further information please contact:

Charles Montanaro

Montanaro Asset Management Limited

Tel: [phone]

 

END

 

 

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