## European Smaller Companies Trust plc
## Before you invest in a
## 
## 
### UPDATE INFORMATION
This is for internal use only
Client Name:
Montanaro European Smaller
Companies Trust plc
Document Type:
Annual Report 2023
YF No: Reference No:
YF072 DTP 1181
Tracked Version:
## 20
Time and Date Produced:
17:21 ~ 22 June 2023
## Annual Report and Accounts 2023
## The investment objective of Montanaro European Smaller
## Companies Trust plc (the ‘Company’ or ‘MESCT’) is to achieve
## capital growth by investing principally in Continental European
## quoted smaller companies.
## The Company’s benchmark index is the MSCI Europe ex-UK
## SmallCap Index (in sterling terms).
## The Company was launched in May 1981. Its current objective
## and investment policy were adopted in September 2006.
## Its Ordinary Shares are listed on the Main Market of the
## 


### Contents
This document is important
Highlights 1 Financial Report
and refers to certain matters on
 39
which voting action is required.
Strategic Report Statement of Comprehensive
Shareholders who are in any doubt as
Income 46
Chairman’s Statement 2 to what action to take should consult
Balance Sheet 47 an appropriate independent adviser
Manager's Report 4
Statement of Changes in Equity 48 immediately.
ESG Report 8
 49
Twenty Largest Holdings 10
If any shareholder has sold or
 50
Business Model and Strategy 12
transferred all their shares in the
Directors' Duties 19 Company, he or she should pass
 Disclosures 63 this document to the purchaser or
transferee or to the person through
Shareholder Information 64
Governance Report
whom the transfer or sale was

Board of Directors 23

Measures 66
Directors' Report 24 the transferee or purchaser.
Glossary of Terms 68
Corporate Governance Statement 29
 70
 32
 78
Directors’ Remuneration Report 35
Management Report and Directors’
Responsibilities Statement 38
Montanaro  page 1
## Highlights
### for the year ended 31 March 2023
### Performance
(1) (2)
Capital Returns% 1 year 3 year 5 year 10 year 
Ordinary share price (18.1%)^ 56.4% 72.0% 165.0% 331.1%
 (7.6%)^ 65.6% 75.9% 183.1% 363.4%
 (5.5%) 50.4% 19.7% 131.4% 178.0%
(1) (2)
Total Returns% 1 year 3 year 5 year 10 year 
Ordinary share price (17.6%)^ 59.2% 78.4% 193.5% 424.5%
 (7.1%)^ 68.7% 82.2% 212.1% 452.5%
 (3.2%) 58.7% 31.3% 177.1% 278.6%
.

|  | As at |  |  |  |
| --- | --- | --- | --- | --- |
| 31 March |  | 31 March |  | 12 month |
|  | 2023 |  | 2022 | % change |

Ordinary share price 137.6p 168.0p (18.1%)
 158.4p 171.5p (7.6%)
(1)
 (13.1%) (2.0%)
 299,975 324,905 (7.7%)
 260,652 318,238 (18.1%)
(1)
Net gearing employed 3.3% 4.6%

|  | Year |  | Year |  |
| --- | --- | --- | --- | --- |
|  | ended |  | ended |  |
| 31 March |  | 31 March |  | 12 month |
|  | 2023 |  | 2022 | % change |

Revenue return per Ordinary share 1.10p 0.96p 14.6%
Dividend per Ordinary share 0.970p 0.925p 4.9%
(1)
Ongoing charges 1.0% 1.1%
 14% 11%
  was appointed as Investment Manager.
 68 and 69.
(1)
 66 and 67.
(2)
 
SmallCap Index (in sterling terms).
 
page 2 Montanaro 
## Chairman’s Statement
### for the year ended 31 March 2023

| Results | The second half of the year saw these | The Trust also holds substantial revenue |
| --- | --- | --- |
| The MSCI Europe (ex-UK) Small Cap | headwinds fade as bond yields stabilised | reserves available for distribution, |
| Index (in Sterling terms) fell by -5.5% |  | which gives the Board the ability to |
| 31 March | lessen. It was therefore pleasing to | smooth any short-term income volatility. |
|  | see strong returns in both absolute | Moreover, the companies in the portfolio |
|  | and relative terms during the 6-month | continue to have strong balance |
| 158.4p per share. Over this period, the | period to 31 March | sheets and therefore do not face the |
| share price widened from a discount to | total return was 27. 8%, 7.9% ahead of |  |
| - |  |  |
| result, the share price total return of the |  |  |


Trust was -17.6%.The Board recognises
and 10 years your Trust has delivered
that while it is not out of line with the ESG

peer group, this change in discount is Montanaro believe there is a clear
outperforming the benchmark by 50.9%
 correlation between how well a business
and 35.0% respectively. Since Montanaro
to monitor it closely. fares on Environmental, Social and
were appointed in September 2006
Corporate Governance grounds and the
 
value it creates for its shareholders. This
 173.9% ahead of the benchmark and
is why ESG considerations have formed
monetary tightening by central banks 2.5% ahead of the benchmark on a per
an integral part of their assessment of a
increased the cost of capital globally. annum basis.

Such increases disproportionately
integrated into their investment process
 Earnings and Dividends
for many years.

| quality companies underperformed low | Revenue earnings per share rose to |  |
| --- | --- | --- |
| quality companies in Europe; and growth | 1.10p in the period (2022: 0.96p). | The depth of Montanaro’s commitment |
| companies underperformed value |  |  |

0.20p per share
companies. These style shifts created that they are one of the few UK asset
was paid on 5 2023. The Board
headwinds for the Trust as the Manager 

invests exclusively in high quality, growth 
dividend of 0.77p per share payable on
 that meet the highest standards of
15 September 2023 to shareholders on
 
the register on 18 2023. Subject
3%, performance, public transparency
to shareholder approval, this would
versus -19.3% for the benchmark. and legal accountability to balance
bring the total dividends for the year to

0.97p per share. The overall dividend
Montanaro have held since 2019 and
increase of 5% over last year’s dividend
which was renewed for a further three

years in 2023. Montanaro’s score rose
our investments and is made out of this
from 81.8 to 105.5 (a strong result),
year’s revenue reserves.
demonstrating their commitment to

Montanaro  page 3

|  | Administrator and Company Secretary | rescued. It should be little surprise then |
| --- | --- | --- |
| 8 and 9 | The Company has appointed, with | that stock markets have been so volatile. |
| the developments in Montanaro’s |  | The stock market indices do not tell the |
| approach and commitment to ESG as |  | full story: beneath the surface, we have |
| well as how they are interacting with |  | witnessed some of the biggest style and |
|  | Company Matters Limited and Link | factor swings in history. |



Borrowings respectively. On behalf of the Board and

The Board, in discussion with the the Manager, I would like to thank the
have predicted the combination of a
 entire team at Link for their service and
global pandemic, a Russian invasion
, regularly reviews the gearing commitment to the Trust.

strategy of the Trust and approves any
interest rates. Yet they have been
gearing facility. Gearing increases (or Communication with Shareholders
major drivers of stock markets since.
decreases) the returns from underlying Over the past few years, the composition
Montanaro believe that, rather than
 of our shareholder base has changed
attempting such predictions, investors
 
are best served by long-term ownership
of individual investors coming onto
The Board has set a maximum limit of high quality businesses that can thrive
the register via investment platforms.
on borrowing (net of cash) of 30% of and grow irrespective of the general
We continue to explore how best to
shareholders’ funds at the time of macroeconomic or political environment.
communicate with all our shareholders

irrespective of how they access us. We 
the Trust had borrowings (net of cash) of
 
3.3% compared to 4.6% at the beginning
open dialogue to keep all shareholders of easing, investors remain relatively
of the year. The Trust currently has

|  |  | up to date with key developments. |  |
| --- | --- | --- | --- |
| borrowings in the form of a | € 10 million |  |  |
|  |  | Our website – www.montanaro.co.uk/ | Europe ex-UK Small Cap Index has |



|  |  | trust/mesct – is continually updated | fallen below its long-term average and |
| --- | --- | --- | --- |
| down | € 15 million revolving credit facility, |  |  |
|  |  | with factsheets, reports, presentations, | sits at a 15% discount to LargeCap. |

both of which are due to mature on
webinar recordings and commentaries 
13 September 2023. The Board expect
as well as more details about the portfolio declined by more than a third
to replace these with new borrowings
Manager, investment philosophy and 

process. We encourage shareholders to of March 2023. This is more than the fall
visit regularly and welcome any feedback 
Shares
and suggestions. 
The Board actively tracks the level of
progress of the underlying businesses in

Annual General Meeting the portfolio and their share prices.
peers over the short and medium term

and how it compares with the average While doubtless the world will again

discount for the whole investment trust change in ways we cannot imagine in the
53 Threadneedle Street, London EC2R
sector. We recognise the discount is coming years, we believe that current
7 September 2023 at 11.00 am.
 
Shareholders are encouraged to attend
around this level since the shift in market for long-term investors. Together with
the Meeting where there will be an
sentiment against our quality growth the Manager’s disciplined investment
opportunity to meet and ask questions
investment style. It is not out of line with process, experienced team, and strong
of the Board and the Manager.
our peer group at this time and we have track record since being appointed in
made neither share buy backs nor share 2006, this allows us to look forward to
Outlook
issuances in line with our stated policies 
The last few years have been
which are set out on pages 27 and 28.
extraordinary. The aftershocks of
In line with those policies, the Board Covid-19 continue to be felt across the
R M CURLING
will seek to renew the Trust's share world and indeed by the companies in
Chairman
buyback and issuance authorities at the 
22
 within and between countries show,
sometimes tragically, little sign of
improving. Banks on both sides of the

page 4 Montanaro 
## Manager’s Report
Continental European Small v. LargeCap
(MSCI Europe ex UK SmallCap v. LargeCap indices, Net TR)
(rebased to 100 from 31 December 2000)
900
800
700
600
500
400
300
200
100
0
31 Dec 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 18 2221 31 Mar 17 19 20
2000 2023
MSCI Europe (ex UK) SmallCap (in GBP terms) MSCI Europe (ex UK) LargeCap (in GBP terms)

| The Attractions of Quoted European | The market for European smaller | Investment Philosophy and Approach |
| --- | --- | --- |
| Smaller Companies (‘SmallCap’) |  | We specialise in researching and |
| The key attraction of investing in smaller | large companies are analysed by | investing in quoted small companies. |
| companies is their long-term record of | more than 50 brokers, many smaller | We have a disciplined, two-stage |
| delivering higher returns to investors | companies in Europe have little or no | investment process which is applied to |
| than large companies. In the UK, over | coverage at all. This makes it easier | all the products we manage, including |
| the last 68 years, this has amounted | for those with a high level of internal |  |
| to an average of 3.1% per annum | resources to identify attractive, |  |


 undervalued investment opportunities

UK large companies on  1955 that are undiscovered by the wider
universe. We look for high quality
 investing community. This in turn
companies in markets that are growing.
 makes it possible to deliver long-term

 performance over and above that of
and experienced management; deliver
nearly seven times more. 
sustainably high returns on capital
There is less comprehensive data on employed; enjoy high and ideally
Montanaro
Europe – it only goes back to 2000. 
Montanaro was established in 1991.
However, this suggests that the SmallCap power and a strong market position;
We have one of the largest and most
 and provide goods and services that
experienced specialist teams in the UK
Continent: as the chart above illustrates, are in demand and likely to remain so.
dedicated exclusively to researching and
 We prefer companies that can deliver
investing in quoted small companies.
outperformed by 4.8% p.a. self-funded organic growth and remain
Our team of 38 includes 14 analysts
focused on their core areas of expertise,
Moreover, while European LargeCaps and 12 nationalities, which gives us
rather than businesses that spend a lot
have underperformed their US the breadth of resources and diversity
of time on acquisitions.

| counterparts, the same is not true for | of experience to conduct thorough |  |
| --- | --- | --- |
| SmallCaps. Since 2000, the MSCI Europe | fundamental research internally. | Conversely, we avoid those with |
| (ex-UK) Small Cap Index has delivered |  | stretched balance sheets; poor free |

31 March 2023, we were looking after
gross USD returns of 9.4% p.a. – ahead 

 or heavily adjusted accounts; unproven
the Investment Manager for your Trust
9.3% p.a. or unreliable management; or that face
since September 2006.
structurally challenged business models

Montanaro  page 5
 Once a company has been added to the Fortnox 
quality and ESG checklists. ESG has portfolio, our team conducts ongoing accounting systems to companies in
been integrated into our disciplined analysis. We will sell a holding if we Sweden. The stock performed well
investment process for almost believe that the company’s underlying on news of further price increases
 quality is deteriorating or if there has combined with continued success in
been a fundamental change to the attracting new customers. It has now
When we have found a company that
investment case or management. been a top three contributor for three
we believe is high quality, has structural
years in a row.
growth and is well managed from a In summary, we invest in well managed,
business and ESG perspective, it must be high quality, growing companies bought The year was not without some stock
approved by the Investment Committee at sensible valuations. We keep turnover price falls as well. Our three largest
before it can be added to the Montanaro and transaction costs low and follow detractors are detailed below:
 our companies closely over many years.
MIPS develops patented inserts for
We would rather pay more for a higher
We then determine the intrinsic value helmets, which protects the brain against
quality, more predictable company that
 
can be valued with greater certainty.
List, typically through a proprietary years of strong performance, destocking

 by helmet retailers led to a weaker year
investors by investing meaningful
 for the company, particularly in the
amounts of our own money alongside
 cycling market.


the Trust. QT Group

provides software tools used to design
and which we also believe are attractively
The Portfolio and build graphical user interfaces. The
valued are then eligible for inclusion in
31 March 2023, the portfolio consisted company saw a slowdown in developer


|  | of 49 companies of which the top ten | license sales as customers pushed |
| --- | --- | --- |
| We have an investment team of 17, | holdings represented 39%. Sector and | out the timing of new projects. We |
| including 14 sector and ESG specialists, | country distribution within the portfolio | grew concerned that the competitive |
| covering many languages. Utilising their |  | environment was also worsening and as |
| industry knowledge and a range of | weightings relative to the market are | a result we sold the position. |
| proprietary screens, they are continually | monitored, overweight and underweight |  |

ChemoMetec is a globally leading
searching for new ideas. With thousands positions are held based on where the
developer of cell counters that are used
of quoted companies from which to greatest value and upside are perceived
in the development of cell therapies. The
choose, we are spoiled for choice. to be.
share price declined due to a slowdown
We believe that a deep understanding in new instrument sales as the funding
Performance Attribution
of a company’s business model and the environment for cell-based therapy R&D
The year to 31 March 2023 saw strong
way it is managed are essential. We visit became more restrictive. Consumable
performances from some of our largest
our investee companies on a regular and service sales nevertheless continued
investments:
basis. We examine management’s past to grow.
Kitron is an Electronics Manufacturing
track record in detail as we seek to
Services (EMS) business with its Portfolio Changes
understand their goals and aspirations.
headquarters in Norway. The company We try to keep portfolio turnover as low
In smaller companies, the decisions
had an excellent year as supply chain as possible. However, we typically make
of the entrepreneurial management
constraints in the electronics industry a few changes each year as we identify
can make or break a company, which
eased, allowing Kitron to deliver orders new investment ideas that we expect
is why meeting them is so important.
that had built up during the pandemic. will provide stronger long-term returns
We look closely at the board structure;
the level of insider ownership; and than existing holdings. Companies that
Brunello Cucinelli is an Italian luxury
examine remuneration and corporate become too large, are acquired or where
goods company that is particularly
 the investment case deteriorates are
famous for its cashmere products. Its
also replaced with new ideas from our


in luxury sales worldwide led to the

repeatedly during the year, buoying the
share price as a result.
page 6 Montanaro 
## Manager’s Report continued
In the year to 31 March 2023, we exited
positions in companies including
Vitrolife, the developer of media and

company made an expensive acquisition 20232023 20222022
£0–£500m £0–£500m 6.3% 6.3% 8.9% 8.9%
and saw the departure of key executives.

|  | £500m–£1bn £500m–£1bn | 23.0% 23.0% | 9.5% 9.5% |
| --- | --- | --- | --- |
| Endor, which sells hardware used for | £1bn–£3bn £1bn–£3bn | 22.1% 22.1% | 46.3% 46.3% |
| sim racing, was sold as new competitors | £3bn–£5bn £3bn–£5bn | 26.9% 26.9% | 21.8% 21.8% |
|  | >£5bn >£5bn | 21.7% 21.7% | 13.5% 13.5% |

entered the market. Nolato, a third-party
manufacturer of plastic components,
was sold as the company grew its
tobacco heat-not-burn sales to levels
that we deem to be too high to pass our
ethical exclusion tests.
Technoprobe, the Italian developer
of probe cards used in the testing of

| semiconductors and Bachem, the Swiss | % |  |
| --- | --- | --- |
|  | 35 | 2023 |
| peptide contract manufacturer, were | 30 | 2022 |
| additions to the portfolio. | 25 |  |

20
15
Continual Improvement
10

| Each year we take time to look back at | 5 |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- |
| our successes and mistakes to assess | 0 |  |  |  |  |  |
| how our systems and processes can |  |  |  |  |  | Energy |
|  |  | Industrials | Financials | Real Estate | Materials |  |

Health Care
 rmation Technology Consumer Staples
Consumer Discretionary Communication Services
Our Investment Committee has for Source: Montanaro Asset Management Limited
many years played an important role as


List or, therefore, bought, until the
Investment Committee has agreed that it
Geographical Analysis (31 March)
meets our stringent quality and growth
%
 35
2023
process. The second stage is valuation, 30 2022
25
where the analysts determine whether
20

15
currently good investments. This year we 10
have introduced Investment Committee 5
0
oversight and approval for this second
Italy Spain
Sweden Norway France Belgium Finland Portugal
Germany Denmark
stage too. We believe this will help to Switzerland Netherlands
ensure consistency across the team with
Source: Montanaro Asset Management Limited
respect to forecast assumptions as well
as improving communication between
analysts and fund managers on this
Market Capitalisation of Holdings by Value (31 March 2023) Sector Distribution (31 March) critical topic.
Info
Montanaro  page 7

|  | Gearing |
| --- | --- |
|  |  |
|  |  |
| help us better manage and internally | the Board, is responsible for determining |
| communicate the large amounts of | the net gearing level of the Trust. The |
|  |  |
| 2022 we successfully moved our entire | of 3.3% (31 March 2022: 4.6%). |

research team from a legacy on-premise

| folder based system to a cloud based | How to Invest |
| --- | --- |
| system built within Microsoft Teams. | We have invested a great deal of time |
| This new system has better functionality, |  |
| organisation and security, as well as | available to all investors. We have |
| being globally accessible from anywhere | continued to grow our presence across |
| with an internet connection. Moreover, | the UK’s investment platforms and are |
|  | delighted to see a steady increase, year |
| opened up possibilities to collaborate | after year, in the Trust’s retail following. |
| and cross-reference which were not | With the Board, we have appointed |
| available before – we are scratching the | Marten & Co to provide sponsored |
| surface of this at the moment but already |  |
| developing some interesting tools as a | report published in March 2019 here: |
| result. Looking ahead, we are keeping | https://www.montanaro.co.uk/mesct- |
|  | quality-business/ and an update report |
| exploring how we can best utilise these | published in March 2022 here: |
| tools to improve our processes. | https://quoteddata.com/research/ |

montanaro-european-smaller-companies-
The systems overhaul has not been
unfazed-by-market-turmoil-mc/


|  |  |
| --- | --- |
| now have 24/7 threat monitoring and | invest, please refer to the website: |
|  | www.montanaro.co.uk/trust/mesct |

training including simulated phishing
attacks, on top of a state-of-the-art
software stack, throughout the company.
MONTANARO ASSET

22 2023
page 8 Montanaro 
## ESG Report
Montanaro continues to place great importance on evolving During the year, we engaged with a number of portfolio
and strengthening its approach to sustainable investing. 

Montanaro observed that it had received the lowest possible rating from
 the ESG research company MSCI. We wanted to understand
 the reasons for this and discussed with management how
much-improved score as noted in the Chairman’s Statement. the score might be improved in the future. We provided
 guidance on how the company could improve its sustainability
of social and environmental performance, transparency reporting and provide more detailed ESG data to shareholders,
and accountability. It is regarded as one of the toughest something ESG research companies such as MSCI require.

The provision of such information continues to be a challenge
Montanaro has become an accredited Living Wage employer.
for smaller companies who often have limited internal

Ethical Restrictions and ESG Analysis

Montanaro has a long track record of sustainable investing,
companies continue to submit corporate environmental data

to third-party organisations. There were a record number of
been managed. Ethical restrictions mean that we do not
sign-ups this year. We believe that we can achieve an even

higher disclosure rate in 2023.
of sales from products with negative societal impact such as
tobacco, gambling, armaments, alcohol, high-interest-rate 
lending and fossil fuels. Similarly, we do not invest in companies composition of the Board, which is 100% male. We are
that conduct animal testing unless it is required by law for pleased to report that the company has now set diversity and
healthcare or regulatory purposes. inclusion targets for 2027, including a goal of 30% women on
the executive leadership team. We will wait to hear how the
The analysis of Environmental, Social and Governance (ESG)
progress towards this goal develops.


Deep Dive research projects
understand the risks – and opportunities – that our companies
Led by our ESG & Impact Specialists, our Investment Team
may be exposed to, from factors such as climate change and

supply chain risks to the structure of company boards.

Deep Dive, focused on understanding how our companies
Active and long-term engagement
are responding to climate change and setting net zero carbon



part of this project, we conducted meetings with academics,

charities, and research organisations to better understand how

companies and their investors should appraise the positive and

negative impacts of their activities on the biosphere.
companies are run.


in the UK. Over 30 other CEOs from the companies in which we
invest joined us to learn and share experiences of setting net
zero carbon targets and the associated challenges. The event
was 
 and proved a huge success in stimulating further
action from our companies. Over 18% of the companies in the
portfolio

standard. This number was almost zero only a few years ago.
Montanaro  page 9
Continual investment During the year, Montanaro played an active role in the
 development of sustainable investing in the wider investment
 
 co-chaired by former Bank of England Governor, Mark Carney.
Our Head of Sustainable Investment sits on the Mainstream
Montanaro continued to achieve industry leading standards

over the last year, publishing our UK Stewardship Code

report, which again received successful signatory status by
expects companies to report on the transition to net zero.
We also continued our
commitments to responsible investing by signing the Tobacco 
 
invest in tobacco related companies, an ethical exclusion that 
Montanaro has had in place since inception). 

Signatory
date Initiative increased clarity to consumers navigating this space. The
development of this regulation is ongoing.

2009 We were involved in consultations related to the Taskforce on

. The objective
of the completed framework is to allow organisations to
2010 UK Stewardship Code report and act on evolving nature-related risks, with the aim
to support companies, investors, and lenders to shift global

 toward nature-positive outcomes.
2015

These industry standards and our participation in collaborative
initiatives allows us to stay abreast of the developments

2017 
changing area of the investment landscape and ensure that our
investment process evolves accordingly.
2019 B Corporation Our experience, the high level of in-house resource that we
have at our disposal and our belief that embedding ESG
factors into an investment process leads to better investment
 outcomes is fundamental to how we operate and our status
2019
 as a B Corporation. We look forward to sharing further
developments with you in the future.

2020
Initiative
MONTANARO ASSET
 MANAGEMENT LIMITED
2022
 22 2023
2022 
page 10 Montanaro 
## 
### as at 31 March 2023

| 1. NCAB | 9. VZ Holding | 15. Christian Hansen |
| --- | --- | --- |
| is a global full-service supplier of printed |  | is a leading developer of microbial |
|  | consultant and wealth manager. | solutions for the food, beverage, |

nutritional, pharmaceutical and

| 2. MTU Aero Engines | 10. Amadeus FiRe | agricultural industries. |
| --- | --- | --- |
| manufactures and maintains aircraft | is a leading personnel service company |  |
| engines and components. | in Germany, with integrated training and | 16. Tecan |
|  |  | develops automated instruments and |
| 3. Kitron |  | solutions that are used in laboratories. |
| is a leading Scandinavian Electronics | 11. CTS Eventim |  |
| Manufacturing Services (EMS) company. | is the market leading ticketing company | 17. Viscofan |
|  | in Europe, providing an online platform | is a global leader in the production of |
| 4. Fortnox | from which to sell tickets to a range of | casings for meat products. |
| is Sweden’s leading provider of | events such as operas and pop concerts. |  |
| cloud-based applications for accounting, |  | 18. Belimo Holding |
| invoicing and payroll administration. | 12. Sartorius Stedim | develops and manufactures electrical |
|  | is a world leading supplier of equipment | motorised control devices (actuators) for |
| 5. Melexis | and technologies used to produce | air and water. These are predominantly |
| is a leading designer of sensors, with | biopharmaceuticals. | used in large buildings with sophisticated |
| a particular focus on automotive |  |  |
| applications. | 13. Bachem |  |

is a leading manufacturer of peptides

| 6. Brunello Cucinelli | and oligonucleotides. | 19. MIPS |
| --- | --- | --- |
| is a luxury fashion company, particularly |  | develops patented inserts for helmets, |
| famous for its cashmere products. | 14. Atoss Software | which protects the brain against |
|  | develops and sells workforce | rotational motion. |
| 7. IMCD | management software in Europe. |  |
| is one of the world’s largest speciality |  | 20. Reply |
| chemical distributors. |  | is an Italian IT services company. |

8. Brembo
is a global leader in the design and
production of high end automotive
braking systems.
Montanaro  page 11
31 March

|  | 31 March |  | 31 March |  |  | 2023 | 31 March |  | 31 March |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  |  | 2023 |  | 2022 |  | % of |  | 2023 |  | 2023 |
|  |  | Value |  |  | investment |  |  | % of | Market cap |  |
| Holding Country |  | £’000 |  |  | portfolio |  | net assets |  |  |  |

 Sweden 15,643 18,810 5.0 5.2 887
 Germany 14,192 12,444 4.6 4.7 10,840
Kitron Norway 14,173 7,873 4.6 4.7 560
 Sweden 12,479 14,196 4.0 4.2 3,382
Melexis Belgium 12,144 5,678 3.9 4.0 3,767
Brunello Cucinelli Italy 12,016 6,730 3.9 4.0 5,437
IMCD Netherlands 11,235 10,494 3.6 3.8 7,518
Brembo Italy 9,972 6,394 3.2 3.3 3,910
 Switzerland 9,933 10,837 3.2 3.3 2,648
Re Germany 9,758 8,224 3.2 3.3 696
CTS Eventim Germany 9,356 8,395 3.0 3.1 4,846
Sartorius Stedim  8,674 13,205 2.8 2.9 22,802
Bachem Switzerland 8,091 – 2.6 2.7 6,066
 Germany 8,014 9,115 2.6 2.7 1,157
Christian Hansen Denmark 7,999 5,355 2.6 2.7 8,110
Tecan Switzerland 7,948 7,584 2.6 2.6 4,497
 Spain 7,250 5,682 2.3 2.4 2,692
Belimo Holdings Switzerland 7,222 7,515 2.3 2.4 4,800
 Sweden 7,142 15,030 2.3 2.4 1,069
Reply Italy 6,951 8,238 2.2 2.3 3,708
Twenty Largest Holdings 200,192 64.5 66.7
page 12 Montanaro 
## 
### Our objective is to achieve capital growth for our shareholders by investing principally
### in Continental European quoted smaller companies. We seek to invest in well managed,
### high quality, growth companies. We keep portfolio turnover low and follow our companies
### closely over many years.
INTRODUCTION 
The Company carries on business as an investment trust. Its The Company’s investment strategy is set out in its objective
Ordinary Shares are traded on the Main Market of the London and investment policy as set out below.
Stock Exchange. The Company has no employees but contracts
investment management and administration to appropriate Objective
external service providers, who are subject to oversight by the The Company’s objective is to achieve capital growth by
Board of Directors. The principal service providers during the investing principally in Continental European quoted smaller
year were: companies. The Company’s benchmark index is the MSCI
Europe ex-UK SmallCap Index (in Sterling terms).
 
‘Manager’), which was appointed as Investment Manager
Investment Policy
on 5 September 2006 and
The Company invests principally in quoted smaller companies
 on  2014.
within the European Union, Norway and Switzerland (but is not
restricted from investing in smaller companies quoted on other
 
European stock exchanges). In addition, the Company may invest in:
provided fund administration services during the year.
Companies listed on non-European stock exchanges that
### – Link Company Matters Limited, which provided company •

secretarial services during the year.
European securities, such as global depositary receipts,
### •
– Equiniti Limited which provided registrar services during
listed on other international stock exchanges; and
the year.
Debt issued by European governments or denominated in
### •
– Bank of New York Mellon (International) Limited which
European currencies.
provided depositary services during the year.

invest in all types of securities of companies, including (but

not limited to) equities, preference shares, debt, convertible
The Board of Directors is responsible for the overall
securities, warrants and other equity-related securities. The
stewardship of the Company, including investment and
Company may also invest, where appropriate, in open-ended
dividend policies, gearing, corporate strategy, corporate
collective investment schemes and closed-ended funds that
governance and risk management. Biographical details of the
invest in Europe. It is not intended that the Company will
Directors, all of whom are independent and non-executive, can
acquire securities that are unquoted or unlisted at the time of
be found on page 23. The Board consists of two male Directors
investment (with the exception of securities which are about to
and one female Director.
be listed or traded on a stock exchange). However, the Company
The Directors have considered their duties under section 172(1) of
may continue to hold securities that cease to be quoted or

listed if the Manager considers this to be appropriate.


found on pages 19 to 22.

evaluation and appointment of the Manager, which also acts as
not limited as to country or sector basis weightings, but no
the . The outcome of the evaluation in the current year is set
investment in the portfolio may exceed 10% of the Company’s
out on page 30.
total assets at the time of investment. The Company may
 
Established in 1991, Montanaro is a highly experienced 
specialist investor in quoted smaller companies. It has one portfolio management (i.e. solely for the purpose of reducing,
of the largest teams in the UK researching and investing transferring or eliminating investment risk in the Company’s
exclusively in quoted smaller companies and currently investments, including any technique or instrument used to
4 provide protection against currency and credit risks).
institutions. Montanaro’s investment philosophy and approach
is set out in the Manager’s Report on pages 4 to 7.
Montanaro  page 13
The Company borrows funds for investment to enhance 
returns over the long-term and may borrow in Sterling, Euros The Company complies at all times with Section 1158 of the
or other currencies. The Board has set a maximum limit on 
borrowing, net of cash, of 30% of shareholders’ funds at the 
time of borrowing. submits correct taxation returns annually to HMRC and settles
promptly any taxation due.
The Company’s portfolio will normally be fully invested.
However, during periods in which changes in economic The Board is fully committed to complying with applicable
conditions or other factors so warrant, the Company may legislation and statutory guidelines, including the UK’s Criminal
reduce its exposure to securities and increase its position in 
cash and money market instruments. The Company will not jurisdictions in which the Company operates.
invest more than 10%, in aggregate, of the value of its total
assets at the time of investment in other investment trusts 
 Diversity is an important consideration in ensuring that the
 Board and its committees have the right balance of skills,
experience, independence and knowledge necessary to
 discharge their responsibilities. The Board is composed
 solely of non-executive Directors and has one third female
presentation from the Manager together with a comprehensive representation. The Board’s approach to the appointment of
 
of compliance with investment restrictions during the reporting of having a diverse range of experience, skills, length of service
 and backgrounds. The Board will always appoint the best
31 March 2023 is contained in the Manager’s Report on pages person for the job and will not discriminate on the grounds of
4 to 7 and the 20 largest holdings are shown on page 10. gender, race, ethnicity, religion, sexual orientation, age, social
background or physical ability. The right blend of perspective is
 
The Company’s principal and emerging risks are set out in
detail on pages 14 to 17. 
The Board recognises that it is long-term share price returns that
 are most important to the Company’s shareholders. They are
The Company’s performance in meeting its objectives is largely driven by competitive portfolio returns and by keeping
 down the level of both the discount and ongoing charges.
out on page 1. Reviews of the Company’s returns during the
The Board uses a number of key performance indicators to

assess the Company’s success in pursuing its objectives.
and the outlook for the coming year are contained in the
They are as follows:
Chairman’s Statement on pages 2 and 3 and the Manager’s

### Report on pages 4 to 7, both of which form part of this •
both absolute and against the benchmark;
Strategic Report.

### •

Gearing; and
### •
The Company’s primary aim is to deliver capital growth to its
Ongoing charges.
### shareholders, rather than dividend income. In determining •
dividend payments, the Board takes account of income 
forecasts, brought forward revenue reserves, the Company’s 31 March
dividend payment record and the Corporation Tax rules 
governing investment trust status. These rules determine the 
minimum level of dividend which must be paid in order to shown below. The historic discount and ongoing charges
 
respect of the retention of distributable income. Dividends can
The Company’s performance for the year against the key
also be paid from the Capital Reserve from any surplus arising
performance indicators, together with the outlook for the
from the realisation of any investment. The Company has
coming year, is reported within the Highlights on page 1, the
revenue reserves which underpin any short-term reduction in
Chairman’s Statement on pages 2 and 3 and the Manager’s
dividend income.
Report on pages 4 to 7.
page 14 Montanaro 
## continued

1

|  | 6 months |  |  | 1 year |  | 3 year |  | 5 year |  | 10 year |  |  | ^ |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  |  |  | % |  | % |  | % |  | % |  | % |  | % |
| Montanaro European Smaller Companies Trust |  | 28.1 (18.1) 56.4 72.0 165.0 331.1 |  |  |  |  |  |  |  |  |  |  |  |

Share price
 27.6 (7.6) 65.6 75.9 183.1 363.4
 19.3 (5.5) 50.4 19.7 131.4 178.0
1
 
 
SmallCap Index (in sterling terms).
 68 and 69.
HISTORIC RECORD
Net assets  Ordinary (Discount)/ Dividends Ongoing
1
 per share Share price premium per share Charges ^
 60,022 344.0p 322.0p (6.4%) n/a 1.6%
31 March 2007 74,447 426.7p 404.0p (5.3%) 4.00p 1.8%
31 March 2008 69,061 401.6p 340.0p (15.3%) 4.00p 1.8%
31 March 2009 42,653 257.4p 220.8p (14.2%)  1.6%
31 March 2010 71,059 428.8p 373.0p (13.0%) 4.50p 1.7%
31 March 2011 88,837 536.0p 467.0p (12.9%) 4.50p 1.6%
31 March 2012 81,278 471.6p 405.0p (14.1%) 5.50p 1.5%
31 March 2013 93,009 559.2p 519.3p (7.1%) 6.75p 1.5%
31 March 2014 98,683 593.3p 540.0p (9.0%) 7.00p 1.5%
31 March 2015 95,751 572.2p 515.0p (10.0%) 7.50p 1.5%
31 March 2016 106,418 636.0p 540.0p (15.1%) 7.50p 1.4%
31 March 2017 136,050 813.1p 695.0p (14.5%) 8.25p 1.2%
31 March 2018 150,776 901.1p 800.0p (11.2%) 8.50p 1.2%
31 March 2019 169,141 1010.8p 890.0p (12.0%) 9.00p 1.2%
31 March 2020 160,123 956.9p 880.0p (8.0%) 9.25p 1.2%
31 March 2021 276,065 1,589.0p 1,610.0p 1.3% 9.25p 1.2%
10
31 March 2022 324,905 171.5p 168.0p (2.0%) 0.925p 1.1%
31 March 2023 299,975 158.4p 137.6p (13.1%) 0.970p 1.0%
 
 
^
 66.
1
 66.


and managing the emerging and principal risks faced by the Company. The Board carefully considers the Company’s principal
and emerging risks and seeks to mitigate these risks through continued and regular review, policy setting, compliance with and

Most of the principal and emerging 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.
32 to 34 summarises the Company’s internal control and risk management
arrangements. By means of the procedures set out in that summary, and in accordance with the Guidance on Risk Management,




those that would threaten its business model, future performance, solvency or liquidity.
Montanaro  page 15
The principal and emerging risks and uncertainties faced by the Company, and the Board’s mitigation approach are described below.
Notes 16 to 20
their management.
Principal Risks Mitigation
Investment and strategic risk:
Inappropriate strategy, including country and sector At each Board Meeting, the Manager discusses portfolio performance
and strategy with the Directors and performance against the benchmark
allocation and stock selection could lead to poor returns for
and the peer group is reviewed. The Manager also provides the Board
shareholders.

No material change in overall risk in year. 
the performance of the Manager and its terms of appointment annually.
Gearing:
 The Board is responsible for setting the gearing range within which the
Manager may operate and has set a maximum limit on borrowing, net
borrowings, which can enhance returns to shareholders in a
of cash, of 30% of shareholders’ funds at the time of borrowing. The
rising stock market. However, gearing exacerbates movements


|  | loan | € 10 million and a | €  |  |
| --- | --- | --- | --- | --- |
|  | mature in September 2023. As at 31 March 2023, |  |  | €  |
|  | down from the revolving credit facility. |  |  |  |
| No change in overall risk in year. | 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.

The Company invests principally in Continental European 
consequences of such risky events and the Board reviews the portfolio
quoted smaller companies and its principal risks are therefore
with the Manager on a regular basis. It is not the Company’s policy
market related with short term risk arising from the volatility
to hedge currency risk. The Board has also set investment restrictions
in the prices of the Company’s investments and foreign
and guidelines which are adhered to and reported on by the Manager.
exchange. Events such as terrorism, disease (such as a global
If required, it is also possible to raise the level of cash held, thereby
 
regulation and taxation, excessive stock market speculation, lower portfolio valuations. The portfolio’s liquidity is not managed on the
economic recessions, political instability and movements in 


 forced to buy or sell individual holdings at inopportune times. The
Manager constantly reviews the underlying liquidity of the portfolio,


risk at times when the liquidity of the underlying portfolio is
enhance its ability to execute and minimise liquidity risk.
poor, such as when smaller companies are out of favour or
The liquidity of the portfolio is monitored by the Manager and reported

to the Board, and market conditions and their impacts are considered.
is focused on investments in smaller European companies
where the opportunities may be more attractive than in larger The Company’s liquidity risk is managed on a daily basis by the Manager
companies but where overall portfolio liquidity may be more in accordance with established policies and procedures in place.


 
markets may impact the discount of the Company’s share price are included in notes  to 20 to the accounts.

No change in overall risk in year.
page 16 Montanaro 
## continued
Principal Risks Mitigation
Discount volatility:
 The Board and Manager actively monitor the discount of share price to



their peer group.
has stated its commitment to an active discount management policy,
 such that it will consider a buyback of shares where the discount of the
share price to the NAV per share is greater than 10% for a sustained

trusts. The Board receives regular reports on the discount level of the
Trust, its peer group, and the wider investment trust sector which informs
any decision to buy back shares. Any such transaction must be value
enhancing for shareholders and the Board will take into consideration

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 The Company Secretary and the Company’s professional advisers
provide reports to the Board in respect of compliance with all applicable
has been approved as such by HM Revenue & Customs subject
rules and regulations.
to it continuing to meet eligibility conditions and ongoing
 The Company complied with all applicable rules and regulations

capital gains. Breach of Section 1158 of the Corporation Tax
Regulation and the second Markets in Financial Instruments Directive

during the year.
chargeable gains.
The Administrator monitors the Company’s compliance with Section
Breach of regulatory rules could also lead to suspension of 
 the amount of proposed dividends to ensure the rules are not breached.
 The results are reported to the Board at each meeting.
No change in overall risk in year. The Administrator monitors compliance with the Listing Rules of the
Financial Conduct 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 Board and the Audit Committee receive regular reports on the
operation of internal controls to mitigate against the risk of failure,
the Company has no employees. The Company is therefore
including those at the Manager, the Administrator and the Custodian as
reliant on the services provided by third parties such as the
explained in more detail within Risk Management and Internal Control

on pages 32 and 33. These reports include controls over risks of cyber
of the Depositary). Disruption or failure of the Manager’s security. 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
service providers could lead to an inability to provide accurate
reports are also received from the Depositary which is responsible for the

safekeeping of all custodial assets of the Company.
or a breach of regulatory and legal regulations.
In addition, the manager is in regular contact with service providers
Cyber security risks and their impact on data security are
regarding business operations and continuity planning, and has
inherent in the operations undertaken by the company's reported no matters of concern.
third-party suppliers and risk disruption to business operations

No change in overall risk in year.
Montanaro  page 17
Principal Risks Mitigation
Cyber Security
The threat of cyber attack is regarded as being as important The Board monitors the preparedness of its service providers and is

as more traditional physical threats to business continuity and
report to the Board at each meeting that covers cyber risk. The Company
security. The Company has limited direct exposure to cyber

risk. However, the Company’s operations or reputation could
Manager around the security of data.

The annual review of the Administrator’s controls includes consideration
cyber security breach.

 are in place is requested on an annual basis from all third party service
providers.
Environmental, Social and Governance (“ESG”)
The key risk is that the Manager invests in a company which has 
and sustainability issues seriously. A strong and consistently applied
poor ESG practices. It is the Manager’s opinion that companies

with poor standards of ESG are likely to underperform over the
company in which the Manager considers investing.
long-term. Key ESG risks include:
An ethical framework excludes investment in companies that generate

Environmental


### •
Montanaro’s team of Research Analysts and the Manager only invests in
Resource depletion, including water those which pass the criteria set out in this Checklist, which is designed
### •
to cover the aforementioned Environmental, Social and Corporate
Waste and pollution
### • 
Social
Overview is provided by Montanaro’s Sustainability Committee, which
Working conditions, including no slavery or child labour
### • 
Health and safety with investee companies.
### •
Employee relations and diversity 
### •
considerations for new and existing investments.
Governance
Executive pay
### •
Board diversity and structure (in terms of age, gender,
### •
educational and professional background)

### •
Increased risk due to increased investor focus on this area.
Manager Montanaro has one of the largest specialist teams in the UK focusing
Should the Manager not be in a position to continue to manage on quoted European smaller companies. Montanaro operates a
team approach in the management of the investment portfolio which
the Company, performance may be impacted.
mitigates against the impact of the departure of any one member
No change in overall risk in year. of the investment team. The Manager keeps the Board informed of
developments within its business.
page 18 Montanaro 
## continued
 
### •
 facility of € 10 million, which is due to mature in September
Directors have assessed the prospects of the Company over 2023, noting that the Company has a large margin of safety
the coming three years. In order to assess the viability of the over the covenants on this debt. The Company also has
Company, the Board is required to assess its future prospects a € 15 million revolving credit facility which also matures
on 13 September 2023, of which € 5 million was drawn
and has considered that a number of characteristics of its
down as at 31 March 2023. This loan was covered 23 times
business model and strategy were relevant to this assessment:
by the Company’s total assets at 31 March 2023 and the
The Company’s objective is to achieve capital growth.
### • Board expect to renew its bank facilities at the end of their
The Company’s investment policy, which is subject to terms;
### •
regular Board monitoring, means that the Company
Its ability to meet liquidity requirements given the
### •
is invested principally in the securities of Continental
Company’s investment portfolio consists principally
European quoted smaller companies.
of Continental European quoted smaller companies
The Company is a closed-end investment trust, whose which can be realised if required. It is estimated that
### •
shares are not subject to redemptions by shareholders. approximately 81% of the portfolio could be liquidated
under normal conditions within seven trading days;
The Company’s business model and strategy is not time
### •
limited. The ability to undertake share buybacks if required;
### •
 That the Company’s objective and investment policy
### •
continue to be relevant to investors; and
operational arrangements:
The Company has no employees, having only
### The Company retains title to all assets held by the •
### •
non-executive Directors and consequently does not
Custodian under the terms of a formal agreement with the
have redundancy or other employment related liabilities
Depositary and Custodian.
(including pensions) or responsibilities.
The borrowing facilities, which remain available until
### •

September 2023, are also subject to formal agreements,
2026, and the Board will continue to assess viability over three

year rolling periods, taking account of severe but plausible
complied in full during the year.
scenarios. In the absence of any adverse change to the
Revenue and expenditure forecasts are reviewed by the
### • regulatory environment and to the treatment of UK investment
Directors at each Board Meeting.
trusts a rolling three year period represents the horizon over
In considering the viability of the Company, the Directors 
change to the Company’s principal risks or their mitigation and
carried out a robust assessment of the principal risks and
they believe they can form a reasonable expectation of the
uncertainties which could threaten the Company’s objective
Company’s prospects.
and strategy, future performance, liquidity and solvency,
 Based on their assessment, and in the context of the
adverse currency movements on the Company’s investment Company’s business model, strategy and operational
portfolio. These risks, their mitigations and the processes for arrangements set out above, the Directors have a reasonable
monitoring them are set out on pages 14 to 17 expectation that the Company will be able to continue in
Risks and Uncertainties and Risk Mitigation, pages 32 to 34 operation and meet its liabilities as they fall due over the
 
accounts. also considers it appropriate to continue adopting the going

The Directors have also considered:
The level of ongoing charges incurred by the Company
### •
which are modest and predictable and that these were
covered by investment income and total 1% of average net
assets;

### •
potential impact of reduced dividend income in the short
term as a result of market conditions;
Montanaro  page 19
## 
SECTION 172(1) 
Section 172(1) The importance of stakeholder considerations, in particular
Directors to act in good faith and in a way that is the most likely in the context of decision-making, is regularly considered by
to promote the success of the company. In doing so, Directors 
must take into consideration the interests of the various paper setting out the Directors' responsibilities under s.172(1)
stakeholders of the Company, the impact the Company has on 
the community and the environment, take a long-term view strategic planning discussions involve careful considerations
of consequences of the decisions they make as well as aim to of the longer-term consequences of any decisions and
maintain a reputation for high standards of business conduct their implications on shareholders and other stakeholders,
and fair treatment between the members of the Company. and are supported by detailed analysis based on various
scenarios, which include assumptions around the Company’s

contractual commitments; availability of funding; borrowing;
its Investment Objective and helps to ensure that all decisions
foreign currency management; as well as the wider economic
are made in a responsible and sustainable way. In accordance
conditions and market performance.
with the requirements of the Companies (Miscellaneous
Reporting) Regulations 2018, below, the Board explains how

the Directors have individually and collectively discharged their
The Board recognises that the Company has certain
duties under section 172(1)
responsibilities to its shareholders, stakeholders and wider
reporting period.

To ensure that the Directors are aware of, and understand, 
their duties they are provided with a tailored induction, endorses the Manager’s policy to invest the Company’s funds
including details of all relevant regulatory and legal duties in a socially responsible manner. Environmental, social and
 governance factors are an integral part of the investment
join the Board, and continue to receive regular and ongoing process. In addition, the Manager does not invest in companies
updates and training on relevant legislative and regulatory that it deems to be harmful to society or the environment; this
developments. includes companies involved in tobacco, fossil fuels, gambling,
adult entertainment, weapons manufacturing and alcohol.
They also have continued access to the advice and services
The Board monitors investment activity to ensure they are
of the Company Secretary, and when deemed necessary,
compatible with the policy and receives periodic updates from
the Directors can seek independent professional advice. The
the Manager on its initiatives and performance against its
schedule of Matters Reserved for the Board, as well as the

Terms of Reference of its committees are reviewed periodically
and further describe Directors’ responsibilities and obligations 
and include any statutory and regulatory duties. Investment, the UK Stewardship Code, the Carbon Disclosure

CULTURE 
 
Company’s culture and values and has worked to incorporate environmental performance, transparency and accountability.
these behaviours and processes into the annual review of the In 2021 Montanaro was invited to co-chair the B Corporation
Manager, strategic planning, the annual evaluation of Board Investment & Working Group and attended the UN Climate
– thus embedding 
consideration of stakeholders’ interests, long-term perspective, 
maintaining reputation for fairness and high standards of in the ESG Report on pages 8 to 9.
governance, corporate reporting and business conduct more
generally in the Company’s culture and processes. BUSINESS CONDUCT
Board policies are all reviewed on at least an annual basis, and


which can be found on pages 32 to 34 of this Report, further
explains how the Committee reviews the risk management
and internal controls of the Company. This includes reasonably
satisfying itself that relevant systems and controls in place

page 20 Montanaro 
## continued

The Board seeks to understand the needs and priorities of the Company’s stakeholders and these are taken into account during
all its discussions and as part of its decision-making. While as an externally managed investment Company, the Company does not
have any employees or customers, its key stakeholders include:
Stakeholders Why they are so important? Board engagement

| Shareholders Continued shareholder support |  | The Company has more than 1,200 shareholders. Over the |
| --- | --- | --- |
|  | and engagement are critical to | years, the Company has developed various ways of engaging |
|  | the existence of the Company | with its shareholders, in order to gain an understanding of the |
|  | and the delivery of the long-term | views of our shareholders. These include: |

strategy of the Company.
Annual General Meeting – The Company welcomes
### •

Meeting. The manager delivers a presentation and all
shareholders have an opportunity to meet the Directors
and ask questions. The Board greatly values the feedback
and questions it receives from shareholders and takes
action or makes changes as and when appropriate.
Presentations – The annual and interim results, as well
### •
as monthly factsheets are available on the Company’s

from the shareholders help the Company to evolve its
reporting, aiming to render the reports and updates
transparent and understandable; and
Investor Relations updates –
### •
the Directors receive updates on the share trading activity,
share price performance and any shareholders’ feedback,
as well as any publications or comments in the press.

The Manager The Manager’s performance Maintaining a close and constructive working relationship with
is critical for the Company to the Manager is crucial as the Board and the Manager both aim
successfully deliver its investment to continue to achieve consistent, long-term returns in line with
strategy and meet its objective. the Company’s investment objective. Important components in
the collaboration with the Manager, which are representative of
the Board’s culture are:
Encouraging open discussion with the Manager;
### •
Recognising that the interests of shareholders and the
### •
Manager are for the most part well aligned, adopting a
tone of constructive challenge, balanced when those
interests are not fully congruent by robust negotiation of
the Manager’s terms of engagement; and
Willingness to make the Directors’ experience available to
### •
support the Manager in the sound, long-term development
of its business and resources, recognising that the
long-term health of the Manager is in the interests of
shareholders in the Company.
Montanaro  page 21
Stakeholders Why they are so important? Board engagement
Other service providers, In order to function as an The Board maintains regular contact with its key external
including: investment trust with a premium providers, both through the Board and committee meetings, as
listing on the London Stock well as outside of the regular meeting cycle. Their advice, as well
the Company Secretary,
Exchange, the Company engages as needs and views are routinely taken into account. In addition,
the Administrator, the
Registrar, the Depositary, a diverse range of advisors for the Board also undertakes periodic reviews of the external
the AIFM, the Custodian support with meeting all relevant service providers and addresses any concerns raised in those
and the Broker obligations. reviews. It also holds relationship meetings and formally hears,
and acts on, their feedback, as appropriate.
Banks  In recognition of the importance of funding availability,
are crucial to the Company’s the Company aims to demonstrate to lenders that it is a
ability to take advantage of well-managed business, and in particular, that the Board
investment opportunities as they focuses regularly and carefully on the management of risk.
arise.
Institutional Investors The evolving practice and Recognising the principles of stewardship, as promoted by the
and proxy advisors support of the major institutional UK Stewardship Code, the Board welcomes engagement with all
investors and proxy adviser our investors. The Board recognises that the views, questions
agencies are important to the from, and recommendations of many institutional investors and
Directors, as the Company aims proxy adviser agencies provide a valuable feedback mechanism
to maintain its reputation and and play a part in highlighting evolving shareholders’
high standards of corporate expectations and concerns.
governance, which contributes
to the long-term sustainable
success of the Company.
Regulators The Company can only operate The Company regularly considers how it meets various
with the approval of its regulators regulatory and statutory obligations and follows voluntary
who have a legitimate interest and best-practice guidance, is mindful of how any governance
in how the Company operates decisions it makes can have an impact on its shareholders and
in the market and treats its wider stakeholders, in the short and in the longer-term.
shareholders.

| Community and | The Board recognises that it | Our engagement with the community and the environment can |
| --- | --- | --- |
| Environment | has a responsibility to the wider | be found on page 19 |
|  | environment and community. | pages 8 and 9. |

page 22 Montanaro 
## continued

172(1)
the related engagement activities are set out below:
Principal decision Stakeholder Considerations and Engagement
To approve  
dividends during the year 2010 which states that it must not retain more than 15% of its income for each accounting
period and the Board balanced its regulatory obligations with those of its shareholders.
interim dividend of 0.20 pence per ordinary
share0.77 pence per share, subject

Change of Company Secretary and The Board periodically evaluates all contracts and arrangements with service providers
Administrators and considers how the Company and its shareholders can best be served for its future

and the Company’s expected future requirements, the Board decided to change service
 2023.
The Chairman’s Statement on pages 2 and 3, the Manager’s Report on pages 4 to 7, the Twenty Largest Holdings on page 10, all
form part of this Strategic Report, which has been approved by the Board of Directors.
By order of the Board
LINK COMPANY MATTERS LIMITED
Company Secretary
22
Montanaro  page 23
## 

Richard Curling – Chairman of the Board and Chairman of the Nomination Committee
Date of Appointment: 2 November 2015
Richard was appointed to the Board as an independent non-executive director in
2015 and was appointed as Chairman of the Board on  2018. Richard has
over 30 years’ experience as a fund manager and is currently an investment director

trusts and small company investing.
Relevant skills and experience and reasons for re-election:
Richard has comprehensive experience of investment management and the wider
Investment Company sector. This has provided a strong basis for assessing, and where
appropriate challenging, the Manager, on the Company’s performance, and in leading


Caroline Roxburgh – Senior Independent Director and Chair of the Audit Committee
Date of Appointment: 8 November 2017


audit experience across a number of industries and sectors bringing extensive
experience to the Board. Caroline also holds a number of other board positions
including as a Non-Executive director of the Edinburgh Worldwide Investment

position on other Boards of which she is a member.
Relevant skills and experience and reasons for re-election:



to lead discussions regarding the Company’s risk management framework and risk
appetite and to contribute to developing the Company’s strategy. Her broad range


was appointed Senior Independent Director on 31 December
rigorous board evaluation process, the Board agreed that Caroline continues to be

Gordon Neilly – Non-Executive Director and Chair of the Remuneration Committee
Date of Appointment: 21 September 2020
Gordon is Executive Chairman of Whitet Europe, and
non-executive director of 
Stanprior to which he was Head of Strategy and Corporate
rd Investments, Co-Cer of Cantor
ald Europe, Chief Executive of Intelli C
Business Development Director of Ivory & Sime plc.
Relevant skills and experience and reasons for re-election:
Gordon has gained an in-depth knowledge of strategic matters, extensive leadership
skills and possesses a wealth of experience in business transformation and
developing strategies through his executive roles, particularly within the asset and
wealth management sectors and investment companies. Gordon’s diverse skill-set
and strategic awareness facilitates open discussion and allows for constructive
challenge in the boardroom, which brings a unique perspective and insight to the
ing a rigorous board evaluation process, the Board agreed that Gordon
continues ember of the Board.
page 24

Montanaro European Smaller Companies Trust plc

Annual Report and Accounts 2023

# Directors' Report

The Directors submit the Annual Report and Accounts of the Company for the year ended 31 March 2023.

## STATEMENT REGARDING ANNUAL REPORT AND ACCOUNTS

Following a detailed review of the Annual Report and Accounts by the Audit Committee and the Board, the Directors consider that, taken as a whole, it is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's position and performance, business model and strategy. In reaching this conclusion, the Directors have assumed that the reader of the Annual Report and Accounts would have a reasonable level of knowledge of the investment industry in general and investment trusts in particular. The outlook for the Company is set out in the Chairman's Statement on page 2. Principal risks can be found on pages 14 to 17, with further information on risk management objectives in notes 16 to 20 to the accounts.

## RESULTS AND DIVIDENDS

The results for the year are set out in this Annual Report and Accounts. An interim dividend of 0.20p per Ordinary Share was paid on 5 January 2023. The Board recommends a final dividend for the year of 0.77p per Ordinary Share payable on 15 September 2023 to shareholders on the register on 18 August 2023. The ex-dividend date will be 17 August 2023.

## PRINCIPAL ACTIVITY AND STATUS

The Company is registered as a public limited company in Scotland (registered number SC074677) and is an investment company within the terms of Section 833 of the Companies Act 2006. Its shares are quoted on the Main Market of the London Stock Exchange.

The Company carries on business as an investment trust and has been approved as such by HM Revenue and Customs, subject to it continuing to meet the relevant eligibility conditions and ongoing requirements. It is domiciled in Scotland. The Company intends to conduct its affairs so as to enable it to comply with the requirements.

## DISCLOSURE OF RELEVANT INFORMATION TO THE AUDITOR

Having made the requisite enquiries, so far as the Directors are aware, there is no relevant audit information (as defined by Section 418(3) of the Companies Act 2006) of which the Company's Auditor is unaware and each Director has taken all steps that ought to have been taken to make themselves aware of any relevant audit information and to establish that the Company's Auditor is aware of that information.

## RE-APPOINTMENT OF AUDITOR

PricewaterhouseCoopers LLP has expressed its willingness to continue in office as the Company's Auditor and resolutions proposing its re-appointment and authorising the Directors to determine its remuneration will be proposed at the Annual General Meeting (Resolutions 8 and 9). Further information in relation to the proposed reappointment can be found on page 73.

## DIRECTORS

Biographical details of the Directors, all of whom are independent and non-executive, can be found on page 23. The Directors' interests in the shares of the Company are shown on page 37.

Unless otherwise determined by ordinary resolution, the Company shall not have fewer than two, or more than ten Directors (disregarding alternate Directors). The Company or the Board may appoint any person to be a Director and a Director is not required to hold any shares of the Company. Any Director appointed by the Board shall hold office only until the next Annual General Meeting and shall then be eligible for election.

In accordance with the Company's Articles (the "Articles"), each Director must retire from office at the third Annual General Meeting after the Annual General Meeting at which he or she was last elected. However, as explained in more detail under the Corporate Governance Statement on page 29, the Board has agreed that all Directors will retire annually. Accordingly, Mr Curling, Ms Roxburgh and Mr Neilly will retire at the forthcoming Annual General meeting and, being eligible, offer themselves for re-election (Resolutions 5-7). Biographical details of all directors and their reasons for re-election are set out on page 23. The Board confirms that, following formal performance evaluations, the performance of all directors continues to be effective and demonstrates commitment to the role, and believes that it is therefore in the interests of shareholders that they are re-elected. In recommending these resolutions, the Board, supported by its Nomination Committee, has considered its current composition, to ensure the overall composition of the Board in terms of skills, experience and background is appropriate. No Director has a contract of service with the Company and no Director has any material interest in any contract to which the Company is a party.

## DIRECTORS' INDEMNITIES

For the financial year and as at the date of this report, indemnities are in force between the Company and each of its Directors under which the Company has agreed to indemnify each Director, to the extent permitted by law, in respect of certain liabilities incurred as a result of carrying out his or her role as a Director of the Company. The Directors are also indemnified against the costs of defending any criminal or civil proceedings or any claim by the Company or a regulator as they are incurred provided that where the defence is unsuccessful the Director must repay those defence costs to the Company. The indemnities are qualifying third party indemnity provisions for the purposes of the Companies Act 2006.

A copy of each deed of indemnity is available for inspection at the Company's registered office during normal business hours and will be available for inspection at the Annual General Meeting.
Montanaro  page 25
 
 formally reviewed the Manager’s appointment. In carrying
 out its review, the Board considered the skills, experience,
meeting by special resolution, the business of the Company resources and commitment of the Manager, together with
is managed by the Board, which may exercise all the powers the investment performance during the year and since its
of the Company whether relating to the management of the appointment. It also considered the length of the notice period
business of the Company or not. In particular, the Board may of the investment management agreement and the fees
exercise all the powers of the Company to issue shares or other 
securities and to borrow money and to mortgage or charge all opinion that the continuing appointment of Montanaro as
or any part of the Company’s assets. 

 Manager’s continued strong long-term performance despite
Each Director has a statutory duty to avoid a situation where the challenging markets for much of 2022 and the greater
they have, or could have, a direct or indirect interest which strength and depth of the Manager’s research team, as well as
 the stability and capability of the team, which provided strong
Director will not be in breach of that duty if the relevant matter 

Board has approved a protocol for identifying and dealing with 
 The Bank of New York Mellon (International) Limited acts as the
 Company’s Depositary and Custodian in accordance with the
 
monitoring, segregation and safe keeping of the Company’s
 
Montanaro provides investment management services to the compliance with investment limits and leverage requirements.

investment management agreement, Montanaro is entitled to 
receive a management fee of 0.9% per annum of the Company’s The Company’s capital structure is composed solely of Ordinary
market capitalisation (payable monthly in arrears). Montanaro Shares. The rights and obligations of shareholders are set out
 
 shares rank equally for dividends and entitlement to capital, and
by either party giving to the other not less than six months’ at a general meeting of the Company every shareholder who is
notice. The investment management agreement may be present in person or by proxy or by a corporate representative
terminated earlier by the Company provided that a payment shall have one vote for all of the shares of which they are the
in lieu of notice, equivalent to the amount the Manager would holder on a show of hands, and one vote for each share on a
otherwise have received during the notice period, is made. poll. Unless the Board decides otherwise, no member is entitled
in respect of any share held by them to vote (either personally

or by proxy or by a corporate representative) at any general
the size of the company as follows:
meeting of the Company if any calls or other sums presently
0.90% p.a. of the amount of the Company’s market payable by them in respect of that share remain unpaid or if
### •
 

0.75% p.a. of the amount of the Company’s market
### •


Company with information concerning interests in those shares
0.65% p.a. of the amount of the Company’s market
### • 


Company may by ordinary resolution from time to time
declare dividends in accordance with the respective rights
of the members, but no dividend can exceed the amount
recommended by the Board. Subject to the provisions of



page 26

Montanaro European Smaller Companies Trust plc

Annual Report and Accounts 2023

## Directors' Report continued

The Board may deduct from any dividend or other moneys payable to a member by the Company on or in respect of any shares all sums of money (if any) payable by them to the Company on account of calls or otherwise in respect of shares of the Company. The Board may also withhold payment of all or any part of any dividends or other moneys payable in respect of the Company's shares from a person with a minimum of 0.25% interest (as defined in the Articles) if such a person has been served with a restriction notice (as defined in the Articles) after failure to provide the Company with information concerning interests in those shares required to be provided under the Companies Act 2006.

There are no restrictions on voting rights and no restrictions concerning the transfer of shares in the Company except that certain restrictions may from time to time be imposed by laws and regulations (for example, insider trading laws). There are no special rights with regard to control attached to securities; no agreements between holders of securities regarding their transfer known to the Company; and no agreements to which the Company is a party that might change or fall away on a change of control or trigger any compensatory payments for Directors, following a successful takeover bid.

### SUBSTANTIAL INTERESTS IN SHARE CAPITAL

As at 31 March 2023, the Company had received notification of the following substantial holdings of voting rights (being only those received under the Financial Conduct Authority's Disclosure Guidance and Transparency Rules):

|   | Number of shares held | Percentage held  |
| --- | --- | --- |
|  Hargreaves Lansdown, stockbrokers (EO) | 27,913,689 | 14.74  |
|  Interactive Investor (EO) | 25,564,291 | 13.50  |
|  AJ Bell, stockbrokers (EO) | 11,413,351 | 6.03  |
|  RBC Brewin Dolphin Ireland | 9,625,391 | 5.08  |
|  Montanaro Asset Management | 9,000,000 | 4.75  |
|  1607 Capital Partners | 8,901,832 | 4.70  |
|  Brewin Dolphin, stockbrokers | 6,989,046 | 3.69  |
|  Transact (EO) | 5,949,845 | 3.14  |

The Company has not been advised of any changes to these notified interests between 31 March 2023 and the date of this report.

### CORPORATE GOVERNANCE

Full details of the Company's corporate governance arrangements are given in the Corporate Governance Statement, which forms part of this Directors' Report and can be found on pages 29 to 31.

### ACCOUNTING AND GOING CONCERN

The Financial Statements start on page 46 and the unqualified Independent Auditor's Report on the financial statements is on pages 39 to 45. Shareholders will be asked to approve the Annual Report and Accounts at the AGM (Resolution 1). In assessing the going concern basis of accounting, the Directors have had regard to the guidance issued by the Financial Reporting Council and have undertaken a rigorous review of the Company's ability to continue as a going concern.

The Directors have taken into account the Company's investment policy, which is described on pages 12 to 13 and which is subject to regular Board monitoring processes and is designed to ensure that the Company is invested mainly in liquid, listed securities. The Company retains title to all assets held by its custodian, and has financial covenants relating to its bank borrowings with which it complied during the year.

As part of the going concern review, the Directors have also considered the current cash position of the Company, the continued availability and likely refinancing of the fixed rate loan, the secured revolving credit facility, compliance with the Company's banking covenants, the Company's other liabilities and forecast revenues. In particular, the Directors considered the impact of disruptions arising from recent market factors on the company's liquidity, market values, bank covenants and continuity of operations.

Notes 16 to 20 to the accounts set out the financial risk profile of the Company and indicate the effect on its assets and liabilities of falls and rises in the value of securities, market rates of interest and changes in exchange rates.

The Directors believe, in light of the controls and review processes noted above and bearing in mind the nature of the Company's business and assets and liabilities, that the Company has adequate resources to continue in operational existence for a period of at least twelve months from the date of approval of the accounts. For this reason, they continue to adopt the going concern basis in preparing the accounts.

The Company's longer term viability is considered in the 'Viability Assessment and Statement' on page 18.

### FUTURE DEVELOPMENTS OF THE COMPANY

The outlook for the Company is set out in the Chairman's Statement on page 3.
Montanaro European Smaller Companies Trust plc Annual Report and Accounts 2023

page 27

#### GREENHOUSE GAS EMISSIONS

All of the Company's activities are outsourced to third parties. As such it does not have any physical assets, property, employees or operations of its own and does not generate any greenhouse gas or other emissions or consume any energy reportable under the Companies Act 2006 (Strategic Report and Directors' Report) Regulations 2013 or the Companies (Directors' Report) and Limited Liability Partnerships (Energy and Carbon Report) Regulations 2018, implementing the UK Government's policy on Streamlined Energy and Carbon Reporting. Under listing rule 15.4.29(R), the Company, as a closed ended investment fund, is exempt from complying with the Task Force on Climate related Financial Disclosures.

#### DONATIONS

The Company made no political or charitable donations during the year (2022: nil) to organisations either within or outside of the EU.

#### LISTING RULE DISCLOSURE

The Company confirms that there are no items which require disclosure under Listing Rule 9.8.4 in respect of the year ended 31 March 2023.

#### FINANCIAL INSTRUMENTS

The Company's financial instruments comprise its investment portfolio, cash balances, bank debt and debtors and creditors that arise directly from its operations, such as sales and purchases awaiting settlement and accrued income. The financial risk management objectives and policies arising from its financial instruments and the exposure of the Company to risk are disclosed in notes 16 to 20 to the accounts.

#### ANNUAL GENERAL MEETING

The Notice of Annual General Meeting to be held on 7 September 2023 is set out on pages 70 to 77.

#### Directors' Authority to Allot Shares (Resolution 10)

The Company's Articles empower the Directors to allot unissued shares. In accordance with section 551 of the Companies Act 2006, such allotments must be authorised by shareholders in a general meeting. Resolution 10 to be proposed at the forthcoming Annual General Meeting renews the Directors' authority, granted by shareholders at last year's Annual General Meeting, to allot new shares under section 551 of the Companies Act 2006. This authority will allow the Directors to allot shares up to an aggregate nominal amount of £947,138, representing an amount equal to approximately 10% of the Company's total issued ordinary share capital as at 22 June 2023 (being the latest practicable date before the publication of the Annual Report and Accounts) excluding shares held in treasury. This authority will expire at the conclusion of the Company's next Annual General Meeting, to be held in 2024 or, if earlier, on 30 September 2024.

#### Directors' Authority to Allot Shares other than on a Pre-emptive Basis (Resolution 11)

Resolution 11 to be proposed at the Annual General Meeting grants the Directors authority to allot new shares for cash and to dispose of treasury shares, up to an aggregate nominal amount of £947,138, representing an amount equal to approximately 10% of the Company's issued Ordinary Share capital (including treasury shares) as at 22 June 2023, without having to offer such shares to existing shareholders pro rata to their existing holdings. The authority also allows the Directors to take such steps as they consider necessary in relation to the treatment of overseas shareholders, treasury shares and fractional entitlements on pre-emptive share issues. This authority will expire at the conclusion of the Company's next Annual General Meeting to be held in 2024 or, if earlier, on 30 September 2024 and will enable the Company to issue new shares and to dispose of treasury shares at any price for cash, including where shares are being issued from treasury at a price representing a discount to the NAV per share at the time of issue. The Directors will only allot new shares pursuant to the authorities proposed to be conferred by Resolutions 10 and 11 if they believe it is advantageous to the Company's shareholders to do so and in no circumstances would it result in an overall dilution of the NAV per share. The Directors will only issue new shares at a price representing at or a premium to the NAV per share at the time of issuance. The Board's policy regarding the issue of shares from treasury is described on page 28. The Directors consider that the authorities proposed to be conferred by Resolutions 10 and 11 are necessary to retain flexibility and will be exercised only if, in the opinion of the Directors, it would be in the best interests of shareholders as a whole.

#### Directors' Authority to Buy Back Shares (Resolution 12)

The Company did not buy back any Ordinary Shares during the year. The current authority of the Company to make market purchases of up to 14.99% of the issued Ordinary Shares expires at the end of the Annual General Meeting and Resolution 12, as set out in the notice of the Annual General Meeting, seeks renewal of such authority. The renewed authority to make market purchases will be in respect of a maximum of 14.99% of the issued Ordinary Shares of the Company as at the date of the passing of the resolution, excluding treasury shares (approximately 28,395,197 Ordinary Shares). The resolution specifies the minimum and maximum prices which may be paid for any Ordinary Shares purchased under this authority. This power will only be exercised if, in the opinion of the Directors, a purchase would result in an increase in the NAV per share and be in the best interests of the shareholders as a whole. The Board's intention is to apply an active discount management policy, and to consider a buyback of shares where the discount of the 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
page 28 Montanaro 
## continued
transaction must be value enhancing for shareholders and the  2023, being the latest practicable date before
 
the liquidity of the Company’s shares. 189,427,600 Ordinary Shares in issue. No shares are held in

 Company is 189,427,6 0 0.
Shares which are bought back by the Company pursuant to
the share buyback authority may be cancelled or held by the 
Company in treasury and subsequently re-issued. It is the The Directors consider that the passing of each of the
Board’s intention that any shares bought back by the Company 
will be held in treasury. Shares held in treasury will not carry in the best interests of the Company and its shareholders as a
any voting rights, dividends payable in respect of them will be whole and they unanimously recommend that all shareholders
suspended and they will have no entitlements on a winding-up vote in favour of these resolutions.
of the Company.

It is the Board’s policy that shares will only be re-issued from




of the Directors that the Company will continue to conduct its
share provided that such discount is lower than the weighted


back by the Company. It is also the Board’s policy that shares 

The Board believes that the treasury shares policy will
improve liquidity in the shares and help to maintain the size LINK COMPANY MATTERS LIMITED
 Company Secretary
 22
per share within the parameters described above will, in
conjunction with the Company’s share buyback policy, ensure

and subsequently reissuing them from treasury will be an

Montanaro  page 29
## 
The Corporate Governance Statement forms part of the Directors’ Report.
INTRODUCTION the Board, and all Directors are encouraged to attend relevant
 training courses and seminars.

Individual Directors may, at the expense of the Company, seek

independent professional advice on any matter that concerns

them in the furtherance of their duties. The Company maintains



Board is formed of three independent non-executive Directors.
 Mr Curling is the Chairman of the Board and Chairman of the
 
 Committee and Senior Independent Director and Mr Neilly is
to shareholders. Chairman of the Remuneration Committee.
www.theaic.co.uk.




retire by rotation at least every three years, however, in
them relevant for investment companies. The UK Code is
accordance with corporate governance best practice as set out


www.frc.org.uk.

During the year, the Company has complied with all of the 
 General Meeting and Mr Curling, Ms Roxburgh and Mr Neilly

The Company is committed to maintaining the highest

standards of governance and will ensure that it continues to
meet all applicable requirements.

The Board ensures that it has the appropriate balance of

skills, experience, knowledge and independence in order to
Mr Curling was appointed to the Board as an independent

non-executive director in 2015, and as Chairman of the Board
members and considers all of the Directors to be independent.
on  2018. His biography can be found on page 23.


formal policy on tenure.
Chairman of the Nomination Committee. The Board believes
it is appropriate for Mr Curling to be a member of both The Board does not feel that it would be appropriate to set a
committees as he is considered to bring valuable experience, to 
 the Board or its Committees. Instead, the Board will regularly
review the size and structure of the Board with the aim of
 new directors bringing the challenge of fresh thinking into the
The Board has direct access to the services of the Company Board’s discussions. By doing so, the Board intends to maintain
Secretary who is responsible for ensuring Board and a broad range of experience in the Board, with Directors who
Committee procedures are followed and that applicable have served a range of periods on the Board of the Company.
regulations are complied with. The Company Secretary is also This will ensure that on each occasion the Board enters into
responsible to the Board for ensuring the timely delivery of new investment commitments, several members have direct
the information and reports which the Directors require and personal experience of negotiating previous commitments
that statutory obligations are met. with the Manager. This is intended to preserve the cumulative
replace Link Company Matters Limited as Company Secretary experience and deep understanding of the Company, its
on  2023. 
from new perspectives and helping to promote diversity of
 perspective. It is believed that the Directors provide, individually
 and collectively, the breadth of skill and experience to manage
Directors are considered by the Board to be independent of the the Company and ensuring its long-term sustainable success.

The basis on which the Company aims to generate value over

the longer term is set out in the Business Model and Strategy
Meeting after their appointment. New Directors receive an
on pages 12 to 18.
induction from the Manager and Company Secretary on joining
page 30 Montanaro 
## continued
The Board currently meets at least four times a year and, 
in addition, informally on a regular basis. It receives full The Manager, in the absence of explicit instructions from the
information on the Company’s investment performance, Board, is empowered to exercise discretion in the use of the
assets, liabilities and other relevant information in advance of Company’s voting rights. Environmental, social and governance
Board meetings. The Board has approved a formal schedule factors are taken into account by the Manager as part of its
of matters reserved for it, including, but not limited to: overall investment analysis and decision making processes. The
strategy, investment policy, capital structure, gearing and Board is pleased that the Manager has been a signatory of
monitoring the performance of the Manager. the UK Stewardship Code since its publication in 2010 and its
statement can be found on its website www.montanaro.co.uk.
The following table sets out the number of scheduled Board

and Committee meetings held during the year ended 31 March

2023 and the number of meetings attended by each Director.
environmental performance, transparency and accountability.
Number of  Remuneration Nomination
meetings attended Board Committee Committee Committee
COMMITTEES
R M Curling 4/4 2/2 1/1 1/1 The Board has established three committees to assist with
its operations. Throughout the year the following committees
 4/4 2/2 1/1 1/1

G Neilly 4/4 2/2 1/1 1/1
Remuneration Committee and the Nomination Committee.
The Board also met informally on a number of occasions during Each of the committees’ delegated responsibilities are clearly
the year. 
Company’s website https://montanaro.co.uk/trust/montanaro-
 european-smaller-companies-trust/.
During the year, the Directors undertook a formal and rigorous
performance evaluation and also considered the output 
from the previous year’s evaluation. The process was led by 32 to
the Chairman and was designed to assess the strengths and 34 and forms part of this statement.
independence of the board together with the performance of
its committees, the Chairman and individual Directors. 
The Remuneration Committee, chaired by Mr Neilly, comprises
The Board completed evaluation questionnaires which covered
the full Board and reviews the appropriateness of the

Manager’s continuing appointment and determines the level
composition, and corporate governance and were also intended
of Directors’ fees. The Directors’ Remuneration Report on
to analyse the focus of meetings and assess whether they are
pages 35 to 37 provides information on the remuneration
appropriate, or if any additional information may be required
arrangements for the Directors of the Company.
to facilitate future Board discussions. The evaluation of the
Chairman was carried out by the other Directors of the Company

and the process was led by the Senior Independent Director.
The Nomination Committee, chaired by Mr Curling, comprises
The results of the board evaluation process were reviewed and the full Board and is convened for the purpose of considering
discussed by the Board. The Board concluded that it remains the appointment of new Directors as and when considered
 appropriate. The Board is composed solely of non-executive
planning and assessing developments in the retail investors’ Directors and has one third female representation.
information needs and investment platforms as areas of focus.
The Directors will ensure it adheres to set objectives in relation
to the diversity of the Board as and when they seek to appoint
additional Directors, in the future. The Board considers the


in its recruitment and succession planning. The Company’s
Board diversity policy is shown on page 13.
Montanaro  page 31
In accordance withx 2.1, the below tables, in 
prescribed format, show the gender and ethnic background of In October 2015, the UK Government introduced the 2015
the Directors at the date of this Report. 
Company does not provide goods or services in the normal
Number Number of
of Board  senior positions course of business, and does not have customers or turnover.
Gender identity or sex members the Board on the Board

Men 2 66% 1 scope because it does not have turnover and is therefore not

Women 1 33% 1

 – – –
predominately of professional advisers and service providers

Number Number of
of Board  senior positions relation to this matter.
Ethnic background members the Board on the Board

White British or other White 3 100% 2
(including minority
Details of the principal risks and internal controls applied by
white groups)
the Board are set out on pages 15 to 17 and pages 32 and 33
Mixed/Multiple Ethnic Groups – – – respectively.
ish – – –

ribbean/ – – –
Details of the Company’s share capital structure and other
Black British
disclosures and details of substantial
Other Ethnic group – – –
interests are set out on pages 25 and 26.
 – – –
By order of the Board
The data in the above tables was collected through
self-reporting by the Directors.
The Board does not comply with the listing rule requirement
LINK COMPANY MATTERS LIMITED
for 40% women on the Board and a minimum of one ethnic
Company Secretary
minority Board member. The Board currently comprises three
65 Gresham Street
members, one of whom is a woman who holds a senior position
London
on the Board. The small size of the Board is a constraint to

achieving all of these targets but the Board will actively take this
22
into consideration in future recruitment.

The Company welcomes the views of shareholders and places
great importance on communication with its shareholders.
The Manager holds meetings with the Company’s largest
shareholders and reports back to the Board on these meetings.

shareholders every year and are available to meet other

Company provides a forum, both formal and informal, for
shareholders to meet and discuss issues with the Directors and




page 32 Montanaro 
## 
 
 The Board has established an ongoing process designed to
as a whole to have competence relevant to the sector in which meet the particular needs of the Company in managing the
the Company operates and at least one member with recent risks to which it is exposed, consistent with the related guidance
and relevant experience. 
 Montanaro’s Compliance and Risk department and Link provide
 
 covering administration, risk and compliance matters.
reference and comprises all the Directors. Given the size of the

Board, and Mr Curling’s experience, it is felt appropriate for him
the Company is exposed, the controls in place and the actions

being taken to mitigate them. The Board has a robust process

for considering the resulting risk matrix and reviews the


trust sector.
arising as a result.
 The Company’s principal risks and their mitigations are set out
 on pages 14 to 17, with additional information provided in notes
 16 to 20 of the accounts.
controls; and the terms of appointment and remuneration of
The integration of these risks into the consideration of the

18 was also fully
independence and objectivity.
considered by the Committee.

attendance at both meetings. The attendance of each of the 
members is set out on page 30. In the course of its duties The Board is responsible for the Company’s systems of internal
 
 Committee has reviewed and reported to the Board on these
 controls which aim to ensure that the assets of the Company
reviewed the following matters and reported thereon to are safeguarded, proper accounting records are maintained
 
publication is reliable.
The annual and half-yearly reports and accounts and
### •
results announcements; The key procedures which have been established to provide an
The accounting policies of the Company; 
### •
The principal risks faced by the Company and the 
### • •
 
management environment, including consideration of the the Board.


### •
 
### •
 management accounts, forecasts of income and
appointment, remuneration and terms of engagement; expenditure and detailed analysis relating to the
performance of the Company.
The implications of proposed new accounting standards
### •
and regulatory changes; The Bank of New York Mellon (International) Limited, as the
### •
Company’s Depositary, provides quarterly reports to the

### •
Board and carries out daily independent checks on cash

and investment transactions.
other service providers; and

###  •
### •
the custody of the Company’s investments. Lists of
and understandable.
investments held are reconciled to the Company’s records
on a regular basis and a report on controls, which is


Committee.
Montanaro  page 33
Investment management services are provided by 
### •
 
 
investment performance of the Company in comparison 
to its stated investment objective, the benchmark index 
and comparable investment trusts. The Board also 31 March
reviews the Company’s activities since the last Board 
Meeting to ensure that Montanaro adheres to the agreed it to qualify its audit report nor did it highlight any fundamental
investment policy and approved investment guidelines.


audit report which is included on pages 39 to 45.


of independent reporting accountants, and which is
table on page 34.



provides a semi-annual report to the Board.
The Committee regards the continued independence of the
Link are responsible for the provision of company auditor to be a matter of the highest priority. The Company’s
### •
secretarial, accounting and administration services to the policy with regard to the provision of non-audit services by

the external auditor ensures that no engagement will be


independent reporting accountants, for consideration by
the provision of the services would contravene any
###  •
regulation or ethical standard;
The Board reviews contracts with other third party service
### •
the auditor is not considered to be an expert provider of
### providers, including the standard of services provided, on a •
the non-audit services;
regular basis.
the provision of such services by the auditor creates a
###  •


 the services are considered to be likely to inhibit the
### •
updates on any material changes in the risk environment auditor’s independence or objectivity as auditor.
and regulatory requirements, and the action taken. These

procedures have been in place throughout the year and up
 2017 a cap on the level

of fees incurred for permissible non-audit services now applies

and should not exceed 70% of the average audit fee for the
to manage rather than eliminate risk and, by their nature, can
previous three years.
only provide reasonable, but not absolute, assurance against
The Committee amended its non-audit services policy in
material misstatement or loss.

The Board has previously reviewed the need for an internal
Standard 2019, resulting in a ‘whitelist’ of permitted non-audit

services as opposed to the former approach of a ‘blacklist’ of
it has decided that the systems and procedures employed
prohibited services.

management and internal audit functions, provide assurance
that a sound system of internal control, which safeguards
shareholders’ investment and the Company’s assets, is
maintained. In addition, reporting is also provided by the
Depositary with respect to their monitoring and oversight of the

therefore considered unnecessary.
page 34 Montanaro 
## continued

Matter Action
Investment Portfolio Valuation The Board reviews a full portfolio valuation at each Board meeting and, since the
The Company’s portfolio is invested in semi-annual reports
the shares of European quoted smaller 
companies. Errors in the portfolio valuation annual internal controls report, which is reported on by independent external
could have a material impact on the accountants, and which details the systems, processes and controls around the
Company’s net asset value per share. daily pricing of securities, including the application of exchange rate movements.
Misappropriation of Assets 
Misappropriation of the Company’s as referred to above, which details the controls around the reconciliation of the
investments or cash balances could have 
a material impact on its net asset value reviewed the Custodian’s annual internal controls report, which is reported on
 by independent external accountants, and which provides details regarding its


and Depositary.
Income Recognition 
Incomplete or inaccurate income report, as referred to above, which details the systems, processes and controls
recognition, including allocation between 
revenue and capital, could have an adverse income received for the year to the budget which was set at the start of the year
 and considered the accounting treatment of all special dividends received with
and earnings per share and its level of 
distributable revenue.
Annual Report and Accounts 
 advised the Board that it is fair, balanced and understandable and provides the
fair, balanced and understandable. information necessary for shareholders to assess the Company’s position and
performance, business model and strategy.
 
 31 March 2023 is Shujaat
 Khan’s second year as audit partner.


independent of the Company and has complied with relevant


performance will continue to be reviewed annually taking into
taken into consideration the standing, skills and experience of
account all relevant guidance and best practice.

 By Order of the Board


C A ROXBURGH
audit for the year ended 31 March


22 2023
the impact of a new auditing standard on the scope of the
planning documentation required.
Montanaro European Smaller Companies Trust plc Annual Report and Accounts 2023

page 35

# Directors' Remuneration Report

The Board consists solely of independent non-executive Directors. The Company has no executive Directors or employees. The level of Directors' fees is determined by the Remuneration Committee within the limits defined in the Articles of Association and approved by shareholders. Full details of the Company's policy with regards to Directors' fees, and fees paid during the year ended 31 March 2023, are shown below and on page 36. This shows all major decisions on Directors' remuneration and any substantial changes made during the year relating to Directors' remuneration, including the context in which any changes occurred. Under company law, the Auditor is required to audit certain disclosures provided. Where disclosures have been audited they are indicated as such. The Auditor's opinion is included in its report on pages 39 to 45.

## REMUNERATION COMMITTEE

The Remuneration Committee consists solely of independent non-executive Directors and determines the level of the Directors' fees in accordance with the AIC Code of Corporate Governance. The Company Secretary provides information on comparative levels of Directors' fees to the Remuneration Committee in advance of each review.

The members of the Remuneration Committee are Mr Curling, Ms Roxburgh and the Chair, Mr Neilly. As the Company has no executive Directors, the Committee meets annually to determine the level of Directors' fees and to review the performance of the manager. The outcome of the review of the Manager can be found on page 25. No director is involved in deciding their own remuneration outcome.

## ANNUAL STATEMENT FROM THE CHAIR OF THE REMUNERATION COMMITTEE (THE "COMMITTEE")

I am pleased to present the Directors' Remuneration Report for the year ended 31 March 2023.

During the year, the Committee reviewed the Remuneration Policy and the Directors' fees. The outcomes of each of these reviews can be found below.

## DIRECTORS' REMUNERATION POLICY

The existing Directors' remuneration policy was approved at the Company's Annual General Meeting in 2020.

The Company's policy is to remunerate Directors exclusively by fixed fees in cash at a rate which should reflect the responsibilities of being a non-executive Director, including the potential liabilities associated with the position, and the time committed by them to these responsibilities including, where appropriate, Board Committee duties. There were no changes to the policy during the year.

The fees for the non-executive Directors are determined within the limits set out in the Company's Articles of Association. The present limit is £200,000 in aggregate per annum and may not be changed without seeking shareholder approval at a general meeting. There is no performance related remuneration scheme and therefore non-executive Directors are not eligible for bonuses, pension benefits, share options, long-term incentive schemes or other benefits. Directors do not have service contracts, but new Directors are provided with a letter of appointment. These letters of appointment are available for inspection at the Company's registered office. The terms of Directors' appointments provide that they should retire and be subject to election at the next Annual General Meeting after their appointment. Under the terms of the Company's Articles of Association, Directors are obliged to offer themselves for re-election by shareholders by not later than the third Annual General Meeting after they were last elected. However, the Board has agreed that all Directors will retire annually and, if appropriate, seek re-election. There is no notice period and no provision for compensation upon early termination of appointment.

The Company has not received any views from its shareholders in respect of the levels of Directors' remuneration. The policy will remain in force until the Annual General Meeting of the Company in 2023, at which time a further resolution will be proposed to cover the period until 2026.

## Voting at Annual General Meeting on Directors' Remuneration Policy

The Directors' Remuneration Policy was last approved by shareholders at the Company's Annual General Meeting, held on 10 September 2020. 99.84% of votes were in favour of the resolution and 0.16% of votes were against. 0.05% of votes were withheld.

## FUTURE POLICY TABLE

Following a review of the level of Directors' fees, the Remuneration Committee concluded that, commencing 1 April 2023, the Chairman's fee be increased to £41,000 per annum, the Audit Committee Chairman's fee be increased to £35,500 per annum and other Directors' fees be increased to £29,500 per annum, the last increase having been made on 1 April 2022. These changes have been made following consideration of Directors' remuneration in the context of its peers and the wider investment trust sector, as well as the increased time commitment of Directors in order to fulfil their duties.
page 36

Montanaro European Smaller Companies Trust plc

Annual Report and Accounts 2023

## Directors' Remuneration Report continued

Based on these fees, Directors' fees for the forthcoming financial year would be as follows:

|   | 31 March 2024 | 31 March 2023  |
| --- | --- | --- |
|  Chairman | **£41,000** | £39,000  |
|  Audit Committee Chairman | **£35,500** | £33,500  |
|  Director | **£29,500** | £28,000  |

### APPROACH TO RECRUITMENT REMUNERATION

The principle adopted by the Committee in respect of recruitment of Directors is that the fees for a non-executive Director should reflect the responsibilities and time commitment required. The Committee seeks to encourage the enhancement of the Company's performance and to ensure that remuneration packages offered are competitive and designed to attract, retain and motivate Directors of the right calibre.

### Fees for services to the Company (audited)

|   | Fees £ |   | Taxable Benefits^ £ |   | Total £ |   | Total fixed remuneration £ |   | Total variable remuneration £  |   |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|   |  2023 | 2022 | 2023 | 2022 | 2023 | 2022 | 2023 | 2022 | 2023 | 2022  |
|  R M Curling | **39,000** | 36,050 | **1,511** | 1,675 | **40,511** | 37,725 | **39,000** | 36,050 | **1,511** | 1,675  |
|  C A Roxburgh | **33,500** | 30,900 | **1,727** | 672 | **35,227** | 31,572 | **33,500** | 30,900 | **1,727** | 672  |
|  G Neilly | **28,000** | 25,750 | **202** | 396 | **28,202** | 26,146 | **28,000** | 25,750 | **202** | 396  |
|  **Total** | **100,500** | 92,700 | **3,440** | 2,743 | **103,940** | 95,443 | **100,500** | 92,700 | **3,440** | 2,743  |

^ Comprises amounts reimbursed for expenses incurred in carrying out business for the Company.

No sums are paid to any third parties in respect of Directors' services and no sums were paid to any third parties in respect of advice from remuneration advisors. There have been no payments to past Directors during the financial year ended 31 March 2023, whether for loss of office or otherwise.

### Annual percentage change in remuneration of directors

Directors' pay has increased over the last four years, as set out in the table below:

|   | 2023 £ | Change % | 2022 £ | Change % | 2021 £ | Change % | 2020 £  |
| --- | --- | --- | --- | --- | --- | --- | --- |
|  Chairman | **£39,000** | 8.2 | 36,050 | 3.0 | 35,000 | 9.0 | 32,000  |
|  Audit Committee Chairman | **£33,500** | 8.4 | 30,900 | 3.0 | 30,000 | 11.0 | 27,000  |
|  Director | **£28,000** | 8.7 | 25,750 | 3.0 | 25,000 | 9.0 | 23,000  |

The requirements to disclose this information came into force for companies with financial years starting on or after 10 June 2019 and, as such, this is the third year the Company has disclosed this information. The comparison will be expanded in future annual reports until such time as it covers a five year period.

The Company does not have any employees and therefore no comparisons are given in respect of Directors' and employees' pay increases.

Any new non-executive Director would be paid on the same basis as the existing non-executive Directors. As noted above the aggregate level of Directors' fees must not exceed a set limit, as set out in the Company's Articles of Association, which is currently £200,000 per annum.

### ANNUAL REPORT ON DIRECTORS' REMUNERATION

#### Directors' Emoluments for the Year (audited)

The Directors who served during the financial year received the following amounts for services as non-executive Directors for the years ended 31 March 2023 and 31 March 2022 as well as reimbursement for expenses necessarily incurred. No other forms of remuneration were paid during the year.

#### Statement of implementation of Remuneration Policy in respect of the financial year ending 31 March 2024

The Committee will, as usual, review Directors' fees during 2023/24, including the time required to be committed to the business of the Company, and will consider whether any further changes to remuneration are required.
Montanaro  page 37

| Relative Importance of Expenditure on Pay | Total Return and Benchmark Performance** |
| --- | --- |
|  | (rebased at 100 on 31 March 2013, GBP) |
|  | 500 |
| To enable shareholders to assess the relative importance of | 450 |
| expenditure on Directors’ remuneration, the table below shows | 400 |
| the actual expenditure during the year in relation to Directors’ | 350 |
|  | 300 |
| expenses and shareholder distributions: | 250 |

200
2023 2022 Change
150

|  | £ |  | % |  |  |
| --- | --- | --- | --- | --- | --- |
|  |  |  |  | 100 | Share Price Total Return |
|  |  |  |  |  | Benchmark Total Return |

50
Remuneration 100,500 92,700 8.9
2013 2014 2015 2016 2017 2018 20232022202120202019
Management and other
 2,918,000 3,728,000 (21.7)  

Dividends paid to (in Sterling terms). This benchmark was selected because it is the most
shareholders 1,752,000 1,637,000 7.0 commonly used index for SmallCap investors.
 
Voting at Annual General Meeting on Annual Report

Directors’ Shareholdings (audited)
8 September

on Directors’ Remuneration for the year ended 31 March 2022.
interests in the shares of the Company were as follows:
99.55% of votes were in favour of the resolution and 0.45%
were against. 0.24% were withheld.

|  | As at |  |  |  |
| --- | --- | --- | --- | --- |
| 31 March 2023 |  | 31 March 2022 |  |  |
| No. of shares |  | No. of shares |  |  |

on Directors’ Remuneration will be put to shareholders at the
R M Curling  150,000 100,000

|  | ^ |  |  |
| --- | --- | --- | --- |
|  |  |  62,352 61,885 |  |
| G Neilly  61,867 61,496 |  |  | By Order of the Board |

^ Includes 1,654 shares held in Ms Roxburgh’s spouse’s name
There is no requirement for Directors to hold shares in the

| Company. There have been no changes in the Directors’ | G NEILLY |
| --- | --- |
| interests in the shares of the Company between 31 March 2023 | Director |
| and  2023. | 22 2023 |

Company Performance
The Board is responsible for the Company’s investment
strategy and performance, although the management of the
Company’s investment portfolio is delegated to Montanaro
through the investment management agreement, as referred
to in the Report of the Directors on page 25. The graph below
31 March 2023, the
share price total return (assuming all dividends are reinvested)
to shareholders compared to the return from the benchmark

for the year ended 31 March 2023 is given in the Chairman’s
Statement and the Manager’s Report.
page 38 Montanaro 
## 
 The Directors are responsible for keeping adequate accounting
 
 transactions and disclose with reasonable accuracy at any
(the ‘Rules’) to include a management report in their annual 
 
management report for the purpose of the Rules is included 
in the Chairman’s Statement (pages 2 and 3), the Manager’s safeguarding the assets of the Company and hence for taking
Report (pages 4 to 7), Twenty Largest Holdings (page 10), reasonable steps for the prevention and detection of fraud and
the Business Model and Strategy (pages 12 to 18) and the other irregularities.
Directors' Report (pages 24 to 28). Therefore, a separate
management report has not been included. 

 
 


### •

, give a true and fair view of the assets, liabilities,
United Kingdom law and 

. The Directors are also required to prepare
the Strategic Report (comprising the Chairman’s Statement,
### a Strategic Report, Directors’ Report, Directors’ Remuneration •

Report and Corporate Governance Statement.

Under company law, the Directors must not approve the and Strategy) and the Report of the Directors include a
 fair review of the development and performance of the
a fair, balanced and understandable report and provide business and the position of the Company together with a
the information necessary for shareholders to assess the description of the principal risks and uncertainties that it
Company’s performance, business model and strategy. In faces;


### •
statements are fair, balanced and understandable and

### •
provide the information necessary for shareholders to

assess the Company’s position and performance, business
Errors’ and then apply them consistently;
model and strategy;
present information, including accounting policies, in a
### •

### manner that provides relevant, reliable, comparable and •
transactions; and
understandable information;
having assessed the principal risks and other matters
### provide additional disclosures when compliance with the •
### •


appropriate to adopt the going concern basis in preparing
to understand the impact of particular transactions, other


 
and the above responsibility statement was signed on its

### •
to any material departures disclosed and explained in the 

make judgements and estimates that are reasonable and
### •
prudent; and R M CURLING
Chairman

### •
unless it is inappropriate to assume that the Company will 22
continue in business.
Montanaro  page 39
## 
### to the Members of Montanaro European Smaller Companies Trust plc




### •
then ended;
have been properly prepared in accordance with UK-adopted international accounting standards; and
### •

### •

the Balance Sheet as at 31 March 2023; the Statement of Comprehensive Income, the Statement of Changes in Equity and the







Independence
We remained independent of the company in accordance with the ethical requirements that are relevant to our audit of the



provided.
We have provided no non-audit services to the company in the period under audit.

Context
Montanaro European Smaller Companies Trust plc is an Investment Trust Company listed on the London Stock Exchange and
invests primarily in equities quoted on European investment markets. The operations of the company are located in the UK. We
focus our audit work primarily on the valuation and existence of investments and income from investments.
Overview


### •
'Manager') to manage its assets.

### •

administrative functions.
We tailored the scope of our audit taking into account the types of investments within the Company, the involvement of the
### •
third parties referred to above, the accounting processes and controls, and the industry in which the company operates.

### •

page 40 Montanaro 
## continued
### to the Members of Montanaro European Smaller Companies Trust plc
Key audit matters

### •

### •

### •

### •
The scope of our audit


accounting estimates that involved making assumptions and considering future events that are inherently uncertain.
Key audit matters





and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

Key audit matter How our audit addressed the key audit matter
Valuation and existence of investments We assessed the accounting policy for the valuation of investments for compliance
 with accounting standards and performed testing to check that investments are
 accounted for in accordance with this stated accounting policy.
The Investment portfolio at the year-end We tested the valuation of all the listed equity investments by agreeing the prices
comprised listed equity investments valued at used in the valuation to independent third party sources.
310 million.
We tested the existence of all listed equity investments by agreeing investment
We focused on the valuation and existence of 
investments because investments represent

the principal element of the net asset value as

statements.
Montanaro  page 41
Key audit matter How our audit addressed the key audit matter
Accuracy, occurrence and completeness of We found that the accounting policies implemented were in accordance with
investment income 
 in accordance with the stated accounting policy.


 
refers to both revenue and capital (including valuation of the portfolio at the year-end, together with testing the reconciliation
gains and losses on investments). 
of disposal proceeds by agreeing the proceeds to bank statements and we re-
We focused on the accuracy, occurrence
performed the calculation of a sample of realised gains/losses.
and completeness of investment income as
incomplete or inaccurate income could have We tested the accuracy of dividend receipts by agreeing the dividend rates from
a material impact on the Company's net asset investments to independent third-party data.
value and dividend cover.

in the market to independent third-party data, and traced a sample of cash
payments to bank statements
To test for completeness, we tested that the appropriate dividends had been
received in the year by reference to independent third party data of dividends
declared for all listed investments during the year.
We also tested the allocation and presentation of dividend income between the
revenue and capital return columns of the Statement of Comprehensive Income in


How we tailored the audit scope

statements as a whole, taking into account the structure of the company, the accounting processes and controls, and the industry
in which it operates.
The impact of climate risk on our audit
In planning our audit, we made enquiries of the Directors and Manager to understand the extent of the potential impact of


material because the Company's investment portfolio is made up of level 1 quoted securities which are valued at fair value based
on market prices. We found this to be consistent with our understanding of the Company's investment activities.

statements and our knowledge from our audit.
page 42 Montanaro 
## continued
### to the Members of Montanaro European Smaller Companies Trust plc
Materiality

These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and



Overall company materiality 
How we determined it 1% of Net assets
Rationale for benchmark applied We have applied this benchmark, which is a generally accepted auditing practice
for investment trust audits.
We use performance materiality to reduce to an appropriately low level the probability that the aggregate of uncorrected and

of our audit and the nature and extent of our testing of account balances, classes of transactions and disclosures, for example


In determining the performance materiality, we considered a number of factors - the history of misstatements, risk assessment





Our evaluation of the directors’ assessment of the company’s ability to continue to adopt the going concern basis of

evaluating the Directors' risk assessment and considering whether it addressed the relevant threats to the Company;
### •
evaluating the Directors' assessment of potential operational impacts to the Company of relevant risks, considering their
### •
consistency with other available information and our understanding of the business and assessed the potential impact on


### •
operating expenses, their assessment of liquidity as well as their review of the operational resilience of the Company and
oversight of key third-party service providers; and

### •
the Company to operate.





However, because not all future events or conditions can be predicted, this conclusion is not a guarantee as to the company's
ability to continue as a going concern.
In relation to the directors’ reporting on how they have applied the UK Corporate Governance Code, we have nothing material to

it appropriate to adopt the going concern basis of accounting.
Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections
of this report.
Montanaro  page 43



the other information and, accordingly, we do not express an audit opinion or, except to the extent otherwise explicitly stated in
this report, any form of assurance thereon.


otherwise appears to be materially misstated. If we identify an apparent material inconsistency or material misstatement, we are

misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement
of this other information, we are required to report that fact. We have nothing to report based on these responsibilities.
With respect to the Strategic report and Directors' Report, we also considered whether the disclosures required by the UK


matters as described below.
Strategic report and Directors' Report
In our opinion, based on the work undertaken in the course of the audit, the information given in the Strategic report and
Directors' Report for the year ended 31 March
accordance with applicable legal requirements.
In light of the knowledge and understanding of the company and its environment obtained in the course of the audit, we did not
identify any material misstatements in the Strategic report and Directors' Report.
Directors' Remuneration
In our opinion, the part of the Directors' Remuneration Report to be audited has been properly prepared in accordance with the


The Listing Rules require us to review the directors’ statements in relation to going concern, longer-term viability and that part of
the corporate governance statement relating to the company’s compliance with the provisions of the UK Corporate Governance

information are described in the Reporting on other information section of this report.
Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the corporate

have nothing material to add or draw attention to in relation to:

### •

### •
risks and an explanation of how these are being managed or mitigated;

### •


The directors’ explanation as to their assessment of the company’s prospects, the period this assessment covers and why
### •
the period is appropriate; and
The directors’ statement as to whether they have a reasonable expectation that the company will be able to continue in
### •
operation and meet its liabilities as they fall due over the period of its assessment, including any related disclosures drawing

page 44 Montanaro 
## continued
### to the Members of Montanaro European Smaller Companies Trust plc
Our review of the directors’ statement regarding the longer-term viability of the company was substantially less in scope than an
audit and only consisted of making inquiries and considering the directors’ process supporting their statement; checking that
the statement is in alignment with the relevant provisions of the UK Corporate Governance Code; and considering whether the

obtained in the course of the audit.
In addition, based on the work undertaken as part of our audit, we have concluded that each of the following elements of the


### •
provides the information necessary for the members to assess the company's position, performance, business model and
strategy;

### •
and

### •
We have nothing to report in respect of our responsibility to report when the directors’ statement relating to the company’s

Listing Rules for review by the auditors.


, the directors are

that they give a true and fair view. The directors are also responsible for such internal control as they determine is necessary to


concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the
directors either intend to liquidate the company or to cease operations, or have no realistic alternative but to do so.


misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance

material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or


Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our
responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which
our procedures are capable of detecting irregularities, including fraud, is detailed below.


which non-compliance

that the principal risks were related to posting inappropriate journal entries to increase revenue (investment income and capital


### •
compliance with laws and regulation and fraud;

### •

### •
recalculation of numerical aspects of the eligibility conditions;
Montanaro  page 45

### •

### •
and
designing audit procedures to incorporate unpredictability around the nature, timing or extent of our testing.
### •
There are inherent limitations in the audit procedures described above. We are less likely to become aware of instances of
non-compliance

resulting from error, as fraud may involve deliberate concealment by, for example, forgery or intentional misrepresentations, or
through collusion.
Our audit testing might include testing complete populations of certain transactions and balances, possibly using data auditing
techniques. However, it typically involves selecting a limited number of items for testing, rather than testing complete populations.
We will often seek to target particular items for testing based on their size or risk characteristics. In other cases, we will use audit
sampling to enable us to draw a conclusion about the population from which the sample is selected.

www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditors’ report.
Use of this report
This report, including the opinions, has been prepared for and only for the company’s members as a body in accordance with

responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save
where expressly agreed by our prior consent in writing.

Companies Act 2006 exception reporting

we have not obtained all the information and explanations we require for our audit; or
### •
adequate accounting records have not been kept by the company, or returns adequate for our audit have not been received
### •
from branches not visited by us; or

### •

### •
accounting records and returns.
We have no exceptions to report arising from this responsibility.
Appointment
9 September 2021 to audit the
31 March
engagement is two years, covering the years ended 31 March 2022 to 31 March 2023.
SHUJAAT KHAN (Senior statutory auditor)
for and on behalf of PricewaterhouseCoopers LLP

Edinburgh
22
page 46

Montanaro European Smaller Companies Trust plc

Annual Report and Accounts 2023

## Statement of Comprehensive Income

|   | Notes | Year to 31 March 2023 |   |   | Year to 31 March 2022  |   |   |
| --- | --- | --- | --- | --- | --- | --- | --- |
|   |   |  Revenue £'000 | Capital £'000 | Total £'000 | Revenue £'000 | Capital £'000 | Total £'000  |
|  **Capital (losses)/gains on investments**  |   |   |   |   |   |   |   |
|  (Losses)/gains on investments held at fair value | 9 | – | (23,070) | (23,070) | – | 18,806 | 18,806  |
|  Exchange losses |  | – | (542) | (542) | – | (264) | (264)  |
|  **Revenue**  |   |   |   |   |   |   |   |
|  Investment income | 2 | 4,101 | – | 4,101 | 3,788 | – | 3,788  |
|  Other income | 2 | 29 | – | 29 | – | – | –  |
|  **Total income/(expenses)** |  | **4,130** | **(23,612)** | **(19,482)** | **3,788** | **18,542** | **22,330**  |
|  **Expenditure**  |   |   |   |   |   |   |   |
|  Management expenses | 3 | (804) | (1,494) | (2,298) | (1,092) | (2,028) | (3,120)  |
|  Other expenses | 4 | (620) | – | (620) | (570) | (38) | (608)  |
|  **Total expenditure** |  | **(1,424)** | **(1,494)** | **(2,918)** | **(1,662)** | **(2,066)** | **(3,728)**  |
|  **Return before finance costs and taxation** |  | **2,706** | **(25,106)** | **(22,400)** | **2,126** | **16,476** | **18,602**  |
|  Finance costs | 5 | (84) | (156) | (240) | (56) | (104) | (160)  |
|  **Return before taxation** |  | **2,622** | **(25,262)** | **(22,640)** | **2,070** | **16,372** | **18,442**  |
|  Taxation | 6 | (538) | – | (538) | (348) | – | (348)  |
|  **Return after taxation** |  | **2,084** | **(25,262)** | **(23,178)** | **1,722** | **16,372** | **18,094**  |
|  **Return per share** | 8 | **1.10p** | **(13.34p)** | **(12.24p)** | **0.96p** | **9.09p** | **10.05p**  |

The total column of this statement represents the Company's Income Statement and Statement of Comprehensive Income, prepared to International Accounting Standards in conformity with the Companies Act 2006.

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.

The accompanying notes are an integral part of the financial statements.
Montanaro European Smaller Companies Trust plc Annual Report and Accounts 2023

page 47

## Balance Sheet

|   | Notes | 31 March 2023 |   | 31 March 2022  |   |
| --- | --- | --- | --- | --- | --- |
|   |  | £'000 | £'000 | £'000 | £'000  |
|  **Non-current assets**  |   |   |   |   |   |
|  Investments held at fair value through profit and loss | 9 |  | **310,308** |  | 339,788  |
|  **Current assets**  |   |   |   |   |   |
|  Trade and other receivables | 10 | **880** |  | 967 |   |
|  Cash and cash equivalents | 10 | **3,225** |  | 1,821 |   |
|   |  | **4,105** |  | 2,788 |   |
|  **Total assets** |  | **314,413** |  | 342,576 |   |
|  **Current liabilities**  |   |   |   |   |   |
|  Trade and other payables | 11 | **(1,260)** |  | (787) |   |
|  Interest-bearing bank loans | 12 | **(8,787)** |  | – |   |
|  Revolving credit facility | 11 | **(4,391)** |  | (8,450) |   |
|   |  | **(14,438)** |  | (9,237) |   |
|  **Non-current liabilities**  |   |   |   |   |   |
|  Interest-bearing bank loan | 12 | – |  | (8,434) |   |
|  **Total liabilities** |  | **(14,438)** |  | (17,671) |   |
|  **Net assets** |  |  | **299,975** |  | 324,905  |
|  **Capital and reserves**  |   |   |   |   |   |
|  Called-up share capital | 13 |  | **9,471** |  | 9,471  |
|  Share premium account |  |  | **44,057** |  | 44,057  |
|  Capital redemption reserve |  |  | **2,212** |  | 2,212  |
|  Capital reserve |  |  | **240,581** |  | 265,843  |
|  Revenue reserve |  |  | **3,654** |  | 3,322  |
|  **Total shareholders' fund** |  |  | **299,975** |  | 324,905  |
|  **Net asset value per share** | 14 |  | **158.4p** |  | 171.5p  |

The financial statements on pages 46 to 62 were approved and authorised for issue by the Board of Directors on 22 June 2023 and signed on its behalf by:

### R CURLING

Director

Company Registered Number: SC074677

The accompanying notes are an integral part of the financial statements.
page 48 Montanaro 
## 
### for the year ended 31 March 2023

|  |  |  | Share |  | Capital |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  | Share | premium |  | redemption |  | Capital | Revenue |  |
|  | capital | account |  |  | reserve | reserve | reserve | Total |
| Year to 31 March 2023 Notes | £’000 |  | £’000 |  | £’000 | £’000* | £’000* | £’000 |

 9,471 44,057 2,212 265,843 3,322 324,905
Return after taxation – – – (25,262) 2,084 (23,178)
Dividends paid 7 – – – – (1,752) (1,752)
As at 31 March 2023 9,471 44,057 2,212 240,581 3,654 299,975

|  |  |  |  | Share |  | Capital |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  |  | Share | premium |  | redemption |  | Capital | Revenue |  |
|  |  | capital | account |  |  | reserve | reserve | reserve | Total |
| Year to 31 March 2022 | Notes |  |  |  |  |  |  |  |  |

 8,724 12,707 2,212 249,185 3,237 276,065
Return after taxation – – – 16,372 1,722 18,094
Share issues 747 31,350 – 286 – 32,383
Dividends paid 7 – – – – (1,637) (1,637)
Balance at 31 March 2022 9,471 44,057 2,212 265,843 3,322 324,905

 127,723,000

Montanaro European Smaller Companies Trust plc Annual Report and Accounts 2023

page 49

## Statement of Cash Flows

|   | Notes | 31 March 2023 £'000 | 31 March 2022 £'000  |
| --- | --- | --- | --- |
|  **Cash flows from operating activities**  |   |   |   |
|  Return before taxation |  | **(22,640)** | 18,442  |
|  Investment losses/(gains) |  | **23,070** | (18,806)  |
|  Exchange losses |  | **542** | 264  |
|  Finance costs |  | **240** | 160  |
|  Withholding tax |  | **(450)** | (348)  |
|  Investment income |  | **(4,130)** | (3,788)  |
|  Dividends received |  | **4,043** | 3,838  |
|  Other income received |  | **29** | –  |
|  Increase in receivables |  | **(43)** | (197)  |
|  (Decrease)/increase in payables |  | **(79)** | 30  |
|  Purchases of investments |  | **(31,524)** | (75,661)  |
|  Sales of investments |  | **38,643** | 37,583  |
|  Net cash inflow/(outflow) from operating activities |  | **7,701** | (38,483)  |
|  **Cash flows from financing activities**  |   |   |   |
|  (Repayments)/drawdown of loans |  | **(4,325)** | 8,394  |
|  Proceeds from the issue of shares |  | **–** | 32,383  |
|  Dividends paid | 7 | **(1,752)** | (1,637)  |
|  Interest paid |  | **(239)** | (155)  |
|  Share split costs |  | **–** | (38)  |
|  Net cash (outflow)/inflow from financing activities |  | **(6,316)** | 38,947  |
|  **Net increase in cash and cash equivalents** |  | **1,385** | 464  |
|  Exchange gains/(losses) |  | **19** | (410)  |
|  **Increase in cash and cash equivalents** |  | **1,404** | 54  |
|  Cash and cash equivalents at beginning of year |  | **1,821** | 1,767  |
|  **Cash and cash equivalents at end of year** | 10 | **3,225** | 1,821  |

The accompanying notes are an integral part of the financial statements.
page 50 Montanaro 
## 
### for the year ended 31 March 2023
1 Accounting Policies



with the 





currency of the Company’s share capital and the currency in which dividends and expenses are paid.


investment trust company will continue to be met.


nearest thousand pounds unless otherwise indicated.



2024. The Directors noted that the Company holds a portfolio of highly liquid listed investments. The Company is a closed end fund,
where assets are not required to be liquidated to meet redemptions. Whilst the economic impact from current market conditions,

experience reductions in income and/or market value, they consider that this should not be at a level, which would threaten the
Company‘s ability to continue as a going concern.

24 and 28. In addition to the Going Concern
assessment the Directors have assessed the longer term viability of the Company as set out in the viability assessment and
statement on page 18.



Certain new accounting standards, amendments to accounting standards and interpretations have been published that are
not mandatory for 31 March 2023 reporting periods and have not been early adopted by the Company. These standards,
amendments or interpretations are not expected to have a material impact on the entity in the current or future reporting
periods and on foreseeable future transactions.

accordance


statements. The estimates and associated assumptions are based on historical experience and various other factors that are
believed to be reasonable under the circumstances, the results of which form the basis of making judgements about carrying


unusual or special dividends received as either revenue or capital in nature; and setting the levels of dividends paid and proposed
in satisfaction of both the Company’s long-term objective and its obligations to adhere to investment trust status rules under

Dividends received which appear to be unusual in size or circumstance are assessed on a case-by-case basis, based on

the revenue account or capital reserves. Dividends which have clearly arisen out of the investee company’s reconstruction or
reorganisation are usually considered to be capital in nature and allocated to capital reserves. Investee company dividends which




Montanaro  page 51
1 Accounting Policies continued

The Board is of the view that the Company is engaged in a single segment of business, of investing in European quoted smaller
companies, and that therefore the Company has only a single operating segment.


supplementary information which analyses the Statement of Comprehensive Income between items of a revenue and capital
nature has been presented alongside the Statement of Comprehensive Income. The net revenue return is the measure the
Directors believe appropriate in assessing the Company’s compliance with certain requirements set out in Section 1158 of the

INCOME
Dividends are recognised as income on the date that the related investments are marked ex-dividend.
Dividends receivable on equity shares where no ex-dividend date is quoted are recognised when the Company’s right to receive
payment is established.
Special dividends are taken to the revenue or capital account depending on their nature. In deciding whether a dividend should
be regarded as a capital or revenue receipt, the Board reviews all relevant information as to the reasons for the sources of the
dividend on a case-by-case basis.
Where the Company has elected to receive its dividends in the form of additional shares rather than cash, the amount of the cash
dividend foregone is recognised as income.



in connection with the maintenance or enhancement of the value of the Company’s assets and taking account of the expected
long-term returns as follows:
 
 investment management fee payable are allocated 35% to revenue and 65% to capital.

The tax expense represents the sum of the tax currently payable and movements in deferred tax. Tax payable is based on the

of Comprehensive Income because it excludes items of income or expense that are taxable or deductible in other years and it
further excludes items that are never taxable or deductible. The Company’s liability for current tax is calculated using tax rates
that have been enacted or substantively enacted by the balance sheet date.

capital returns in the supplementary information in the Statement of Comprehensive Income is the ‘marginal basis’. Under this

of Comprehensive Income, then no tax relief is transferred to the capital return column.





The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer

Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is
realised. Deferred tax is charged or credited in the Statement of Comprehensive Income, except when it relates to items charged
or credited directly to equity, in which case the deferred tax is also dealt with in equity.

page 52 Montanaro 
## continued
1 Accounting Policies continued



the documented investment strategy and information is provided internally on that basis to the Company’s Board of Directors
and other key management personnel.



purchase or sale of investments. When a sale or purchase is made under a contract, the terms of which require delivery within the
timeframe of the relevant market, the investments concerned are recognised or derecognised on the trade date.

reporting dates at fair value, which is the bid price or the last traded price depending on the convention of the exchange on





hierarchy levels set out in note 15.

Cash comprises bank balances and cash held by the Company. Cash equivalents are short-term, highly liquid investments that are





or losses arising from changes in exchange rate between Euro and Sterling is included in the capital reserves and shown in the
capital column of the Statement of Comprehensive Income.

Share Premium Account
The following are included in this reserve:
premium on the issue of shares.
### •
surplus arising on the sale of Ordinary Shares from treasury.
### •
costs associated with the issue of equity.
### •
Capital Redemption Reserve
The nominal value of Ordinary Shares bought back for cancellation is added to this reserve. This reserve is non-distributable.
Capital Reserve
The following are included in this reserve:
gains and losses on the realisation of investments.
### •
increases and decreases in the valuation of investments held at the year end.
### •

### •
special dividends of a capital nature.
### •

### •
cost of purchasing Ordinary Shares to be held in treasury or cancelled.
### •
proceeds from the issue of Ordinary Shares held in treasury equivalent to the weighted average cost of the repurchase.
### •
Montanaro  page 53
1 Accounting Policies continued

realisation of its investments.
Revenue Reserve

during the year may be deducted from this reserve.






Monetary assets and liabilities expressed in foreign currencies are translated into sterling at rates of exchange ruling at the
balance sheet date. Non-monetary items expressed in foreign currencies held at fair value are translated into sterling at rates
of exchange ruling at the date the fair value is measured. Transactions in foreign currencies are converted to sterling at the rate
ruling at the date of the transaction. Exchange gains and losses are taken to the Statement of Comprehensive Income as a capital
or revenue item depending on the nature of the underlying item.
Exchange gains and losses on investments are included within ‘(Losses)/gains on investments held at fair value’ and are taken to

as ‘Exchange losses’.
31 March 31 March Change
Rates of exchange (per Pound Sterling) 2023 2022 %
Danish Krone 8.48 8.80 (3.6%)
Euro 1.14 1.18 (3.4%)
Norwegian Krone 12.95 11.52 12.4%
Swedish Krona 12.82 12.27 4.5%
 1.13 1.21 (6.6%)
2 Income

|  | Year to |  | Year to |
| --- | --- | --- | --- |
| 31 March 2023 |  | 31 March 2022 |  |
|  | £’000 |  |  |

Investment income
Overseas dividend income 4,078 3,785
Exchange gains 23 3
Investment income 4,101 3,788
Bank interest 16 –
Other income 13 –
Total other income 29 –
Total Income 4,130 3,788
3 Management Expenses

|  |  | Year to 31 March 2023 |  |  |  |  | Year to 31 March 2022 |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Revenue |  |  | Capital | Total | Revenue |  |  | Capital | Total |
|  | £’000 |  | £’000 | £’000 |  |  |  |  |  |

Investment management fee 786 1,462 2,248 1,074 1,996 3,070
 18 32 50 18 32 50
804 1,494 2,298 1,092 2,028 3,120
Details of the management fee arrangements during the year are contained within the Directors’ Report on page 25 and details of
fees owed to the Manager at the balance sheet date are included in note 11.
page 54 Montanaro 
## continued
4 Other Expenses

|  |  | Year to 31 March 2023 |  |  |  |  | Year to 31 March 2022 |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Revenue |  |  | Capital | Total | Revenue |  |  | Capital | Total |
|  | £’000 |  | £’000 | £’000 |  |  |  |  |  |

Directors’ fees 101 – 101 93 – 93

– statutory audit 48 – 48 45 – 45
Secretarial and administration fees 162 – 162 150 – 150
Legal, professional and advisory fees 13 – 13 9 – 9
Custody and depositary fees 102 – 102 118 – 118
Credit facility commitment fee 35 – 35 56 – 56
Share split costs – – – – 38 38
Other 159 – 159 99 – 99
620 – 620 570 38 608
5 Finance Costs

|  |  | Year to 31 March 2023 |  |  |  |  | Year to 31 March 2022 |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Revenue |  |  | Capital | Total | Revenue |  |  | Capital | Total |
|  | £’000 |  | £’000 | £’000 |  |  |  |  |  |

Interest payable on bank borrowings 84 156 240 56 104 160
6 Taxation

|  |  | Year to 31 March 2023 |  |  |  |  | Year to 31 March 2022 |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Revenue |  |  | Capital | Total | Revenue |  |  | Capital | Total |
|  | £’000 |  | £’000 | £’000 |  |  |  |  |  |

Overseas tax 538 – 538 348 – 348



|  | Year to |  | Year to |
| --- | --- | --- | --- |
| 31 March 2023 |  | 31 March 2022 |  |
|  | £'000 |  |  |

 on activities before taxation (22,640) 18,442
Corporation tax at standard rate of 19% (2022: 19%) (4,302) 3,504

Non taxable gains on investment 4,383 (3,573)
Movement in unutilised expenses 600 739
Non-taxable overseas income (781) (720)
Bank interest (3) –
Exchange (gains)/losses 103 50
Overseas tax 538 348
Total tax charge for the year 538 348
30,957,000
7,7 39,000

Montanaro  page 55
7 Dividends

|  | Year to |  | Year to |
| --- | --- | --- | --- |
| 31 March 2023 |  | 31 March 2022 |  |
|  | £’000 |  |  |

 – 1,276
Interim dividend for the year ended 31 March 2022 of 0.200p per share – 361
 1,373 –
Interim dividend for the year ended 31 March 2023 of 0.200p per share 379 –
1,752 1,637
Amounts relating to the year but not paid at the year end:
 – 1,373
0.770p per share 1,459 –
1,459 1,373
0.770p per share, payable
on 15 September 2023 to all shareholders on the register on 

The attributable revenue and the dividends paid and proposed for the purposes of the income retention test for section 1159 of


|  | Year to |  | Year to |
| --- | --- | --- | --- |
| 31 March 2023 |  | 31 March 2022 |  |
|  | £’000 |  |  |

Revenue attributable to equity shareholders 2,084 1,722
Interim dividend for the year ended 31 March 2022 of 0.200p per share – (361)
2 of 0.725p per share – (1,373)
Interim dividend for the year ended 31 March 2023 of 0.200p per share (379) –
3 of 0.770p per share (1,459) –
Net movement in revenue 246 (12)
8 Return per Share
Year to 31 March 2023 Year to 31 March 2022
Revenue Capital Total Revenue Capital Total
Basic 1.10p (13.34p) (12.24p) 0.96p 9.09p 10.05p
Basic total return per Ordinary Share is based on the total comprehensive loss23,178,000 (2022: gain
189,427,600 (2022: 180,046,654) Ordinary Shares, being the weighted average number of Ordinary Shares in
issue during the year.
2,084,000
 189,427,600 (2022: 180,046,654) Ordinary Shares, being the weighted average number of Ordinary
Shares in issue during the year.
Basic capital return per Ordinary Share is based on the net capital loss25,262,000 (2022: gain 
and on 189,427,600 (2022: 180,046,654) Ordinary Shares, being the weighted average number of Ordinary Shares in issue during
the year.
page 56 Montanaro 
## continued


|  | Year to |  | Year to |
| --- | --- | --- | --- |
| 31 March 2023 |  | 31 March 2022 |  |
|  | £’000 |  |  |

Opening cost 196,337 145,479
Holding gains 143,451 137,096
Opening fair value 339,788 282,575
 32,076 75,867
Sales – proceeds (38,486) (37,460)
– gains on sales 3,869 12,451
Holding (losses)/gains (26,939) 6,355
Closing fair value 310,308 339,788
Closing cost 193,796 196,337
Holding gains 116,512 143,451
Closing valuation 310,308 339,788

book cost of investments sold.

24,00024,000


|  | Year to |  | Year to |
| --- | --- | --- | --- |
| 31 March 2023 |  | 31 March 2022 |  |
|  | £’000 |  |  |

Gains on sales 3,869 12,451
(Decrease)/increase in holding gains (26,939) 6,355
(Losses)/gains on investments (23,070) 18,806
10 Current Assets


|  | Year to |  | Year to |
| --- | --- | --- | --- |
| 31 March 2023 |  | 31 March 2022 |  |
|  | £’000 |  |  |

Due from brokers – 109
 345 235
Overseas tax recoverable 535 623
880 967
The carrying value of the balances above approximates to fair value. There are no amounts which are past due at the year end


These comprise bank balances and cash held by the Company. The carrying amount of these assets approximates to their fair value.

|  | Year to |  | Year to |
| --- | --- | --- | --- |
| 31 March 2023 |  | 31 March 2022 |  |
|  | £’000 |  |  |

Cash at bank and on hand 3,225 1,821
Montanaro  page 57
11 Current Liabilities

|  | Year to |  | Year to |
| --- | --- | --- | --- |
| 31 March 2023 |  | 31 March 2022 |  |
|  | £’000 |  |  |

Trade and other payables:
 407 471
Due to broker 739 187
Other creditors 114 129
1,260 787

|  | Year to |  | Year to |
| --- | --- | --- | --- |
| 31 March 2023 |  | 31 March 2022 |  |
|  | £’000 |  |  |

Revolving credit facility:
Revolving credit facility 4,391 8,450
The Company has a €  which

at 31 March 2023, € 54,391,000) of the facility was drawn (2022: € 10 million 8,450,000)), at a rate of 3.61%, with
€ 10 million available to be drawn (31 March 2022: € 5 million).

arising from changes in exchange rates is included in the capital reserve and shown in the capital column of the Statement of
Comprehensive Income. Interest costs are charged to capital and revenue in accordance with the Company’s accounting policies.
The carrying value of the balances above approximates to fair value.
12 Interest-Bearing Bank Loans

|  | Year to |  | Year to |
| --- | --- | --- | --- |
| 31 March 2023 |  | 31 March 2022 |  |
|  | £’000 |  |  |

Opening balance 8,434 8,495
 10 10
Non-cash foreign currency movements 343 (71)
Closing balance 8,787 8,434
The Company has a € 
13 September 2023.
The Company also has a € 
23 September 2023.
Under the bank covenants relating to the loans, the Company is to ensure that at all times the total borrowings of the Company do

45
The carrying value of the balances above approximates to fair value.
page 58 Montanaro 
## continued
13 Called-up Share Capital
Listed Held in Treasury In Issue
Number  Number  Number 
Allotted, issued and fully paid:
Ordinary Shares of 5p (2022: 5p) each
 189,427,600 9,471 – – 189,427,600 9,471
Balance at 31 March 2023 189,427,600 9,471 – – 189,427,600 9,471
CAPITAL MANAGEMENT


313,153,000 (2022: 341,789,000). Details of the movement through each reserve are shown in the Statement of Changes in
Equity. The Company is not subject to any externally imposed capital requirements other than those associated with the

The Company’s capital is managed in accordance with its investment policy, in pursuit of its investment objective, both of
which are detailed in the Business Model and Strategy. The Company’s capital structure is also explained in the Directors’
Report on pages 25 and 26.
14 Net Asset Value per Ordinary Share

| Net asset value per share |  |  |  |  | Net asset value |  |
| --- | --- | --- | --- | --- | --- | --- |
|  |  |  |  |  |  |  |
| 2023 |  | 2022 |  | 2023 |  | 2022 |
|  | p |  | p | £'000 |  |  |

Net asset value per Ordinary Share 158.4 171.5 299,975 324,905
The net asset value per share is based on net assets at the year end and on 189,427,60 0 (2022: 189,427,600) Ordinary Shares,
being the number of Ordinary Shares in issue at the year end, excluding those shares bought back and held in treasury.
15 Financial Instruments


investment objective. The Company makes use of borrowings, as detailed in notes 11 and 12 and the Chairman’s Statement, to
achieve improved performance in rising markets.
The Company’s principal risks are described in the Business Model and Strategy on pages 12 to 18.

(i) 
caused by factors other than interest rate or currency rate movements;
(ii) 
interest rates;
(iii) foreign currency risk, being the risk that the value of investment holdings, investment purchases, investment sales, bank loans

(iv) 
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

Montanaro  page 59
15 Financial Instruments continued
FAIR VALUE HIERARCHY

making the measurements.

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.

hierarchy into which the fair value measurement is categorised.

approximation of fair value as at 31 March 2023:

|  |  |  | 2023 |  |  |  | 2022 |
| --- | --- | --- | --- | --- | --- | --- | --- |
| Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | Total |
| £’000 | £’000 | £’000 | £’000 |  |  |  |  |

Financial instruments
Investments 310,308 – – 310,308 339,788 – – 339,788
Interest-bearing bank loan – (8,787) – (8,787) – (8,434) – (8,434)
Revolving credit facility – (4,391) – (4,391) – (8,450) – (8,450)
There were no transfers between levels in the fair value hierarchy in the year ended 31 March 2023 (2022: none).
3,225,000345,0001,260,000

16 Market Price Risk

value of investments.
The Board manages the risks inherent in the investment portfolio by ensuring full and timely reporting of relevant information
from the Manager. Investment performance and exposure are reviewed at each Board meeting.
310,308,000

31,031,000

capital return before taxation. The analysis is based on closing balances only and is not representative of the year as a whole.
page 60 Montanaro 
## continued
17 Interest Rate Risk
FIXED RATE
The Company has a € 8 million as at 31 March
2023

FLOATING RATE
The Company has a € 15 million revolving credit facility term with ING of which € 5 million is drawn, with a Sterling equivalent of
4.43, at a rate of interest of 3.61% per annum.
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.
3.2
11,000
 
11,000
balance sheet dates.
18 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.


|  |  |  |  | Trade |  |  | Trade | Revolving |  | Interest- |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  |  |  | and other |  |  | and other |  |  | credit | bearing |  |  | Net |
|  | Investments |  | receivables |  | Cash | payables |  |  | facility* | bank loan* |  | exposure |  |
| As at 31 March 2023 |  | £’000 |  | £’000 | £’000 |  | £’000 |  | £’000 |  | £’000 |  | £’000 |

Danish Krone 14,285 59 – – – – 14,344
Euro 160,976 224 2,884 – (4,391) (8,787) 150,906
Norwegian Krone 22,139 27 – – – – 22,166
Swedish Krona 74,986 131 – – – – 75,117
 37,922 285 90 739 – – 39,036
Total 310,308 726 2,974 739 (4,391) (8,787) 301,569
Trade Trade Revolving Interest-
and other and other credit bearing Net
Investments receivables Cash payables   exposure
       
Danish Krone 16,452 115 – – – – 16,567
Euro 161,658 339 1,462 (186) (8,450) (8,434) 146,389
Norwegian Krone 23,183 60 – – – – 23,243
Swedish Krona 104,584 34 – – – – 104,618
 33,911 318 – – – – 34,229
Total 339,788 866 1,462 (186) (8,450) (8,434) 325,046
 
If the value of Sterling had weakened by 5
15,870,000
strengthened by 5
value would have been negative 14,358,000
exposure balances as at the respective balance sheet dates.
Montanaro  page 61
19 Credit Risk

entered into with the Company. The Company has in place a monitoring procedure in respect of counterparty risk which is

balance sheet date.

2023 2022
£’000 
Cash and cash equivalents 3,225 1,821
Due from brokers and accrued income 192 243
3,417 2,064
Credit risk arising on transactions with brokers relates to transactions awaiting settlement. Risk relating to unsettled transactions

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.

investment exceeded 5.0% of the investment portfolio at 31 March 2023 (2022: 5.8%).


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.
20 Liquidity Risk

realisable.
However, as with all smaller company investment trusts, there are times when the liquidity of the underlying portfolio is poor, such
as when smaller companies are out of favour or during periods of adverse economic 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. The Manager constantly reviews the underlying
liquidity of the portfolio and deals with a wide range of brokers to enhance its ability to execute transactions and minimise
liquidity risk. The Company’s overall exposure to liquidity risks is monitored on a regular basis by the Board.

3.2
8.8
page 62 Montanaro 
## continued
20 Liquidity Risk continued

 at undiscounted amounts, based on the earliest date on which
payment can be required, are as follows:

|  |  |  |  | Between |  |  | Between |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  |  | Within |  | one and |  |  | three and |  | Between one |  |  |
|  | one month |  | three months |  |  | twelve months |  |  |  |  | Total |
| As at 31 March 2023 |  | £’000 |  |  | £’000 |  |  | £’000 |  | £’000 | £’000 |

Liabilities:
Other creditors 1,163 97 – – 1,260
Revolving credit facility 4,405 – – – 4,405
Loan and loan interest – – 8,847 – 8,847
Total liabilities 5,568 97 8,847 – 14,512
Between Between
Within one and three and Between one
one month three months twelve months  Total
     
Liabilities:
Other creditors 700 76 11 – 787
Revolving credit facility 8,450 – – – 8,450
Loan and loan interest – – 114 8,507 8,621
Total liabilities 9,150 76 125 8,507 17,858
21 Related Parties and Transactions with the Manager
The following are considered related parties: the Board of Directors. The Directors of the Company received fees for their services

pages 35 to 37.
Transactions between the Company and the Manager are detailed in note 3 on management fees and note 11 on fees owed to
the Manager at the balance sheet date. The existence of an independent Board of Directors demonstrates that the Company is

related party.

The Company has not, in the year to 31 March 2023 (2022: same), participated in any: repurchase transactions; securities lending

UKthat were adopted into UK law
through the EU withdrawal legislation.
23 Post Balance Sheet Events
 2023.
Montanaro  page 63
## 
Alternative Investment Fund Managers (‘AIFM’) Directive (‘AIFMD’)
69. and the remuneration


Management Limited on request. The Company’s maximum and actual leverage levels at 31 March 2023 are shown below:
Leverage exposure
Gross Commitment
method method
Maximum limit 200% 200%
 103.44% 104.52%

and the use of derivatives. It is expressed as a percentage of Company’s exposure to its net asset value and is calculated on both
a gross and commitment method.
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




page 64 Montanaro 
## 
Annual General Meeting
Meeting of Montanaro European Smaller Companies Trust plc will be held on Thursday, 7 September 2023 at
11.00am at 53 Threadneedle Street, Lher details can be found on page 70.
Key Dates
31 March 2023 Company year end
7 September 2023 
15 September 2023 
November 2023 Interim results announced
 
Dividends
Shareholders who wish to have dividends paid directly into a bank account rather than by cheque to their registered address can

page 78.
Change of Address
Communications with shareholders are mailed to the address shown on the share register. In the event of a change of address or

Frequency of NAV Publication

Non-Mainstream Pooled Investment (“NMPI”) Status



investment products because they are securities in a UK listed investment trust.
ISA Status

AIC

Data protection


Montanaro  page 65
Warning to Shareholders – Beware of Share Fraud


If you receive unsolicited investment advice or requests:
www.fca.org.uk
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
0800 111 6768
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www.fca.org.uk/scams.
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
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

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www.fca.org.uk/scams where
 0800 111 6768.
0300 123 2040.
page 66 Montanaro 
## 
 Capital Return – NAV and Share Price Returns

Premium/(discount) 
If the share price of an Investment Trust is less than its Net (7.6%) (2022: 7.9%),
 and the 1 year Ordinary share price Capital Return was (18.1%)
 (2022: 4.3%).
the shares are trading at a premium.
NAV Capital Return calculation as at 31 March 2023
158.4p
(2022: 171.5p) and the share price was 137.6p (2022: 168.0p).
 158.40p (a)
The discount is therefore calculated at 13.1% (2022: discount
 171.50p (b)
2.0%).
NAV Capital Return (7.6%) ((a-b)/b)
Net Gearing Employed
NAV Capital Return calculation as at 31 March 2022
Unlike open-ended investment companies, Investment Trusts
have the ability to borrow to invest. This term is used to
 171.50p (a)
describe the level of borrowings that an Investment Trust has
 158.90p (b)
undertaken, and is stated as a percentage of shareholders’
NAV Capital Return 7.9% ((a-b)/b)
funds. The higher the level of borrowings, the higher the
gearing ratio.
Share Price Capital Return calculation as at 31 March 2023
Net gearing is calculated as total debt, net of cash and cash
equivalents, as a percentage of the total shareholders’ funds.  137.60p (a)
 168.00p (b)

Share Price Capital Return (18.1%) ((a-b)/b)
13,178,000, (202216,884,000) cash and
3,225,000
299,975,000 Share Price Capital Return calculation as at 31 March 2022
31 March 2023, Gearing is therefore equal to 3.3% (2022: 4.6%).
 168.00 (a)
 161.00 (b)
Ongoing Charges (expressed as a percentage)
Share Price Capital Return 4.3% ((a-b)/b)

are payable by the Company expressed as a proportion of the
 Total Return – NAV and Share Price Returns
The costs of buying and selling investments are excluded, as 
are interest costs, taxation, non-recurring costs and the costs 
of buying back or issuing Ordinary Shares. 
(7.1%) (2022:
Ongoing charges calculation 8.4%), and the 1 year Ordinary share price Total Return was
For the 
(17.6%) (2022: 4.8%).

|  | year ended |  |  | year ended |  |
| --- | --- | --- | --- | --- | --- |
| 31 March 2023 |  |  | 31 March 2022 |  |  |
|  |  | £’000 |  |  |  |

Total expenditure 2,917 3,728
Less non-recurring costs – (38)
Total (a) 2,917 3,690
 279,739 338,926
Ongoing charges (c = a/b) (c) 1.0% 1.1%
 
Montanaro  page 67

| NAV Total Return calculation as at 31 March 2023 |  |  |  |  |  |  | Share price Total Return calculation as at 31 March 2023 |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  158.40p (c) |  |  |  |  |  |  | Share price as at 31 March 2023 137.60p (c) |  |  |  |  |  |  |
|  171.50p (d) |  |  |  |  |  |  | Share price as at 31 March 2022 168.00p (d) |  |  |  |  |  |  |
| Dividend adjustment factor (+1) 1.0059 (a) |  |  |  |  |  |  | Dividend adjustment factor (+1) 1.0067 (a) |  |  |  |  |  |  |
|  0.9236 (b)(b=c/d) |  |  |  |  |  |  |  0.8190 (b)(b=c/d) |  |  |  |  |  |  |
| NAV Total Return (7.1) ((a*b)-1) |  |  |  |  |  |  | Share price Total Return (17.6) ((a*b)-1) |  |  |  |  |  |  |
| (a) Dividend Adjustment Factor |  |  |  |  |  |  | (a) Dividend Adjustment Factor |  |  |  |  |  |  |
|  |  |  |  | NAV at |  |  |  |  |  | Share price at |  |  | Share |
|  | Dividend XD |  | Dividend XD |  |  | NAV |  | Dividend XD |  | Dividend XD |  |  | price |
| Dividend PPS |  | date |  | date | Multiplier |  | Dividend PPS |  | date |  | date | Multiplier |  |
| Interim dividend 0.200 1 Dec 22 148.30p 0.0013 |  |  |  |  |  |  | Interim dividend 0.200 1.Dec.22 135.30p 0.0015 |  |  |  |  |  |  |
|  0.725  156.32p 0.0046 |  |  |  |  |  |  |  0.725  139.60p 0.0052 |  |  |  |  |  |  |
|  |  |  |  |  | 0.0059 |  |  |  |  |  |  | 0.0067 |  |
| NAV Total Return calculation as at 31 March 2022 |  |  |  |  |  |  | Share price Total Return calculation as at 31 March 2022 |  |  |  |  |  |  |
|  171.50p (c) |  |  |  |  |  |  | Share price as at 31 March 2022 168.00p (c) |  |  |  |  |  |  |
|  158.90p (d) |  |  |  |  |  |  |  161.00p (d) |  |  |  |  |  |  |
| Dividend adjustment factor (+1) 1.0047 (a) |  |  |  |  |  |  | Dividend adjustment factor (+1) 1.0046 (a) |  |  |  |  |  |  |
|  1.0793 (b)(b=c/d) |  |  |  |  |  |  |  1.0434 (b)(b=c/d) |  |  |  |  |  |  |
| NAV Total Return 8.4 ((a*b)-1) |  |  |  |  |  |  | Share price Total Return 4.8 ((a*b)-1) |  |  |  |  |  |  |
| (a) Dividend Adjustment Factor |  |  |  |  |  |  | (a) Dividend Adjustment Factor |  |  |  |  |  |  |
|  |  |  |  | NAV at |  |  |  |  |  | Share price at |  |  | Share |
|  | Dividend XD |  | Dividend XD |  |  | NAV |  | Dividend XD |  | Dividend XD |  |  | price |
| Dividend PPS |  | date |  | date | Multiplier |  | Dividend PPS |  | date |  | date | Multiplier |  |
| Interim dividend 0.200 3 Dec 21 205.00p 0.0010 |  |  |  |  |  |  | Interim dividend 0.200 3.Dec.21 208.50p 0.0010 |  |  |  |  |  |  |
|  0.725  196.90p 0. 0037 |  |  |  |  |  |  |  0.725  201.00p 0.0036 |  |  |  |  |  |  |
|  |  |  |  |  | 0.0047 |  |  |  |  |  |  | 0.0046 |  |

 
page 68 Montanaro 
## 
AIFMD Depositary
 
 must appoint a Depositary, whose duties in respect of
requires that all investment vehicles in the European Union, investments, cash and similar assets include: safekeeping;
 
 The Depositary has strict liability for loss of any investments or
 other assets where it has safekeeping duties. The Depositary’s
Trust, nevertheless, remains fully responsible for all aspects oversight duties include, but are not limited to, oversight
of the Company’s strategy, operations and compliance with of share buybacks, dividend payments and adherence to
regulations. investment limits. The Company’s Depositary is The Bank of
New York Mellon (International) Limited.
Association of Investment Companies (‘AIC’)
 Dividend
Closed-end Investment Companies (www.theaic.co.uk). The income from an investment. Some Investment Trusts
pay dividends on a quarterly or monthly basis. Montanaro
Benchmark European Smaller Companies Trust plc currently pays
This is a measure against which an Investment Trust’s dividends twice a year.
performance is compared. The benchmark of the Company
is the MSCI Europe ex-UK SmallCap Index (capital return in Gearing
Sterling terms). The index averages the performance of a Gearing is calculated as total liabilities less current assets
 divided by net assets.
company stock markets and gives an indication of how those
markets have performed in any period. International Accounting Standards
in conformity with the
Closed-end Investment Company requirements of the Companies act 2006.

ordinary share capital which is traded on an exchange at a Investment Manager
 
company and where shares can only be issued or bought Management Limited. The responsibilities and remuneration of
back by the company in certain circumstances. This contrasts the Manager are set out in the Business Model and Strategy on
with an open-ended investment company, which has units page 12 and in the Directors’ Report on page 25.
not traded on an exchange but issued or bought back from
Investment Trust


Custodian 
 Companies which meet these criteria are exempt from having
worldwide, the listed securities and certain cash assets of the to pay tax on the capital gains they realise from sales of the
Company, as well as the income arising therefrom, through investments within their portfolios.
provision of custodial, settlement and associated services. The

(London Branch).
Montanaro  page 69
Leverage Portfolio Turnover
 Calculated using total sales proceeds as a percentage of the
 average monthly net assets during the year.
of cash or securities or leverage embedded in derivative
positions. Leverage is broadly equivalent to Gearing, but is Share Price
expressed as a ratio between the assets (excluding borrowings) The value of a share at a point in time as quoted on a stock
and the net assets (after taking account of borrowings). exchange. The shares of Montanaro European Smaller
Under the gross method, exposure represents the sum of Companies Trust plc are quoted on the Main Market of the
the Company’s positions after deduction of cash and cash London Stock Exchange.
equivalents, without taking account of any hedging or netting
SORP
arrangements. Under the commitment method, exposure is

calculated without the deduction of cash and cash equivalents



against each other.
Total Assets
Marked to Market
This is calculated as the value of the investments and other

assets of an Investment Trust, plus cash and debtors.

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.
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 Asset Value (‘NAV’) per Ordinary Share
This is calculated as the net assets of an Investment Trust
divided by the number of Ordinary Shares in issue, excluding
those shares held in treasury.
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.
page 70 Montanaro 
## 
THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION. If you are in any doubt about any aspect
of the proposals referred to in this document or about the action which you should take, you should seek your own
advice immediately from a stockbroker, solicitor, accountant or other independent professional adviser. If you have sold
or otherwise transferred all of your shares, please pass this document, together with the accompanying documents, to
the purchaser or transferee, or to the person who arranged the sale or transfer, so they can pass these documents to the
person who now holds the shares.

7 September 2023 at
11.00am
be proposed as ordinary resolutions and resolutions 11 and 12 will be proposed as special resolutions.


31 March 2023 be received.


RESOLUTION 3 
31 March 2023 be approved.

0.770p per Ordinary Share be declared.

That Mr R M Curling, who retires annually, be re-elected as a Director.



That Mr G Neilly, who retires annually, be re-elected as a Director.


Meeting until the conclusion of the next general meeting at which accounts are laid before the Company.

That the Directors be authorised to determine the auditor’s remuneration.
Montanaro  page 71

That, in substitution for any existing authority but without prejudice to the exercise of any such authority prior to the
date of the passing of this resolution, the Board of Directors of the Company (the ‘Board’) be and is hereby generally and

powers of the Company to allot shares in the Company and to grant rights to subscribe for or to convert any security into
shares in the Company up to an aggregate nominal amount of  , provided that this authority shall expire at the
30 September 2024 save that

allotted, or rights to subscribe for or to convert securities into shares to be granted, after such expiry and the Board may

expired. The Directors will use this authority when it is in the best interests of the Company to issue Ordinary shares for



That, subject to the passing of resolution 10 and in substitution for any existing authority, but without prejudice to the
exercise of any such authority prior to the date of the passing of this resolution, the Board of Directors of the Company


convert any securities into, ordinary shares of 50 pence each in the capital of the Company (‘Ordinary Shares’)) wholly for
cash either pursuant to the authority conferred on them by such resolution 10 or by way of a sale of treasury shares (within

that this power shall be limited to the allotment of equity securities and the sale of treasury shares:
(i) 

such holders are proportionate (as nearly as may be practicable) to the respective numbers of Ordinary Shares held by them on

Board deem necessary or expedient to deal with shares held in treasury, fractional entitlements to equity securities and to deal
with any legal or practical problems or issues arising in any overseas territory or under the requirements of any regulatory body
or stock exchange); and
(ii) otherwise than pursuant to sub-paragraph (i) above, up to an aggregate nominal amount of , and shall expire (unless

of the Company to be held in 2024 or, if earlier, on 30 September 2024 save that the Company may before such expiry make


shall authorise the Board to issue equity securities at such issue price as the Board may determine (including, without limitation,
where equity securities are being issued from treasury at a price below the net asset value per Ordinary Share of the Company
at the time of the relevant issue).
page 72 Montanaro 
## continued

That, in substitution for any existing authority but without prejudice to the exercise of any such authority prior to the date of
the passing of this resolution, the Company be and is hereby generally and unconditionally authorised for the purposes of


as the Board of Directors may determine provided that:
(i) the maximum aggregate number of Ordinary Shares which may be purchased is 28,395,197 (or if less, 14.99 per cent of the
number of Ordinary Shares in issue (excluding treasury shares) immediately prior to the passing of this resolution);
(ii) the minimum price which may be paid for an Ordinary Share is 5 pence (exclusive of associated expenses);
(iii) the maximum price which may be paid for an Ordinary Share (exclusive of associated expenses) is the higher of:
(a) 
preceding the day on which the Ordinary Share is purchased; and
(b) the value of an Ordinary Share calculated on the basis of the higher price quoted for
(i) the last independent trade of; and
(ii) the highest current independent bid for any number of Ordinary Shares on the trading venue where the
purchase is carried out; and
(iv) 
the Company to be held in 2024 or, if earlier, on 30 September 2024 save that the Company may before such expiry enter into
a contract to purchase Ordinary Shares which will or may be completed wholly or partly after such expiry and a purchase of
Ordinary Shares may be made pursuant to any such contract.
By order of the Board
LINK COMPANY MATTERS LIMITED
Company Secretary
 2023

16 Charlotte Square

Montanaro  page 73
Explanation of Notice of Annual General Meeting
Resolution 1 – To receive the Annual Report and Financial Statements

31 March

Report on those accounts is included as an ordinary resolution.
Resolution 3 – Remuneration

Resolution 4 – Final dividend
0.770 pence per share in respect of the year ended 31 March 2023. If approved, the
15 September 2023 to all ordinary shareholders who are on the register of members
on 18 2023. The shares will be marked ex dividend on 17 2023.
Resolutions 5 to 7 – Re election of Directors




 23 and are also available for viewing on the Company’s website
https://montanaro.co.uk/trust/montanaro-european-smaller-companies-trust/. The Nomination Committee considered the
Directors’ performance and recommended their re election and the Board agrees that it is in the best interests of shareholders
that each of the Directors be re elected.
Resolutions 8 and 9 – Re-appointment and remuneration of Auditor




Resolution 10 – Authority to allot ordinary shares
Resolution 10 authorises the Board to allot ordinary shares generally and unconditionally in accordance with Section 551 of the
, representing approximately 10 per cent of the issued

Resolution 11 – Authority to disapply pre emption rights
Resolution 11 is a special resolution which is being proposed to authorise the Directors to disapply the pre emption rights of
existing Shareholders in relation to issues of ordinary shares under Resolution 10 (being in respect of ordinary shares up to an
947,138, representing approximately 10 per cent of the Company’s issued ordinary share capital,

The Directors will only allot new shares pursuant to the authorities proposed to be conferred by Resolutions 10 and 11 if they
believe it is advantageous to the Company’s shareholders to do so and in no circumstances would it result in an overall dilution of

issuance. The Board’s policy regarding the issue of shares from treasury is described on page 28.
page 74 Montanaro 
## continued
Resolution 12 – Purchase of own shares
Resolution 12 is a special resolution which will grant the Company authority to make market purchases of up to 28,395,197
ordinary shares, representing 14.99 per cent of the ordinary shares in issue as at the date of the Notice. The ordinary shares
bought back will either be cancelled or placed into treasury, at the determination of the Directors. There are currently no
shares held in treasury. The maximum price which may be paid for each ordinary share must not be more than the higher of (i)
105 per cent
which the purchase is made or
(ii) the value of an Ordinary Share calculated on the basis of the higher price quoted for: (a) the last independent trade of; and (b)
the highest current independent bid for any number of Ordinary Shares on the trading venue where the purchase is carried out.


and be in the best interests of the shareholders as a whole. The Board’s intention is to apply an active discount management
10 per cent


Company’s shares.

Montanaro  page 75
Notes
1. Attending the Annual General Meeting in Person


asked to provide evidence of your identity to the Company’s registrar, Equiniti Limited (the ‘Registrar’), prior to being admitted to

2. Appointment of Proxies


member. To be validly appointed a proxy must be appointed using the procedures set out in these notes and in the notes to the
accompanying proxy form.
If members wish their proxy to speak on their behalf at the meeting, members will need to appoint their own choice of proxy


Members cannot appoint more than one proxy to exercise the rights attached to the same share(s). If a member wishes to
appoint more than one proxy, they should contact the Registrar on +44 (0) 371 384 2461. Lines are open from 8.30am to 5.30pm,





she wishes.

have a right to appoint any proxies under the procedures set out in these notes and should read note 8 below.
You can appoint a proxy electronically by accessing www.sharevote.co.uk where full instructions on the procedure are given.


service, Shareview, can appoint their proxy electronically by logging on to their portfolio at www.shareview.co.uk using their user


receive it no later than 11.00am on Tuesday 5 September 2023.


the website.
3. Appointment of a Proxy Using a Proxy Form



 no later than 48 hours (excluding non-working days) before the time of

If you do not have a proxy form and believe that you should have one, or you require additional proxy forms, please contact the

and Wales. If calling from outside of the UK, please ensure the country code is used.
4. Appointment of a Proxy Through CREST
CREST members who wish to appoint a proxy or proxies through the CREST electronic proxy appointment service may do so
by using the procedures described in the CREST Manual and by logging on to the following website: www.euroclear.com. CREST
personal members or other CREST sponsored members, and those CREST members who have appointed (a) voting service
provider(s), should refer to their CREST sponsor or voting service provider(s) who will be able to take the appropriate action on
their behalf.
page 76 Montanaro 
## continued
In order for a proxy appointment or instruction made using the CREST service to be valid, the appropriate CREST message (a

and must contain the information required for such instruction, as described in the CREST Manual. The message, regardless
of whether it constitutes the appointment of a proxy or is an amendment to the instruction given to a previously appointed

non-working 

from which the Registrar is able to retrieve the message by enquiry to CREST in the manner prescribed by CREST.

through other means. CREST members and, where applicable, their CREST sponsors or voting service provider(s) should note that
Euroclear UK & Ireland Limited does not make available special procedures in CREST for any particular message. Normal system

member concerned to take (or, if the CREST member is a CREST personal member, or sponsored member, or has appointed
a voting service provider(s), to procure that his/her CREST sponsor or voting service provider(s) take(s)) such action as shall be
necessary ensure that a message is transmitted by means of the CREST system by any particular time. In this connection, CREST
members and, where applicable, their CREST sponsors or voting system providers are referred, in particular, to those sections of
the CREST Manual concerning practical limitations of the CREST system and timings.




www.proxymity.io. Your proxy must be lodged by 12:30 pm on 5 September 2023 in order to be considered valid. Before you can

you read these carefully as you will be bound by them, and they will govern the electronic appointment of your proxy.
5. Appointment of Proxy by Joint Holders
In the case of joint holders, where more than one of the joint holders purports to appoint one or more proxies, only the
purported appointment submitted by the most senior holder will be accepted. Seniority is determined by the order in which the

most senior).
6. Corporate Representatives


Members cannot appoint more than one corporate representative to exercise the rights attached to the same share(s).
7. Entitlement to Attend and Vote

members must be registered in the Company’s register of members at 6.30pm on 5 September
Meeting is adjourned, at 6.30pm on the day two days prior to the adjourned meeting). Changes to the register of members

Meeting.
8. Nominated Persons




have a right to give instructions to the member as to the exercise of voting rights.
9. Website Giving Information Regarding the Annual General Meeting


Montanaro European Smaller Companies Trust plc Annual Report and Accounts 2023

page 77

## 10. Audit Concerns

Members should note that it is possible that, pursuant to requests made by members of the Company under section 527 of the 2006 Act, the Company may be required to publish on a website a statement setting out any matter relating to: (a) the audit of the Company's accounts (including the Auditor's report and the conduct of the audit) that are to be laid before the Annual General Meeting; or (b) any circumstance connected with an auditor of the Company ceasing to hold office since the previous meeting at which annual accounts and reports were laid in accordance with section 437 of the 2006 Act. The Company may not require the members requesting any such website publication to pay its expenses in complying with sections 527 or 528 of the 2006 Act. Where the Company is required to place a statement on a website under section 527 of the 2006 Act, it must forward the statement to the Company's auditor not later than the time when it makes the statement available on the website. The business which may be dealt with at the Annual General Meeting includes any statement that the Company has been required under section 527 of the 2006 Act to publish on a website.

## 11. Members resolution

Under Section 338 and Section 338A of the Companies Act 2006, members meeting the threshold requirements in those sections have the right to require the Company (a) to give to members of the Company entitled to receive notice of meeting, notice of any resolution which may properly be moved and is intended to be moved at the meeting and/or (b) to include in the business to be dealt with at the meeting any matter (other than a proposed resolution) which may be properly included in the business.

A resolution may properly be moved or a matter may properly be included in the business unless (a) (in the case of resolution only) it would, if passed, be ineffective (whether by reason of inconsistency with any enactment or the Company's constitution or otherwise), (b) it is defamatory of any person, or (c) it is frivolous or vexatious. Such a request may be in hard copy form or in electronic form, must identify the resolution of which notice is to be given or the matter to be included in the business, must be authorised by the person or persons making it, must be received by the Company not later than 27 July 2023, being the date six weeks before the meeting, and (in the case of a matter to be included in the business only) must be accompanied by a statement setting out the grounds for the request.

## 12. Voting Rights

As at 22 June 2023 (being the latest practicable date prior to the publication of this notice) the Company had 189,427,600 Ordinary Shares in issue of £0.05 each, including 189,427,600 Ordinary Shares of £0.05 each held in treasury. Each Ordinary Share (other than those held in treasury) carries one vote. The total voting rights in the Company as at 22 June 2023 were 189,427,600 votes.

## 13. Notification of Shareholdings

Any person holding 3 per cent or more of the total voting rights of the Company who appoints a person other than the Chairman of the Annual General Meeting as his/her proxy will need to ensure that both he/she, and his/her proxy, comply with their respective disclosure obligations under the UK Disclosure Guidance and Transparency Rules.

## 14. Further Questions and Communication

Under section 319A of the 2006 Act, the Company must cause to be answered any question relating to the business being dealt with at the Annual General Meeting put by a member attending the meeting unless answering the question would interfere unduly with the preparation for the meeting or involve the disclosure of confidential information, or the answer has already been given on a website in the form of an answer to a question, or it is undesirable in the interests of the Company or the good order of the meeting that the question be answered. Members who have any queries about the Annual General Meeting should contact the Company Secretary, Link Company Matters Limited at 65 Gresham Street, London EC2V 7NQ. Members may not use any electronic address provided in this notice or in any related documents (including the Annual Report and Accounts and proxy form) to communicate with the Company for any purpose other than those expressly stated.

## 15. Documents Available for Inspection

The following documents will be available for inspection at the registered office of the Company during normal business hours on any weekday (Saturdays, Sundays and English public holidays excepted) from the date of this notice until the conclusion of the Annual General Meeting:

- copies of the Directors' letters of appointment; and

None of the Directors has a service contract with the Company.

## 16. Personal data

Personal data provided by shareholders at or in relation to the Meeting will be processed in line with the Company's privacy policy.
page 78 Montanaro 
## 

| Investment Manager and Alternative Investment Fund | Registrar |
| --- | --- |
| Manager (‘AIFM’) |  |
|  |  |
| 53 Threadneedle Street | Spencer Road |
|  | Lancing |
| Tel: 020 7448 8600 |  |


Registrar’s Shareholder Helpline
enquiries@montanaro.co.uk

www.montanaro.co.uk
Registrar’s Broker Helpline
Tel: 0906 559 6025
Administrator


Broadwalk House
Southernhay West
Stockbroker


6-8 Tokenhouse Yard


28 Walker Street
Edinburgh EH3 7HR
Tel: 0131 378 0500 Depositary


Company Secretary
One Canada Square


65 Gresham Street

Custodian
Tel: 0333 300 1950

Contact: mesct@linkgroup.co.uk
One Canada Square


28 Walker Street

| Edinburgh EH3 7HR | Bankers |
| --- | --- |
| Tel: 0131 378 0500 |  |
| Email: cosec@junipartners.com | 60 London Wall |



16 Charlotte Square Independent Auditors
 


|  |  |
| --- | --- |
| 28 Walker Street | 144 Morrison Street |
| Edinburgh EH3 7HR |  |

Solicitor
DICKSON MINTO W.S.
16 Charlotte Square

Montanaro European Smaller Companies Trust plc
Registered in Scotland No. SC074677


Montanaro  page 79
## Notes
page 80 Montanaro 
## Notes
Montanaro European Smaller Companies Trust plc
16 Charlotte Square
Edinburgh
Scotland EH2 4DF
Tel: 020 7448 8600
Fax: 020 7448 8601
E-mail: enquiries@montanaro.co.uk
Website: www.montanaro.co.uk