Interim Results
November 14 2003 - 11:06AM
UK Regulatory
MONTANARO UK SMALLER COMPANIES INVESTMENT TRUST PLC
PRELIMINARY ANNOUNCEMENT OF UNAUDITED INTERIM RESULTS
The Directors announce the unaudited statement of results for the period 1
April 2003 to 30 September 2003 as follows:-
SUMMARISED STATEMENT OF TOTAL RETURN
(incorporating the revenue account*)
1 April 2003 1 April 2002
to 30 September 2003 to 30 September 2002
Revenue Capital Total Revenue Capital Total
�'000 �'000 �'000 �'000 �'000 �'000
Capital gains/
(losses) on
investments - 14,262 14,262 - (22,767) (22,767)
Dividends and 1,191 - 1,191 1,244 - 1,244
interest
Investment (189) (189) (378) (216) (216) (432)
management fee
Other expenses (108) - (108) (154) - (154)
Return before
interest
and taxation 894 14,073 14,967 874 (22,983) (22,109)
Interest payable and (122) (246) (368) (154) (154) (308)
similar charges
Return on ordinary 772 13,827 14,599 720 (23,137) (22,417)
activities before
and after taxation
Return per ordinary 2.10p 37.53p 39.63p 1.93p (62.05)p (60.12)p
share
* The revenue column of this statement is the revenue account of the Company.
The financial statements have been prepared using accounting standards and
policies adopted at the previous year end.
All revenue and capital items in the above statement derive from continuing
operations. No operations were acquired or discontinued in the period.
These financial statements are unaudited and are not the Company's statutory
financial accounts.
SUMMARISED BALANCE SHEET
As at As at As at
30 September 31 March 30 September
2003 2003 2002
�'000 �'000 �'000
Fixed asset investments 56,317 44,728 57,117
Net current assets 9,222 9,270 4,235
Long term credit facility (7,500) (10,000) (10,000)
Net assets 58,039 43,998 51,352
Less current period revenue (772) - (720)
Net assets for the purpose of 57,267 43,998 50,632
calculating the net asset value per
ordinary share
Net asset value per ordinary share 155.46p 118.00p 135.79p
SUMMARISED STATEMENT OF CASHFLOWS
1 April 2003 to 1 April 2002 to
30 September 30 September
2003 2002
�'000 �'000
Net cash inflow from operating activities 756 687
Servicing of finance
- Interest and similar charges paid (260) (319)
Net cash outflow from servicing of finance (260) (319)
Taxation
-Taxation recovered - 1
Net inflow from taxation - 1
Capital expenditure and financial investment
- Purchases of investments (15,246) (12,126)
- Sales of investments 17,697 10,038
Net cash inflow/(outflow) from capital
expenditure
and financial investment 2,451 (2,088)
Equity dividends paid (928) (690)
Financing
- Proceeds of credit facility - 2,500
- Repayment of credit facility (2,500) -
- Loan breakage costs (124) -
- Ordinary shares repurchased and cancelled (558) -
Net cash (outflow)/inflow from financing (3,182) 2,500
(Decrease)/increase in cash (1,163) 91
These financial statements are unaudited and are not the Company's statutory
accounts. Full financial statements for the year ended 31 March 2003 include an
unqualified audit report and have been delivered to the Registrar of Companies.
INVESTMENT MANAGER'S REPORT
Charles Montanaro commented:
"PERFORMANCE
Over the six months ended 30 September 2003, the Company's net asset value
("NAV") increased by 32% compared with a gain of 45% by the SmallCap.
From its low point in March 2003, the SmallCap has gained 53%. As investor
appetite for risk increased, the greatest gains came from high beta, cyclical
sectors such as companies in TMT, biotech and the internet, many of which are
loss making. It is the investment policy of the Company not to invest in
companies that are unprofitable. This largely explains recent relative
underperformance.
In contrast, over the past six months the FTSE AllShare ("FTA") rose by a more
modest 17%. The HGSC has outperformed the FTA by over 20% so far this year, a
comparable feat only seen twice before: in 1999 (+30%) and 1977 (+50%).
From the launch of the Company in March 1995 to the end of September 2003, the
SmallCap has risen by 40%. In comparison, the NAV of the Company has
appreciated by 58%.
REVIEW
On 12 March 2003, with war in Iraq looming, the SmallCap fell to 1,640 - a
level not seen in ten years and 54% below its peak on 4 September 2000.
However, by the end of June 2003 the SmallCap had recovered by almost 30%.
These gains were extended over the following quarter as investors enjoyed five
consecutive months of positive returns. The SmallCap reached a recent peak of
2,506 on 8 September 2003, a remarkable 53% above the low point just over six
months earlier. Following a roller coaster three-year period, the SmallCap is
currently 33% below its all-time high.
This was more than a post-war rally. Within a matter of weeks, market sentiment
completely reversed. With the benefit of hindsight, stock markets were
significantly undervalued in March 2003, discounting the risks of deflation and
a global recession that have since diminished. Several prominent investors and
strategists proclaimed the start of a new "bull" market. Private investors who
had poured money into ostensibly conservative bond funds at the start of the
year had a change of heart and ventured back into equities. Small companies
were the main beneficiaries.
OUTLOOK
The economic outlook for the UK is looking decidedly brighter than six months
ago. The year on year GDP growth at the end of September 2003 was 1.9%.
Deutsche Bank forecast that UK GDP growth will be the strongest within the EU,
increasing to 2.5% and 2.6% in 2004 and 2005 respectively. As a result, UK
interest rates may continue to rise over the coming months as indicated by the
recent increase to 3.75%, the first for four years.
Recent earnings results from UK companies have been broadly in line with
expectations. Analysts have tended to increase their forecasts, helping to
justify recent stock market gains. At 30 September 2003, the HGSC price /
earnings ratio stood at a 16.1x (not extreme by historic standards) and at a
discount of 8% relative to the FTA. In 1994/5, ahead of economic recovery in
the UK, small companies traded at a premium to large companies of around 5%.
The strong outperformance of quoted UK small companies this year highlights the
perils of being underweight during periods of recovery. With the economic
outlook for the UK looking increasingly positive, particularly in comparison
with the rest of Europe, it is likely that UK small companies will continue to
be in favour."
SIR BRANDON GOUGH
Chairman
14 November 2003
END