| Montanaro European Smaller Companies Trust plc |
| LEI: 213800CWSC5B8BG3RS21 |
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| Unaudited Half-Yearly Report for the Six Months Ended 30 September 2022 |
| The Board of Montanaro European Smaller Companies Trust plc (the "Company") announces the unaudited half-yearly results of the Company for the six months ended 30 September 2022. |
Highlights (unaudited)
for the six months ended 30 September 2022
Performance
| Capital Returns%(2) | 6 Month | 1 year | 3 year | 5 year | 10 year | MAM* |
| Ordinary share price | (36.1) | (46.3) | 5.0 | 32.7 | 166.8 | 236.4 |
| Net Asset Value ('NAV') per Ordinary share** | (27.6) | (37.5) | 13.5 | 37.0 | 169.3 | 263.2 |
| Benchmark (Composite)(1)** | (20.8) | (25.4) | 2.3 | (1.1) | 134.9 | 133.0 |
| Total Returns%(2) | 6 Month | 1 year | 3 year | 5 year | 10 year | MAM* |
| Ordinary share price | (35.7) | (46.0) | 7.0 | 37.7 | 196.3 | 308.8 |
| NAV per Ordinary share** | (27.3) | (37.4) | 14.8 | 41.0 | 195.1 | 332.4 |
| Benchmark (Composite)(1)** | (19.3) | (23.7) | 7.7 | 8.2 | 180.9 | 215.7 |
Sources: Morningstar Direct, Association of Investment Companies ('AIC'), Montanaro Asset Management Limited.
| | As at 30 September 2022 | As at 30 September 2021 | 12 month % change | As at 31 March 2022 (Audited) | 6 month % change |
| Ordinary share price* | 107.4p | 200.0p | (46.3%) | 168.0p | (36.1%) |
| NAV per Ordinary share** | 124.1p | 198.7p | (37.5%) | 171.5p | (27.6%) |
| (Discount)/Premium to NAV(2) | (13.5%) | 0.7% | | (2.0%) | |
| Gross assets**(2,3) (£'000s) | 248,314 | 365,590 | (32.1%) | 341,789 | (27.3%) |
| Net assets** (£'000s) | 235,173 | 357,015 | (34.1%) | 324,905 | (27.6%) |
| Market capitalisation** (£'000s) | 203,445 | 359,365 | (43.4%) | 318,238 | (36.1%) |
| Net gearing employed(2) | 5.3% | 0.9% | | 4.6% | |
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| 6 months ended 30 September 2022 | 6 months ended 30 September 2021 | 12 month % change | 12 months ended 31 March 2022 (Audited) | 6 month % change |
| Revenue return per Ordinary share | 1.02p | 0.80p | 27.5% | 0.96p | 6.3% |
| Dividend per Ordinary share | 0.200p | 0.200p | | 0.925p | |
| Ongoing charges (annualised)(2) | 1.0% | 1.1% | - | 1.1% | |
| Portfolio turnover (annualised)** | 19% | 15% | | 11% | |
| *From 5 September 2006, when Montanaro Asset Management Limited ('MAM') was appointed as Investment Manager. |
| **Details provided in the Glossary below. |
| (1)From 5 September 2006, the benchmark was the MSCI Europe SmallCap Index. The benchmark was changed on 1 June 2009 to the MSCI Europe SmallCap (ex UK) Index (in sterling terms). |
| (2)Refer to Alternative Performance Measures below. |
| (3)Gross assets from prior period have been represented due to the change in definition, see Glossary for new definition. |
Chairman's Statement
| Performance The first six months of the financial year saw a weak period of absolute and relative performance for your Company. It should be noted that previous year numbers have been adjusted to account for the share split for comparative purposes, details of which are available in the annual report.
The Net Asset Value fell by -27.6% to 124.1p per share, underperforming the Benchmark (MSCI Europe SmallCap (ex-UK) index), which fell by -20.8%. At the end of the period the discount was 13.5% versus 2.0% at the start. As a result, the share price of the company fell by -36.1% during the period, providing a total return of -35.7%.
This is a disappointing short-term performance, reflecting a number of headwinds. Inflationary pressures and subsequent monetary tightening by central banks have increased the cost of capital globally. Such increases have disproportionately affected quality growth stocks, with high quality companies underperforming low quality companies in Europe and growth companies underperforming value companies. Montanaro seeks to invest exclusively in high quality, growing companies and so these style shifts have created a headwind during the period.
Montanaro take a long-term approach to investing and despite the setback so far this year, your Company has delivered NAV per share total returns of 14.8%, 41.0% and 195.1% over the three, five and ten year periods to 30 September 2022 respectively - well ahead of the Benchmark for each of these periods.
The Board believes that Montanaro's quality growth investment philosophy, combined with their high level of internal resources and rigorous focus on company fundamentals, positions the Company to emerge stronger from the current period of market upheaval. Through consistent application of their investment process, Montanaro have been able to successfully weather multiple economic cycles and take advantage of periods of high market volatility over the past 30 years. This gives us confidence that your Company is well positioned to continue delivering strong returns over the long term.
The Board recognises shareholders will be disappointed that the share price has declined by more than the net asset value as a result of the discount widening. This has been a common feature amongst investment trusts this year and the investment trust sector as a whole now trades on a significantly wider discount than it did at the start of the year. The current level of discount for our company is in line with our sector peers. The Board will continue to monitor the situation closely. |
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| Earnings and Dividends Revenue earnings per share increased in the period to 1.02p (2021: 0.80p). The Board has declared an interim dividend of 0.2p per Ordinary Share (2021: 0.2p per share) payable on 5 January 2023 to shareholders on the register on 2 December 2022. |
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| Borrowings At the end of the period, the Company had gearing, net of cash, of 5.3% compared to 4.6% at 31 March 2022. |
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| Outlook The global economic backdrop has been deteriorating as inflation and higher interest rates put pressure on consumer demand and corporate profit margins. The ongoing conflict in Ukraine and escalating concerns around energy security have exacerbated these stresses.
We believe that the nature of this cycle is changing. While central banks have yet to show signs of easing monetary policy, many of the inflationary forces seen in 2021 are reversing: container freight rates have fallen significantly and several commodity prices are now in outright decline. There are signs that wage inflation is normalising. Meanwhile, the companies in your portfolio are reporting a rapidly improving availability of semiconductor chips. We therefore expect investor focus to shift away from such supply chain issues and towards company resilience, quality of earnings and balance sheet strength as recessionary fears increase. In other words, we would expect the high-quality nature of your portfolio to be rewarded by investors once again.
The other significant change is in investor sentiment and expectations. Forward P/E ratios for European Small Caps have fallen to lows not seen for a decade. In the last two decades their discount to Large Caps has only been lower in the depths of the Global Financial Crisis and Covid.
While trying to perfectly time markets is probably futile, and while the depressed multiples likely portend earnings estimate downgrades, we believe the outlook for long term investors is becoming increasingly attractive. Indeed, the combination of high levels of market volatility and significant (and sometimes unjustified) share price falls for many high quality growth companies represents a compelling opportunity for the Manager. Pleasingly, they have recently begun to increase positions in some of their core holdings and established entirely new positions in companies previously deemed to be overvalued. This gives the Board reason for optimism about the outlook for the Company. |
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| R M CURLING Chairman 16 November 2022 |
Portfolio Summary
Twenty Largest Holdings
As at 30 September 2022
| Holding | Country | Value £'000 | % of investment portfolio | % of net assets |
| NCAB | Sweden | 12,821 | 5.2 | 5.5 |
| Sartorius Stedim | France | 9,730 | 3.9 | 4.1 |
| VZ Holding | Switzerland | 9,482 | 3.8 | 4.0 |
| MTU Aero Engines | Germany | 9,442 | 3.8 | 4.0 |
| IMCD | Netherlands | 9,136 | 3.7 | 3.9 |
| Tecan | Switzerland | 8,736 | 3.5 | 3.7 |
| Melexis | Belgium | 7,973 | 3.2 | 3.4 |
| CTS Eventim | Germany | 7,869 | 3.2 | 3.3 |
| Fortnox | Sweden | 7,838 | 3.2 | 3.3 |
| Kitron | Norway | 7,732 | 3.1 | 3.3 |
| Reply | Italy | 6,604 | 2.7 | 2.8 |
| Brunello Cucinelli | Italy | 6,560 | 2.7 | 2.8 |
| Belimo | Switzerland | 6,176 | 2.5 | 2.6 |
| Viscofan | Spain | 6,126 | 2.5 | 2.6 |
| MIPS | Sweden | 6,045 | 2.5 | 2.6 |
| Brembo | Italy | 5,958 | 2.4 | 2.5 |
| Esker | France | 5,627 | 2.3 | 2.4 |
| Thule | Sweden | 5,385 | 2.2 | 2.3 |
| Amadeus FiRe | Germany | 5,161 | 2.1 | 2.2 |
| Atoss Software | Germany | 5,059 | 2.0 | 2.2 |
| Twenty Largest Holdings |
| 149,460 | 60.5% | 63.6% |
Geographical Analysis
As at 30 September 2022
| Country | % of investment portfolio |
| Sweden | 26% |
| Germany | 16% |
| Switzerland | 13% |
| Italy | 12% |
| France | 8% |
| Norway | 6% |
| Denmark | 6% |
| Netherlands | 5% |
| Spain | 4% |
| Belgium | 3% |
| Finland | 1% |
Source: Montanaro Asset Management Limited
Sector Analysis
As at 30 September 2022
| Sector | % of investment portfolio |
| Information Technology | 29% |
| Healthcare | 21% |
| Industrials | 21% |
| Consumer Discretionary | 10% |
| Financials | 7% |
| Consumer Staples | 4% |
| Communications | 3% |
| Real Estate | 3% |
| Materials | 2% |
Source: Montanaro Asset Management Limited
Interim Management Report
| The important events that have occurred during the period under review and the key factors influencing the financial statements are set out in the Chairman's Statement above.
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| Statement of Principal Risks and Uncertainties: Most of the principal risks that could threaten the Company's objective, strategy, future returns and solvency are market related and comparable to those of other investment trusts investing primarily in quoted securities. The principal risks faced by the Company are investment and strategic, gearing, financial, discount volatility, regulatory, operational, cyber security, ESG and manager risks. These risks and the way in which they are mitigated are described in more detail under the heading 'Principal and Emerging Risks and Uncertainties and Risk Mitigation' within the Business Model and Strategy section on pages 14 to 17 of the Company's Annual Report for the year ended 31 March 2022. 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.
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| Related party transactions: Related party transactions are disclosed in note 15 below. There have been no material changes in the related party transactions described in the last Annual Report.
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| Going concern: As stated in note 14 to the condensed financial statements, the Directors are satisfied that the Company has sufficient resources to continue in operation for the foreseeable future, a period of not less than 12 months from the date of this report. Accordingly, they continue to adopt the going concern basis in preparing the condensed financial statements. |
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Directors' Responsibility Statement in respect of the Half-Yearly Report
We confirm that to the best of our knowledge:
| • | the condensed set of financial statements have been prepared in accordance with IAS 34 'Interim Financial Reporting' and give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company;
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| • | the Interim Management Report includes a fair review of the information required by the Disclosure Guidance and Transparency Rule ('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 financial statements;
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| • | the Statement of Principal Risks and Uncertainties shown above is a fair review of the information required by DTR 4.2.7R; and
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| • | the Chairman's Statement, together with the condensed set of financial statements, include a fair review of the information required by DTR 4.2.8R, being related party transactions that have taken place in the first six months of the financial year and that have materially affected the financial position or performance of the Company during the period, and any changes in the related party transactions described in the last Annual Report that could do so. |
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| | The Half-Yearly Report and Accounts were approved by the Board and the above responsibility statement was signed on its behalf by: |
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| | R M CURLING Chairman
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| | 16 November 2022 |
Condensed Statement of Comprehensive Income (unaudited)
for the six months ended 30 September 2022
| | | Six months to 30 September 2022 | Six months to 30 September 2021 | Year to 31 March 2022 (Audited) | ||||||
| | Note | Revenue £'000 | Capital £'000 | Total £'000 | Revenue £'000 | Capital £'000 | Total £'000 | Revenue £'000 | Capital £'000 | Total £'000 |
| (Losses)/gains on investments held at fair value
| | - | (88,982) | (88,982) | - | 69,767 | 69,767 | - | 18,806 | 18,806 |
| Exchange losses | | - | (500) | (500) | - | (114) | (114) | - | (264) | (264) |
| Revenue | |
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| Investment income | 3 | 2,981 | - | 2,981 | 2,447 | - | 2,447 | 3,788 | - | 3,788 |
| Total income | | 2,981 | (89,482) | (86,501) | 2,447 | 69,653 | 72,100 | 3,788 | 18,542 | 22,330 |
| Expenditure | |
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| Management expenses | 4 | (396) | (736) | (1,132) | (530) | (984) | (1,514) | (1,092) | (2,028) | (3,120) |
| Other expenses | | (293) | - | (293) | (271) | (36) | (307) | (570) | (38) | (608) |
| Total expenditure | | (689) | (736) | (1,425) | (801) | (1,020) | (1,821) | (1,662) | (2,066) | (3,728) |
| Return before finance costs and tax | | 2,292 | (90,218) | (87,926) | 1,646 | 68,633 | 70,279 | 2,126 | 16,476 | 18,602 |
| Finance costs | | (39) | (73) | (112) | (28) | (51) | (79) | (56) | (104) | (160) |
| Return before tax | | 2,253 | (90,291) | (88,038) | 1,618 | 68,582 | 70,200 | 2,070 | 16,372 | 18,442 |
| Tax | | (321) | - | (321) | (222) | - | (222) | (348) | - | (348) |
| Return after taxation | | 1,932 | (90,291) | (88,359) | 1,396 | 68,582 | 69,978 | 1,722 | 16,372 | 18,094 |
| Return per share | 5 | 1.02p | (47.67p) | (46.65p) | 0.8p | 39.14p | 39.94p | 0.96p | 9.09p | 10.05p |
| The total column of this statement represents the Company's Income Statement and Statement of Comprehensive Income, prepared in accordance with International Financial Reporting Standards. |
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| The supplementary revenue return and capital return columns are both prepared under guidance published by the AIC. |
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| All revenue and capital items in the above statement derive from continuing operations. No operations were acquired or discontinued during the period.
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Condensed Balance Sheet (unaudited)
as at 30 September 2022
| | Note | As at 30 September 2022 £'000 | As at 30 September 2021 £'000 | As at 31 March 2022 (Audited) £'000 |
| Non-current assets | ||||
| Investments held at fair value through profit and loss | 7 | 247,129 | 357,152 | 339,788 |
| Current assets | |
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| Trade and other receivables | | 886 | 3,636 | 967 |
| Cash and cash equivalents | | 771 | 5,465 | 1,821 |
| | | 1,657 | 9,101 | 2,788 |
| Total assets | | 248,786 | 366,253 | 342,576 |
| Current liabilities | |
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| Trade and other payables | | (472) | (663) | (787) |
| Revolving credit facility | | (4,384) | - | (8,450) |
| Interest-bearing bank loans | 8 | (8,757) | - | - |
| | | (13,613) | (663) | (9,237) |
| Non-current liabilities | |
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| Interest-bearing bank loans | 8 | - | (8,575) | (8,434) |
| Total liabilities | | (13,613) | (9,238) | (17,671) |
| Net assets | | 235,173 | 357,015 | 324,905 |
| Capital and reserves | |
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| Called-up share capital | | 9,471 | 8,984 | 9,471 |
| Share premium account | | 44,057 | 24,410 | 44,057 |
| Capital redemption reserve | | 2,212 | 2,212 | 2,212 |
| Capital reserve | | 175,552 | 318,052 | 265,843 |
| Revenue reserve | | 3,881 | 3,357 | 3,322 |
| Shareholders' funds | | 235,173 | 357,015 | 324,905 |
| NAV per share | 9 | 124.1p | 198.7p | 171.5p |
Condensed Statement of Changes in Equity (unaudited)
for the six months ended 30 September 2022
| | Share capital £'000 | Share premium account £'000 | Capital redemption reserve £'000 | Capital reserve £'000 | Revenue reserve £'000 | Total £'000 |
| As at 1 April 2022 | 9,471 | 44,057 | 2,212 | 265,843 | 3,322 | 324,905 |
| Return after taxation | - | - | - | (90,291) | 1,932 | (88,359) |
| Dividends paid | - | - | - | - | (1,373) | (1,373) |
| Balance at 30 September 2022 | 9,471 | 44,057 | 2,212 | 175,552 | 3,881 | 235,173 |
for the six months ended 30 September 2021 (unaudited)
| | Share capital £'000 | Share premium account £'000 | Capital redemption reserve £'000 | Capital reserve £'000 | Revenue reserve £'000 | Total £'000 |
| As at 1 April 2021 | 8,724 | 12,707 | 2,212 | 249,185 | 3,237 | 276,065 |
| Return after taxation | - | - | - | 68,582 | 1,396 | 69,978 |
| Share issues | 260 | 11,703 | | 285 | | 12,248 |
| Dividends paid | - | - | - | - | (1,276) | (1,276) |
| Balance at 30 September 2021 | 8,984 | 24,410 | 2,212 | 318,052 | 3,357 | 357,015 |
for the year ended 31 March 2022 (Audited)
| | Share capital £'000 | Share premium account £'000 | Capital redemption reserve £'000 | Capital Reserve £'000 | Revenue reserve £'000 | Total £'000 |
| As at 1 April 2021 | 8,724 | 12,707 | 2,212 | 249,185 | 3,237 | 276,065 |
| Return after taxation | - | - | - | 16,372 | 1,722 | 18,094 |
| Share issues | 747 | 31,350 | - | 286 | - | 32,383 |
| Dividends paid | - | - | - | - | (1,637) | (1,637) |
| Balance at 31 March 2022 | 9,471 | 44,057 | 2,212 | 265,843 | 3,322 | 324,905 |
Condensed Statement of Cash Flows (unaudited)
for the six months ended 30 September 2022
| | Six months to 30 September 2022 £'000 | Six months to 30 September 2021 £'000 | Year to 31 March 2022 (Audited) £'000 |
| Net cash inflow/(outflow) from operating activities | 4,717 | (7,098) | (38,483) |
| Cash outflow from financing activities | (5,813) | 10,858 | 38,947 |
| | (1,096) | 3,760 | 464 |
| Exchange gains | 46 | (62) | (410) |
| (Decrease)/increase in cash and cash equivalents | (1,050) | 3,698 | 54 |
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| Reconciliation of profit before finance costs and tax to net cash inflow from operating activities |
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| Return before taxation | (88,038) | 70,200 | 18,442 |
| Losses/(Gains) on investments held at fair value | 88,982 | (69,667) | (18,806) |
| Exchange losses | 500 | 114 | 264 |
| Finance costs | 112 | 79 | 160 |
| Withholding tax | (373) | (222) | (348) |
| Purchases of investments | (22,614) | (28,563) | (75,661) |
| Sales of investments | 26,243 | 20,863 | 37,583 |
| Changes in working capital and other non-cash items | (95) | 98 | (117) |
| Net cash inflow/(outflow) from operating activities | 4,717 | (7,098) | (38,483) |
Notes to the Accounts (unaudited)
| 1. | The condensed unaudited financial statements have been prepared in accordance with International Financial Reporting Standard ('IFRS') IAS 34 'Interim Financial Reporting' and the accounting policies set out in the statutory accounts of the Company for the year ended 31 March 2022. The condensed financial statements do not include all of the information required for a complete set of IFRS financial statements and should be read in conjunction with the financial statements of the Company for the year ended 31 March 2022, which were prepared under full IFRS requirements.
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| 2. | Earnings for the first six months should not be taken as a guide to the results for the full year.
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| 3. | Income for the period is derived from: |
| | Six months to 30 September 2022 £'000 | Six months to 30 September 2021 £'000 | Year ended 31 March 2022 (Audited) £'000 |
| Overseas dividend income | 2,933 | 2,445 | 3,785 |
| Exchange gains | 35 | 1 | 3 |
| Other Income | 13 | 1 | - |
| Total | 2,981 | 2,447 | 3,788 |
| 4. | Management fee: |
| | Six months to 30 September 2022 £'000 | Six months to 30 September 2021 £'000 | Year ended 31 March 2022 (Audited) £'000 | ||||||
| | Revenue £'000 | Capital £'000 | Total £'000 | Revenue £'000 | Capital £'000 | Total £'000 | Revenue £'000 | Capital £'000 | Total £'000 |
| Investment management fee | 387 | 719 | 1,107 | 521 | 968 | 1,489 | 1,074 | 1,996 | 3,070 |
| AIFM fee | 9 | 16 | 25 | 9 | 16 | 25 | 18 | 32 | 50 |
| | 396 | 736 | 1,132 | 530 | 984 | 1,514 | 1,092 | 2,028 | 3,120 |
| | As set out in the Company's Annual Report, the management fee will be linked to the size of the Company, as follows: · 0.90% p.a. of the amount of the Company's market capitalisation up to £500 million; · 0.75% p.a. of the amount of the Company's market capitalisation between £500 million and £750 million; and · 0.65% p.a. of the amount of the Company's market capitalisation above £750 million.
The management fee is payable monthly in arrears.
MAM is also entitled to a fee of £50,000 per annum for acting as the Company's Alternative Investment Fund Manager ("AIFM"). |
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| 5. | Return per Share
Earnings per Ordinary Share is based on a weighted average of 189,427,600 Ordinary Shares in issue during the period (year ended 31 March 2022: 180,046,654 and six months ended 30 September 2021: 175,223,174), excluding those shares bought back and held in treasury. |
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| 6. | Dividends
The interim dividend relating to the year ended 31 March 2023 of 0.2p per Ordinary Share will be paid on 5 January 2023 to shareholders on the register on 2 December 2022. In accordance with IFRS, this dividend has not been recognised in these financial statements. The ex-dividend date for this payment is 1 December 2022. |
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| | A final dividend relating to the year ended 31 March 2022 of 0.725p per Ordinary Share was paid during the six months to 30 September 2022 and amounted to £1,373,350. |
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| 7. | Investments at Fair Value Through Profit and Loss: |
| | 30 September 2022 £'000 | 30 September 2021 £'000 | 31 March 2022 £'000 (Audited) |
| Opening book cost | 196,337 | 145,479 | 145,479 |
| Holding gains | 143,451 | 137,096 | 137,096 |
| Opening fair value | 339,788 | 282,575 | 282,575 |
| Purchases at cost | 22,427 | 28,563 | 75,867 |
| Sales - proceeds | (26,104) | (23,753) | (37,460) |
| - gains on sales | 4,019 | 10,085 | 12,451 |
| Holding (losses)/gains | (93,001) | 59,682 | 6,355 |
| Closing fair value | 247,129 | 357,152 | 339,788 |
| Closing book cost | 196,679 | 160,374 | 196,337 |
| Holding gains | 50,450 | 196,778 | 143,451 |
| Closing valuation | 247,129 | 357,152 | 339,788 |
| 8. | Interest-Bearing Bank Loans: |
| | 30 September 2022 £'000 | 30 September 2021 £'000 | 31 March 2022 £'000 (Audited) |
| Opening balance | 8,434 | 8,495 | 8,495 |
| Amortisation of set-up costs | 5 | 5 | 10 |
| Non-cash foreign currency movements | 318 | 75 | (71) |
| Closing balance | 8,757 | 8,575 | 8,434 |
| | The Company has a €10 million secured loan with ING Bank N.V. ('ING') at a fixed rate of 1.33% per annum. This loan will mature on 13 September 2023.
The Company also has a €15 million five year secured revolving loan facility with ING which will also mature on 13 September 2023. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| | As at 30 September 2022, €5 million was drawn down under these facilities. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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9. | Under the bank covenants relating to these facilities, the Company is to ensure that at all times the total borrowings of the Company do not exceed 40% of the Adjusted NAV (as defined in the loan agreements) and that the Adjusted NAV does not fall below £45 million. The Company met all covenant conditions during the period.
The carrying value of the balances above approximates to fair value. Share Capital
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| 10. | Net Assets Value per Ordinary Share
The NAV per Ordinary Share was based on 189,427,600 Ordinary Shares in issue at the end of the period (31 March 2022: 189,427,600 and 30 September 2021: 179,682,600), excluding those shares bought back and held in treasury. As at 30 September 2022, there were no Ordinary Shares held in treasury (31 March 2022: Nil and 30 September 2021: Nil). | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| 11. | Fair value Hierarchy
The Company measures fair values using the following fair value 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 assets as follows:
• Level 1 - valued using quoted prices unadjusted in active markets for identical assets or liabilities. • Level 2 - valued by reference to valuation techniques using observable inputs for the asset or liability other than quoted prices included within 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.
The tables below set out fair value measurements of financial instruments as at the period end, by the level in the fair value hierarchy into which the fair value measurement is categorised.
There were no transfers between levels during the period ended 30 September 2022 (year ended 31 March 2022 and period ended 30 September 2021: None).
Listed investments held (see note 7) are valued at fair value through profit or loss. For listed securities this is either bid price or the last traded price depending on the convention of the exchange on which the investment is listed. The fair value of the loans is calculated using a discounted cash flow technique based on relevant current interest rates compared to their value as stated on the Balance Sheet at amortised cost of £13,141,000 (31 March 2022: £16,884,000 and 30 September 2021: £8,575,000). The fair value of all other financial assets and liabilities is represented by their carrying value in the Balance Sheet shown above.
Other aspects of the Company's financial risk management objectives and policies are consistent with those disclosed in the financial statements, as at and for the year ended, 31 March 2022. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 12. | Rates of exchange (to Sterling): |
| | 30 September 2022 £'000 | 30 September 2021 £'000 | 31 March 2022 £'000 (Audited) |
| Danish Krone | 8.48 | 8.65 | 8.80 |
| Euro | 1.14 | 1.16 | 1.18 |
| Norwegian Krone | 12.17 | 11.77 | 11.52 |
| Swedish Krona | 12.40 | 11.80 | 12.27 |
| Swiss Franc | 1.10 | 1.26 | 1.21 |
| 13. | The Board has considered the requirements of IFRS 8 'Operating Segments'. The Board is of the view that the Company is engaged in a single segment of business, that of investing in European quoted smaller companies, and that therefore the Company has only a single operating segment. The Board of Directors, as a whole, has been identified as constituting the chief operating decision maker of the Company. The key measure of performance used by the Board to assess the Company's performance is the total return on the Company's net asset value, as calculated under IFRS, and therefore no reconciliation is required between the measure of profit or loss used by the Board and that contained in the financial statements. | ||
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| 14. | Going Concern: In assessing the going concern basis of accounting, the Directors have had regard to the guidance issued by the Financial Reporting Council and have undertaken a rigorous review of the Company's ability to continue as a going concern. They have considered the current cash position of the Company, the availability of the borrowing facility to 13 September 2023 and the likelihood of its renewal, compliance with their covenants, the Company's other liabilities and forecast revenues. The Directors have also taken into account the Company's investment policy, which is subject to regular Board monitoring processes and is designed to ensure that the Company is invested mainly in liquid, listed securities. The Company retains title to all assets held by its custodian and has financial covenants, relating to its bank borrowings with which it complied during the period. | ||
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| | The Directors believe, in light of the controls and review processes noted above and bearing in mind the nature of the Company's business and assets and liabilities, that the Company has adequate resources to continue in operational existence for a period of at least twelve months from the date of approval of the accounts. For this reason, they continue to adopt the going concern basis in preparing the accounts. | ||
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| 15. | Related Parties: 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 as outlined below. | ||
| | | ||
| | The amount charged by the Manager during the period was £1,132,000 (six months to 30 September 2022: £1,514,000; year to 31 March 2021: £3,120,000). At 30 September 2022, the amount due to the Manager, included in creditors, was £340,000. The existence of an independent Board of Directors demonstrates that the Company is free to pursue its own financial and operating policies. | ||
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| | Directors' Emoluments At 30 September 2022, the Board consisted of three non-executive Directors. All Directors are considered to be independent of the Manager. None of the Directors has a service contract with the Company. The Chairman receives an annual fee of £39,000, the Chair of the Audit Committee receives an annual fee of £33,500 and non-executive Directors receive £28,000 per annum. | ||
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| ||
| | At 30 September 2022, the amount outstanding in respect of Directors' fees was £nil (31 March 2022: £nil). | ||
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| ||
| | At 30 September 2022, the interests of the Directors in the Ordinary Shares of the Company were as follows: | ||
| | | ||
| | | As at 30 September 2022 No. of shares | As at 31 March 2022 No. of shares |
| | R M Curling | 150,000 | 100,000 |
| | G J Neilly | 61,796 | 61,496 |
| | C A Roxburgh* | 61,885 | 61,885 |
| | |
| |
| | * Includes 3,580 shares held by Ms Roxburgh's spouse. | ||
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| | The following changes in the Directors' interests occurred between 30 September 2022 and the date of this report:
C A Roxburgh acquired 384 shares on 12 October 2022. | ||
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| 16. | 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 Auditor. The information for the year ended 31 March 2022 has been extracted from the latest published financial statements and which have been filed with the Registrar of Companies. The Auditor's report on those accounts was not qualified, did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying the report and did not contain statements under section 498 (2) or (3) of the Companies Act 2006. No statutory accounts in respect of any period after 31 March 2022 have been reported on by the Company's Auditor or delivered to the Registrar of Companies. | ||
Alternative Performance Measures ("APMs")
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| The Company uses the following APMs:
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| Capital Return - NAV and Share Price Returns Capital returns measure the effect of any rise or fall in the share price or NAV, excluding any dividends paid. As at 30 September 2022, the 6 month NAV Capital Return was (27.6%), and the 6 month Ordinary share price Capital Return was 36.1%, as shown in the Highlights above.
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| Total Return - NAV and Share Price Returns Total returns measure the effect of any rise or fall in the share price or NAV, plus dividends paid which are reinvested at the prevailing NAV or share price on the ex-dividend date. As at 30 September 2022, the 6 month NAV Total Return was (27.3%), and the 6 month Ordinary share price Total Return was (35.74%), as shown in the Highlights above.
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Discount or Premium to NAV If the share price of an Investment Trust is less than its NAV per share, the shares are trading at a discount. If the share price is greater than the NAV per share, the shares are trading at a premium.
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| As at 30 September 2022, the NAV per share was 124.1p and the share price was 107.4p. The discount is therefore calculated at 13.5% as shown in the highlights above.
Gross assets Gross assets are calculated as net assets adding back bank borrowings.
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| Net gearing employed Unlike open-ended investment companies, Investment Trusts have the ability to borrow to invest. This term is used to describe the level of borrowings that an Investment Trust has undertaken and is stated as a percentage of shareholders' funds. The higher the level of borrowings, the higher the gearing ratio.
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| Net gearing is calculated as total debt, net of cash and cash equivalents, as a percentage of the total shareholders' funds.
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| As at 30 September 2022, interest bearing bank loans were (£13,151,000), cash and cash equivalents were £771,000 and net assets were £235,173,000. As at 30 September 2022, Gearing was therefore equal to 5.3% as shown in the highlights above.
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| Ongoing charges (expressed as a percentage) Ongoing charges are the Company's revenue and capital expenses (excluding finance costs and certain non-recurring items) expressed as a percentage of the average daily net assets of the Company during the period. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Ongoing charges calculation
| | | Six months to 30 September 2022 £'000 | Six months to 30 September 2021 £'000 | 31 March 2022 £'000 (Audited) |
| Total expenditure | | 1,425 | 1,785 | 3,728 |
| Less negative interest | | - | - | (38) |
| Total | (a) | 1,425 | 1,785 | 3,690 |
| Average daily net assets | (b) | 279,257 | 325,750 | 338,296 |
| Ongoing charges (c = a/b)* | (c) | 1.0% | 1.1% | 1.1% |
* 30 September 2022 and 30 September 2021 figures annualised for comparison (c = (a/b) x 2).
Glossary of terms
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| AIFMD Alternative Investment Fund Managers Directive. Issued by the European Parliament in 2012 and 2013, the Directive requires that all investment vehicles in the European Union, including Investment Trusts, must, with effect from 22 July 2014, appoint a Depositary and an AIFM. The Board of Directors of an Investment Trust, nevertheless, remains fully responsible for all aspects of the Company's strategy, operations and compliance with regulations.
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| AIC The Association of Investment Companies is the trade body for Closed-end Investment Companies (www.theaic.co.uk).
| |
| Benchmark This is a measure against which an Investment Trust's performance is compared. The benchmark of the Company is the MSCI Europe SmallCap (ex UK) Index (capital return in Sterling terms). The index averages the performance of a defined selection of companies listed in European smaller company stock markets and gives an indication of how those markets have performed in any period.
| |
| Closed-end Investment Company A company, including an Investment Trust, with a fixed issued ordinary share capital which is traded on an exchange at a price not necessarily related to the NAV of the company and where shares can only be issued or bought back by the company in certain circumstances. This contrasts with an open-ended investment company, which has units not traded on an exchange but issued or bought back from investors at a price directly related to the NAV.
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| Custodian A specialised financial institution responsible for safeguarding, worldwide, the listed securities and certain cash assets of the Company, as well as the income arising therefrom, through provision of custodial, settlement and associated services. The Company's Custodian is Bank of New York Mellon SA/NV.
| |
| Depositary Under AIFMD rules applying from 22 July 2014, the Company must appoint a Depositary, whose duties in respect of investments, cash and similar assets include: safekeeping; verification of ownership and valuation; and cash monitoring. The Depositary has strict liability for loss of any investments or other assets where it has safekeeping duties. The Depositary's oversight duties include, but are not limited to, oversight of share buybacks, dividend payments and adherence to investment limits. The Company's Depositary is The Bank of New York Mellon (International) Limited.
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| Dividend The income from an investment. Some Investment Trusts pay dividends on a quarterly or monthly basis. Montanaro European Smaller Companies Trust plc currently pays dividends twice a year.
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| Gearing Gearing is calculated as total liabilities less current assets divided by net assets.
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| Gross assets Gross assets are calculated as net assets adding back bank borrowings.
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| IFRS International Financial Reporting Standards.
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| Investment Manager The Company's Investment Manager is Montanaro Asset Management Limited.
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| Investment Trust A Closed-end Investment Company which satisfies the requirements of Section 1158 of the Corporation Tax Act 2010. Companies which meet these criteria are exempt from having to pay tax on the capital gains they realise from sales of the investments within their portfolios.
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| Leverage As defined under the AIFMD rules, Leverage is any method by which the exposure of an AIF is increased through borrowing of cash or securities or leverage embedded in derivative positions. Leverage is broadly equivalent to Gearing, but is expressed as a ratio between the assets (excluding borrowings) and the net assets (after taking account of borrowings). Under the gross method, exposure represents the sum of the Company's positions after deduction of cash and cash equivalents, without taking account of any hedging or netting arrangements. Under the commitment method, exposure is calculated without the deduction of cash and cash equivalents and after certain hedging and netting positions are offset against each other.
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| Marked to Market Accounting for the fair value of an asset or liability that can change over time and reflects its current market value rather than its book cost.
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| Market Capitalisation The stock market value of a company as determined by multiplying the number of shares in issue, excluding those shares held in treasury, by the market price of the shares.
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| NAV per Ordinary Share This is calculated as the net assets of an Investment Trust divided by the number of shares in issue, excluding those shares held in treasury.
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| Net Assets (or Shareholders' Funds) This is calculated as the value of the investments and other assets of an Investment Trust, plus cash and debtors, less borrowings and any other creditors. It represents the underlying value of an Investment Trust at a point in time.
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| Net Gearing Net Gearing is calculated as total debt, net of cash and cash equivalents, as a percentage of the total shareholders' funds.
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| Ordinary Shares The main type of equity capital issued by conventional Investment Trusts. Shareholders are entitled to their share of both income, in the form of dividends paid by the Investment Trust, and any capital growth. Montanaro European Smaller Companies Trust plc has only Ordinary Shares in issue.
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| Portfolio Turnover Calculated using total sales proceeds as a percentage of the average monthly net assets during the period, annualised.
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| Related Party Transactions Under the Listing Rules, the Manager is regarded as a related party of the Company.
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| Share Price The value of a share at a point in time as quoted on a stock exchange. The shares of Montanaro European Smaller Companies Trust plc are quoted on the Main Market of the London Stock Exchange.
| |
| SORP Statement of Recommended Practice "Financial Statements of Investment Trust Companies and Venture Capital Trusts" issued by the AIC.
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| Total Assets This is calculated as the value of the investments and other assets of an Investment Trust, plus cash and debtors.
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| Directors and Advisers
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| Registered Office 16 Charlotte Square Edinburgh EH2 4DF
| Depositary THE BANK OF NEW YORK MELLON (INTERNATIONAL) LIMITED One Canada Square London E14 5AL
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| Registered in Scotland No. SC074677
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| An investment company as defined under Section 833 of the Companies Act 2006.
| Custodian BANK OF NEW YORK MELLON SA/NV One Canada Square London E14 5AL
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| Directors R M Curling (Chairman) C A Roxburgh G J Neilly
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| Investment Manager and Alternative Investment Fund Manager ('AIFM') MONTANARO ASSET MANAGEMENT LIMITED 53 Threadneedle Street London EC2R 8AR Tel: 020 7448 8600 Email: enquiries@montanaro.co.uk
| Registrar EQUINITI LIMITED Aspect House, Spencer Road, Lancing West Sussex BN99 6DA
Registrar's Shareholder Helpline Tel: 0371 384 2030*
*Lines are open 8.30am to 5.30pm, Monday to Friday, excluding UK public holidays
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| Administrator LINK ALTERNATIVE FUND ADMINISTRATORS LIMITED Beaufort House 51 New North Road, Exeter EX4 4EP
| Stockbroker CENKOS SECURITIES PLC 6.7.8 Tokenhouse Yard London EC2R 7AS |
| Company Secretary LINK COMPANY MATTERS LIMITED 65 Gresham Street London EC2V 7NQ Tel: +44 (0) 7548 113379 Contact:
| Auditor PRICEWATERHOUSECOOPERS LLP Atria One 144 Morrison Street Edinburgh EH3 8EX
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| Solicitor DICKSON MINTO W.S. 16 Charlotte Square Edinburgh EH2 4DF | Website https://montanaro.co.uk/trust/montanaro-european-smaller-companies-trust/ |
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| 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.
| |
| For further information, please contact:
| |
| Montanaro Asset Management Limited | |
| Tel: 020 7448 8600 | |
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