Montanaro UK Smaller Companies – Final Results

Montanaro UK Smaller Companies Investment Trust PLC (or the ‘Company’) announces its annual results for the year ended 31 March 2025 and the publication of its annual report and accounts for the same period, which includes the notice of its 2025 annual general meeting.

Highlights

for the year ended 31 March 2025

Performance

As at 31 March	2025	2024	% Change
Ordinary share price	97.00p	101.00p	(4.0)
NAV per Ordinary share1	105.86p	118.94p	(11.0)
Discount to NAV1	8.4%	15.1%
Gross assets1	£163.3m	£219.1m	(25.5)
Net assets	£150.8m	£199.1m	(24.3)
Market Capitalisation	£138.2m	£169.1m	(18.3)
Net gearing employed1	5.2%	2.7%

Chairman’s Statement

I am pleased to present the annual report of MUSCIT for the year ended 31 March 2025. This year also marks MUSCIT’s 30th anniversary.

Results

In the year to 31 March 2025, the Net Asset Value (“NAV”) of MUSCIT decreased by 6.9%. In comparison, the Numis Smaller Companies Index (excluding investment companies) (the “NSCI”) gained 2.3% and the NSCI including AIM decreased by 0.4%.

During the same period, the share price of MUSCIT returned 1.0% as the discount tightened from 15.1% to 8.4%. Compared with the NSCI including AIM, MUSCIT’s Share Price outperformed by 1.4%.

Since inception in 1995, the Company has delivered a cumulative NAV total return of 809%, significantly outperforming the composite benchmark which delivered a return of 571%.

Dividends

The Board believes it is important that the Company’s dividend policy continues to play a key role in attracting new investors and, in doing so, helps to narrow the discount.

While the Company’s primary investment objective and focus remain capital growth – and this has not changed – the Board recognised the evolving interest rate environment.

In December 2024, the quarterly dividend was increased from 1% to 1.5% of the Company’s NAV, equivalent to an annual yield of approximately 6%.

Based on the current discount of 8.4%, this implies a share price yield of 6.5%. This would place MUSCIT in the top 10 highest-yielding UK equity trusts out of over 400 and one of only seven strategies offering yields in excess of 6% (Source: Quoted Data).

Quarterly dividends continue to be calculated on the NAV on the last business day of the preceding financial quarter, being the end of March, June, September and December.

During the Financial Year, the Company paid four quarterly dividends amounting to a total of 5.43p per share, equivalent to 5.4% of the share price at the start of the year and 5.6% at the end of the period.

The Company holds substantial reserves which are available for distribution in future.

Costs

The Board remains highly focused on reviewing and managing costs. Effective from 31 December 2024, the investment management fee of 0.50% per annum is now calculated based on net assets rather than gross assets. The fee remains one of the most competitive within the UK SmallCap investment trust sector.

In addition, the Board conducts regular reviews of all service providers to ensure that fees remain competitive and at least aligned with market standards.

We are pleased to report that the Company’s Ongoing Charge has remained stable at 0.9%, despite a decrease in net assets during the Financial Year.

Share Buybacks

The Board is responsible for share buy-backs which are undertaken at arms’ length from the Manager. These are regularly considered by the Board and implemented when considered to be in the interests of shareholders as a whole.

In recognition of changing market dynamics, the Board confirmed its commitment to an active buyback policy, with the view to maintaining the discount in single digits in normal market conditions.

The share buyback authority was renewed at a General Meeting held on 31 March 2025.

During the financial year, the Company bought back 24,927,148 shares (14.9% of outstanding shares) which are held in Treasury.

In addition, during the life of MUSCIT, the Company has bought back and cancelled 29% of the shares outstanding.

Discount

Over the last financial year, the discount of MUSCIT’s share price to NAV, as shown in the graph on page 4 of the Annual Report, narrowed from 15.1% to 8.4%.

The Board and the Manager have worked hard to make MUSCIT attractive to private clients, including implementing a five-for-one share split in 2018; twice enhancing its dividend policy; reducing costs and increasing the focus on marketing. These initiatives are bearing fruit, with a growing number of retail investors now appearing on the share register. Over time, this broader ownership base should help to reduce discount volatility in MUSCIT’s shares.

Gearing

The Board, in consultation with the Manager, regularly reviews the gearing strategy of the Company and it approves the arrangement of any gearing facility. The ability to issue debt to gear the portfolio is a key feature of investment trusts that we believe offers a strong competitive advantage over open‑ended investment funds. Gearing can enhance investment returns to shareholders. The Board strongly encourages the Manager to actively use the gearing facility while delegating the decision on optimum levels to their discretion.

On 17 December 2024, the borrowing facilities were renewed with BNY Mellon for a period of two years. The interest rate on the £30 million revolving credit facility is calculated as the prevailing SONIA rate plus 1.3% (the bank margin).

At 31 March 2025, net gearing was 5.2%, a level that the Manager considered to be appropriate in light of the macroeconomic uncertainty and volatility in financial markets at that time.

Environmental, Social and Corporate Governance (“ESG”)

The Board and Montanaro believe there is a strong correlation between how well a business fares on ESG grounds and the value it creates for its shareholders. This is why ESG considerations form an integral part of the Manager’s assessment of a company’s “Quality” and have been fully integrated into the investment process for many years.

The depth of Montanaro’s commitment is perhaps best exemplified by the fact that they are one of the few UK asset managers to be a certified B Corporation – a certification Montanaro have held since 2019. Certified B Corporations are businesses that meet the highest standards of verified social and environmental performance, public transparency and legal accountability to balance profit and purpose. The certification was renewed for a further three years in 2022. Montanaro’s score rose from 81.8 to 105.5 (classified as “outstanding”), demonstrating their commitment to continual improvement.

An ESG Report is included on pages 7 to 8 of the Annual Report.

AGM

The Annual General Meeting will be held on Wednesday, 23 July 2025 at 10 a.m. at the office of Montanaro Asset Management, 53 Threadneedle Street, London EC2R 8AR. Shareholders are warmly invited to attend the Meeting where, after the formal business has been concluded, there will be an opportunity to meet and ask questions of the Board and the Manager.

Continuation Vote

The next Continuation Vote is scheduled to be held in 2027.

At the AGM held on 12 August 2021, over 99% of shareholders voted in favour of continuation of the Company for a further five years.

Directors’ Fees

In light of the adjustments to the investment management fee and reduced NAV of the Company, the Board has agreed to reduce Directors’ remuneration by 10% from 1 April 2025. This decision reflects the Board’s commitment to managing the Company’s costs. Directors are encouraged to invest a proportion of their remuneration in shares of the Company. We will continue to review remuneration levels to ensure they remain appropriate and competitive within our peer group.

Outlook

The financial year to 31 March 2025 was shaped by considerable turbulence, both in international relations and financial markets. The re-election of Donald Trump and the announcement of sweeping tariffs – dubbed “Liberation Day” measures – shocked the global economy, heightening volatility and damaging investor confidence. These developments have added considerable uncertainty to the global outlook and are reshaping established trading relationships in ways that are still unfolding.

Closer to home, the UK faced its own challenges. The Budget announcements in November 2024 and again in March 2025 were generally poorly received by the business community, with tax and minimum wage increases viewed as disappointing. These measures weighed on domestic sentiment and contributed to a difficult environment for UK smaller companies in particular. Growth companies faced the additional headwind of rising bond yields.

Nonetheless, as we look ahead, there are reasons for cautious optimism. Recent data show that UK GDP growth in Q1 2025 outperformed expectations, while inflation has come in below forecast. As a result, investor sentiment towards UK equities is perhaps beginning to improve from deeply depressed levels.

Furthermore, early signs suggest that a potential ‘brain drain’ from US universities – as international academics and students look elsewhere – could benefit the UK’s world-leading higher education sector and, over time, the broader economy. UK equity valuations – particularly among smaller companies – are close to generational lows compared to other major markets, while global investor allocations to UK equities remain exceptionally low. A combination of attractive valuations and improving sentiment could set the stage for a meaningful reappraisal of UK equities in the years ahead.

Against this backdrop, we remain confident that our portfolio of high-quality, resilient smaller companies – of which the overwhelming majority are unaffected by trade tariffs – offers attractive opportunities for long-term investors.

The Board and the Manager remain focused on delivering strong, sustainable returns while managing risk carefully in what continues to be an evolving and unpredictable environment.