## European Smaller Companies Trust plc
## Before you invest in a
## Smaller Company you need to
## understand their hopes and fears
## Annual Report and Accounts 2024
## The investment objective of Montanaro European Smaller
## Companies Trust plc (the “Company” or “Trust”) 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
## LondonStock Exchange.
The Company conducts its affairs so that its Ordinary shares can be recommended by IFAs to ordinary retail investors
inaccordance with the FCA’s rules relating to non-mainstream investment products and intends to continue to do so.
### Contents
Highlights 1 Financial Report This document is important
and refers to certain matters on
Independent Auditors’ Report 38
which voting action is required.
Strategic Report Statement of Comprehensive
Shareholders who are in any
Income 45
Chairman’s Statement 2
doubt as to what action to take
Balance Sheet 46
Manager’s Report 5 should consult an appropriate
Statement of Changes in Equity 47 independent adviser immediately.
ESG Report 8
Statement of Cash Flows 48
Twenty Largest Holdings 10
If any shareholder has sold or
Notes to the Financial Statements 49
Portfolio Analysis 12
transferred all their shares in the
Historic Record 13 Company, they should pass this
Other Information document to the purchaser or
Business Model and Strategy 14
AIFMD Disclosures 62 transferee or to the person through
Principal and Emerging Risks 16
whom the transfer or sale was
Alternative Performance
Directors’ Duties 20
effected for onward transmission
Measures 63
to the transferee or purchaser.
Glossary of Terms 65
Governance
Shareholder Information 67
Board of Directors 23
Notice of Annual General Meeting 69
Directors’ Report 24
Advisers IBC*
Corporate Governance Statement 28
Report of the Audit Committee 31
Directors’ Remuneration Report 34
Statement of Directors’
Responsibilities 37
* Inside Back cover
Montanaro European Smaller Companies Trust plc Annual Report and Accounts 2024

page 1

## Highlightsfor the year ended 31 March 2024

### Performance

|  Total return% | 1 year | 3 year | 5 year | 10 year | MAM*  |
| --- | --- | --- | --- | --- | --- |
|  Net Asset Value ('NAV') per share^{(1)} | 4.9% | 5.7% | 68.6% | 203.4% | 478.5%  |
|  Share Price^{(1)} | 4.3% | (9.8%) | 65.7% | 190.4% | 447.4%  |
|  Benchmark**^{(2)} | 5.9% | 6.4% | 45.6% | 124.7% | 301.1%  |

|  Capital return% | 1 year | 3 year | 5 year | 10 year | MAM*  |
| --- | --- | --- | --- | --- | --- |
|  NAV per share^{(1)} | 4.2% | 3.7% | 63.0% | 177.7% | 382.0%  |
|  Share Price^{(1)} | 3.6% | (11.5%) | 60.1% | 163.9% | 346.4%  |
|  Benchmark**^{(2)} | 3.4% | (0.1%) | 32.1% | 86.7% | 187.5%  |

Sources: Morningstar Direct, Association of Investment Companies ("AIC"), Montanaro Asset Management Limited ("MAM").

|  As at 31 March | 2024 | 2023 | % change  |
| --- | --- | --- | --- |
|  Ordinary share price | **142.5p** | 137.6p | 3.6  |
|  NAV per Ordinary share** | **165.1p** | 158.4p | 4.2  |
|  Discount to NAV^{(1)} | **(13.7%)** | (13.1%) |   |
|  Net assets** (£'000s) | **312,720** | 299,975 | 4.2  |
|  Market capitalisation** (£'000s) | **269,934** | 260,652 | 3.6  |
|  Net gearing employed^{(1)} | **2.9%** | 3.3% |   |

|  Year ended 31 March | 2024 | 2023 | % change  |
| --- | --- | --- | --- |
|  Revenue return per Ordinary share | **1.42p** | 1.10p | 29.1  |
|  Dividend per Ordinary share^{(1)} | **1.125p** | 0.970p | 16.0  |
|  Ongoing charges^{(1)} | **1.0%** | 1.0% |   |
|  Portfolio turnover^{(1)} | **16%** | 14% |   |

* From 5 September 2006, when MAM was appointed as Investment Manager.

** Details provided in the Glossary on pages 65 and 66.

$^{(1)}$ Refer to Alternative Performance Measures on page 63.

$^{(2)}$ From 5 September 2006, the benchmark was the MSCI Europe SmallCap Index. The benchmark was changed on 1 June 2009 to the MSCI Europe ex-UK SmallCap Index (in Sterling terms).
page 2

Montanaro European Smaller Companies Trust plc Annual Report and Accounts 2024

## Chairman's StatementFor the year ended 31 March 2024

![img-0.jpeg](img-0.jpeg)

### Results

The Net Asset Value ("NAV") (with dividends reinvested) rose by 4.9% to 165.1p per share during the financial year ended 31 March 2024. In comparison, the benchmark (the MSCI Europe (ex-UK) Small Cap Index) rose by 5.9% (in Sterling terms). The share price (with dividends reinvested) gained 4.3% as the discount to NAV widened from 13.1% to 13.7%.

The first half of the period was characterised by an environment where 'growth' companies underperformed 'value' and high-quality companies underperformed low quality. As Montanaro Asset Management ("Montanaro", "MAM" or the "Manager") seeks to invest exclusively in high quality, growing companies, these style shifts acted as a headwind. These headwinds subsided around the end of October 2023 which led to better performance in the second half of the year to 31 March 2024.

Whilst recognising that recent short-term performance has been challenging, Montanaro have a long-term investment approach. Over 5 and 10 years, your Trust has delivered NAV total returns of 68.6% and 203.4%, outperforming the benchmark by 23.0% and 78.7% respectively. The Trust's performance compares favourably with the European Smaller Companies peer group, with the NAV total return being second over five years and first over ten years. Since Montanaro were appointed in September 2006, the NAV total return has been 478%, 177% ahead of the benchmark and 2.1% per annum ahead of the benchmark.

### Earnings and Dividends

Revenue earnings per share rose to 1.42p in the period (2023: 1.10p).

An interim dividend of 0.225p per share was paid on 26 January 2024. The Board recommends the payment of a final dividend of 0.9p per share payable on 16 September 2024 to shareholders on the register on 16 August 2024. Subject to shareholder approval, this would bring the total dividends for the year to 1.125p per share, an increase of 16%.

The Trust holds substantial revenue reserves available for distribution, which gives the Board the ability to smooth any short-term income volatility.

### Environmental, Social and Governance ("ESG")

Montanaro believe there is a clear correlation between how well a business fares on Environmental, Social and Governance grounds and the value it creates for its shareholders. This is why ESG considerations have formed an integral part of their assessment of a company's 'quality' and have been fully integrated into their investment process for many years.

The depth of Montanaro's commitment is perhaps best exemplified by the fact that they are one of the few UK asset managers to be a certified B Corporation.

Certified B Corporations are businesses that meet the highest standards of verified social and environmental performance, public transparency and legal accountability to balance profit and purpose. It is a certification Montanaro have held since 2019 and which was renewed for a further three years in 2022. Montanaro's score rose from 81.8 to 105.5 (classified as 'outstanding'), which demonstrates their commitment to continual improvement. Montanaro's commitment to ESG has been recognised: they have won two awards: one from Ethical Finance for "Best Small & Mid-Cap Sustainable Investment Boutique 2024 – UK"; and another from Investors' Chronicle and the Financial Times for "ESG Company of the Year 2023'.

An ESG Report is included on pages 8 and 9 of this Annual Report. It covers the developments in Montanaro's approach and commitment to ESG as well as how they are interacting with investee companies.

### Board Composition

The Board is actively engaged in an independent recruitment process for a fourth non-executive Director. We expect the Board to be comprised of four members going forward following this process.
Montanaro European Smaller Companies Trust plc    Annual Report and Accounts 2024 page 3
Borrowings The discount was high by historical standards at the year-end,
The Board, regularly reviews the gearing strategy of the but in line with the peer group. As a result, no share buybacks
Trust and approves any gearing facility. Gearing amplifies the were implemented during the period.
returns from underlying profits or losses generated by the
investmentportfolio. Communication with Shareholders
Over the past few years, the composition of our shareholder
The Board has set a maximum limit on borrowing (net of cash)
base has changed significantly with an increasing number of
of 30% of shareholders’ funds at the time of borrowing. At the
individual investors coming onto the register via investment
end of the financial year, the Trust had borrowings (net of cash)
platforms. We are keen to encourage an open dialogue to
of 2.9% compared to 3.3% at the beginning of the year.
keep all shareholders up to date with key developments. Our
During the year, the Trust’s borrowings in the form of a website – www.montanaro.co.uk/trust/mesct – is continually
€10million fixed rate loan and a €15 million revolving credit updated with factsheets, reports, presentations, webinar
facility matured. The Board has replaced these facilities with recordings and commentaries as well as more details about
a new €10 million fixed rate loan and a new €15 million the Manager, investment philosophy and process. We
revolving credit facility, both of which are due to mature on encourage shareholders to visit regularly and welcome any
13September 2026. feedback and suggestions.
Authority to Issue and Buyback Shares Annual General Meeting (“AGM”)
Our stated policies on share buybacks and share issuances are The AGM will be held at the offices of Montanaro Asset
set out on page 27. The Board will seek to renew the Trust’s Management Limited, 53 Threadneedle Street, London
share buyback and issuance authorities at the forthcoming EC2R8AR on 5 September 2024 at 11.00 am. Shareholders
Annual General Meeting (see page 69). are encouraged to attend the meeting where there will be
an opportunity to meet and ask questions of the Board and
The Board actively monitors the level of NAV discount for
theManager.
the Trust relative to its peers and how it compares with the
average discount for the investment trust sector as a whole.
Outlook
As reported in our Interim Results, European SmallCap valuation indicators remain at levels significantly below their long-term
average. Since the peak in August 2020, the forward P/E of SmallCaps in Continental Europe has fallen from over 23x to around
13x at the end of March 2024. This de-rating means they sit at a discount to their long-term history, as shown in the chart below:
MSCI Europe ex-UK SmallCap – 12 month forward P/E
24
22
20
8
18
6
16 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24
14 Source: Montanaro Asset Management, MSCI, FactSet. Note: Thick red line = average +2 standard deviations (dashed red line = average + 1 standard deviation).
Thickgreen line = average -2 standard deviations (dashed green line = average -1 standard deviation). Black line = average.
12
10
page 4 Montanaro European Smaller Companies Trust plc    Annual Report and Accounts 2024
## Chairman’s Statement continued
Moreover, European SmallCap is valued at a discount to the wider market, which is unusual. Indeed, the discount is at a level last
seen in the depths of the Global Financial Crisis:
Europe ex-UK Small v. Market – 12 month forward P/E
(MSCI Europe ex-UK SmallCap v. MSCI Europe ex-UK Index, GBP)
60%
55%
50%
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
-5%
0%
Feb 2024: -12%Dec 2008: -3%
5%
03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23
Source: Montanaro Asset Management, MSCI, FactSet. Note: Thick red line = average +2 standard deviations (dashed red line = average + 1 standard deviation).
Thickgreen line = average -2 standard deviations (dashed green line = average -1 standard deviation). Black line = average.
These two charts suggest that European SmallCap is attractive on both an absolute and relative basis.
Over the long term, we believe that earnings are the most important driver of share prices. In 2023, the average company in your
portfolio grew its earnings by double digits and delivered high returns on capital. This, combined with attractive absolute and
relative valuations for the asset class, means that we look forward to the future with confidence.
R M CURLING
Chairman
20 June 2024
-1
-1
24
Montanaro European Smaller Companies Trust plc Annual Report and Accounts 2024

page 5

# Manager's Report

## The Attractions of Quoted European Smaller Companies ('SmallCap')

The key attraction of investing in smaller companies is their long-term record of delivering higher returns to investors than large companies. In the UK, over the last 69 years, this has amounted to an average of 3.1% per annum (the "SmallCap Effect"). £1 invested in UK large companies on 1 January 1955 would now be worth £1,357 whereas the same £1 invested in smaller companies would now be worth £9,171 – almost seven times more.

## Continental European Small v. LargeCap

(MSCI Europe ex UK SmallCap v. LargeCap indices, Net Total Return)

(rebased to 100 from 31 December 2000)

![img-1.jpeg](img-1.jpeg)

There is less comprehensive data on Europe – it only goes back to 2000. However, this suggests that the SmallCap Effect is even more pronounced on the Continent: as the chart above illustrates, European 'small' companies have outperformed by 4.2% p.a.

Remarkably, European SmallCaps have returned just shy of 10% p.a. since the turn of the century, thereby outperforming the vast majority of SmallCap markets around the world including the UK, Japan, Australia, the BRICs (Brazil, Russia, India and China) and even the USA (based on the Russell 2000 index).

The market for European smaller companies is inefficient. While some large companies are analysed by more than 50 brokers, many smaller companies in Europe have little or no coverage. We believe that this makes it easier for those with a high level of internal resources to identify attractive, undervalued and overlooked investment opportunities. This in turn makes it possible to deliver long-term performance over and above that of the benchmark.

## Montanaro Asset Management

Montanaro was established in 1991. We have one of the largest and most experienced specialist teams in the UK dedicated exclusively to researching and investing in quoted small companies. Our team of 39 includes 12 nationalities and 18 Analysts and Portfolio Managers, which gives us the breadth of resources required to conduct thorough in-house research.

At 31 March 2024, we were looking after around £3.3 billion of client assets. We have been the Manager of your Trust since September 2006.

## Investment Philosophy and Approach

We specialise in researching and investing in quoted smaller companies. We have a disciplined, two-stage investment process.

In the first stage, we identify 'good businesses' within our investable universe. We look for high quality companies in markets that are growing. They must be profitable; have good and experienced management; deliver sustainably high returns on capital employed; enjoy high and ideally growing profit margins reflecting pricing power and a strong market position; and provide goods and services that are in demand and likely to remain so. We prefer companies that can deliver self-funded organic growth and remain focused on their core areas of expertise, rather than businesses that spend a lot of time on acquisitions.
page 6 Montanaro European Smaller Companies Trust plc    Annual Report and Accounts 2024
## Manager’s Report continued
Conversely, we avoid those with stretched balance sheets; quality, more predictable company that can be valued with
poor free cash flow generation; incomprehensible or heavily greater certainty. Finally, we align our interests with our
adjusted accounts; unproven or unreliable management; investors by investing meaningful amounts of our own money
or that face structurally challenged business models with alongside yours. We are significant shareholders in the Trust.
stiffcompetition.
The Portfolio
A company must also pass our stringent quality and ESG
At 31 March 2024, the portfolio consisted of 50 companies
checklists. ESG has been integrated into our disciplined
of which the top ten holdings represented 37%. Sector and
investment process for almost two decades.
country distributions within the portfolio are driven by stock
When we have identified a company that we believe is high selection. Although weightings relative to the market are
quality, has structural growth and is well managed from a monitored, overweight and underweight positions are based
business and ESG perspective, it is reviewed by our Investment on where the greatest value and upside are perceived to be.
Committee before it can proceed to the next stage. Companies
that do not possess all these attributes are rejected. Performance Attribution
The largest positive contributors over the period were:
Companies that pass the first stage then undergo a valuation
assessment. We determine their intrinsic value, typically ATOSS Software is a developer of workforce management
through a proprietary discounted cash flow analysis, to software, primarily within the DACH region. The company had
ensure they will make a ‘good investment’ (‘good businesses’ and an excellent year, with strong demand for its products driving
‘good investments’ are not always the same). The Investment continued double-digit revenue and earnings growth.
Committee scrutinises the forecasts and assumptions made
VZ Holding is a Swiss independent financial consultant and
for each business and discusses the risk profile with the
wealth manager. The company had another strong year of
Analyst for a company before adding it to our Approved List.
underlying growth while higher interest rates on deposits
Companies that are on the Approved List and which we also provided an additional boost to profits.
believe are attractively valued are then eligible for inclusion in
CTS Eventim is the market leading ticketing company in
your portfolio.
Europe. A few years ago, this was one of the largest detractors
Our Investment Team use their industry knowledge and a as Covid-19 lockdowns meant concert ticket sales disappeared
range of proprietary screens to continually search for new almost entirely. As long-term shareholders, we did not sell our
ideas. With thousands of quoted companies from which to position as we expected concert attendance to rebound once
choose, we are spoiled for choice. restrictions ended. It is pleasing to see this has happened with
the company now posting record results.
We believe that a deep understanding of a company’s
business model and the way it is managed are essential. We Inevitably the year was not without some stock price declines
visit our investee companies on a regular basis. We examine as well. Our largest detractors were:
management’s past track record in detail as we seek to
Melexis develops sensors that are mainly used in cars. The
understand their goals and aspirations. In smaller companies,
shares fell during the year as investors fretted about the
the decisions and motivation of the entrepreneurial
potential impact of destocking among itscustomers.
management can make or break a company, which is why
meeting them is so important. We look closely at the board Medistim is the global market leader for transit time flow
structure; the level of insider ownership; and examine measurement devices used in coronary bypass surgeries.
remuneration and corporate governance policies carefully. The company struggled in 2023 as constrained hospital
budgets and a shift to a direct sales model in China held back
Once a company has been added to the portfolio, our
revenuegrowth.
Investments Team conducts ongoing analysis. We will sell a
holding if we believe that the company’s underlying quality is Amadeus FiRe is a German provider of staffing and training
deteriorating or if there has been a fundamental change to the services. The stock fell as investors were concerned about
investment case or management. We will get things wrong and the state of the German economy and consequently the
make mistakes, but we try to learn from them. employment market, despite the company increasing its
revenues and profits.
In summary, we invest in well managed, high quality, growing
companies bought at sensible valuations. We keep turnover We believe the long term outlook for these businesses
and transaction costs low and follow our companies closely continues to be positive and we remain shareholders.
over many years. We would rather pay more for a higher
Montanaro European Smaller Companies Trust plc    Annual Report and Accounts 2024 page 7
Portfolio Changes Continual Improvement
We try to keep portfolio turnover as low as possible. However, Each year we take time to look back at our successes and
we typically make a few changes each year as we identify mistakes to assess how our systems and processes can
new investment ideas that we expect will provide stronger beimproved.
long-term returns than existing holdings. Companies that
The IT investments that we wrote about last year continue
become too large, are acquired or where the investment
to bear fruit. One example of this is we are now able to
case deteriorates are also replaced with new ideas from our
seamlessly record, transcribe and summarise our meetings
Approved List.
using AI tools. The output is not perfect but it is rapidly
In the year to 31 March 2024, we exited positions in companies improving and already good enough to materially reduce the
including Photocure, which sells pharmaceuticals used to amount of time our team spend typing up notes – a necessary
help in the detection of bladder cancer, as the reimbursement but time consuming task. Every minute we save is a minute
landscape for its procedures deteriorated. Meanwhile, that can be spent thinking and doing more research.
SimCorp, the developer of investment management software,
Montanaro has continued to invest in the wider business as
received a takeover offer from Deutsche Boerse at a significant
well. For example, our HR function has been improved with
premium to the pre-announcement share price.
the addition of an external consultant; a new cloud-based HR
Borregaard, the supplier of specialised biochemicals system for employees; and a benchmarking exercise around
manufactured from renewable sources, and BioGaia, policies and benefits. We have an extremely low staff turnover
which develops and sells probiotic products, were added both at group level and within the Investments Team. We
totheportfolio. believe that this is in part due to our employees having the
right support and working environment, something that we
will continue to develop. We focus on getting the work/life
balance right.
MONTANARO ASSET MANAGEMENTLIMITED
20 June 2024
page 8 Montanaro European Smaller Companies Trust plc    Annual Report and Accounts 2024
## ESG Report
Montanaro has been a certified B Corporation (“B Corp”) The provision of such information continues to be a challenge
since 2019, a company verified for meeting high standards for smaller companies although it is moving in the right
of social and environmental performance, transparency direction. As part of this effort, during the year, we again joined
and accountability. BCorp status is regarded as one of other financial institutions as part of the CDP: Non-Disclosure
the toughest sustainability standards to achieve globally. Campaign, requesting that companies continue to submit
Montanaro aims to ‘practice what we preach’ as we expect high corporate environmental data to third-party organisations.
ESG standards from the companies in which we invest.
A new requirement emerged in relation to sustainability
reporting: double materiality, which forms part of the
Ethical Restrictions and ESG Analysis
European Union’s Corporate Sustainability Reporting Directive
Montanaro has a long track record of sustainable investing,
(“CSRD”). This requires companies to report both on how ESG
which has always been represented in the way the portfolio
issues affect a company’s financial condition and operating
has been managed. Ethical restrictions mean that we do not
performance, as well as the impact of the company’s
invest in companies that generate a significant proportion
operations on the environment and society. Several portfolio
of sales from products with negative societal impacts such
companies such as Brembo asked us to complete double
as tobacco, gambling, armaments, alcohol, high-interest-
materiality surveys to help them prioritise sustainability topics.
rate lending and fossil fuels. Similarly, we do not invest in
companies that conduct animal testing, unless it is required by Another engagement that progressed positively was with
law for healthcare or regulatory purposes. ATOSS Software. Last year, we asked management to consider
the gender composition of its Board, which is 100% male.
The analysis of Environmental, Social and Governance
Pleasingly, management have set diversity and inclusion targets
(“ESG”) factors forms part of our definition of a company’s
for 2027, including a goal of 30% women on the executive
fundamental ‘quality’. Montanaro has an internally designed
leadership team.
‘ESG Checklist’ which is used to appraise the ESG strengths
and weaknesses of companies. This has been developed and
Deep Dive Research Projects
refined over many years, including a major update in 2023.
Led by our ESG and Impact Specialists, our Investment
The analysis of ESG information allows our Analysts to better
Team conducts ‘Deep Dive’ ESG focused research projects.
understand the risks and opportunities that companies may be
We published the fourth annual update of our ‘Net Zero
exposed to, from factors such as climate change, supply chain
Carbon’ Deep Dive, focused on understanding how our
risks and the structure of company boards.
companies are responding to climate change and setting
net zero carbon targets. The team also published a Deep
Active and Long-term Engagement
Dive on ‘The Built Environment’. By speaking to academics,
Where weaknesses are identified, we seek to use our
charities, and research organisations, Montanaro enhanced
influence to improve a company through active and long-term
its understanding of the investment opportunities and
engagement. As an investor in quoted smaller companies,
challenges facing cities and towns as they transition to a more
Montanaro has access to the people who can really make a
sustainablefooting.
difference in how companies are run: the CEOs.
During the year, we engaged with a number of portfolio Continual Investment
companies including Surgical Science, a company that we Montanaro continues to remain at the forefront of sustainable
believe has a satisfactory ESG profile, but one that is not investing. Another ESG and Impact Specialist joined the
recognised by ESG research providers such as MSCI. We Investment Team in April 2023, further strengthening
suggested improvements senior management could make ourcapabilities.
to improve the market-wide perception of the company.
Montanaro achieved industry leading standards over the
This included the establishment of Remuneration and Audit
year, publishing its UK Stewardship Code report, which again
Committees, chaired by independent individuals with relevant
received successful signatory status by the Financial Reporting
financial experience and qualifications. Pleasingly, the company
Council (“FRC”). We also continued our commitments to
has taken steps to establish these Committees and also to
responsible investing by contributing to, among other things,
improve the reporting of ESG information.
the Task Force for Nature Related Financial Disclosures
(“TNFD”) consultation; the Investor Coalition on Food Policy;
and two ShareAction collaborative initiatives focused on health
and workforce disclosure.
Montanaro European Smaller Companies Trust plc    Annual Report and Accounts 2024 page 9
Montanaro’s industry commitments: In September 2023, Montanaro’s Head of Sustainable
Investments was elected to the Board of the UK Sustainable
Signatory
Investment & Finance Association, a membership body of
date Initiative
over 300 financial firms representing over £19 trillion in assets
UN Principles for Responsible under management. This provides Montanaro with a greater
2009
Investment (“PRI”) ability to contribute to the development of sustainable finance
across the financial sector helping us to stay at the heart of
industry developments and associated policy making.
2010 UK Stewardship Code
We continued to participate in the Glasgow Financial Alliance
for Net Zero (“GFANZ”) taskforce, a coalition of leading
financial institutions committed to accelerating the net-zero
Carbon Disclosure Project
2015
transition. Having participated in the FCA’s Sustainability
(“CDP”)
Disclosure Requirements (“SDR”) consultation, a member of
Montanaro’s Investment Team also joined an industry SDR
2017 LGPS Code of Transparency working group run by UKSIF ahead of this regulation coming
into force in April 2024.
During the year, Montanaro joined financial institutions
2019 B Corporation worldwide in signing a statement advocating for a robust
International Legally Binding Instrument to combat plastic
pollution. The initiative is a coalition of the UN Environment
Farm Animal Investment Risk
Programme Finance Initiative, PRI, Finance for Biodiversity
2019
and Return (“FAIRR”)
Foundation, Business Coalition for a Global Plastics Treaty,
VBDO (a Dutch sustainable investment body) and CDP.
Net Zero Asset Managers
2020 Montanaro also co-signed an investor statement to support
Initiative
the development of the new Modern Slavery Bill, focusing on
human rights. We pledged ongoing support to the campaign
Tobacco Free Portfolios and are committed to improving our approach to managing
2022
Finance Pledge human rights risks.
Finally, we not only engaged with ShareAction’s campaign on
2022 Living Wage Accreditation air quality but also contributed to broader investor education
by presenting challenges and methodologies for incorporating
air quality considerations into ESG investing at a ShareAction-
Task Force for Nature Related hosted event.
2023
Financial Disclosures (“TNFD”)
These industry standards and our participation in collaborative
initiatives allows us to stay abreast of the developments
UK Sustainable Investment and influencing and driving sustainable investment, a rapidly
2023
Finance Association (“UKSIF”) changing area of the investment landscape and ensure that
our investment process evolves accordingly.
Investor Coalition on Food It is pleasing that our efforts were recognised by two awards:
2023
Policy one from Ethical Finance for ‘Best Small & Mid-Cap Sustainable
Investment Boutique 2024 – UK’ (for the second time); and
ShareAction – Long-term
another from Investors’ Chronicle and the Financial Times for
2023 Investors in People’s Health
‘ESG Company of the Year 2023’.
(“LIPH”)
ShareAction – Workforce
2023
Disclosure Initiative (“WDI”) MONTANARO ASSET MANAGEMENT LIMITED
20 June 2024
page 10 Montanaro European Smaller Companies Trust plc    Annual Report and Accounts 2024
## Twenty Largest Holdings
### as at 31 March 2024

| 1 NCAB | 8 Kitron | 16 Amadeus FiRe |
| --- | --- | --- |
| is a global full-service supplier of printed | is a leading Scandinavian Electronics | is a leading personnel service company |
| circuit boards (PCBs). | Manufacturing Services (“EMS”) company. | in Germany, with integrated training and |

further education offerings.

| 2 MTU Aero Engines | 9 VZ Holding |  |
| --- | --- | --- |
| manufactures and maintains aircraft | is a Swiss independent financial | 17 Sartorius Stedim |
| engines and components. | consultant and wealth manager. | is a world leading supplier of equipment |

and technologies used to produce

| 3 ATOSS Software | 10 Brunello Cucinelli | biopharmaceuticals. |
| --- | --- | --- |
| develops and sells workforce | is a luxury fashion company, particularly |  |
| management software in Europe. | famous for its cashmere products. | 18 Rational |

is the global market leader in the

| 4 CTS Eventim | 11 Tecan | field of advanced cooking systems for |
| --- | --- | --- |
| is the market leading ticketing company | develops automated instruments and | commercial kitchens. |
| in Europe, providing an online platform | solutions that are used in laboratories. |  |
| selling tickets to a range of events such |  | 19 Belimo Holding |
| as operas and pop concerts. | 12 Reply | develops and manufactures electrical |
|  | is an IT services company. | motorised control devices (actuators) for |
| 5 Fortnox |  | air and water. These are predominantly |
| is Sweden’s leading provider of cloud- | 13 Brembo | used in large buildings with sophisticated |
| based applications for accounting, | is a global leader in the design and | Heating, Ventilation and Air Conditioning |
| invoicing and payroll administration. | production of high end automotive | (HVAC) systems. |

braking systems.

| 6 IMCD |  | 20 Thule Group |
| --- | --- | --- |
| is one of the world’s largest speciality | 14 Bachem | is a global market leader of niche |
| chemical distributors. | is a leading manufacturer of peptides | products and solutions for outdoor |
|  | and oligonucleotides. | activities, including equipment such as |
| 7 Esker |  | bike racks and roof boxes for vehicles. |
| offers a cloud-based platform that allows | 15 Melexis |  |
| companies to digitise and automate | is a leading designer of sensors, with |  |
| their accounts payable and receivable | a particular focus on automotive |  |
| processes. | applications. |  |

Montanaro European Smaller Companies Trust plc    Annual Report and Accounts 2024 page 11

|  | 31 March |  | 31 March |  | 31 March |  | 31 March |  | 31 March |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  |  | 2024 |  | 2023 |  | 2024 |  | 2023 |  | 2024 |
|  |  | Value |  | Value |  | % of |  | % of | Market cap |  |
| Holding Country |  | £’000 |  | £’000 | net assets |  | net assets |  |  | £m |

NCAB Sweden 14,350 15,643 4.6 5.2 976
MTU Aero Engines Germany 14,121 14,192 4.5 4.7 10,858
ATOSS Software Germany 14,058 8,014 4.5 2.7 1,863
CTS Eventim Germany 13,075 9,356 4.2 3.1 6,785
Fortnox Sweden 12,493 12,479 4.0 4.2 3,047
IMCD Netherlands 11,870 11,235 3.8 3.7 7,958
Esker France 10,344 6,918 3.3 2.3 959
Kitron Norway 9,964 14,173 3.2 4.7 494
VZ Holding Switzerland 9,663 9,933 3.1 3.3 3,865
Brunello Cucinelli Italy 9,518 12,016 3.0 4.0 6,164
Tecan Switzerland 8,996 7,948 2.9 2.6 4,182
Reply Italy 8,976 6,951 2.9 2.3 4,197
Brembo Italy 8,628 9,972 2.7 3.3 3,389
Bachem Switzerland 8,339 8,091 2.7 2.7 5,686
Melexis Belgium 8,338 12,144 2.7 4.0 2,591
Amadeus FiRe Germany 8,182 9,758 2.6 3.3 556
Sartorius Stedim France 7,907 8,674 2.5 2.9 20,826
Rational Germany 7,558 5,427 2.4 1.8 7,812
Belimo Holding Switzerland 7,186 7,222 2.3 2.4 4,778
Thule Group Sweden 7,177 5,970 2.2 2.0 2,529
Twenty Largest Holdings 200,743 64.2 65.2
page 12 Montanaro European Smaller Companies Trust plc    Annual Report and Accounts 2024
## Portfolio Analysis
Market Capitalisation of Holdings by Value (31March)
2024
26.9
2023
24.6 24.7 24.3
23.0
22.1 21.7
18.2
8.2
6.3
5
0
Source: Montanaro Asset Management
Sector Distribution (31March)
2024
30.7
2023
29.6
23.9 23.7
17.3 16.8
11.6
8.7

|  | 6.6 | 6.1 |  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| 5 |  |  | 4.1 | 3.0 | 4.0 |  |  |  |  |
|  |  |  |  |  |  | 3.7 | 2.9 | 2.8 | 2.6 |

1.9
0
Health CareIndustrialsInformation FinancialsConsumer Communication MaterialsReal EstateConsumer
Source: Montanaro Asset Management
Geographical Analysis (31March)
24.0 24.0
2024
2023
21.0
18.0
%
35 % % 15.0
30 14.0
25
12.0 12.0
30
25
20
25
7.0 7.0 7.0
6.0
20 5.0 5.0
20
5 4.0 4.0 4.0 4.0
15
3.0
2.0
15 15 1.0
0.0
0
10
10 10
Source: Montanaro Asset Management
Technology Discretionary Services Staples >£5bn£3bn–£5bn£1bn–£3bn£500m–£1bn£0–£500m GreeceDenmarkBelgiumSpainNorwayNetherlandsFranceSwitzerlandItalyGermanySweden
Montanaro European Smaller Companies Trust plc Annual Report and Accounts 2024

page 13

## Historic Record

|   | Net assets £'000s | NAV per share | Ordinary share price | (Discount)/ premium^ | Dividends per share | Ongoing charges^  |
| --- | --- | --- | --- | --- | --- | --- |
|  5 September 2006* | 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%) | 7.33p** | 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 for 1 share split effective from 14 September 2021  |   |   |   |   |   |   |
|  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%  |
|  31 March 2024 | 312,720 | 165.1p | 142.5p | (13.7%) | 1.125p | 1.0%  |

\* Date of commencement of current management arrangements.

\*\* Includes special dividends of 2.83p per share.

^ Alternative Performance Measures, refer to page 63.

### Performance since commencement of current management arrangements

(rebased to 100 from 1 September 2006)

![img-2.jpeg](img-2.jpeg)

Source: Montanaro Asset Management
page 14

Montanaro European Smaller Companies Trust plc Annual Report and Accounts 2024

# Business Model and Strategy

The purpose of this report is to provide shareholders with details of the Company's strategy, objectives and business model. It should be read in conjunction with the Chairman's Statement on pages 2 and 3 and the Manager's Report on pages 5 to 7, which provide a review of the Company's investment activity and a look to the future.

The Board is responsible for the stewardship of the Company, including overall strategy, investment policy, borrowings, dividends, corporate governance procedures and risk management. Biographies of the Directors can be found on page 23.

## PRINCIPAL ACTIVITY

The Company carries on business as an investment trust and its principal activity is portfolio management. Its Ordinary shares are traded on the Main Market of the London Stock Exchange.

The Company has no employees but contracts investment management and administration to appropriate external service providers, who are subject to oversight by the Board of Directors. The principal service providers during the year were:

- Montanaro Asset Management Limited ("Montanaro", "MAM" or the "Manager"), which was appointed as Investment Manager on 5 September 2006 and the Company's Alternative Investment Fund Manager ("AIFM") on 22 July 2014.
- Juniper Partners Limited, which provided company secretarial and fund administration services from 1 July 2023. Prior to this Link Company Matters provided company secretarial services and Link Alternative Fund Administrators provided fund administration services.
- Equiniti Limited which provided registrar services during the year.
- Bank of New York Mellon (International) Limited which provided depositary services during the year.

## STATUS OF THE COMPANY

The Company was incorporated in Scotland in 1981 under registered number SC074677, and is domiciled in the United Kingdom and registered as an investment company as defined in Section 833 of the Companies Act 2006.

The Company has been approved by HMRC as an investment trust under Sections 1158 and 1159 of the Corporation Tax Act 2010, subject to continuing to meet eligibility requirements. The Directors are of the opinion that the Company has conducted its affairs in a manner compliant with the conditions for continued approval and intends to continue to do so. As an investment company that is managed and marketed in the United Kingdom, the Company is an Alternative Investment Fund ("AIF") falling within the scope of, and subject to, the

requirements of the Alternative Investment Fund Managers Directive ("AIFMD"). Further details are provided in the AIFMD Disclosures on page 62.

## INVESTMENT OBJECTIVE

The Company's objective 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).

## INVESTMENT POLICY

The Company invests principally in quoted smaller companies 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:

- Companies listed on non-European stock exchanges that derive significant revenues or profits from Europe;
- European securities, such as global depositary receipts, listed on other international stock exchanges; and
- Debt issued by European governments or denominated in European currencies.

The Company's investment policy is flexible, enabling it to invest in all types of securities of companies, including (but not limited to) equities, preference shares, debt, convertible securities, warrants and other equity-related securities. The Company may also invest, where appropriate, in open-ended collective investment schemes and closed-ended funds that invest in Europe. It is not intended that the Company will acquire securities that are unquoted or unlisted at the time of investment (with the exception of securities which are about to be listed or traded on a stock exchange). However, the Company may continue to hold securities that cease to be quoted or listed if the Manager considers this to be appropriate.

Investment risk is diffused through holding a range of securities in different countries and industry sectors. Investments are not limited as to country or sector basis weightings, but no investment in the portfolio may exceed 10% of the Company's total assets at the time of investment. The Company may invest in derivatives, financial instruments, money market instruments and currencies solely for the purpose of efficient portfolio management (i.e. solely for the purpose of reducing, transferring or eliminating investment risk in the Company's investments, including any technique or instrument used to provide protection against currency and credit risks).

The Company borrows funds for investment to enhance returns over the long-term and may borrow in Sterling, Euros 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.
Montanaro European Smaller Companies Trust plc    Annual Report and Accounts 2024 page 15
The Company’s portfolio will normally be fully invested. The NAV and share price returns against the benchmark index
However, during periods in which changes in economic for the one, three, five and ten year periods ended 31March
conditions or other factors so warrant, the Company may 2024 and for the period since Montanaro were appointed
reduce its exposure to securities and increase its position in as Manager are shown on page 1. The historic discount and
cash and money market instruments. The Company will not ongoing charges figures are included in the Historic Record on
invest more than 10%, in aggregate, of the value of its total page 13.
assets at the time of investment in other investment trusts
The Company’s performance for the year against the key
or investment companies admitted to the Official List of the
performance indicators, together with the outlook for the
Financial Conduct Authority.
coming year, is reported within the Highlights on page1, the
Chairman’s Statement on pages2 and 3 and the Manager’s
DIVIDEND POLICY
Report on pages5 to 7.
The Company’s primary aim is to deliver capital growth to its
shareholders, rather than dividend income. In determining
THE MANAGER
dividend payments, the Board takes account of income
Established in 1991, Montanaro is a highly experienced
forecasts, brought forward revenue reserves, the Company’s
specialist investor in quoted smaller companies. It has one
dividend payment record and the Corporation Tax rules
of the largest teams in the UK researching and investing
governing investment trust status. These rules determine the
exclusively in quoted smaller companies and currently
minimum level of dividend which must be paid in order to
manages circa £3.3 billion, mainly on behalf of leading financial
comply with Section 1158 of the Corporation Tax Act 2010 in
institutions. Montanaro’s investment philosophy and approach
respect of the retention of distributable income. Dividends can
is set out in the Manager’s Report on pages5 to 7.
also be paid from the Capital Reserve from any surplus arising
from the realisation of any investment. The Company has The Manager is a signatory to the Principles for Responsible
revenue reserves which underpin any short-term reduction in Investment, the UK Stewardship Code, the Carbon Disclosure
dividend income. Project and the LGPS Code of Transparency. In June 2019,
Montanaro became a B Corporation, a business certified
KEY PERFORMANCE INDICATORS for meeting the highest verified standards of social and
The Board recognises that it is long-term share price returns that environmental performance, transparency and accountability.
are most important to the Company’s shareholders. They are The Manager is a signatory to a number of industry
largely driven by competitive portfolio returns and by keeping commitments as detailed on page 9. Montanaro is also a
down the level of both the discount and ongoing charges. B Corporation, a business certified for meeting the highest
verified standards of social and environmental performance,
The Board uses a number of key performance indicators to
transparency and accountability. Further information is
assess the Company’s success in pursuing its objectives.
included in the ESG Report on pages 8 and 9.
They are as follows:
THE BOARD
### • Capital and total return – NAV and share price returns,
At the date of signing this report, the Company has three
both absolute and against the benchmark;
Directors. Two are men and one is a woman. The Company
### • Discount of share price to NAV per share;
hasno employees.
### • Gearing; and
### • Ongoing charges.
JUNIPER PARTNERS LIMITED
Company Secretary
20 June 2024
page 16 Montanaro European Smaller Companies Trust plc    Annual Report and Accounts 2024
## Principal and Emerging Risks
In accordance with the AIC Code of Corporate Governance, the Board has an established process for identifying, evaluating
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
enforcement of contractual obligations and active communication with the Manager, the Administrator and shareholders.
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.
The Report of the Audit Committee on pages31 to 33 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,
Internal Control and Related Financial and Business Reporting, issued by the Financial Reporting Council, the Board has
established an ongoing process for identifying, evaluating and managing the significant risks faced by the Company. It has also
regularly reviewed the effectiveness of the Company’s risk management and internal control systems for the period. During
the year, the Audit Committee have carried out a robust assessment of the principal and emerging risks facing the Company,
including those that would threaten its business model, future performance, solvency or liquidity.
The Board believes that there is an emerging risk faced by the Company (and the wider investment trust sector) as a result of the
evolving nature of the shareholder base. As more retail shareholders hold their shares through retail investment platforms, it makes
it more difficult to communicate with and engage directly with shareholders. The Company’s principal risks and impact this emerging
risk has on the principal risks is described below.
Notes 15 to 20 to the accounts provide detailed explanations of the risks associated with the Company’s financial instruments
and their management.
Principal Risks Mitigation
Investment and strategic risk:
Inappropriate strategy, including country and sector At each Board Meeting, the Manager discusses portfolio performance
allocation and stock selection could lead to poor returns for and strategy with the Directors and performance against the benchmark
and the peer group is reviewed. The Manager also provides the Board
shareholders.
with quarterly reports. The portfolio is well diversified with typically 45-55
No material change in overall risk in year.
holdings, thereby reducing stock-specific risk. The Board formally reviews
the performance of the Manager and its terms of appointment annually.
The Board reviews the shareholder register on a quarterly basis and
considers the most effective ways to communicate with all shareholders
to ensure clear understanding of the Company’s strategy.
Gearing:
One of the benefits of an investment trust is its ability to use The Board is responsible for setting the gearing range within which the
borrowings, which can enhance returns to shareholders in a Manager may operate and has set a maximum limit on borrowing,
net of cash, of 30% of shareholders’ funds at the time of borrowing.
rising stock market. However, gearing exacerbates movements
The Company currently has borrowing facilities in the form of a fixed
in the NAV both positively and negatively and will exaggerate
rate loan €10million and a €15million revolving credit facility, both of
declines in NAV when share prices of investee companies
which mature in September 2026.
arefalling.
The Board receives recommendations on gearing levels from the
No change in overall risk in year.
Manager, and monitors and discusses with the Manager the appropriate
level of gearing at each Board Meeting.
Montanaro European Smaller Companies Trust plc    Annual Report and Accounts 2024 page 17
Principal Risks Mitigation
Other financial risks:
The Company invests principally in Continental European Portfolio diversification, both geographical and sectoral, can mitigate the
quoted smaller companies and its principal risks are therefore consequences of such risky events and the Board reviews the portfolio
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
pandemic), protectionism, inflation or deflation, changes in
reducing the risk of declining share prices and the effect of gearing on
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
basis of timing short-term market fluctuations.
interest rates and exchange rates could affect share prices in
One of the benefits of an investment trust is that the Manager is rarely
particularmarkets.
forced to buy or sell individual holdings at inopportune times. The
As with all small company investment trusts, there is liquidity Manager constantly reviews the underlying liquidity of the portfolio,
risk at times when the liquidity of the underlying portfolio is which is well diversified, and deals with a wide range of brokers to
poor, such as when smaller companies are out of favour or enhance its ability to execute and minimise liquidity risk.
during periods of adverse financial conditions. The portfolio
The liquidity of the portfolio is monitored by the Manager and reported
is focused on investments in smaller European companies
to the Board, and market conditions and their impacts are considered.
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.
challenging. This may result in difficulties in buying or selling
individual holdings in difficult markets. In addition, illiquid stock Further details on the financial risks arising from the Company’s
markets may impact the discount of the Company’s share price financial instruments, together with the policies for managing these
risks are included in Notes 15 to 20 to the accounts.
to the NAV per share.
No change in overall risk in year.
Discount volatility:
As with all small company investment trusts, discounts can The Board and Manager actively monitor the discount of share price
fluctuate significantly both in absolute terms and relative to to NAV per share and seek to influence this through liaising closely with
the Company’s Broker, share buybacks and effective marketing. The
their peer group, this can also lead to issues with respect to
Board has stated its commitment to an active discount management
the liquidity of the Company’s shares.
policy, such that it will consider a buyback of shares where the discount
This risk has increased in the year.
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. The Board receives regular reports on the discount level
of the Company, 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 the effect of the buyback on the liquidity of the Company’s
shares. The Board monitors liquidity of the Company’s shares and
encourages the Manager to market the Company’s shares.
page 18 Montanaro European Smaller Companies Trust plc    Annual Report and Accounts 2024
## Principal and Emerging Risks continued
Principal Risks Mitigation
Regulatory:
The Company carries on business as an investment trust and The Company Secretary and the Company’s professional advisers
has been approved as such by HM Revenue & Customs subject provide reports to the Board in respect of compliance with all applicable
rules and regulations.
to it continuing to meet eligibility conditions and ongoing
requirements. As a result, it is not liable to corporation tax on The Company complied with all applicable rules and regulations
capital gains. Breach of Section 1158 of the Corporation Tax including AIFMD, the Packaged Retail and Insurance-based Products
Act 2010 could lead to the Company being subject to tax on Regulation and the second Markets in Financial Instruments Directive
chargeable gains. during the year.
Breach of regulatory rules could also lead to suspension of The Administrator monitors the Company’s compliance with Section
the Company’s Stock Exchange listing, financial penalties or a 1158 of the Corporation Tax Act 2010 including revenue forecasts and
the amount of proposed dividends to ensure the rules are not breached.
qualified audit report.
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
the Company has no employees. The Company is therefore operation of internal controls to mitigate against the risk of failure,
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
Manager, the Administrator and the Custodian (as a delegate
on pages31 and 32. These reports include controls over risks of cyber
of the Depositary). Disruption or failure of the Manager’s or
security. These have been tested and monitored throughout the year
Administrator’s systems, or those of other third-party service
which is evidenced from their control reports regarding their internal
providers could lead to an inability to provide accurate
controls which are reported on by their reporting accountants. Quarterly
reporting and monitoring of the Company’s financial position
reports are also received from the Depositary which is responsible for
or a breach of regulatory and legal regulations. overseeing the safekeeping of all custodial assets of the Company.
Cyber security risks and their impact on data security are
In addition, the Manager is in regular contact with service providers
inherent in the operations undertaken by the Company’s third- regarding business operations and continuity planning, and has
party suppliers and risk disruption to business operations or reported no matters of concern.
financial loss.
No change in overall risk in year.
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 satisfied that the risk is given due priority. The Manager provides a
report to the Board at each meeting that covers cyber risk. The Company
security. The Company has limited direct exposure to cyber
benefits from the network and information technology controls of the
risk. However, the Company’s operations or reputation could
Manager around the security of data.
be affected if any of its service providers suffered a major cyber
security breach. The annual review of service providers includes a consideration of cyber
risk. As part of this review, external controls reports for each service
Increased risk due to impact of global conflicts.
provider are reviewed to ensure that suitable cyber security controls are
in place.
Montanaro European Smaller Companies Trust plc    Annual Report and Accounts 2024 page 19
Principal Risks Mitigation
Environmental, Social and Governance (“ESG”):
A key risk is that the Manager invests in a company which has Montanaro is a certified B Corporation and therefore takes ESG
poor ESG practices. It is the Manager’s opinion that companies and sustainability issues seriously. A strong and consistently applied
investment process is in place and ESG risks are considered for every
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 a significant proportion of sales from products with negative societal
### • Climate change and greenhouse gas emissions (“GHG”) impact. A bespoke ESG Checklist is completed for every company by
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
### • Waste and pollution
cover the aforementioned Environmental, Social and Governance Risks.
Overview is provided by Montanaro’s Sustainability Committee, which
Social
reviews ESG stock analyses and coordinates detailed engagement activity
### • Working conditions, including no slavery or child labour
with investee companies.
### • Health and safety
The Board receives reports at each Board meeting which include ESG
### • 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)
### • Anti-bribery and corruption
No change in overall risk in year.
Manager:
Should the Manager not be in a position to continue to Montanaro has one of the largest specialist teams in the UK focusing
manage the Company, performance may be impacted. on quoted European smaller companies. Montanaro operates a
team approach in the management of the investment portfolio which
No change in overall risk in year.
mitigates against the impact of the departure of any one member of the
investment team. The Manager is financially robust, and keeps the Board
informed of developments within its business.
page 20 Montanaro European Smaller Companies Trust plc    Annual Report and Accounts 2024
## Directors’ Duties
SECTION 172(1) OF THE COMPANIES ACT 2006 DECISION-MAKING
Section 172(1) of the Companies Act 2006 (the “Act”) requires 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 brought to the
to promote the success of the company. In doing so, Directors Board’s attention by the Company Secretary and taken into
must take into consideration the interests of the various account at every Board meeting. A paper reminding Directors
stakeholders of the Company, the impact the Company has of that is tabled at the start of every Board meeting. For
on the community and the environment, take a long-term view example, the strategic planning discussions involve careful
of consequences of the decisions they make as well as aim to considerations of the longer-term consequences of any
maintain a reputation for high standards of business conduct decisions and their implications on shareholders and other
and fair treatment between the members of the Company. stakeholders.
Fulfilling this duty naturally supports the Company in achieving
COMMUNITY AND ENVIRONMENT
its Investment Objective and helps to ensure that all decisions
The Manager is a signatory to the Principles for Responsible
are made in a responsible and sustainable way. In accordance
Investment, the UK Stewardship Code, the Carbon Disclosure
with the requirements of the Companies (Miscellaneous
Project, the LGPS Code of Transparency and the Net Zero
Reporting) Regulations 2018, the Board explains below, how
Asset Managers initiative. In June 2019, Montanaro became
the Directors have individually and collectively discharged their
a B Corporation, a business certified for meeting the highest
duties under section 172(1) of the Act over the course of the
verified standards of social and environmental performance,
reporting period.
transparency and accountability.
To ensure that the Directors are aware of, and understand,
The Board recognises that the Company has certain
their duties they are provided with a tailored induction,
responsibilities to its shareholders, stakeholders and wider
including details of all relevant regulatory and legal duties
society. While the Company itself does not have employees or
as a Director of a UK public limited company when they first
offices, the Board endorses the Manager’s policy to invest the
join the Board, and continue to receive regular and ongoing
Company’s funds in a socially responsible manner. ESG factors
updates and training on relevant legislative and regulatory
are an integral part of the investment process. In addition,
developments.
the Manager does not invest in companies it deems to be
They also have continued access to the advice and services harmful to society or the environment; this includes companies
of the Company Secretary, and when deemed necessary, involved in tobacco, fossil fuels, gambling, adult entertainment,
the Directors can seek independent professional advice. The weapons manufacturing, alcohol and high interest rate lending.
schedule of Matters Reserved for the Board, as well as the Similarly, they do not invest in companies that conduct animal
Terms of Reference of its Committees are reviewed periodically testing, unless it is required by law for healthcare purposes.
and further describe Directors’ responsibilities and obligations
The Board monitors investment activity to ensure that it is
and include any statutory and regulatory duties.
compatible with the policy and receives periodic updates
from the Manager on its initiatives and performance against
CULTURE
its ESG goals.
During the year, the Directors confirmed the Company’s
culture and values and has worked to incorporate these
BUSINESS CONDUCT
behaviours and processes into the annual review of the
The Matters Reserved for the Board, Board Committees’
Manager, strategic planning, the annual evaluation of Board
terms of reference, the Share Dealing Code and other Board
effectiveness and reporting to stakeholders – thus embedding
policies are all reviewed on at least an annual basis and the
consideration of stakeholders’ interests, long-term perspective,
Directors ensure that they appropriately define obligations
maintaining reputation for fairness and high standards of
and correct procedures. The Report of the Audit Committee,
governance, corporate reporting and business conduct more
which can be found on pages 31 to 33 of this Report, further
generally in the Company’s culture and processes.
explains how the Committee reviews the risk management and
internal controls of the Company. This includes satisfying itself
that relevant systems and controls in place remain effective
andappropriate.
Montanaro European Smaller Companies Trust plc    Annual Report and Accounts 2024 page 21
STAKEHOLDERS
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 Board engagement
Shareholders The Company has more than 1,200 shareholders. Over the years, the Company has developed
various ways of engaging with its shareholders, in order to gain an understanding of the views of
our shareholders. These include:
### • Annual General Meeting – The Company welcomes attendance from shareholders at its
Annual General 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 website. Feedback and/or questions the Company receives from the
shareholders help the Company to evolve its reporting, aiming to render the reports and
updates transparent and understandable; and
### • Investor Relations updates – At every Board meeting, 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 Maintaining a close and constructive working relationship with the Manager is crucial as the
Board and the Manager both aim to continue to achieve consistent, long-term returns in line
with 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.
Other service providers, The Board maintains regular contact with its key external providers, both through the Board
including: and Committee meetings, as well as outside of the regular meeting cycle. Their advice, as well as
needs and views are routinely taken into account. In addition, the Board also undertakes periodic
the Company Secretary,
reviews of the external service providers and addresses any concerns raised in those reviews. It
the Administrator, the
also holds relationship meetings and formally hears, and acts on, their feedback, as appropriate.
Registrar, the Depositary,
the Custodian and the
Broker
Banks In recognition of the importance of funding availability, the Company aims to demonstrate to
lenders that it is a well-managed business, and in particular, that the Board focuses regularly and
carefully on the management of risk.
Community and Our engagement with the community and the environment can be found on page20. A detailed
Environment ESG Report can be found on pages8 and 9.
page 22 Montanaro European Smaller Companies Trust plc    Annual Report and Accounts 2024
## Directors’ Duties continued
PRINCIPAL DECISIONS DURING THE YEAR ENDED 31 MARCH 2024
Examples of the Board’s principal decisions during the year, how the Board fulfilled its duties under section 172(1) of the Act and
the related engagement activities are set out below:
Principal decision Stakeholder Considerations and Engagement
To approve interim and final The Company must comply with the provisions of Section 1158 of the Corporation Tax
dividends during the year Act 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. As a result, the Board paid an increased interim dividend of 0.225pence
per Ordinary share in January 2024 and has declared a final dividend of 0.9pence per
share, subject to approval by shareholders at the upcoming AGM. This increase reflects
the expected income generated by the Company’s portfolio, balanced by the Board’s
intention to maintain a relatively consistent level of dividend.
Board composition The Board is actively engaged in an independent recruitment process for another non-
executive Director. It is expected that the Board will be comprised of four members
going forward. This is a benefit to shareholders as this is expected to complement the
current skills and experience of the Board and is expected to increase its depth of
experience in a number of key areas, such as marketing andstrategy.
The Chairman’s Statement on pages2 and 3, the Manager’s Report on pages5 to 7, the Twenty Largest Holdings on pages 10
and 11, all form part of this Strategic Report, which has been approved by the Board of Directors.
By order of the Board
JUNIPER PARTNERS LIMITED
Company Secretary
20 June 2024
Montanaro European Smaller Companies Trust plc    Annual Report and Accounts 2024 page 23
## Board of Directors
The Directors of the Company who were in office during the financial year and up to the date of signing the financial statements were:
Richard Curling – Chairman of the Board and Chair 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 29August 2018. Richard has over
30years’ experience as a fund manager and is currently an investment director at Jupiter
Fund Management Plc. He has extensive experience of both investment 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 the Board in
strategic discussions. Following a rigorous board evaluation process, the Board agreed that
Richard continues to be an effective member of the Board.
Caroline Roxburgh – Senior Independent Director and Chair of the Audit Committee
Date of Appointment: 8November 2017
Caroline is a Chartered Accountant and was previously a partner at PricewaterhouseCoopers
LLP until 2016. She has over 30 years’ business, finance and 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 Trust plc. She is an experienced chair of audit and risk
committees and holds that position on other boards of which she is a member.
Relevant skills and experience and reasons for re-election:
Caroline’s experience as a senior board advisor, assurance partner and chartered
accountant brings valuable business, financial, governance and risk management skills
to the Board, which enables her to assess the financial position of the Company, 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 of experience
as a chair of audit and risk committees helps inform her role as Chair of the Company’s
Audit Committee. Given her experience on the Board, Caroline was appointed Senior
Independent Director on 31December 2020. Following a rigorous board evaluation
process, the Board agreed that Caroline continues to be an effective member of the Board.
Gordon Neilly – Non-Executive Director and Chair of the Remuneration Committee
Date of Appointment: 21September 2020
Gordon has considerable experience and knowledge of investment trusts. Gordon is
executive chairman of WhiteStar Asset Management Europe, a director of Clearlake Capital
Group UK Limited and a non-executive director of Personal Assets Trust plc. He was
previously Chief of Staff at Standard Life Aberdeen. Prior to this he was Head of Strategy and
Corporate Activity at Aberdeen Standard Investments, Co-Chief Executive Officer of Cantor
Fitzgerald Europe, Chief Executive of Intelli Corporate Finance and Finance and Business
Development Director of Ivory & Sime.
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 Board. Following a
rigorous board evaluation process, the Board agreed that Gordon continues to be an
effective member of the Board.
page 24

Montanaro European Smaller Companies Trust plc Annual Report and Accounts 2024

# Directors' Report

The Directors present the Annual Report and Accounts of the Company for the year ended 31 March 2024.

For the purposes of compliance with Disclosure Guidance and Transparency Rules ("DTR") DTR 4.1.5 R (2) and DTR 4.1.8 R, the required content of the Management Report can be found in the Strategic Report and this Directors' Report. The following disclosures required to be included in this Directors' Report have been incorporated by way of reference to other sections of this report and should be read in conjunction with this report:

- Corporate Governance Statement – refer to pages 28 to 30 of this report;
- Strategy and relevant future developments – refer to the Chairman's Statement on pages 2 and 3 and the Manager's Report on pages 5 to 7; and
- Financial risk management objectives and policies. An analysis of the portfolio along with further information about financial instruments and capital disclosures is provided in Notes 15 to 21 on pages 57 to 61.

The outlook for the Company is set out in the Chairman's Statement on pages 2 and 3. Principal and emerging risks can be found on pages 16 to 19, with further information on risk management objectives in Notes 15 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 0.225p per Ordinary share was paid on 26 January 2024. The Board recommends a final dividend for the year of 0.9p per Ordinary share payable on 16 September 2024 to shareholders on the register on 16 August 2024. The ex-dividend date will be 15 August 2024.

## 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 36.

## DIRECTOR INDEMNIFICATION AND INSURANCE

In addition to Directors' and Officers' liability insurance cover, the Company's Articles provide, subject to the provisions of applicable UK legislation, an indemnity for Directors.

Indemnities are in force as at the date of this report, and were in force during the year, 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.

## POWERS OF THE DIRECTORS

Subject to the provisions of the Companies Act 2006, the Articles and to any directions given by the Company in general meeting by special resolution, the business of the Company is managed by the Board, which may exercise all the powers of the Company whether relating to the management of the business of the Company or not. In particular, the Board may exercise all the powers of the Company to issue shares or other securities and to borrow money and to mortgage or charge all or any part of the Company's assets.

## CONFLICTS OF INTEREST

Each Director has a statutory duty to avoid a situation where they have, or could have, a direct or indirect interest which conflicts, or may conflict with the interests of the Company. A Director will not be in breach of that duty if the relevant matter has been authorised in accordance with the Articles. The Board has approved a protocol for identifying and dealing with conflicts and has resolved to conduct a regular review of actual or possible conflicts and any authorised conflicts. No conflicts or potential conflicts were identified during the year.

## INVESTMENT MANAGEMENT AGREEMENT

Montanaro provides investment management services to the Company and is the Company's AIFM. Under the terms of the investment management agreement, Montanaro is entitled to receive a management fee of 0.9% per annum of the Company's market capitalisation (payable monthly in arrears). Montanaro is also entitled to a fee of £50,000 per annum for acting as the Company's AIFM (this fee will be reduced to £25,000 for the year to 31 March 2025, and waived for all years subsequent to this). Montanaro's appointment may be terminated by either party giving to the other not less than six months' notice. The investment management agreement may be terminated earlier by the Company provided that a payment in lieu of notice, equivalent to the amount the Manager would otherwise have received during the notice period, is made.

MAM is entitled to receive a management fee that is linked to the size of the Company as follows:

- 0.90% p.a. of the amount of the Company's market capitalisation up to £500 million;
- 0.75% p.a. of the amount of the Company's market capitalisation between £500 million and £750 million; and
- 0.65% p.a. of the amount of the Company's market capitalisation above £750 million.
Montanaro European Smaller Companies Trust plc    Annual Report and Accounts 2024 page 25
CONTINUING APPOINTMENT OF THE MANAGER

|  |  | Number of | Percentage |  |
| --- | --- | --- | --- | --- |
| In February 2024, the Remuneration Committee and the |  | shares held |  | held |
| Board formally reviewed the Manager’s appointment. In | Hargreaves Lansdown, stockbrokers (EO) 27,913,689 14.74 |  |  |  |

carrying out its review, the Board considered the skills,
Interactive Investor (EO) 25,564,291 13.50
experience, resources and commitment of the Manager,
AJ Bell, stockbrokers (EO) 11,413,351 6.03
together with the investment performance during the year
RBC Brewin Dolphin Ireland 9,625,391 5.08
and since its appointment. It also considered the length of
the notice period of the investment management agreement Montanaro Asset Management 9,000,000 4.75
and the fees payable to the Manager. Following this review,
1607 Capital Partners 8,901,832 4.70
it is the Directors’ opinion that the continuing appointment
Brewin Dolphin, stockbrokers 6,989,046 3.69
of Montanaro as Manager and AIFM, on the terms agreed,
Transact (EO) 5,949,845 3.14
is in the interests of shareholders as a whole. Among the
reasons for this was the Manager’s continued strong long- The Company has not been advised of any changes to these
term performance despite the challenging markets for much notified interests between 31March 2024 and the date of
of 2023 and the greater strength and depth of the Manager’s thisreport.
research team, as well as the stability and capability of the
team, which provided strong benefits to the Company. GOING CONCERN
In assessing the going concern basis of accounting, the
DEPOSITARY AND CUSTODIAN Directors have had regard to the guidance issued by the
The Bank of New York Mellon (International) Limited acts as the Financial Reporting Council and have undertaken a rigorous
Company’s Depositary and Custodian in accordance with the review of the Company’s ability to continue as a going concern.
AIFM Directive. The Depositary’s responsibilities include cash
The Directors have taken into account the Company’s
monitoring, segregation and safe keeping of the Company’s
Investment Policy, which is described on pages14 to 15 and
financial instruments and monitoring the Company’s
which is subject to regular Board monitoring processes and
compliance with investment limits and leverage requirements.
is designed to ensure that the Company is invested mainly in
liquid, listed securities. The Company retains title to all assets
REGISTRAR
held by its custodian, and has financial covenants relating to its
Equiniti has been appointed as the Company’s registrar.
bank borrowings with which it complied during the year.
The Registry Services Agreement may be terminated on
In performing the assessment of the Company’s ability to
not less than six months’ notice. The Registrar is also
meet its liabilities as they fall due, the Directors took into
entitled to reimbursement of all disbursements and out of
consideration the following factors:
pocketexpenses.
### • cash and cash equivalents balances and the portfolio of
COMPANY SECRETARY AND ADMINISTRATOR readily realisable securities which can be used to meet
Juniper Partners Limited (“Juniper”) was appointed as the short-term funding commitments;
Company’s Company Secretary and Administrator with effect
### • the ability of the Company to meet all of its liabilities and
from 1July 2023. Prior to this Link Company Matters provided
ongoing expenses from its assets;
company secretarial services and Link Alternative Fund
### • revenue, operating and finance cost forecasts for the
Administrators provided fund administration services. Juniper
forthcoming year;
Partners Limited receives a base annual fee of £145,000
### • continued adherence to the loan covenants;
plus 0.02% per annum on net assets of up to £1 billion, and
0.01% per annum on net assets over £1 billion. The total fee • the ability of third-party service providers to continue to
is discounted by £30,000 in the first year of service, and by provide services; and
£15,000 in the second year.
### • consideration of a number of severe downside
scenarios, the impact of which would still leave the
The Company Secretarial and Administration Agreement is
Company with sufficient liquid assets to remain a
subject to six months’ written notice.
goingconcern.
SUBSTANTIAL SHAREHOLDINGS
Notes 15 to 20 to the accounts set out the financial risk profile
As at 31March 2024, the Company had received notification
of the Company and indicate the effect on its assets and
of the following substantial holdings of voting rights (being
liabilities of falls and rises in the value of securities, market
only those received under the Financial Conduct Authority’s
rates of interest and changes in exchange rates.
Disclosure Guidance and Transparency Rules):
page 26 Montanaro European Smaller Companies Trust plc    Annual Report and Accounts 2024
## Directors’ Report continued
### The Directors believe, in light of the controls and review • Future revenue and expenditure projections and the
processes noted above and bearing in mind the nature of potential impact of reduced dividend income.
the Company’s business and assets and liabilities, that the
### • The Company’s borrowing in the form of a fixed rate
Company has adequate resources to continue in operational
loan facility of €10million, which is due to mature in
existence for a period of at least twelve months from the date
September 2026, noting that the Company has a large
of approval of the accounts. For this reason, they continue to
margin of safety over the covenants on this debt. The
adopt the going concern basis in preparing the accounts.
Company also has a €15million revolving credit facility
which also matures on 13September 2026, of which
VIABILITY ASSESSMENT
€1million was drawn down as at 31March 2024. This
In accordance with the AIC Code of Corporate Governance, the
loan was covered 34 times by the Company’s total assets
Directors have assessed the prospects of the Company over
at 31March 2024 and the Board expect to replace its
the coming three years. In order to assess the viability of the
bank facilities at the end of their terms.
Company, the Board is required to assess its future prospects
### • Its ability to meet liquidity requirements given the
and has considered that a number of characteristics of its
Company’s investment portfolio consists principally
business model and strategy were relevant to this assessment:
of Continental European quoted smaller companies
### • The Company’s objective is to achieve capital growth.
which can be realised if required. It is estimated that
### • The Company’s investment policy, which is subject to approximately 88% of the portfolio could be liquidated
regular Board monitoring, means that the Company under normal conditions within seven trading days.
is invested principally in the securities of Continental
### • The ability to undertake share buybacks if required.
European quoted smaller companies.
### • That the Company’s objective and investment policy
### • The Company is a closed-end investment trust, whose
continue to be relevant to investors.
shares are not subject to redemptions by shareholders.
### • The Company has no employees, having only non-
### • The Company’s business model and strategy is not time
executive Directors and consequently does not have
limited.
redundancy or other employment related liabilities
Also relevant were a number of aspects of the Company’s (including pensions) or responsibilities.
operational arrangements:
These matters were assessed over a three year period to June
### • The Company retains title to all assets held by the 2027, and the Board will continue to assess viability over three
Custodian under the terms of a formal agreement with year rolling periods, taking account of severe but plausible
the Depositary and Custodian. scenarios. In the absence of any adverse change to the
The borrowing facilities, which remain available until regulatory environment and to the treatment of UK investment
### •
September 2026, are also subject to formal agreements, trusts a rolling three year period represents the horizon over
including financial covenants with which the Company which the Directors do not expect there to be any significant
complied in full during the year. change to the Company’s principal risks or their mitigation and
they believe they can form a reasonable expectation of the
### • Revenue and expenditure forecasts are reviewed by the
Company’s prospects.
Directors at each Board Meeting.
Based on their assessment, and in the context of the
In considering the viability of the Company, the Directors
Company’s business model, strategy and operational
carried out a robust assessment of the principal risks and
arrangements set out above, the Directors have a reasonable
uncertainties which could threaten the Company’s objective
expectation that the Company will be able to continue in
and strategy, future performance, liquidity and solvency,
operation and meet its liabilities as they fall due over the
including the impact of a significant fall in equity markets or
three year period to June 2027. For this reason, the Board
adverse currency movements on the Company’s investment
also considers it appropriate to continue adopting the going
portfolio. These risks, their mitigations and the processes for
concern basis in preparing the Report and Accounts.
monitoring them are set out on pages16 to 19 in Principal
Risks and Uncertainties and Risk Mitigation, pages31 and
CAPITAL STRUCTURE
32 in the Report of the Audit Committee and in the notes to
The Company’s structure is composed solely of Ordinary
theaccounts.
shares. At 31 March 2024 189,427,600 Ordinary shares were
The Directors have also considered:
in issue, no shares are held in Treasury shares. There has been
The level of ongoing charges incurred by the Company no change in the number of Ordinary share in issue in the year.
### •
which are modest and predictable and that these were
covered by investment income and total 1% of average
net assets.
Montanaro European Smaller Companies Trust plc Annual Report and Accounts 2024

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.

#### CRIMINAL FINANCES ACT 2017

The Board is fully committed to complying with applicable legislation and statutory guidelines, including the UK's Criminal Finances Act 2017, designed to prevent tax evasion in the jurisdictions in which the Company operates.

#### DONATIONS

The Company made no political or charitable donations during the year (2023: 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 2024.

#### 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 15 to 20 to the accounts.

#### ANNUAL GENERAL MEETING

The Notice of Annual General Meeting to be held on 5 September 2024 is set out on pages 69 to 71.

Resolutions 1 to 9 will be proposed as Ordinary Resolutions and Resolutions 10 and 11 will be proposed as Special Resolutions. Please refer to pages 72 and 73 for a full explanation of all resolutions.

#### Recommendation

The Directors consider that the passing of each of the resolutions to be proposed at the Annual General Meeting is in the best interests of the Company and its shareholders as a whole and they unanimously recommend that all shareholders vote in favour of these resolutions.

#### TREASURY SHARES

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 Board's intention that any shares bought back by the Company will be held in treasury. Shares held in treasury will not carry any voting rights, dividends payable in respect of them will be suspended and they will have no entitlements on a winding-up of the Company. It is the Board's policy that shares will only be re-issued from treasury either at a price representing a premium to the NAV per share at the time of re-issue, or at a discount to the NAV per share provided that such discount is lower than the weighted average discount to the NAV per share when they were bought back by the Company. It is also the Board's policy that shares may be held in treasury indefinitely. The Board believes that the treasury shares policy will improve liquidity in the shares and help to maintain the size of the Company. Furthermore, the Board believes that the re-issuance of shares from treasury at a discount to the NAV per share within the parameters described above will, in conjunction with the Company's share buyback policy, ensure that the overall effect of the 'round trip' of repurchasing shares and subsequently re-issuing them from treasury will be an enhancement to the NAV per share. As at 19 June 2024, being the latest practicable date before the publication of the Annual Report and Accounts, there were 189,427,600 Ordinary Shares in issue. No shares are held in treasury. Accordingly, the total number of voting rights in the Company is 189,427,600.

#### INDEPENDENT AUDITOR

PricewaterhouseCoopers LLP ("PwC") has confirmed its willingness to continue in office as the Auditors of the Company (the "Auditors"). A resolution to re-appoint PwC as the Auditors to the Company and to authorise the Audit Committee to determine the Auditors' remuneration will be proposed to the forthcoming Annual General Meeting.

#### 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 Auditors are 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 Auditors are aware of that information.

For and on behalf of the Board

#### JUNIPER PARTNERS LIMITED

Company Secretary
page 28 Montanaro European Smaller Companies Trust plc    Annual Report and Accounts 2024
## Corporate Governance Statement
The Corporate Governance Statement forms part of the Directors’ Report.
STATEMENT OF COMPLIANCE Committees as he is considered to bring valuable experience,
The Board has considered the Principles and Provisions of to be independent and there are no conflicts of interest.
the AIC Code of Corporate Governance published in February
2019 (“AIC Code”). The AIC Code addresses the Principles and THE COMPANY SECRETARY
Provisions set out in the 2018 UK Corporate Governance Code The Board has direct access to the services of the Company
(the “UK Code”), as well as setting out additional Provisions on Secretary who is responsible for ensuring Board and
issues that are of specific relevance to the Company. Committee procedures are followed and that applicable
regulations are complied with. The Company Secretary is also
The Board considers that reporting against the Principles
responsible to the Board for ensuring the timely delivery of the
and Provisions of the AIC Code, which has been endorsed
information and reports which the Directors require and that
by the Financial Reporting Council, provides more relevant
statutory obligations are met.
information to shareholders.
During the year, the Company has complied with all of the THE BOARD
recommendations of the AIC Code. The Board consists solely of non-executive Directors. All
Directors are considered by the Board to be independent of
The Company is committed to maintaining the highest
the Manager. Under the requirements of the Articles, Directors
standards of governance and will ensure that it continues to
are subject to election at the next Annual General Meeting after
meet all applicable requirements.
their appointment. New Directors receive an induction from the
The AIC Code is available on the AIC website www.theaic.co.uk. Manager and Company Secretary on joining the Board, and all
It includes an explanation of how the AIC Code adapts the Directors are encouraged to attend relevant training courses
Principles and Provisions set out in the UK Code to make and seminars.
themrelevant for investment companies. The UK Code is
Individual Directors may, at the expense of the Company,
available from the Financial Reporting Council’s website at
seek independent professional advice on any matter that
www.frc.org.uk.
concerns them in the furtherance of their duties. The Company
maintains appropriate directors’ and officers’ liability insurance.
THE CHAIRMAN OF THE COMPANY
The Board is formed of three independent non-executive
Mr Curling was appointed to the Board as an independent
Directors. Mr Curling is the Chairman of the Board and
non-executive Director in 2015, and as Chairman of the Board
Chairman of the Nomination Committee, MsRoxburgh is Chair
on 29August 2018. His biography can be found on page23.
of the Audit Committee and Senior Independent Director and
Mr Curling is also a member of the Audit Committee and
Mr Neilly is Chair of the Remuneration Committee.
Chairman of the Nomination Committee. The Board believes
it is appropriate for Mr Curling to be a member of both
ATTENDANCE AT BOARD AND COMMITTEE MEETINGS
The Board currently meets at least four times a year and, in addition, informally on a regular basis. It receives full information
on the Company’s investment performance, assets, liabilities and other relevant information in advance of Board meetings. The
Board has approved a formal schedule of matters reserved for it, including, but not limited to: overall strategy, investment policy,
capital structure, gearing and monitoring the performance of the Manager.
The following table sets out the number of scheduled Board and Committee meetings held during the year ended 31March
2024 and the number of meetings attended by each Director.
Board Audit Nomination Remuneration
Number of Number of Number of Number of
Number of meetings Number of meetings Number of meetings Number of meetings
meetings held attended meetings held attended meetings held attended meetings held attended
R M Curling 4 4 2 2 1 1 1 1
C A Roxburgh 4 4 2 2 1 1 1 1
G Neilly 4 4 2 2 1 1 1 1
The Board also met informally on a number of occasions during the year.
Montanaro European Smaller Companies Trust plc    Annual Report and Accounts 2024 page 29
INDEPENDENCE OF DIRECTORS AND TENURE RE-ELECTION OF DIRECTORS
The Board ensures that it has the appropriate balance of Under the provisions of the Company’s Articles, the Directors
skills, experience, knowledge and independence in order to retire by rotation at least every three years, however, in
remain effective and regularly reviews the independence of its accordance with corporate governance best practice as set out
members and considers all of the Directors to be independent in the AIC Code, all Directors should put themselves forward
in line with the 2019 AIC Code. for re-election every year. As such, each of the Directors is
subject to annual re-election by the shareholders at the Annual
The Board does not feel that it would be appropriate to set a
General Meeting and Mr Curling, Ms Roxburgh and Mr Neilly
specific tenure limit for individual Directors or the Chairman of
have confirmed that they will be standing for re-election at the
the Board or its Committees. Instead, the Board will regularly
forthcoming Annual General Meeting.
review the size and structure of the Board with the aim of
new directors bringing the challenge of fresh thinking into the
VOTING POLICY ON PORTFOLIO INVESTMENTS
Board’s discussions. By doing so, the Board intends to maintain
The Manager, in the absence of explicit instructions from the
a broad range of experience in the Board, with Directors who
Board, is empowered to exercise discretion in the use of the
have served a range of periods on the Board of the Company.
Company’s voting rights. Environmental, social and governance
This will ensure that on each occasion the Board enters into
factors are taken into account by the Manager as part of
new investment commitments, several members have direct
its investment analysis and decision making processes. The
personal experience of negotiating previous commitments
Board is pleased that the Manager has been a signatory of
with the Manager. This is intended to preserve the cumulative
the UK Stewardship Code since its publication in 2010 and its
experience and deep understanding of the Company, its
statement can be found on its website www.montanaro.co.uk.
commitments and investment portfolio, while benefiting
In June 2019, Montanaro became a B Corporation, a business
from new perspectives and helping to promote diversity of
certified for meeting the highest verified standards of social and
perspective. It is believed that the Directors provide, individually
environmental performance, transparency and accountability.
and collectively, the breadth of skill and experience to manage
the Company and ensuring its long-term sustainable success.
RELATIONS WITH SHAREHOLDERS
The basis on which the Company aims to generate value over The Company welcomes the views of shareholders and places
the longer term is set out in the Business Model and Strategy great importance on communication with its shareholders.
on pages14 and 15. Please refer to page21 for details of engagement activity in the
year to 31 March 2024.
PERFORMANCE EVALUATION
During the year, the Directors undertook a formal and rigorous BOARD COMMITTEES
performance evaluation and also considered the output The Board has established three Committees to assist with
from the previous year’s evaluation. The process was led by its operations. Throughout the year the following Committees
the Chairman and was designed to assess the strengths and have been in operation, namely the Audit Committee, the
independence of the Board together with the performance of Remuneration Committee and the Nomination Committee.
its Committees, the Chairman and individual Directors. Each of the Committees’ delegated responsibilities are clearly
defined in formal terms of reference which are available on the
The Board completed evaluation questionnaires which covered
Company’s website https://montanaro.co.uk/trust/montanaro-
a range of areas including processes and effectiveness, size
european-smaller-companies-trust/.
and composition, and corporate governance and were also
intended to analyse the focus of meetings and assess whether
Audit Committee
they are appropriate, or if any additional information may be
The Report of the Audit Committee is included on pages31 to
required to facilitate future Board discussions. The evaluation
33 and forms part of this statement.
of the Chairman was carried out by the other Directors
of the Company and the process was led by the Senior
Remuneration Committee
IndependentDirector.
The Remuneration Committee, chaired by Mr Neilly, comprises
The results of the Board evaluation process were reviewed and the full Board and reviews the appropriateness of the
discussed by the Board. The Board concluded that it remains Manager’s continuing appointment and determines the level
effective and highlighted the continuing attention to succession of Directors’ fees. The Directors’ Remuneration Report on
planning and assessing developments in the retail investors’ pages34 to 36 provides information on the remuneration
information needs and investment platforms as areas of focus. arrangements for the Directors of the Company.
page 30 Montanaro European Smaller Companies Trust plc    Annual Report and Accounts 2024
## Corporate Governance Statement continued
Nomination Committee The Board does not comply with the Listing Rule requirement
The Nomination Committee, chaired by Mr Curling, comprises for 40% women on the Board and a minimum of one ethnic
the full Board and is convened for the purpose of considering minority Board member. The Board currently comprises
the appointment of new Directors as and when considered three members, one of whom is a woman who holds a
appropriate. The Board is composed solely of non-executive senior position on the Board. The small size of the Board is a
Directors and has one third female representation. constraint to achieving all of these targets but the Board will
actively take this into consideration in future recruitment.
The Directors will ensure it adheres to set objectives in relation
to the diversity of the Board as and when they seek to appoint
MODERN SLAVERY ACT 2015
additional Directors, in the future. The Board considers the
As an investment trust, the Company does not provide goods
guidance set out in the Hampson-Alexander Report and the
or services in the normal course of business and does not
Parker Review in considering the composition of the Board
have customers. Accordingly, the Directors consider that
and in its recruitment and succession planning. The Company’s
the Company is not required to make any slavery or human
Board diversity policy is shown below.
trafficking statement under the Modern Slavery Act 2015.
DIVERSITY AND INCLUSION
RISK MANAGEMENT AND INTERNAL CONTROLS
The Board’s policy on diversity is to ensure that the Directors
Details of the principal risks and internal controls applied by
on the Board have a broad range of experience, skills and
the Board are set out on pages16 to 19 and pages31 and
knowledge, with diversity of thinking, background and
32respectively.
perspective. Appointments to the Board are made on merit
against objective criteria, having regard to the benefits of By order of the Board
diversity and the current and future needs of the business and
the other factors set out in the AIC Code.

| The Board continues to develop its succession planning in | JUNIPER PARTNERS LIMITED |
| --- | --- |
| line with these recommendations. In accordance with Listing | Company Secretary |
| Rule 9 Annex 2.1. the tables below, in prescribed format, | 28 Walker Street |
| show the gender and ethnic background of the Directors at | Edinburgh |
| 20June 2024. | EH3 7HR |

20 June 2024
Number Number of
of Board Percentage on senior positions
Gender identity or sex members the Board on the Board
Men 2 66 1
Women 1 34 1
Not specified/prefer not to say – – –

|  | Number |  |  |  |  | Number of |
| --- | --- | --- | --- | --- | --- | --- |
|  | of Board |  | Percentage on |  | senior positions |  |
| Ethnic background | members |  |  | the Board |  | on the Board |
| White British or other |  | 3 100 2 |  |  |  |  |

White (including minority
whitegroups)
Mixed/Multiple Ethnic Groups – – –
Asian/Asian British – – –
Black/African/Caribbean/ – – –
BlackBritish
Other Ethnic group – – –
Not specified/prefer not to say – – –
The data in the above tables was collected through self-reporting
by the Directors.
Montanaro European Smaller Companies Trust plc    Annual Report and Accounts 2024 page 31
## Report of the Audit Committee
COMPOSITION OF THE COMMITTEE In May 2023 the Financial Reporting Council published Audit
The Board recognises the requirement for the Audit Committees and the External Audit: Minimum Standard, (the
Committee as a whole to have competence relevant to the “Standard”) setting out guidance on the expectations for audit
sector in which the Company operates and at least one committees of FTSE 350 companies. Whilst the Committee is
member with recent and relevant experience. not required to comply with the Standard, it has reviewed and
updated its terms of reference to ensure that the Committee
The Audit Committee is chaired by Ms Roxburgh, a Chartered
continues to adhere to best practices within the industry.
Accountant, who has recent and relevant financial experience,
and the Committee operates within clearly defined terms of
RISK MANAGEMENT
reference and comprises all the Directors. Given the size of
The Board has established an ongoing process designed
the Board, and Mr Curling’s experience, it is felt appropriate
to meet the particular needs of the Company in managing
for him to sit on the Audit Committee as permitted by the
the risks to which it is exposed, consistent with the related
AIC Code. The Directors have a combination of financial,
guidance issued by the Financial Reporting Council.
investment and business experience, specifically with respect
to the investment trust sector. Montanaro’s Compliance and Risk department and Juniper
provide regular control reports to the Audit Committee and the
ROLE OF THE COMMITTEE Board covering administration, risk and compliance matters.
The duties of the Audit Committee include reviewing: the
A key risk summary is produced to identify the risks to which
annual and interim financial statements; the system of internal
the Company is exposed, the controls in place and the actions
controls; and the terms of appointment and remuneration of
being taken to mitigate them. The Board has a robust process
the Auditor, PricewaterhouseCoopers LLP (“PwC”) including its
for considering the resulting risk matrix and reviews the
independence and objectivity.
significance of the risks, reasons for any change and actions
The Audit Committee met twice during the year, with PwC in arising as a result.
attendance at both meetings. The attendance of each of the
The Company’s principal risks and their mitigations are set
members is set out on page28. In the course of its duties
out on pages16 to 19, with additional information provided in
throughout the year, the Committee had direct access to
Notes 15 to 20 of the accounts.
PwC, Juniper and Montanaro. Amongst other things, the Audit
Committee considered and reviewed the following matters and The integration of these risks into the consideration of the
reported thereon to theBoard: Viability Assessment and Statement on page26 was also fully
considered by the Committee.
### • The annual and half-yearly reports and accounts and
results announcements;
INTERNAL CONTROL
### • The accounting policies of the Company; The Board is responsible for the Company’s systems of internal
The principal risks faced by the Company and the controls and for reviewing their effectiveness. The Audit
### •
effectiveness of the Company’s internal control and risk Committee has reviewed and reported to the Board on these
management environment, including consideration of the controls which aim to ensure that the assets of the Company
assumptions underlying the Board’s Viability Assessment are safeguarded, proper accounting records are maintained
and Statement; and the financial information used within the business and for
publication is reliable.
### • The effectiveness of the audit process and related non-
audit services and the independence and objectivity The key procedures which have been established to provide an
of PwC, its appointment, remuneration and terms of effective internal control environment are outlined below:
engagement;
### • Board procedures are set within clearly defined
### • The implications of proposed new accounting standards
parameters, as set out in matters specifically reserved for
and regulatory changes;
the Board.
### • The receipt of AAF (01/06) and ISAE 3402 reports or their
### • At every Board meeting the Directors review financial
equivalent from the Manager, Administrator, Custodian
information prepared by the Administrator, including
and other service providers; and
management accounts, forecasts of income and
### • Whether the Annual Report and Accounts is fair, balanced expenditure and detailed analysis relating to the
and understandable. performance of the Company.
page 32 Montanaro European Smaller Companies Trust plc    Annual Report and Accounts 2024
## Report of the Audit Committee continued
### • The Bank of New York Mellon (International) Limited, as A formal annual review of these procedures is carried out by
the Company’s Depositary, provides quarterly reports to the Audit Committee. The review meeting is attended by the
the Board and carries out daily independent checks on Company’s Auditor. During the year, the Committee received
cash and investment transactions. updates on any material changes in the risk environment
and regulatory requirements, and the action taken. These
### • The Bank of New York Mellon SA/NV is responsible
procedures have been in place throughout the year and up
for the custody of the Company’s investments. Lists of
to the date of approval of the Annual Report, and the Board is
investments held are reconciled to the Company’s records
satisfied with their effectiveness. The procedures are designed
on a regular basis and a report on controls, which is
to manage rather than eliminate risk and, by their nature, can
reviewed by a firm of independent reporting accountants,
only provide reasonable, but not absolute, assurance against
is produced annually for consideration by the Audit
material misstatement or loss.
Committee.
### • Investment management services are provided by The Board has previously reviewed the need for an internal
Montanaro, which is regulated by the Financial Conduct audit function. As an externally managed investment trust,
Authority. At each Board meeting the Board monitors the it has decided that the systems and procedures employed
investment performance of the Company in comparison by the Manager and the Administrator, including their risk
to its stated Investment Objective, the benchmark index management and internal audit functions, provide assurance
and comparable investment trusts. The Board also that a sound system of internal control, which safeguards
reviews the Company’s activities since the last Board shareholders’ investment and the Company’s assets, is
Meeting to ensure that Montanaro adheres to the agreed maintained. In addition, reporting is also provided by the
Investment Policy and approved investment guidelines. Depositary with respect to their monitoring and oversight
On an annual basis, Montanaro produces an AAF 01/06 of the Company. An internal audit function, specific to the
Report on internal controls, which is reviewed by a firm Company, is therefore considered unnecessary.
of independent reporting accountants, and which is
then reviewed and considered by the Audit Committee. EXTERNAL AUDIT PROCESS AND SIGNIFICANT MATTERS
Montanaro is also the Company’s AIFM and in this CONSIDERED BY THE AUDIT COMMITTEE
capacity provides a semi-annual report to the Board. As part of its review of the scope and results of the audit,
during the year the Audit Committee considered and approved
### • Juniper are responsible for the provision of company
PwC’s plan for the audit of the financial statements for the
secretarial, accounting and administration services to
year ended 31March 2024. At the conclusion of the audit,
the Company. On an annual basis, Juniper produce an
PwC did not highlight any issues to the Audit Committee which
ISAE 3402 Report on internal controls, which is reviewed
would cause it to qualify its audit report nor did it highlight any
by a firm of independent reporting accountants, for
fundamental internal control weaknesses. PwC has issued an
consideration by the Audit Committee.
unqualified audit report which is included on pages38 to 44.
### • The Board reviews contracts with other third party service
The significant issues considered by the Audit Committee are
providers, including the standard of services provided, on
discussed in the table below.
a regular basis.
Significant Issues Considered by the Audit Committee in Relation to the Financial Statements
Matter Action
Investment Portfolio Valuation: The Board reviews a full portfolio valuation at each Board meeting and, since
The Company’s portfolio is invested in the implementation of the AIFM Directive in July 2014, receives semi-annual
the shares of European quoted smaller reports from the AIFM and Depositary. The Audit Committee reviewed the
companies. Errors in the portfolio valuation Administrator’s annual internal controls report, which is reported on by
could have a material impact on the independent external accountants, and which details the systems, processes
Company’s NAV per share. and controls around the daily pricing of securities, including the application of
exchange rate movements.
Montanaro European Smaller Companies Trust plc    Annual Report and Accounts 2024 page 33
Matter Action
Misappropriation of Assets: The Audit Committee reviewed the Administrator’s annual internal control
Misappropriation of the Company’s report, as referred to above, which details the controls around the
investments or cash balances could have a reconciliation of the Administrator’s records to those of the Custodian. The
material impact on its NAV pershare. Audit Committee also reviewed the Custodian’s annual internal controls
report, which is reported on by independent external accountants, and which
provides details regarding its control environment. As stated above, since the
implementation of the AIFM Directive in July 2014, the Board receives semi-
annual reports from the AIFM and Depositary.
Income Recognition: The Audit Committee reviewed the Administrator’s annual internal controls
Incomplete or inaccurate income recognition, report, as referred to above, which details the systems, processes and controls
including allocation between revenue and around the recording of investment income. It also compared the final level
capital, could have an adverse effect on the of income received for the year to the budget which was set at the start of the
Company’s NAV and earnings per share and year and considered the accounting treatment of all special dividends received
its level of distributable revenue. with the Manager.
Annual Report and Accounts: The Audit Committee read and discussed this Annual Report and Accounts and
Ensuring the Annual Report and Accounts is 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.
NON-AUDIT SERVICES Following professional guidelines, the audit partner rotates
The Committee regards the continued independence of the after five years. The year ended 31March 2024 is Shujaat
Auditors to be a matter of the highest priority. The Company’s Khan’s third year as audit partner.
policy with regard to the provision of non-audit services by
On the basis of their assessment, the Audit Committee has
the external auditor ensures that no engagement will be
recommended the re-appointment of PwC to the Board. PwC’s
permittedif:
performance will continue to be reviewed annually taking into
### • the provision of the services would contravene any account all relevant guidance and best practice.
regulation or ethical standard;
On behalf of the Board
### • the auditor is not considered to be an expert provider of
the non-audit services;
### • the provision of such services by the auditor creates a
C A ROXBURGH
conflict of interest for either the Board or the Manager;
Chair of the Audit Committee
and
20 June 2024
### • the services are considered to be likely to inhibit the
auditors independence or objectivity as auditors.
AUDITOR ASSESSMENT, INDEPENDENCE AND APPOINTMENT
The Audit Committee reviews the re-appointment of the
auditor every year. As part of this year’s review of auditor
independence and effectiveness, PwC has confirmed that it is
independent of the Company and has complied with relevant
auditing standards. In evaluating PwC, the Audit Committee has
taken into consideration the standing, skills and experience of
the firm and the audit team. The Audit Committee, from direct
observation and enquiry of the Administrator, remains satisfied
that PwC continues to provide effective independent challenge
in carrying out its responsibilities. PwC’s fee in respect of the
audit for the year ended 31March 2024 is £54,340 (2023:
£48,000). The increase in fees reflects the cumulative effect of
inflationary pressures since the audit tender.
page 34 Montanaro European Smaller Companies Trust plc    Annual Report and Accounts 2024
## Directors’ Remuneration Report
ANNUAL STATEMENT FROM THE CHAIR OF THE The fees for the non-executive Directors are determined within
REMUNERATION COMMITTEE (THE “COMMITTEE”) the limits set out in the Company’s Articles of Association. The
I am pleased to present the Directors’ Remuneration Report present limit is £200,000 in aggregate per annum and may not
for the year ended 31March 2024. be changed without seeking shareholder approval at a general
meeting. There is no performance related remuneration
During the year, the Committee reviewed the Remuneration
scheme and therefore non-executive Directors are not eligible
Policy and the Directors’ fees. The outcomes of each of these
for bonuses, pension benefits, share options, long-term
reviews can be found below.
incentive schemes or other benefits. Directors do not have
This report shows all major decisions on Directors’ service contracts, but new Directors are provided with a letter
remuneration and any substantial changes made during of appointment. These letters of appointment are available for
the year relating to Directors’ remuneration, including the inspection at the Company’s registered office. The terms of
context in which any changes occurred. Under company law, Directors’ appointments provide that they should retire and be
the Auditor is required to audit certain disclosures provided. subject to election at the next Annual General Meeting after
Where disclosures have been audited they are indicated their appointment. Under the terms of the Company’s Articles
as such. The Auditor’s opinion is included in its report on of Association, Directors are obliged to offer themselves for
pages38 to 44. re-election by shareholders by not later than the third Annual
General Meeting after they were last elected. However, the
The Remuneration Committee consists solely of independent
Board has agreed that all Directors will retire annually and,
non-executive Directors and determines the level of the
if appropriate, seek re-election. There is no notice period
Directors’ fees in accordance with the AIC Code of Corporate
and no provision for compensation upon early termination
Governance. The Company Secretary provides information
ofappointment.
on comparative levels of Directors’ fees to the Remuneration
Committee in advance of each review.
APPROACH TO RECRUITMENT REMUNERATION
The members of the Remuneration Committee are Mr Curling, The principle adopted by the Committee in respect of
Ms Roxburgh and the Chair, Mr Neilly. As the Company recruitment of Directors is that the fees for a non-executive
has no executive Directors, the Committee meets annually Director should reflect the responsibilities and time
to determine the level of Directors’ fees and to review the commitment required. The Committee seeks to encourage
performance of the Manager. The outcome of the review of the the enhancement of the Company’s performance and to
Manager can be found on page25. No Director is involved in ensure that remuneration packages offered are competitive
deciding their own remuneration outcome. and designed to attract, retain and motivate Directors of the
rightcalibre.
DIRECTORS’ REMUNERATION POLICY
Any new non-executive Director would be paid on the same
The existing Directors’ Remuneration Policy was approved at
basis as the existing non-executive Directors. As noted above
the Company’s Annual General Meeting in 2023.
the aggregate level of Directors’ fees must not exceed a set
The Company’s policy is to remunerate Directors exclusively limit, as set out in the Company’s Articles of Association, which
by fixed fees in cash at a rate which should reflect the is currently £200,000 per annum.
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.
Montanaro European Smaller Companies Trust plc Annual Report and Accounts 2024

page 35

#### FUTURE POLICY TABLE

Following a review of the level of Directors' fees, the Remuneration Committee concluded that, commencing 1 April 2024, the Chairman's fee be increased to £43,000 per annum, the Audit Committee Chair's fee be increased to £37,500 per annum and other Directors' fees be increased to £31,000 per annum, the last increase having been made on 1 April 2023. 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.

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

|   | 31 March 2025 | 31 March 2024  |
| --- | --- | --- |
|  Chairman | **£43,000** | £41,000  |
|  Audit Committee Chair | **£37,500** | £35,500  |
|  Director | **£31,000** | £29,500  |

#### 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 2024 and 31 March 2023 as well as reimbursement for expenses necessarily incurred. No other forms of remuneration were paid during the year.

|   | Fees £ |   | Taxable Benefits^ £ |   | Total £ |   | Total fixed remuneration £ |   | Total variable remuneration £  |   |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|   |  2024 | 2023 | 2024 | 2023 | 2024 | 2023 | 2024 | 2023 | 2024 | 2023  |
|  R M Curling | **41,000** | 39,000 | **1,130** | 1,511 | **42,130** | 40,511 | **41,000** | 39,000 | **1,130** | 1,511  |
|  C A Roxburgh | **35,500** | 33,500 | **1,455** | 1,727 | **36,945** | 35,227 | **35,500** | 33,500 | **1,455** | 1,727  |
|  G Neilly | **29,500** | 28,000 | **455** | 202 | **29,955** | 28,202 | **29,500** | 28,000 | **455** | 202  |
|  Total | **106,000** | 100,500 | **3,030** | 3,440 | **109,030** | 103,940 | **106,000** | 100,500 | **3,030** | 3,440  |

^ 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 2024, 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:

|   | 2024 £ | Change % | 2023 £ | Change % | 2022 £ | Change % | 2021 £ | Change % | 2020 £  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  Chairman | **41,000** | 5.1 | £39,000 | 8.2 | 36,050 | 3.0 | 35,000 | 9.0 | 32,000  |
|  Audit Committee Chair | **35,500** | 6.0 | £33,500 | 8.4 | 30,900 | 3.0 | 30,000 | 11.0 | 27,000  |
|  Director | **29,500** | 5.4 | £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 fourth 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.
page 36 Montanaro European Smaller Companies Trust plc    Annual Report and Accounts 2024
## Directors’ Remuneration Report continued
COMPANY PERFORMANCE RELATIVE IMPORTANCE OF DIRECTORS’ FEES
The Board is responsible for the Company’s investment As the Company has no employees, the table above
strategy and performance, although the management of the represents the total remuneration costs and benefits paid by
Company’s investment portfolio is delegated to Montanaro the Company. To enable shareholders to assess the relative
through the investment management agreement, as referred importance of expenditure on Directors’ remuneration, the
to in the Report of the Directors on page24. The graph table below shows the actual expenditure during the year in
below compares, for the ten financial years ended 31March relation to Directors’ remuneration (excluding taxable benefits),
2024, the share price total return (assuming all dividends are other operating expenses and shareholder distributions:
reinvested) to shareholders compared to the return from the
2024 2023 Change
benchmark index. An explanation of the performance of the
£ £ %
Company for the year ended 31March 2024 is given in the
Aggregate Directors’
Chairman’s Statement and the Manager’s Report.
remuneration 106,000 100,500 5.5
Share Price and Benchmark Performance** Management and other
(rebased at 100 on 31March 2014, GBP) operating expenses* 2,982,000 2,918,000 2.2
Dividends paid to
shareholders 1,885,000 1,752,000 7.6
0
* Includes Directors’ remuneration.
0
0 DIRECTORS’ INTERESTS (AUDITED)
The Directors who held office during the year and their
0
interests in the shares of the Company were as follows:

|  |  | As at |  | As at |
| --- | --- | --- | --- | --- |
| Share Price Total Return | 31March 2024 |  | 31March 2023 |  |
| Benchmark Total Return | No. of shares |  | No. of shares |  |

50
R M Curling Beneficial 150,000 150,000
** From 5September 2006: MSCI Europe SmallCap Index. The benchmark C A Roxburgh^ Beneficial 62,833 62,352
was changed on 1June 2009 to the MSCI Europe ex-UK SmallCap Index
G Neilly Beneficial 62,293 61,867
(in Sterling terms). This benchmark was selected because it is the most
commonly used index for SmallCap investors.
^ Includes 1,654 shares held in Ms Roxburgh’s spouse’s name
There is no requirement for Directors to hold shares in the
VOTING AT AGM
Company. There have been no changes in the Directors’
At the Company’s last Annual General Meeting, held on
interests in the shares of the Company between 31March
7September 2023, shareholders approved the Annual Report
2024 and 20June 2024.
on Directors’ Remuneration for the year ended 31March 2023.
99.27% of votes were in favour of the resolution and 0.71%
STATEMENT OF IMPLEMENTATION OF REMUNERATION POLICY
were against. 0.02% were withheld.
IN RESPECT OF THE FINANCIAL YEAR ENDING 31MARCH 2025
An ordinary resolution for the approval of this Annual Report
The Committee will, as usual, review Directors’ fees during
on Directors’ Remuneration will be put to shareholders at the
2024/25, including the time required to be committed to
forthcoming Annual General Meeting.
the business of the Company, and will consider whether any
further changes to remuneration are required.
The Directors’ Remuneration Policy was last approved by
shareholders at the Company’s Annual General Meeting, held
By Order of the Board
on 7 September 2023. 99.25% of votes were in favour of the
resolution and 0.73% of votes were against. 0.02% of votes
were withheld.
G NEILLY
400
Chair of the Remuneration Committee
35 20 June 2024
30
25
20
150
100
2014 2015 2016 2017 2018 2019 20242023202220212020
Montanaro European Smaller Companies Trust plc    Annual Report and Accounts 2024 page 37
## Statement of Directors’ Responsibilities
### in respect of the Financial Statements
The Directors are responsible for preparing the Annual Report DIRECTORS’ CONFIRMATIONS
and Accounts and the financial statements in accordance with Each of the Directors, whose names and functions are listed in
applicable law and regulation. Board of Directors confirm that, to the best of their knowledge:
### Company law requires the directors to prepare financial • the financial statements, which have been prepared in
statements for each financial year. Under that law the Directors accordance with UK-adopted international accounting
have prepared the financial statements in accordance with UK- standards, give a true and fair view of the assets, liabilities,
adopted international accounting standards. financial position and return of the Company; and
### • the Report of the Audit Committee includes a fair review
Under company law, Directors must not approve the financial
of the development and performance of the business and
statements unless they are satisfied that they give a true and
the position of the Company, together with a description
fair view of the state of affairs of the Company and of the
of the principal risks and uncertainties that it faces.
profit or loss of the Company for that period. In preparing the
financial statements, the Directors are required to:
In the case of each Director in office at the date the Directors’
report is approved:
### • select suitable accounting policies and then apply
themconsistently;
### • so far as the Director is aware, there is no relevant
### • state whether applicable UK-adopted international audit information of which the Company’s auditors are
accounting standards have been followed, subject to unaware;and
any material departures disclosed and explained in the
### • they have taken all the steps that they ought to have
financial statements;
taken as a Director in order to make themselves aware of
### • make judgements and accounting estimates that are any relevant audit information and to establish that the
reasonable and prudent; and Company’s auditors are aware of that information.
### • prepare the financial statements on the going concern
basis unless it is inappropriate to presume that the
Company will continue in business. R M CURLING
Chairman
The Directors are responsible for safeguarding the assets of
20 June 2024
the Company and hence for taking reasonable steps for the
prevention and detection of fraud and other irregularities.
The Directors are also responsible for keeping adequate
accounting records that are sufficient to show and explain the
Company’s transactions and disclose with reasonable accuracy
at any time the financial position of the Company and enable
them to ensure that the financial statements and the Directors’
Remuneration Report comply with the Companies Act 2006.
The Directors are responsible for the maintenance and
integrity of the Company’s website. Legislation in the United
Kingdom governing the preparation and dissemination
of financial statements may differ from legislation in
otherjurisdictions.
page 38 Montanaro European Smaller Companies Trust plc    Annual Report and Accounts 2024
## Independent Auditors’ Report
### to the Members of Montanaro European Smaller Companies Trust plc
REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS
OPINION
In our opinion, Montanaro European Smaller Companies Trust plc’s financial statements:
• give a true and fair view of the state of the Company’s affairs as at 31 March 2024 and of its return and cash flows for the
year then ended;
### • have been properly prepared in accordance with UK-adopted international accounting standards; and
### • have been prepared in accordance with the requirements of the Companies Act 2006.
We have audited the financial statements, included within the Annual Report and Accounts (the “Annual Report”), which comprise:
the Balance Sheet as at 31 March 2024; the Statement of Comprehensive Income, the Statement of Changes in Equity and the
Statement of Cash Flows for the year then ended; and the notes to the financial statements, comprising material accounting
policy information and other explanatory information.
Our opinion is consistent with our reporting to the Audit Committee.
BASIS FOR OPINION
We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law. Our
responsibilities under ISAs (UK) are further described in the Auditors’ responsibilities for the audit of the financial statements section
of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Independence
We remained independent of the Company in accordance with the ethical requirements that are relevant to our audit of the
financial statements in the UK, which includes the FRC’s Ethical Standard, as applicable to listed public interest entities, and we
have fulfilled our other ethical responsibilities in accordance with these requirements.
To the best of our knowledge and belief, we declare that non-audit services prohibited by the FRC’s Ethical Standard were
notprovided.
We have provided no non-audit services to the company in the period under audit.
OUR AUDIT APPROACH
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
Audit scope
### • The Company is a standalone Investment Trust Company and engages Montanaro Asset Management Limited (the
“Manager”) to manage its assets.
• We conducted our audit of the financial statements using information from Juniper Partners Limited, (the “Administrator”) to
whom the Board has, delegated the provision of certain 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.
• We obtained an understanding of the control environment in place at both the Manager and the Administrator and adopted
a fully substantive testing approach using reports obtained from the Administrator.
Montanaro European Smaller Companies Trust plc    Annual Report and Accounts 2024 page 39
Key audit matters
### • Valuation and existence of investments
### • Income from and gains/losses on investments
Materiality
### • Overall materiality: £3,127,200 (2023: £2,999,000) based on 1% of Net Assets.
### • Performance materiality: £2,345,400 (2023: £2,249,250).
The scope of our audit
As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial
statements. In particular, we looked at where the Directors made subjective judgements, for example in respect of significant
accounting estimates that involved making assumptions and considering future events that are inherently uncertain.
Key audit matters
Key audit matters are those matters that, in the auditors’ professional judgement, were of most significance in the audit of the
financial statements of the current period and include the most significant assessed risks of material misstatement (whether
or not due to fraud) identified by the auditors, including those which had the greatest effect on: the overall audit strategy; the
allocation of resources in the audit; and directing the efforts of the engagement team. These matters, and any comments we
make on the results of our procedures thereon, were addressed in the context of our audit of the financial statements as a
whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
This is not a complete list of all risks identified by our audit.
The key audit matters below are consistent with last year.
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
Refer to the Material Accounting Policies and compliance with accounting standards and performed testing to check that
the Notes to the financial statements. investments are accounted for in accordance with this stated accounting policy.
The Investment portfolio at the year-end We tested the valuation of the listed equity investments by agreeing the prices
comprised listed equity investments valued at used in the valuation to independent third party sources for all investments.
£321.6 million.
We tested the existence of the investment portfolio by agreeing investment
We focused on the valuation and existence of holdings to an independent custodian confirmation.
investments because investments represent
No material issues were identified.
the principal element of the net asset value
as disclosed in the Balance Sheet in the
financialstatements.
page 40 Montanaro European Smaller Companies Trust plc    Annual Report and Accounts 2024
## Independent Auditors’ Report continued
### to the Members of Montanaro European Smaller Companies Trust plc
Key audit matter How our audit addressed the key audit matter
Income from and gains/losses We found that the accounting policies implemented were in accordance with
oninvestments accounting standards and the AIC SORP, and that income has been accounted for
Refer to Material Accounting policies and in accordance with the stated accounting policy.
Notes to the Financial Statements.
The gains/losses on investments held at fair value through profit or loss
For the Company we consider that ‘income’ comprise realised and unrealised gains/losses. For unrealised gains and losses,
refers to both revenue and capital (including we tested the valuation of the portfolio at the year-end, together with testing
gains and losses on investments). the reconciliation of opening and closing investments. For realised gains/losses,
we tested a sample of disposal proceeds by agreeing the proceeds to bank
We focused on the accuracy, occurrence
statements and we re-performed the calculation of a sample of realised
and completeness of investment income
gains/losses. We also tested a sample of purchases to underlying supporting
as incomplete or inaccurate income could
documentation.
have a material impact on the company’s net
assetvalue. We tested the accuracy of dividend receipts by agreeing the dividend rates from
investments to independent third-party data.
We also focused on the accounting policy
for income recognition and its presentation To test for occurrence, we confirmed that all dividends recorded had occurred
in the Statement of Comprehensive in the market to independent third-party data, and traced a sample of cash
Income as set out in the requirements of payments to bank statements.
The Association of Investment Companies
To test for completeness, we tested that the appropriate dividends had been
Statement of Recommended Practice
received in the year by reference to independent third party data of dividends
(the “AIC SORP”) as incorrect application
declared for all listed investments during the year.
could result in a misstatement in income
recognition. We also tested the allocation and presentation of income between the revenue
and capital return columns of the Statement of Comprehensive Income in
line with the requirements set out in the AIC SORP by assessing the treatment
applied in the context of the underlying facts and circumstances of a sample of
specialdividends.
No material issues were identified.
How we tailored the audit scope
We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial
statements as a whole, taking into account the structure of the Company, the accounting processes and controls, and the
industry in which it operates.
All audit procedures were conducted by a UK audit team. We tested and examined information using sampling and other
auditing techniques, to the extent we considered necessary to provide a reasonable basis for us to form our own judgements.
The impact of climate risk on our audit
As part of our audit we made enquiries of management to understand the extent of the potential impact of climate risk on the
Company’s financial statements, and we remained alert when performing our audit procedures for any indicators of the impact of
climate risk. Our procedures did not identify any material impact as a result of climate risk on the Company’s financial statements.
Montanaro European Smaller Companies Trust plc    Annual Report and Accounts 2024 page 41
Materiality
The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality.
These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and
extent of our audit procedures on the individual financial statement line items and disclosures and in evaluating the effect of
misstatements, both individually and in aggregate on the financial statements as a whole.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Overall company materiality £3,127,200 (2023: £2,999,000).
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
undetected misstatements exceeds overall materiality. Specifically, we use performance materiality in determining the scope
of our audit and the nature and extent of our testing of account balances, classes of transactions and disclosures, for example
in determining sample sizes. Our performance materiality was 75% (2023: 75%) of overall materiality, amounting to £2,345,400
(2023: £2,249,250) for the Company financial statements.
In determining the performance materiality, we considered a number of factors – the history of misstatements, risk assessment
and aggregation risk and the effectiveness of controls – and concluded that an amount at the upper end of our normal range
wasappropriate.
We agreed with the Audit Committee that we would report to them misstatements identified during our audit above £156,360
(2023: £149,950) as well as misstatements below that amount that, in our view, warranted reporting for qualitative reasons.
CONCLUSIONS RELATING TO GOING CONCERN
Our evaluation of the Directors’ assessment of the Company’s ability to continue to adopt the going concern basis of
accountingincluded:
### • 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
the financial statements;
• reviewing the Directors’ assessment of the Company’s financial position in the context of its ability to meet future expected
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
• assessing the implication of potential significant reductions in NAV as a result of market movements on the ongoing ability of
the Company to operate.
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that,
individually or collectively, may cast significant doubt on the Company’s ability to continue as a going concern for a period of at
least twelve months from when the financial statements are authorised for issue.
In auditing the financial statements, we have concluded that the Directors’ use of the going concern basis of accounting in the
preparation of the financial statements is appropriate.
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 add or draw attention to in relation to the Directors’ statement in the financial statements about whether the Directors
considered 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.
page 42 Montanaro European Smaller Companies Trust plc    Annual Report and Accounts 2024
## Independent Auditors’ Report continued
### to the Members of Montanaro European Smaller Companies Trust plc
REPORTING ON OTHER INFORMATION
The other information comprises all of the information in the Annual Report other than the financial statements and our auditors’
report thereon. The Directors are responsible for the other information. Our opinion on the financial statements does not cover
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.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained
in the audit, or otherwise appears to be materially misstated. If we identify an apparent material inconsistency or material
misstatement, we are required to perform procedures to conclude whether there is a material misstatement of the financial
statements or a material 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
Companies Act 2006 have been included.
Based on our work undertaken in the course of the audit, the Companies Act 2006 requires us also to report certain opinions
and 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 2024 is consistent with the financial statements and has been prepared in
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 to be audited has been properly prepared in accordance with the
Companies Act 2006.
CORPORATE GOVERNANCE STATEMENT
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
Code specified for our review. Our additional responsibilities with respect to the Corporate Governance Statement as other
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
Governance Statement is materially consistent with the financial statements and our knowledge obtained during the audit, and
we have nothing material to add or draw attention to in relation to:
### • The Directors’ confirmation that they have carried out a robust assessment of the emerging and principal risks;
• The disclosures in the Annual Report that describe those principal risks, what procedures are in place to identify emerging
risks and an explanation of how these are being managed or mitigated;
### • The Directors’ statement in the financial statements about whether they considered it appropriate to adopt the going
concern basis of accounting in preparing them, and their identification of any material uncertainties to the Company’s ability
to continue to do so over a period of at least twelve months from the date of approval of the financial statements;
• 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
attention to any necessary qualifications or assumptions.
Montanaro European Smaller Companies Trust plc    Annual Report and Accounts 2024 page 43
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
statement is consistent with the financial statements and our knowledge and understanding of the Company and its environment
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
Corporate Governance Statement is materially consistent with the financial statements and our knowledge obtained during the
audit:
• The Directors’ statement that they consider the Annual Report, taken as a whole, is fair, balanced and understandable,
and provides the information necessary for the members to assess the Company’s position, performance, business model
andstrategy;
### • The section of the Annual Report that describes the review of effectiveness of risk management and internal control
systems; and
### • The section of the Annual Report describing the work of the Audit Committee.
We have nothing to report in respect of our responsibility to report when the Directors’ statement relating to the Company’s
compliance with the Code does not properly disclose a departure from a relevant provision of the Code specified under the
Listing Rules for review by the auditors.
RESPONSIBILITIES FOR THE FINANCIAL STATEMENTS AND THE AUDIT
Responsibilities of the Directors for the financial statements
As explained more fully in the Statement of Directors’ Responsibilities in respect of the Financial Statements, the Directors are
responsible for the preparation of the financial statements in accordance with the applicable framework and for being satisfied
that they give a true and fair view. The Directors are also responsible for such internal control as they determine is necessary to
enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the Directors are responsible for assessing the Company’s ability to continue as a going
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.
Auditors’ responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance
is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a
material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or
in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these
financialstatements.
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.
Based on our understanding of the Company and industry, we identified that the principal risks of non-compliance with laws and
regulations related to breaches of section 1158 of the Corporation Tax Act 2010, the Companies Act 2006, and we considered
the extent to which non-compliance might have a material effect on the financial statements. We evaluated management’s
incentives and opportunities for fraudulent manipulation of the financial statements (including the risk of override of controls),
and determined that the principal risks were related to posting inappropriate journal entries to increase revenue (investment
income and capital gains) or to increase net asset value of the Company. Audit procedures performed by the engagement team
included:
### • discussions with the Manager and Audit Committee, including consideration of known or suspected instances of non-
compliance with laws and regulation and fraud;
### • reviewing relevant committee meeting minutes, including those of the Board and Audit Committee;
page 44 Montanaro European Smaller Companies Trust plc    Annual Report and Accounts 2024
## Independent Auditors’ Report continued
### to the Members of Montanaro European Smaller Companies Trust plc
• assessment of the Company’s compliance with the requirements of section 1158 of the Corporation Tax Act 2010, including
recalculation of numerical aspects of the eligibility conditions;
### • review of financial statement disclosures to underlying supporting documentation;
• identifying and testing manual journal entries posted by the Administrator during the preparation of the financial statements;
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 with laws and regulations that are not closely related to events and transactions reflected in the financial statements.
Also, the risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one 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.
A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at:
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
Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume
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.
OTHER REQUIRED REPORTING
Companies Act 2006 exception reporting
Under the Companies Act 2006 we are required to report to you if, in our opinion:
### • 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
### • certain disclosures of Directors’ remuneration specified by law are not made; or
• the financial statements and the part of the Directors’ Remuneration to be audited are not in agreement with the accounting
records and returns; or
### • a Corporate Governance Statement has not been prepared by the Company.
We have no exceptions to report arising from this responsibility.
Appointment
Following the recommendation of the Audit Committee, we were appointed by the members on 9 September 2021 to audit
the financial statements for the year ended 31 March 2022 and subsequent financial periods. The period of total uninterrupted
engagement is three years, covering the years ended 31 March 2022 to 31 March 2024.
SHUJAAT KHAN (Senior statutory auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
Edinburgh
20 June 2024
Montanaro European Smaller Companies Trust plc Annual Report and Accounts 2024

page 45

## Statement of Comprehensive Income

|   | Notes | Year to 31 March 2024 |   |   | Year to 31 March 2023  |   |   |
| --- | --- | --- | --- | --- | --- | --- | --- |
|   |   |  Revenue £'000 | Capital £'000 | Total £'000 | Revenue £'000 | Capital £'000 | Total £'000  |
|  **Capital gains/(losses) on investments**  |   |   |   |   |   |   |   |
|  Gains/(losses) on investments held at fair value | 9 | – | 13,543 | 13,543 | – | (23,070) | (23,070)  |
|  Exchange gains/(losses) |  | – | 135 | 135 | – | (542) | (542)  |
|  **Revenue**  |   |   |   |   |   |   |   |
|  Investment income | 2 | 4,576 | – | 4,576 | 4,101 | – | 4,101  |
|  Other income | 2 | 116 | – | 116 | 29 | – | 29  |
|  **Total income** |  | **4,692** | **13,678** | **18,370** | **4,130** | **(23,612)** | **(19,482)**  |
|  **Expenditure**  |   |   |   |   |   |   |   |
|  Management expenses | 3 | (803) | (1,490) | (2,293) | (804) | (1,494) | (2,298)  |
|  Other expenses | 4 | (689) | – | (689) | (620) | – | (620)  |
|  **Total expenditure** |  | **(1,492)** | **(1,490)** | **(2,982)** | **(1,424)** | **(1,494)** | **(2,918)**  |
|  **Return before finance costs and taxation** |  | **3,200** | **12,188** | **15,388** | **2,706** | **(25,106)** | **(22,400)**  |
|  Finance costs | 5 | (134) | (248) | (382) | (84) | (156) | (240)  |
|  **Return before taxation** |  | **3,066** | **11,940** | **15,006** | **2,622** | **(25,262)** | **(22,640)**  |
|  Taxation | 6 | (376) | – | (376) | (538) | – | (538)  |
|  **Return after taxation** |  | **2,690** | **11,940** | **14,630** | **2,084** | **(25,262)** | **(23,178)**  |
|  **Return per share** | 8 | **1.42p** | **6.30p** | **7.72p** | **1.10p** | **(13.34p)** | **(12.24p)**  |

The total column of this statement represents the Company's Income Statement and Statement of Comprehensive Income, prepared to UK-adopted 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.
page 46

Montanaro European Smaller Companies Trust plc Annual Report and Accounts 2024

## Balance Sheet

|   | Notes | 31 March 2024 £'000 | 31 March 2023 £'000  |
| --- | --- | --- | --- |
|  **Non-current assets**  |   |   |   |
|  Investments held at fair value through profit or loss | 9 | **321,676** | 310,308  |
|  **Current assets**  |   |   |   |
|  Trade and other receivables | 10 | **885** | 880  |
|  Cash and cash equivalents | 10 | **242** | 3,225  |
|   |  | **1,127** | 4,105  |
|  **Total assets** |  | **322,803** | 314,413  |
|  **Current liabilities**  |   |   |   |
|  Trade and other payables | 11 | **(754)** | (1,260)  |
|  Interest-bearing bank loan | 12 | **–** | (8,787)  |
|  Revolving credit facility | 11 | **(856)** | (4,391)  |
|   |  | **(1,610)** | (14,438)  |
|  **Non-current liabilities**  |   |   |   |
|  Interest-bearing bank loan | 12 | **(8,473)** | –  |
|  **Total liabilities** |  | **(10,083)** | (14,438)  |
|  **Net assets** |  | **312,720** | 299,975  |
|  **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 |  | **252,521** | 240,581  |
|  Revenue reserve |  | **4,459** | 3,654  |
|  **Total shareholders' funds** |  | **312,720** | 299,975  |
|  **Net asset value per share** | 14 | **165.1p** | 158.4p  |

The financial statements on pages 45 to 61 were approved and authorised for issue by the Board of Directors on 20 June 2024 and signed on its behalf by:

### R CURLING

Director

Company Registered Number: SC074677

The accompanying notes are an integral part of the financial statements.
Montanaro European Smaller Companies Trust plc    Annual Report and Accounts 2024 page 47
## Statement of Changes in Equity
### for the year ended 31 March 2024

|  |  |  | Share |  | Capital |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  | Share | premium |  | redemption |  | Capital | Revenue |  |  |
|  | capital | account |  |  | reserve | reserve | reserve |  | Total |
| Year to 31March 2024 Notes | £’000 |  | £’000 |  | £’000 | £’000* |  | £’000* | £’000 |

As at 1 April 2023 9,471 44,057 2,212 240,581 3,654 299,975
Return after taxation – – – 11,940 2,690 14,630
Dividends paid 7 – – – – (1,885) (1,885)
As at 31 March 2024 9,471 44,057 2,212 252,521 4,459 312,720

|  |  |  | 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 |

As at 1 April 2022 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
The accompanying notes are an integral part of the financial statements.
* These reserves are distributable. However the amount that is distributable is not necessarily the full amount of the reserves as disclosed in these financialstatements.
page 48

Montanaro European Smaller Companies Trust plc Annual Report and Accounts 2024

## Statement of Cash Flows

|   | 31 March 2024 £'000 | 31 March 2023 £'000  |
| --- | --- | --- |
|  **Cash flows from operating activities**  |   |   |
|  Return before taxation | **15,006** | (22,640)  |
|  Investment (gains)/losses | **(13,543)** | 23,070  |
|  Exchange (gains)/ losses | **(135)** | 542  |
|  Finance costs | **381** | 240  |
|  Withholding tax | **(374)** | (450)  |
|  Investment income | **(4,692)** | (4,130)  |
|  Dividends received | **4,675** | 4,043  |
|  Other income received | **116** | 29  |
|  Purchases of investments | **(33,701)** | (31,524)  |
|  Sales of investments | **35,136** | 38,643  |
|  Increase in receivables | **(100)** | (43)  |
|  Increase/(decrease) in payables | **222** | (79)  |
|  Net cash inflow from operating activities | **2,991** | 7,701  |
|  **Cash flows from financing activities**  |   |   |
|  Repayments of loan | **(4,327)** | (5,159)*  |
|  Drawdown on revolving credit facility | **855** | 834*  |
|  Loan arrangement fees | **(94)** | –  |
|  Dividends paid | **(1,885)** | (1,752)  |
|  Interest paid | **(353)** | (239)  |
|  Net cash outflow from financing activities | **(5,804)** | (6,316)  |
|  **Net (decrease)/increase in cash and cash equivalents** | **(2,813)** | 1,385  |
|  Exchange (losses)/gains | **(170)** | 19  |
|  **(Decrease)/increase in cash and cash equivalents** | **(2,983)** | 1,404  |
|  Cash and cash equivalents at beginning of year | **3,225** | 1,821  |
|  **Cash and cash equivalents at end of year** | **242** | 3,225  |

\* In the prior year repayments of loans and drawdown on the revolving credit facility were presented on a net basis. These balances have been re-presented on a gross basis to align to the current year presentation.

The accompanying notes are an integral part of the financial statements.
Montanaro European Smaller Companies Trust plc    Annual Report and Accounts 2024 page 49
## Notes to the Financial Statements
### for the year ended 31 March 2024
1 Material Accounting Policies
A summary of the principal accounting policies is set out below.
BASIS OF ACCOUNTING
The financial statements of the Company have been prepared in accordance with International Accounting Standards in conformity
with the requirements of the UK-adopted International Accounting Standards and with the requirements of the Companies Act 2006
as applicable to companies reporting under those standards. The annual financial statements have been prepared in accordance
with the Statement of Recommended Practice issued by the Association of Investment Companies (“AIC SORP”) for the financial
statements of investment trust and venture capital trusts, except to any extent where it is not consistent with the requirements of
International Accounting Standards in conformity with the Companies Act 2006.
The functional and presentational currency of the Company is Pounds Sterling and has been determined on the basis of the
currency of the Company’s share capital and the currency in which dividends and expenses are paid.
The financial statements have been prepared on a going concern basis, under historical cost convention, except for the
measurement at fair value of investments measured at fair value through profit or loss and on the expectation that approval as
an investment trust company will continue to be met.
The financial statements have adopted the following accounting policies in their preparation, which remain consistent with the
accounting policies adopted in the audited financial statements for the year ended 31March 2023. All values are rounded to the
nearest thousand pounds unless otherwise indicated.
The Directors have made an assessment of the Company’s ability to continue as a going concern and are satisfied that the
Company has adequate resources to continue in business for the foreseeable future, being until at least 20June 2025. Please
refer to pages 25 and 26 for full details of the Directors’ going concern assessment.
ACCOUNTING DEVELOPMENTS
Certain new accounting standards, amendments to accounting standards and interpretations have been published that are
not mandatory for 31March 2024 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. The Company has yet to assess the full impact of IFRS 18-Presentation and
Disclosure in Financial Statements which is effective from 1 January 2027.
CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY
The preparation of financial statements in accordance with International Accounting Standards in conformity with the Companies
Act 2006, requires management to make judgements, estimates and assumptions that affect the application of policies and the
reported amounts in the Balance Sheet, the Statement of Comprehensive Income and the disclosure of contingent assets and
liabilities at the date of the financial 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 values of assets and liabilities that are not readily apparent from other sources. Actual results
may differ from these estimates.
The areas requiring the most significant judgement in the preparation of the financial statements are: recognising and classifying
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 Section 1158 of the Corporation Tax Act 2010.
Dividends received which appear to be unusual in size or circumstance are assessed on a case-by-case basis, based on
interpretation of the investee companies’ relevant statements, to determine their allocation in accordance with the SORP to either
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
appear to be paid in excess of current year profits will still be considered as revenue in nature unless evidence suggests otherwise.
The estimates and underlying assumptions are reviewed on an ongoing basis. Any revisions to accounting estimates are
recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision
and future period if the revision affects both current and future periods.
page 50 Montanaro European Smaller Companies Trust plc    Annual Report and Accounts 2024
## Notes to the Financial Statements continued
1 Material Accounting Policies continued
SEGMENTAL REPORTING
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.
PRESENTATION OF STATEMENT OF COMPREHENSIVE INCOME
In order to better reflect the activities of an investment trust company and in accordance with guidance issued by the AIC,
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
Corporation Tax Act 2010.
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.
All other income is accounted for on a time apportioned basis.
EXPENSES AND FINANCE COSTS
All expenses and finance costs are accounted for on an accruals basis and are charged against revenue, except where incurred
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:
– finance costs payable are allocated 35% to revenue and 65% to capital.
– investment management fees payable are allocated 35% to revenue and 65% to capital.
TAXATION
The tax expense represents the sum of the tax currently payable and movements in deferred tax. Tax payable is based on the
taxable profit for the year and withholding tax payable. Taxable profit differs from profit before tax as reported in the Statement
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.
In line with the recommendations of the SORP, the allocation method used to calculate tax relief on expenses presented against
capital returns in the supplementary information in the Statement of Comprehensive Income is the ‘marginal basis’. Under this
basis, if taxable income is capable of being offset entirely by expenses presented in the revenue return column of the Statement
of Comprehensive Income, then no tax relief is transferred to the capital return column.
Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and
liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted
for using the balance sheet liability method. Deferred tax liabilities are recognised for all taxable temporary differences and
deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible
temporary differences can be utilised.
The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer
probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.
Montanaro European Smaller Companies Trust plc    Annual Report and Accounts 2024 page 51
1 Material Accounting Policies continued
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.
Investment trusts which have approval under Section 1158 of the Corporation Tax Act 2010 are not liable to taxation on capital gains.
INVESTMENTS
The Company’s business is investing in financial assets with a view to profiting from their total return in the form of income and
capital growth. This portfolio of financial assets is managed and its performance evaluated on a fair value basis in accordance with
the documented investment strategy and information is provided internally on that basis to the Company’s Board of Directors
and other key management personnel.
The investments held by the Company are designated by the Company as ‘at fair value through profit or loss’.
All gains and losses are allocated to the capital return within the Statement of Comprehensive Income as ‘Gains or losses on
investments held at fair value through profit or loss’. Also included within this heading are transaction costs in relation to the
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.
All investments are classified upon initial recognition as held at fair value through profit or loss, and are measured at subsequent
reporting dates at fair value, which is the bid price or the last traded price depending on the convention of the exchange on
which the investment is listed. The Company derecognises a financial asset only when the contractual rights to the cash flows
from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the
asset to another entity. On derecognition of a financial asset, the difference between the asset’s carrying amount and the sum of
consideration received and receivable and the cumulative gain or loss that had been accumulated is recognised in profit or loss.
All investments for which a fair value is measured or disclosed in the financial statements are categorised within the fair value
hierarchy levels set out in Note 15.
CASH AND CASH EQUIVALENTS
Cash comprises bank balances and cash held by the Company. Cash equivalents are short-term, highly liquid investments that
are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.
LOANS
The loans are valued at amortised cost. Costs in relation to arranging the debt finance have been capitalised and are amortised
over the term of the finance. Hence, amortised cost is the par value less the amortised cost of issue.
The Euro loan is shown at amortised cost with the exchange difference on the principal amounts to be repaid reflected. Any gains
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.
RESERVES
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.
page 52

Montanaro European Smaller Companies Trust plc Annual Report and Accounts 2024

# Notes to the Financial Statements continued

## 1 Material Accounting Policies continued

### 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.
- exchange differences of a capital nature.
- special dividends of a capital nature.
- expenses and finance costs, together with the related taxation effect, charged in accordance with the above policies.
- 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.

In addition, the Company's Articles of Association permit it to distribute from the Capital Reserve any surplus arising from the realisation of its investments.

### Revenue Reserve

The net profit arising in the revenue column of the Statement of Comprehensive Income is added to this reserve. Dividends paid during the year may be deducted from this reserve.

### FINANCIAL INSTRUMENTS

Financial assets and financial liabilities are recognised on the Balance Sheet of the Company when the Company becomes a party to the contractual provisions of the instrument. The Company shall offset financial assets and financial liabilities if it has a legally enforceable right to set off the recognised amounts and intends to settle on a net basis. As at 31 March 2024, no financial assets or financial liabilities had been offset (31 March 2023: nil).

### FOREIGN CURRENCIES

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 'Gains/(losses) on investments held at fair value' and are taken to the Capital Reserve. Exchange differences on other financial instruments are included in the Statement of Comprehensive Income as 'Exchange gains/(losses)'.

|  Rates of exchange (per Pound Sterling) | 31 March 2024 | 31 March 2023 | Change %  |
| --- | --- | --- | --- |
|  Danish Krone | **8.72** | 8.48 | 2.8%  |
|  Euro | **1.17** | 1.14 | 2.6%  |
|  Norwegian Krone | **13.65** | 12.95 | 5.4%  |
|  Swedish Krona | **13.44** | 12.82 | 4.8%  |
|  Swiss Franc | **1.14** | 1.13 | 0.9%  |
Montanaro European Smaller Companies Trust plc    Annual Report and Accounts 2024 page 53
2 Income

|  | Year to |  | Year to |
| --- | --- | --- | --- |
| 31March 2024 |  | 31March 2023 |  |
|  | £’000 |  | £’000 |

Investment income
Overseas dividend income 4,582 4,078
Exchange (losses)/gains (6) 23
Investment income 4,576 4,101
Bank interest 100 16
Other income 16 13
Total other income 116 29
Total income 4,692 4,130
3 Management Expenses
Year to 31March 2024 Year to 31March 2023
Revenue Capital Total Revenue Capital Total
£’000 £’000 £’000 £’000 £’000 £’000
Investment management fee 785 1,458 2,243 786 1,462 2,248
AIFM fee 18 32 50 18 32 50
803 1,490 2,293 804 1,494 2,298
Details of the management fee arrangements during the year are contained within the Directors’ Report on page24 and details
of fees owed to the Manager at the Balance Sheet date are included in Note 11.
4 Other Expenses
Year to 31March 2024 Year to 31March 2023

|  | Revenue |  | Capital | Total | Revenue |  | Capital | Total |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  |  | £’000 | £’000 | £’000 |  | £’000 | £’000 | £’000 |
| Directors’ fees |  | 106 – 106 |  |  |  | 101 – 101 |  |  |

Auditor’s remuneration for:
– statutory audit* 54 – 54 48 – 48
Secretarial and administration fees 173 – 173 162 – 162
Legal, professional and advisory fees 13 – 13 13 – 13
Custody and depositary fees 96 – 96 102 – 102
Credit facility commitment fee 43 – 43 35 – 35
Other 204 – 204 159 – 159
689 – 689 620 – 620
* The statutory audit for the year to 31 March 2024 is £54,340 (2023: £48,000)
5 Finance Costs
Year to 31March 2024 Year to 31March 2023
Revenue Capital Total Revenue Capital Total
£’000 £’000 £’000 £’000 £’000 £’000
Interest payable on bank borrowings 134 248 382 84 156 240
6 Taxation
Year to 31March 2024 Year to 31March 2023
Revenue Capital Total Revenue Capital Total
£’000 £’000 £’000 £’000 £’000 £’000
Overseas tax 376 – 376 538 – 538
page 54 Montanaro European Smaller Companies Trust plc    Annual Report and Accounts 2024
## Notes to the Financial Statements continued
6 Taxation continued
FACTORS AFFECTING TAX CHARGE FOR THE YEAR
The corporation tax rate was 25% (2023: 19%). The tax charge for the year differs from the charge resulting from applying the
standard rate of corporation tax in the UK for an investment trust company. The differences are explained below:

|  | Year to |  | Year to |
| --- | --- | --- | --- |
| 31March 2024 |  | 31March 2023 |  |
|  | £’000 |  | £’000 |

Profit/(loss) on activities before taxation 15,006 (22,640)
Corporation tax at standard rate of 25% (2023: 19%) 3,752 (4,302)
Effect of:
Non-taxable (gains)/losses on investments (3,386) 4,383
Movement in unutilised expenses 841 600
Non-taxable overseas income (1,173) (781)
Bank interest – (3)
Exchange (gains)/losses (34) 103
Overseas tax 376 538
Total tax charge for the year 376 538
As at 31March 2024, the Company had unutilised management expenses for taxation purposes of £34,320,000 (2023:
£30,957,000). A deferred tax asset of £8,580,000 (2023: £7,739,000) has not been recognised on the unutilised expenses as it is
unlikely that there will be suitable taxable profits from which the future reversal of the deferred tax could be deducted.
7 Dividends

|  | Year to |  | Year to |
| --- | --- | --- | --- |
| 31March 2024 |  | 31March 2023 |  |
|  | £’000 |  | £’000 |

Final dividend for the year ended 31 March 2022 of 0.725p per share – 1,373
Interim dividend for the year ended 31 March 2023 of 0.200p per share – 379
Final dividend for the year ended 31 March 2023 of 0.725p per share 1,459 –
Interim dividend for the year ended 31 March 2024 of 0.225p per share 426 –
1,885 1,752
Amounts relating to the year but not paid at the year end:
Final dividend for the year ended 31 March 2023 of 0.770p per share – 1,459
Final dividend for the year ended 31 March 2024 of 0.9p per share 1,705 –
1,705 1,459
The Directors have proposed a final dividend in respect of the year ended 31March 2024 of 0.9p per share, payable on
16September 2024 to all shareholders on the register on 16August 2024. The final dividend is subject to approval by
shareholders at the Annual General Meeting.
The attributable revenue and the dividends paid and proposed for the purposes of the income retention test for Section 1158 of
the Corporation Tax Act 2010, are set out below:

|  | Year to |  | Year to |
| --- | --- | --- | --- |
| 31March 2024 |  | 31March 2023 |  |
|  | £’000 |  | £’000 |

Revenue attributable to equity shareholders 2,690 2,084
Interim dividend for the year ended 31 March 2023 of 0.200p per share – (379)
Proposed final dividend for the year ended 31 March 2023 of 0.770p per share – (1,459)
Interim dividend for the year ended 31 March 2024 of 0.225p per share (426) –
Proposed final dividend for the year ended 31 March 2024 of 0.9p per share (1,705) –
Net movement in revenue 560 246
Montanaro European Smaller Companies Trust plc    Annual Report and Accounts 2024 page 55
8 Return per Share
Year to 31March 2024 Year to 31March 2023
Revenue Capital Total Revenue Capital Total
Basic 1.42p 6.30p 7.72p 1.10p (13.34p) (12.24p)
Basic total return per Ordinary share is based on the total comprehensive gain for the financial year of £14,630,000 (2023: loss of
£23,178,000) and on 189,427,600 (2023: 189,427,600) Ordinary shares, being the weighted average number of Ordinary shares
in issue during the year.
Basic revenue return per Ordinary share is based on the net revenue return on ordinary activities after taxation of £2,690,000
(2023: £2,084,000), and on 189,427,600 (2023: 189,427,600) 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 gain for the financial year of £11,940,000 (2023: loss of
£25,262,000), and on 189,427,600 (2023: 189,427,600) Ordinary shares, being the weighted average number of Ordinary shares
in issue during the year.
9 Investments held at Fair Value Through Profit or Loss

|  | Year to |  | Year to |
| --- | --- | --- | --- |
| 31March 2024 |  | 31March 2023 |  |
|  | £’000 |  | £’000 |

Opening cost 193,796 196,337
Holding gains 116,512 143,451
Opening fair value 310,308 339,788
Purchases at cost 43,002 32,076
Sales – proceeds (45,177) (38,486)
– gains on sales 1,732 3,869
Holding gains/(losses) 11,811 (26,939)
Closing fair value 321,676 310,308
Closing cost 193,353 193,796
Holding gains 128,323 116,512
Closing valuation 321,676 310,308
Net gains on the realisation of investments during the year represents the difference between the net proceeds of sale and the
book cost of investments sold.
TRANSACTION COSTS
The Company incurred transaction costs on the purchase of investments of £29,000 and sale of investments of £18,000 (2023:
£24,000 on purchases and £24,000 on sales).

|  | Year to |  | Year to |
| --- | --- | --- | --- |
| 31March 2024 |  | 31March 2023 |  |
|  | £’000 |  | £’000 |

Gains on sales 1,732 3,869
Increase/(decrease) in holding gains 11,811 (26,939)
Gains/(losses) on investments 13,543 (23,070)
page 56

Montanaro European Smaller Companies Trust plc Annual Report and Accounts 2024

## Notes to the Financial Statements continued

### 10 Current Assets

#### TRADE AND OTHER RECEIVABLES

|   | 31 March 2024 £'000 | 31 March 2023 £'000  |
| --- | --- | --- |
|  Prepayments and accrued income | 221 | 345  |
|  Overseas tax recoverable | 664 | 535  |
|   | 885 | 880  |

The carrying value of the balances above approximates to fair value. There are no amounts which are past due at the year end (2023: £nil).

#### CASH AND CASH EQUIVALENTS

These comprise bank balances and cash held by the Company. The carrying amount of these assets approximates to their fair value.

|   | 31 March 2024 £'000 | 31 March 2023 £'000  |
| --- | --- | --- |
|  Cash at bank and on hand | 242 | 3,225  |

### 11 Current Liabilities

|   | 31 March 2024 £'000 | 31 March 2023 £'000  |
| --- | --- | --- |
|  **Trade and other payables:** |  |   |
|  Investment management and AIFM fee | 595 | 407  |
|  Due to broker | – | 739  |
|  Other creditors | 159 | 114  |
|   | 754 | 1,260  |

|   | 31 March 2024 £'000 | 31 March 2023 £'000  |
| --- | --- | --- |
|  **Revolving credit facility:** |  |   |
|  Revolving credit facility | 856 | 4,391  |
|   | 856 | 4,391  |

The Company's €15 million five year secured revolving credit facility with ING Bank N.V. ("ING") matured on 13 September 2023. The Company entered into a new three year secured revolving credit facility which will mature on 13 September 2026. Drawdowns from the facility are charged at margin over the relevant EURIBOR rate. As at 31 March 2024, €1 million (£856,000) of the facility was drawn (2023: €5 million (£4,391,000)), at a rate of 5.68%, with €14 million available to be drawn (31 March 2023: €10 million).

Once drawn, the facility will be measured at amortised cost and revalued for exchange rate movements. Any gain or loss 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.
Montanaro European Smaller Companies Trust plc    Annual Report and Accounts 2024 page 57
12 Interest-Bearing Bank Loans
31March 2024 31March 2023
£’000 £’000
Opening balance 8,787 8,434
Set up Cost (98) –
Amortisation of set-up costs 22 10
Non-cash foreign currency movements (238) 343
8,473 8,787
The Company’s fixed rate loan facilities totaling €10 million matured on 13 September 2023. The Company refinanced €10 million
by entering into a three year secured loan at a fixed rate of 5.105% per annum (previously 1.33%) with ING. This loan will mature
on 13 September 2026.
The Company also has a €15million five year secured revolving credit facility with ING which will also mature on 13September 2026.
Under the bank covenants relating to the loans, the Company is to ensure that at all times the total borrowings of the Company
do not exceed 35% of the Adjusted Net Asset Value (as defined in the loan agreements) and that the Adjusted Net Asset Value
does not fall below £45million (2023: £45million). The Company met all covenant conditions during the year.
The carrying value of the balances above approximates to fair value.
13 Called-up Share Capital
Listed Held in Treasury In Issue
Number £’000 Number £’000 Number £’000
Allotted, issued and fully paid:
Ordinary shares of 5p each
Balance at 1 April 2023 189,427,600 9,471 – – 189,427,600 9,471
Balance at 31 March 2024 189,427,600 9,471 – – 189,427,600 9,471
CAPITAL MANAGEMENT
The Company’s capital is represented by the issued Share Capital, Share Premium Account, Capital Redemption Reserve,
Capital Reserve, Revenue Reserve and external debt financing. As at the year end this balance stood at £322,049,000 (2023:
£313,153,000). 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 loan finance.
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 on pages 14 and 15. The Company’s capital structure is also explained in the
Directors’ Report on pages26 and 27.
14 Net Asset Value per Share

| Net asset value per share |  |  |  | Net asset value |  |
| --- | --- | --- | --- | --- | --- |
|  | As at 31March |  |  | As at 31March |  |
|  | 2024 | 2023 |  | 2024 | 2023 |
|  | p |  | p | £’000 | £’000 |

NAV per Ordinary share 165.1 158.4 312,720 299,975
The NAV per share is based on net assets at the year end and on 189,427,600 (2023: 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
The Company’s financial instruments comprise its investment portfolio, cash balances, bank loans, and debtors and creditors
that arise directly from its operations. As an investment trust the Company holds a portfolio of financial assets in pursuit of its
investment objective. The Company makes use of borrowings, as detailed in 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14 and 15.
page 58 Montanaro European Smaller Companies Trust plc    Annual Report and Accounts 2024
## Notes to the Financial Statements continued
15 Financial Instruments continued
Financial risks arising from the Company’s financial instruments are:
(i) market price risk, being the risk that the value of investment holdings will fluctuate as a result of changes in market prices
caused by factors other than interest rate or currency rate movements;
(ii) interest rate risk, being the risk that the future cash flows of a financial instrument will fluctuate because of changes in
market interest rates;
(iii) foreign currency risk, being the risk that the value of investment holdings, investment purchases, investment sales, bank
loans and accrued income will fluctuate because of movements in currency rates;
(iv) credit risk, being the risk that a counterparty to a financial instrument will fail to discharge an obligation or commitment that
it has entered into with the Company; and
(v) liquidity risk, being the risk that the Company may not be able to liquidate quickly its investments to meet obligations
associated with its financial liabilities.
FAIR VALUE HIERARCHY
The Company measures fair values using the following fair value hierarchy that reflects the significance of the inputs used in
making the measurements.
Categorisation within the hierarchy has been determined on the basis of the lowest level input that is significant to the fair value
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.
The tables below set out fair value measurements of financial instruments as at the year end, by the level in the fair value
hierarchy into which the fair value measurement is categorised.
The Company held the following categories of financial instruments all of which are included fair value or amortised cost with is
an approximation of fair value as at 31March 2024:

|  |  |  | 2024 |  |  |  | 2023 |
| --- | --- | --- | --- | --- | --- | --- | --- |
| Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | Total |
| £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 |

Financial instruments
Investments 321,676 – – 321,676 310,308 – – 310,308
Interest-bearing bank loan – (8,549) – (8,549) – (8,787) – (8,787)
Revolving credit facility – (856) – (856) – (4,391) – (4,391)
There were no transfers between levels in the fair value hierarchy in the year ended 31March 2024 (2023: none).
Cash balances of £242,000 (2023: £3,225,000), debtors of £221,000 (2023: £345,000) and creditors of £754,000 (2023:
£1,260,000) are considered financial instruments.
16 Market Price Risk
Market price risk (i.e. changes in market prices other than those arising from currency risk or interest rate risk) may affect the
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.
The maximum exposure to market price risk is the fair value of investments of £321,676,000 (2023: £310,308,000).
If the investment portfolio valuation fell by 10% from the amount detailed in the financial statements as at 31March 2024, it
would have the effect, with all other variables held constant, of reducing the net capital return before taxation by £32,167,000
(2023: £31,031,000). An increase of 10% in the investment portfolio valuation would have an equal and opposite effect on the net
capital return before taxation. The analysis is based on closing balances only and is not representative of the year as a whole.
Montanaro European Smaller Companies Trust plc    Annual Report and Accounts 2024 page 59
17 Interest Rate Risk
FIXED RATE
The Company has a €10million fully drawn fixed rate term loan with ING, with a Sterling equivalent of £8,473,000 as at 31March
2024, at a rate of interest of 5.105% per annum. An interest rate sensitivity analysis has not been performed as the Company has
borrowed at a fixed rate of interest.
FLOATING RATE
The Company has a €15million revolving credit facility term with ING of which €1million was drawn, with a Sterling equivalent of
£856,000 as at 31March 2024, at a rate of interest of 5.68% 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 Manager and the Board. As at
31March 2024, the cash position of the Company was £242,000 (2023: £3,225,000).
If interest rates had increased by 1.0%, the impact on the profit or loss and the NAV would have been negative £6,000 (2023:
negative £11,000). If interest rates had decreased by 1.0%, the impact on the profit or loss and the NAV would have been positive
£6,000 (2023: positive £11,000). The calculations are based on the floating rate balances as at the respective 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.
Foreign currency exposure:

|  |  |  |  | Trade |  |  | Trade | Revolving |  | Interest- |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  |  |  | and other |  |  | and other |  |  | credit | bearing |  |  | Net |
|  | Investments |  | receivables |  | Cash | payables |  |  | facility* | bank loan* |  | exposure |  |
| As at 31March 2024 |  | £’000 |  | £’000 | £’000 |  | £’000 |  | £’000 |  | £’000 |  | £’000 |

Danish Krone 6,251 60 – – – – 6,311
Euro 176,388 243 192 – (855) (8,549) 167,415
Norwegian Krone 20,223 27 – – – – 20,250
Swedish Krona 78,642 18 – – – – 78,660
Swiss Franc 40,172 317 – – – – 40,489
Total 321,676 665 192 – (855) (8,549) 313,125

|  |  |  |  | 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
Swiss Franc 37,922 285 90 739 – – 39,036
Total 310,308 726 2,974 739 (4,391) (8,787) 301,569
* Par value excluding amortised Costs
If the value of Sterling had weakened by 5% (2023: 5%) against each of the currencies in the portfolio, the impact on the profit or
loss and the NAV would have been positive £16,084,000 (2023: positive £15,870,000). If the value of Sterling had strengthened
by 5% (2023: 5%) against each of the currencies in the portfolio, the impact on the profit or loss and the NAV would have been
negative £16,084,000 (2023: negative £14,358,000). These calculations are based on the foreign currency exposure balances as
at the respective balance sheet dates.
page 60 Montanaro European Smaller Companies Trust plc    Annual Report and Accounts 2024
## Notes to the Financial Statements continued
19 Credit Risk
Credit risk is the risk that a counterparty to a financial instrument will fail to discharge an obligation or commitment that it has
entered into with the Company. The Company has in place a monitoring procedure in respect of counterparty risk which is
reviewed on an ongoing basis. The carrying amounts of financial assets best represent the maximum credit risk exposure at the
balance sheet date.
The Company had the following categories of financial assets exposed to credit risk as at 31March:
2024 2023
£’000 £’000
Cash and cash equivalents 242 3,225
Due from brokers and accrued income 90 192
332 3,417
Credit risk arising on transactions with brokers relates to transactions awaiting settlement. Risk relating to unsettled transactions
is considered to be small due to the short settlement period involved and the financial stability and credit quality of the brokers
used, which are monitored on an ongoing basis by the Manager. The Manager also monitors the quality of service provided by
the brokers used to further mitigate this risk.
There were no significant concentrations of credit risk to counterparties at 31March 2024 or 31March 2023. No individual
investment exceeded 5.0% of the investment portfolio at 31March 2024 (2023: 5.0%).
A significant majority of the assets of the Company, including those that are traded on a recognised exchange, are held in
segregated accounts on behalf of the Company by The Bank of New York Mellon SA/NV (London Branch), the Company’s
custodian. Bankruptcy or insolvency of this or other custodians may cause the Company’s rights with respect to securities held by
the custodians to be delayed. The Board monitors the Company’s risk by reviewing the custodian’s internal control reports.
20 Liquidity Risk
The Company does not hold unlisted securities (2023: £nil). The Company’s listed securities are considered to be readily
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.
Liquidity risk is mitigated as the Company maintains sufficient cash to pay accounts payable and accrued expenses. As at
31March 2024, the cash position of the Company was £242,000 (2023: £3,225,000) and the Company has undrawn bank
facilities of £12,199,000 (2023: £8,748,000).
Montanaro European Smaller Companies Trust plc    Annual Report and Accounts 2024 page 61
20 Liquidity Risk continued
CONTRACTUAL MATURITY ANALYSIS FOR FINANCIAL LIABILITIES
Contractual maturities of the financial liabilities at the year end at undiscounted amounts, based on the earliest date on which
payment can be required, are as follows:

|  |  |  |  | Between |  |  | Between |  | Between |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  |  | Within |  | one and |  |  | three and |  | one and |  |  |
|  | one month |  | three months |  |  | twelve months |  |  | five years |  | Total |
| As at 31March 2024 |  | £’000 |  |  | £’000 |  |  | £’000 |  | £’000 | £’000 |

Liabilities:
Other creditors 754 – – – 754
Revolving credit facility 856 – – – 856
Loan and loan interest – – – 8,314 8,314
Total liabilities 1,610 – – 8,314 9,924

|  |  |  |  | Between |  |  | Between |  | Between |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  |  | Within |  | one and |  |  | three and |  | one and |  |  |
|  | one month |  | three months |  |  | twelve months |  |  | five years |  | 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
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
and dividends from their shareholdings in the Company. Further details are provided in the Directors’ Remuneration Report on
pages34 to 36.
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
free to pursue its own financial and operating policies and therefore, under the AIC SORP, the Manager is not considered to be a
related party.
page 62 Montanaro European Smaller Companies Trust plc    Annual Report and Accounts 2024
## AIFMD Disclosures (Unaudited)
Alternative Investment Fund Managers (“AIFM”) Directive (“AIFMD”)
In accordance with the AIFMD, information in relation to the Company’s leverage (as defined on page64). and the remuneration
of the Company’s AIFM, Montanaro Asset Management Limited, is required to be made available to investors. Detailed regulatory
disclosures including those on the AIFM’s remuneration policy are available on the Company’s website or from Montanaro Asset
Management Limited on request. The Company’s maximum and actual leverage levels at 31March 2024 are shown below:
Leverage exposure
Gross Commitment
method method
Maximum limit 200% 200%
Actual 102.95% 102.96%
For the purposes of the AIFMD, leverage is any method which increases the Company’s exposure, including the borrowing of cash
and the use of derivatives. It is expressed as a percentage of Company’s exposure to its NAV 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
the deduction of cash and cash equivalents and after certain hedging and netting positions are offset against each other.
The leverage limits are set by the AIFM and approved by the Board. The AIFM is also required to comply with the gearing
parameters set by the Board in relation to borrowings. Detailed regulatory disclosures to investors in accordance with the AIFMD
are contained on the AIFM’s website.
Montanaro European Smaller Companies Trust plc    Annual Report and Accounts 2024 page 63
## Alternative Performance Measures (“APMs”)
The Company uses the following APMs: Ongoing Charges (expressed as a percentage)
All operating costs expected to be incurred in the future and

| Dividends per Ordinary share | that are payable by the Company expressed as a proportion of |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- |
| Total dividends paid to shareholders in respect of the year | the average net assets of the Company over the reporting year. |  |  |  |  |  |  |
| ended 31 March 2024, comprising the interim dividend, paid | The costs of buying and selling investments are excluded, as |  |  |  |  |  |  |
| on 26 January 2024 of 0.225p and the final dividend, paid on | are interest costs, taxation, non-recurring costs and the costs |  |  |  |  |  |  |
| 16 September 2024 of 0.9p. | of buying back or issuing Ordinary shares. |  |  |  |  |  |  |
| Premium/(discount) | Ongoing charges calculation |  |  |  |  |  |  |
| If the share price of an investment trust is less than its NAV per |  |  |  | For the |  |  | For the |
| share, the shares are trading at a discount. If the share price |  |  | year ended |  |  | year ended |  |
|  |  | 31March 2024 |  |  | 31March 2023 |  |  |

is greater than the Net Asset Value per share, the shares are
£’000 £’000
trading at a premium.
Total expenditure (a) 2,982 2,917
As at 31March 2024, the NAV per share was 165.1p (2023:
Average Monthly net asset (b) 286,505 279,739
158.4p) and the share price was 142.5p (2023: 137.6p). The
Ongoing Charges (c=a/b) (c) 1.0% 1.0%
discount is therefore calculated at 13.7% (2023: discount 13.1%).
Portfolio turnover
Net Gearing Employed
Calculated using total sales proceeds as a percentage of the
Unlike open-ended investment companies, investment trusts
average monthly net assets during the year.
have the ability to borrow to invest. This term is used to
describe the level of borrowings that an investment trust has

|  |  |  | For the |  |  | For the |
| --- | --- | --- | --- | --- | --- | --- |
| undertaken, and is stated as a percentage of shareholders’ |  | year ended |  |  | year ended |  |
|  | 31March 2024 |  |  | 31March 2023 |  |  |

funds. The higher the level of borrowings, the higher the
gearing ratio. Average net assets (£’000) (a) 286,505 279,739
Sales (£’000) (b) 45,177 38,486
Net gearing is calculated as total debt, net of cash and cash
equivalents, as a percentage of the total shareholders’ funds. Portfolio turnover (b)/(a) 16% 14%
As at 31March 2024, interest bearing bank loans and revolving
credit facility were £9,329,000, (2023: £13,178,000) cash and
cash equivalents were £242,000 (2023: £3,225,000) and net
assets were £312,720,000 (2023: £299,975,000). As at 31March
2024, gearing is therefore equal to 2.9% (2023: 3.3%).
page 64 Montanaro European Smaller Companies Trust plc    Annual Report and Accounts 2024
## Alternative Performance Measures (“APMs”) continued
Capital Return – NAV and Share Price Returns
Capital returns measure the effect of any rise or fall in the share price or NAV, excluding any dividends paid.

| NAV Capital Return calculation as at 31March 2024 | Share Price Capital Return calculation as at 31March 2024 |
| --- | --- |
| NAV per share as at 31 March 2024 165.10p (a) | Share price as at 31 March 2024 142.50p (a) |
| NAV per share as at 31 March 2023 158.40p (b) | Share price as at 31 March 2023 137.60p (b) |
| NAV Capital Return 4.2% ((a-b)/b) | Share Price Capital Return 3.6% ((a-b)/b) |

Total Return – NAV and Share Price Returns
Total returns measure the effect of any rise or fall in the share price or NAV, plus dividends paid which are reinvested at the
prevailing NAV or share price on the ex-dividend date.

| NAV Total Return calculation as at 31March 2024 |  |  |  |  |  | Share price Total Return calculation as at 31March 2024 |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| NAV per share as at 31 March 2024 165.10p (c) |  |  |  |  |  | Share price as at 31 March 2024 142.50p (c) |  |  |  |  |  |  |
| NAV per share as at 31 March 2023 158.40p (d) |  |  |  |  |  | Share price as at 31 March 2023 137.60p (d) |  |  |  |  |  |  |
| Dividend adjustment factor (+1) 1.0067 (a) |  |  |  |  |  | Dividend adjustment factor (+1) 1.0076 (a) |  |  |  |  |  |  |
| Pre-Dividend Reinvestment Factor 1.0423 (b)(b=c/d) |  |  |  |  |  | Pre-Dividend Reinvestment Factor 1.0356 (b)(b=c/d) |  |  |  |  |  |  |
| NAV Total Return 4.9% ((a*b)-1) |  |  |  |  |  | Share Price Total Return 4.3% ((a*b)-1) |  |  |  |  |  |  |
| (a) Dividend Adjustment Factor |  |  |  |  |  | (a) Dividend Adjustment Factor |  |  |  |  |  |  |
|  |  |  | NAV at |  |  |  |  |  | Share price |  |  |  |
|  | Dividend XD |  | Dividend |  | NAV |  | Dividend XD |  | at Dividend |  |  | NAV |
| Dividend PPS |  | date | XD date | Multiplier |  | Dividend PPS |  | date |  | XD date | Multiplier |  |
| Interim dividend 0.225 1 Dec 2023 144.10p 0.0016 |  |  |  |  |  | Interim dividend 0.225 1 Dec 2023 123.00p 0.0018 |  |  |  |  |  |  |
| Final dividend 0.77 11 Aug 2023 151.50p 0.0051 |  |  |  |  |  | Final dividend 0.77 11 Aug 2023 132.30p 0.0058 |  |  |  |  |  |  |
| 0.0067 |  |  |  |  |  | 0.0076 |  |  |  |  |  |  |

Montanaro European Smaller Companies Trust plc    Annual Report and Accounts 2024 page 65
## Glossary of Terms
Alternative Investment Fund Managers Directive (“AIFMD”) Depositary
Issued by the European Parliament in 2012 and 2013, the Under the AIFMD rules applying from 22July 2014, the
Directive requires that all investment vehicles in the European Company must appoint a Depositary, whose duties in respect
Union, including investment trusts, must, with effect from of investments, cash and similar assets include: safekeeping;
22July 2014, appoint a Depositary and an Alternative verification of ownership and valuation; and cash monitoring.
Investment Fund Manager (“AIFM”). The board of directors of The Depositary has strict liability for loss of any investments or
an investment trust, nevertheless, remains fully responsible other assets where it has safekeeping duties. The Depositary’s
for all aspects of the Company’s strategy, operations and oversight duties include, but are not limited to, oversight
compliance with regulations. of share buybacks, dividend payments and adherence to
investment limits. The Company’s Depositary is The Bank of
Association of Investment Companies (“AIC”) New York Mellon (International) Limited.
The Association of Investment Companies is the trade body for
Closed-end Investment Companies (www.theaic.co.uk). Dividend
The income from an investment. Some investment trusts
Benchmark pay dividends on a quarterly or monthly basis. The Company
This is a measure against which an investment trust’s currently pays 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
defined selection of companies listed in European smaller divided by net assets.
company stock markets and gives an indication of how those
markets have performed in any period. International Accounting Standards
International Accounting Standards in conformity with the
Closed-end Investment Company requirements of the Companies act 2006.
A company, including an investment trust, with a fixed issued
ordinary share capital which is traded on an exchange at Investment Manager
a price not necessarily related to the NAV of the company The Company’s investment manager is Montanaro Asset
and where shares can only be issued or bought back by the Management Limited. The responsibilities and remuneration of
company in certain circumstances. This contrasts with an the Manager are set out in the Business Model and Strategy on
open-ended investment company, which has units not traded page15 and in the Directors’ Report on page24.
on an exchange but issued or bought back from investors at a
price directly related to the NAV. Investment Trust
A Closed-end investment company which satisfies the
Custodian requirements of Section 1158 of the Corporation Tax Act 2010.
A specialised financial institution responsible for safeguarding, 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
Company’s Custodian is The Bank of New York Mellon SA/NV
(London Branch).
page 66 Montanaro European Smaller Companies Trust plc    Annual Report and Accounts 2024
## Glossary of Terms continued
Leverage Net Asset Value (“NAV”) per Ordinary share
As defined under the AIFMD rules, leverage is any method This is calculated as the net assets of an investment trust
by which the exposure of an AIF is increased through divided by the number of Ordinary shares in issue, excluding
borrowing of cash or securities or leverage embedded in those shares held in treasury.
derivative positions. Leverage is broadly equivalent to gearing,
but is expressed as a ratio between the assets (excluding Ordinary shares
borrowings) and the net assets (after taking account of The main type of equity capital issued by conventional
borrowings). Under the gross method, exposure represents investment trusts. Shareholders are entitled to their share of
the sum of the Company’s positions after deduction of cash both income, in the form of dividends paid by the investment
and cash equivalents, without taking account of any hedging trust, and any capital growth. The Company has only Ordinary
or netting arrangements. Under the commitment method, shares in issue.
exposure is calculated without the deduction of cash and cash
equivalents and after certain hedging and netting positions are Share Price
offset against each other. The value of a share at a point in time as quoted on a stock
exchange. The shares of The Company are quoted on the Main
Marked to Market Market of the London Stock Exchange.
Accounting for the fair value of an asset or liability that can
change over time and reflects its current market value rather Statement of Recommended Practice (“SORP”)
than its book cost. Statement of Recommended Practice “Financial Statements
of Investment Trust Companies and Venture Capital Trusts”
Market Capitalisation issued by the AIC.
The stock market value of a company as determined by
multiplying the number of shares in issue, excluding those Total Assets
shares held in Treasury, by the market price of the shares. This is calculated as the value of the investments and other
assets of an investment trust, plus cash and debtors.
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.
Montanaro European Smaller Companies Trust plc    Annual Report and Accounts 2024 page 67
## Shareholder Information
Source of Further Information
Your Board is committed to shareholder engagement. To receive regular email news and updates about the Company please
visit: www.montanaro.co.uk/trust/mesct.
Useful information on the Company, such as investor updates and half year and annual reports can also be found on the website.
Key Dates
31March 2024 Company year end
5September 2024 Annual General Meeting
16September 2024 Payment of final dividend
November 2024 Interim results announced
January 2025 Payment of expected interim dividend
Dividends
Shareholders who wish to have dividends paid directly into a bank account rather than by cheque to their registered address can
complete a Mandate Form for this purpose. Mandates can be obtained from Equiniti Limited on request at the address shown on
page77.
Non-Mainstream Pooled Investment (“NMPI”) Status
The Company currently conducts its affairs so that the shares it issues can be recommended by financial advisers to retail
investors in accordance with the FCA’s rules in relation to non-mainstream investment products. It is intended to continue to do
so for the foreseeable future. The Company’s securities are excluded from the FCA’s restrictions which apply to non-mainstream
investment products because they are securities in a UK listed investment trust.
Registrar Enquiries
The register for the Ordinary shares is maintained by Equiniti Limited. In the event of queries regarding your holding, please
contact the registrar. You can contact the registrar by calling +44 (0)371 384 2030. Calls are charged at the standard geographic
rate and will vary by provider. Calls outside the United Kingdom will be charged at the applicable international rate. Lines are
open between 09:00 – 17:30, Monday to Friday excluding public holidays in England and Wales. Or alternatively you may contact
the registrar at shareholderenquiries@equniti.com.
Share Price and NAV
The Company’s Ordinary shares are listed on the main market of the London Stock Exchange. The market price of these shares
can be found in the London Stock Exchange Daily Official List. The Company’s NAV is published daily and released through the
London Stock Exchange’s Regulatory News Service and is available on the Company’s website.
Common Reporting Standard
Under the Common Reporting Standard financial institutions, including investment trust companies, are required to provide
personal information to HMRC on investors who meet certain criteria set out in the legislation. On an annual basis, the Company
will provide information to the local tax authority on the tax residencies of non-UK based certificated shareholders and corporate
entities. The local tax authority may exchange this information with the tax authorities of another country or countries in which
the shareholder may be a tax resident, where those countries, or the tax authorities in those countries, have entered into
agreements to exchange financial account information. New shareholders, excluding those whose shares are held in CREST,
entered on the Company’s share register, will be sent a certification form for the purposes of collecting this information.
Share Dealing
Investors wishing to purchase more shares in the Company or to sell all or part of their existing holding may do so through their
financial adviser, stockbroker or, if financial advice is not required, through a fund supermarket or any other execution-only
platform. Further information can be found at: www.montanaro.co.uk/trust/mesct.
page 68 Montanaro European Smaller Companies Trust plc    Annual Report and Accounts 2024
## Shareholder Information continued
Data Protection
The Company is committed to protecting and respecting the confidentiality, integrity and security of the personal data it holds.
For information on the processing of personal data, please see the privacy policy on the website at www.montanaro.co.uk.
Nominee Code
Where shares are held in a nominee company name, the Company undertakes:
• to provide the nominee company with multiple copies of shareholder communications, so long as an indication of quantities
has been provided in advance;
• to allow investors holding shares through a nominee company to attend general meetings, provided the correct authority
from the nominee company is available; and
• nominee companies are encouraged to provide the necessary authority to underlying shareholders to attend the Company’s
general meetings.
AIC
The Company is a member of the Association of Investment Companies.
Stocks and Shares Individual Savings Accounts (“ISA”)
ISAs are a tax-efficient method of investment and the Company’s shares are eligible investments for inclusion in an ISA.
Packaged Retail and Insurance-Based Investment Products (“PRIIPS”) Regulation (the “Regulation”)
Shares issued by investment trusts fall within the scope of the European Union’s PRIIPs Regulation. Investors should be aware
that the PRIIPs Regulation requires the AIFM, as PRIIPs manufacturer, to prepare a key information document (“KID”) in respect
of the Company. This KID must be made available, free of charge, to EEA retail investors prior to them making any investment
decision. The Company is not responsible for the information contained in the KID and investors should note that the procedures
for calculating the risks, costs and potential returns are prescribed by law. The figures in the KID may not reflect the expected
returns for the Company and anticipated performance returns cannot be guaranteed. The PRIIPs KID in respect of the Company
can be found at: www.montanaro.co.uk/trust/mesct
Warning to Shareholders – Beware of Share Fraud
Fraudsters use persuasive and high-pressure tactics to lure investors into scams. They may offer to sell shares that turn out to be
worthless or non-existent, or to buy shares at an inflated price in return for an upfront payment.
If you receive unsolicited investment advice or requests:
• Check the Financial Services Register at www.fca.org.uk to see if the person or firm contacting you is authorised by the
Financial Conduct Authority (“FCA”).
• Call the FCA on 0800 111 6768 if the firm does not have contact details on the Register or you are told they are out of date.
### • Search the list of unauthorised firms to avoid at www.fca.org.uk/scams.
### • Consider that if you buy or sell shares from an unauthorised firm you will not have access to the Financial Ombudsman
Service or Financial Services Compensation Scheme.
### • Think about getting independent financial and professional advice.
If you are approached by fraudsters please tell the FCA by using the share fraud reporting form at www.fca.org.uk/scams where
you can find out more about investment scams. You can also call the FCA Consumer Helpline on 0800 111 6768.
If you have already paid money to share fraudsters you should contact Action Fraud on 0300 123 2040.
Montanaro European Smaller Companies Trust plc    Annual Report and Accounts 2024 page 69
## Notice of Annual General Meeting
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.
Notice is hereby given that the Annual General Meeting of Montanaro European Smaller Companies Trust plc (the “Company”)
will be held at Montanaro Asset Management, 53 Threadneedle Street, London, EC2R 8AR, on Thursday, 5September 2024 at
11.00am for the purposes of considering and, if thought fit, passing the following Resolutions, of which Resolutions 1 to 9 will be
proposed as Ordinary Resolutions and Resolutions 10 and 11 will be proposed as Special Resolutions.
ORDINARY RESOLUTIONS
RESOLUTION 1 – ANNUAL REPORT AND ACCOUNTS
That the Annual Report and Accounts of the Company for the year ended 31March 2024 be received.
RESOLUTION 2 – ANNUAL REPORT ON DIRECTORS’ REMUNERATION
That the Annual Report on Directors’ Remuneration for the year ended 31March 2024 be approved.
RESOLUTION 3 – FINAL DIVIDEND
That a final dividend of 0.9p per Ordinary share be declared.
RESOLUTION 4 – RE-ELECTION OF DIRECTOR
That Mr R M Curling, who retires annually, be re-elected as a Director.
RESOLUTION 5 – RE-ELECTION OF DIRECTOR
That Ms C A Roxburgh, who retires annually, be re-elected as a Director.
RESOLUTION 6 – RE-ELECTION OF DIRECTOR
That Mr G Neilly, who retires annually, be re-elected as a Director.
RESOLUTION 7 – RE-APPOINTMENT OF AUDITORS
That PricewaterhouseCoopers LLP be re-appointed as the Company’s Auditors, to hold office from the conclusion of this Meeting
until the conclusion of the next general meeting at which accounts are laid before the Company.
RESOLUTION 8 – AUDITOR’S REMUNERATION
That the Directors be authorised to determine the Auditor’s remuneration.
page 70

Montanaro European Smaller Companies Trust plc Annual Report and Accounts 2024

# Notice of Annual General Meeting continued

RESOLUTION 9 – AUTHORITY TO ALLOT SHARES

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 unconditionally authorised pursuant to and in accordance with section 551 of the Companies Act 2006 to exercise all the 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 £947,138, provided that this authority shall expire at the conclusion of the Annual General Meeting of the Company to be held in 2025 or, if earlier, on 30 September 2025 save that the Company may before such expiry make an offer or enter into an agreement which would or might require shares to be allotted, or rights to subscribe for or to convert securities into shares to be granted, after such expiry and the Board may allot shares or grant such rights in pursuance of such an offer or agreement as if the authority conferred hereby had not expired. The Directors will use this authority when it is in the best interests of the Company to issue Ordinary shares for cash and will only issue new shares at a price representing a premium to the NAV per share at the time of issuance.

SPECIAL RESOLUTIONS

RESOLUTION 10 – AUTHORITY TO ALLOT SHARES OTHER THAN ON A PRE-EMPTIVE BASIS

That, subject to the passing of Resolution 9 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 (the “Board”) be and is hereby generally empowered pursuant to sections 570 and 573 of the Companies Act 2006 (the “Act”) to allot equity securities (within the meaning of section 560 of the Act) (including the grant of rights to subscribe for, or to convert any securities into, Ordinary shares of 5 pence each in the capital of the Company (“Ordinary shares”)) wholly for cash either pursuant to the authority conferred on them by such Resolution 9 or by way of a sale of Treasury shares (within the meaning of section 560(3) of the Act) as if section 561(1) of the Act did not apply to any such allotment or sale, provided that this power shall be limited to the allotment of equity securities and the sale of Treasury shares:

(i) in connection with a rights issue, open offer or other pre-emptive offer in favour of the holders of Ordinary shares who are on the register of members on a date fixed by the Board where the equity securities respectively attributable to the interests of all such holders are proportionate (as nearly as may be practicable) to the respective numbers of Ordinary shares held by them on that date (subject to such exclusions or other arrangements in connection with the rights issue, open offer or other offer as the 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 £947,138, and shall expire (unless previously renewed, varied or revoked by the Company in general meeting) at the conclusion of the Annual General Meeting of the Company to be held in 2025 or, if earlier, on 30 September 2025 save that the Company may before such expiry make an offer or agreement which would or might require equity securities to be allotted after such expiry and the Board may allot equity securities in pursuance of such an offer or agreement as if the authority conferred hereby had not expired. This power 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).
Montanaro European Smaller Companies Trust plc    Annual Report and Accounts 2024 page 71
RESOLUTION 11 – AUTHORITY TO BUYBACK SHARES
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 section
701 of the Companies Act 2006 (the “Act”) to make one or more market purchases (as defined in section 693(4) of the Act) of
ordinary shares of 5pence each in the capital of the Company (“Ordinary shares”) on such terms and in such manner 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% 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) 105per cent of the average of the market value of an Ordinary share for the five business days immediately 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) unless previously renewed, varied or revoked, this authority shall expire at the conclusion of the Annual General Meeting
of the Company to be held in 2025 or, if earlier, on 30September 2025 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
JUNIPER PARTNERS LIMITED
Company Secretary
20 June 2024
Registered office:
28 Walker Street
Edinburgh EH3 7HR
page 72

Montanaro European Smaller Companies Trust plc Annual Report and Accounts 2024

# Notice of Annual General Meeting continued

## Explanation of Notice of Annual General Meeting

### Resolution 1 – To receive the Annual Report and Financial Statements

The Directors are required to present the financial statements, Strategic Report, Directors' Report and Auditor's Report to the meeting. These are contained in the Company's Annual Report and Accounts for the year ended 31 March 2024 (the "Annual Report"). A resolution to receive the financial statements, together with the Strategic Report, Directors' Report and the Auditor's Report on those accounts is included as an ordinary resolution.

### Resolution 2 – Remuneration Report

An advisory resolution to approve the Directors' Remuneration Report (set out in the Annual Report) is included.

### Resolution 3 – Final dividend

The Board proposes a final dividend of 0.9 pence per share in respect of the year ended 31 March 2024. If approved, the recommended final dividend will be paid on 16 September 2024 to all ordinary shareholders who are on the register of members on 16 August 2024. The shares will be marked ex dividend on 15 August 2024.

### Resolutions 4 to 6 – Re-election of Directors

In line with the recommendations of the 2019 AIC Corporate Governance Code, all Directors of the Company are required to retire and offer themselves for re-election at each AGM. In accordance with this requirement, Mr Curling, Ms Roxburgh and Mr Neilly will retire and offer themselves for re-election as Directors.

All of the Directors seeking re-election are recommended by the Board for re-election. Full biographies of all of the Directors are set out in the Annual Report on page 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 7 and 8 – Re-appointment and remuneration of Auditor

At each meeting at which the Company's financial statements are presented to its members, the Company is required to appoint an auditor to serve until the next such meeting. The Board, on the recommendation of the Audit Committee, recommends the re-appointment of PricewaterhouseCoopers LLP as Auditor to the Company. The Auditor's re-appointment will be proposed to the AGM as Resolution 7. Resolution 8 authorises the Directors to fix the Auditor's remuneration.

### Resolution 9 – Authority to allot ordinary shares

Resolution 9 authorises the Board to allot Ordinary shares generally and unconditionally in accordance with Section 551 of the Companies Act 2006 (the "Act") up to an aggregate nominal value of £947,138, representing approximately 10% of the issued Ordinary share capital at the date of the Notice, excluding shares held in Treasury. This authority shall expire at the next AGM.

### Resolution 10 – Authority to disapply pre-emption rights

Resolution 10 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 9 (being in respect of Ordinary shares up to an aggregate nominal value of £947,138, representing approximately 10% of the Company's issued Ordinary share capital, excluding Treasury shares, as at the date of the Notice). This authority shall expire at the next AGM.

The Directors will only allot new shares pursuant to the authorities proposed to be conferred by Resolutions 9 and 10 if they believe it is advantageous to the Company's shareholders to do so. The Board's policy regarding the issue of shares from Treasury is described on page 27.
Montanaro European Smaller Companies Trust plc    Annual Report and Accounts 2024 page 73
Resolution 11 – Purchase of own shares
Resolution 11 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% 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 of the average of the market value of an Ordinary shares for the five business days immediately preceding the day on
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. The minimum price which may be paid for each Ordinary share is £0.05.
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 transaction must be
value enhancing for shareholders and the Board will take into consideration the effect of the buyback on the liquidity of the
Company’sshares.
This authority shall expire at the next AGM, when a resolution to renew the authority will be proposed.
page 74 Montanaro European Smaller Companies Trust plc    Annual Report and Accounts 2024
## Notice of Annual General Meeting continued
Notes
1. Attending the Annual General Meeting in Person
If you wish to attend the Annual General Meeting in person, you should arrive at the venue for the Annual General Meeting in
good time to allow your attendance to be registered. It is advisable to have some form of identification with you as you may be
asked to provide evidence of your identity to the Company’s registrar, Equiniti Limited (the “Registrar”), prior to being admitted to
the Annual General Meeting.
2. Appointment of Proxies
Members are entitled to appoint one or more proxies to exercise all or any of their rights to attend, speak and vote at the Annual
General Meeting. A proxy need not be a member of the Company but must attend the Annual General Meeting to represent a
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 (not
the Chairman of the Annual General Meeting) and give their instructions directly to them.
Members can only appoint more than one proxy where each proxy is appointed to exercise rights attached to different shares.
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, Monday to Friday excluding public holidays in England and Wales. If calling from outside of the UK, please ensure the
country code is used. A member may instruct their proxy to abstain from voting on any resolution to be considered at the
meeting by marking the ‘Abstain’ option when appointing their proxy. It should be noted that an abstention is not a vote in law
and will not be counted in the calculation of the proportion of votes ‘For’ or ‘Against’ the resolution.
The appointment of a proxy will not prevent a member from attending the Annual General Meeting and voting in person if he or
she wishes.
A person who is not a member of the Company but who has been nominated by a member to enjoy information rights does not
have a right to appoint any proxies under the procedures set out in these notes and should read note 8 below.
It is possible for you to submit your proxy votes online by visiting Equiniti’s Shareview website at www.shareview.co.uk and logging
in to your Shareview Portfolio.
Click on the link to vote and follow the on-screen instructions. If you have not yet registered for a Shareview Portfolio, please go
to www.shareview.co.uk and enter the requested information. It is important that you register for a Shareview Portfolio to allow
enough time to complete the registration and authentication processes. For an electronic proxy appointment to be valid, the
Registrar must receive it no later than 11.00am on 3September 2024.
Should you complete your Form of Proxy electronically and then post a hard copy, the Form that arrives last will be counted to
the exclusion of instructions received earlier, whether electronic or postal. Please refer to the terms and conditions of the service
on the website.
3. Appointment of a Proxy Using a Proxy Form
A proxy form for use in connection with the Annual General Meeting is enclosed. To be valid, any proxy form or other instrument
appointing a proxy, together with any power of attorney or other authority under which it is signed or a certified copy thereof,
must be received by post or (during normal business hours only) by hand by the Registrar at FREEPOST RTHJ-CLLL KBKU, Equiniti,
Aspect House, Spencer Road, Lancing BN99 6DA no later than 48 hours (excluding non-working days) before the time of the
Annual General Meeting or any adjournment of that meeting.
If you do not have a proxy form and believe that you should have one, or you require additional proxy forms, please contact the
Registrar on +44 (0) 371 384 2461. Lines are open from 8.30am to 5.30pm, Monday to Friday excluding public holidays in England
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.
Montanaro European Smaller Companies Trust plc    Annual Report and Accounts 2024 page 75
In order for a proxy appointment or instruction made using the CREST service to be valid, the appropriate CREST message (a
“CREST Proxy Instruction”) must be properly authenticated in accordance with Euroclear UK & Ireland Limited’s specifications,
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 proxy,
must in order to be valid, be transmitted so as to be received by the Registrar (ID RA19) no later than 48 hours (excluding non-
working days) before the time of the Annual General Meeting or any adjournment of that meeting. For this purpose, the time of
receipt will be taken to be the time (as determined by the timestamp applied to the message by the CREST Application Host) from
which the Registrar is able to retrieve the message by enquiry to CREST in the manner prescribed by CREST.
After this time any change of instructions to proxies appointed through CREST should be communicated to the appointee
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 timings and limitations will, therefore, apply in relation to the input of CREST Proxy Instructions. It is the responsibility of
the CREST 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 to 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.
The Company may treat as invalid a CREST Proxy Instruction in the circumstances set out in Regulation 35(5)(a) of the
Uncertificated Securities Regulations 2001.
If you are an institutional investor, you may be able to appoint a proxy electronically via the Proxymity platform, a process which
has been agreed by the Company and approved by the Registrar. For further information regarding Proxymity, please go to
www.proxymity.io. Your proxy must be lodged by 11.00am on 3September 2024 in order to be considered valid. Before you can
appoint a proxy via this process you will need to have agreed to Proxymity’s associated terms and conditions. It is important that
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
names of joint holders appear in the Company’s register of members in respect of the joint holding (the first named being the
most senior).
6. Corporate Representatives
Any corporation which is a member can appoint one or more corporate representatives. Members can only appoint more than
one corporate representative where each corporate representative is appointed to exercise rights attached to different shares.
Members cannot appoint more than one corporate representative to exercise the rights attached to the same share(s).
7. Entitlement to Attend and Vote
To be entitled to attend and vote at the Annual General Meeting (and for the purpose of determining the votes they may cast),
members must be registered in the Company’s register of members at 6.30pm on 3September 2024 (or, if the Annual General
Meeting is adjourned, at 6.30pm on the day two days prior to the adjourned meeting). Changes to the register of members
after the relevant deadline will be disregarded in determining the rights of any person to attend and vote at the Annual General
Meeting.
8. Nominated Persons
Any person to whom this notice is sent who is a person nominated under section 146 of the Companies Act 2006 to enjoy
information rights (a “Nominated Person”) may, under an agreement between him/her and the member by whom he/ she
was nominated, have a right to be appointed (or to have someone else appointed) as a proxy for the Annual General Meeting.
Nominated Person has no such proxy appointment right or does not wish to exercise it, he/she may, under any such agreement,
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
Information regarding the Annual General Meeting, including information required by section 311A of the 2006 Act, and a copy of
this notice of Annual General Meeting is available from www.montanaro.co.uk.
page 76

Montanaro European Smaller Companies Trust plc Annual Report and Accounts 2024

# Notice of Annual General Meeting continued

## 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 25 July 2024, 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 19 June 2024 (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. Each Ordinary share (other than those held in Treasury) carries one vote. The total voting rights in the Company as at 19 June 2024 were 189,427,600 votes.

## 13. Notification of Shareholdings

Any person holding 3% 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, Juniper Partners Limited at 28 Walker Street, Edinburgh EH3 7HR. 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.
Montanaro European Smaller Companies Trust plc    Annual Report and Accounts 2024
## Advisers

| Investment Manager and Alternative Investment | Stockbroker |
| --- | --- |
| FundManager (“AIFM”) | CAVENDISH FINANCIALS PLC |
| MONTANARO ASSET MANAGEMENT LIMITED | One Bartholomew Close |
| 53 Threadneedle Street | London EC1A 7BL |

London EC2R 8AR

| Tel: 020 7448 8600 | Depositary |
| --- | --- |
| Fax: 020 7448 8601 | THE BANK OF NEW YORK MELLON |
| enquiries@montanaro.co.uk | (INTERNATIONAL) LIMITED |
| www.montanaro.co.uk | One Canada Square |

London E14 5AL
Administrator

| JUNIPER PARTNERS LIMITED | Custodian |
| --- | --- |
| 28 Walker Street | BANK OF NEW YORK MELLON SA/NV |
| Edinburgh EH3 7HR | One Canada Square |
| Tel: 0131 378 0500 | London E14 5AL |
| Company Secretary | Bankers |
| JUNIPER PARTNERS LIMITED | ING BANK N.V., LONDON BRANCH |
| 28 Walker Street | 60 London Wall |
| Edinburgh EH3 7HR | London EC2M 5TQ |

Tel: 0131 378 0500
Email: cosec@junipartners.com Independent Auditors
PRICEWATERHOUSECOOPERS LLP

| Registered Office | Atria One |
| --- | --- |
| 28 Walker Street | 144 Morrison Street |
| Edinburgh EH3 7HR | Edinburgh EH3 8EX |
| Registrar | Solicitor |
| EQUINITI LIMITED | DICKSON MINTO W.S. |
| Aspect House | 16 Charlotte Square |
| Spencer Road | Edinburgh EH2 4DF |

Lancing
West Sussex BN99 6DA
Registrar’s Shareholder Helpline
Tel: +44 (0)371 384 2030*
Registrar’s Broker Helpline
Tel: 0906 559 6025
* Lines are open 8.30am to 5.30pm, Monday to Friday.
Montanaro European Smaller Companies Trust plc
Registered in Scotland No. SC074677
An investment company as defined under Section 833
of the Companies Act 2006.
Montanaro European Smaller Companies Trust plc
28 Walker Street
Edinburgh EH3 7HR
Tel: 020 7448 8600
Fax: 020 7448 8601
E-mail: enquiries@montanaro.co.uk
Website: www.montanaro.co.uk