BGSC.L Regulatory News (BGSC)

Date: 22 June 2020

Contact: Peter Ewins

BMO Investment Business Limited

020 7628 8000

BMO Global Smaller Companies PLC

Audited Statement of Results

for the year ended 30 April 2020

50 years continuous dividend growth

Financial highlights

Net Asset Value with debt at market value ("NAV") total return of -13.8% beat the Benchmark return of -14.1%

The NAV fell to 119.70p from 140.57p*.

Share price total return of -16.5%

The share price ended the year at 111p*.

Dividend of 1.70 pence

50th consecutive annual increase, up by 3.0%.

Shares ended the year at a discount to the NAV of 7.3%

* The comparative figure has been restated due to the sub-division of each existing ordinary share of 25p into ten new ordinary shares of 2.5p each on 31 October 2019.

Chairman's Statement

The year under review, my last as your Chairman, has been a highly turbulent one for the financial markets. Following on from a succession of geo-political headwinds, the news that the coronavirus was spreading fast hit stock markets hard in the spring. Although the period since has been distressing and challenging for everyone to say the least, I am pleased to confirm that your Manager, BMO Investment Business Limited, has continued to operate as normal, with the investment and administrative teams all working effectively from home.

While quite rightly the tragic loss of life caused by the virus has been at the forefront of all our minds, the economic ramifications for governments and company management teams swiftly became apparent. Before the pandemic struck, the twists and turns of the US and Chinese trade war, Brexit, an election in the UK, political tensions in the Eurozone and a collapse in the oil price, to name but a few topics, had already created periodic bouts of volatility in the markets.

For most of the year however, equity markets had managed to push higher, helped by further cuts to interest rates, most notably in the US. However, once it became apparent that lockdowns would be required in Europe and the US, equity prices slumped in late February and March, although there was a partial recovery through April on the basis that the sell-off had gone too far.

With smaller company shares historically struggling at times of high market stress and ahead of recessions, it was perhaps not surprising that this turned into a difficult year for performance. The Company's Benchmark, a blended index of the returns from the MSCI All Country World ex UK Small Cap Index and the Numis UK Smaller Companies (excluding investment companies) Index in a 70/30% proportion, produced a -14.1% return for the year. The Net Asset Value ("NAV") taking the Company's long-term liabilities at market value fell by 13.8%.

Investment in equities should always be made taking a long-term perspective and while the fall in NAV this year was disappointing, shareholders should remember that it came after seven years of consecutive positive returns. The healthy long-term performance record of the Company is shown graphically on page 4 of the Report and Accounts and below in the table.

Source: BMO GAM

The discount

The share price of an investment trust, like any listed company, is determined by the forces of demand and supply from investors in the stock market. Late in the period in particular, as the market conditions deteriorated, we saw more than the usual number of the Company's shares being sold. As a result, the share price performed worse than the NAV over the year, delivering a -16.5% total return, and the discount therefore ended the period at 7.3% as compared with 4.3% a year earlier.

The Company actively seeks to control the discount via share buybacks, with repurchased shares placed into treasury for potential reissuance in the future. During the year a total of 14.9m shares were bought back, with the Company active on 57 trading days, and since the start of the new financial year a further 4.6m have been acquired. The aim is to get the discount back below 5% in normal market conditions, accepting that when the markets are especially volatile, as was the case in March this year, it may be appropriate to put buybacks on temporary hold.

Costs

Ongoing charges for the year fell to 0.75% due to the lower proportionate costs on the collectives and a slightly higher average assets figure used in the calculation.

Dividends

There has been much talk about dividends of late, with many companies in the UK and globally cutting or passing dividend payments as their business plans and cash flows have been severely impacted as a result of the lockdowns. Our investment portfolio, particularly the UK holdings, has not been immune and the earlier level of anticipated dividend income failed to materialise in the final quarter. However, for the full 2019/20 year, the Company's revenue return per share was 1.73p, down by just 2.3%.

The outlook for next year's dividend income from the portfolio is hard to predict, not least because the changes the Manager may have to make to the portfolio structure remain uncertain at this stage. The level of uncertainty is higher this year as it is unclear how many companies that have recently passed their dividends, will resume paying out and at what level when the lockdown period ends. At this stage it seems wise to expect a significantly lower revenue return per share in the next financial year.

One of the features of the last few years has been the strength of the Company's Income Statement, and not all dividend income received from holdings over prior years has been paid out, leading to the accumulation of substantial revenue reserves. These are available to support future dividend payments and at the end of April stood at £17.9m. Taking all things into consideration, but most importantly recognising the strength of these revenue reserves (which represent more than 1.7 times the annual dividend payout) the Board has decided to recommend the payment of an unchanged final dividend, so the full payment for the year is 1.7p per share, a 3.0% rise on last year's total.

If approved by shareholders at the AGM, this will be the 50th consecutive year of growth in the dividend, a record that few other trusts or companies can match. Looking forward, the revenue reserves in hand may be needed to support future dividends, but this, after all, is what they are there for.

Market and regional portfolio performance

A long-standing cause for investor concern has been the fractious relationship between the US and China. The imposition of an escalating series of tariffs on each other's goods, led to a general weakening of global industrial demand through the second half of 2019. While a "phase one" agreement in January between the countries defused some of the tensions, risks of further confrontation remain in what is an election year in the US. The US economy was slowing ahead of the arrival of the coronavirus. As elsewhere, the equity market here fell sharply in the spring and more than 30 million jobs have been cut already in the country. As in most other parts of the world, the Federal Reserve as Central Bank is making massive interventions in the financial markets and the government is stepping up direct cash support to those members of the population and companies impacted most by the crisis.

The UK political scene was far from becalmed too, with the Conservative party changing leadership and subsequently winning the general election in December which allowed Brexit to be voted through parliament early in 2020. European political tensions were also in evidence over the last year and the current crisis again risks more division between the south and north of the continent. European small caps held up better than their UK peers over the year, with the UK market enduring a particularly tough time in the last quarter.

Some of the key Asian markets performed better than those in the West, with Chinese stocks doing well so far in 2020 following the trade deal. Virus case numbers fell faster than we have yet seen in Europe, allowing for a more significant reopening of the economy. Japanese stocks proved resilient over the year, with generally low levels of corporate leverage supportive at this time, and the yen was strong, along with the US dollar.

In terms of sector performance, it was once again a good year for Technology and Health care stocks. Collapsing demand for oil as transportation market demand slumped, meant the opposite was the case for Energy stocks, and Industrial companies also tended to struggle. The market shake-out in February and March was particularly felt by companies with cyclical earnings and high borrowings. Investors moved into safer, more defensive stocks and those less impacted by the virus.

The Lead Manager's report on pages 12 to 22 of the Report and Accounts covers the background for the performance of the investment portfolio but the regional returns and those from the local smaller companies indices are shown below. Pleasingly these show that only in Japan were we behind the local market's performance.

Source: BMO GAM

*Performance of the Rest of World portfolio is shown here against both Asian and Latin American smaller company indices

Asset allocation

With so many uncertainties pertaining to the trade war and Brexit in particular, the Manager continued to take a cautious stance as regards asset allocation exposures. We were underweight the UK through the whole period, which given that it lagged other markets proved to be the right decision. We also benefited from being overweight to Japan, which provided a partial offset to the weak relative performance of our fund holdings there. With good performance towards the end of the financial year in Europe, we ended the year most overweight there, having taken some money more latterly out of Japan.

The percentages in brackets are as at 30 April 2019

Source: BMO GAM

Source: BMO GAM & MSCI

Gearing

As reported previously, in August 2019, the Company issued £35m private placing notes at a rate of 2.26%, providing long-term borrowings at a historically low rate. Through much of the year, the Manager made use of drawings under the Company's revolving credit facility to maintain a gearing level of around 5%. In March and April, in consultation with the Board, the drawings were repaid given the rapid deterioration in the outlook. The Manager and Board continue to assess when gearing should be re-established but at the end of April, the Company was effectively not geared, with cash in hand of some £41m.

The Board and succession planning

As reported last year, Jane Tozer, our Senior Independent Director, and I will be retiring immediately following the AGM on 30 July 2020. I would like to thank Jane for her support and valuable contribution over the years. Jane and I can assure you that we leave shareholders in very safe hands. Anja Balfour, who has been a Director for five years, will succeed me as Chairman while Jo Dixon will take over as Senior Independent Director. Two new appointments have been made; Nick Bannerman and Graham Oldroyd, both of whom joined on 1 October 2019.

It has been an honour and privilege to chair the Company since 30 July 2007 and I have taken great pleasure in watching it grow from net assets of £240 million to £726 million at 30 April 2020 with the Company having attained FTSE 250 status in 2017. I have been lucky enough to work with a talented and very likeable group of fellow directors throughout my tenure and had the pleasure of an excellent relationship with the ever-professional team at BMO. There have been several changes to that team, both personal and corporate, over the years but the one constant has been our Lead Manager, Peter Ewins. I count myself very fortunate to have worked so closely with him and, having learnt a lot, hold him in great esteem. It has also been a great pleasure to work with our very capable Company Secretary, Jan Baker, over many years. She has had a pivotal role that she has handled so well and now, like Jane and me, she has decided to retire after our AGM. She has served the Company and all its stakeholders well, so I know I speak for all the directors who have worked with her, both present and past, in wishing her a long and happy retirement.

Not only will I miss my colleagues and the BMO team greatly, but also you as shareholders and I am saddened that the restrictions on public gatherings mean that I will be unable to say farewell in person. Resolutions proposing the election of the two new Directors and the re-election of the longer serving Directors will be put to shareholders at the meeting. Further biographic details about them can be found on pages 38 and 39 of the Report and Accounts.

AGM

The AGM of the Company is currently scheduled to be held on Thursday 30 July 2020 at 125 High Street, Tonbridge TN9 1DD at 2.00 p.m. In view of the current restrictions on travel and social distancing the meeting will not be held in the usual format. It will be restricted, in accordance with the Company's articles of association, to the formal business of the meeting as set out in the Notice of the AGM on pages 86 to 87 of the Report and Accounts and as explained in more detail on pages 45 to 47 of the Report and Accounts and will follow the minimum legal requirements for an AGM. The Lead Manager's presentation will be pre-recorded and made available on the Company's website together with some frequently asked questions.

In light of the Government's current restrictions and social distancing measures, shareholders are strongly discouraged from attending the meeting and entry will be restricted and/or refused in accordance with the Articles, the law and/or Government guidance.

It should be noted that, in the light of these current circumstances, arrangements are being made for only sufficient Directors or their proxies to attend the AGM such that the meeting will be quorate and the formal business of the AGM may be transacted as quickly/efficiently as possible.

We would strongly encourage all shareholders to make use of the proxy form or form of direction provided in order that you can lodge your votes. Voting on all resolutions will be held on a poll, the results of which will be announced and posted on the Company's website following the meeting. In view of the revised format this year, should shareholders have any questions or comments in advance of the AGM these can be raised with the Company Secretary (GlobalSmallersCoSec@bmogam.com). These will be relayed to the Board and we will respond in due course.

The Board will keep the situation under review and any changes to the meeting or the location will be notified through the Company's website and announcements to the London Stock Exchange.

Outlook

Giving an outlook for market performance at this stage with any degree of conviction is very tough. A large number of companies held in the portfolio have withdrawn earnings guidance for 2020, rendering near term valuation metrics redundant. The harsh reality is that profits will be sharply down for many companies this year. Against this, the dramatic scale of Central Bank and government intervention is providing a great support to financial markets and seems set to stay. With the lockdowns being eased back, share prices have enjoyed a bounce at the start of the new financial year.

There will certainly be opportunities for valuation anomalies to be taken advantage of in the coming period. The Board takes comfort from the stable and experienced investment team in place at BMO, who will navigate the portfolio through these difficult times.

Anthony TownsendChairman19 June 2020

Principal Risks and Future Prospects

The Board's processes for monitoring the principal risks and identifying emerging risks are set out on page 53 and in note 26 to the Report and Accounts. Any emerging risks that are identified and that are considered to be of significance would be included on the Company's risk radar with any mitigations. These significant risks, emerging risks and other risks including Brexit, are regularly reviewed by the Audit and Management Engagement Committee and the Board. Most recently, consideration has been given to the potential impact from Coronavirus (COVID-19) and this is referred to in the Chairman's Statement and the Lead Manager's Review and in the table below. The principal risks are largely unchanged from those reported in the prior year. Those identified as most relevant to the assessment of the Company's future prospects and viability were those relating to the potential impact from COVID-19, inappropriate business strategy, potential investment portfolio under-performance and its effect on share price discount/premium and dividends, as well as threats to security over the Company's assets.

Principal Risk: Service providers and systems security - Errors, fraud or control failures at service providers or loss of data through business continuity failure or cyber attacks could damage reputation or investors' interests or result in loss. Cyber risks remain heightened.

Unchanged throughout the year.

Mitigation by strategy: The ancillary functions of administration, secretarial, accounting and marketing services are all carried out by the Manager.

The Board monitors effectiveness and efficiency of service providers' processes through internal efficiency KPIs.

Actions taken in the year: The Audit and Management Engagement Committee and the Board have regularly reviewed the Company's risk management framework with the assistance of the Manager. Regular control reports from the Manager covering risk, compliance and oversight of third-party service providers, including IT security and cyber-threats. Reports from the Depositary, which is liable for loss of any of the Company's securities and cash held in custody unless resulting from an external event beyond its reasonable control, were reviewed. The Board is satisfied that the continuity arrangements of all key suppliers including the registrar, depositary, custodian and auditor that are working well despite the current lockdowns. As such, this risk is unchanged.

Principal Risk: Investment performance - Inappropriate business strategy or policy, or ineffective implementation, could result in poor returns for shareholders. Failure to access the targeted market or meet investor needs or expectations, including ESG and climate change in particular, leading to significant pressure on the share price. Political risk factors could also impact performance as could market shocks such as those experienced in relation to COVID-19.

Increased during the year.

Mitigation by strategy: Under our Business Model, a manager is appointed with the capability and resource to manage the Company's assets, asset allocation, gearing, stock and sector selection and risk. The individual regional investment portfolios are managed to provide in combination a well-diversified, lower volatility and lower risk overall portfolio structure. The Board holds a separate strategy meeting each year and considers investment policy review reports from the Manager at each Board meeting.

The performance of the Company relative to its Benchmark, its peers and inflation is a KPI measured by the Board on a continual basis.

Actions taken in the year: BMO GAM has been retained as Manager and continues to deliver on the Company's objective and operates within a responsible investment culture under a corporate commitment to four key Sustainability Principles: Social Change, Financial Resilience, Community Building and Environmental Impact. With BMO GAM, the Company has the flexibility to innovate, adapt and evolve as ESG necessities and expectations change. Marketing and investor relations campaigns continued throughout the year, including presentations by the Lead Manager to wealth managers across the country. Detailed reports provided by the Lead Manager have been reviewed by the Board at each of its meetings. As reported in the Key Performance Indicators on page 11 of the Report and Accounts, long-term performance remains in line with expectations and the dividend for the year is fully covered. As a result of COVID-19, the Board has had an update from the Manager on a fortnightly basis. Nevertheless, the overall level of uncertainty around COVID-19 indicates that this risk has increased.

Principal Risk: Discount/premium - A significant share price discount or premium to the Company's NAV per share, or related volatility, could lead to high levels of uncertainty or speculation and the potential to reduce investor confidence. Increased uncertainty in markets due to the effect of COVID-19 could lead to falls and volatility in the Company's NAV.

Increased during the year.

Mitigation by strategy: The Board has established share buyback and share issue policies, together with a dividend policy, in order to moderate the level of share price discount or premium to the NAV per share and related volatility and seeks shareholder approval each year for the necessary powers to implement these policies.

The Company's premium/discount is a KPI measured by the Board on an ongoing basis.

Actions taken in the year: The discount widened during the year and a total of 14,924,799 shares were bought back in line with the Company's buyback policy. Economic and market uncertainty remains with this risk categorised as increased.

Five Year Horizon

Through a series of connected stress tests ranging from moderate to extreme scenarios including the impact of market shocks and based on historical information, but forward looking over the five years commencing 1 May 2020, the Board assessed the risks of:

• The potential impact of COVID-19.

• Potential illiquidity of the Company's portfolio.

• Substantial falls in investment values on the ability to maintain loan covenants and to repay and re-negotiate funding.

• Significant falls in income on the ability to continue paying steadily-rising dividends and maintaining adequate revenue reserves.

The Board also took into consideration the operational robustness of its principal service providers and the effectiveness of business continuity plans in place in particular given the current impact of COVID-19, potential effects of anticipated regulatory changes and the potential threat from competition.

Based on its assessment and evaluation of the Company's future prospects, the Board has a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the coming five years. This period is consistent with advice, provided by many investment advisers, that investors should invest in equities for a minimum of five years. The Company's business model, strategy and the embedded characteristics have helped define and maintain the stability of the Company over many decades. The Board expects this to continue and will assess viability over subsequent five year rolling periods.

Statement of Directors' Responsibilities in Respect of the Financial Statements

In accordance with Chapter 4.1.12 of the Disclosure Guidance and Transparency Rules the Directors confirm, in respect of the annual report for the year ended 30 April 2020 of which this statement of results is an extract, to the best of their knowledge that:

· the financial statements, prepared in accordance with applicable accounting standards, give a true and fair view of the assets, liabilities, financial position and loss of the Company;

· the Strategic Report includes 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; and

· in the opinion of the Directors the annual report and financial statements, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Company's position and performance, business model and strategy.

On behalf of the Board

Anthony Townsend

Chairman

19 June 2020

Income Statement

(i)Comparative figures for the year ended 30 April 2019 have been restated due to the sub-division of each existing ordinary share of 25p into ten new ordinary shares of 2.5p each on 31 October 2019.

(ii)Diluted returns were not calculated for the year ended 30 April 2020 as the CULS matured in July 2019.

The total column of this statement is the profit and loss account of the Company.

All revenue and capital items in the above statement derive from continuing operations.

The net return attributable to equity shareholders is also the total comprehensive income.

Statement of Changes in Equity

Balance Sheet

(i) Comparative figures for the year ended 30 April 2019 have been restated due to the sub-division of each existing ordinary share of 25p into ten new ordinary shares of 2.5p each on 31 October 2019.

(ii) Diluted Net asset values were not calculated for the year ended 30 April 2020 as the CULS matured in July 2019.

Statement of Cash Flows

Notes

1 Dividend

The Directors have proposed a final dividend in respect of the year ended 30 April 2020 of 1.15 pence per share, payable on 3 August 2020 to all shareholders on the register at close of business on 10 July 2020. The recommended final dividend is subject to approval by shareholders at the Annual General Meeting.

2 Financial Risk Management

The Company is an investment company, listed on the London Stock Exchange, and conducts its affairs so as to qualify in the United Kingdom (UK) as an investment trust under the provisions of Section 1158 of the Corporation Tax Act 2010. In so qualifying, the Company is exempted in the UK from corporation tax on capital gains on its portfolio of fixed asset investments.

The Company invests in smaller companies worldwide in order to secure a high total return. In pursuing the objective, the Company is exposed to financial risks which could result in a reduction of either or both of the value of the net assets and the profits available for distribution by way of dividend. These financial risks are principally related to the market (currency movements, interest rate changes and security price movements), liquidity and credit. The Board, together with the Manager, is responsible for the Company's risk management.

The full details of financial risks are contained in note 26 of the Report and Accounts.

3 Annual general meeting

The AGM of the Company is currently scheduled to be held on Thursday 30 July 2020 at 125 High Street, Tonbridge TN9 1DD at 2.00 p.m. In view of the current restrictions on travel and social distancing the meeting will not be held in the usual format. It will be restricted, in accordance with the Company's articles of association, to the formal business of the meeting as set out in the Notice of the AGM on pages 86 to 87 of the Report and Accounts and as explained in more detail on pages 45 to 47 of the Report and Accounts and will follow the minimum legal requirements for an AGM. The Lead Manager's presentation will be pre-recorded and made available on the Company's website together with some frequently asked questions.

In light of the Government's current restrictions and social distancing measures, shareholders are strongly discouraged from attending the meeting and entry will be restricted and/or refused in accordance with the Articles, the law and/or Government guidance.

It should be noted that, in the light of these current circumstances, arrangements are being made for only sufficient Directors or their proxies to attend the AGM such that the meeting will be quorate and the formal business of the AGM may be transacted as quickly/efficiently as possible.

We would strongly encourage all shareholders to make use of the proxy form or form of direction provided in order that you can lodge your votes. Voting on all resolutions will be held on a poll, the results of which will be announced and posted on the Company's website following the meeting. In view of the revised format this year, should shareholders have any questions or comments in advance of the AGM these can be raised with the Company Secretary (GlobalSmallersCoSec@bmogam.com). These will be relayed to the Board and we will respond in due course.

The Board will keep the situation under review and any changes to the meeting or the location will be notified through the Company's website and announcements to the London Stock Exchange.

4 Report and Accounts

This statement was approved by the Board on 19 June 2020. It is not the Company's statutory accounts. The statutory accounts for the financial year ended 30 April 2020 have been approved and audited, and received an independent auditors' report which was unqualified and did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying the report. The statutory accounts for the financial year ended 30 April 2019 also received an independent auditors' report which was unqualified and did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying the report.

The Report and Accounts for the year ended 30 April 2020 will be posted to shareholders and made available on the website bmoglobalsmallers.com. Copies may also be obtained from the Company's registered office, Exchange House, Primrose Street, London EC2A 2NY.

Legal Entity Identifier: 2138008RRULYQP8VP386

Information disclosed in accordance with Disclosure Guidance and Transparency Rule 4.1

By order of the Board

BMO Investment Business Limited, Secretary

Exchange House, Primrose Street, London EC2A 2NY

19 June 2020