## European Smaller Companies Trust plc ## For your Trust, ## we handpick the very best ## of Europe’s Smaller Companies ## Annual Report and Accounts 2025 ## Contents Reasons to Invest 1 Highlights 2 Strategic Report Chairman’s Statement 3 Manager’s Report 7 ESG Report 10 Top 10 H oldings 12 Twenty Largest Holdings 14 Portfolio Analysis 15 Historic Record 16 Business Model and Strategy 17 Principal and Emerging Risks 19 Directors’ Duties 23 Governance Board of Directors 27 Directors’ Report 29 Corporate Governance Statement 33 Report of the Audit Committee 36 Directors’ Remuneration Report 39 Statement of Directors’ Responsibilities 42 Financial Report Independent Auditors’ Report 43 Statement of Comprehensive Income 50 Balance Sheet 51 Statement of Changes in Equity 52 Statement of Cash Flows 53 Notes to the Financial Statements 54 Other Information AIFMD Disclosures 67 Alternative Performance Measures 68 Glossary of Terms 70 Shareholder Information 72 Notice of Annual General Meeting 74 Advisers 82 This document is important andrefersto certain matters on whichvoting action is required. Shareholders who are in any doubt as to what action to take should consult an appropriate independent adviser immediately. If any shareholder has sold or transferred all their shares in the Company, they should pass this document to the purchaser or transferee or to the person through whom the transfer or sale was effected for onward transmission to the transferee or purchaser. Montanaro European Smaller Companies Trust plc    Annual Report and Accounts 2025 page 1 ## Reasons to Invest | Strong track record | Attractive asset class | | --- | --- | | Montanaro has managed your Trust since | Higher returns historically +4.0% p.a. | | September 2006, outperforming by | (Dec 2000 – Mar 2025) for Europe | | 166.8% since launch | ex-UK Small versus Large Cap | | SmallCap specialists | Quality growth portfolio | | --- | --- | | One of the largest, most experienced | 49% of our companies have net cash; no | | specialist teams in Europe | loss makers; strong EPS growth | | Good timing | Active discount control | | --- | --- | | European SmallCap has rarely been so | Regular tender offers, buybacks and lower | | cheap;the Trust’s P/E ratio has nearly | fees enhance liquidity and are designed to | | halved from its peak in August 2021 | reduce the volatility of the discount | ## Consistently uncovering hidden gems 25 holdings currently in the portfolio have achieved multi-bagger* status ## 1 company has soared over 20x ## 2 companies have grown over 15x ## 8 companies have delivered returns of over 5x Top multi-bagger with a Total return Total return total return of 2128% of 1647% of 1476% * A multi-bagger is an investment that has increased in value by multiple times its original purchase price. Total return figures are based on initial purchase price. Data as at 31 March 2025. Figures relate to current holdings only and exclude any past holdings that may have achieved multi-bagger status. page 2 Montanaro European Smaller Companies Trust plc Annual Report and Accounts 2025 ## Highlights for the year ended 31 March 2025 ### Investment Objective 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. ### Performance | Total return % | 1 year | 3 year | 5 year | 10 year | MAM* | | --- | --- | --- | --- | --- | --- | | Net Asset Value (“NAV”) per share^{(1)} | (1.1%) | (3.9%) | 74.7% | 208.3% | 473.0% | | Share Price^{(1)} | 5.1% | (9.6%) | 74.6% | 215.5% | 475.3% | | Benchmark**^{(2)} | 1.3% | 3.8% | 70.2% | 120.7% | 306.2% | | Capital return % | 1 year | 3 year | 5 year | 10 year | MAM* | | NAV per share^{(1)} | (1.9%) | (5.5%) | 69.3% | 183.5% | 373.9% | | Share Price^{(1)} | 4.2% | (11.6%) | 68.8% | 188.3% | 365.2% | | Benchmark**^{(2)} | (1.1%) | (3.3%) | 53.8% | 82.0% | 184.4% | Sources: Morningstar Direct, Association of Investment Companies (“AIC”), Montanaro Asset Management (“MAM”). | As at 31 March | 2025 | 2024 | % change | | --- | --- | --- | --- | | Ordinary share price | **148.5p** | 142.5p | 4.2 | | NAV per Ordinary share | **162.0p** | 165.1p | (1.9) | | Discount to NAV^{(1)} | **(8.3%)** | (13.7%) | | | Net assets** (£’000s) | **291,508** | 312,720 | (6.8) | | Market capitalisation** (£’000s) | **267,188** | 269,934 | (1.0) | | Net gearing employed^{(1)} | **2.1%** | 2.9% | | | For the year ended 31 March | 2025 | 2024 | % change | | --- | --- | --- | --- | | Revenue return per Ordinary share | **1.50p** | 1.42p | 5.6 | | Dividend per Ordinary share^{(1)} | **1.26p** | 1.125p | 12.0 | | Ongoing charges^{(1)} | **1.0%** | 1.0% | | | Portfolio turnover^{(1)} | **14%** | 16% | | * From 5 September 2006, when MAM was appointed as Investment Manager. ** Details provided in the Glossary on pages 70 and 71. (1) Refer to Alternative Performance Measures on page 68. (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). Montanaro European Smaller Companies Trust plc Annual Report and Accounts 2025 page 3 # Chairman's Statement For the year ended 31 March 2025 ![img-0.jpeg](img-0.jpeg) "Investor sentiment has shifted towards European equities this year as they have seen improved performance. They remain under-owned and still appear attractively valued." # Results The year saw a continuation of the trend seen since the end of 2021, namely a significant style headwind partially offset by the positive influence of stock selection. Montanaro Asset Management ("Montanaro", "MAM" or the "Manager") seeks to invest exclusively in high quality growing companies based on the belief that over the long term, a company's ability to compound earnings and cash flows is the primary driver of investment returns. However, in the short term, factors such as investor flows, political developments and macroeconomic fluctuations can temporarily overshadow underlying fundamentals. The Net Asset Value ("NAV") declined by 1.9% to 162.0p per share during the financial year ended 31 March 2025. In comparison, the benchmark (the MSCI Europe ex-UK Small Cap Index) rose by 1.3% (in Sterling terms). The share price (with dividends reinvested) gained 5.1% as the discount to NAV tightened from -13.7% to -8.3%. Whilst shorter term performance has been somewhat disappointing, Montanaro have a long-term investment approach. Over 5 and 10 years, your Company has delivered NAV total returns of 74.7% and 208.3%, outperforming the benchmark by 4.5% and 87.6% respectively. Since Montanaro were appointed in September 2006, the NAV total return has been 473.0%, 166.8% ahead of the benchmark (equivalent to an average annual outperformance of 2.0%). # Earnings and Dividends Revenue earnings per share rose to 1.50p in the year (2024: 1.42p). A first interim dividend of 0.3p per share was paid on 22 January 2025. A second interim dividend of 0.96p will be paid on 7 August 2025 to shareholders on the register on 27 June 2025. This will bring total dividends for the year to 1.26p per share, an increase of 12.0%. The Company holds substantial reserves available for distribution, which gives the Board the ability to smooth any short-term income volatility. # Strategic Initiatives On 27 March 2025, the Board announced three strategic initiatives designed to strengthen the investment proposition and deliver value for all shareholders: 1. Regular tender offers targeted at improving liquidity; 2. An active share buyback policy aimed at reducing the volatility of the discount; and 3. A reduction in the management fee. Further details of each of the initiatives are set out in the Business Model and Strategy Section of the Annual Report. # Introduction of Regular Tenders Conscious of shareholders' desire to improve liquidity, the Board has proposed a new initiative to offer shareholders the opportunity to tender shares to the Company twice a year, around the Interim and Final Results announcements. Shares will be bought back at a 5% discount to NAV, reflecting the higher transaction costs associated with smaller companies. Each tender will be capped at 5% of shares in issue to protect existing shareholders and manage portfolio liquidity. Shareholder approval for the first tender offer was granted on 15 May 2025 and the first tender offer is expected to take place in Autumn 2025. # Share Buybacks and Treasury Shares During the year, the Company bought back 9,502,921 Ordinary shares. As a result, the Company held 9,502,921 Ordinary shares in Treasury as at 31 March 2025. Buying back Ordinary shares at a discount is accretive to the NAV per share. As such, the buybacks conducted during the year contributed an uplift of 0.45% to the NAV per share. Since the end of the year, the Company continued to buy back Ordinary shares and substantially utilised the authority granted at the 2024 AGM. Accordingly, the Board secured additional authority at the General Meeting convened in May 2025 to cover the period until the next AGM. Our stated policies on share buybacks and share issuances are set out on pages 18 and 32. The Board is seeking to renew the Company's share buyback and issuance authorities at the forthcoming AGM. page 4 Montanaro European Smaller Companies Trust plc Annual Report and Accounts 2025 # Chairman's Statement continued ### *Management Fee* The Manager has agreed to a reduction in management fees from 0.90% per annum to 0.825% per annum of the market capitalisation of the Company up to £500 million and from 0.75% to 0.70% per annum between £500 million and £750 million. Above £750 million, the fee remains unchanged at 0.65% per annum. This reduction in fees took effect on 1 April 2025, and is the second fee reduction which we have negotiated in the past four years. As a demonstration of their confidence in the Trust, Montanaro has continued to invest in the Company and now hold 8.0% of the Company's shares. ### **Environmental, Social and Corporate Governance ("ESG")** Montanaro believes that strong ESG practices are closely linked to a company's ability to create long-term value for its shareholders. ESG considerations are therefore embedded within their definition of "Quality" and have been a fundamental part of their investment process for many years. The ESG Report can be found on pages 10 and 11 of this Annual Report. It outlines developments in Montanaro's approach to ESG, their ongoing commitment and their engagement with investee companies. ### **Borrowings** The Board, in consultation with the Manager regularly reviews the gearing strategy of the Company and approves any gearing facility. Gearing amplifies the returns from underlying profits or losses generated by the investment portfolio. The Board has set a maximum limit on borrowing (net of cash) of 30% of shareholders' funds at the time of borrowing. At the end of the financial year, the Company had borrowings (net of cash) of 2.1% compared to 2.9% at the beginning of the year. ### **Board Succession** As part of our normal succession planning process, I intend to retire as Chairman and from the Board on 31 December 2025. This will be after we have conducted our first bi-annual tender. We are very fortunate that Gordon Neilly has agreed to step into the role of Chairman and with his extensive experience of the investment trust sector there can be no better person to lead our Trust in the future. ### **Communication with Shareholders** Over the past few years, the composition of our shareholder base has changed significantly with an increasing number of individual investors coming onto the register via investment platforms. We are keen to encourage an open dialogue to keep all shareholders up to date with key developments. Our website – www.montanaro.co.uk/trust/mesct – is continually updated with factsheets, reports, presentations, webinar recordings and commentaries as well as more details about the Manager, investment philosophy and process. We encourage shareholders to visit regularly and welcome any feedback and suggestions. We would also encourage shareholders to sign up to receive regular updates by email. ### **Dividend Policy** Following discussion on the timing of dividend payments to shareholders with the Company's broker Cavendish, the Board has decided to move to a cycle of paying two interim dividends per annum in or around January and August. This represents a change from the previous dividend payment cycle of paying an interim and final dividend. As the Company will no longer put a final dividend to shareholders for approval, in accordance with recommended corporate governance best practice, the new dividend policy will be put to shareholders approval at the upcoming Annual General Meeting. The new dividend policy can be found on page 18 of this report. ### **Annual General Meeting** The AGM will be held at the offices of Montanaro Asset Management, 53 Threadneedle Street, London EC2R 8AR, on 4 September 2025 at 11.00 a.m. Shareholders are encouraged to attend the Meeting where there will be an opportunity to meet and ask questions of the Board and the Manager. Detailed instructions on how to vote on the AGM resolutions are provided on pages 79 to 81. We encourage all shareholders to review this guidance and ensure their votes are submitted. Additionally, the AIC has prepared information on how to vote across the most common investment platforms, this guidance is available at – www.theaic.co.uk/how-to-vote-your-shares. ### **Outlook** As 2024 drew to a close, the prevailing investment consensus – that US mega-caps were the only place to be – reached a crescendo following the election of Donald Trump as President. However, events since then have cast doubt over this view. The tariffs announced on "Liberation Day" shocked the world. The United States has made it increasingly clear that they now view its relationships with the rest of the world – including Europe – as adversarial or, at best, purely transactional. Yet with change comes opportunity. Investor sentiment has shifted towards European equities this year as they have seen improved performance. They remain under-owned and still appear attractively valued. Montanaro European Smaller Companies Trust plc    Annual Report and Accounts 2025 page 5 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 2025. This substantial de-rating leaves them trading at a discount to their long-term historical average, as illustrated in the chart below: MSCI Europe ex-UK SmallCap – 12 month forward P/E 12.8x Sep 2011: 10.7x 8 Nov 2008: 8.2x 6 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 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. Moreover, European SmallCaps are 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 of 2008: 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% Jan 2015: 0% -5% Nov 2008: -4% 0% 5% 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 24 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. 22 20 18 16 14 12 10 -1 12% -1 page 6 Montanaro European Smaller Companies Trust plc    Annual Report and Accounts 2025 ## Chairman’s Statement continued We must, however, acknowledge that increasing global trade barriers and indeed policy uncertainty are likely to hinder rather than support economic growth. In this environment, owning a portfolio of very high quality, structurally growing companies provides us with a strong degree of comfort. One of the defining features of such quality companies is their ability to invest for the future and capture market share in more challenging economic environments, while weaker competitors have to focus on day-to-day survival. In summary: European smaller companies have a long track record of delivering strong returns to investors. Today, they are trading at a significant discount to both their own history and to their larger counterparts. The previous overwhelming investment consensus favouring the US over Europe has been challenged and investor sentiment has shifted towards European equities. Meanwhile, the companies in your portfolio are well positioned to invest and grow even through difficult times, supported by strong balance sheets, high returns on capital, and clear structural growth opportunities. The portfolio continues to be managed by an exceptionally well-resourced and experienced team at Montanaro. In addition, the Board has implemented a series of measures aimed at improving liquidity, reducing discount volatility and further reducing costs. Against this backdrop, we continue to look forward to the future with confidence. R M CURLING Chairman 18 June 2025 Montanaro European Smaller Companies Trust plc Annual Report and Accounts 2025 page 7 ## Manager's Report *"European SmallCaps have returned 9.2% p.a. since the turn of the century, outperforming the vast majority of SmallCap markets around the world."* *"The year to 31 March 2025 was notable for its M&A activity: we are clearly not the only ones who believe these companies are attractively valued and have strong growth prospects."* ### 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 70 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 £1,503 whereas the same £1 invested in smaller companies would now be worth £10,040 – almost seven times more. ### Continental European Small v. LargeCap (MSCI Europe ex UK SmallCap v. LargeCap indices, Net Total Return) ![img-1.jpeg](img-1.jpeg) There is less comprehensive data on Europe – it only goes back to 2000. However, it suggests that the SmallCap Effect is even more pronounced on the Continent: as the chart above illustrates, European 'small' companies have outperformed 'large' companies by 4% per annum. Remarkably, European SmallCaps have returned 9.2% p.a. (in Sterling terms) since the turn of the century, thereby outperforming the vast majority of SmallCap markets around the world including the UK, Japan, Australia the BRICs 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 large team of analysts and portfolio managers gives us the breadth of resources to conduct thorough in-house research. At 31 March 2025, we were looking after around £3 billion of client assets. We have been the Manager of your Company since September 2006. page 8 Montanaro European Smaller Companies Trust plc    Annual Report and Accounts 2025 ## Manager’s Report continued Investment Philosophy and Approach We believe that a deep understanding of a company’s We specialise in researching and investing in quoted smaller business model and the way it is managed are essential. We companies. We have a disciplined, two-stage investment visit our investee companies on a regular basis. We examine process. management’s past track record in detail as we seek to understand their goals and aspirations. In smaller companies, In the first stage, we identify “good businesses” within our the decisions and motivation of the entrepreneurial investable universe. We look for high quality companies in management can make or break a company, which is why markets that are growing. They must be profitable; have meeting them is so important. We look closely at the board good and experienced management; deliver sustainably high structure; the level of insider ownership; and examine returns on capital employed; enjoy high and ideally growing remuneration and corporate governance policies carefully. profit margins reflecting pricing power and a strong market position; and provide goods and services that are in demand Once a company has been added to the portfolio, our and likely to remain so. We prefer companies that can deliver investment team conducts ongoing analysis. We will sell a self-funded organic growth and remain focused on their core holding if we believe that the company’s underlying quality areas of expertise, rather than businesses that spend a lot of is deteriorating or if there has been a fundamental change time on acquisitions. to the investment case or management. We will get things wrong and make mistakes, but we try to learn from them. Conversely, we avoid those with stretched balance sheets; poor free cash flow generation; incomprehensible or heavily In summary, we invest in well managed, high quality, growing adjusted accounts; unproven or unreliable management; or companies bought at sensible valuations. We keep turnover that face structurally challenged business models with stiff and transaction costs low and follow our companies closely competition. over many years. We would rather pay more for a higher quality, more predictable company that can be valued with A company must also pass our stringent quality and ESG greater certainty. Finally, we align our interests with our checklists. ESG has been integrated into our disciplined investors by investing meaningful amounts of our own money investment process for almost two decades. alongside yours. We are significant shareholders in the Trust. When we have identified a company that we believe is high quality, has structural growth and is well managed The Portfolio from a business and ESG perspective, it is reviewed by our At 31 March 2025, the portfolio consisted of 49 companies Investment Committee before it can proceed to the next of which the top ten holdings represented 38.3% of net stage. Companies that do not possess these attributes are assets. Sector and country distributions within the portfolio rejected. are driven by stock selection. Although weightings relative to the market are monitored, overweight and underweight Companies that pass the first stage then undergo a valuation positions are based on where the greatest value and upside & risk assessment. We determine their intrinsic value, typically are perceived to be. through a proprietary discounted cashflow analysis, to ensure they will make a “good investment” (“good businesses” and Performance Attribution “good investments” are not always the same). The Investment The largest positive contributors over the period were: Committee scrutinises the forecasts and assumptions made for each business. While the biggest risk – that we invest in Plejd is a Swedish developer of smart lighting, heating and poor or declining businesses – is addressed in the first stage, other electrical products, which are sold to professional in stage two we take a more quantitative approach, with electricians. The company had an excellent year, with in-depth analysis of liquidity, factor risk and correlations and operating profit more than doubling thanks to both significant how these might affect position sizing and the subsequent revenue growth and a well invested cost base that allowed for portfolio characteristics. Only once this is complete will we significant operating leverage. add it to our Approved List. VZ Holding is a Swiss independent financial consultant and Companies that are on the Approved List and which we also wealth manager. The company was a top three contributor believe are attractively valued are then eligible for inclusion in last year too – another demonstration that “running your your portfolio. winners” is often a fruitful strategy. The company had a good year thanks to continued demand for financial advice and Our Investment Team use their industry knowledge and a an independent approach which continues to appeal to range of proprietary screens to continually search for new customers. ideas. With thousands of quoted companies from which to choose, we are spoiled for choice. Montanaro European Smaller Companies Trust plc    Annual Report and Accounts 2025 page 9 MTU Aero Engines manufacture and maintain aircraft Continual Improvement engines and components. The company successfully Each year we take time to look back at our successes and improved efficiency in the Geared Turbofan fleet mistakes to assess how our systems and processes can be management plan, while continuing to deliver growth improved. elsewhere in the business. We have made significant strides in our ability to dynamically Inevitably the year was not without some stock price declines quantify and monitor our risk profile, especially with as well. The largest detractors were: respect to factor risks. Our objective – as with all our risk management processes – is not to eliminate risk entirely; Tecan develop automated instruments and solutions that are rather, it is to take risk selectively and thoughtfully where we used in laboratories. The company endured a difficult year believe it is well rewarded. Our focus is on ensuring that we as biopharma companies pulled back spending and research are exposed to the right risks while actively minimising our budgets in the US in particular came under threat from the exposure to those factor risks on which we have either a new administration. negative view or no conviction at all. Bachem is a leading manufacturer of peptides. The share We have been systematically collecting data on the price declined as the timing for the new manufacturing facility companies we research – from new idea fruition to exit (and, therefore, the associated revenues) was pushed out. – for many years. We have now reached a point where IMCD is one of the world’s largest specialty chemical the dataset is sufficient to extract meaningful patterns distributors. Hopes of a volume recovery in 2024 proved to and insights. Our analysis has already revealed several be premature, with investors de-rating the stock through interesting findings, leading to refinements in both our idea the year. generation process and the way we conduct Investment Committee meetings. Portfolio Changes We try to keep portfolio turnover as low as possible. However, How to Invest we typically make a few changes each year as we identify We have invested a great deal of time and effort to make the new investment ideas that we expect will provide stronger Company readily available to all investors. We have continued long-term returns than existing holdings. Companies that to grow our presence across the UK’s investment platforms become too large, are acquired or where the investment and are delighted to see a steady increase, year after year, in case deteriorates are also replaced with new ideas from our the Trust’s retail following. With the Board, we have appointed Approved List. Marten & Co to provide sponsored research – you can find the initiation report, here: https://www.montanaro.co.uk/ The year to 31 March 2025 was notable for its M&A activity: mesct-quality-business/ and update reports on our website: we are clearly not the only ones who believe these companies www.montanaro.co.uk/trust/mesct. are attractively valued and have strong growth prospects. Esker and Epsilon Net, both niche software providers, were bought out. The merger of Chr. Hansen, the probiotic MONTANARO ASSET MANAGEMENT developer, and Novozymes was completed and we Lead Porfolio Manager; George Cooke subsequently sold our holding in the combined company on 18 June 2025 size grounds. Esker and Chr. Hansen both exited the portfolio having risen by multiple times their initial purchase price. Epsilon Net was sold at a premium to our purchase price and made a respectable return for the portfolio, but did not achieve the same feat due to being taken over less than a year after we bought the stock. Dynavox, the supplier of augmentative and alternative communication devices used by people with disabilities to communicate more effectively, and cBrain, which develops modular software primarily for government and state departments, were added to the portfolio. page 10 Montanaro European Smaller Companies Trust plc    Annual Report and Accounts 2025 ## ESG Report Montanaro has long placed sustainability at the heart of We also engaged with CTS Eventim, encouraging stronger its business. We became a certified B Corporation in 2019, internal governance and oversight of ESG issues. Following meeting some of the highest global standards for social and our discussions, the company established an internal ESG environmental performance. We successfully recertified in competence centre and published its first Non-Financial 2022 with a score of 105.5 — a significant improvement on our Report. We were pleased to see growing board-level original 2019 score and well above the minimum threshold. awareness and a commitment to improving Scope 3 disclosure In 2022, we also set an ambitious target to become carbon across decentralised operations. These are important first negative by 2030, including the removal of our historical steps and we will maintain an active dialogue as their ESG emissions. framework develops. Elsewhere, we contributed to the CDP Non-Disclosure Ethical Restrictions and ESG Analysis Campaign, calling on companies to improve their Montanaro has a long-standing commitment to sustainable environmental reporting, and we continued to support investing, which is reflected in the way the portfolio is portfolio companies working to meet new CSRD double managed. We apply a range of ethical exclusions and do not materiality requirements. In several cases, including with invest in companies that derive a significant proportion of their Brembo, we completed surveys to help management prioritise revenues from harmful products or practices. sustainability topics based on stakeholder input. Environmental, Social and Governance (“ESG”) factors form an integral part of how we define “Quality”. Our proprietary ESG Deep Dive Research and Industry Engagement Checklist is used across our investment process to identify Our Investment Team conducts regular Deep Dive projects, risks and opportunities. Analysts assess each company’s combining internal research with external stakeholder performance on issues such as climate change, supply chains, engagement. In January 2025, we published our fifth Net governance, board structure and employee wellbeing. Zero Carbon Deep Dive report, examining the progress our investee companies are making on the pathway to net Engagement and Active Ownership zero. We also continued to work on sustainability challenges Where we identify ESG risks or areas for improvement, we identified in our recent Built Environment report. These engage constructively with management. As investors in research initiatives deepen our understanding of emerging smaller companies, we are often able to speak directly with ESG themes, risks and opportunities and help inform senior leadership, including CEOs. investment decisions across the firm. During the year, we engaged with MTU Aero Engines to Montanaro remained active within the sustainable investment strengthen its approach to climate-related disclosure. The community. We maintained our role as a signatory to the company’s 2025 Sustainability Report marked a significant UK Stewardship Code, with our latest report receiving improvement in transparency, with more detailed Scope endorsement from the Financial Reporting Council. We 3 emissions data in line with the Corporate Sustainability continued to support initiatives including the Taskforce on Reporting Directive (CSRD). We also welcomed the company’s Nature-related Financial Disclosures (TNFD), the ShareAction ongoing review of a formal commitment to the Science Based Workforce Disclosure Initiative, and investor coalitions on food Targets initiative (SBTi), and we continue to support efforts to policy, public health and human rights. align with best-practice decarbonisation pathways. Montanaro European Smaller Companies Trust plc    Annual Report and Accounts 2025 page 11 We are signatories to and engage with important initiatives: Montanaro’s Head of Sustainable Investments continues to serve on the Board of the UK Sustainable Investment and Signatory date Initiative Finance Association (UKSIF), a leading network of over 300 financial services firms representing more than £19 trillion in UN Principles for Responsible assets. Through this role, we actively contribute to shaping the 2009 Investment (“PRI”) future of sustainable finance in the UK. Over the past year, this has included direct input on key policy developments such as the implementation of the FCA’s Sustainability Disclosure 2010 UK Stewardship Code Requirements (SDR), which came into force in 2024 and are now beginning to reshape the UK regulatory landscape. Carbon Disclosure Project We also remain active participants in the Glasgow Financial 2015 (“CDP”) Alliance for Net Zero (GFANZ), working alongside peers to accelerate the transition to a low-carbon economy through credible, science-aligned action. Our ongoing involvement in 2017 LGPS Code of Transparency these initiatives ensures we stay at the forefront of industry developments while helping to raise standards across the investment sector. 2019 B Corporation In recognition of our broader commitment to sustainability, Montanaro was named “ESG Champion of the Year” at the Financial Times/Investors’ Chronicle Investment Awards in 2024. Farm Animal Investment Risk 2019 and Return (“FAIRR”) MONTANARO ASSET MANAGEMENT Net Zero Asset Managers 2020 18 June 2025 Initiative (NZAM) Tobacco Free Portfolios 2022 Finance Pledge 2022 Living Wage Accreditation UK Sustainable Investment and 2023 Finance Association (“UKSIF”) GFANZ (Glasgow Financial 2023 Alliance for Net Zero) 2023 ShareAction Business Coalition for a Global 2023 Plastics Tready Task Force on Nature-related 2023 Financial Disclosures (“TNFD”) page 12 Montanaro European Smaller Companies Trust plc    Annual Report and Accounts 2025 ## Top 10 Holdings ### as at 31 March 2025 ### 1. VZ Holding A Swiss financial consultancy and wealth manager with a tech-enabled platform. Its focus on fee-based advice and recurring revenues makes it a standout in a traditionally commission-driven industry. ### 2. Kitron An electronics manufacturing services (EMS) provider for defence, healthcare, and electrification markets. Kitron offers resilient growth through long-term contracts, reshoring trends, and rising demand for high-reliability electronics. ### 3. ATOSS Software A leader in workforce management software. Its scalable cloud solutions help companies optimise labour costs, with a high-margin SaaS model driving recurring revenue and impressive long-term growth. ### 4. MTU Aero Engines A key player in aircraft engine manufacturing and maintenance. Benefiting from global air travel recovery and a strong order book, MTU offers a powerful combination of engineering excellence and after-market revenue. ### 5. CTS Eventim Europe’s leading ticketing and live events platform. Its dominant digital position, asset-light model and the return of large scale events has delivered strong earnings growth. Montanaro European Smaller Companies Trust plc    Annual Report and Accounts 2025 page 13 ### 6. Reply An IT consultancy focused on AI, cloud and digital innovation. Reply’s decentralised model and blue-chip client base drive consistent growth and strong returns in the fast-evolving tech landscape. ### 7. Fortnox Cloud-based accounting and admin software for SMEs. With a near- monopoly in Sweden, high switching costs and expanding product suite, Fortnox is a classic high-margin compounder. The company received a takeover offer on 31 March 2025. ### 8. NCAB A global printed circuit board supplier offering premium service and logistics. With an asset-light model and consolidation strategy, NCAB delivers reliable cashflows and market share growth. ### 9. Plejd Develops smart lighting control systems for homes and businesses. Its intuitive products and strong network of electricians make it a high-growth disruptor in Nordic smart homes. ### 10. Brunello Cucinelli The Italian luxury brand known for “humanistic capitalism” and timeless craftsmanship. Its focus on sustainable growth, exclusivity and global demand for quiet luxury support premium positioning and pricing power. page 14 Montanaro European Smaller Companies Trust plc    Annual Report and Accounts 2025 ## Twenty Largest Holdings ### as at 31 March 2025 | | 31 March | | 31 March | | 31 March | | 31 March | | 31 March | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | 2025 | | 2024 | | 2025 | | 2024 | | 2025 | | | | Value | | Value | | % of | | % of | Market cap | | | Holding Country | | £’000 | | £’000 | net assets | | net assets | | | £m | VZ Holding Switzerland 13,270 9,663 4.6 3.1 5,903 Kitron Norway 13,179 9,964 4.5 3.2 654 ATOSS Software Germany 12,602 14,058 4.3 4.5 1,657 MTU Aero Engines Germany 12,063 14,121 4.1 4.5 14,484 CTS Eventim Germany 11,588 13,075 4.0 4.2 7,455 Reply Italy 10,103 8,976 3.5 2.9 4,724 Fortnox Sweden 10,048 12,493 3.4 4.0 4,090 NCAB Sweden 9,884 14,350 3.4 4.6 740 Plejd Sweden 9,563 3,813 3.3 1.2 402 Brunello Cucinelli Italy 9,286 9,518 3.2 3.0 6,012 Belimo Holding Switzerland 8,763 7,186 3.0 2.3 5,825 IMCD Netherlands 8,727 11,870 3.0 3.8 6,070 AAK Sweden 7,566 6,597 2.6 2.1 5,602 Invisio Sweden 7,397 3,980 2.5 1.3 1,349 Rational Germany 7,029 7,558 2.4 2.4 7,297 Viscofan Spain 6,679 6,296 2.3 2.0 2,488 Thule Sweden 6,634 7,177 2.3 2.2 2,394 Sectra Sweden 6,456 5,396 2.2 1.7 3,600 Biogaia Sweden 5,934 3,484 2.0 1.1 859 Merlin Properties Spain 5,774 5,959 2.0 1.9 4,652 Twenty Largest Holdings 182,545 62.6 56.0 Montanaro European Smaller Companies Trust plc    Annual Report and Accounts 2025 page 15 ## Portfolio Analysis Geographical Analysis (31March) 2025 2024 | 1 | Sweden 30.3% 24.4% | | --- | --- | | 2 | Germany 19.1% 21.1% | | 3 | Italy 14.3% 15.4% | 1 | | 4 | Switzerland 12.4% 12.5% | | --- | --- | --- | | 5 | 5 | Norway 8.6% 6.3% | | | 6 | Spain 4.1% 3.8% | | | 7 | Netherlands 3.9% 3.7% | | 8 | 8 | Denmark 2.8% 1.9% | | | 9 | France 2.6% 7.4% | | | 10 | Belgium 1.9% 2.6% | 7 2 11 Greece 0.0% 0.9% 10 9 4 3 6 11 Source: Montanaro Asset Management Sector Distribution (31March) Market Capitalisation of Holdings by Value (31March) 2025 2024 Information Technology 28.6% 30.7% Industrials 26.2% 23.9% 2022025 2022024 Health Care 15.2% 17.3% | | £0–£500m£0–£500m | | .9.5% | 8.2% | | --- | --- | --- | --- | --- | | Financials 8.3% 6.6% | £500m–£1b£500m–£1bn | | . %18.9% | 18.2% | | Consumer | £1bn–£3bn£1bn–£3bn | 2 . %27.8% | | 24.6% | | Discretionary 8.2% 8.7% | £3bn–£5bn£3bn–£5bn | | . %15.6% | 24.7% | | Consumer | >£5bn>£5bn | 2 . %28.2% | | 24.3% | Staples 4.7% 4.0% Communication Services 3.9% 4.1% Real Estate 3.5% 2.8% Materials 1.4% 1.9% Source: Montanaro Asset Management Source: Montanaro Asset Management page 16 Montanaro European Smaller Companies Trust plc Annual Report and Accounts 2025 ## 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% | | 31 March 2025 | 291,508 | 162.0p | 148.5p | (8.3%) | 1.260p | 1.0% | \* Date of commencement of current management arrangements. \*\* Includes special dividends of 2.83p per share. ^ Alternative Performance Measures, refer to page 68. ### Performance since commencement of current management arrangements (rebased to 100 from 1 September 2006) ![img-2.jpeg](img-2.jpeg) Source: Montanaro Asset Management Montanaro European Smaller Companies Trust plc Annual Report and Accounts 2025 page 17 # 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 3 to 6 and the Manager's Report on pages 7 to 9, 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 pages 27 and 28. ## 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 ("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. - 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 67. ## 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. The Company's portfolio will normally be fully invested. However, during periods in which changes in economic conditions or other factors so warrant, the Company may reduce its exposure to securities and increase its position in cash and money market instruments. The Company will not invest more than 10%, in aggregate, of the value of its total assets at the time of investment in other investment trusts or investment companies admitted to the Official List of the Financial Conduct Authority. ## DIVIDEND POLICY As previously mentioned in the Chairman's Statement on page 3, the Board has decided to move to a cycle of paying two interim dividends per annum in or around January and August. page 18 Montanaro European Smaller Companies Trust plc    Annual Report and Accounts 2025 ## Business Model and Strategy continued Thepurpose of the change being to align dividend payments with KEY PERFORMANCE INDICATORS the release of the Annual and Interim Reports. This represents a The Board recognises that it is long-term share price returns that change from the previous dividend payment cycle of paying an are most important to the Company’s shareholders. They are interim dividend in January and a final dividend in September. largely driven by competitive portfolio returns and by keeping down the level of both the discount and ongoing charges. The new dividend policy has therefore been updated to include the following additional wording “Under normal market The Board uses a number of key performance indicators to conditions the Company will pay two interim dividends per year, assess the Company’s success in pursuing its objectives. aligning with the release of the Annual and Interim Reports”. They are as follows: ### • Capital and total return – NAV and share price returns, New Dividend Policy both absolute and against the benchmark; The Company’s primary aim is to deliver capital growth to its ### shareholders, rather than dividend income. In determining • Discount of share price to NAV per share; ### dividend payments, the Board takes account of income • Gearing; and forecasts, brought forward revenue reserves, the Company’s Ongoing charges. ### • dividend payment record and the Corporation Tax rules The NAV and share price returns against the benchmark index governing investment trust status. These rules determine the for the one, three, five and ten year periods ended 31March minimum level of dividend which must be paid in order to 2025 and for the period since Montanaro were appointed comply with Section 1158 of the Corporation Tax Act 2010 in as Manager are shown on page 2. The historic discount and respect of the retention of distributable income. Dividends ongoing charges figures are included in the Historic Record can also be paid from the Realised Capital Reserve from any on page 16. surplus arising from the realisation of any investment. Under normal market conditions the Company will pay two interim The Company’s performance for the year against the key dividends per year, aligning with the release of the Annual and performance indicators, together with the outlook for the Interim Reports. coming year, is reported within the Highlights on page 2, the Chairman’s Statement on pages 3 to 6 and the Manager’s Going forward, given the Board will no longer put a final Report on pages 7 to 9. dividend to shareholders for approval, the Company’s dividend policy will be put to shareholders for approval annually at the THE MANAGER Annual General Meeting. Established in 1991, Montanaro is a highly experienced specialist investor in quoted smaller companies. It has one REGULAR TENDER OFFERS of the largest teams in the UK researching and investing On 15 May 2025, shareholders approved the Board’s proposal exclusively in quoted smaller companies and currently to implement tender offers on a bi-annual basis. These tender manages circa £3 billion, mainly on behalf of leading financial offers will provide shareholders with the opportunity to institutions. Montanaro’s investment philosophy and approach tender their shares for repurchase by the Company at a 5% is set out in the Manager’s Report on page 8. discount to NAV (reflecting the wider spreads amongst smaller The Manager is a signatory to the Principles for Responsible companies and the cost associated with the exercise) and Investment, the UK Stewardship Code and the LGPS Code of bring increased liquidity to the Company’s shares. Each tender Transparency. In June 2019, Montanaro became a B Corporation, offer will take place around the time of the publication of the a business certified for meeting the highest verified standards Company’s Interim and Final Results and will be limited in total of social and environmental performance, transparency and to a maximum of 5% of the Company’s shares in issue. If the accountability. The Manager is a signatory to a number of situation occurs whereby a tender offer is oversubscribed, any industry commitments as detailed on page 11. Montanaro is shares offered for repurchase by shareholders will be dealt also a B Corporation, a business certified for meeting the highest with on a pro-rata basis. The first tender offer is expected to verified standards of social and environmental performance, take place in Autumn 2025 following the Interim Results. transparency and accountability. Further information is included in the ESG Report on pages 10 and 11. SHARE BUYBACK POLICY In normal market circumstances, the Board will target a single THE BOARD digit share price discount to NAV. Subject to market volatility, At the date of signing this report, the Company has four Directors the Board anticipates that this will be achieved through a – two men and two women. The Company hasno employees. combination of the bi-annual tender offers and ad hoc share buybacks. On 15 May 2025, shareholders approved the renewal | of the Company’s authority to buyback its own shares, the Board | JUNIPER PARTNERS LIMITED | | --- | --- | | will continue to seek shareholder approval as necessary to | Company Secretary | | extend its authority to buy back shares. | 18 June 2025 | Montanaro European Smaller Companies Trust plc    Annual Report and Accounts 2025 page 19 ## 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 36 to 38 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 reviewed the effectiveness of the Company’s risk management and internal control systems during the year. During the year, the Audit Committee 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 investment trust sector continues to evolve, driven by a shifting shareholder base and the challenges of engaging and communicating with retail investors. In addition, the Company is facing an emerging risk from heightened geopolitical tensions, which may influence market stability and investor sentiment. The resulting impact on the Company’s operating and risk environment are described within the principal risks section below. Notes 15 to 20 to the financial statements provide detailed explanations of the risks associated with the Company’s financial instruments and their management. Principal Risks Mitigation Corporate strategy: An inappropriate or unattractive objective and strategy may The Board conducts annual strategy reviews and considers investment have an adverse effect on shareholder returns or cause a performance, shareholder views and developments in the marketplace as well as emerging risks which could impact the Company regularly reduction in demand for the Company’s shares, both of which throughout the year. The Board reviews changes to the shareholder could lead to a widening discount. register at quarterly Board Meetings and engages the Broker to Heightened area of focus due to increased industry awareness of the continually monitor the discount at which the Company’s shares impact that share price discounts can have on investor sentiment, trade, reporting regularly to the Board and buying back shares alongwith the Board’s objective of improving the investment proposition whenappropriate. for all shareholders. The Board has committed to a number of initiatives with the target of enhancing value to the Company’s shareholders, including the introduction of a bi-annual tender offer and an active share buyback policy (with a target of maintaining a single digit discount). At the General Meeting held on 15 May 2025, shareholders approved resolutions to support both of these proposals. Please refer to page 3 for furtherdetails. Investment: Poor investment performance may have an adverse effect At each Board Meeting, the Manager discusses portfolio performance onshareholder returns. and strategy with the Directors and performance against the benchmark and the peer group is reviewed. The Manager also provides the Board Heightened area of focus due to the current geopolitical tensions and with quarterly reports. The portfolio is well diversified with typically 45-55 thepotential impact this could have on the Company’s portfolio. holdings, thereby reducing stock-specific risk. The Board formally reviews the performance of the Manager and its terms of appointment annually. page 20 Montanaro European Smaller Companies Trust plc    Annual Report and Accounts 2025 ## Principal and Emerging Risks continued Principal Risks Mitigation Other financial: The Company invests principally in Continental European Portfolio diversification, both geographical and sectoral, can mitigate quoted smaller companies and its principal risks are therefore the consequences of such risky events and the Board reviews the portfolio with the Manager on a regular basis. It is not the Company’s market related with short term risk arising from the volatility in policy to hedge currency risk. The Board has also set investment the prices of the Company’s investments and foreign exchange. restrictions and guidelines which are adhered to and reported on by Events such as terrorism, disease (such as a global pandemic), the Manager. If required, it is also possible to raise the level of cash protectionism, inflation or deflation, changes in regulation held, thereby reducing the risk of declining share prices and the effect and taxation, excessive stock market speculation, economic of gearing on lower portfolio valuations. The portfolio’s liquidity is not recessions, political instability and movements in interest rates managed on the basis of timing short-term market fluctuations. and exchange rates could affect share prices in particular One of the benefits of an investment trust is that the Manager is rarely 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 companies but where overall portfolio liquidity may be more Manager in accordance with established policies and procedures challenging. This may result in difficulties in buying or selling in place. individual holdings in difficult markets. In addition, illiquid stock markets may impact the discount of the Company’s share price Further details on the financial risks arising from the Company’s financial instruments, together with the policies for managing these risks to the NAV per share. are included in Notes 15 to 20 to the financial statements. 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 regular share buybacks in line with the revised policy, effective marketing and liaising their peer group, this can also lead to issues with respect to closely with the Company’s Broker. the liquidity of the Company’s shares. The Board receives regular reports on the discount level of the Despite the Company’s discount narrowing during the year discount Company, its peer group, and the wider investment trust sector which volatility remains a significant area of Board focus. informs any decision to buy back shares. The Board monitors liquidity of the Company’s shares and encourages the Manager to market the Company’s shares. Montanaro European Smaller Companies Trust plc    Annual Report and Accounts 2025 page 21 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 qualified audit report. breached. The results are reported to the Board at each meeting. No change in overall risk in year. The Administrator monitors compliance with the Listing Rules of the Financial Conduct Authority and compliance with the principal rules is reviewed by the Directors at each Board Meeting. The Board and AIFM also monitor changes in legislation which may have an impact on the Company. Operational: In common with most other investment trust companies, The Board and the Audit Committee receive regular reports on the 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 36 and 37. 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. No change in overall risk in year. In addition, the Manager is in regular contact with service providers regarding business operations and continuity planning, and has reported no matters of concern. Cyber security: The threat of cyber attack is regarded as being as important The Board monitors the preparedness of its service providers and as more traditional physical threats to business continuity and is satisfied that the risk is given due priority. The Manager provides a report to the Board at each meeting that covers cyber risk. The security. The Company has limited direct exposure to cyber Company benefits from the network and information technology risk. However, the Company’s operations or reputation could controls of the 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, internal controls reports for each Continued area of Board focus due to ongoing geopolitical tensions and service provider are reviewed to ensure that suitable cyber security the potential security risks posed by new technologies. controls are in place. page 22 Montanaro European Smaller Companies Trust plc    Annual Report and Accounts 2025 ## Principal and Emerging Risks continued 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 ### • Resource depletion, including water invests in those which pass the criteria set out in this Checklist, which ### • Waste and pollution is designed to cover the aforementioned Environmental, Social and Governance Risks. Social Overview is provided by Montanaro’s Sustainability Committee, which ### • Working conditions, including no slavery or child labour reviews ESG stock analyses and coordinates detailed engagement ### • Health and safety activity with investee companies. ### • Employee relations and diversity The Board receives reports at each Board Meeting which include ESG 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. Montanaro European Smaller Companies Trust plc    Annual Report and Accounts 2025 page 23 ## Directors’ Duties SECTION 172(1) OF THE COMPANIES ACT 2006 To ensure that the Directors are aware of, and understand, Section 172(1) of the Companies Act 2006 (the “Act”) requires their duties they are provided with a tailored induction, Directors to act in good faith and in a way that is the most likely including details of all relevant regulatory and legal duties to promote the success of the Company. In doing so, Directors as a Director of a UK public limited company when they first must take into consideration the interests of the various join the Board, and continue to receive regular and ongoing stakeholders of the Company, the impact the Company has updates and training on relevant legislative and regulatory on the community and the environment, take a long-term view developments. of consequences of the decisions they make as well as aim to They also have continued access to the advice and services maintain a reputation for high standards of business conduct of the Company Secretary, and when deemed necessary, and fair treatment between the members of the Company. the Directors can seek independent professional advice. The Fulfilling this duty naturally supports the Company in achieving schedule of Matters Reserved for the Board, as well as the its Investment Objective and helps to ensure that all decisions Terms of Reference of its Committees are reviewed periodically are made in a responsible and sustainable way. In accordance and further describe Directors’ responsibilities and obligations with the requirements of the Companies (Miscellaneous and include any statutory and regulatory duties. Reporting) Regulations 2018, the Board explains below, how the Directors have individually and collectively discharged their duties under section 172(1) of the Act over the course of the reporting period. PRINCIPAL DECISIONS DURING THE YEAR ENDED 31 MARCH 2025 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 Value-enhancing initiatives for Regular tender offers to improve liquidity: shareholders Conscious of shareholders’ desire to improve the liquidity of the Company’s shares, the Board is proposing a scheme to do this whilst remaining cognisant of the liquidity constraints of the underlying portfolio. The Board is proposing to offer shareholders an opportunity twice a year, around the time of the Interim and Final Results publication, to tender their shares to the Company at a 5% discount to NAV (reflecting the wider spreads amongst smaller companies and the cost associated with the exercise). Each tender offer will be limited in total to a maximum of 5% of the Company’s shares in issue in order to protect existing shareholders and facilitate liquidity management in the underlying portfolio. It is hoped that these regular tender opportunities will improve liquidity for all shareholders and not engender the need for investors to take such opportunities that occur with one-off tenders. Subject to the necessary authority being granted, the first tender offer is expected to take place in Autumn 2025 following the Interim Results. Active share buyback policy: The Board has revised its buyback policy in light of changing expectations amongst shareholders and has pursued an active share buyback policy. The primary purpose is to reduce the discount volatility (and therefore share price volatility) seen in recent years, during which the Company’s shares have traded both at a premium and a discount to Net Asset Value. In normal market circumstances, the Board will target a single digit discount which, combined with the periodic tenders, should provide reduced discount volatility. The Board is also conscious of the accretion to NAV of share buybacks at a discount and believes this policy will be of benefit to all shareholders. page 24 Montanaro European Smaller Companies Trust plc Annual Report and Accounts 2025 ## Directors' Duties continued | Principal decision | Stakeholder Considerations and Engagement | | --- | --- | | **Value-enhancing initiatives for shareholders (continued)** | *Reduced management fees:* The Board has conducted a thorough review of all costs and expects the ongoing charges figure (OCF) to remain below 1% in the future. The Board has negotiated a further reduction in the management fee (the second in four years). However, it continues to recognise the significant resource intensity of Montanaro's extremely thorough and detailed research-based investment process. The Manager has agreed to the following reductions in management fees (all on a per annum basis) from 0.90% to 0.825% of the market capitalisation of the Company up to £500 million; from 0.75% to 0.70% between £500 – £750 million; and (unchanged) 0.65% above £750 million. The reduction in fees took effect on 1 April 2025. | | **To approve interim dividends during the year** | The Company must comply with the provisions of Section 1158 of the Corporation Tax 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 0.3 pence per Ordinary share in January 2025 and has declared a second interim dividend of 0.96 pence per Ordinary share. 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. As mentioned in the Chairman's Statement on page 3, the Board has decided to move to a cycle of paying two interim dividends per annum in or around January and August. The purpose of the change being to align dividend payments with the release of the Annual and Interim Reports. This represents a change from the previous dividend payment cycle of paying an interim dividend in January and a final dividend in September. The new dividend policy has therefore been updated to include the following additional wording 'Under normal market conditions the Company will pay two interim dividends per year, aligning with the release of the Annual and Interim Reports.', please refer to page 18 for the full text of the new dividend policy. | | **Board composition** | Hillary Williams was appointed to the Board with effect from 6 September 2024. Ms Williams brings extensive experience as a senior financial services marketing leader to the Board, thus adding a new skill set to the Board; this benefits the governance of the Company and insight on a key aspect of business operations. | ### BUSINESS CONDUCT The Matters Reserved for the Board, Board Committees' Terms of Reference, the Share Dealing Code and other Board policies are all reviewed on at least an annual basis and the Directors ensure that they appropriately define obligations and correct procedures. The Report of the Audit Committee, which can be found on pages 36 to 38 of this Report, further 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 2025 page 25 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 26. A detailed Environment ESG Report can be found on pages 10 and 11. page 26 Montanaro European Smaller Companies Trust plc    Annual Report and Accounts 2025 ## Directors’ Duties continued CULTURE The Board recognises that the Company has certain During the year, the Directors confirmed the Company’s responsibilities to its shareholders, stakeholders and wider culture and values and has worked to incorporate these society. While the Company itself does not have employees or behaviours and processes into the annual review of the offices, the Board endorses the Manager’s policy to invest the Manager, strategic planning, the annual evaluation of Board Company’s funds in a socially responsible manner. ESG factors effectiveness and reporting to stakeholders – thus embedding are an integral part of the investment process. In addition, consideration of stakeholders’ interests, long-term perspective, the Manager does not invest in companies it deems to be maintaining reputation for fairness and high standards of harmful to society or the environment; this includes companies governance, corporate reporting and business conduct more involved in tobacco, fossil fuels, gambling, adult entertainment, generally in the Company’s culture and processes. weapons manufacturing, alcohol and high interest rate lending. Similarly, they do not invest in companies that conduct animal DECISION-MAKING testing, unless it is required by law for healthcare purposes. The importance of stakeholder considerations, in particular The Board monitors investment activity to ensure that it is in the context of decision-making, is regularly brought to the compatible with the policy and receives periodic updates Board’s attention by the Company Secretary and taken into from the Manager on its initiatives and performance against account at every Board meeting. A paper reminding Directors its ESG goals. of that is tabled at the start of every Board meeting. For example, the strategic planning discussions involve careful The Chairman’s Statement on pages 3 to 6, the Manager’s considerations of the longer-term consequences of any Report on pages 7 to 9, the Twenty Largest Holdings on decisions and their implications on shareholders and other page14, all form part of this Strategic Report, which has been stakeholders. approved by the Board of Directors. By order of the Board COMMUNITY AND ENVIRONMENT The Manager is a signatory to the Principles for Responsible Investment, the UK Stewardship Code, the Carbon Disclosure Project, the LGPS Code of Transparency and the Net Zero JUNIPER PARTNERS LIMITED Asset Managers initiative. In June 2019, Montanaro became Company Secretary a B Corporation, a business certified for meeting the highest 18 June 2025 verified standards of social and environmental performance, transparency and accountability. Montanaro European Smaller Companies Trust plc    Annual Report and Accounts 2025 page 27 ## 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. As noted in the Chairman’s Statement on page 4, Richard will retire from the Board on 31December 2025, at which point Gordon Neilly will step into the role of Chairman. 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. page 28 Montanaro European Smaller Companies Trust plc    Annual Report and Accounts 2025 ## Board of Directors continued Gordon Neilly – Chair of the Remuneration Committee Date of Appointment: 21September 2020 Gordon has considerable experience and knowledge of investment trusts. Gordon is Head of European Credit, Clearlake Credit, 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. Hillary Williams – Non-Executive Director Date of Appointment: 6 September 2024 Hillary is an experienced senior financial services marketing leader. She was, until June 2023, the Global Director of Brand and Marketing of M&G PLC overseeing teams in the UK, Asia and Europe. Prior to this she was Brand and Marketing Director for Prudential UK. She joined the M&G Group from AEGON UK in 2016 where she held the position of Customer Marketing Director. She previously held Marketing Director positions at Sainsbury’s Bank and UKI Partnerships, and more recently, Interim Marketing Director at Royal London. Hillary was a member of Prudential’s Independent Governance Committee from 2020 to 2022. Relevant skills and experience and reasons for re-election: Hillary has a deep understanding of financial marketing, brand strategy, and customer engagement. She brings invaluable expertise to the Board, enabling her to assess the Company’s market positioning, drive discussions on strategic marketing initiatives, and contribute to the development of growth strategies. Following a rigorous board evaluation process, the Board agreed that Hillary is an effective member of the Board. Montanaro European Smaller Companies Trust plc Annual Report and Accounts 2025 page 29 # Directors' Report The Directors present the Annual Report and Accounts of the Company for the year ended 31 March 2025. 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 33 to 35 of this report; - Strategy and relevant future developments – refer to the Chairman's Statement on pages 3 to 6 and the Manager's Report on pages 7 to 9; 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 20 on pages 63 to 66. The outlook for the Company is set out in the Chairman's Statement on pages 3 to 6. Principal and emerging risks can be found on pages 19 to 22, with further information on risk management objectives in Notes 15 to 20 to the financial statements. ## RESULTS AND DIVIDENDS The results for the year are set out in this Annual Report and Accounts. A first interim dividend of 0.3p per Ordinary share was paid on 22 January 2025. A second interim dividend of 0.96p will be paid on 7 August 2025 to shareholders on the register on 27 June 2025. ## DIRECTORS Biographical details of the Directors, all of whom are independent and non-executive, can be found on pages 27 and 28. The Directors' interests in the shares of the Company are shown on page 41. ## 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. With effect from 1 April 2025, the Manager has agreed to a reduction in management fees from 0.90% per annum, to 0.825% per annum of the market capitalisation of the Company up to £500 million; from 0.75% to 0.70% per annum between £500 – £750 million; and (unchanged) 0.65% per annum above £750 million. 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. ## CONTINUING APPOINTMENT OF THE MANAGER In February 2025, the Remuneration Committee and the Board formally reviewed the Manager's appointment. In carrying out its review, the Board considered the skills, experience, resources and commitment of the Manager, together with the investment performance during the year and since its appointment. It also considered the length of the notice period of the investment management agreement and the fees payable to the Manager. Following this review, it is the Directors' opinion that the continuing appointment of Montanaro as Manager and AIFM, on the terms agreed, is in the interests of shareholders as a whole. Among the reasons for this was the Manager's continued strong long-term performance, the greater strength and depth of the Manager's research team, as well as the stability and capability of the team, which provided strong benefits to the Company. page 30 Montanaro European Smaller Companies Trust plc Annual Report and Accounts 2025 # Directors' Report continued DEPOSITARY AND CUSTODIAN The Bank of New York Mellon (International) Limited acts as the Company's Depositary and Custodian in accordance with the AIFM Directive. The Depositary's responsibilities include cash monitoring, segregation and safe keeping of the Company's financial instruments and monitoring the Company's compliance with investment limits and leverage requirements. REGISTRAR Equiniti has been appointed as the Company's registrar. The Registry Services Agreement may be terminated on not less than six months' notice. The Registrar is also entitled to reimbursement of all disbursements and out of pocket expenses. COMPANY SECRETARY AND ADMINISTRATOR Juniper Partners Limited ("Juniper") was appointed as the Company's Company Secretary and Administrator with effect from 1 July 2023. Juniper receives a base annual fee of £145,000 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 Company Secretarial and Administration Agreement is subject to six months' written notice. SUBSTANTIAL SHAREHOLDINGS At 31 March 2025, the Directors were aware of the following substantial shareholdings: | | Number of shares held | Percentage held | | --- | --- | --- | | Saba Capital Management | 23,457,468 | 13.04 | | Interactive Investor (EO) | 20,441,337 | 11.36 | | Hargreaves Lansdown (EO) | 18,725,129 | 10.41 | | Montanaro Asset Management | 12,548,491 | 6.97 | | 1607 Capital Partners | 9,943,392 | 5.53 | | AJ Bell (EO) | 9,675,120 | 5.38 | | RBC Brewin Dolphin Ireland | 8,695,661 | 4.83 | | Allspring Global Investment | 8,214,170 | 4.57 | | RBC Brewin Dolphin | 5,653,044 | 3.14 | On 2 June 2025 the Company was notified that Montanaro Asset Management owns 13,248,491 shares (8.01%) in the Company. On 3 June 2025 the Company was notified that Saba Capital Management owns 8,208,953 shares (4.98%) in the Company. On 6 June 2025 the Company was notified that Allspring Global Investment owns 8,181,575 shares (5.00%) in the Company. GOING CONCERN In assessing the going concern basis of accounting, the Directors have had regard to the guidance issued by the Financial Reporting Council and have undertaken a rigorous review of the Company's ability to continue as a going concern. The Directors have taken into account the Company's Investment Policy, which is described on page 17 and which is subject to regular Board monitoring processes and is designed to ensure that the Company is invested mainly in liquid, listed securities. The Company retains title to all assets held by its custodian, and has financial covenants relating to its bank borrowings with which it complied during the year. In performing the assessment of the Company's ability to meet its liabilities as they fall due, the Directors took into consideration the following factors: - cash and cash equivalents balances and the portfolio of readily realisable securities which can be used to meet short-term funding commitments; - the ability of the Company to meet all of its liabilities and ongoing expenses from its assets; - revenue, operating and finance cost forecasts for the forthcoming year; - continued adherence to the loan covenants; - the ability of third-party service providers to continue to provide services; and - consideration of a number of severe downside scenarios, the impact of which would still leave the Company with sufficient liquid assets to remain a going concern. Notes 15 to 20 to the financial statements set out the financial risk profile of the Company and indicate the effect on its assets and liabilities of falls and rises in the value of securities, market rates of interest and changes in exchange rates. The Directors believe, in light of the controls and review processes noted above and bearing in mind the nature of the Company's business and assets and liabilities, that the Company has adequate resources to continue in operational existence for a period of at least twelve months from the date of approval of the financial statements. For this reason, they continue to adopt the going concern basis in preparing the accounts. Montanaro European Smaller Companies Trust plc Annual Report and Accounts 2025 page 31 # VIABILITY ASSESSMENT In accordance with the AIC Code of Corporate Governance, the Directors have assessed the prospects of the Company over the coming three years. In order to assess the viability of the Company, the Board is required to assess its future prospects and has considered that a number of characteristics of its business model and strategy were relevant to this assessment: - The Company's objective is to achieve capital growth. - The Company's investment policy, which is subject to regular Board monitoring, means that the Company is invested principally in the securities of Continental European quoted smaller companies. - The Company is a closed-end investment trust, whose shares are not subject to redemptions by shareholders. - The Company's business model and strategy is not time limited. Also relevant were a number of aspects of the Company's operational arrangements: - The Company retains title to all assets held by the Custodian under the terms of a formal agreement with the Depositary and Custodian. - The borrowing facilities, which remain available until September 2026, are also subject to formal agreements, including financial covenants with which the Company complied in full during the year. - Revenue and expenditure forecasts are reviewed by the Directors at each Board Meeting. In considering the viability of the Company, the Directors carried out a robust assessment of the principal risks and uncertainties which could threaten the Company's objective and strategy, future performance, liquidity and solvency, including the impact of a significant fall in equity markets or adverse currency movements on the Company's investment portfolio. These risks, their mitigations and the processes for monitoring them are set out on pages 19 to 22 in Principal and Emerging Risks, pages 36 and 37 in the Report of the Audit Committee and in the notes to the financial statements. The Directors have also considered: - The level of ongoing charges incurred by the Company which are modest and predictable and that these were covered by investment income and total 1% of average net assets. - Future revenue and expenditure projections and the potential impact of reduced dividend income. - The Company's borrowing in the form of a fixed rate loan facility of €10 million and a €15 million revolving credit facility maturing on 13 September 2026, the revolving credit facility was fully drawn down at 31 March 2025. This loan was covered 15 times by the Company's total assets at 31 March 2025 the Board expects to replace the Company bank facilities at the end of the current term. - Its ability to meet liquidity requirements given the Company's investment portfolio consists principally of Continental European quoted smaller companies which can be realised. It is estimated that approximately 88% of the portfolio could be liquidated under normal conditions within seven trading days. - The ability to undertake share buybacks if required. - The estimated level of take up of the Company's bi-annual tender offer. - That the Company's objective and investment policy continue to be relevant to investors. - The Company has no employees, having only non-executive Directors and consequently does not have redundancy or other employment related liabilities (including pensions) or responsibilities. These matters were assessed over a three year period to June 2028, and the Board will continue to assess viability over three year rolling periods, taking account of severe but plausible scenarios. In the absence of any adverse change to the regulatory environment and to the treatment of UK investment trusts a rolling three year period represents the horizon over which the Directors do not expect there to be any significant change to the Company's principal risks or their mitigation and they believe they can form a reasonable expectation of the Company's prospects. Based on their assessment, and in the context of the Company's business model, strategy and operational arrangements set out above, the Directors have a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the three year period to June 2028. For this reason, the Board also considers it appropriate to continue adopting the going concern basis in preparing the Report and Accounts. # CAPITAL STRUCTURE The Company's structure is composed solely of Ordinary shares. At 31 March 2025 there was 179,924,679 Ordinary shares in issue and 9,502,921 shares held in Treasury. The Company bought back 9,502,921 Ordinary shares in the year to 31 March 2025. page 32 Montanaro European Smaller Companies Trust plc Annual Report and Accounts 2025 # Directors' Report continued ## 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. ## 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. ## 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 financial statements. ## 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 17 June 2025, being the latest practicable date before the publication of the Annual Report and Accounts, there were 159,895,306 Ordinary shares in issue. 29,532,294 shares are held in treasury. Accordingly, the total number of voting rights in the Company is 159,895,306. ## 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. ## ANNUAL GENERAL MEETING The Notice of Annual General Meeting to be held on 4 September 2025 is set out on pages 74 to 81. Resolutions 1 to 10 will be proposed as Ordinary Resolutions and Resolutions 11 to 13 will be proposed as Special Resolutions. Please refer to pages 77 and 78 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. For and on behalf of the Board ## JUNIPER PARTNERS LIMITED Company Secretary 18 June 2025 Montanaro European Smaller Companies Trust plc    Annual Report and Accounts 2025 page 33 ## Corporate Governance Statement The Corporate Governance Statement forms part of the Directors’ Report. STATEMENT OF COMPLIANCE THE COMPANY SECRETARY The Board has considered the Principles and Provisions of The Board has direct access to the services of the Company the AIC Code of Corporate Governance published in February Secretary who is responsible for ensuring Board and 2019 (“AIC Code”). The AIC Code addresses the Principles and Committee procedures are followed and that applicable Provisions set out in the 2018 UK Corporate Governance Code regulations are complied with. The Company Secretary is also (the “UK Code”), as well as setting out additional Provisions on responsible to the Board for ensuring the timely delivery of the issues that are of specific relevance to the Company. information and reports which the Directors require and that statutory obligations are met. The Board considers that reporting against the Principles and Provisions of the AIC Code, which has been endorsed THE BOARD by the Financial Reporting Council, provides more relevant The Board consists solely of non-executive Directors. All information to shareholders. Directors are considered by the Board to be independent of During the year, the Company has complied with all of the the Manager. Under the requirements of the Articles, Directors recommendations of the AIC Code. are subject to election at the next Annual General Meeting after their appointment. New Directors receive an induction from the The Company is committed to maintaining the highest Manager and Company Secretary on joining the Board, and all standards of governance and will ensure that it continues to Directors are encouraged to attend relevant training courses meet all applicable requirements. and seminars. The AIC Code is available on the AIC website www.theaic.co.uk. Individual Directors may, at the expense of the Company, It includes an explanation of how the AIC Code adapts the seek independent professional advice on any matter that Principles and Provisions set out in the UK Code to make concerns them in the furtherance of their duties. The Company themrelevant for investment companies. The UK Code is maintains appropriate directors’ and officers’ liability insurance. available from the Financial Reporting Council’s website at The Board is formed of four independent non-executive www.frc.org.uk. Directors. Mr Curling is the Chairman of the Board and Chair of A revised AIC Code was issued in August 2024, and will come the Nomination Committee, MsRoxburgh is Chair of the Audit into effect for accounting periods beginning on or after Committee and Senior Independent Director and Mr Neilly is 1January 2025 (with the exception of Provision 34 which Chair of the Remuneration Committee. will come into effect for accounting periods beginning on or after 1January 2026). The Board will continue to review the ATTENDANCE AT BOARD AND COMMITTEE MEETINGS Company’s governance arrangements to ensure ongoing The Board currently meets at least four times a year and, compliance with the updated AIC Code. in addition, informally on a regular basis. It receives full information on the Company’s investment performance, THE CHAIRMAN OF THE COMPANY assets, liabilities and other relevant information in advance of Mr Curling was appointed to the Board as an independent Board meetings. The Board has approved a formal schedule non-executive Director in 2015, and as Chairman of the of matters reserved for it, including, but not limited to: overall Board on 29August 2018. His biography can be found on strategy, investment policy, capital structure, gearing and page 27. Mr Curling is also a member of the Audit Committee monitoring the performance of the Manager. and Chair of the Nomination Committee. The Board believes it is appropriate for Mr Curling to be a member of both Committees as he is considered to bring valuable experience, to be independent and there are no conflicts of interest. page 34 Montanaro European Smaller Companies Trust plc    Annual Report and Accounts 2025 ## Corporate Governance Statement continued The following table sets out the number of scheduled Board and Committee meetings held during the year ended 31March 2025 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 3 3 1 1 1 1 CA Roxburgh 4 4 3 3 1 1 1 1 G Neilly 4 4 3 3 1 1 1 1 H Williams* 2 2 2 2 – – 1 1 * Appointed as a Director on 6September 2024, meetings held prior to this date are not included in Ms Williams’ attendance figures. The Board also met informally on a number of occasions during the year, including a significant amount of ad-hoc meetings in respect of the strategic initiatives. INDEPENDENCE OF DIRECTORS AND TENURE The Board completed evaluation questionnaires which covered The Board ensures that it has the appropriate balance of a range of areas including processes and effectiveness, size and skills, experience, knowledge and independence in order to composition, and corporate governance and were also intended remain effective and regularly reviews the independence of its to analyse the focus of meetings and assess whether they are members and considers all of the Directors to be independent appropriate, or if any additional information may be required in line with the 2019 AIC Code. to facilitate future Board discussions. The evaluation of the Chairman was carried out by the other Directors of the Company The Board does not feel that it would be appropriate to set a and the process was led by the Senior IndependentDirector. specific tenure limit for individual Directors or the Chairman of the Board or its Committees. Instead, the Board will regularly The results of the Board evaluation process were reviewed and review the size and structure of the Board with the aim of discussed by the Board. The Board concluded that it remains new directors bringing the challenge of fresh thinking into the effective and highlighted the continuing attention to succession Board’s discussions. By doing so, the Board intends to maintain planning and assessing developments in the retail investors’ a broad range of experience in the Board, with Directors who information needs and investment platforms as areas of focus. have served a range of periods on the Board of the Company. This will ensure that on each occasion the Board enters into ELECTION/RE-ELECTION OF DIRECTORS new investment commitments, several members have direct Under the provisions of the Company’s Articles, the Directors personal experience of negotiating previous commitments retire by rotation at least every three years, however, in with the Manager. This is intended to preserve the cumulative accordance with corporate governance best practice as set out experience and deep understanding of the Company, its in the AIC Code, all Directors should put themselves forward commitments and investment portfolio, while benefiting for re-election every year. As such, each of the Directors is from new perspectives and helping to promote diversity of subject to annual re-election by the shareholders at the Annual perspective. It is believed that the Directors provide, individually General Meeting and Mr Curling, Ms Roxburgh and Mr Neilly and collectively, the breadth of skill and experience to manage have confirmed that they will be standing for re-election at the Company and ensuring its long-term sustainable success. the forthcoming Annual General Meeting. As this is the first Annual General Meeting since her appointment as a Director, The basis on which the Company aims to generate value over MsWilliams will be standing for election. the longer term is set out in the Business Model and Strategy on pages 17 and 18. VOTING POLICY ON PORTFOLIO INVESTMENTS As noted in the Chairman’s Statement on page 4, Richard The Manager, in the absence of explicit instructions from the Curling will retire from the Board on 31 December 2025, at Board, is empowered to exercise discretion in the use of the which point Gordon Neilly will step into the role of Chairman. Company’s voting rights. Environmental, social and governance factors are taken into account by the Manager as part of PERFORMANCE EVALUATION its investment analysis and decision making processes. The During the year, the Directors undertook a formal and rigorous Board is pleased that the Manager has been a signatory of performance evaluation and also considered the output the UK Stewardship Code since its publication in 2010 and its from the previous year’s evaluation. The process was led by statement can be found on its website www.montanaro.co.uk. the Chairman and was designed to assess the strengths and In June 2019, Montanaro became a B Corporation, a business independence of the Board together with the performance of certified for meeting the highest verified standards of social and its Committees, the Chairman and individual Directors. environmental performance, transparency and accountability. Montanaro European Smaller Companies Trust plc    Annual Report and Accounts 2025 page 35 RELATIONS WITH SHAREHOLDERS Number Number of The Company welcomes the views of shareholders and places of Board Percentage on senior positions Gender identity or sex members the Board on the Board great importance on communication with its shareholders. Please refer to page 25 for details of engagement activity in the Men 2 50 1 year to 31 March 2025. Women 2 50 1 Not specified/prefer not to say – – – BOARD COMMITTEES The Board has established three Committees to assist with Number Number of its operations. Throughout the year the following Committees of Board Percentage on senior positions Ethnic background members the Board on the Board have been in operation, namely the Audit Committee, the Remuneration Committee and the Nomination Committee. White British or other 4 100 2 Each of the Committees’ delegated responsibilities are clearly White (including minority defined in formal terms of reference which are available on the whitegroups) Company’s website https://montanaro.co.uk/trust/mesct. Mixed/Multiple Ethnic Groups – – – Asian/Asian British – – – Audit Committee Black/African/Caribbean/ – – – The Report of the Audit Committee is included on pages 36 to BlackBritish 38 and forms part of this statement. Other Ethnic group – – – Remuneration Committee Not specified/prefer not to say – – – The Remuneration Committee, chaired by Mr Neilly, comprises the full Board and reviews the appropriateness of the The data in the above tables was collected through self-reporting Manager’s continuing appointment and determines the level by the Directors. of Directors’ fees. The Directors’ Remuneration Report on The Board does not comply with the Listing Rule requirement pages 39 to 41 provides information on the remuneration that there should be one ethnic minority Board member. The arrangements for the Directors of the Company. small size of the Board is a constraint to achieving all of these targets but the Board will actively take this into consideration in Nomination Committee future recruitment. The Nomination Committee, chaired by Mr Curling, comprises the full Board and is convened for the purpose of considering MODERN SLAVERY ACT 2015 the appointment of new Directors as and when considered As an investment trust, the Company does not provide goods appropriate. The Board is composed solely of non-executive or services in the normal course of business and does not Directors and has equal male and female representation. have customers. Accordingly, the Directors consider that The Directors will ensure it adheres to set objectives in relation the Company is not required to make any slavery or human to the diversity of the Board as and when they seek to appoint trafficking statement under the Modern Slavery Act 2015. additional Directors, in the future. The Board considers the guidance set out in the Hampton-Alexander Report and the RISK MANAGEMENT AND INTERNAL CONTROLS Parker Review in considering the composition of the Board Details of the principal risks and internal controls applied by and in its recruitment and succession planning. The Company’s the Board are set out on pages 19 to 22 and pages 36 and Board diversity policy is shown below. 37respectively. By order of the Board DIVERSITY AND INCLUSION The Board’s policy on diversity is to ensure that the Directors on the Board have a broad range of experience, skills and knowledge, with diversity of thinking, background and JUNIPER PARTNERS LIMITED perspective. Appointments to the Board are made on merit Company Secretary against objective criteria, having regard to the benefits of 18 June 2025 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 line with these recommendations. In accordance with Listing Rule 6.6.6 (9)(a) the tables below, in prescribed format, show the gender and ethnic background of the Directors at 18June 2025. page 36 Montanaro European Smaller Companies Trust plc    Annual Report and Accounts 2025 ## Report of the Audit Committee COMPOSITION OF THE COMMITTEE RISK MANAGEMENT The Board recognises the requirement for the Audit The Board has established an ongoing process designed Committee as a whole to have competence relevant to the to meet the particular needs of the Company in managing sector in which the Company operates and at least one the risks to which it is exposed, consistent with the related member with recent and relevant experience. guidance issued by the Financial Reporting Council. The Audit Committee is chaired by Ms Roxburgh, a Chartered Montanaro’s Compliance and Risk department and Juniper Accountant, who has recent and relevant financial experience, provide regular control reports to the Audit Committee and the and the Committee operates within clearly defined terms of Board covering administration, risk and compliance matters. reference and comprises all the Directors. Given the size of A key risk summary is produced to identify the risks to which the Board, and Mr Curling’s experience, it is felt appropriate the Company is exposed, the controls in place and the actions for him to sit on the Audit Committee as permitted by the being taken to mitigate them. The Board has a robust process AIC Code. The Directors have a combination of financial, for considering the resulting risk matrix and reviews the investment and business experience, specifically with respect significance of the risks, reasons for any change and actions to the investment trust sector. arising as a result. ROLE OF THE COMMITTEE The Company’s principal risks and their mitigations are set The duties of the Audit Committee include reviewing: the out on pages 19 to 22, with additional information provided in annual and interim financial statements; the system of internal Notes 15 to 20 of the financial statements. controls; and the terms of appointment and remuneration of The integration of these risks into the consideration of the the Auditor, PricewaterhouseCoopers LLP (“PwC”) including its Viability Assessment and Statement on page 31 was also fully independence and objectivity. considered by the Committee. The Audit Committee met three times during the year. The attendance of each of the members is set out on page 34. In INTERNAL CONTROL the course of its duties throughout the year, the Committee The Board is responsible for the Company’s systems of internal had direct access to PwC, Juniper, BNYM and Montanaro. controls and for reviewing their effectiveness. The Audit Amongst other things, the Audit Committee considered and Committee has reviewed and reported to the Board on these reviewed the following matters and reported thereon to controls which aim to ensure that the assets of the Company theBoard: are safeguarded, proper accounting records are maintained and the financial information used within the business and for ### • The annual and half-yearly reports and accounts and publication is reliable. results announcements; The key procedures which have been established to provide an ### • The accounting policies of the Company; effective internal control environment are outlined below: ### • The principal risks faced by the Company and the ### effectiveness of the Company’s internal control and risk • Board procedures are set within clearly defined management environment, including consideration of the parameters, as set out in matters specifically reserved for assumptions underlying the Board’s Viability Assessment the Board. and Statement; At every Board meeting the Directors review financial ### • The effectiveness of the audit process and related non- information prepared by the Administrator, including ### • audit services and the independence and objectivity management accounts, forecasts of income and of PwC, its appointment, remuneration and terms of expenditure and detailed analysis relating to the engagement; performance of the Company. ### The implications of proposed new accounting standards • The Bank of New York Mellon (International) Limited, as ### • and regulatory changes; the Company’s Depositary, provides quarterly reports to the Board and carries out daily independent checks on ### • The receipt of AAF (01/06) and ISAE 3402 reports or their cash and investment transactions. equivalent from the Manager, Administrator, Custodian ### and other service providers; and • The Bank of New York Mellon SA/NV is responsible for the custody of the Company’s investments. Lists of ### • Whether the Annual Report and Accounts is fair, balanced investments held are reconciled to the Company’s records and understandable. on a regular basis and a report on controls, which is reviewed by a firm of independent reporting accountants, is produced annually for consideration by the Audit Committee. Montanaro European Smaller Companies Trust plc    Annual Report and Accounts 2025 page 37 ### • Investment management services are provided by procedures have been in place throughout the year and up Montanaro, which is regulated by the Financial Conduct to the date of approval of the Annual Report, and the Board is Authority. At each Board meeting the Board monitors the satisfied with their effectiveness. The procedures are designed investment performance of the Company in comparison to manage rather than eliminate risk and, by their nature, can to its stated Investment Objective, the benchmark index only provide reasonable, but not absolute, assurance against and comparable investment trusts. The Board also material misstatement or loss. reviews the Company’s activities since the last Board The Board has previously reviewed the need for an internal meeting to ensure that Montanaro adheres to the agreed audit function. As an externally managed investment trust, Investment Policy and approved investment guidelines. it has decided that the systems and procedures employed On an annual basis, Montanaro produces an AAF 01/06 by the Manager and the Administrator, including their risk Report on internal controls, which is reviewed by a firm management and internal audit functions, provide assurance of independent reporting accountants, and which is that a sound system of internal control, which safeguards then reviewed and considered by the Audit Committee. shareholders’ investment and the Company’s assets, is Montanaro is also the Company’s AIFM and in this maintained. In addition, reporting is also provided by the capacity provides a semi-annual report to the Board. Depositary with respect to their monitoring and oversight ### • Juniper are responsible for the provision of company of the Company. An internal audit function, specific to the secretarial, accounting and administration services to Company, is therefore considered unnecessary. the Company. On an annual basis, Juniper produce an ISAE 3402 Report on internal controls, which is reviewed EXTERNAL AUDIT PROCESS AND SIGNIFICANT MATTERS by a firm of independent reporting accountants, for CONSIDERED BY THE AUDIT COMMITTEE consideration by the Audit Committee. As part of its review of the scope and results of the audit, The Board reviews contracts with other third party service during the year the Audit Committee considered and approved ### • providers, including the standard of services provided, on PwC’s plan for the audit of the financial statements for the a regular basis. year ended 31March 2025. At the conclusion of the audit, PwC did not highlight any issues to the Audit Committee which A formal annual review of these procedures is carried out by would cause it to qualify its audit report nor did it highlight any the Audit Committee. The review meeting is attended by the fundamental internal control weaknesses. PwC has issued an Company’s Auditor. During the year, the Committee received unqualified audit report which is included on pages 43 to 49. updates on any material changes in the risk environment The significant issues considered by the Audit Committee are and regulatory requirements, and the action taken. These discussed in the table below. 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. 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. page 38 Montanaro European Smaller Companies Trust plc    Annual Report and Accounts 2025 ## Report of the Audit Committee continued Matter Action 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 2025 is Shujaat Auditors to be a matter of the highest priority. The Company’s Khan’s fourth 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 18 June 2025 ### • 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 2025 is £57,750 (2024: £54,340). The increase in fees reflects the cumulative effect of inflationary pressures since the audit tender. Montanaro European Smaller Companies Trust plc    Annual Report and Accounts 2025 page 39 ## 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 2025. 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43 to 49. 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, Ms Williams and the Chair, Mr Neilly. As the recruitment of Directors is that the fees for a non-executive Company has no executive Directors, the Committee meets Director should reflect the responsibilities and time annually to determine the level of Directors’ fees and to review commitment required. The Committee seeks to encourage the performance of the Manager. The outcome of the review of the enhancement of the Company’s performance and to the Manager can be found on page 29. No Director is involved ensure that remuneration packages offered are competitive in 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. page 40 Montanaro European Smaller Companies Trust plc Annual Report and Accounts 2025 ## Directors' Remuneration Report continued ### FUTURE POLICY TABLE Following a review of the level of Directors' fees, the Remuneration Committee concluded that, for the forthcoming financial year, the Chairman's fee will remain at £43,000 per annum, the Audit Committee Chair's fee will remain at £37,500 per annum and other Directors' fees will remain at £31,000 per annum. Based on these fees, Directors' fees for the forthcoming financial year would be as follows: | | 31 March 2026 | 31 March 2025 | | --- | --- | --- | | Chairman | **£43,000** | £43,000 | | Audit Committee Chair | **£37,500** | £37,500 | | Director | **£31,000** | £31,000 | ### 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 2025 and 31 March 2024 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 £ | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | 2025 | 2024 | 2025 | 2024 | 2025 | 2024 | 2025 | 2024 | 2025 | 2024 | | R M Curling | **43,000** | 41,000 | **1,501** | 1,130 | **44,501** | 42,130 | **43,000** | 41,000 | **1,501** | 1,130 | | C A Roxburgh | **37,500** | 35,500 | **4,442** | 1,445 | **41,942** | 36,945 | **37,500** | 35,500 | **4,442** | 1,445 | | G Neilly | **31,000** | 29,500 | – | 455 | **31,000** | 29,955 | **31,000** | 29,500 | – | 455 | | H Williams | **17,562** | – | **865** | – | **18,427** | – | **17,562** | – | **865** | – | | Total | **129,062** | 106,000 | **6,808** | 3,030 | **135,870** | 109,030 | **129,062** | 106,000 | **6,808** | 3,030 | ^ 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 2025, whether for loss of office or otherwise. ### ANNUAL PERCENTAGE CHANGE IN REMUNERATION OF DIRECTORS Directors' pay has increased over the last five years, as set out in the table below: | | 2025 £ | Change % | 2024 £ | Change % | 2023 £ | Change % | 2022 £ | Change % | 2021 £ | Change % | 2020 £ | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Chairman | **43,000** | 4.9 | 41,000 | 5.1 | 39,000 | 8.2 | 36,050 | 3.0 | 35,000 | 9.0 | 32,000 | | Audit Committee Chair | **37,500** | 5.6 | 35,500 | 6.0 | 33,500 | 8.4 | 30,900 | 3.0 | 30,000 | 11.0 | 27,000 | | Director | **31,000** | 5.1 | 29,500 | 5.4 | 28,000 | 8.7 | 25,750 | 3.0 | 25,000 | 9.0 | 23,000 | The Company does not have any employees and therefore no comparisons are given in respect of Directors' and employees' pay increases. Montanaro European Smaller Companies Trust plc    Annual Report and Accounts 2025 page 41 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 29. 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), 2025, the share price total return (assuming all dividends are other operating expenses and shareholder distributions: reinvested) to shareholders compared to the return from the 2025 2024 Change benchmark index. An explanation of the performance of the £ £ % Company for the year ended 31March 2025 is given in the Aggregate Directors’ Chairman’s Statement and the Manager’s Report. † remuneration 129,062 106,000 21.8 Share Price and Benchmark Performance** Management and other (rebasedat100 on 31March 2015, GBP) operating expenses* 3,234,000 2,982,000 8.5 Dividends paid to shareholders 2,273,000 1,885,000 20.6 0 * Includes Directors’ remuneration. 0 † This represents the total change; the Board comprised four Directors from 6 September 2024, compared to three Directors during the year ending 0 31March 2024 0 DIRECTORS’ INTERESTS (AUDITED) 0 The Directors who held office during the year and their 0 interests in the shares of the Company were as follows: Share Price Total Return Benchmark Total Return 50 | | | As at | | As at | | --- | --- | --- | --- | --- | | | 31March 2025 | | 31March 2024 | | | ** From 5September 2006: MSCI Europe SmallCap Index. The benchmark | No. of shares | | No. of shares | | was changed on 1June 2009 to the MSCI Europe ex-UK SmallCap Index R M Curling Beneficial 150,000 150,000 (in Sterling terms). This benchmark was selected because it is the most commonly used index for SmallCap investors. C A Roxburgh^ Beneficial 70,169 62,833 G Neilly Beneficial 62,701 62,293 VOTING AT AGM H Williams – – – At the Company’s last Annual General Meeting, held on 5September 2024, shareholders approved the Annual Report ^ Includes 1,654 shares held in Ms Roxburgh’s spouse’s name on Directors’ Remuneration for the year ended 31March 2024, On 7 May 2025, Hillary Williams acquired 6,255 Ordinary 99.65% of votes were in favour of the resolution and 0.35% of shares. There have been no other changes to the above voters were against. 0.1% of votes were withheld. holdings between 31 March 2025 and the date of this Annual An ordinary resolution for the approval of this Annual Report Report. None of the Directors nor any persons connected on Directors’ Remuneration will be put to shareholders at the with them had a material interest in any of the Company’s forthcoming Annual General Meeting. transactions, arrangements or agreements during the year. The Directors’ Remuneration Policy was last approved by STATEMENT OF IMPLEMENTATION OF REMUNERATION POLICY shareholders at the Company’s Annual General Meeting, held IN RESPECT OF THE FINANCIAL YEAR ENDING 31MARCH 2026 on 7 September 2023. 99.25% of votes were in favour of the The Committee will, as usual, review Directors’ fees during resolution and 0.73% of votes were against. 0.02% of votes 2025/26, including the time required to be committed to were withheld. the business of the Company, and will consider whether any 400 further changes to remuneration are required. 35 By Order of the Board 30 25 G NEILLY 20 Chair of the Remuneration Committee 15 18 June 2025 10 2014 2015 2016 2017 2018 2019 20242023202220212020 page 42 Montanaro European Smaller Companies Trust plc    Annual Report and Accounts 2025 ## Statement of Directors’ Responsibilities ### in respect of the Financial Statements The Directors are responsible for preparing the Annual Report DIRECTORS’ CONFIRMATIONS and the financial statements in accordance with applicable law Each of the Directors, whose names and functions are listed in 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 Strategic Report includes a fair review of the Under company law, Directors must not approve the financial development and performance of the business and the statements unless they are satisfied that they give a true and position of the Company, together with a description of fair view of the state of affairs of the Company and of the 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: ### • select suitable accounting policies and then apply R M CURLING themconsistently; Chairman ### • state whether applicable UK-adopted international 18 June 2025 accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; ### • make judgements and accounting estimates that are reasonable and prudent; and ### • prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business. The Directors are responsible for safeguarding the assets of 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. Montanaro European Smaller Companies Trust plc    Annual Report and Accounts 2025 page 43 ## 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 2025 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 2025; 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. page 44 Montanaro European Smaller Companies Trust plc    Annual Report and Accounts 2025 ## Independent Auditors’ Report continued ### to the Members of Montanaro European Smaller Companies Trust plc Key audit matters ### • Valuation and existence of investments ### • Income from and gains/losses on investments Materiality ### • Overall materiality: £2,915,080 (2024: £3,127,200) based on 1% of Net Assets. ### • Performance materiality: £2,186,310 (2024: £2,345,400). 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. £296.8 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. Montanaro European Smaller Companies Trust plc    Annual Report and Accounts 2025 page 45 Key audit matter How our audit addressed the key audit matter Income from and gains/losses on We found that the accounting policies implemented were in accordance with investments accounting standards and the AIC SORP, and that income has been accounted Refer to Material Accounting policies and for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 We focused on the accuracy, occurrence bank 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 investment reports 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 inline 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. page 46 Montanaro European Smaller Companies Trust plc    Annual Report and Accounts 2025 ## Independent Auditors’ Report continued ### to the Members of Montanaro European Smaller Companies Trust plc 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 £2,915,080 (2024: £3,127,200). How we determined it 1% of Net Assets Rationale for benchmark applied We believe that net assets is the primary measure used by the shareholders in assessing the performance of the entity, and is a generally accepted auditing benchmark. This benchmark provides an appropriate and consistent year on year basis for our audit. 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% (2024: 75%) of overall materiality, amounting to £2,186,310 (2024: £2,345,400) 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 £145,754 (2024: £156,360) 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. From our work on the corporate governance statement described below, 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. Montanaro European Smaller Companies Trust plc    Annual Report and Accounts 2025 page 47 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 2025 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 Report to be audited has been properly prepared in accordance with theCompanies Act 2006. CORPORATE GOVERNANCE STATEMENT As explained in Corporate Governance Statement, the Directors have chosen to demonstrate how the Company has met its obligations under the UK Corporate Governance Code (“the Code”) by reporting under the 2019 Association of Investment Companies’ Code of Corporate Governance (“the AIC Code”). As such, we refer to the AIC Code where we report matters required under ISAs (UK) in respect of 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 Code specified by the Listing Rules 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. page 48 Montanaro European Smaller Companies Trust plc    Annual Report and Accounts 2025 ## Independent Auditors’ Report continued ### to the Members of Montanaro European Smaller Companies Trust plc Our review of the Directors’ statement regarding the longer-term viability of the Company was substantially less in scope than an audit and only consisted of making inquiries and considering the Directors’ process supporting their statement; checking that the statement is in alignment with the relevant provisions of the 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, 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 to breaches of section 1158 of the Corporation Tax Act 2010, 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 noncompliance with laws and regulation and fraud; ### • reviewing relevant committee meeting minutes, including those of the Board and Audit Committee; • 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; Montanaro European Smaller Companies Trust plc    Annual Report and Accounts 2025 page 49 ### • 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 Report to be audited are not in agreement with the accounting records and returns. 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 four years, covering the years ended 31 March 2022 to 31 March 2025. SHUJAAT KHAN (Senior statutory auditor) for and on behalf of PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors Edinburgh 18 June 2025 page 50 Montanaro European Smaller Companies Trust plc Annual Report and Accounts 2025 ## Statement of Comprehensive Income | | Notes | Year to 31 March 2025 | | | Year to 31 March 2024 | | | | --- | --- | --- | --- | --- | --- | --- | --- | | | | Revenue £'000 | Capital £'000 | Total £'000 | Revenue £'000 | Capital £'000 | Total £'000 | | **Capital (losses)/gains on investments** | | | | | | | | | (Losses)/gains on investments held at fair value | 9 | – | (5,074) | (5,074) | – | 13,543 | 13,543 | | Exchange (losses)/gains | | – | (52) | (52) | – | 135 | 135 | | **Revenue** | | | | | | | | | Investment income | 2 | 5,098 | – | 5,098 | 4,576 | – | 4,576 | | Other income | 2 | 84 | – | 84 | 116 | – | 116 | | **Total income** | | **5,182** | **(5,126)** | **56** | **4,692** | **13,678** | **18,370** | | **Expenditure** | | | | | | | | | Management expenses | 3 | (865) | (1,608) | (2,473) | (803) | (1,490) | (2,293) | | Other expenses | 4 | (761) | – | (761) | (689) | – | (689) | | **Total expenditure** | | **(1,626)** | **(1,608)** | **(3,234)** | **(1,492)** | **(1,490)** | **(2,982)** | | **Return before finance costs and taxation** | | **3,556** | **(6,734)** | **(3,178)** | **3,200** | **12,188** | **15,388** | | Finance costs | 5 | (183) | (340) | (523) | (134) | (248) | (382) | | **Return before taxation** | | **3,373** | **(7,074)** | **(3,701)** | **3,066** | **11,940** | **15,006** | | Taxation | 6 | (536) | – | (536) | (376) | – | (376) | | **Return after taxation** | | **2,837** | **(7,074)** | **(4,237)** | **2,690** | **11,940** | **14,630** | | **Return per share** | 8 | **1.50p** | **(3.75p)** | **(2.25p)** | **1.42p** | **6.30p** | **7.72p** | 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. Montanaro European Smaller Companies Trust plc Annual Report and Accounts 2025 page 51 ## Balance Sheet | | Notes | 31 March 2025 £'000 | 31 March 2024 £'000 | | --- | --- | --- | --- | | **Non-current assets** | | | | | Investments held at fair value through profit or loss | 9 | **296,829** | 321,676 | | **Current assets** | | | | | Trade and other receivables | 10 | **1,592** | 885 | | Cash and cash equivalents | 10 | **14,816** | 242 | | | | **16,408** | 1,127 | | **Total assets** | | **313,237** | 322,803 | | **Current liabilities** | | | | | Trade and other payables | 11 | **(839)** | (754) | | Revolving credit facility | 11 | **(12,560)** | (856) | | | | **(13,399)** | (1,610) | | **Non-current liabilities** | | | | | Interest-bearing bank loan | 12 | **(8,330)** | (8,473) | | **Total liabilities** | | **(21,729)** | (10,083) | | **Net assets** | | **291,508** | 312,720 | | **Capital and reserves** | | | | | Ordinary share capital | 13 | **9,471** | 9,471 | | Share premium account | | **44,057** | 44,057 | | Capital redemption reserve | | **2,212** | 2,212 | | Capital reserve | | **230,745** | 252,521 | | Revenue reserve | | **5,023** | 4,459 | | **Total shareholders' funds** | | **291,508** | 312,720 | | **Net asset value per share** | 14 | **162.0p** | 165.1p | The financial statements on pages 50 to 66 were approved and authorised for issue by the Board of Directors on 18 June 2025 and signed on its behalf by: ### R CURLING Director Company Registered Number: SC074677 The accompanying notes are an integral part of the financial statements. page 52 Montanaro European Smaller Companies Trust plc    Annual Report and Accounts 2025 ## Statement of Changes in Equity ### for the year ended 31 March 2025 | | | | Share | | Capital | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | Share | premium | | redemption | | Capital | Revenue | | | | | capital | account | | | reserve | reserve | reserve | | Total | | Year to 31March 2025 Notes | £’000 | | £’000 | | £’000 | £’000* | | £’000* | £’000 | As at 1 April 2024 9,471 44,057 2,212 252,521 4,459 312,720 Return after taxation – – – (7,074) 2,837 (4,237) Dividends paid 7 – – – – (2,273) (2,273) Share buybacks 13 – – – (14,702) – (14,702) As at 31 March 2025 9,471 44,057 2,212 230,745 5,023 291,508 | | | | 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 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. Montanaro European Smaller Companies Trust plc Annual Report and Accounts 2025 page 53 ## Statement of Cash Flows | | 31 March 2025 £'000 | 31 March 2024 £'000 | | --- | --- | --- | | **Cash flows from operating activities** | | | | Return before taxation | (3,701) | 15,006 | | Investment losses/(gains) | 5,074 | (13,543) | | Exchange losses/(gains) | 52 | (135) | | Finance costs | 523 | 381 | | Withholding tax | (557) | (374) | | Investment income | (5,182) | (4,692) | | Dividends received | 5,208 | 4,675 | | Other income received | 84 | 116 | | Purchases of investments | (22,379) | (33,701) | | Sales of investments | 41,415 | 35,136 | | Increase in receivables | (62) | (100) | | Increase in payables | 51 | 222 | | Net cash inflow from operating activities | 20,526 | 2,991 | | **Cash flows from financing activities** | | | | Own shares bought back | (14,702) | – | | Repayments of loan | – | (4,327) | | Drawdowns on revolving credit facility | 11,683 | 855 | | Loan arrangement fees | – | (94) | | Dividends paid | (2,273) | (1,885) | | Interest paid | (452) | (353) | | Net cash outflow from financing activities | (5,744) | (5,804) | | **Net increase/(decrease) in cash and cash equivalents** | 14,782 | (2,813) | | Exchange losses | (208) | (170) | | **Increase/(decrease) in cash and cash equivalents** | 14,574 | (2,983) | | Cash and cash equivalents at beginning of year | 242 | 3,225 | | **Cash and cash equivalents at end of year** | 14,816 | 242 | The accompanying notes are an integral part of the financial statements. page 54 Montanaro European Smaller Companies Trust plc    Annual Report and Accounts 2025 ## Notes to the Financial Statements ### for the year ended 31 March 2025 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 2024. 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 18June 2026. Please refer to page 30 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 2025 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 AIC 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. Montanaro European Smaller Companies Trust plc    Annual Report and Accounts 2025 page 55 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 AIC 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. page 56 Montanaro European Smaller Companies Trust plc    Annual Report and Accounts 2025 ## Notes to the Financial Statements continued 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 Reserve 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. This reserve is non-distributable. Capital Redemption Reserve The nominal value of Ordinary shares bought back for cancellation is added to this reserve. This reserve is non-distributable. Montanaro European Smaller Companies Trust plc Annual Report and Accounts 2025 page 57 ## 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 2025, no financial assets or financial liabilities had been offset (31 March 2024: 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 (losses)/gains'. | Rates of exchange (per Pound Sterling) | 31 March 2025 | 31 March 2024 | Change % | | --- | --- | --- | --- | | Danish Krone | **8.90** | 8.72 | 2.1% | | Euro | **1.19** | 1.17 | 1.7% | | Norwegian Krone | **13.56** | 13.65 | (0.7%) | | Swedish Krona | **12.96** | 13.44 | (3.6%) | | Swiss Franc | **1.14** | 1.14 | 0.0% | page 58 Montanaro European Smaller Companies Trust plc    Annual Report and Accounts 2025 ## Notes to the Financial Statements continued 2 Income | | Year to | | Year to | | --- | --- | --- | --- | | 31March 2025 | | 31March 2024 | | | | £’000 | | £’000 | Investment income Overseas dividend income 5,102 4,582 Exchange losses (4) (6) Investment income 5,098 4,576 Bank interest 84 100 Other income – 16 Total other income 84 116 Total income 5,182 4,692 3 Management Expenses Year to 31March 2025 Year to 31March 2024 Revenue Capital Total Revenue Capital Total £’000 £’000 £’000 £’000 £’000 £’000 Investment management fee 856 1,592 2,448 785 1,458 2,243 AIFM fee 9 16 25 18 32 50 865 1,608 2,473 803 1,490 2,293 Details of the management fee arrangements during the year, and future arrangements, are contained within the Directors’ Report on page 29 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 2025 Year to 31March 2024 | | Revenue | | Capital | Total | Revenue | | Capital | Total | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | £’000 | £’000 | £’000 | | £’000 | £’000 | £’000 | | Directors’ fees | | 129 – 129 | | | | 106 – 106 | | | Auditor’s remuneration for: – statutory audit* 58 – 58 54 – 54 Secretarial and administration fees 188 – 188 173 – 173 Legal, professional and advisory fees – – – 13 – 13 Custody and depositary fees 115 – 115 96 – 96 Credit facility commitment fee 58 – 58 43 – 43 Other 213 – 213 204 – 204 761 – 761 689 – 689 * The statutory audit for the year to 31 March 2025 is £57,750 (2024: £54,340). 5 Finance Costs Year to 31March 2025 Year to 31March 2024 Revenue Capital Total Revenue Capital Total £’000 £’000 £’000 £’000 £’000 £’000 Interest payable on bank borrowings 183 340 523 134 248 382 6 Taxation Year to 31March 2025 Year to 31March 2024 Revenue Capital Total Revenue Capital Total £’000 £’000 £’000 £’000 £’000 £’000 Overseas tax 536 – 536 376 – 376 Montanaro European Smaller Companies Trust plc    Annual Report and Accounts 2025 page 59 6 Taxation continued FACTORS AFFECTING TAX CHARGE FOR THE YEAR The corporation tax rate was 25% (2024: 25%). 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 2025 | | 31March 2024 | | | | £’000 | | £’000 | (Loss)/profit on activities before taxation (3,701) 15,006 Corporation tax at standard rate of 25% (2024: 25%) (925) 3,752 Effect of: Non-taxable losses/(gains) on investments 1,269 (3,386) Movement in unutilised expenses 939 841 Non-taxable overseas income (1,296) (1,173) Exchange losses/(gains) 13 (34) Overseas tax 536 376 Total tax charge for the year 536 376 As at 31March 2025, the Company had unutilised management expenses for taxation purposes of £38,076,000 (2024: £34,320,000). A deferred tax asset of £9,519,000 (2024: £8,580,000) 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 2025 | | 31March 2024 | | | | £’000 | | £’000 | 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 Final dividend for the year ended 31March 2024 of 0.900p per share 1,705 – First interim dividend for the year ended 31March 2025 of 0.300p per share 568 – 2,273 1,885 Amounts relating to the year but not paid at the year end: Final dividend for the year ended 31March 2024 of 0.900p per share – 1,705 Second interim dividend for the year ended 31March 2025 of 0.960p per share 1,535 – 1,535 1,705 A second interim dividend of 0.96p will be paid on 7 August 2025 to shareholders on the register on 27 June 2025. 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 2025 | | 31March 2024 | | | | £’000 | | £’000 | Revenue attributable to equity shareholders 2,837 2,690 Interim dividend for the year ended 31March 2024 of 0.225p per share – (426) Final dividend for the year ended 31March 2024 of 0.900p per share – (1,705) First interim dividend for the year ended 31March 2025 of 0.300p per share (568) – Second interim dividend for the year ended 31March 2025 of 0.96p per share (1,535) – Net movement in revenue 734 559 page 60 Montanaro European Smaller Companies Trust plc    Annual Report and Accounts 2025 ## Notes to the Financial Statements continued 8 Return per Share Year to 31March 2025 Year to 31March 2024 Revenue Capital Total Revenue Capital Total Basic 1.50p (3.75p) (2.25p) 1.42p 6.30p 7.72p Basic total return per Ordinary share is based on the total comprehensive loss for the financial year of £4,237,000 (2024: gain of £14,630,000) and on 188,678,279 (2024: 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 £2,837,000 (2024: £2,690,000), and on 188,678,279 (2024: 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 loss for the financial year of £7,074,000 (2024: gain of £11,940,000), and on 188,678,279 (2024: 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 2025 | | 31March 2024 | | | | £’000 | | £’000 | Opening cost 193,353 193,796 Holding gains 128,323 116,512 Opening fair value 321,676 310,308 Purchases at cost 22,379 43,002 Sales – proceeds (42,152) (45,177) – gains on sales 22,325 1,732 Holding (losses)/gains (27,399) 11,811 Closing fair value 296,829 321,676 Closing cost 195,905 193,353 Holding gains 100,924 128,323 Closing valuation 296,829 321,676 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 £13,000 and sales of investments of £17,000 (2024: £29,000 on purchases and £18,000 on sales). | | Year to | | Year to | | --- | --- | --- | --- | | 31March 2025 | | 31March 2024 | | | | £’000 | | £’000 | Gains on sales 22,325 1,732 (Decrease)/increase in holding gains (27,399) 11,811 (Losses)/gains on investments (5,074) 13,543 Montanaro European Smaller Companies Trust plc    Annual Report and Accounts 2025 page 61 10 Current Assets TRADE AND OTHER RECEIVABLES | | As at | | As at | | --- | --- | --- | --- | | 31March 2025 | | 31March 2024 | | | | £’000 | | £’000 | Due from broker 737 – Prepayments and accrued income 82 221 Overseas tax recoverable 773 664 1,592 885 The carrying value of the balances above approximates to fair value. There are no amounts which are past due at the year end (2024: £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. | | As at | | As at | | --- | --- | --- | --- | | 31March 2025 | | 31March 2024 | | | | £’000 | | £’000 | Cash at bank and on hand 14,816 242 11 Current Liabilities | | As at | | As at | | --- | --- | --- | --- | | 31March 2025 | | 31March 2024 | | | | £’000 | | £’000 | Trade and other payables: Investment management and AIFM fee 646 595 Other creditors 193 159 839 754 | | As at | | As at | | --- | --- | --- | --- | | 31March 2025 | | 31March 2024 | | | | £’000 | | £’000 | Revolving credit facility: Revolving credit facility 12,560 856 12,560 856 The Company entered into a three year secured revolving credit facility with ING Bank N.V (“ING”), which will mature on 13September 2026. Drawdowns from the facility are charged at margin over the relevant EURIBOR rate. As at 31 March 2025, €15million (£12,560,000) of the facility was drawn (2024: €1million (£856,000), at a rate of 4.27%. 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. page 62 Montanaro European Smaller Companies Trust plc    Annual Report and Accounts 2025 ## Notes to the Financial Statements continued 12 Interest-Bearing Bank Loans | | Year to | | Year to | | --- | --- | --- | --- | | 31March 2025 | | 31March 2024 | | | | £’000 | | £’000 | Opening balance 8,473 8,787 Set up Cost – (98) Amortisation of set-up costs 33 22 Non-cash foreign currency movements (176) (238) 8,330 8,473 The Company has a €10 million three year secured loan at a fixed rate of 5.105% per annum with ING. This loan will 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 (2024: £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 | | | As at | | | As at | | --- | --- | --- | --- | --- | --- | | | 31 March | | | 31 March | | | Number | | 2025 | Number | | 2024 | | of shares | | £’000 | of shares | | £’000 | Ordinary shares of 5p Ordinary shares in issue at the beginning of the year 189,427,600 9,471 189,427,600 9,471 Ordinary shares bought back to Treasury during the year (9,502,921) (475) – – Ordinary shares in issue at the end of the year 179,924,679 8,996 189,427,600 9,471 Treasury shares (Ordinary shares 5p) Treasury shares in issue at the beginning of the year – – – – Ordinary shares bought back to Treasury during the year 9,502,921 475 – – Treasury shares in issue at the end of the year 9,502,921 475 – – Total Ordinary shares in issue and in Treasury at the end of the year 189,427,600 9,471 189,427,600 9,471 The Company bought back 9,502,921 Ordinary shares into Treasury at a cost of £14,702,000 (2024: no shares bought back into Treasury). The cost of shares bought back is included within the capital reserve. 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 £312,398,000 (2024: £322,049,000). 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 17 and 18. The Company’s capital structure is also explained in the Directors’ Report on page 31. Montanaro European Smaller Companies Trust plc    Annual Report and Accounts 2025 page 63 14 Net Asset Value per Share | Net asset value per share | | | | Net asset value | | | --- | --- | --- | --- | --- | --- | | | As at 31March | | | As at 31March | | | | 2025 | 2024 | | 2025 | 2024 | | | p | | p | £’000 | £’000 | NAV per Ordinary Share 162.0 165.1 291,508 312,720 The NAV per share is based on net assets at the year end and on 179,924,679 (2024: 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 17 and 18. 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 2025: | | | | 2025 | | | | 2024 | | --- | --- | --- | --- | --- | --- | --- | --- | | 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 296,829 – – 296,829 321,676 – – 321,676 There were no transfers between levels in the fair value hierarchy in the year ended 31March 2025 (2024: none). Cash balances of £14,816,000 (2024: £242,000), debtors of £819,000 (2024: £221,000) and creditors of £839,000 (2024: £754,000) are considered financial instruments. page 64 Montanaro European Smaller Companies Trust plc    Annual Report and Accounts 2025 ## Notes to the Financial Statements continued 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 £296,829,000 (2024: £321,676,000). If the investment portfolio valuation fell by 10% from the amount detailed in the financial statements as at 31March 2025, it would have the effect, with all other variables held constant, of reducing the net capital return before taxation by £29,683,000 (2024: £32,167,000). 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. 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 £8,375,000 as at 31March 2025, at a rate of interest of 5.105% per annum (31 March 2024: €10 million drawn, with a sterling equivalent of £8,473,000, 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 €15million was drawn, with a Sterling equivalent of £12,560,000 as at 31March 2025, at a rate of interest of 4.27% per annum (31 March 2024: €1 million drawn, with a sterling equivalent of £856,000, 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 2025, the cash position of the Company was £14,816,000 (2024: £242,000). If interest rates had increased by 1.0%, the impact on the profit or loss and the NAV would have been negative £23,000 (2024: negative £6,000). If interest rates had decreased by 1.0%, the impact on the profit or loss and the NAV would have been positive £23,000 (2024: positive £6,000). 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 2025 | | £’000 | | £’000 | £’000 | | £’000 | | £’000 | | £’000 | | £’000 | Danish Krone 8,206 5 – – – – 8,211 Euro 136,291 315 14,692 – (12,560) (8,375) 130,363 Norwegian Krone 25,844 27 – – – – 25,871 Swedish Krona 89,948 – – – – – 89,948 Swiss Franc 36,540 426 – – – – 36,966 Total 296,829 773 14,692 – (12,560) (8,375) 291,359 Montanaro European Smaller Companies Trust plc    Annual Report and Accounts 2025 page 65 18 Foreign Currency Risk continued | | | | | 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) 167,419 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) 313,129 * Par value excluding amortised costs. If the value of Sterling had weakened by 5% (2024: 5%) against each of the currencies in the portfolio, the impact on the profit or loss and the NAV would have been positive £14,841,000 (2024: positive £16,084,000). If the value of Sterling had strengthened by 5% (2024: 5%) against each of the currencies in the portfolio, the impact on the profit or loss and the NAV would have been negative £14,841,000 (2024: negative £16,084,000). These calculations are based on the foreign currency exposure balances as at the respective Balance Sheet dates. 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: 2025 2024 £’000 £’000 Cash and cash equivalents 14,816 242 Due from brokers and accrued income 737 90 15,553 332 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 2025 or 31March 2024. No individual investment exceeded 5.0% of the investment portfolio at 31March 2025 (2024: none). 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 (2024: £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. page 66 Montanaro European Smaller Companies Trust plc    Annual Report and Accounts 2025 ## Notes to the Financial Statements continued 20 Liquidity Risk continued Liquidity risk is mitigated as the Company maintains sufficient cash to pay accounts payable and accrued expenses. As at 31March 2025, the cash position of the Company was £14,816,000 (2024: £242,000). 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 2025 | | £’000 | | | £’000 | | | £’000 | | £’000 | £’000 | Liabilities: Other creditors 839 – – – 839 Revolving credit facility 12,560 – – – 12,560 Loan and loan interest – – – 8,375 8,375 Total liabilities 13,399 – – 8,375 21,774 | | | | | 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 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 39 to 41. 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. Montanaro European Smaller Companies Trust plc    Annual Report and Accounts 2025 page 67 ## 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 71). and the remuneration of the Company’s AIFM, Montanaro Asset Management, 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 on request. The Company’s maximum and actual leverage levels at 31March 2025 are shown below: Leverage exposure Gross Commitment method method Maximum limit 200% 200% Actual 106.87% 106.91% 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. page 68 Montanaro European Smaller Companies Trust plc    Annual Report and Accounts 2025 ## Alternative Performance Measures Dividends per Ordinary share Ongoing Charges Total dividends paid to shareholders in respect of the year All operating costs expected to be incurred in the future and ended 31 March 2025, comprising the interim dividend, paid that are payable by the Company expressed as a proportion of on 22 January 2025 of 0.3p and the second interim dividend, to the average net assets of the Company over the reporting year. be paid on 7 August 2025 of 0.96p. The costs of buying and selling investments are excluded, as are interest costs, taxation, non-recurring costs and the costs Premium/(discount) of buying back or issuing Ordinary shares. 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 | | | --- | --- | --- | --- | --- | --- | --- | | is greater than the NAV per share, the shares are trading at a | 31March 2025 | | | 31March 2024 | | | | premium. | | | £’000 | | | £’000 | Total expenditure (a) 3,234 2,982 As at 31 March 2025, the NAV per share was 162.0p (2024:165.1p) and the share price was 148.5p (2024: 142.5p). Average monthly net assets (b) 308,082 286,505 The discount is therefore calculated at 8.3% (2024: discount Ongoing Charges (a/b) 1.0% 1.0% of13.7%). Portfolio turnover Net Gearing Employed Calculated using total sales proceeds as a percentage of the Unlike open-ended investment companies, investment trusts average net assets during the year. have the ability to borrow to invest. This term is used to For the For the describe the level of borrowings that an investment trust has year ended year ended undertaken, and is stated as a percentage of shareholders’ 31March 2025 31March 2024 funds. The higher the level of borrowings, the higher the Average net assets (£'000) (a) 308,082 286,505 gearing ratio. Sales (£'000) (b) 42,152 45,177 Net gearing is calculated as total debt, net of cash and cash Portfolio turnover (b)/(a) 14% 16% equivalents, as a percentage of the total shareholders’ funds. As at 31 March 2025, interest bearing bank loans and revolving credit facility were £20,890,000 (2024: £9,329,000), cash and cash equivalents were £14,816,000 (2024: £242,000) and net assets were £291,508,000 (2024: £312,720,000). As at 31 March 2025, gearing is therefore equal to 2.1% (2024: 2.9%). Montanaro European Smaller Companies Trust plc    Annual Report and Accounts 2025 page 69 Share Price and NAV per share Returns Capital Return measures the effect of any rise or fall in the share price or NAV per share, excluding any dividends paid. Total Return measures the effect of any rise or fall in the share price or NAV per share, plus dividends paid which are reinvested at the prevailing NAV or share price on the ex- dividend date. | Share Price Capital Return calculation as at 31 March 2025 | | | | | | | | | | NAV Capital Return calculation as at 31 March 2025 | | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Share price as at 31 March 2025 148.50 (a) | | | | | | | | | | NAV per share as at 31 March 2025 162.00 (a) | | | | | | | | | | | Share price as at 31 March 2024 142.50 (b) | | | | | | | | | | NAV per share as at 31 March 2024 165.10 (b) | | | | | | | | | | | Share Price Capital Return 4.21% ((a-b)/b) | | | | | | | | | | NAV Capital Return (1.88%) ((a-b)/b) | | | | | | | | | | | Impact of dividends reinvested 0.85% (Note 1) | | | | | | | | | | Impact of dividends reinvested 0.74% (Note 1) | | | | | | | | | | | Share Price Total Return 5.06% | | | | | | | | | | NAV Total Return (1.14%) | | | | | | | | | | | Note 1 – Share Price impact of dividends reinvested | | | | | | | | | | Note 1 – NAV impact of dividends reinvested | | | | | | | | | | | | Dividend | | | | | Share price at | | Impact of | | | Dividend | | | | | NAV per share | | Impact of | | | | per share | | | Ex-dividend | | ex-dividend | | dividends | | | per share | | | Ex-dividend | | at ex-dividend | | dividends | | | | (pence) | | | | date | | date | reinvested | | | (pence) | | | | date | | date | reinvested | | | Dividend | | (a) | | | | | (b) | | (a)/(b) | Dividend | | (a) | | | | | (b) | | (a)/(b) | | Interim | | | 19 December | | | | | | | Interim | | | 19 December | | | | | | | | dividend 0.3 | | | | | 2024 138.50 0.22% | | | | | dividend 0.3 | | | | | 2024 159.20 0.19% | | | | | | Final | | | | 15 August | | | | | | Final | | | | 15 August | | | | | | | dividend 0.9 | | | | | 2024 142.00 0.63% | | | | | dividend 0.9 | | | | | 2024 164.20 0.55% | | | | | | | | | | | | | | 0.85% | | | | | | | | | | 0.74% | | page 70 Montanaro European Smaller Companies Trust plc    Annual Report and Accounts 2025 ## 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. The responsibilities and remuneration of the company in certain circumstances. This contrasts with an Manager are set out in the Business Model and Strategy on open-ended investment company, which has units not traded page 18 and in the Directors’ Report on page 29. 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). Montanaro European Smaller Companies Trust plc    Annual Report and Accounts 2025 page 71 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. page 72 Montanaro European Smaller Companies Trust plc Annual Report and Accounts 2025 # 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 2025 | Company year end | | --- | --- | | 7 August 2025 | Payment of second interim dividend | | 4 September 2025 | Annual General Meeting | | November 2025 | Bi-annual tender offer | | November 2025 | Interim results announced | | January 2026 | Payment of expected first 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 82. ## 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 08:30 – 17:30, Monday to Friday excluding public holidays in England and Wales. Or alternatively you may contact the registrar at shareholderenquiries@equiniti.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. Montanaro European Smaller Companies Trust plc    Annual Report and Accounts 2025 page 73 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. 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. page 74 Montanaro European Smaller Companies Trust plc    Annual Report and Accounts 2025 ## 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, 4September 2025 at 11.00am for the purposes of considering and, if thought fit, passing the following Resolutions, of which Resolutions 1 to 10 will be proposed as Ordinary Resolutions and Resolutions 11 to 13 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 2025 be received. RESOLUTION 2 – ANNUAL REPORT ON DIRECTORS’ REMUNERATION That the Annual Report on Directors’ Remuneration for the year ended 31March 2025 be approved. RESOLUTION 3 – DIVIDEND POLICY That the Company’s Dividend Policy as set out in the Annual Report be approved. RESOLUTION 4 – ELECTION OF DIRECTOR To elect Ms H Williams as a Director of the Company. RESOLUTION 5 – RE-ELECTION OF DIRECTOR That Mr R M Curling, who retires annually, be re-elected as a Director. RESOLUTION 6 – RE-ELECTION OF DIRECTOR That Ms C A Roxburgh, who retires annually, be re-elected as a Director. RESOLUTION 7 – RE-ELECTION OF DIRECTOR That Mr G Neilly, who retires annually, be re-elected as a Director. RESOLUTION 8 – 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 9 – AUDITOR’S REMUNERATION That the Directors be authorised to determine the Auditor’s remuneration. Montanaro European Smaller Companies Trust plc Annual Report and Accounts 2025 page 75 # RESOLUTION 10 – 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 £799,476, provided that this authority shall expire at the conclusion of the Annual General Meeting of the Company to be held in 2026 or, if earlier, on 30 September 2026 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 11 – AUTHORITY TO ALLOT SHARES OTHER THAN ON A PRE-EMPTIVE BASIS That, subject to the passing of Resolution 10 and in substitution for any existing authority, but without prejudice to the exercise of any such authority prior to the date of the passing of this resolution, the Board of Directors of the Company (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 10 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 £799,476, 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 2026 or, if earlier, on 30 September 2026 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). page 76 Montanaro European Smaller Companies Trust plc    Annual Report and Accounts 2025 ## Notice of Annual General Meeting continued RESOLUTION 12 – AUTHORITY TO BUYBACK SHARES 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 23,968,306 (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 2026 or, if earlier, on 30September 2026 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. RESOLUTION 13 – GENERAL MEETING NOTICE PERIOD That the Company be and is hereby generally and unconditionally authorised to hold general meetings (other than annual general meetings) on 14 clear days’ notice, such authority to expire at the conclusion of the next Annual General Meeting of theCompany. By order of the Board JUNIPER PARTNERS LIMITED Company Secretary 18 June 2025 Registered office: 28 Walker Street Edinburgh EH3 7HR Montanaro European Smaller Companies Trust plc    Annual Report and Accounts 2025 page 77 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 2025 (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 – Dividend Policy The Board proposes an amendment to the Dividend Policy to include the following additional wording “Under normal market conditions the Company will pay two interim dividends per year, aligning with the release of the Annual and Interim Reports.” Please refer to page 18 for further details. As a result of the timing of the payment of the Company’s dividends payments the Company’s shareholders are unable to approve a final dividend. As an alternative, the Board puts the Company’s dividend policy to shareholders for approval on an annual basis. Resolutions 4 to 7 – Election/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. Ms Williams will be standing for election to the Board having been appointed as a Director since the last AGM. 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 pages 27 and 28 and are also available for viewing on the Company’s website https://montanaro. co.uk/trust/montanaro-european-smaller-companies-trust/. The Nomination Committee considered the Directors’ performance and recommended their re election and the Board agrees that it is in the best interests of shareholders that each of the Directors be re-elected. Resolutions 8 and 9 – Re-appointment and remuneration of Auditor 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 8. Resolution 9 authorises the Directors to fix the Auditor’s remuneration. Resolution 10 – Authority to allot ordinary shares Resolution 10 authorises the Board to allot Ordinary shares generally and unconditionally in accordance with Section 551 of the Companies Act 2006 (the “Act”) up to an aggregate nominal value of £799,476, 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 11 – Authority to disapply pre-emption rights Resolution 11 is a special resolution which is being proposed to authorise the Directors to disapply the pre-emption rights of existing Shareholders in relation to issues of Ordinary shares under Resolution 10 (being in respect of Ordinary shares up to an aggregate nominal value of £799,476, 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 10 and 11 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 32. page 78 Montanaro European Smaller Companies Trust plc    Annual Report and Accounts 2025 ## Notice of Annual General Meeting continued Resolution 12 – Purchase of own shares Resolution 12 is a special resolution which will grant the Company authority to make market purchases of up to 23,968,306 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. 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. Resolution 13 – Notice period for general meetings Resolution 13 is being proposed to enable general meetings to be held on 14 clear days’ notice. The minimum notice period for listed company general meetings is 21 clear days, but companies have an ability to reduce this period to 14 clear days (other than for annual general meetings), provided that the company offers facilities for shareholders to vote by electronic means and that there is an annual resolution of shareholders approving the reduction in the minimum period for notice of general meetings (other than annual general meetings) from 21 clear days to 14 clear days. The Board is therefore proposing Resolution 14 as a special resolution to ensure that the minimum required period for notice of general meetings of the Company (other than annual general meetings) is 14 clear days. The Directors believe it is in the best interests of the shareholders of the Company to preserve the shorter notice period, although it is intended that this flexibility will be used only for non-routine business and where merited in the interests of shareholders as a whole. The approval will be effective until the Company’s next Annual General Meeting when it is intended that a similar resolution will be proposed. Montanaro European Smaller Companies Trust plc    Annual Report and Accounts 2025 page 79 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 2September 2025. 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. 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 page 80 Montanaro European Smaller Companies Trust plc    Annual Report and Accounts 2025 ## Notice of Annual General Meeting continued 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 2September 2025 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 2September 2025 (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. Voting Through the Platforms If you hold your shares through an investment platform or other nominee services, the Board encourages you to contact your platform provider or nominee as soon as possible to make arrangements to vote in respect of your holding. Voting differs between the major platforms, and you should be aware that deadlines for voting through the platforms may be earlier than the Company’s proxy voting deadline. Further information on how to vote across the most common investment platforms is available at the following link: http://www.theaic.co.uk/how-to-vote-your-shares. 10. 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. Montanaro European Smaller Companies Trust plc Annual Report and Accounts 2025 page 81 ## 11. 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. ## 12. 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 24 July 2025, 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. ## 13. Voting Rights As at 17 June 2025 (being the latest practicable date prior to the publication of this notice) the Company had 159,895,306 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 17 June 2025 were 159,895,306 votes. ## 14. 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. ## 15. 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. ## 16. 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. ## 17. Personal data Personal data provided by shareholders at or in relation to the Meeting will be processed in line with the Company's privacy policy. page 82 Montanaro European Smaller Companies Trust plc    Annual Report and Accounts 2025 ## 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 | D ickson 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