MonEuroSmllCosTst - Half-year Report
12/12/2023 07:00
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RNS Number : 3828W Montanaro European Smaller C.TstPLC 12 December 2023
Montanaro European Smaller Companies Trust plc
LEI: 213800CWSC5B8BG3RS21
Unaudited Half-Yearly Report for the Six Months Ended 30 September 2023
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 2023.
Highlights
Performance
6 month 1 year 3 year 5 year 10 year MAM*
Capital Returns%²
Share price (13.2) 11.2 (14.9) 23.7 143.2 270.8
Net Asset Value ('NAV') per Ordinary share** (12.5) 11.6 (4.3) 30.7 148.5 300.2
Benchmark (Composite) ¹** (7.5) 10.4 4.3 7.2 93.3 157.2
Total Returns%²
Share price (12.7) 12.0 (13.3) 28.1 168.1 353.9
NAV per Ordinary share** (12.1) 12.1 (2.6) 35.0 171.5 380.0
Benchmark (Composite)¹** (5.7) 13.1 11.0 18.0 132.1 256.9
Sources: Morningstar Direct, Association of Investment Companies ('AIC'),
Montanaro Asset Management Limited.
As at 30 September As at 30 September 12 month As at 31 March 2023 6 month
2023 2022 % change (Audited) % change
Ordinary share price* 119.4p 107.4p 11.2% 137.6p (13.2%)
NAV per Ordinary share** 138.5p 124.1p 11.6% 158.4p (12.5%)
(Discount)/Premium to NAV² (13.8%) (13.5%) (13.1%)
Net assets** (£'000s) 262,360 235,173 11.6% 299,975 (12.5%)
Market capitalisation** (£'000s) 226,177 203,445 11.2% 260,652 (13.2%)
Net gearing employed² 2.2% 5.3% 3.3%
6 months 6 months 12 month 12 months 6 month
ended ended % change ended 31 March % change
30 30 2023
September September (Audited)
2023 2022
Revenue return per Ordinary share 1.37p 1.02p 34.3% 1.10p 24.6%
Dividend per Ordinary share 0.225p 0.200p 0.970p
Ongoing charges (annualised)² 1.1% 1.0% - 1.0%
Portfolio turnover (annualised)** 12% 19% 14%
*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.
Chairman's Statement
Performance
The first six months of the financial year saw a weak period of absolute and
relative performance for your Company. The Net Asset Value fell by 12.5% to
138.5p per share, underperforming the Benchmark (MSCI Europe ex-UK SmallCap
index), which fell by 7.5%.
At the end of the period, the discount was 13.8% versus 13.1% at the start. As
a result, the share price fell by 13.2% during the period, providing a total
return of -12.7%. The Board recognises that while it is not out of line with
the peer group, the level of discount is high. The Board will continue to
monitor the discount closely and stands ready to act should it deemed to be in
the interest of shareholders.
This is a disappointing performance but one which is not unexpected given the
environment: "growth" companies have underperformed "value" and high quality
companies have underperformed low quality. Montanaro seeks to invest
exclusively in high quality, growing companies and so these style shifts acted
as a significant headwind during the period.
Montanaro take a long-term approach to investing and despite this difficult
period, over 5 and 10 years your Company has delivered NAV per share total
returns of 35.0% and 171.5% respectively, outperforming the benchmark by 17.0%
and 39.4%. Since Montanaro were appointed in September 2006, the NAV total
return has been 380.0%, 123.1% ahead of the benchmark.
These returns have been delivered through consistent application of
Montanaro's investment process, even in times when their quality growth style
has been out of favour. The Board believes this approach provides the best
possible foundation for your Company to deliver superior long-term returns in
the future, as it has in the past. Montanaro have been able to successfully
weather multiple economic cycles and take advantage of periods of high market
volatility over the past 30 years. We believe this time will be no different.
Earnings and Dividends
Revenue earnings per share rose to 1.37p in the period (2022: 1.02p). The
Board has declared an interim dividend of 0.225p per Ordinary Share (2022:
0.2p per share) payable on 26 January 2024 to shareholders on the register on
22 December 2023. This increase is being proposed both to reflect the timing
of when revenues are received and to provide a better balance between the
interim and final dividends.
Borrowings
At the end of the period, the Company had gearing, net of cash, of 2.2%
compared to 3.3% at 31 March 2023. During the period, the Company's borrowings
in the form of a €10 million fixed rate loan and a €15 million revolving
credit facility matured. The Board has replaced these facilities with a new
€10 million fixed rate loan and a new €15 million revolving credit
facility, both of which are due to mature on 13 September 2026.
Outlook
Smaller companies have had a torrid time in recent years. In Continental
Europe, they have underperformed their larger counterparts by more than 17%
over both three- and five-year periods. Despite this, they have outperformed
significantly over longer time periods.
The chart below shows the P/E ratio of small companies versus the P/E of the
wider market in Continental Europe over the last two decades. For most of this
period, small companies have traded at a higher P/E than the wider market, but
they have recently moved to a discount. At the end of October 2023 they were
trading at levels previously only seen in times of extreme stress. This
suggests that small companies look cheap when compared to their larger
counterparts.
MSCI Europe ex-UK Small Cap v. MSCI Europe ex-UK - 12 month forward P/E
Source: Montanaro Asset Management, MSCI, FactSet.
Note: Thick red line = average +2 standard deviations (dashed red line =
average + 1 standard deviation). Thick green line = average -2 standard
deviations (dashed green line = average -1 standard deviation). Black line =
average.
Small companies also look cheap relative to their own history: at the end of
October 2023, the MSCI
Europe ex-UK SmallCap Index was almost two standard deviations below its
long-term average P/E.
MSCI Europe ex-UK Small Cap - 12 month forward P/E
Source: Montanaro Asset Management, MSCI, FactSet.
Note: Thick red line = average +2 standard deviations (dashed red line =
average + 1 standard deviation). Thick green line = average -2 standard
deviations (dashed green line = average -1 standard deviation). Black line =
average.
It is historically unusual for quality growth companies to underperform during
bear markets. Usually as recessionary fears rise and markets fall, investors
seek the sanctuary of companies with high recurring revenues, defensive end
markets and strong balance sheets. This time has been different because the
drawdown in stock prices has been predominantly driven by a rapid rise in
inflation and interest rates.
It remains to be seen what the future trajectory of interest rates will be but
it is clear from listening to companies on the ground that the effects are now
being felt in the "real" economy. Companies with stretched balance sheets
are finding it increasingly difficult to roll over their debts, which
heightens the risk of corporate defaults. However, we believe that your
companies are well insulated from the risk of balance sheet stress, as nearly
half of the portfolio has net cash on the balance sheet and the average Net
Debt / EBITDA ratio for 2023 is a mere 0.3x.
As the high quality, structurally growing companies in which your Company
invests are well suited to more difficult economic environments, we would
expect investors to start re-appraising the relative attractiveness of the
Company's portfolio. This, coupled with highly attractive valuations for the
asset class, means that we can look forward to the future with confidence.
Portfolio Summary
Twenty Largest Holdings
As at 30 September 2023
Holding Country Value % of investment % of net
£'000 portfolio assets
VZ Holding Switzerland 12,810 4.77 4.88
Kitron Norway 12,226 4.55 4.66
NCAB Sweden 11,206 4.17 4.27
Fortnox Sweden 10,965 4.08 4.17
MTU Aero Engines Germany 10,423 3.88 3.97
Atoss Software Germany 10,268 3.82 3.92
Melexis Belgium 9,208 3.43 3.51
IMCD Netherlands 8,843 3.29 3.37
Brembo Italy 8,666 3.23 3.31
CTS Eventim Germany 8,661 3.23 3.30
Brunello Cucinelli Italy 7,808 2.91 2.98
Amadeus FiRe Germany 7,698 2.87 2.93
Tecan Switzerland 7,620 2.84 2.91
Belimo Switzerland 7,222 2.69 2.75
Esker France 7,044 2.62 2.69
Sartorius Stedim France 6,851 2.55 2.61
Bachem Switzerland 6,698 2.49 2.55
Christian Hansen Denmark 6,558 2.44 2.50
Thule Sweden 6,464 2.41 2.46
Viscofan Spain 6,264 2.33 2.39
Twenty Largest Holdings 173,503 64.60 66.13
Geographical Analysis
As at 30 September 2023
Source: Montanaro Asset Management Limited
Sector Analysis
As at 30 September 2023
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.
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 2023. 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.
Related Party Transactions:
Related party transactions are disclosed in note 13 below. There have been no
material changes to the related party transactions described in the last
Annual Report.
Going Concern:
The Directors are satisfied that the Company has sufficient resources to
continue in operation for the foreseeable future and for a period of at least
12 months from the date of this report. Accordingly, they continue to adopt
the going concern basis in preparing the condensed financial statements.
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;
· 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;
· the Statement of Principal Risks and Uncertainties shown above is
a fair review of the information required by DTR 4.2.7R; and
· 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.
The Half-Yearly Report and Accounts were approved by the Board and the above
responsibility statement was signed on its behalf by:
R M CURLING
Chairman
11 December 2023
Condensed Income Statement (unaudited)
for the six months to 30 September 2023
Six months to Six months to Year to
30 September 30 September 31 March
2023 2022 2023
£'000 £'000 (audited)
£'000
Note Revenue Capital Total Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Losses on investments at fair value
through profit or loss - (37,997) (37,997) - (88,982) (88,982) - (23,070) (23,070)
Exchange gains/(losses) 115 115 - (500) (500) - (542) (542)
Revenue
Investment income 3 3,745 - 3,745 2,981 - 2,981 4,130 - 4,130
Total income 3,745 (37,882) (34,137) 2,981 (89,482) (86,501) 4,130 (23,612) (19,482)
Expenditure
Management expenses 4 (413) (766) (1,179) (396) (736) (1,132) (804) (1,494) (2,298)
Other expenses (362) - (362) (293) - (293) (620) - (620)
Total expenditure (775) (766) (1,541) (689) (736) (1,425) (1,424) (1,494) (2,918)
Return before finance costs and taxation 2,970 (38,648) (35,678) 2,292 (90,218) (87,926) 2,706 (25,106) (22,400)
(112) (84) (156) (240)
Finance costs (41) (97) (138) (39) (73)
Return before tax 2,929 (38,745) (35,816) 2,253 (90,291) (88,038) 2,622 (25,262) (22,640)
Tax (340) - (340) (321) - (321) (538) - (538)
Return after taxation 2,589 (38,745) (36,156) 1,932 (90,291) (88,359) 2,084 (25,262) (23,178)
Return per share: 5 1.37p (20.45p) (19.08p) 1.02p (47.67p) (46.65p) 1.10p (13.34p) (12.24p)
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.
The supplementary revenue return and capital return columns are both prepared
under guidance published by the AIC.
All revenue and capital items in the above statement derive from continuing
operations. No operations were acquired or discontinued during the period.
Condensed Balance Sheet (unaudited) as at 30 September 2023
Note As at 30 September As at 30 September As at 31
2023 2022 March 2023
£'000 £'000 (audited)
£'000
Non-current assets
Investments held at fair value through profit and loss 7 268,485 247,129 310,308
Current assets
Trade and other receivables 748 886 880
Cash and cash equivalents 2,808 771 3,225
3,556 1,657 4,105
Total assets 272,041 248,786 314,413
Current liabilities
Trade and other payables (1,099) (472) (1,260)
Revolving credit facility 8 - (4,384) (4,391)
Interest-bearing bank loans 8 - (8,757) (8,787)
(1,099) (13,613) (14,438)
Non-current liabilities
Interest-bearing bank loans 8 (8,582) - -
Total liabilities (9,681) (13,613) (14,438)
Net assets 262,360 235,173 299,975
Capital and reserves
Called-up share capital 9,471 9,471 9,471
Share premium account 44,057 44,057 44,057
Capital redemption reserve 2,212 2,212 2,212
Capital reserve 201,836 175,552 240,581
Revenue reserve 4,784 3,881 3,654
Shareholders' funds 262,360 235,173 299,975
NAV per share 10 138.5p 124.1p 158.4p
Condensed Statement of Changes in Equity
for the six months ended 30 September 2023 (unaudited)
Share capital Share premium account Capital redemption Capital reserve Revenue reserve Total
£'000 £'000 reserve £'000 £'000 £'000
£'000
As at 1 April 2023 9,471 44,057 2,212 240,581 3,654 299,975
Return after taxation - - - (38,745) 2,589 (36,156)
Dividends paid - - - - (1,459) (1,459)
Balance at 30 September 2023 9,471 44,057 2,212 201,836 4,784 262,360
for the six months ended 30 September 2022 (unaudited)
Share capital Share premium account Capital redemption Capital reserve Revenue reserve Total
£'000 £'000 reserve £'000 £'000 £'000
£'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 year ended 31 March 2023 (audited)
Share capital Share premium account Capital redemption Capital Reserve Revenue reserve Total
£'000 £'000 reserve £'000 £'000 £'000
£'000
As at 1 April 2022 9,471 44,057 2,212 265,843 3,322 324,905
Return after taxation - - - (25,262) 2,084 (23,178)
Dividends paid - - - - (1,752) (1,752)
Balance at 31 March 2023 9,471 44,057 2,212 240,581 3,654 299,975
Condensed Statement of Cash Flows (unaudited) for the six months ended 30
September 2023
Six months to Six months to 30 September Year to
30 September 2022 31 March
2023 £'000 2023
£'000 (audited)
£'000
Net cash inflow from operating activities 5,376 4,717 7,701
Net cash outflow from financing activities (5,968) (5,813) (6,316)
(592) (1,096) 1,385
Exchange gains 64 46 19
(Decrease)/increase in cash and cash equivalents (528) (1,050) 1,404
Reconciliation of profit before finance costs and tax to net cash inflow from
operating activities
Return before taxation (35,678) (88,038) (22,640)
Losses on investments held at fair value 37,997 88,982 23,070
Exchange gains/(losses) (115) 500 542
Finance costs 226 112 240
Withholding tax (340) (373) (450)
Purchases of investments (14,403) (22,614) (31,524)
Sales of investments 17,805 26,243 38,643
Changes in working capital and other non-cash items (116) (95) (180)
Net cash inflow from operating activities 5,376 4,717 7,701
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 2023. 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 2023, which were prepared under full IFRS requirements.
2. Earnings for the first six months should not be taken as a
guide to the results for the full year.
3. Income for the period is derived from:
Six months to Six months to Year to
30 September 30 September 31 March
2023 2022 2023
£'000 £'000 (audited)
£'000
Overseas dividend income 3,661 2,933 4,078
Exchange (losses)/gains (4) 35 23
Other income 88 13 29
Total 3,745 2,981 4,130
4. Management fee:
As set out in the Company's Annual Report, the management fee is 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 paid a fee of £50,000 per annum for acting as the Company's
Alternative Investment Fund Manager ('AIFM').
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 2023:
189,427,600 and six months ended 30 September 2022: 189,427,600), excluding
those shares bought back and held in treasury (nil at 30 September 2023).
6. Dividends
The interim dividend relating to the year ended 31 March 2024 of 0.225p per
Ordinary Share will be paid on 26 January 2024 to shareholders on the register
on 22 December 2023. In accordance with IFRS, this dividend has not been
recognised in these financial statements. The ex-dividend date for this
payment is 21 December 2023.
A final dividend relating to the year ended 31 March 2023 of 0.77p per
Ordinary Share was paid during the six months to 30 September 2023 and
amounted to £1,459,000.
7. Investments at fair value through profit or loss
30 September 30 September 31 March
2023 2022 2023
£'000 £'000 (audited)
£'000
Opening book cost 193,796 196,337 196,337
Holding gains 116,512 143,451 143,451
Opening fair value 310,308 339,788 339,788
Purchases at cost 13,991 22,427 32,076
Sales - proceeds (17,817) (26,104) (38,486)
- gains on sales 5,450 4,019 3,869
Holding (losses)/gains (43,447) (93,001) (26,939)
Closing fair value 268,485 247,129 310,308
Closing book cost 195,420 196,679 193,796
Holding gains 73,065 50,450 116,512
Closing valuation 268,485 247,129 310,308
8. Borrowings
Revolving credit facility
Six months to Six months to Year to
30 September 30 September 31 March 2023
2023 2022 (audited)
£'000 £'000 £'000
Opening balance 4,391 - 8,450
(Repaid)/drawn down (4,327) 4,439 (4,325)
Foreign currency exchange (gain)/loss
(64) 55 266
Closing balance - 4,384 4,391
The Company's €15 million three year secured revolving
credit facility with ING matured on 13 September 2023. The Company entered
into a three year secured revolving credit facility which will mature on 13
September 2026.
As at 30 September 2023, no amounts were drawn down under this facility.
Interest bearing bank loans
Six months to Six months to Year to
30 September 30 September 31 March 2023
2023 2022 (audited)
£'000 £'000 £'000
Opening balance 8,787 8,434 8,434
Loan set up costs (99) - -
Amortisation of set-up costs 6 5 10
Non-cash foreign currency movements (112) 318 343
Closing balance 8,582 8,757 8,787
The Company's fixed rate loan facilities totaling €10 million matured on 13
September 2023. The Company refinanced €10 million by entering into a three
year secured loan at a fixed rate of 5.105% per annum (previously 1.33%) with
ING Bank N.V. ('ING'). This loan will mature on 13 September 2026.
The carrying value of the balances above approximates to fair value.
9. Share Capital
30 September 2023 31 March 2023
(audited)
Number of shares £'000 Number of shares £'000
Allotted, called-up and fully paid:
Ordinary shares of 2p each (31 March 2023: 2p each)
Balance at beginning of period
189,427,600 9,471 189,427,600 9,471
Balance at end of period 189,427,600 9,471 189,427,600 9,471
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 2023: 189,427,600 and 30 September 2022:
189,427,600), excluding those shares bought back and held in treasury. As at
30 September 2023, there were no Ordinary Shares held in treasury (31 March
2023: nil and 30 September 2022: nil).
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.
Level 1 Level 2 Level 3 Total
£'000 £'000 £'000 £'000
30 September 2023
Investments 268,485 - - 268,485
Loan - (8,582) - (8,582)
30 September 2022
Investments 247,129 - - 247,129
Loan - (13,141) (13,141)
31 March 2023 (audited)
Investments 310,308 - - 310,308
Loan - (13,178) - (13,178)
There were no transfers between levels during the period ended 30 September
2023 (year ended 31 March 2023 and period ended 30 September 2022: None).
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 2023.
12. Rates of Exchange (to Sterling)
30 September 30 September 31 March
2023 2022 2023
£'000 £'000 (audited)
£'000
Danish Krone 8.60 8.48 8.48
Euro 1.15 1.14 1.14
Norwegian Krone 13.03 12.17 12.95
Swedish Krona 13.32 12.40 12.82
Swiss Franc 1.12 1.10 1.13
13. 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 £1,179,000 (six
months to 30 September 2022: £1,132,000; year to 31 March 2023: £2,298,000).
At 30 September 2023, the amount due to the Manager, included in creditors,
was £575,000. The existence of an independent Board of Directors demonstrates
that the Company is free to pursue its own financial and operating policies.
Directors' Emoluments
At 30 September 2023, 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 £41,000, the Chair of the Audit Committee receives an annual
fee of £35,500 and non-executive Directors receive £29,500 per annum.
At 30 September 2023, the amount outstanding in respect of Directors' fees was
£nil (31 March 2023: £nil).
At 30 September 2023, the interests of the Directors in the Ordinary Shares of
the Company were as follows:
30 September 2023 31 March 2023
No. of shares No. of shares
R M Curling 100,000 100,000
G Neilly 62,178 61,867
C A Roxbrugh 62,352 62,352
The following changes in the Directors' interests occurred between 30
September 2023 and the date of this report:
C A Roxburgh acquired 382 shares on 12 October 2023.
14. Statutory Accounts
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 2023 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 2023 have been
reported on by the Company's Auditor or delivered to the Registrar of
Companies.
Alternative Performance Measures ("APMs")
The Company uses the following APMs:
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 2023, the 6 month NAV
Capital Return was (12.5%), and the 6 month Ordinary share price Capital
Return was (13.2%) , as shown in the Highlights above.
NAV Capital Return calculation as at 30 September 2023
NAV per share as at 30 September 2023 138.50 (a)
NAV per share as at 31 March 2023 158.40 (b)
NAV Capital Return (12.5%) ((a-b)/b)
Share Price Capital Return calculation as at 30 September 2023
Share Price as at 30 September 2023 119.40 (a)
Share Price as at 31 March 2023 137.60 (b)
Share Price Capital Return (13.2%) ((a-b)/b)
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 2023, the 6 month NAV Total
Return was (12.1%), and the 6 month Ordinary share price Total Return was
(12.7%), as shown in the Highlights above.
NAV Total Return calculation as at 30 September 2023
NAV per share as at 30 September 2023 138.50 (c)
NAV per share as at 31 March 2023 158.40 (d)
Dividend adjustment factor (+1) 1.0053 (a)
Pre-Dividend Reinvestment Factor 0.8744 (b)(b=c/d)
NAV Total Return (12.1%) ((a*b)-1)
(a) Dividend Adjustment
Factor
NAV at Dividend XD date
Dividend XD date Share price Multiplier
Dividend PPS
Final
dividend 0.77 18.Aug.23 145.51 0.0053
Share price Total Return calculation as at 30 September 2023
Share Price as at 30 September 2023 119.40 (c)
Share Price as at 31 March 2023 137.60 (d)
Dividend adjustment factor (+1) 1.0061 (a)
Pre-Dividend Reinvestment Factor 0.8677 (b)(b=c/d)
Share price Total Return (12.7%) ((a*b)-1)
(a) Dividend Adjustment
Factor
Share price at Dividend
XD date
Dividend XD date Share price Multiplier
Dividend PPS
Final
dividend 0.77 18.Aug.23 127.00 0.0061
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.
As at 30 September 2023, the NAV per share was 138.41p and the share price was
119.40p. The discount is therefore calculated at 13.73% as shown in the
highlights above.
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.
Net gearing is calculated as total debt, net of cash and cash equivalents, as
a percentage of the total shareholders' funds.
As at 30 September 2023, interest bearing bank loans were (£8,582,000), cash
and cash equivalents were £2,808,000 and net assets were £262,360,000. As at
30 September 2023, Gearing was therefore equal to 2.20% as shown in the
highlights above.
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 Six months to Year to
30 September 30 September 2022 31 March
2023 £'000 2023
£'000 (audited)
£'000
Total expenditure (a) 1,541 1,425 2,917
Average daily net assets (b) 291,230 279,257 279,739
Ongoing charges (c = a/b)* (c) 1.1% 1.0% 1.0%
* 30 September 2023 and 30 September 2022 figures annualised for comparison (c
= (a/b) x 2).
Glossary of terms
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.
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.
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.
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.
Gearing
Gearing is calculated as total liabilities less current assets divided by net
assets.
IFRS
International Financial Reporting Standards.
Investment Manager
The Company's Investment Manager is Montanaro Asset Management Limited.
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.
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.
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.
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.
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.
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.
Net Gearing
Net Gearing is calculated as total debt, net of cash and cash equivalents, as
a percentage of the total shareholders' funds.
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.
Portfolio Turnover
Calculated using total sales proceeds as a percentage of the average monthly
net assets during the period, annualised.
Related Party Transactions
Under the Listing Rules, the Manager is regarded as a related party of the
Company.
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.
Total Assets
This is calculated as the value of the investments and other assets of an
Investment Trust, plus cash and debtors.
Montanaro European Smaller Companies Trust PLC
Registered in Scotland No. SC074677
An investment company as defined under section 833 of the Companies Act 2006
Directors Registered Office
R M Curling (Chairman) 28 Walker Street
G Neilly Edinburgh EH3 7HR
C A Roxburgh
Principal Advisers
AIFM and Investment Manager Depositary
MONTANARO ASSET MANAGEMENT LIMITED THE BANK OF NEW YORK MELLON (INTERNATIONAL) LIMITED
53 Threadneedle Street 160 Queen Victoria Street London EC4V 4LA
London EC2R 8AR
Tel: 020 7448 8600
enquiries@montanaro.co.uk (mailto:enquiries@montanaro.co.uk)
www.montanaro.co.uk (http://www.montanaro.co.uk/)
Company Secretary and Administrator Custodian
JUNIPER PARTNERS LIMITED BANK OF NEW YORK MELLON SA/NV
28 Walker Street, 160 Queen Victoria Street London EC4V 4LA
Edinburgh EH3 7HR
Tel: 0131 378 0500
Contact: cosec@junipartners.com
Auditor Registrar
PRICEWATERHOUSECOOPERS LLP EQUINITI LIMITED
Atria One Aspect House,
144 Morrison Street Spencer Road, Lancing
Edinburgh EH3 8EX 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
Solicitor Stockbroker
DICKSON MINTO W.S. CAVENDISH
16 Charlotte Square One Bartholomew Close
Edinburgh EH2 4DF London EC1A 7BL
Sources of Further Information
Information on the Company, including this Half-Yearly Report is available on
the Company's website: https://montanaro.co.uk/trust/montanaro-
(https://montanaro.co.uk/trust/montanaro-) european-smaller-companies-trust/
(https://montanaro.co.uk/trust/montanaro-european-smaller-companies-trust/)
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