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RNS

Annual Financial Report

Released 07:00 14-Jun-2017

RNS Number : 9811H
Montanaro European Smaller C.TstPLC
14 June 2017
 

MONTANARO EUROPEAN SMALLER COMPANIES TRUST PLC

 

Date:                14 June 2017

 

RESULTS FOR THE YEAR ENDED 31 MARCH 2017

 

 

Investment Objective

 

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

 

Highlights

 

·      Net asset value ('NAV') per Ordinary Share +27.8%

·      Share price +28.7%

·      Benchmark index (capital return) +25.3%

·      Total assets +24.6% (£157.7 million)

 

Chairman's Statement

 

Results

The year to 31 March 2017 was another good one for investors in European smaller companies: the MSCI Europe SmallCap (ex UK) Index (in sterling terms) rose by 25.3%. Our shareholders fared even better: the net asset value ('NAV') of each share rose by 27.8% to 813.1p per share, outperforming the index by 2.5%. The share price increased by slightly more than the net asset value - rising by 28.7% to 695.0p, as the discount narrowed to 14.5% over the period.

 

The Euro strengthened against Sterling by 7.7%. We do not hedge currencies. As our NAV per share is quoted in Sterling, this has meant that the weakness of the pound proved beneficial to our performance.

 

Since the appointment of Montanaro Asset Management Limited ('Montanaro') in September 2006, the NAV per share has increased by 136.4% compared with an increase of 111.0% in the benchmark index.

 

A review of the market, investment approach and an analysis of performance is set out in the Manager's Report in the Annual Report.

 

Earnings and Dividends

Revenue earnings per share for the year were 9.8p (2016: 6.0p).

 

The Company's primary aim is to deliver capital growth to its shareholders rather than dividend income. However, our substantial revenue reserves combined with the growing dividends of the companies in which we invest have allowed us to maintain a consistent and robust dividend policy. An interim dividend of 1.75p per share was paid on 6 January 2017. The Board recommends the payment of a final dividend of 6.50p per share payable on 2 August 2017 to shareholders on the register on 23 June 2017. Subject to shareholder approval, this would bring the total dividends for the year to 8.25p per share, an increase of 10% compared to the previous year.

 

As a Board, we manage expenses carefully. I am pleased to report that ongoing charges as a percentage of average net assets fell from 1.4% to 1.2% this year. This remains under close review, with the goal to reduce it even further.

 

Directors

As I explained in my Chairman's Statement in 2015, we embarked upon a period of Board refreshment and the first stages of this were implemented in the last financial year. It is intended that Bruce Graham will retire later this current financial year. The Board has begun the process of recruiting a new Director to replace Bruce and to become Chairman of the Audit Committee and an announcement in this regard will be made in due course.

 

Thereafter, it is intended to reduce the size of the Board to four non-executive directors.

 

Borrowings

The Board, in discussion with the Manager, regularly reviews the gearing strategy of the Company and approves the arrangement of any gearing facility to support the investment strategy. Gearing can significantly enhance investment returns. This is a key feature of investment trusts that we believe offers a strong competitive advantage over alternative open-ended investment funds. Therefore, the Board strongly encourages the active use of the gearing facility by the Manager.

 

The Board has set a maximum limit on borrowing, net of cash, of 30% of shareholders' funds at the time of borrowing. At the end of the year, the Company had borrowings, net of cash, of 7.3% compared to 11.2% at the beginning of the year.

 

Treasury Shares

During the year, the Company did not buy back shares into or sell shares from Treasury. The Board's stated Treasury shares policy is included in the Annual Report. We have revised the policy to clarify that the Board will consider a buyback of shares where the discount is greater than 10% for a sustained period of time and is significantly wider than the average for similar trusts.

 

The Board will seek to renew the Company's share buyback and share issuance authorities at the forthcoming Annual General Meeting.

 

Annual General Meeting

The Annual General Meeting will be held on Thursday 27 July 2017 at 12.30pm at the offices of BMO Global Asset Management, Quartermile 4, 7 Nightingale Way, Edinburgh.  Shareholders are encouraged to attend the Meeting where there will be an opportunity to meet and ask questions of the Board and the Manager.

 

Outlook

Last year, we noted that the outlook for your portfolio - supported by low interest rates, an improving employment situation and benign inflation - was encouraging. This remains the case today. Valuations are not categorically cheap but nor are they extreme. Indeed, compared to other developed stock markets, such as the US, stocks in Europe appear to offer relatively good value.

 

The financial year to 31 March 2017 has seen a multitude of significant world events including the decision by the UK to leave the EU; the election of Donald Trump as President of the United States; and a "No" vote in the Italian referendum. It is likely that next year will bring further political surprises. We do not try to predict such events but rather believe that investing in high quality, growing companies at reasonable prices will deliver attractive long-term absolute and relative returns for our shareholders, as it has in the past.

 

 

A R IRVINE

Chairman

13 June 2017

 

 

 

 

 

  

  

 

 

 

Statement of Comprehensive Income

For the Year Ended 31 March 2017

 

 

 

 

 

Revenue

Capital

Total

 

£'000

£'000

£'000

Capital gains on investments

 

 

 

Gains on investments held at fair value

-

31,339

31,339

Exchange losses

-

(1,133)

(1,133)

 

-

30,206

30,206

 

 

 

 

Revenue

 

 

 

Investment income

2,978

-

2,978

Other operating income

-

-

-

Total income

2,978

30,206

33,184

 

 

 

 

Expenditure

 

 

 

Management expenses

(340)

(631)

(971)

Other expenses

(549)

-

(549)

Total expenditure

(889)

(631)

(1,520)

 

 

 

 

Profit before finance costs and taxation

2,089

29,575

31,664

Finance costs

(174)

(323)

(497)

Profit before taxation

1,915

29,252

31,167

Taxation

(280)

-

(280)

Total comprehensive income

1,635

29,252

30,887

 

 

 

 

Return per share (note 2)

9.8p

174.8p

184.6p

 

 

The total column of this statement represents the Company'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.

 

 

 

 Statement of Comprehensive Income

 For the Year Ended 31 March 2016

 

 

 

 

Revenue

Capital

Total

 

£'000

£'000

£'000

Capital gains on investments

 

 

 

Gains on investments held at fair value

-

12,916

12,916

Exchange losses

-

(1,213)

(1,213)

 

-

11,703

11,703

 

 

 

 

Revenue

 

 

 

Investment income

2,277

-

2,277

Other operating income

26

-

26

Total income

2,303

11,703

14,006

 

 

 

 

Expenditure

 

 

 

Management expenses

(298)

(553)

(851)

Other expenses

(510)

-

(510)

Total expenditure

(808)

(553)

(1,361)

 

 

 

 

Profit before finance costs and taxation

1,495

11,150

12,645

Finance costs

(128)

(238)

(366)

Profit before taxation

1,367

10,912

12,279

Taxation

(357)

-

(357)

Total comprehensive income

1,010

10,912

11,922

 

 

 

 

Return per share (note 2)

6.0p

65.2p

71.2p

 

 

 

 

 

Balance Sheet

As at 31 March 2017

 

 

 

 

2017

 

2016

 

 

 

 

£'000

 

£'000

 

 

Non-current assets

 

 

 

 

 

 

Investments held at fair value through profit and loss

 

145,989

 

118,380

 

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

Trade and other receivables

 

524

 

798

 

 

Cash and cash equivalents

 

11,144

 

7,326

 

 

 

 

11,668

 

8,124

 

 

 

 

 

 

 

 

 

Total assets

 

157,657

 

126,504

 

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

Trade and other payables

 

(272)

 

(348)

 

 

 

 

 

 

 

 

 

Non-current liabilities

 

 

 

 

 

 

Interest-bearing bank loans

 

(21,335)

 

(19,738)

 

 

 

 

 

 

 

 

 

Total liabilities

 

(21,607)

 

(20,086)

 

 

 

 

 

 

 

 

 

Net assets

 

136,050

 

106,418

 

 

 

 

 

 

 

 

 

Capital and reserves

 

 

 

 

 

 

Called-up share capital

 

8,724

 

8,724

 

 

Share premium account

 

5,283

 

5,283

 

 

Capital redemption reserve

 

2,212

 

2,212

 

 

Capital reserve

 

116,392

 

87,140

 

 

Revenue reserve

 

3,439

 

3,059

 

 

 

 

 

 

 

 

 

Shareholders' funds

 

136,050

 

106,418

 

 

 

 

 

 

 

 

 

Net asset value per share (note 4)

 

813.1p

 

636.0p

 

 

 

 

 

 

 

Statement of Changes in Equity

For the year ended 31 March 2017

 

 

 

 

Share Capital

 

Share Premium Account

 

Capital Redemption Reserve

 

 

Capital Reserve

 

 

Revenue Reserve

 

 

 

Total

 

£'000

£'000

£'000

£'000

£'000

£'000

 

Balance at 1 April 2016

 

8,724

 

5,283

 

2,212

 

87,140

 

3,059

 

106,418

 

Total comprehensive income

 

-

 

-

 

-

 

29,252

 

1,635

 

30,887

 

 

 

 

 

 

 

Dividends paid

-

-

-

-

(1,255)

(1,255)

 

Balance at 31 March 2017

 

8,724

 

5,283

 

2,212

 

116,392

 

3,439

 

136,050

 

 

 

 

 

 

 

 

 

Statement of Changes in Equity

For the year ended 31 March 2016

 

 

 

 

Share Capital

 

Share Premium Account

 

Capital Redemption Reserve

 

 

Capital Reserve

 

 

Revenue Reserve

 

 

 

Total

 

£'000

£'000

£'000

£'000

£'000

£'000

 

Balance at 1 April 2015

 

8,724

 

5,283

 

2,212

 

76,228

 

3,304

 

95,751

 

Total comprehensive income

 

-

 

-

 

-

 

10,912

 

1,010

 

11,922

 

 

 

 

 

 

 

Dividends paid

-

-

-

-

(1,255)

(1,255)

 

Balance at 31 March 2016

 

8,724

 

5,283

 

2,212

 

87,140

 

3,059

 

106,418

 

 

 

 

 

 

 

 

 

 

Cash Flow Statement

For the Year Ended 31 March 2017

 

 

 

2017

 

2016

 

£'000

 

£'000

Cash flows from operating activities

 

 

 

Profit before finance costs and taxation

31,664

 

12,645

Investment gains

(31,339)

 

(12,916)

Exchange losses

1,133

 

1,213

Withholding tax

(457)

 

(190)

Interest income

-

 

(26)

Interest received

-

 

26

Investment income

(2,978)

 

(2,277)

Dividends received

2,913

 

2,421

Increase in payables

82

 

-

Purchases of investments

(31,123)

 

(34,241)

Sales of investments

35,210

 

30,659

Net cash inflow/(outflow) from operating activities

5,105

 

(2,686)

 

 

 

 

Cash flows from financing activities

 

 

 

Dividends paid

(1,255)

 

(1,255)

Interest paid

(461)

 

(367)

Draw down of bank loans, net of costs

-

 

7,882

Net cash (outflow)/inflow from financing activities

(1,716)

 

6,260

 

 

 

 

Net increase in cash and cash equivalents

3,389

 

3,574

Exchange gains/(losses)

429

 

(124)

Increase in cash and cash equivalents

3,818

 

3,450

Cash and cash equivalents at beginning of year

7,326

 

3,876

Cash and cash equivalents at end of year

11,144

 

7,326

 

 

 

 

 

 

 

 

 

Principal Risks and Uncertainties and Risk Mitigation

 

In accordance with the Guidance on Risk Management, Internal Control and Related Financial and Business Reporting, issued by the Financial Reporting Council, the Board has established an ongoing process for identifying, evaluating and managing the significant risks faced by the Company. It has also regularly reviewed the effectiveness of the Company's risk management and internal control systems for the period.

 

The principal risks and uncertainties faced by the Company, and the Board's mitigation approach are described below.

 

Investment and strategic risk. Inappropriate strategy, including country and sector allocation and stock selection could lead to poor returns for shareholders.

 

Mitigation: At each Board Meeting the Manager discusses portfolio performance and strategy with the Directors and performance against the benchmark and the peer group is reviewed. The Manager also provides the Board with monthly reports. The portfolio is well diversified with typically 40-60 holdings, thereby reducing stock-specific risk. The Board formally reviews the performance of the Manager and its terms of appointment annually.

 

 

Gearing. One of the benefits of an investment trust is its ability to use borrowings, which can enhance returns to shareholders in a rising stock market. However, gearing exacerbates movements in the NAV both positively and negatively and will exaggerate declines in NAV when share prices of investee companies are falling.

 

Mitigation: The Board is responsible for setting the gearing range within which the Manager may operate and has set a maximum limit on borrowing, net of cash, of 30% of shareholders' funds at the time of borrowing.  The Company currently has loans totaling €25 million that mature in September 2018. The Board receives recommendations on gearing levels from the Manager, and monitors and discusses with the Manager the appropriate level of gearing at each Board Meeting.

 

 

Other financial risks. The Company invests principally in Continental European quoted smaller companies and its principal risks are therefore market related with short term risk arising from the volatility in the prices of the Company's investments and foreign exchange.  Events such as terrorism, disease, protectionism, inflation or deflation, changes in regulation and taxation, excessive stock market speculation, economic recessions, political instability and movements in interest rates and exchange rates could affect share prices in particular markets.

 

As with all small company investment trusts, there is liquidity risk at times when the liquidity of the underlying portfolio is poor, such as when smaller companies are out of favour or during periods of adverse financial conditions. The Manager focuses on smaller companies where the opportunities may be more attractive but this can decrease overall underlying liquidity.  This may result in the Manager being unable to buy or sell individual holdings within the portfolio.  In addition, illiquid stock markets may impact the discount of the Company's share price to the NAV per share.

 

Mitigation: Portfolio diversification, both geographical and sectoral, can mitigate the consequences of such risky events and the Board reviews the portfolio with the Manager on a regular basis.  However, it is not the Company's policy to hedge currency risk. The Board has also set investment restrictions and guidelines which are adhered to and reported on by the Manager. If required, it is also possible to raise the level of cash held, thereby reducing the risk of declining share prices and the effect of gearing on lower portfolio valuations. However, the portfolio's liquidity is not managed on the basis of timing short-term market fluctuations.

 

One of the benefits of an investment trust is that the Manager is rarely forced to buy or sell individual holdings at inopportune times.  The Manger constantly reviews the underlying liquidity of the portfolio, which is well diversified, and deals with a wide range of brokers to enhance its ability to execute and minimise liquidity risk.

 

 

Discount volatility.  As with all small company investment trusts, discounts can fluctuate significantly both in absolute terms and relative to their peer group.

 

Mitigation: The Board and Manager actively monitor the discount of share price to NAV per share and seek to influence this through liasing closely with the Company's Broker, share buybacks and effective marketing.  The Board has stated its commitment to an active discount management policy, such that it will consider a buyback of shares where the discount of share price to the NAV per share is greater than 10% for a sustained period of time and is significantly wider than the average for similar trusts.  Any such transaction must be value enhancing for shareholders and the Board will take into consideration the effect of the buyback on the liquidity of the Company's shares.  The Board encourages the Manager to market the Company to new investors to increase demand for the Company's shares, which may help to reduce the discount.

 

 

  

Regulatory. The Company carries on business as an investment trust and has been approved as such by HM Revenue & Customs subject to it continuing to meet eligibility conditions and ongoing requirements.  As a result it is not liable to corporation tax on capital gains. Breach of Section 1158 of the Corporation Tax Act 2010 could lead to the Company being subject to tax on chargeable gains. Breach of regulatory rules could lead to suspension of the Company's Stock Exchange listing, financial penalties or a qualified audit report.

 

Mitigation: The Administrator monitors the Company's compliance with Section 1158 of the Corporation Tax Act 2010 including revenue forecasts and the amount of proposed dividends to ensure the rules are not breached and the results are reported to the Board at each meeting. The Administrator monitors compliance with the Listing Rules of the UK Listing Authority and compliance with the principal rules is reviewed by the Directors at each Board Meeting.  The Board and AIFM also monitor changes in legislation which may have an impact on the Company.

 

 

Operational.  In common with most other investment trust companies, the Company has no employees.  The Company is therefore reliant on the services provided by third parties such as the Manager, the Administrator and the Custodian (as a delegate of the Depositary).  Disruption or failure of the Manager's or Administrator's systems, or those of other third party service providers could lead to an inability to provide accurate reporting and monitoring of the Company's financial position or a breach of regulatory and legal regulations.

 

Mitigation: The Board and the Audit Committee receives regular reports on the operation of internal controls to mitigate against the risk of failure, including those at the Manager, the Administrator and the Custodian.  These have been tested and monitored throughout the year which is evidenced from their control reports regarding their internal controls which are reported on by their reporting accountants.  Quarterly reports are also received from the Depositary which is responsible for the safekeeping of all custodial assets of the Company. 

 

 

Manager. Should the Manager not be in a position to continue to manage the Company, performance may be impacted.

 

Mitigation: Montanaro has one of the largest specialist teams in the UK focussing on quoted European smaller companies. Montanaro operates a team approach in the management of the investment portfolio which mitigates against the impact of the departure of any one member of the investment team.  The Manager keeps the Board informed of developments within its business.

 

 

Viability Assessment and Statement

 

In accordance with the UK Corporate Governance Code, in order to assess the viability of the Company, the Board is required to assess its future prospects and has considered that a number of characteristics of its business model and strategy were relevant to this assessment:

 

-        The Company's objective is to achieve capital growth.

-        The Company's investment policy, which is subject to regular Board monitoring, means that the Company is invested principally in the securities of Continental European quoted smaller companies.

-        The Company is a closed-end investment trust, whose shares are not subject to redemptions by shareholders.

-        The Company's business model and strategy is not time limited.

Also relevant were a number of aspects of the Company's operational arrangements:

 

-        The Company retains title to all assets held by the Custodian under the terms of a formal agreement with the Depositary and Custodian.

-        The borrowing facilities, which remain available until September 2018, are also subject to formal agreements, including financial covenants with which the Company complied in full during the year.

-        Revenue and expenditure forecasts are reviewed by the Directors at each Board Meeting.

In considering the viability of the Company, the Directors carried out a robust assessment of the principal risks and uncertainties which could threaten the Company's objective and strategy, future performance and solvency, including the impact of a significant fall in equity markets or adverse currency movements on the Company's investment portfolio. These risks, their mitigations and the processes for monitoring them are set out above within Principal Risks and Uncertainties and Risk Mitigation and in the Report of the Audit Committee and in Notes 15 to 20 of the accounts within the Annual Report.

 

 

 

The Directors have also considered:

 

-        The level of ongoing charges incurred by the Company which are modest and predictable and that these were covered approximately 2.0 times by investment income and total 1.2% of average net assets;

-        Future revenue and expenditure projections;

-        The Company's borrowing in the form of fixed rate loans totalling €25 million, which are due to mature in September 2018, noting that the Company has a large margin of safety over the covenants on this debt and do not anticipate any difficulty extending or replacing this facility. This loan was covered 7.4 times by the Company's total assets at 31 March 2017;

-        Its ability to meet liquidity requirements given the Company's investment portfolio consists principally of Continental European quoted smaller companies which can be realised if required. It is estimated that approximately 95% of the portfolio could be liquidated within seven trading days;

-        The ability to undertake share buybacks if required;

-        That the Company's objective and policy continue to be relevant to investors; and

-        The Company has no employees, having only non-executive Directors and consequently does not have redundancy or other employment related liabilities (including pensions) or responsibilities.

These matters were assessed over a three year period to June 2020, and the Board will continue to assess viability over three year rolling periods, taking account of severe but plausible scenarios. In the absence of any adverse change to the regulatory environment and to the treatment of UK investment trusts a rolling three year period represents the horizon over which the Directors do not expect there to be any significant change to the Company's principal risks or their mitigation and they believe they can form a reasonable expectation of the Company's prospects.

 

Based on their assessment, and in the context of the Company's business model, strategy and operational arrangements set out above, the Directors have a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the three year period to June 2020. For this reason, the Board also considers it appropriate to continue adopting the going concern basis in preparing the Report and Accounts.

 

 

 

Statement of Directors' Responsibilities in Relation to the Financial Statements

 

In accordance with Chapter 4 of the Disclosure Guidance and Transparency Rules, the Directors confirm, in respect of the Annual Report and financial statements for the year ended 31 March 2017 of which this statement of results is an extract, that to the best of his or her knowledge:

 

·      the financial statements prepared in accordance with IFRS as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company;

·      the Strategic Report and the Report of the Directors include a fair review of the development and performance of the business and the position of the Company together with a description of the principal risks and uncertainties that it faces;

·      taken as a whole, the Annual Report and financial statements are fair, balanced and understandable and provide the information necessary for shareholders to assess the Company's position and performance, business model and strategy;

·      the financial statements include details on related party transactions; and

·      having assessed the principal risks and other matters discussed in connection with the Viability Statement, it is appropriate to adopt the going concern basis in preparing the financial statements.

 

 

 

On behalf of the Board

A R Irvine

Director

13 June 2017

 

 

 

Notes (audited):

 

1.         Accounting Policies

The financial statements of the Company have been prepared in accordance with the Companies Act 2006, International Financial Reporting Standards ('IFRS'), which comprise standards and interpretations approved by the International Accounting Standards Board ('IASB'), and International Accounting Standards and Standing Interpretations Committee interpretations approved by the International Accounting Standards Committee ('IASC') that remain in effect, and to the extent that they have been adopted by the European Union.

 

Where presentational guidance set out in the Statement of Recommended Practice ('SORP') for investment companies issued by the Association of Investment Companies ('AIC') is consistent with the requirements of IFRS, the Directors have sought to prepare the financial statements on a basis compliant with the recommendations of the SORP. 

 

The accounting policies adopted are consistent with those of the previous financial year, except that the following annual improvements to IFRSs have been adopted in the current year:

 

·      'Annual Improvements to IFRSs 2012-2014 Cycle'.  The adoption of these amendments did not have any impact on the current period or any prior periods.

 

The following new standards have been issued but are not effective for this accounting period and have not been adopted early:

 

·    In July 2014, the IASB issued the final version of IFRS 9 'Financial Instruments' which reflects all phases of the financial instruments project and replaces IAS 39 'Financial Instruments: Recognition and Measurements'. The standard introduces new requirements for classification and measurement of financial instruments, a new expected credit loss model for calculating impairment on financial assets, and hedge accounting.  IFRS 9 is effective for annual periods beginning on or after 1 January 2018, with early application permitted.  Retrospective application is required with some exceptions. The adoption of IFRS 9 is unlikely to have a material effect on the classification and measurement of the Company's financial assets or financial liabilities.

 

·    IASB has issued a new standard for the recognition of revenue, IFRS 15 'Revenue from Contracts with Customers'. This will replace IAS 18 which covers contracts for goods and services.  The new standard is based on the principle that revenue is recognised when control of a good or service transfers to a customer - so the notion of control replaces the existing notion of risks and rewards.  The standard permits a modified retrospective approach for the adoption.  Under this approach entities will recognise transitional adjustments in retained earnings on the date of initial application (eg 1 April 2018), ie without restating the comparative period.  They will only need to apply the new rules to contracts that are not completed as of the date of initial application.  The standard will be effective for annual periods beginning on or after 1 January 2018.  The Company is yet to assess IFRS 15's full impact but it is not currently anticipated that this standard will have any material impact on the Company's financial statements as presented for the current year.

 

·    The IASB issued amendments to IAS 7 'Statement of Cash Flows' as part of its Disclosure Initiative and these require an entity to provide disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities, including both changes arising from cash flows and non-cash changes.  The amendments do not prescribe a specific format to disclose financing activites; however, an entity may fulfil the disclosure objective by providing a reconciliation between the opening and closing balances in the statement of financial position for liabilities arising from financing activities.  On initial application of the amendments, entities are not required to provide comparative information for preceding periods.  These amendments are effective for annual periods beginning on or after 1 January 2017, with early application permitted. It is not currently anticipated that these amendments will have any material impact on the financial statements as presented for the current year.

 

The Company does not consider that the future adoption of any new standards, in the form currently available, will have any material impact on the financial statements as presented except for changes to disclosures.

 

2.         Return per Ordinary Share is based on a weighted average of 16,733,260 Ordinary Shares in issue during the year (2016: 16,733,260).

 

3.         The proposed final dividend of 6.50p per Ordinary Share, will be paid on 2 August 2017 to ordinary shareholders on the register at close of business on 23 June 2017.

 

4.         Excluding shares held in treasury there were 16,733,260 Ordinary Shares in issue at 31 March 2017 (2016: 16,733,260). 

 

5.         Financial Instruments

The Company's financial instruments comprise its investment portfolio, cash balances, bank loans, and debtors and creditors that arise directly from its operations. As an investment trust the Company holds a portfolio of financial assets in pursuit of its investment objective. The Company makes use of borrowings, as detailed in note 12 of the accounts (within the Annual Report) and the Chairman's Statement, to achieve improved performance in rising markets. The downside risk of borrowings may be reduced by raising the level of cash balances held.

 

The Company's principal risks are described within 'Principal Risks and Uncertainties and Risk Mitigation' above and within the Strategic Report in the Annual Report.

 

Financial risks arising from the Company's financial instruments are:

 

(i)       market price risk, being the risk that the value of investment holdings will fluctuate as a result of changes in market prices caused by factors other than interest rate or currency rate movements;

(ii)       interest rate risk, being the risk that the future cash flows of a financial instrument will fluctuate because of changes in market interest rates;

(iii)      foreign currency risk, being the risk that the value of investment holdings, investment purchases, investment sales, bank loans and accrued income will fluctuate because of movements in currency rates;

(iv)      credit risk, being the risk that a counterparty to a financial instrument will fail to discharge an obligation or commitment that it has entered into with the Company; and

(v)       liquidity risk, being the risk that the Company may not be able to liquidate quickly its investments to meet obligations associated with its financial liabilities.

Market Price Risk

Mitigation of market price risk is part of the fund management process and is typical of equity investment. The portfolio is managed with an awareness of the effects of adverse price movements through detailed and continuing analysis with an objective of maximising overall returns to shareholders. Further information on the investment portfolio is set out in the Annual Report.

 

Interest Rate Risk

Fixed Rate

The Company has two fully drawn fixed rate term loans with ING Bank N.V., one of €15 million, with a Sterling equivalent of £12.8 million as at 31 March 2017 (2016: £11.9 million), at a rate of interest of 2.90% per annum and one of €10 million with a Sterling equivalent of £8.6 million as at 31 March 2017 (2016: £7.9 million), at a rate of interest of 0.9275% per annum.

 

Floating Rate

When the Company retains cash balances, the cash is primarily held in accounts at the custodian. Interest received or paid on cash balances and bank overdrafts is at market rates and is monitored and reviewed by the Investment Manager and the Board. As at 31 March 2017, the cash position of the Company was £11.1 million (2016: £7.3 million).

 

Foreign Currency Risk

The Company invests in overseas securities and holds foreign currency cash balances and foreign currency borrowings which give rise to currency risks. It is not the Company's policy to hedge this risk.

 

Credit Risk

Credit risk is the risk that a counterparty to a financial instrument will fail to discharge an obligation or commitment that it has entered into with the Company. The Company has in place a monitoring procedure in respect of counterparty risk which is reviewed on an ongoing basis. The carrying amounts of financial assets best represent the maximum credit risk exposure at the balance sheet date.

 

Credit risk arising on transactions with brokers relates to transactions awaiting settlement. Risk relating to unsettled transactions is considered to be small due to the short settlement period involved and the financial stability and credit quality of the brokers used, which are monitored on an ongoing basis by the Manager. The Manager also monitors the quality of service provided by the brokers used to further mitigate this risk.

There were no significant concentrations of credit risk to counterparties at 31 March 2017 or 31 March 2016. No individual investment exceeded 3.7% of the investment portfolio at 31 March 2017 (2016: 3.9%).

A significant majority of the assets of the Company, including those that are traded on a recognised exchange, are held in segregated accounts on behalf of the Company by The Bank of New York Mellon SA/NV (London Branch), the Company's custodian. Bankruptcy or insolvency of this or other custodians may cause the Company's rights with respect to securities held by the custodians to be delayed. The Board monitors the Company's risk by reviewing the custodian's internal control reports.

 

6.         This announcement is not the Company's statutory accounts.  Statutory accounts for the year to 31 March 2016, which were unqualified, have been lodged with the Registrar of Companies.  The statutory accounts for the year to 31 March 2017 will be delivered to the Registrar of Companies following the Annual General Meeting to be held on 27 July 2017.

 

7.         The Annual Report and Accounts for the year ended 31 March 2017 will be posted to shareholders and are available for inspection at 80 George Street, Edinburgh EH2 3BU, the registered office of the Company, and on the Manager's website www.montanaro.co.uk

 

 

For further information please contact:

 

Montanaro Asset Management Limited

Tel: 020 7448 8600

 

 


This information is provided by RNS
The company news service from the London Stock Exchange
 
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Annual Financial Report - RNS