European Smaller Companies Trust plc
Before you invest in a
Annual Report and Accounts 2023
UPDATE INFORMATION
This is for internal use only
Client Name:
Montanaro European Smaller
Companies Trust plc
Document Type:
Annual Report 2023
YF No:
YF072
Reference No:
DTP 1181
Tracked Version:
20
Time and Date Produced:
17:21 ~ 22 June 2023
The investment objective of Montanaro European Smaller
Companies Trust plc (the ‘Company’ or ‘MESCT’) is to achieve
capital growth by investing principally in Continental European
quoted smaller companies.
The Company’s benchmark index is the MSCI Europe ex-UK
SmallCap Index (in sterling terms).
The Company was launched in May 1981. Its current objective
and investment policy were adopted in September 2006.
Its Ordinary Shares are listed on the Main Market of the
Contents
Highlights 1
Strategic Report
Chairman’s Statement 2
Manager's Report 4
ESG Report 8
Twenty Largest Holdings 10
Business Model and Strategy 12
Directors' Duties 19
Governance Report
Board of Directors 23
Directors' Report 24
Corporate Governance Statement 29
32
Directors’ Remuneration Report 35
Management Report and Directors’
Responsibilities Statement 38
Financial Report
39
Statement of Comprehensive
Income 46
Balance Sheet 47
Statement of Changes in Equity 48
49
50
Disclosures 63
Shareholder Information 64
Measures 66
Glossary of Terms 68
70
78
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, he or she should pass
this document to the purchaser or
transferee or to the person through
whom the transfer or sale was
the transferee or purchaser.
Montanaro page 1
Highlights
for the year ended 31 March 2023
Performance
Capital Returns%
(1)
1 year 3 year 5 year 10 year
(2)
Ordinary share price (18.1%)^ 56.4% 72.0% 165.0% 331.1%
(7.6%)^ 65.6% 75.9% 183.1% 363.4%
(5.5%) 50.4% 19.7% 131.4% 178.0%
Total Returns%
(1)
1 year 3 year 5 year 10 year
(2)
Ordinary share price (17.6%)^ 59.2% 78.4% 193.5% 424.5%
(7.1%)^ 68.7% 82.2% 212.1% 452.5%
(3.2%) 58.7% 31.3% 177.1% 278.6%
.
As at
31 March
2023
31 March
2022
12 month
% change
Ordinary share price 137.6p 168.0p (18.1%)
158.4p 171.5p (7.6%)
(1)
(13.1%) (2.0%)
299,975 324,905 (7.7%)
260,652 318,238 (18.1%)
Net gearing employed
(1)
3.3% 4.6%
Year
ended
31 March
2023
Year
ended
31 March
2022
12 month
% change
Revenue return per Ordinary share 1.10p 0.96p 14.6%
Dividend per Ordinary share 0.970p 0.925p 4.9%
Ongoing charges
(1)
1.0% 1.1%
14% 11%
was appointed as Investment Manager.
68 and 69.
(1)
66 and 67.
(2)
SmallCap Index (in sterling terms).
page 2 Montanaro
Results
The MSCI Europe (ex-UK) Small Cap
Index (in Sterling terms) fell by -5.5%
31 March
158.4p per share. Over this period, the
share price widened from a discount to
-
result, the share price total return of the
Trust was -17.6%.The Board recognises
that while it is not out of line with the
peer group, this change in discount is
to monitor it closely.
monetary tightening by central banks
increased the cost of capital globally.
Such increases disproportionately
quality companies underperformed low
quality companies in Europe; and growth
companies underperformed value
companies. These style shifts created
headwinds for the Trust as the Manager
invests exclusively in high quality, growth
3%,
versus -19.3% for the benchmark.
The second half of the year saw these
headwinds fade as bond yields stabilised
lessen. It was therefore pleasing to
see strong returns in both absolute
and relative terms during the 6-month
period to 31 March
total return was 27. 8%, 7.9% ahead of
and 10 years your Trust has delivered
outperforming the benchmark by 50.9%
and 35.0% respectively. Since Montanaro
were appointed in September 2006
173.9% ahead of the benchmark and
2.5% ahead of the benchmark on a per
annum basis.
Earnings and Dividends
Revenue earnings per share rose to
1.10p in the period (2022: 0.96p).
0.20p per share
was paid on 5 2023. The Board
dividend of 0.77p per share payable on
15 September 2023 to shareholders on
the register on 18 2023. Subject
to shareholder approval, this would
bring the total dividends for the year to
0.97p per share. The overall dividend
increase of 5% over last year’s dividend
our investments and is made out of this
year’s revenue reserves.
The Trust also holds substantial revenue
reserves available for distribution,
which gives the Board the ability to
smooth any short-term income volatility.
Moreover, the companies in the portfolio
continue to have strong balance
sheets and therefore do not face the
ESG
Montanaro believe there is a clear
correlation between how well a business
fares on Environmental, Social and
Corporate Governance grounds and the
value it creates for its shareholders. This
is why ESG considerations have formed
an integral part of their assessment of a
integrated into their investment process
for many years.
The depth of Montanaro’s commitment
that they are one of the few UK asset
that meet the highest standards of
performance, public transparency
and legal accountability to balance
Montanaro have held since 2019 and
which was renewed for a further three
years in 2023. Montanaro’s score rose
from 81.8 to 105.5 (a strong result),
demonstrating their commitment to
Chairman’s Statement
for the year ended 31 March 2023
Montanaro page 3
8 and 9
the developments in Montanaro’s
approach and commitment to ESG as
well as how they are interacting with
Borrowings
The Board, in discussion with the
, regularly reviews the gearing
strategy of the Trust and approves any
gearing facility. Gearing increases (or
decreases) the returns from underlying
The Board has set a maximum limit
on borrowing (net of cash) of 30% of
shareholders’ funds at the time of
the Trust had borrowings (net of cash) of
3.3% compared to 4.6% at the beginning
of the year. The Trust currently has
borrowings in the form of a
€
10 million
down
€
15 million revolving credit facility,
both of which are due to mature on
13 September 2023. The Board expect
to replace these with new borrowings
Shares
The Board actively tracks the level of
peers over the short and medium term
and how it compares with the average
discount for the whole investment trust
sector. We recognise the discount is
around this level since the shift in market
sentiment against our quality growth
investment style. It is not out of line with
our peer group at this time and we have
made neither share buy backs nor share
issuances in line with our stated policies
which are set out on pages 27 and 28.
In line with those policies, the Board
will seek to renew the Trust's share
buyback and issuance authorities at the
Administrator and Company Secretary
The Company has appointed, with
Company Matters Limited and Link
respectively. On behalf of the Board and
the Manager, I would like to thank the
entire team at Link for their service and
commitment to the Trust.
Communication with Shareholders
Over the past few years, the composition
of our shareholder base has changed
of individual investors coming onto
the register via investment platforms.
We continue to explore how best to
communicate with all our shareholders
irrespective of how they access us. We
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.
Annual General Meeting
53 Threadneedle Street, London EC2R
7 September 2023 at 11.00 am.
Shareholders are encouraged to attend
the Meeting where there will be an
opportunity to meet and ask questions
of the Board and the Manager.
Outlook
The last few years have been
extraordinary. The aftershocks of
Covid-19 continue to be felt across the
world and indeed by the companies in
within and between countries show,
sometimes tragically, little sign of
improving. Banks on both sides of the
rescued. It should be little surprise then
that stock markets have been so volatile.
The stock market indices do not tell the
full story: beneath the surface, we have
witnessed some of the biggest style and
factor swings in history.
have predicted the combination of a
global pandemic, a Russian invasion
interest rates. Yet they have been
major drivers of stock markets since.
Montanaro believe that, rather than
attempting such predictions, investors
are best served by long-term ownership
of high quality businesses that can thrive
and grow irrespective of the general
macroeconomic or political environment.
of easing, investors remain relatively
Europe ex-UK Small Cap Index has
fallen below its long-term average and
sits at a 15% discount to LargeCap.
portfolio declined by more than a third
of March 2023. This is more than the fall
progress of the underlying businesses in
the portfolio and their share prices.
While doubtless the world will again
change in ways we cannot imagine in the
coming years, we believe that current
for long-term investors. Together with
the Manager’s disciplined investment
process, experienced team, and strong
track record since being appointed in
2006, this allows us to look forward to
R M CURLING
Chairman
22
page 4 Montanaro
Manager’s Report
The Attractions of Quoted European
Smaller Companies (‘SmallCap’)
The key attraction of investing in smaller
companies is their long-term record of
delivering higher returns to investors
than large companies. In the UK, over
the last 68 years, this has amounted
to an average of 3.1% per annum
UK large companies on 1955
nearly seven times more.
There is less comprehensive data on
Europe – it only goes back to 2000.
However, this suggests that the SmallCap
Continent: as the chart above illustrates,
outperformed by 4.8% p.a.
Moreover, while European LargeCaps
have underperformed their US
counterparts, the same is not true for
SmallCaps. Since 2000, the MSCI Europe
(ex-UK) Small Cap Index has delivered
gross USD returns of 9.4% p.a. – ahead
9.3% p.a.
The market for European smaller
large companies are analysed by
more than 50 brokers, many smaller
companies in Europe have little or no
coverage at all. This makes it easier
for those with a high level of internal
resources to identify attractive,
undervalued investment opportunities
that are undiscovered by the wider
investing community. This in turn
makes it possible to deliver long-term
performance over and above that of
Montanaro
Montanaro was established in 1991.
We have one of the largest and most
experienced specialist teams in the UK
dedicated exclusively to researching and
investing in quoted small companies.
Our team of 38 includes 14 analysts
and 12 nationalities, which gives us
the breadth of resources and diversity
of experience to conduct thorough
fundamental research internally.
31 March 2023, we were looking after
the Investment Manager for your Trust
since September 2006.
Investment Philosophy and Approach
We specialise in researching and
investing in quoted small companies.
We have a disciplined, two-stage
investment process which is applied to
all the products we manage, including
universe. We look for high quality
companies in markets that are growing.
and experienced management; deliver
sustainably high returns on capital
employed; enjoy high and ideally
power and a strong market position;
and provide goods and services that
are in demand and likely to remain so.
We prefer companies that can deliver
self-funded organic growth and remain
focused on their core areas of expertise,
rather than businesses that spend a lot
of time on acquisitions.
Conversely, we avoid those with
stretched balance sheets; poor free
or heavily adjusted accounts; unproven
or unreliable management; or that face
structurally challenged business models
900
600
500
400
300
200
100
0
31 Dec
2000
01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 18 2221 31 Mar
2023
MSCI Europe (ex UK) SmallCap (in GBP terms) MSCI Europe (ex UK) LargeCap (in GBP terms)
700
800
17
20
19
Continental European Small v. LargeCap
(MSCI Europe ex UK SmallCap v. LargeCap indices, Net TR)
(rebased to 100 from 31 December 2000)
Montanaro page 5
quality and ESG checklists. ESG has
been integrated into our disciplined
investment process for almost
When we have found a company that
we believe is high quality, has structural
growth and is well managed from a
business and ESG perspective, it must be
approved by the Investment Committee
before it can be added to the Montanaro
We then determine the intrinsic value
List, typically through a proprietary
and which we also believe are attractively
valued are then eligible for inclusion in
We have an investment team of 17,
including 14 sector and ESG specialists,
covering many languages. Utilising their
industry knowledge and a range of
proprietary screens, they are continually
searching for new ideas. With thousands
of quoted companies from which to
choose, we are spoiled for choice.
We believe that a deep understanding
of a company’s business model and the
way it is managed are essential. We visit
our investee companies on a regular
basis. We examine management’s past
track record in detail as we seek to
understand their goals and aspirations.
In smaller companies, the decisions
of the entrepreneurial management
can make or break a company, which
is why meeting them is so important.
We look closely at the board structure;
the level of insider ownership; and
examine remuneration and corporate
Once a company has been added to the
portfolio, our team conducts ongoing
analysis. We will sell a holding if we
believe that the company’s underlying
quality is deteriorating or if there has
been a fundamental change to the
investment case or management.
In summary, we invest in well managed,
high quality, growing companies bought
at sensible valuations. We keep turnover
and transaction costs low and follow
our companies closely over many years.
We would rather pay more for a higher
quality, more predictable company that
can be valued with greater certainty.
investors by investing meaningful
amounts of our own money alongside
the Trust.
The Portfolio
31 March 2023, the portfolio consisted
of 49 companies of which the top ten
holdings represented 39%. Sector and
country distribution within the portfolio
weightings relative to the market are
monitored, overweight and underweight
positions are held based on where the
greatest value and upside are perceived
to be.
Performance Attribution
The year to 31 March 2023 saw strong
performances from some of our largest
investments:
Kitron is an Electronics Manufacturing
Services (EMS) business with its
headquarters in Norway. The company
had an excellent year as supply chain
constraints in the electronics industry
eased, allowing Kitron to deliver orders
that had built up during the pandemic.
Brunello Cucinelli is an Italian luxury
goods company that is particularly
famous for its cashmere products. Its
in luxury sales worldwide led to the
repeatedly during the year, buoying the
share price as a result.
Fortnox
accounting systems to companies in
Sweden. The stock performed well
on news of further price increases
combined with continued success in
attracting new customers. It has now
been a top three contributor for three
years in a row.
The year was not without some stock
price falls as well. Our three largest
detractors are detailed below:
MIPS develops patented inserts for
helmets, which protects the brain against
years of strong performance, destocking
by helmet retailers led to a weaker year
for the company, particularly in the
cycling market.
QT Group
provides software tools used to design
and build graphical user interfaces. The
company saw a slowdown in developer
license sales as customers pushed
out the timing of new projects. We
grew concerned that the competitive
environment was also worsening and as
a result we sold the position.
ChemoMetec is a globally leading
developer of cell counters that are used
in the development of cell therapies. The
share price declined due to a slowdown
in new instrument sales as the funding
environment for cell-based therapy R&D
became more restrictive. Consumable
and service sales nevertheless continued
to grow.
Portfolio Changes
We try to keep portfolio turnover as low
as possible. However, we typically make
a few changes each year as we identify
new investment ideas that we expect
will provide stronger long-term returns
than existing holdings. Companies that
become too large, are acquired or where
the investment case deteriorates are
also replaced with new ideas from our
page 6 Montanaro
Manager’s Report continued
£0–£500m
£500m–£1bn
£1bn–£3bn
£3bn–£5bn
>£5bn
£0–£500m
£500m–£1bn
£1bn–£3bn
£3bn–£5bn
>£5bn
6.3%
23.0%
22.1%
26.9%
21.7%
6.3%
23.0%
22.1%
26.9%
21.7%
8.9%
9.5%
46.3%
21.8%
13.5%
8.9%
9.5%
46.3%
21.8%
13.5%
20232023 20222022
Market Capitalisation of Holdings by Value (31 March 2023)
In the year to 31 March 2023, we exited
positions in companies including
Vitrolife, the developer of media and
company made an expensive acquisition
and saw the departure of key executives.
Endor, which sells hardware used for
sim racing, was sold as new competitors
entered the market. Nolato, a third-party
manufacturer of plastic components,
was sold as the company grew its
tobacco heat-not-burn sales to levels
that we deem to be too high to pass our
ethical exclusion tests.
Technoprobe, the Italian developer
of probe cards used in the testing of
semiconductors and Bachem, the Swiss
peptide contract manufacturer, were
additions to the portfolio.
Continual Improvement
Each year we take time to look back at
our successes and mistakes to assess
how our systems and processes can
Our Investment Committee has for
many years played an important role as
List or, therefore, bought, until the
Investment Committee has agreed that it
meets our stringent quality and growth
process. The second stage is valuation,
where the analysts determine whether
currently good investments. This year we
have introduced Investment Committee
oversight and approval for this second
stage too. We believe this will help to
ensure consistency across the team with
respect to forecast assumptions as well
as improving communication between
analysts and fund managers on this
critical topic.
Sector Distribution (31 March)
Source: Montanaro Asset Management Limited
0
5
10
15
25
30
35
20
%
Info
rmation Technology
Industrials
Health Care
Financials
Consumer Discretionary
Consumer Staples
Communication Services
Real Estate
Materials
2023
2022
Energy
Geographical Analysis (31 March)
Source: Montanaro Asset Management Limited
0
5
10
15
35
25
20
30
%
Italy
Finland
Norway
Switzerland
Netherlands
Denmark
Portugal
Belgium
Spain
France
Sweden
Germany
2023
2022
Montanaro page 7
help us better manage and internally
communicate the large amounts of
2022 we successfully moved our entire
research team from a legacy on-premise
folder based system to a cloud based
system built within Microsoft Teams.
This new system has better functionality,
organisation and security, as well as
being globally accessible from anywhere
with an internet connection. Moreover,
opened up possibilities to collaborate
and cross-reference which were not
available before – we are scratching the
surface of this at the moment but already
developing some interesting tools as a
result. Looking ahead, we are keeping
exploring how we can best utilise these
tools to improve our processes.
The systems overhaul has not been
now have 24/7 threat monitoring and
training including simulated phishing
attacks, on top of a state-of-the-art
software stack, throughout the company.
Gearing
the Board, is responsible for determining
the net gearing level of the Trust. The
of 3.3% (31 March 2022: 4.6%).
How to Invest
We have invested a great deal of time
available to all investors. We have
continued to grow our presence across
the UK’s investment platforms and are
delighted to see a steady increase, year
after year, in the Trust’s retail following.
With the Board, we have appointed
Marten & Co to provide sponsored
report published in March 2019 here:
https://www.montanaro.co.uk/mesct-
quality-business/ and an update report
published in March 2022 here:
https://quoteddata.com/research/
montanaro-european-smaller-companies-
unfazed-by-market-turmoil-mc/
invest, please refer to the website:
www.montanaro.co.uk/trust/mesct
MONTANARO ASSET
22 2023
page 8 Montanaro
ESG Report
Montanaro continues to place great importance on evolving
and strengthening its approach to sustainable investing.
Montanaro
much-improved score as noted in the Chairman’s Statement.
of social and environmental performance, transparency
and accountability. It is regarded as one of the toughest
Montanaro has become an accredited Living Wage employer.
Ethical Restrictions and ESG Analysis
Montanaro has a long track record of sustainable investing,
been managed. Ethical restrictions mean that we do not
of sales from products with negative societal impact such as
tobacco, gambling, armaments, alcohol, high-interest-rate
lending and fossil fuels. Similarly, we do not invest in companies
that conduct animal testing unless it is required by law for
healthcare or regulatory purposes.
The analysis of Environmental, Social and Governance (ESG)
understand the risks – and opportunities – that our companies
may be exposed to, from factors such as climate change and
supply chain risks to the structure of company boards.
Active and long-term engagement
companies are run.
in the UK. Over 30 other CEOs from the companies in which we
invest joined us to learn and share experiences of setting net
zero carbon targets and the associated challenges. The event
was
and proved a huge success in stimulating further
action from our companies. Over 18% of the companies in the
portfolio
standard. This number was almost zero only a few years ago.
During the year, we engaged with a number of portfolio
observed that it had received the lowest possible rating from
the ESG research company MSCI. We wanted to understand
the reasons for this and discussed with management how
the score might be improved in the future. We provided
guidance on how the company could improve its sustainability
reporting and provide more detailed ESG data to shareholders,
something ESG research companies such as MSCI require.
The provision of such information continues to be a challenge
for smaller companies who often have limited internal
companies continue to submit corporate environmental data
to third-party organisations. There were a record number of
sign-ups this year. We believe that we can achieve an even
higher disclosure rate in 2023.
composition of the Board, which is 100% male. We are
pleased to report that the company has now set diversity and
inclusion targets for 2027, including a goal of 30% women on
the executive leadership team. We will wait to hear how the
progress towards this goal develops.
Deep Dive research projects
Led by our ESG & Impact Specialists, our Investment Team
Deep Dive, focused on understanding how our companies
are responding to climate change and setting net zero carbon
part of this project, we conducted meetings with academics,
charities, and research organisations to better understand how
companies and their investors should appraise the positive and
negative impacts of their activities on the biosphere.
Montanaro page 9
Continual investment
Montanaro continued to achieve industry leading standards
over the last year, publishing our UK Stewardship Code
report, which again received successful signatory status by
We also continued our
commitments to responsible investing by signing the Tobacco
invest in tobacco related companies, an ethical exclusion that
Montanaro has had in place since inception).
Signatory
date Initiative
2009
2010 UK Stewardship Code
2015
2017
2019 B Corporation
2019
2020
Initiative
2022
2022
During the year, Montanaro played an active role in the
development of sustainable investing in the wider investment
co-chaired by former Bank of England Governor, Mark Carney.
Our Head of Sustainable Investment sits on the Mainstream
expects companies to report on the transition to net zero.
increased clarity to consumers navigating this space. The
development of this regulation is ongoing.
We were involved in consultations related to the Taskforce on
. The objective
of the completed framework is to allow organisations to
report and act on evolving nature-related risks, with the aim
to support companies, investors, and lenders to shift global
toward nature-positive outcomes.
These industry standards and our participation in collaborative
initiatives allows us to stay abreast of the developments
changing area of the investment landscape and ensure that our
investment process evolves accordingly.
Our experience, the high level of in-house resource that we
have at our disposal and our belief that embedding ESG
factors into an investment process leads to better investment
outcomes is fundamental to how we operate and our status
as a B Corporation. We look forward to sharing further
developments with you in the future.
MONTANARO ASSET
MANAGEMENT LIMITED
22 2023
page 10 Montanaro
as at 31 March 2023
1. NCAB
is a global full-service supplier of printed
2. MTU Aero Engines
manufactures and maintains aircraft
engines and components.
3. Kitron
is a leading Scandinavian Electronics
Manufacturing Services (EMS) company.
4. Fortnox
is Sweden’s leading provider of
cloud-based applications for accounting,
invoicing and payroll administration.
5. Melexis
is a leading designer of sensors, with
a particular focus on automotive
applications.
6. Brunello Cucinelli
is a luxury fashion company, particularly
famous for its cashmere products.
7. IMCD
is one of the world’s largest speciality
chemical distributors.
8. Brembo
is a global leader in the design and
production of high end automotive
braking systems.
9. VZ Holding
consultant and wealth manager.
10. Amadeus FiRe
is a leading personnel service company
in Germany, with integrated training and
11. CTS Eventim
is the market leading ticketing company
in Europe, providing an online platform
from which to sell tickets to a range of
events such as operas and pop concerts.
12. Sartorius Stedim
is a world leading supplier of equipment
and technologies used to produce
biopharmaceuticals.
13. Bachem
is a leading manufacturer of peptides
and oligonucleotides.
14. Atoss Software
develops and sells workforce
management software in Europe.
15. Christian Hansen
is a leading developer of microbial
solutions for the food, beverage,
nutritional, pharmaceutical and
agricultural industries.
16. Tecan
develops automated instruments and
solutions that are used in laboratories.
17. Viscofan
is a global leader in the production of
casings for meat products.
18. Belimo Holding
develops and manufactures electrical
motorised control devices (actuators) for
air and water. These are predominantly
used in large buildings with sophisticated
19. MIPS
develops patented inserts for helmets,
which protects the brain against
rotational motion.
20. Reply
is an Italian IT services company.
Montanaro page 11
Holding Country
31 March
2023
Value
£’000
31 March
2022
31 March
2023
% of
investment
portfolio
31 March
2023
% of
net assets
31 March
2023
Market cap
Sweden 15,643 18,810 5.0 5.2 887
Germany 14,192 12,444 4.6 4.7 10,840
Kitron Norway 14,173 7,873 4.6 4.7 560
Sweden 12,479 14,196 4.0 4.2 3,382
Melexis Belgium 12,144 5,678 3.9 4.0 3,767
Brunello Cucinelli Italy 12,016 6,730 3.9 4.0 5,437
IMCD Netherlands 11,235 10,494 3.6 3.8 7,518
Brembo Italy 9,972 6,394 3.2 3.3 3,910
Switzerland 9,933 10,837 3.2 3.3 2,648
Re Germany 9,758 8,224 3.2 3.3 696
CTS Eventim Germany 9,356 8,395 3.0 3.1 4,846
Sartorius Stedim 8,674 13,205 2.8 2.9 22,802
Bachem Switzerland 8,091 – 2.6 2.7 6,066
Germany 8,014 9,115 2.6 2.7 1,157
Christian Hansen Denmark 7,999 5,355 2.6 2.7 8,110
Tecan Switzerland 7,948 7,584 2.6 2.6 4,497
Spain 7,250 5,682 2.3 2.4 2,692
Belimo Holdings Switzerland 7,222 7,515 2.3 2.4 4,800
Sweden 7,142 15,030 2.3 2.4 1,069
Reply Italy 6,951 8,238 2.2 2.3 3,708
Twenty Largest Holdings 200,192 64.5 66.7
page 12 Montanaro
Our objective is to achieve capital growth for our shareholders by investing principally
in Continental European quoted smaller companies. We seek to invest in well managed,
high quality, growth companies. We keep portfolio turnover low and follow our companies
closely over many years.
INTRODUCTION
The Company carries on business as an investment trust. Its
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:
‘Manager’), which was appointed as Investment Manager
on 5 September 2006 and
on 2014.
provided fund administration services during the year.
– Link Company Matters Limited, which provided company
secretarial services during the year.
– Equiniti Limited which provided registrar services during
the year.
– Bank of New York Mellon (International) Limited which
provided depositary services during the year.
The Board of Directors is responsible for the overall
stewardship of the Company, including investment and
dividend policies, gearing, corporate strategy, corporate
governance and risk management. Biographical details of the
Directors, all of whom are independent and non-executive, can
be found on page 23. The Board consists of two male Directors
and one female Director.
The Directors have considered their duties under section 172(1) of
found on pages 19 to 22.
evaluation and appointment of the Manager, which also acts as
the . The outcome of the evaluation in the current year is set
out on page 30.
Established in 1991, Montanaro is a highly experienced
specialist investor in quoted smaller companies. It has one
of the largest teams in the UK researching and investing
exclusively in quoted smaller companies and currently
4
institutions. Montanaro’s investment philosophy and approach
is set out in the Manager’s Report on pages 4 to 7.
The Company’s investment strategy is set out in its objective
and investment policy as set out below.
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
•
European securities, such as global depositary receipts,
listed on other international stock exchanges; and
•
Debt issued by European governments or denominated in
European currencies.
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.
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
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).
Montanaro page 13
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
presentation from the Manager together with a comprehensive
of compliance with investment restrictions during the reporting
31 March 2023 is contained in the Manager’s Report on pages
4 to 7 and the 20 largest holdings are shown on page 10.
The Company’s principal and emerging risks are set out in
detail on pages 14 to 17.
The Company’s performance in meeting its objectives is
out on page 1. Reviews of the Company’s returns during the
and the outlook for the coming year are contained in the
Chairman’s Statement on pages 2 and 3 and the Manager’s
Report on pages 4 to 7, both of which form part of this
Strategic Report.
The Company’s primary aim is to deliver capital growth to its
shareholders, rather than dividend income. In determining
dividend payments, the Board takes account of income
forecasts, brought forward revenue reserves, the Company’s
dividend payment record and the Corporation Tax rules
governing investment trust status. These rules determine the
minimum level of dividend which must be paid in order to
respect of the retention of distributable income. Dividends can
also be paid from the Capital Reserve from any surplus arising
from the realisation of any investment. The Company has
revenue reserves which underpin any short-term reduction in
dividend income.
The Company complies at all times with Section 1158 of the
submits correct taxation returns annually to HMRC and settles
promptly any taxation due.
The Board is fully committed to complying with applicable
legislation and statutory guidelines, including the UK’s Criminal
jurisdictions in which the Company operates.
Diversity is an important consideration in ensuring that the
Board and its committees have the right balance of skills,
experience, independence and knowledge necessary to
discharge their responsibilities. The Board is composed
solely of non-executive Directors and has one third female
representation. The Board’s approach to the appointment of
of having a diverse range of experience, skills, length of service
and backgrounds. The Board will always appoint the best
person for the job and will not discriminate on the grounds of
gender, race, ethnicity, religion, sexual orientation, age, social
background or physical ability. The right blend of perspective is
The Board recognises that it is long-term share price returns that
are most important to the Company’s shareholders. They are
largely driven by competitive portfolio returns and by keeping
down the level of both the discount and ongoing charges.
The Board uses a number of key performance indicators to
assess the Company’s success in pursuing its objectives.
They are as follows:
•
both absolute and against the benchmark;
•
•
Gearing; and
•
Ongoing charges.
31 March
shown below. The historic discount and ongoing charges
The Company’s performance for the year against the key
performance indicators, together with the outlook for the
coming year, is reported within the Highlights on page 1, the
Chairman’s Statement on pages 2 and 3 and the Manager’s
Report on pages 4 to 7.
page 14 Montanaro
continued
6 months
%
1 year
%
3 year
%
5 year
%
10 year
%
1
^
%
Montanaro European Smaller Companies Trust
Share price
28.1 (18.1) 56.4 72.0 165.0 331.1
27.6 (7.6) 65.6 75.9 183.1 363.4
19.3 (5.5) 50.4 19.7 131.4 178.0
1
SmallCap Index (in sterling terms).
68 and 69.
HISTORIC RECORD
Net assets
per share
Ordinary
Share price
(Discount)/
premium
1
Dividends
per share
Ongoing
Charges
^
60,022 344.0p 322.0p (6.4%) n/a 1.6%
31 March 2007 74,447 426.7p 404.0p (5.3%) 4.00p 1.8%
31 March 2008 69,061 401.6p 340.0p (15.3%) 4.00p 1.8%
31 March 2009 42,653 257.4p 220.8p (14.2%) 1.6%
31 March 2010 71,059 428.8p 373.0p (13.0%) 4.50p 1.7%
31 March 2011 88,837 536.0p 467.0p (12.9%) 4.50p 1.6%
31 March 2012 81,278 471.6p 405.0p (14.1%) 5.50p 1.5%
31 March 2013 93,009 559.2p 519.3p (7.1%) 6.75p 1.5%
31 March 2014 98,683 593.3p 540.0p (9.0%) 7.00p 1.5%
31 March 2015 95,751 572.2p 515.0p (10.0%) 7.50p 1.5%
31 March 2016 106,418 636.0p 540.0p (15.1%) 7.50p 1.4%
31 March 2017 136,050 813.1p 695.0p (14.5%) 8.25p 1.2%
31 March 2018 150,776 901.1p 800.0p (11.2%) 8.50p 1.2%
31 March 2019 169,141 1010.8p 890.0p (12.0%) 9.00p 1.2%
31 March 2020 160,123 956.9p 880.0p (8.0%) 9.25p 1.2%
31 March 2021 276,065 1,589.0p 1,610.0p 1.3% 9.25p 1.2%
10
31 March 2022 324,905 171.5p 168.0p (2.0%) 0.925p 1.1%
31 March 2023 299,975 158.4p 137.6p (13.1%) 0.970p 1.0%
^
66.
1
66.
and managing the emerging and principal risks faced by the Company. The Board carefully considers the Company’s principal
and emerging risks and seeks to mitigate these risks through continued and regular review, policy setting, compliance with and
Most of the principal and emerging risks that could threaten the Company’s objective, strategy, future returns and solvency are
market related and comparable to those of other investment trusts investing primarily in quoted securities.
32 to 34 summarises the Company’s internal control and risk management
arrangements. By means of the procedures set out in that summary, and in accordance with the Guidance on Risk Management,
those that would threaten its business model, future performance, solvency or liquidity.
Montanaro page 15
The principal and emerging risks and uncertainties faced by the Company, and the Board’s mitigation approach are described below.
Notes 16 to 20
their management.
Principal Risks Mitigation
Investment and strategic risk:
Inappropriate strategy, including country and sector
allocation and stock selection could lead to poor returns for
shareholders.
No material change in overall risk in year.
At each Board Meeting, the Manager discusses portfolio performance
and strategy with the Directors and performance against the benchmark
and the peer group is reviewed. The Manager also provides the Board
the performance of the Manager and its terms of appointment annually.
Gearing:
borrowings, which can enhance returns to shareholders in a
rising stock market. However, gearing exacerbates movements
No change in overall risk in year.
The Board is responsible for setting the gearing range within which the
Manager may operate and has set a maximum limit on borrowing, net
of cash, of 30% of shareholders’ funds at the time of borrowing. The
loan
€
10 million and a
€
mature in September 2023. As at 31 March 2023,
€
down from the revolving credit facility.
The Board receives recommendations on gearing levels from the
Manager, and monitors and discusses with the Manager the appropriate
level of gearing at each Board Meeting.
The Company invests principally in Continental European
quoted smaller companies and its principal risks are therefore
market related with short term risk arising from the volatility
in the prices of the Company’s investments and foreign
exchange. Events such as terrorism, disease (such as a global
regulation and taxation, excessive stock market speculation,
economic recessions, political instability and movements in
risk at times when the liquidity of the underlying portfolio is
poor, such as when smaller companies are out of favour or
is focused on investments in smaller European companies
where the opportunities may be more attractive than in larger
companies but where overall portfolio liquidity may be more
markets may impact the discount of the Company’s share price
No change in overall risk in year.
consequences of such risky events and the Board reviews the portfolio
with the Manager on a regular basis. It is not the Company’s policy
to hedge currency risk. The Board has also set investment restrictions
and guidelines which are adhered to and reported on by the Manager.
If required, it is also possible to raise the level of cash held, thereby
lower portfolio valuations. The portfolio’s liquidity is not managed on the
forced to buy or sell individual holdings at inopportune times. The
Manager constantly reviews the underlying liquidity of the portfolio,
enhance its ability to execute and minimise liquidity risk.
The liquidity of the portfolio is monitored by the Manager and reported
to the Board, and market conditions and their impacts are considered.
The Company’s liquidity risk is managed on a daily basis by the Manager
in accordance with established policies and procedures in place.
are included in notes to 20 to the accounts.
page 16 Montanaro
Principal Risks Mitigation
Discount volatility:
their peer group.
The Board and Manager actively monitor the discount of share price to
has stated its commitment to an active discount management policy,
such that it will consider a buyback of shares where the discount of the
share price to the NAV per share is greater than 10% for a sustained
trusts. The Board receives regular reports on the discount level of the
Trust, its peer group, and the wider investment trust sector which informs
any decision to buy back shares. Any such transaction must be value
enhancing for shareholders and the Board will take into consideration
Board encourages the Manager to market the Company to new investors
to increase demand for the Company’s shares, which may help to reduce
the discount.
Regulatory:
The Company carries on business as an investment trust and
has been approved as such by HM Revenue & Customs subject
to it continuing to meet eligibility conditions and ongoing
capital gains. Breach of Section 1158 of the Corporation Tax
chargeable gains.
Breach of regulatory rules could also lead to suspension of
No change in overall risk in year.
The Company Secretary and the Company’s professional advisers
provide reports to the Board in respect of compliance with all applicable
rules and regulations.
The Company complied with all applicable rules and regulations
Regulation and the second Markets in Financial Instruments Directive
during the year.
The Administrator monitors the Company’s compliance with Section
the amount of proposed dividends to ensure the rules are not breached.
The results are reported to the Board at each meeting.
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 Company has no employees. The Company is therefore
reliant on the services provided by third parties such as the
of the Depositary). Disruption or failure of the Manager’s
service providers could lead to an inability to provide accurate
or a breach of regulatory and legal regulations.
Cyber security risks and their impact on data security are
inherent in the operations undertaken by the company's
third-party suppliers and risk disruption to business operations
No change in overall risk in year.
The Board and the Audit Committee receive regular reports on the
operation of internal controls to mitigate against the risk of failure,
including those at the Manager, the Administrator and the Custodian as
explained in more detail within Risk Management and Internal Control
on pages 32 and 33. These reports include controls over risks of cyber
security. These have been tested and monitored throughout the year
which is evidenced from their control reports regarding their internal
controls which are reported on by their reporting accountants. Quarterly
reports are also received from the Depositary which is responsible for the
safekeeping of all custodial assets of the Company.
In addition, the manager is in regular contact with service providers
regarding business operations and continuity planning, and has
reported no matters of concern.
continued
Montanaro page 17
Principal Risks Mitigation
Cyber Security
The threat of cyber attack is regarded as being as important
as more traditional physical threats to business continuity and
security. The Company has limited direct exposure to cyber
risk. However, the Company’s operations or reputation could
cyber security breach.
The Board monitors the preparedness of its service providers and is
report to the Board at each meeting that covers cyber risk. The Company
Manager around the security of data.
The annual review of the Administrator’s controls includes consideration
are in place is requested on an annual basis from all third party service
providers.
Environmental, Social and Governance (“ESG”)
The key risk is that the Manager invests in a company which has
poor ESG practices. It is the Manager’s opinion that companies
with poor standards of ESG are likely to underperform over the
long-term. Key ESG risks include:
Environmental
•
•
Resource depletion, including water
•
Waste and pollution
Social
•
Working conditions, including no slavery or child labour
•
Health and safety
•
Employee relations and diversity
Governance
•
Executive pay
•
Board diversity and structure (in terms of age, gender,
educational and professional background)
•
Increased risk due to increased investor focus on this area.
and sustainability issues seriously. A strong and consistently applied
company in which the Manager considers investing.
An ethical framework excludes investment in companies that generate
Montanaro’s team of Research Analysts and the Manager only invests in
those which pass the criteria set out in this Checklist, which is designed
to cover the aforementioned Environmental, Social and Corporate
Overview is provided by Montanaro’s Sustainability Committee, which
with investee companies.
considerations for new and existing investments.
Manager
Should the Manager not be in a position to continue to manage
the Company, performance may be impacted.
No change in overall risk in year.
Montanaro has one of the largest specialist teams in the UK focusing
on quoted European smaller companies. Montanaro operates a
team approach in the management of the investment portfolio which
mitigates against the impact of the departure of any one member
of the investment team. The Manager keeps the Board informed of
developments within its business.
page 18 Montanaro
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.
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 2023, are also subject to formal agreements,
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,
adverse currency movements on the Company’s investment
portfolio. These risks, their mitigations and the processes for
monitoring them are set out on pages 14 to 17
Risks and Uncertainties and Risk Mitigation, pages 32 to 34
accounts.
The Directors have also considered:
•
The level of ongoing charges incurred by the Company
which are modest and predictable and that these were
covered by investment income and total 1% of average net
assets;
•
potential impact of reduced dividend income in the short
term as a result of market conditions;
•
facility of
€
10 million, which is due to mature in September
2023, noting that the Company has a large margin of safety
over the covenants on this debt. The Company also has
a
€
15 million revolving credit facility which also matures
on 13 September 2023, of which
€
5 million was drawn
down as at 31 March 2023. This loan was covered 23 times
by the Company’s total assets at 31 March 2023 and the
Board expect to renew its bank facilities at the end of their
terms;
•
Its ability to meet liquidity requirements given the
Company’s investment portfolio consists principally
of Continental European quoted smaller companies
which can be realised if required. It is estimated that
approximately 81% of the portfolio could be liquidated
under normal conditions within seven trading days;
•
The ability to undertake share buybacks if required;
•
That the Company’s objective and investment policy
continue to be relevant to investors; and
•
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.
2026, 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
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
also considers it appropriate to continue adopting the going
continued
Montanaro page 19
SECTION 172(1)
Section 172(1)
Directors to act in good faith and in a way that is the most likely
to promote the success of the company. In doing so, Directors
must take into consideration the interests of the various
stakeholders of the Company, the impact the Company has on
the community and the environment, take a long-term view
of consequences of the decisions they make as well as aim to
maintain a reputation for high standards of business conduct
and fair treatment between the members of the Company.
its Investment Objective and helps to ensure that all decisions
are made in a responsible and sustainable way. In accordance
with the requirements of the Companies (Miscellaneous
Reporting) Regulations 2018, below, the Board explains how
the Directors have individually and collectively discharged their
duties under section 172(1)
reporting period.
To ensure that the Directors are aware of, and understand,
their duties they are provided with a tailored induction,
including details of all relevant regulatory and legal duties
join the Board, and continue to receive regular and ongoing
updates and training on relevant legislative and regulatory
developments.
They also have continued access to the advice and services
of the Company Secretary, and when deemed necessary,
the Directors can seek independent professional advice. The
schedule of Matters Reserved for the Board, as well as the
Terms of Reference of its committees are reviewed periodically
and further describe Directors’ responsibilities and obligations
and include any statutory and regulatory duties.
CULTURE
Company’s culture and values and has worked to incorporate
these behaviours and processes into the annual review of the
Manager, strategic planning, the annual evaluation of Board
– thus embedding
consideration of stakeholders’ interests, long-term perspective,
maintaining reputation for fairness and high standards of
governance, corporate reporting and business conduct more
generally in the Company’s culture and processes.
The importance of stakeholder considerations, in particular
in the context of decision-making, is regularly considered by
paper setting out the Directors' responsibilities under s.172(1)
strategic planning discussions involve careful considerations
of the longer-term consequences of any decisions and
their implications on shareholders and other stakeholders,
and are supported by detailed analysis based on various
scenarios, which include assumptions around the Company’s
contractual commitments; availability of funding; borrowing;
foreign currency management; as well as the wider economic
conditions and market performance.
The Board recognises that the Company has certain
responsibilities to its shareholders, stakeholders and wider
endorses the Manager’s policy to invest the Company’s funds
in a socially responsible manner. Environmental, social and
governance factors are an integral part of the investment
process. In addition, the Manager does not invest in companies
that it deems to be harmful to society or the environment; this
includes companies involved in tobacco, fossil fuels, gambling,
adult entertainment, weapons manufacturing and alcohol.
The Board monitors investment activity to ensure they are
compatible with the policy and receives periodic updates from
the Manager on its initiatives and performance against its
Investment, the UK Stewardship Code, the Carbon Disclosure
environmental performance, transparency and accountability.
In 2021 Montanaro was invited to co-chair the B Corporation
Investment & Working Group and attended the UN Climate
in the ESG Report on pages 8 to 9.
BUSINESS CONDUCT
Board policies are all reviewed on at least an annual basis, and
which can be found on pages 32 to 34 of this Report, further
explains how the Committee reviews the risk management
and internal controls of the Company. This includes reasonably
satisfying itself that relevant systems and controls in place
page 20 Montanaro
continued
The Board seeks to understand the needs and priorities of the Company’s stakeholders and these are taken into account during
all its discussions and as part of its decision-making. While as an externally managed investment Company, the Company does not
have any employees or customers, its key stakeholders include:
Stakeholders Why they are so important? Board engagement
Shareholders Continued shareholder support
and engagement are critical to
the existence of the Company
and the delivery of the long-term
strategy of the Company.
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
Meeting. The manager delivers a presentation and all
shareholders have an opportunity to meet the Directors
and ask questions. The Board greatly values the feedback
and questions it receives from shareholders and takes
action or makes changes as and when appropriate.
•
Presentations – The annual and interim results, as well
as monthly factsheets are available on the Company’s
from the shareholders help the Company to evolve its
reporting, aiming to render the reports and updates
transparent and understandable; and
•
Investor Relations updates –
the Directors receive updates on the share trading activity,
share price performance and any shareholders’ feedback,
as well as any publications or comments in the press.
The Manager The Manager’s performance
is critical for the Company to
successfully deliver its investment
strategy and meet its objective.
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.
Montanaro page 21
Stakeholders Why they are so important? Board engagement
Other service providers,
including:
the Company Secretary,
the Administrator, the
Registrar, the Depositary,
the AIFM, the Custodian
and the Broker
In order to function as an
investment trust with a premium
listing on the London Stock
Exchange, the Company engages
a diverse range of advisors for
support with meeting all relevant
obligations.
The Board maintains regular contact with its key external
providers, both through the Board 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 reviews of the external
service providers and addresses any concerns raised in those
reviews. It also holds relationship meetings and formally hears,
and acts on, their feedback, as appropriate.
Banks
are crucial to the Company’s
ability to take advantage of
investment opportunities as they
arise.
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.
Institutional Investors
and proxy advisors
The evolving practice and
support of the major institutional
investors and proxy adviser
agencies are important to the
Directors, as the Company aims
to maintain its reputation and
high standards of corporate
governance, which contributes
to the long-term sustainable
success of the Company.
Recognising the principles of stewardship, as promoted by the
UK Stewardship Code, the Board welcomes engagement with all
our investors. The Board recognises that the views, questions
from, and recommendations of many institutional investors and
proxy adviser agencies provide a valuable feedback mechanism
and play a part in highlighting evolving shareholders’
expectations and concerns.
Regulators The Company can only operate
with the approval of its regulators
who have a legitimate interest
in how the Company operates
in the market and treats its
shareholders.
The Company regularly considers how it meets various
regulatory and statutory obligations and follows voluntary
and best-practice guidance, is mindful of how any governance
decisions it makes can have an impact on its shareholders and
wider stakeholders, in the short and in the longer-term.
Community and
Environment
The Board recognises that it
has a responsibility to the wider
environment and community.
Our engagement with the community and the environment can
be found on page 19
pages 8 and 9.
page 22 Montanaro
172(1)
the related engagement activities are set out below:
Principal decision Stakeholder Considerations and Engagement
To approve
dividends during the year
2010 which states that it must not retain more than 15% of its income for each accounting
period and the Board balanced its regulatory obligations with those of its shareholders.
interim dividend of 0.20 pence per ordinary
share0.77 pence per share, subject
Change of Company Secretary and
Administrators
The Board periodically evaluates all contracts and arrangements with service providers
and considers how the Company and its shareholders can best be served for its future
and the Company’s expected future requirements, the Board decided to change service
2023.
The Chairman’s Statement on pages 2 and 3, the Manager’s Report on pages 4 to 7, the Twenty Largest Holdings on page 10, all
form part of this Strategic Report, which has been approved by the Board of Directors.
By order of the Board
LINK COMPANY MATTERS LIMITED
Company Secretary
22
continued
Montanaro page 23
Caroline Roxburgh – Senior Independent Director and Chair of the Audit Committee
Date of Appointment: 8 November 2017
audit experience across a number of industries and sectors bringing extensive
experience to the Board. Caroline also holds a number of other board positions
including as a Non-Executive director of the Edinburgh Worldwide Investment
position on other Boards of which she is a member.
Relevant skills and experience and reasons for re-election:
to lead discussions regarding the Company’s risk management framework and risk
appetite and to contribute to developing the Company’s strategy. Her broad range
was appointed Senior Independent Director on 31 December
rigorous board evaluation process, the Board agreed that Caroline continues to be
Richard Curling – Chairman of the Board and Chairman of the Nomination Committee
Date of Appointment: 2 November 2015
Richard was appointed to the Board as an independent non-executive director in
2015 and was appointed as Chairman of the Board on 2018. Richard has
over 30 years’ experience as a fund manager and is currently an investment director
trusts and small company investing.
Relevant skills and experience and reasons for re-election:
Richard has comprehensive experience of investment management and the wider
Investment Company sector. This has provided a strong basis for assessing, and where
appropriate challenging, the Manager, on the Company’s performance, and in leading
Gordon Neilly – Non-Executive Director and Chair of the Remuneration Committee
Date of Appointment: 21 September 2020
Gordon is Executive Chairman of Whitet Europe, and
non-executive director of
Stanprior to which he was Head of Strategy and Corporate
rd Investments, Co-Cer of Cantor
ald Europe, Chief Executive of Intelli C
Business Development Director of Ivory & Sime plc.
Relevant skills and experience and reasons for re-election:
Gordon has gained an in-depth knowledge of strategic matters, extensive leadership
skills and possesses a wealth of experience in business transformation and
developing strategies through his executive roles, particularly within the asset and
wealth management sectors and investment companies. Gordon’s diverse skill-set
and strategic awareness facilitates open discussion and allows for constructive
challenge in the boardroom, which brings a unique perspective and insight to the
ing a rigorous board evaluation process, the Board agreed that Gordon
continues ember of the Board.
page 24 Montanaro
Company for the year ended 31 March 2023.
that, taken as a whole, it is fair, balanced and understandable
and provides the information necessary for shareholders to
assess the Company’s position and performance, business
model and strategy. In reaching this conclusion, the Directors
the investment industry in general and investment trusts
in particular. The outlook for the Company is set out in the
Chairman’s Statement on page 2
on pages 14 to 17, with further information on risk management
objectives in notes 16 to 20 to the accounts.
was paid on
dividend for the year of 0.77p per Ordinary Share payable
on 15 September 2023 to shareholders on the register on
18 2023. The ex-dividend date will be 17 2023.
The Company is registered as a public limited company in
Scotland (registered number SC074677) and is an investment
2006. Its shares are quoted on the Main Market of the London
Stock Exchange.
The Company carries on business as an investment trust and
has been approved as such by HM Revenue and Customs,
subject to it continuing to meet the relevant eligibility conditions
and ongoing requirements. It is domiciled in Scotland. The
comply with the requirements.
Having made the requisite enquiries, so far as the Directors
steps that ought to have been taken to make themselves aware
of any relevant audit information and to establish that the
proposing its re-appointment and authorising the Directors
in relation to the proposed reappointment can be found on
73.
DIRECTORS
Biographical details of the Directors, all of whom are
independent and non-executive, can be found on page 23. The
Directors’ interests in the shares of the Company are shown on
page 37.
Unless otherwise determined by ordinary resolution, the
Company shall not have fewer than two, or more than ten
Directors (disregarding alternate Directors). The Company
or the Board may appoint any person to be a Director and a
Director is not required to hold any shares of the Company.
was last elected. However, as explained in more detail under
the Corporate Governance Statement on page 29, the Board
themselves for re-election (Resolutions 5–7). Biographical
details of all directors and their reasons for re-election are
set out on page 23
performance evaluations, the performance of all directors
to the role, and believes that it is therefore in the interests
of shareholders that they are re-elected. In recommending
these resolutions, the Board, supported by its Nomination
Committee, has considered its current composition, to
ensure the overall composition of the Board in terms of skills,
experience and background is appropriate. No Director has
a contract of service with the Company and no Director has
any material interest in any contract to which the Company is
DIRECTORS’ INDEMNITIES
indemnities are in force between the Company and each of its
Directors under which the Company has agreed to indemnify
each Director, to the extent permitted by law, in respect of
certain liabilities incurred as a result of carrying out his or
her role as a Director of the Company. The Directors are also
proceedings or any claim by the Company or a regulator as they
are incurred provided that where the defence is unsuccessful
the Director must repay those defence costs to the Company.
The indemnities are qualifying third party indemnity provisions
Montanaro page 25
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.
Each Director has a statutory duty to avoid a situation where
they have, or could have, a direct or indirect interest which
Director will not be in breach of that duty if the relevant matter
Board has approved a protocol for identifying and dealing with
Montanaro provides investment management services to the
investment management agreement, Montanaro is entitled to
receive a management fee of 0.9% per annum of the Company’s
market capitalisation (payable monthly in arrears). Montanaro
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.
the size of the company as follows:
•
0.90% p.a. of the amount of the Company’s market
•
0.75% p.a. of the amount of the Company’s market
•
0.65% p.a. of the amount of the Company’s market
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
opinion that the continuing appointment of Montanaro as
Manager’s continued strong long-term performance despite
the challenging markets for much of 2022 and the greater
strength and depth of the Manager’s research team, as well as
the stability and capability of the team, which provided strong
The Bank of New York Mellon (International) Limited acts as the
Company’s Depositary and Custodian in accordance with the
monitoring, segregation and safe keeping of the Company’s
compliance with investment limits and leverage requirements.
The Company’s capital structure is composed solely of Ordinary
Shares. The rights and obligations of shareholders are set out
shares rank equally for dividends and entitlement to capital, and
at a general meeting of the Company every shareholder who is
present in person or by proxy or by a corporate representative
shall have one vote for all of the shares of which they are the
holder on a show of hands, and one vote for each share on a
poll. Unless the Board decides otherwise, no member is entitled
in respect of any share held by them to vote (either personally
or by proxy or by a corporate representative) at any general
meeting of the Company if any calls or other sums presently
payable by them in respect of that share remain unpaid or if
Company with information concerning interests in those shares
Company may by ordinary resolution from time to time
declare dividends in accordance with the respective rights
of the members, but no dividend can exceed the amount
recommended by the Board. Subject to the provisions of
page 26 Montanaro
continued
The Board may deduct from any dividend or other moneys
payable to a member by the Company on or in respect of
any shares all sums of money (if any) payable by them to the
Company on account of calls or otherwise in respect of shares
of the Company. The Board may also withhold payment of all or
any part of any dividends or other moneys payable in respect of
the Company’s shares from a person with a minimum of 0.25%
failure to provide the Company with information concerning
interests in those shares required to be provided under the
There are no restrictions on voting rights and no restrictions
concerning the transfer of shares in the Company except that
certain restrictions may from time to time be imposed by laws
and regulations (for example, insider trading laws). There are
no special rights with regard to control attached to securities;
no agreements between holders of securities regarding their
transfer known to the Company; and no agreements to which
the Company is a party that might change or fall away on a
change of control or trigger any compensatory payments for
Directors, following a successful takeover bid.
31 March
of the following substantial holdings of voting rights (being
Disclosure Guidance and Transparency Rules):
Number of
shares held
held
Hargreaves Lansdown, stockbrokers (EO) 27,913,689 14.74
Interactive Investor (EO) 25,564,291 13.50
11,413,351 6.03
RBC Brewin Dolphin Ireland 9,625,391 5.08
9,000,000 4.75
8,901,832 4.70
Brewin Dolphin, stockbrokers 6,989,046 3.69
Transact (EO) 5,949,845 3.14
The Company has not been advised of any changes to these
31 March 2023 and the date of
arrangements are given in the Corporate Governance
Statement, which forms part of this Directors’ Report and can
be found on pages 29 to 31.
46
on pages 39 to 45. Shareholders will be asked to approve the
assessing the going concern basis of accounting, the Directors
Reporting Council and have undertaken a rigorous review of
the Company’s ability to continue as a going concern.
The Directors have taken into account the Company’s
investment policy, which is described on pages 12 to 13 and
which is subject to regular Board monitoring processes and
is designed to ensure that the Company is invested mainly in
liquid, listed securities. The Company retains title to all assets
bank borrowings with which it complied during the year.
considered the current cash position of the Company, the
loan, the secured revolving credit facility, compliance with the
Company’s banking covenants, the Company’s other liabilities
and forecast revenues. In particular, the Directors considered
the impact of disruptions arising from recent market factors
on the company’s liquidity, market values, bank covenants and
continuity of operations.
Notes 16 to 20
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
adopt the going concern basis in preparing the accounts.
The Company’s longer term viability is considered in the
18.
The outlook for the Company is set out in the Chairman’s
Statement on page 3.
Montanaro page 27
employees or operations of its own and does not generate any
greenhouse gas or other emissions or consume any energy
and Directors’ Report) Regulations 2013 or the Companies
and Carbon Report) Regulations 2018, implementing the
UK Government’s policy on Streamlined Energy and Carbon
Reporting. Under listing rule 15.4.29(R), the Company, as a
closed ended investment fund, is exempt from complying with
The Company made no political or charitable donations during
the year (2022: nil) to organisations either within or outside of
the EU.
LISTING RULE DISCLOSURE
disclosure under Listing Rule 9.8.4 in respect of the year ended
31 March 2023.
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
risk are disclosed in notes 16 to 20 to the accounts.
7 September 2023 is set out on pages 70 to 77.
Directors’ Authority to Allot Shares (Resolution 10)
unissued shares. In accordance with section 551 of the
by shareholders in a general meeting. Resolution 10 to be
the Directors’ authority, granted by shareholders at last year’s
Directors to allot shares up to an aggregate nominal amount
of , representing an amount equal to approximately
10% of the Company’s total issued ordinary share capital as
at 2023 (being the latest practicable date before the
shares held in treasury. This authority will expire at the
be held in 2024 or, if earlier, on 30 September 2024.
Directors’ Authority to Allot Shares other than on a
Pre-emptive Basis (Resolution 11)
grants the Directors authority to allot new shares for cash
and to dispose of treasury shares, up to an aggregate nominal
amount of , representing an amount equal to
approximately 10% of the Company’s issued Ordinary Share
capital (including treasury shares) as at 2023, without
their existing holdings. The authority also allows the Directors
to take such steps as they consider necessary in relation to
the treatment of overseas shareholders, treasury shares and
fractional entitlements on pre-emptive share issues. This
authority will expire at the conclusion of the Company’s next
30 September 2024 and will enable the Company to issue
new shares and to dispose of treasury shares at any price for
cash, including where shares are being issued from treasury
time of issue. The Directors will only allot new shares pursuant
to the authorities proposed to be conferred by Resolutions
10 and 11 if they believe it is advantageous to the Company’s
shareholders to do so and in no circumstances would it result
only issue new shares at a price representing at or a premium
regarding the issue of shares from treasury is described on
page 28. The Directors consider that the authorities proposed
to be conferred by Resolutions 10 and 11 are necessary to
the Directors, it would be in the best interests of shareholders
as a whole.
Directors’ Authority to Buy Back Shares (Resolution 12)
The Company did not buy back any Ordinary Shares during
the year. The current authority of the Company to make
market purchases of up to 14.99% of the issued Ordinary
Meeting, seeks renewal of such authority. The renewed
authority to make market purchases will be in respect of a
maximum of 14.99% of the issued Ordinary Shares of the
Company as at the date of the passing of the resolution,
excluding treasury shares (approximately 28,395,197 Ordinary
prices which may be paid for any Ordinary Shares purchased
under this authority. This power will only be exercised if, in
the opinion of the Directors, a purchase would result in an
shareholders as a whole. The Board’s intention is to apply an
active discount management policy, and to consider a buyback
share is greater than 10% for a sustained period of time and is
page 28 Montanaro
transaction must be value enhancing for shareholders and the
the liquidity of the Company’s 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
share provided that such discount is lower than the weighted
back by the Company. It is also the Board’s policy that shares
The Board believes that the treasury shares policy will
improve liquidity in the shares and help to maintain the size
per share within the parameters described above will, in
conjunction with the Company’s share buyback policy, ensure
and subsequently reissuing them from treasury will be an
2023, being the latest practicable date before
189,427,600 Ordinary Shares in issue. No shares are held in
Company is 189,427,6 0 0.
The Directors consider that the passing of each of the
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.
of the Directors that the Company will continue to conduct its
LINK COMPANY MATTERS LIMITED
Company Secretary
22
continued
Montanaro page 29
The Corporate Governance Statement forms part of the Directors’ Report.
INTRODUCTION
to shareholders.
www.theaic.co.uk.
them relevant for investment companies. The UK Code is
www.frc.org.uk.
During the year, the Company has complied with all of the
The Company is committed to maintaining the highest
standards of governance and will ensure that it continues to
meet all applicable requirements.
Mr Curling was appointed to the Board as an independent
non-executive director in 2015, and as Chairman of the Board
on 2018. His biography can be found on page 23.
Chairman 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
The Board has direct access to the services of the Company
Secretary who is responsible for ensuring Board and
Committee procedures are followed and that applicable
regulations are complied with. The Company Secretary is also
responsible to the Board for ensuring the timely delivery of
the information and reports which the Directors require and
that statutory obligations are met.
replace Link Company Matters Limited as Company Secretary
on 2023.
Directors are considered by the Board to be independent of the
Meeting after their appointment. New Directors receive an
induction from the Manager and Company Secretary on joining
the Board, and all Directors are encouraged to attend relevant
training courses and seminars.
Individual Directors may, at the expense of the Company, seek
independent professional advice on any matter that concerns
them in the furtherance of their duties. The Company maintains
Board is formed of three independent non-executive Directors.
Mr Curling is the Chairman of the Board and Chairman of the
Committee and Senior Independent Director and Mr Neilly is
Chairman of the Remuneration Committee.
retire by rotation at least every three years, however, in
accordance with corporate governance best practice as set out
General Meeting and Mr Curling, Ms Roxburgh and Mr Neilly
The Board ensures that it has the appropriate balance of
skills, experience, knowledge and independence in order to
members and considers all of the Directors to be independent.
formal policy on tenure.
The Board does not feel that it would be appropriate to set a
the Board or its Committees. Instead, the Board will regularly
review the size and structure of the Board with the aim of
new directors bringing the challenge of fresh thinking into the
Board’s discussions. By doing so, the Board intends to maintain
a broad range of experience in the Board, with Directors who
have served a range of periods on the Board of the Company.
This will ensure that on each occasion the Board enters into
new investment commitments, several members have direct
personal experience of negotiating previous commitments
with the Manager. This is intended to preserve the cumulative
experience and deep understanding of the Company, its
from new perspectives and helping to promote diversity of
perspective. It is believed that the Directors provide, individually
and collectively, the breadth of skill and experience to manage
the Company and ensuring its long-term sustainable success.
The basis on which the Company aims to generate value over
the longer term is set out in the Business Model and Strategy
on pages 12 to 18.
page 30 Montanaro
continued
The Board currently meets at least four times a year and,
in addition, informally on a regular basis. It receives full
information on the Company’s investment performance,
assets, liabilities and other relevant information in advance of
Board meetings. The Board has approved a formal schedule
of matters reserved for it, including, but not limited to: overall
strategy, investment policy, capital structure, gearing and
monitoring the performance of the Manager.
The following table sets out the number of scheduled Board
and Committee meetings held during the year ended 31 March
2023 and the number of meetings attended by each Director.
Number of
meetings attended Board
Committee
Remuneration
Committee
Nomination
Committee
R M Curling 4/4 2/2 1/1 1/1
4/4 2/2 1/1 1/1
G Neilly 4/4 2/2 1/1 1/1
The Board also met informally on a number of occasions during
the year.
During the year, the Directors undertook a formal and rigorous
performance evaluation and also considered the output
from the previous year’s evaluation. The process was led by
the Chairman and was designed to assess the strengths and
independence of the board together with the performance of
its committees, the Chairman and individual Directors.
The Board completed evaluation questionnaires which covered
composition, and corporate governance and were also intended
to analyse the focus of meetings and assess whether they are
appropriate, or if any additional information may be required
to facilitate future Board discussions. The evaluation of the
Chairman was carried out by the other Directors of the Company
and the process was led by the Senior Independent Director.
The results of the board evaluation process were reviewed and
discussed by the Board. The Board concluded that it remains
planning and assessing developments in the retail investors’
information needs and investment platforms as areas of focus.
The Manager, in the absence of explicit instructions from the
Board, is empowered to exercise discretion in the use of the
Company’s voting rights. Environmental, social and governance
factors are taken into account by the Manager as part of its
investment analysis and decision making processes. The
Board is pleased that the Manager has been a signatory of
the UK Stewardship Code since its publication in 2010 and its
statement can be found on its website www.montanaro.co.uk.
environmental performance, transparency and accountability.
COMMITTEES
The Board has established three committees to assist with
its operations. Throughout the year the following committees
Remuneration Committee and the Nomination Committee.
Each of the committees’ delegated responsibilities are clearly
Company’s website https://montanaro.co.uk/trust/montanaro-
european-smaller-companies-trust/.
32 to
34 and forms part of this statement.
The Remuneration Committee, chaired by Mr Neilly, comprises
the full Board and reviews the appropriateness of the
Manager’s continuing appointment and determines the level
of Directors’ fees. The Directors’ Remuneration Report on
pages 35 to 37 provides information on the remuneration
arrangements for the Directors of the Company.
The Nomination Committee, chaired by Mr Curling, comprises
the full Board and is convened for the purpose of considering
the appointment of new Directors as and when considered
appropriate. The Board is composed solely of non-executive
Directors and has one third female representation.
The Directors will ensure it adheres to set objectives in relation
to the diversity of the Board as and when they seek to appoint
additional Directors, in the future. The Board considers the
in its recruitment and succession planning. The Company’s
Board diversity policy is shown on page 13.
Montanaro page 31
In accordance withx 2.1, the below tables, in
prescribed format, show the gender and ethnic background of
the Directors at the date of this Report.
Gender identity or sex
Number
of Board
members
the Board
Number of
senior positions
on the Board
Men 2 66% 1
Women 1 33% 1
– – –
Ethnic background
Number
of Board
members
the Board
Number of
senior positions
on the Board
White British or other White
(including minority
white groups)
3 100% 2
Mixed/Multiple Ethnic Groups – – –
ish – – –
ribbean/
Black British
– – –
Other Ethnic group – – –
– – –
The data in the above tables was collected through
self-reporting by the Directors.
The Board does not comply with the listing rule requirement
for 40% women on the Board and a minimum of one ethnic
minority Board member. The Board currently comprises three
members, one of whom is a woman who holds a senior position
on the Board. The small size of the Board is a constraint to
achieving all of these targets but the Board will actively take this
into consideration in future recruitment.
The Company welcomes the views of shareholders and places
great importance on communication with its shareholders.
The Manager holds meetings with the Company’s largest
shareholders and reports back to the Board on these meetings.
shareholders every year and are available to meet other
Company provides a forum, both formal and informal, for
shareholders to meet and discuss issues with the Directors and
In October 2015, the UK Government introduced the 2015
Company does not provide goods or services in the normal
course of business, and does not have customers or turnover.
scope because it does not have turnover and is therefore not
predominately of professional advisers and service providers
relation to this matter.
Details of the principal risks and internal controls applied by
the Board are set out on pages 15 to 17 and pages 32 and 33
respectively.
Details of the Company’s share capital structure and other
disclosures and details of substantial
interests are set out on pages 25 and 26.
By order of the Board
LINK COMPANY MATTERS LIMITED
Company Secretary
65 Gresham Street
London
22
page 32 Montanaro
as a whole to have competence relevant to the sector in which
the Company operates and at least one member with recent
and relevant experience.
reference and comprises all the Directors. Given the size of the
Board, and Mr Curling’s experience, it is felt appropriate for him
trust sector.
controls; and the terms of appointment and remuneration of
independence and objectivity.
attendance at both meetings. The attendance of each of the
members is set out on page 30. In the course of its duties
reviewed the following matters and reported thereon to
•
The annual and half-yearly reports and accounts and
results announcements;
•
The accounting policies of the Company;
•
The principal risks faced by the Company and the
management environment, including consideration of the
•
appointment, remuneration and terms of engagement;
•
The implications of proposed new accounting standards
and regulatory changes;
•
other service providers; and
•
and understandable.
The Board has established an ongoing process designed to
meet the particular needs of the Company in managing the
risks to which it is exposed, consistent with the related guidance
Montanaro’s Compliance and Risk department and Link provide
covering administration, risk and compliance matters.
the Company is exposed, the controls in place and the actions
being taken to mitigate them. The Board has a robust process
for considering the resulting risk matrix and reviews the
arising as a result.
The Company’s principal risks and their mitigations are set out
on pages 14 to 17, with additional information provided in notes
16 to 20 of the accounts.
The integration of these risks into the consideration of the
18 was also fully
considered by the Committee.
The Board is responsible for the Company’s systems of internal
Committee has reviewed and reported to the Board on these
controls which aim to ensure that the assets of the Company
are safeguarded, proper accounting records are maintained
publication is reliable.
The key procedures which have been established to provide an
•
the Board.
•
management accounts, forecasts of income and
expenditure and detailed analysis relating to the
performance of the Company.
•
The Bank of New York Mellon (International) Limited, as the
Company’s Depositary, provides quarterly reports to the
Board and carries out daily independent checks on cash
and investment transactions.
•
the custody of the Company’s investments. Lists of
investments held are reconciled to the Company’s records
on a regular basis and a report on controls, which is
Committee.
Montanaro page 33
•
Investment management services are provided by
investment performance of the Company in comparison
to its stated investment objective, the benchmark index
and comparable investment trusts. The Board also
reviews the Company’s activities since the last Board
Meeting to ensure that Montanaro adheres to the agreed
investment policy and approved investment guidelines.
of independent reporting accountants, and which is
provides a semi-annual report to the Board.
•
Link are responsible for the provision of company
secretarial, accounting and administration services to the
independent reporting accountants, for consideration by
•
The Board reviews contracts with other third party service
providers, including the standard of services provided, on a
regular basis.
updates on any material changes in the risk environment
and regulatory requirements, and the action taken. These
procedures have been in place throughout the year and up
to manage rather than eliminate risk and, by their nature, can
only provide reasonable, but not absolute, assurance against
material misstatement or loss.
The Board has previously reviewed the need for an internal
it has decided that the systems and procedures employed
management and internal audit functions, provide assurance
that a sound system of internal control, which safeguards
shareholders’ investment and the Company’s assets, is
maintained. In addition, reporting is also provided by the
Depositary with respect to their monitoring and oversight of the
therefore considered unnecessary.
31 March
it to qualify its audit report nor did it highlight any fundamental
audit report which is included on pages 39 to 45.
table on page 34.
The Committee regards the continued independence of the
auditor to be a matter of the highest priority. The Company’s
policy with regard to the provision of non-audit services by
the external auditor ensures that no engagement will be
•
the provision of the services would contravene any
regulation or ethical standard;
•
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
•
the services are considered to be likely to inhibit the
auditor’s independence or objectivity as auditor.
2017 a cap on the level
of fees incurred for permissible non-audit services now applies
and should not exceed 70% of the average audit fee for the
previous three years.
The Committee amended its non-audit services policy in
Standard 2019, resulting in a ‘whitelist’ of permitted non-audit
services as opposed to the former approach of a ‘blacklist’ of
prohibited services.
page 34 Montanaro
Matter Action
Investment Portfolio Valuation
The Company’s portfolio is invested in
the shares of European quoted smaller
companies. Errors in the portfolio valuation
could have a material impact on the
Company’s net asset value per share.
The Board reviews a full portfolio valuation at each Board meeting and, since the
semi-annual reports
annual internal controls report, which is reported on by independent external
accountants, and which details the systems, processes and controls around the
daily pricing of securities, including the application of exchange rate movements.
Misappropriation of Assets
Misappropriation of the Company’s
investments or cash balances could have
a material impact on its net asset value
as referred to above, which details the controls around the reconciliation of the
reviewed the Custodian’s annual internal controls report, which is reported on
by independent external accountants, and which provides details regarding its
and Depositary.
Income Recognition
Incomplete or inaccurate income
recognition, including allocation between
revenue and capital, could have an adverse
and earnings per share and its level of
distributable revenue.
report, as referred to above, which details the systems, processes and controls
income received for the year to the budget which was set at the start of the year
and considered the accounting treatment of all special dividends received with
Annual Report and Accounts
fair, balanced and understandable.
advised the Board that it is fair, balanced and understandable and provides the
information necessary for shareholders to assess the Company’s position and
performance, business model and strategy.
independent of the Company and has complied with relevant
taken into consideration the standing, skills and experience of
audit for the year ended 31 March
the impact of a new auditing standard on the scope of the
planning documentation required.
31 March 2023 is Shujaat
Khan’s second year as audit partner.
performance will continue to be reviewed annually taking into
account all relevant guidance and best practice.
By Order of the Board
C A ROXBURGH
22 2023
continued
Montanaro page 35
The Board consists solely of independent non-executive
Directors. The Company has no executive Directors or
employees. The level of Directors’ fees is determined by the
details of the Company’s policy with regards to Directors’
fees, and fees paid during the year ended 31 March 2023, are
shown below and on page 36. This shows all major decisions
on Directors’ remuneration and any substantial changes made
during the year relating to Directors’ remuneration, including
the context in which any changes occurred. Under company
provided. Where disclosures have been audited they are
on pages 39 to 45.
The Remuneration Committee consists solely of independent
non-executive Directors and determines the level of the
Governance. The Company Secretary provides information
on comparative levels of Directors’ fees to the Remuneration
Committee in advance of each review.
The members of the Remuneration Committee are Mr Curling,
Ms Roxburgh and the Chair,
no executive Directors, the Committee meets annually to
determine the level of Directors’ fees and to review the
performance of the manager. The outcome of the review of the
Manager can be found on page 25. No director is involved in
deciding their own remuneration outcome.
I am pleased to present the Directors’ Remuneration Report for
the year ended 31 March 2023.
During the year, the Committee reviewed the Remuneration
reviews can be found below.
The existing Directors’ remuneration policy was approved at
The Company’s policy is to remunerate Directors exclusively
responsibilities of being a non-executive Director, including the
potential liabilities associated with the position, and the time
committed by them to these responsibilities including, where
appropriate, Board Committee duties. There were no changes
to the policy during the year.
The fees for the non-executive Directors are determined within
be changed without seeking shareholder approval at a general
meeting. There is no performance related remuneration
scheme and therefore non-executive Directors are not eligible
service contracts, but new Directors are provided with a letter
of appointment. These letters of appointment are available for
Directors’ appointments provide that they should retire and be
General Meeting after they were last elected. However, the
Board has agreed that all Directors will retire annually and,
if appropriate, seek re-election. There is no notice period
and no provision for compensation upon early termination
The Company has not received any views from its shareholders
in respect of the levels of Directors’ remuneration. The policy
Company in 2023, at which time a further resolution will be
proposed to cover the period until 2026.
Voting at Annual General Meeting on Directors’
Remuneration Policy
on 10 September 2020. 99.84% of votes were in favour of the
resolution and 0.16% of votes were against. 0.05% of votes
Remuneration Committee concluded that, commencing
per annum, the last increase having been made on
2022. These changes have been made following consideration
of Directors’ remuneration in the context of its peers and the
wider investment trust sector, as well as the increased time
page 36 Montanaro
continued
Based on these fees, Directors’ fees for the forthcoming
31 March 2024 31 March 2023
Chairman £41,000
£35,500
Director £29,500
The principle adopted by the Committee in respect of
recruitment of Directors is that the fees for a non-executive
commitment required. The Committee seeks to encourage the
enhancement of the Company’s performance and to ensure
designed to attract, retain and motivate Directors of the right
calibre.
the aggregate level of Directors’ fees must not exceed a set
Directors’ Emoluments for the Year (audited)
following amounts for services as non-executive Directors for
the years ended 31 March 2023 and 31 March 2022 as well as
reimbursement for expenses necessarily incurred. No other
forms of remuneration were paid during the year.
The requirements to disclose this information came into force
2019 and, as such, this is the third year the Company has
disclosed this information. The comparison will be expanded
The Company does not have any employees and therefore no
comparisons are given in respect of Directors’ and employees’
pay increases.
Statement of implementation of Remuneration Policy in
The Committee will, as usual, review Directors’ fees during
2023/24, including the time required to be committed to the
business of the Company, and will consider whether any further
changes to remuneration are required.
Fees for services to the Company (audited)
Fees
£
Taxable
£
Total
£
remuneration
£
Total variable
remuneration
£
2023 2022 2023 2022 2023 2022 2023 2022 2023 2022
R M Curling 39,000 36,050 1,511 1,675 40,511 37,725 39,000 36,050 1,511 1,675
33,500 30,900 1,727 672 35,227 31,572 33,500 30,900 1,727 672
G Neilly 28,000 25,750 202 396 28,202 26,146 28,000 25,750 202 396
Total 100,500 92,700 3,440 2,743 103,940 95,443 100,500 92,700 3,440 2,743
^ Comprises amounts reimbursed for expenses incurred in carrying out business for the Company.
No sums are paid to any third parties in respect of Directors’ services and no sums were paid to any third parties in respect of
31 March
Annual percentage change in remuneration of directors
Directors’ pay has increased over the last four years, as set out in the table below:
2023
£
Change
%
2022
Change
%
2021
Change
%
2020
Chairman £39,000 8.2 36,050 3.0 35,000 9.0 32,000
£33,500 8.4 30,900 3.0 30,000 11.0 27,000
Director £28,000 8.7 25,750 3.0 25,000 9.0 23,000
Montanaro page 37
Relative Importance of Expenditure on Pay
To enable shareholders to assess the relative importance of
expenditure on Directors’ remuneration, the table below shows
the actual expenditure during the year in relation to Directors’
expenses and shareholder distributions:
2023
£
2022
Change
%
Remuneration 100,500 92,700 8.9
Management and other
2,918,000 3,728,000 (21.7)
Dividends paid to
shareholders 1,752,000 1,637,000 7.0
Directors’ Shareholdings (audited)
interests in the shares of the Company were as follows:
As at
31 March 2023
No. of shares
31 March 2022
No. of shares
R M Curling 150,000 100,000
^
62,352 61,885
G Neilly 61,867 61,496
^ Includes 1,654 shares held in Ms Roxburgh’s spouse’s name
There is no requirement for Directors to hold shares in the
Company. There have been no changes in the Directors’
interests in the shares of the Company between 31 March 2023
and 2023.
Company Performance
The Board is responsible for the Company’s investment
strategy and performance, although the management of the
Company’s investment portfolio is delegated to Montanaro
through the investment management agreement, as referred
to in the Report of the Directors on page 25. The graph below
31 March 2023, the
share price total return (assuming all dividends are reinvested)
to shareholders compared to the return from the benchmark
for the year ended 31 March 2023 is given in the Chairman’s
Statement and the Manager’s Report.
Total Return and Benchmark Performance**
(rebased at 100 on 31 March 2013, GBP)
50
100
300
500
250
400
450
350
200
2013 2014 2015 2016 2017 2018 20232022202120202019
Share Price Total Return
Benchmark Total Return
150
(in Sterling terms). This benchmark was selected because it is the most
commonly used index for SmallCap investors.
Voting at Annual General Meeting on Annual Report
8 September
on Directors’ Remuneration for the year ended 31 March 2022.
99.55% of votes were in favour of the resolution and 0.45%
were against. 0.24% were withheld.
on Directors’ Remuneration will be put to shareholders at the
By Order of the Board
G NEILLY
Director
22 2023
page 38 Montanaro
(the ‘Rules’) to include a management report in their annual
management report for the purpose of the Rules is included
in the Chairman’s Statement (pages 2 and 3), the Manager’s
Report (pages 4 to 7), Twenty Largest Holdings (page 10),
the Business Model and Strategy (pages 12 to 18) and the
Directors' Report (pages 24 to 28). Therefore, a separate
management report has not been included.
United Kingdom law and
. The Directors are also required to prepare
a Strategic Report, Directors’ Report, Directors’ Remuneration
Report and Corporate Governance Statement.
Under company law, the Directors must not approve the
a fair, balanced and understandable report and provide
the information necessary for shareholders to assess the
Company’s performance, business model and strategy. In
•
Errors’ and then apply them consistently;
•
present information, including accounting policies, in a
manner that provides relevant, reliable, comparable and
understandable information;
•
provide additional disclosures when compliance with the
to understand the impact of particular transactions, other
•
to any material departures disclosed and explained in the
•
make judgements and estimates that are reasonable and
prudent; and
•
unless it is inappropriate to assume that the Company will
continue in business.
The Directors are responsible for keeping adequate accounting
transactions and disclose with reasonable accuracy at any
safeguarding the assets of the Company and hence for taking
reasonable steps for the prevention and detection of fraud and
other irregularities.
•
, give a true and fair view of the assets, liabilities,
•
the Strategic Report (comprising the Chairman’s Statement,
and Strategy) and the Report of the Directors include a
fair review of the development and performance of the
business and the position of the Company together with a
description of the principal risks and uncertainties that it
faces;
•
statements are fair, balanced and understandable and
provide the information necessary for shareholders to
assess the Company’s position and performance, business
model and strategy;
•
transactions; and
•
having assessed the principal risks and other matters
appropriate to adopt the going concern basis in preparing
and the above responsibility statement was signed on its
R M CURLING
Chairman
22
Montanaro page 39
to the Members of Montanaro European Smaller Companies Trust plc
•
then ended;
•
have been properly prepared in accordance with UK-adopted international accounting standards; and
•
the Balance Sheet as at 31 March 2023; the Statement of Comprehensive Income, the Statement of Changes in Equity and the
Independence
We remained independent of the company in accordance with the ethical requirements that are relevant to our audit of the
provided.
We have provided no non-audit services to the company in the period under audit.
Context
Montanaro European Smaller Companies Trust plc is an Investment Trust Company listed on the London Stock Exchange and
invests primarily in equities quoted on European investment markets. The operations of the company are located in the UK. We
focus our audit work primarily on the valuation and existence of investments and income from investments.
Overview
•
'Manager') to manage its assets.
•
administrative functions.
•
We tailored the scope of our audit taking into account the types of investments within the Company, the involvement of the
third parties referred to above, the accounting processes and controls, and the industry in which the company operates.
•
page 40 Montanaro
continued
to the Members of Montanaro European Smaller Companies Trust plc
Key audit matters
•
•
•
•
The scope of our audit
accounting estimates that involved making assumptions and considering future events that are inherently uncertain.
Key audit matters
and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
Key audit matter How our audit addressed the key audit matter
Valuation and existence of investments
The Investment portfolio at the year-end
comprised listed equity investments valued at
310 million.
We focused on the valuation and existence of
investments because investments represent
the principal element of the net asset value as
statements.
We assessed the accounting policy for the valuation of investments for compliance
with accounting standards and performed testing to check that investments are
accounted for in accordance with this stated accounting policy.
We tested the valuation of all the listed equity investments by agreeing the prices
used in the valuation to independent third party sources.
We tested the existence of all listed equity investments by agreeing investment
Montanaro page 41
Key audit matter How our audit addressed the key audit matter
Accuracy, occurrence and completeness of
investment income
refers to both revenue and capital (including
gains and losses on investments).
We focused on the accuracy, occurrence
and completeness of investment income as
incomplete or inaccurate income could have
a material impact on the Company's net asset
value and dividend cover.
We found that the accounting policies implemented were in accordance with
in accordance with the stated accounting policy.
valuation of the portfolio at the year-end, together with testing the reconciliation
of disposal proceeds by agreeing the proceeds to bank statements and we re-
performed the calculation of a sample of realised gains/losses.
We tested the accuracy of dividend receipts by agreeing the dividend rates from
investments to independent third-party data.
in the market to independent third-party data, and traced a sample of cash
payments to bank statements
To test for completeness, we tested that the appropriate dividends had been
received in the year by reference to independent third party data of dividends
declared for all listed investments during the year.
We also tested the allocation and presentation of dividend income between the
revenue and capital return columns of the Statement of Comprehensive Income in
How we tailored the audit scope
statements as a whole, taking into account the structure of the company, the accounting processes and controls, and the industry
in which it operates.
The impact of climate risk on our audit
In planning our audit, we made enquiries of the Directors and Manager to understand the extent of the potential impact of
material because the Company's investment portfolio is made up of level 1 quoted securities which are valued at fair value based
on market prices. We found this to be consistent with our understanding of the Company's investment activities.
statements and our knowledge from our audit.
page 42 Montanaro
Materiality
These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and
Overall company materiality
How we determined it 1% of Net assets
Rationale for benchmark applied We have applied this benchmark, which is a generally accepted auditing practice
for investment trust audits.
We use performance materiality to reduce to an appropriately low level the probability that the aggregate of uncorrected and
of our audit and the nature and extent of our testing of account balances, classes of transactions and disclosures, for example
In determining the performance materiality, we considered a number of factors - the history of misstatements, risk assessment
Our evaluation of the directors’ assessment of the company’s ability to continue to adopt the going concern basis of
•
evaluating the Directors' risk assessment and considering whether it addressed the relevant threats to the Company;
•
evaluating the Directors' assessment of potential operational impacts to the Company of relevant risks, considering their
consistency with other available information and our understanding of the business and assessed the potential impact on
•
operating expenses, their assessment of liquidity as well as their review of the operational resilience of the Company and
oversight of key third-party service providers; and
•
the Company to operate.
However, because not all future events or conditions can be predicted, this conclusion is not a guarantee as to the company's
ability to continue as a going concern.
In relation to the directors’ reporting on how they have applied the UK Corporate Governance Code, we have nothing material to
it appropriate to adopt the going concern basis of accounting.
Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections
of this report.
continued
to the Members of Montanaro European Smaller Companies Trust plc
Montanaro page 43
the other information and, accordingly, we do not express an audit opinion or, except to the extent otherwise explicitly stated in
this report, any form of assurance thereon.
otherwise appears to be materially misstated. If we identify an apparent material inconsistency or material misstatement, we are
misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement
of this other information, we are required to report that fact. We have nothing to report based on these responsibilities.
With respect to the Strategic report and Directors' Report, we also considered whether the disclosures required by the UK
matters as described below.
Strategic report and Directors' Report
In our opinion, based on the work undertaken in the course of the audit, the information given in the Strategic report and
Directors' Report for the year ended 31 March
accordance with applicable legal requirements.
In light of the knowledge and understanding of the company and its environment obtained in the course of the audit, we did not
identify any material misstatements in the Strategic report and Directors' Report.
Directors' Remuneration
In our opinion, the part of the Directors' Remuneration Report to be audited has been properly prepared in accordance with the
The Listing Rules require us to review the directors’ statements in relation to going concern, longer-term viability and that part of
the corporate governance statement relating to the company’s compliance with the provisions of the UK Corporate Governance
information are described in the Reporting on other information section of this report.
Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the corporate
have nothing material to add or draw attention to in relation to:
•
•
risks and an explanation of how these are being managed or mitigated;
•
•
The directors’ explanation as to their assessment of the company’s prospects, the period this assessment covers and why
the period is appropriate; and
•
The directors’ statement as to whether they have a reasonable expectation that the company will be able to continue in
operation and meet its liabilities as they fall due over the period of its assessment, including any related disclosures drawing
page 44 Montanaro
Our review of the directors’ statement regarding the longer-term viability of the company was substantially less in scope than an
audit and only consisted of making inquiries and considering the directors’ process supporting their statement; checking that
the statement is in alignment with the relevant provisions of the UK Corporate Governance Code; and considering whether the
obtained in the course of the audit.
In addition, based on the work undertaken as part of our audit, we have concluded that each of the following elements of the
•
provides the information necessary for the members to assess the company's position, performance, business model and
strategy;
•
and
•
We have nothing to report in respect of our responsibility to report when the directors’ statement relating to the company’s
Listing Rules for review by the auditors.
, the directors are
that they give a true and fair view. The directors are also responsible for such internal control as they determine is necessary to
concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the
directors either intend to liquidate the company or to cease operations, or have no realistic alternative but to do so.
misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance
material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our
responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which
our procedures are capable of detecting irregularities, including fraud, is detailed below.
which non-compliance
that the principal risks were related to posting inappropriate journal entries to increase revenue (investment income and capital
•
compliance with laws and regulation and fraud;
•
•
recalculation of numerical aspects of the eligibility conditions;
continued
to the Members of Montanaro European Smaller Companies Trust plc
Montanaro page 45
•
•
and
•
designing audit procedures to incorporate unpredictability around the nature, timing or extent of our testing.
There are inherent limitations in the audit procedures described above. We are less likely to become aware of instances of
non-compliance
resulting from error, as fraud may involve deliberate concealment by, for example, forgery or intentional misrepresentations, or
through collusion.
Our audit testing might include testing complete populations of certain transactions and balances, possibly using data auditing
techniques. However, it typically involves selecting a limited number of items for testing, rather than testing complete populations.
We will often seek to target particular items for testing based on their size or risk characteristics. In other cases, we will use audit
sampling to enable us to draw a conclusion about the population from which the sample is selected.
www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditors’ report.
Use of this report
This report, including the opinions, has been prepared for and only for the company’s members as a body in accordance with
responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save
where expressly agreed by our prior consent in writing.
Companies Act 2006 exception reporting
•
we have not obtained all the information and explanations we require for our audit; or
•
adequate accounting records have not been kept by the company, or returns adequate for our audit have not been received
from branches not visited by us; or
•
•
accounting records and returns.
We have no exceptions to report arising from this responsibility.
Appointment
9 September 2021 to audit the
31 March
engagement is two years, covering the years ended 31 March 2022 to 31 March 2023.
SHUJAAT KHAN (Senior statutory auditor)
for and on behalf of PricewaterhouseCoopers LLP
Edinburgh
22
page 46 Montanaro
for the year ended 31 March 2023
Year to 31 March 2023 Year to 31 March 2022
Notes
Revenue
£’000
Capital
£’000
Total
£’000
Revenue
Capital
Total
Capital (losses)/gains on investments
(Losses)/gains on investments held at fair value 9 – (23,070) (23,070) – 18,806 18,806
Exchange losses – (542) (542) – (264) (264)
Revenue
Investment income 2 4,101 – 4,101 3,788 – 3,788
Other income 2 29 – 29 – – –
Total income/(expenses) 4,130 (23,612) (19,482) 3,788 18,542 22,330
Expenditure
Management expenses 3 (804) (1,494) (2,298) (1,092) (2,028) (3,120)
Other expenses 4 (620) – (620) (570) (38) (608)
Total expenditure (1,424) (1,494) (2,918) (1,662) (2,066) (3,728)
2,706 (25,106) (22,400) 2,126 16,476 18,602
5 (84) (156) (240) (56) (104) (160)
Return before taxation 2,622 (25,262) (22,640) 2,070 16,372 18,442
Taxation 6 (538) – (538) (348) – (348)
Return after taxation 2,084 (25,262) (23,178) 1,722 16,372 18,094
Return per share 8 1.10p (13.34p) (12.24p) 0.96p 9.09p 10.05p
The total column of this statement represents the Company’s Income Statement and Statement of Comprehensive Income,
Investment Companies.
No operations were acquired or discontinued in the year.
Montanaro page 47
as at 31 March 2023
31 March 2023 31 March 2022
Notes £’000 £’000
Non-current assets
9
310,308 339,788
Current assets
Trade and other receivables 10
880 967
Cash and cash equivalents 10 3,225 1,821
4,105 2,788
Total assets 314,413 342,576
Current liabilities
Trade and other payables 11
(1,260) (787)
Interest-bearing bank loans 12 (8,787) –
Revolving credit facility 11 (4,391) (8,450)
(14,438) (9,237)
Non-current liabilities
Interest-bearing bank loan 12
– (8,434)
Total liabilities (14,438) (17,671)
Net assets 299,975 324,905
Capital and reserves
Called-up share capital 13
9,471 9,471
Share premium account 44,057 44,057
Capital redemption reserve 2,212 2,212
Capital reserve 240,581 265,843
Revenue reserve 3,654 3,322
Total shareholders’ fund 299,975 324,905
Net asset value per share 14 158.4p 171.5p
46 to 62 were approved and authorised for issue by the Board of Directors on 2023
and signed on its behalf by:
R CURLING
Director
Company Registered Number: SC074677
page 48 Montanaro
for the year ended 31 March 2023
Year to 31 March 2023 Notes
Share
capital
£’000
Share
premium
account
£’000
Capital
redemption
reserve
£’000
Capital
reserve
£’000*
Revenue
reserve
£’000*
Total
£’000
9,471 44,057 2,212 265,843 3,322 324,905
Return after taxation – – – (25,262) 2,084 (23,178)
Dividends paid 7 – – – – (1,752) (1,752)
As at 31 March 2023 9,471 44,057 2,212 240,581 3,654 299,975
Year to 31 March 2022
Notes
Share
capital
Share
premium
account
Capital
redemption
reserve
Capital
reserve
Revenue
reserve
Total
8,724 12,707 2,212 249,185 3,237 276,065
Return after taxation – – – 16,372 1,722 18,094
Share issues 747 31,350 – 286 – 32,383
Dividends paid 7 – – – – (1,637) (1,637)
Balance at 31 March 2022 9,471 44,057 2,212 265,843 3,322 324,905
127,723,000
Montanaro page 49
for the year ended 31 March 2023
31 March 2023 31 March 2022
Notes £’000
Return before taxation
(22,640) 18,442
Investment losses/(gains) 23,070 (18,806)
Exchange losses 542 264
240 160
Withholding tax (450) (348)
Investment income (4,130) (3,788)
Dividends received 4,043 3,838
Other income received 29 –
Increase in receivables (43) (197)
(Decrease)/increase in payables (79) 30
(31,524) (75,661)
Sales of investments 38,643 37,583
Net cash from operating activities 7,701 (38,483)
(Repayments)/drawdown of loans
(4,325) 8,394
– 32,383
Dividends paid 7 (1,752) (1,637)
Interest paid (239) (155)
Share split costs – (38)
Net cash (6,316) 38,947
Net increase in cash and cash equivalents 1,385 464
Exchange gains/(losses) 19 (410)
Increase in cash and cash equivalents 1,404 54
Cash and cash equivalents at beginning of year 1,821 1,767
Cash and cash equivalents at end of year 10 3,225 1,821
page 50 Montanaro
for the year ended 31 March 2023
1 Accounting Policies
with the
currency of the Company’s share capital and the currency in which dividends and expenses are paid.
investment trust company will continue to be met.
nearest thousand pounds unless otherwise indicated.
2024. The Directors noted that the Company holds a portfolio of highly liquid listed investments. The Company is a closed end fund,
where assets are not required to be liquidated to meet redemptions. Whilst the economic impact from current market conditions,
experience reductions in income and/or market value, they consider that this should not be at a level, which would threaten the
Company‘s ability to continue as a going concern.
24 and 28. In addition to the Going Concern
assessment the Directors have assessed the longer term viability of the Company as set out in the viability assessment and
statement on page 18.
Certain new accounting standards, amendments to accounting standards and interpretations have been published that are
not mandatory for 31 March 2023 reporting periods and have not been early adopted by the Company. These standards,
amendments or interpretations are not expected to have a material impact on the entity in the current or future reporting
periods and on foreseeable future transactions.
accordance
statements. The estimates and associated assumptions are based on historical experience and various other factors that are
believed to be reasonable under the circumstances, the results of which form the basis of making judgements about carrying
unusual or special dividends received as either revenue or capital in nature; and setting the levels of dividends paid and proposed
in satisfaction of both the Company’s long-term objective and its obligations to adhere to investment trust status rules under
Dividends received which appear to be unusual in size or circumstance are assessed on a case-by-case basis, based on
the revenue account or capital reserves. Dividends which have clearly arisen out of the investee company’s reconstruction or
reorganisation are usually considered to be capital in nature and allocated to capital reserves. Investee company dividends which
Montanaro page 51
1 Accounting Policies continued
The Board is of the view that the Company is engaged in a single segment of business, of investing in European quoted smaller
companies, and that therefore the Company has only a single operating segment.
supplementary information which analyses the Statement of Comprehensive Income between items of a revenue and capital
nature has been presented alongside the Statement of Comprehensive Income. The net revenue return is the measure the
Directors believe appropriate in assessing the Company’s compliance with certain requirements set out in Section 1158 of the
INCOME
Dividends are recognised as income on the date that the related investments are marked ex-dividend.
Dividends receivable on equity shares where no ex-dividend date is quoted are recognised when the Company’s right to receive
payment is established.
Special dividends are taken to the revenue or capital account depending on their nature. In deciding whether a dividend should
be regarded as a capital or revenue receipt, the Board reviews all relevant information as to the reasons for the sources of the
dividend on a case-by-case basis.
Where the Company has elected to receive its dividends in the form of additional shares rather than cash, the amount of the cash
dividend foregone is recognised as income.
in connection with the maintenance or enhancement of the value of the Company’s assets and taking account of the expected
long-term returns as follows:
investment management fee payable are allocated 35% to revenue and 65% to capital.
The tax expense represents the sum of the tax currently payable and movements in deferred tax. Tax payable is based on the
of Comprehensive Income because it excludes items of income or expense that are taxable or deductible in other years and it
further excludes items that are never taxable or deductible. The Company’s liability for current tax is calculated using tax rates
that have been enacted or substantively enacted by the balance sheet date.
capital returns in the supplementary information in the Statement of Comprehensive Income is the ‘marginal basis’. Under this
of Comprehensive Income, then no tax relief is transferred to the capital return column.
The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer
Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is
realised. Deferred tax is charged or credited in the Statement of Comprehensive Income, except when it relates to items charged
or credited directly to equity, in which case the deferred tax is also dealt with in equity.
page 52 Montanaro
continued
1 Accounting Policies continued
the documented investment strategy and information is provided internally on that basis to the Company’s Board of Directors
and other key management personnel.
purchase or sale of investments. When a sale or purchase is made under a contract, the terms of which require delivery within the
timeframe of the relevant market, the investments concerned are recognised or derecognised on the trade date.
reporting dates at fair value, which is the bid price or the last traded price depending on the convention of the exchange on
hierarchy levels set out in note 15.
Cash comprises bank balances and cash held by the Company. Cash equivalents are short-term, highly liquid investments that are
or losses arising from changes in exchange rate between Euro and Sterling is included in the capital reserves and shown in the
capital column of the Statement of Comprehensive Income.
Share Premium Account
The following are included in this reserve:
•
premium on the issue of shares.
•
surplus arising on the sale of Ordinary Shares from treasury.
•
costs associated with the issue of equity.
Capital Redemption Reserve
The nominal value of Ordinary Shares bought back for cancellation is added to this reserve. This reserve is non-distributable.
Capital Reserve
The following are included in this reserve:
•
gains and losses on the realisation of investments.
•
increases and decreases in the valuation of investments held at the year end.
•
•
special dividends of a capital nature.
•
•
cost of purchasing Ordinary Shares to be held in treasury or cancelled.
•
proceeds from the issue of Ordinary Shares held in treasury equivalent to the weighted average cost of the repurchase.
Montanaro page 53
1 Accounting Policies continued
realisation of its investments.
Revenue Reserve
during the year may be deducted from this reserve.
Monetary assets and liabilities expressed in foreign currencies are translated into sterling at rates of exchange ruling at the
balance sheet date. Non-monetary items expressed in foreign currencies held at fair value are translated into sterling at rates
of exchange ruling at the date the fair value is measured. Transactions in foreign currencies are converted to sterling at the rate
ruling at the date of the transaction. Exchange gains and losses are taken to the Statement of Comprehensive Income as a capital
or revenue item depending on the nature of the underlying item.
Exchange gains and losses on investments are included within ‘(Losses)/gains on investments held at fair value’ and are taken to
as ‘Exchange losses’.
Rates of exchange (per Pound Sterling)
31 March
2023
31 March
2022
Change
%
Danish Krone 8.48 8.80 (3.6%)
Euro 1.14 1.18 (3.4%)
Norwegian Krone 12.95 11.52 12.4%
Swedish Krona 12.82 12.27 4.5%
1.13 1.21 (6.6%)
2 Income
Year to
31 March 2023
£’000
Year to
31 March 2022
Investment income
Overseas dividend income 4,078 3,785
Exchange gains 23 3
Investment income 4,101 3,788
Bank interest 16 –
Other income 13 –
Total other income 29 –
Total Income 4,130 3,788
3 Management Expenses
Year to 31 March 2023
Year to 31 March 2022
Revenue
£’000
Capital
£’000
Total
£’000
Revenue
Capital
Total
Investment management fee 786 1,462 2,248 1,074 1,996 3,070
18 32 50 18 32 50
804 1,494 2,298 1,092 2,028 3,120
Details of the management fee arrangements during the year are contained within the Directors’ Report on page 25 and details of
fees owed to the Manager at the balance sheet date are included in note 11.
page 54 Montanaro
4 Other Expenses
Year to 31 March 2023
Year to 31 March 2022
Revenue
£’000
Capital
£’000
Total
£’000
Revenue
Capital
Total
Directors’ fees 101 – 101 93 – 93
– statutory audit 48 – 48 45 – 45
Secretarial and administration fees 162 – 162 150 – 150
Legal, professional and advisory fees 13 – 13 9 – 9
Custody and depositary fees 102 – 102 118 – 118
Credit facility commitment fee 35 – 35 56 – 56
Share split costs – – – – 38 38
Other 159 – 159 99 – 99
620 – 620 570 38 608
5 Finance Costs
Year to 31 March 2023
Year to 31 March 2022
Revenue
£’000
Capital
£’000
Total
£’000
Revenue
Capital
Total
Interest payable on bank borrowings 84 156 240 56 104 160
6 Taxation
Year to 31 March 2023
Year to 31 March 2022
Revenue
£’000
Capital
£’000
Total
£’000
Revenue
Capital
Total
Overseas tax 538 – 538 348 – 348
Year to
31 March 2023
£'000
Year to
31 March 2022
on activities before taxation (22,640) 18,442
Corporation tax at standard rate of 19% (2022: 19%) (4,302) 3,504
Non taxable gains on investment 4,383 (3,573)
Movement in unutilised expenses 600 739
Non-taxable overseas income (781) (720)
Bank interest (3) –
Exchange (gains)/losses 103 50
Overseas tax 538 348
Total tax charge for the year 538 348
30,957,000
7,7 39,000
continued
Montanaro page 55
7 Dividends
Year to
31 March 2023
£’000
Year to
31 March 2022
– 1,276
Interim dividend for the year ended 31 March 2022 of 0.200p per share – 361
1,373 –
Interim dividend for the year ended 31 March 2023 of 0.200p per share 379 –
1,752 1,637
Amounts relating to the year but not paid at the year end:
– 1,373
0.770p per share 1,459 –
1,459 1,373
0.770p per share, payable
on 15 September 2023 to all shareholders on the register on
The attributable revenue and the dividends paid and proposed for the purposes of the income retention test for section 1159 of
Year to
31 March 2023
£’000
Year to
31 March 2022
Revenue attributable to equity shareholders 2,084 1,722
Interim dividend for the year ended 31 March 2022 of 0.200p per share – (361)
2 of 0.725p per share – (1,373)
Interim dividend for the year ended 31 March 2023 of 0.200p per share (379) –
3 of 0.770p per share (1,459) –
Net movement in revenue 246 (12)
8 Return per Share
Year to 31 March 2023 Year to 31 March 2022
Revenue Capital Total Revenue Capital Total
Basic
1.10p (13.34p) (12.24p) 0.96p 9.09p 10.05p
Basic total return per Ordinary Share is based on the total comprehensive loss23,178,000 (2022: gain
189,427,600 (2022: 180,046,654) Ordinary Shares, being the weighted average number of Ordinary Shares in
issue during the year.
2,084,000
189,427,600 (2022: 180,046,654) Ordinary Shares, being the weighted average number of Ordinary
Shares in issue during the year.
Basic capital return per Ordinary Share is based on the net capital loss25,262,000 (2022: gain
and on 189,427,600 (2022: 180,046,654) Ordinary Shares, being the weighted average number of Ordinary Shares in issue during
the year.
page 56 Montanaro
Year to
31 March 2023
£’000
Year to
31 March 2022
Opening cost 196,337 145,479
Holding gains 143,451 137,096
Opening fair value 339,788 282,575
32,076 75,867
Sales – proceeds (38,486) (37,460)
– gains on sales 3,869 12,451
Holding (losses)/gains (26,939) 6,355
Closing fair value 310,308 339,788
Closing cost 193,796 196,337
Holding gains 116,512 143,451
Closing valuation 310,308 339,788
book cost of investments sold.
24,00024,000
Year to
31 March 2023
£’000
Year to
31 March 2022
Gains on sales 3,869 12,451
(Decrease)/increase in holding gains (26,939) 6,355
(Losses)/gains on investments (23,070) 18,806
10 Current Assets
Year to
31 March 2023
£’000
Year to
31 March 2022
Due from brokers – 109
345 235
Overseas tax recoverable 535 623
880 967
The carrying value of the balances above approximates to fair value. There are no amounts which are past due at the year end
These comprise bank balances and cash held by the Company. The carrying amount of these assets approximates to their fair value.
Year to
31 March 2023
£’000
Year to
31 March 2022
Cash at bank and on hand 3,225 1,821
continued
Montanaro page 57
11 Current Liabilities
Year to
31 March 2023
£’000
Year to
31 March 2022
Trade and other payables:
407 471
Due to broker 739 187
Other creditors 114 129
1,260 787
Year to
31 March 2023
£’000
Year to
31 March 2022
Revolving credit facility:
Revolving credit facility 4,391 8,450
The Company has a
€
which
at 31 March 2023,
€
54,391,000) of the facility was drawn (2022:
€
10 million 8,450,000)), at a rate of 3.61%, with
€
10 million available to be drawn (31 March 2022:
€
5 million).
arising from changes in exchange rates is included in the capital reserve and shown in the capital column of the Statement of
Comprehensive Income. Interest costs are charged to capital and revenue in accordance with the Company’s accounting policies.
The carrying value of the balances above approximates to fair value.
12 Interest-Bearing Bank Loans
Year to
31 March 2023
£’000
Year to
31 March 2022
Opening balance 8,434 8,495
10 10
Non-cash foreign currency movements 343 (71)
Closing balance 8,787 8,434
The Company has a
€
13 September 2023.
The Company also has a
€
23 September 2023.
Under the bank covenants relating to the loans, the Company is to ensure that at all times the total borrowings of the Company do
45
The carrying value of the balances above approximates to fair value.
page 58 Montanaro
13 Called-up Share Capital
Listed Held in Treasury In Issue
Number Number Number
Allotted, issued and fully paid:
Ordinary Shares of 5p (2022: 5p) each
189,427,600 9,471 – – 189,427,600 9,471
Balance at 31 March 2023 189,427,600 9,471 – – 189,427,600 9,471
CAPITAL MANAGEMENT
313,153,000 (2022: 341,789,000). Details of the movement through each reserve are shown in the Statement of Changes in
Equity. The Company is not subject to any externally imposed capital requirements other than those associated with the
The Company’s capital is managed in accordance with its investment policy, in pursuit of its investment objective, both of
which are detailed in the Business Model and Strategy. The Company’s capital structure is also explained in the Directors’
Report on pages 25 and 26.
14 Net Asset Value per Ordinary Share
Net asset value per share
Net asset value
2023
p
2022
p
2023
£'000
2022
Net asset value per Ordinary Share 158.4 171.5 299,975 324,905
The net asset value per share is based on net assets at the year end and on 189,427,60 0 (2022: 189,427,600) Ordinary Shares,
being the number of Ordinary Shares in issue at the year end, excluding those shares bought back and held in treasury.
15 Financial Instruments
investment objective. The Company makes use of borrowings, as detailed in notes 11 and 12 and the Chairman’s Statement, to
achieve improved performance in rising markets.
The Company’s principal risks are described in the Business Model and Strategy on pages 12 to 18.
(i)
caused by factors other than interest rate or currency rate movements;
(ii)
interest rates;
(iii) foreign currency risk, being the risk that the value of investment holdings, investment purchases, investment sales, bank loans
(iv)
has entered into with the Company; and
(v) liquidity risk, being the risk that the Company may not be able to liquidate quickly its investments to meet obligations associated
continued
Montanaro page 59
15 Financial Instruments continued
FAIR VALUE HIERARCHY
making the measurements.
measurement of the relevant assets as follows:
•
Level 1 – valued using quoted prices unadjusted in active markets for identical assets or liabilities.
•
Level 2 – valued by reference to valuation techniques using observable inputs for the asset or liability other than quoted
prices included within Level 1.
•
Level 3 – valued by reference to valuation techniques using inputs that are not based on observable market data for the
asset or liability.
hierarchy into which the fair value measurement is categorised.
approximation of fair value as at 31 March 2023:
Level 1
£’000
Level 2
£’000
Level 3
£’000
2023
Total
£’000
Level 1
Level 2
Level 3
2022
Total
Financial instruments
Investments 310,308 – – 310,308 339,788 – – 339,788
Interest-bearing bank loan – (8,787) – (8,787) – (8,434) – (8,434)
Revolving credit facility – (4,391) – (4,391) – (8,450) – (8,450)
There were no transfers between levels in the fair value hierarchy in the year ended 31 March 2023 (2022: none).
3,225,000345,0001,260,000
16 Market Price Risk
value of investments.
The Board manages the risks inherent in the investment portfolio by ensuring full and timely reporting of relevant information
from the Manager. Investment performance and exposure are reviewed at each Board meeting.
310,308,000
31,031,000
capital return before taxation. The analysis is based on closing balances only and is not representative of the year as a whole.
page 60 Montanaro
17 Interest Rate Risk
FIXED RATE
The Company has a
€
8 million as at 31 March
2023
FLOATING RATE
The Company has a
€
15 million revolving credit facility term with ING of which
€
5 million is drawn, with a Sterling equivalent of
4.43, at a rate of interest of 3.61% per annum.
When the Company retains cash balances, the cash is primarily held in accounts at the custodian. Interest received or paid on
cash balances and bank overdrafts is at market rates and is monitored and reviewed by the Investment Manager and the Board.
3.2
11,000
11,000
balance sheet dates.
18 Foreign Currency Risk
The Company invests in overseas securities and holds foreign currency cash balances and foreign currency borrowings which give
rise to currency risks. It is not the Company’s policy to hedge this risk.
As at 31 March 2023
Investments
£’000
Trade
and other
receivables
£’000
Cash
£’000
Trade
and other
payables
£’000
Revolving
credit
facility*
£’000
Interest-
bearing
bank loan*
£’000
Net
exposure
£’000
Danish Krone 14,285 59 – – – – 14,344
Euro 160,976 224 2,884 – (4,391) (8,787) 150,906
Norwegian Krone 22,139 27 – – – – 22,166
Swedish Krona 74,986 131 – – – – 75,117
37,922 285 90 739 – – 39,036
Total 310,308 726 2,974 739 (4,391) (8,787) 301,569
Investments
Trade
and other
receivables
Cash
Trade
and other
payables
Revolving
credit
Interest-
bearing
Net
exposure
Danish Krone 16,452 115 – – – – 16,567
Euro 161,658 339 1,462 (186) (8,450) (8,434) 146,389
Norwegian Krone 23,183 60 – – – – 23,243
Swedish Krona 104,584 34 – – – – 104,618
33,911 318 – – – – 34,229
Total 339,788 866 1,462 (186) (8,450) (8,434) 325,046
If the value of Sterling had weakened by 5
15,870,000
strengthened by 5
value would have been negative 14,358,000
exposure balances as at the respective balance sheet dates.
continued
Montanaro page 61
19 Credit Risk
entered into with the Company. The Company has in place a monitoring procedure in respect of counterparty risk which is
balance sheet date.
2023
£’000
2022
Cash and cash equivalents 3,225 1,821
Due from brokers and accrued income 192 243
3,417 2,064
Credit risk arising on transactions with brokers relates to transactions awaiting settlement. Risk relating to unsettled transactions
used, which are monitored on an ongoing basis by the Manager. The Manager also monitors the quality of service provided by the
brokers used to further mitigate this risk.
investment exceeded 5.0% of the investment portfolio at 31 March 2023 (2022: 5.8%).
custodian. Bankruptcy or insolvency of this or other custodians may cause the Company’s rights with respect to securities held by
the custodians to be delayed. The Board monitors the Company’s risk by reviewing the custodian’s internal control reports.
20 Liquidity Risk
realisable.
However, as with all smaller company investment trusts, there are times when the liquidity of the underlying portfolio is poor, such
as when smaller companies are out of favour or during periods of adverse economic conditions. The Manager focuses on smaller
companies where the opportunities may be more attractive but this can decrease overall underlying liquidity. This may result in
the Manager being unable to buy or sell individual holdings within the portfolio. The Manager constantly reviews the underlying
liquidity of the portfolio and deals with a wide range of brokers to enhance its ability to execute transactions and minimise
liquidity risk. The Company’s overall exposure to liquidity risks is monitored on a regular basis by the Board.
3.2
8.8
page 62 Montanaro
20 Liquidity Risk continued
at undiscounted amounts, based on the earliest date on which
payment can be required, are as follows:
As at 31 March 2023
Within
one month
£’000
Between
one and
three months
£’000
Between
three and
twelve months
£’000
Between one
£’000
Total
£’000
Liabilities:
Other creditors 1,163 97 – – 1,260
Revolving credit facility 4,405 – – – 4,405
Loan and loan interest – – 8,847 – 8,847
Total liabilities 5,568 97 8,847 – 14,512
Within
one month
Between
one and
three months
Between
three and
twelve months
Between one
Total
Liabilities:
Other creditors 700 76 11 – 787
Revolving credit facility 8,450 – – – 8,450
Loan and loan interest – – 114 8,507 8,621
Total liabilities 9,150 76 125 8,507 17,858
21 Related Parties and Transactions with the Manager
The following are considered related parties: the Board of Directors. The Directors of the Company received fees for their services
pages 35 to 37.
Transactions between the Company and the Manager are detailed in note 3 on management fees and note 11 on fees owed to
the Manager at the balance sheet date. The existence of an independent Board of Directors demonstrates that the Company is
related party.
The Company has not, in the year to 31 March 2023 (2022: same), participated in any: repurchase transactions; securities lending
UKthat were adopted into UK law
through the EU withdrawal legislation.
23 Post Balance Sheet Events
2023.
continued
Montanaro page 63
Alternative Investment Fund Managers (‘AIFM’) Directive (‘AIFMD’)
69. and the remuneration
Management Limited on request. The Company’s maximum and actual leverage levels at 31 March 2023 are shown below:
Leverage exposure
Gross
method
Commitment
method
Maximum limit 200% 200%
103.44% 104.52%
and the use of derivatives. It is expressed as a percentage of Company’s exposure to its net asset value and is calculated on both
a gross and commitment method.
Under the gross method, exposure represents the sum of the Company’s positions after deduction of cash and cash equivalents,
without taking account of any hedging or netting arrangements. Under the commitment method, exposure is calculated without
page 64 Montanaro
Annual General Meeting
Meeting of Montanaro European Smaller Companies Trust plc will be held on Thursday, 7 September 2023 at
11.00am at 53 Threadneedle Street, Lher details can be found on page 70.
Key Dates
31 March 2023 Company year end
7 September 2023
15 September 2023
November 2023 Interim results announced
Dividends
Shareholders who wish to have dividends paid directly into a bank account rather than by cheque to their registered address can
page 78.
Change of Address
Communications with shareholders are mailed to the address shown on the share register. In the event of a change of address or
Frequency of NAV Publication
Non-Mainstream Pooled Investment (“NMPI”) Status
investment products because they are securities in a UK listed investment trust.
ISA Status
AIC
Data protection
Montanaro page 65
Warning to Shareholders – Beware of Share Fraud
If you receive unsolicited investment advice or requests:
•
www.fca.org.uk
•
0800 111 6768
•
www.fca.org.uk/scams.
•
•
www.fca.org.uk/scams where
0800 111 6768.
0300 123 2040.
page 66 Montanaro
Premium/(discount)
If the share price of an Investment Trust is less than its Net
the shares are trading at a premium.
158.4p
(2022: 171.5p) and the share price was 137.6p (2022: 168.0p).
The discount is therefore calculated at 13.1% (2022: discount
2.0%).
Net Gearing Employed
Unlike open-ended investment companies, Investment Trusts
have the ability to borrow to invest. This term is used to
describe the level of borrowings that an Investment Trust has
undertaken, and is stated as a percentage of shareholders’
funds. The higher the level of borrowings, the higher the
gearing ratio.
Net gearing is calculated as total debt, net of cash and cash
equivalents, as a percentage of the total shareholders’ funds.
13,178,000, (202216,884,000) cash and
3,225,000
299,975,000
31 March 2023, Gearing is therefore equal to 3.3% (2022: 4.6%).
Ongoing Charges (expressed as a percentage)
are payable by the Company expressed as a proportion of the
The costs of buying and selling investments are excluded, as
are interest costs, taxation, non-recurring costs and the costs
of buying back or issuing Ordinary Shares.
Ongoing charges calculation
For the
year ended
31 March 2023
£’000
year ended
31 March 2022
Total expenditure 2,917 3,728
Less non-recurring costs – (38)
Total (a) 2,917 3,690
279,739 338,926
Ongoing charges (c = a/b) (c) 1.0% 1.1%
Capital Return – NAV and Share Price Returns
(7.6%) (2022: 7.9%),
and the 1 year Ordinary share price Capital Return was (18.1%)
(2022: 4.3%).
NAV Capital Return calculation as at 31 March 2023
158.40p (a)
171.50p (b)
NAV Capital Return (7.6%) ((a-b)/b)
NAV Capital Return calculation as at 31 March 2022
171.50p (a)
158.90p (b)
NAV Capital Return 7.9% ((a-b)/b)
Share Price Capital Return calculation as at 31 March 2023
137.60p (a)
168.00p (b)
Share Price Capital Return (18.1%) ((a-b)/b)
Share Price Capital Return calculation as at 31 March 2022
168.00 (a)
161.00 (b)
Share Price Capital Return 4.3% ((a-b)/b)
Total Return – NAV and Share Price Returns
(7.1%) (2022:
8.4%), and the 1 year Ordinary share price Total Return was
(17.6%) (2022: 4.8%).
Montanaro page 67
NAV Total Return calculation as at 31 March 2023
158.40p (c)
171.50p (d)
Dividend adjustment factor (+1) 1.0059 (a)
0.9236 (b)(b=c/d)
NAV Total Return (7.1) ((a*b)-1)
(a) Dividend Adjustment Factor
Dividend PPS
Dividend XD
date
NAV at
Dividend XD
date
NAV
Multiplier
Interim dividend 0.200 1 Dec 22 148.30p 0.0013
0.725 156.32p 0.0046
0.0059
NAV Total Return calculation as at 31 March 2022
171.50p (c)
158.90p (d)
Dividend adjustment factor (+1) 1.0047 (a)
1.0793 (b)(b=c/d)
NAV Total Return 8.4 ((a*b)-1)
(a) Dividend Adjustment Factor
Dividend PPS
Dividend XD
date
NAV at
Dividend XD
date
NAV
Multiplier
Interim dividend 0.200 3 Dec 21 205.00p 0.0010
0.725 196.90p 0. 0037
0.0047
Share price Total Return calculation as at 31 March 2023
Share price as at 31 March 2023 137.60p (c)
Share price as at 31 March 2022 168.00p (d)
Dividend adjustment factor (+1) 1.0067 (a)
0.8190 (b)(b=c/d)
Share price Total Return (17.6) ((a*b)-1)
(a) Dividend Adjustment Factor
Dividend PPS
Dividend XD
date
Share price at
Dividend XD
date
Share
price
Multiplier
Interim dividend 0.200 1.Dec.22 135.30p 0.0015
0.725 139.60p 0.0052
0.0067
Share price Total Return calculation as at 31 March 2022
Share price as at 31 March 2022 168.00p (c)
161.00p (d)
Dividend adjustment factor (+1) 1.0046 (a)
1.0434 (b)(b=c/d)
Share price Total Return 4.8 ((a*b)-1)
(a) Dividend Adjustment Factor
Dividend PPS
Dividend XD
date
Share price at
Dividend XD
date
Share
price
Multiplier
Interim dividend 0.200 3.Dec.21 208.50p 0.0010
0.725 201.00p 0.0036
0.0046
page 68 Montanaro
AIFMD
requires that all investment vehicles in the European Union,
Trust, nevertheless, remains fully responsible for all aspects
of the Company’s strategy, operations and compliance with
regulations.
Association of Investment Companies (‘AIC’)
Closed-end Investment Companies (www.theaic.co.uk).
Benchmark
This is a measure against which an Investment Trust’s
performance is compared. The benchmark of the Company
is the MSCI Europe ex-UK SmallCap Index (capital return in
Sterling terms). The index averages the performance of a
company stock markets and gives an indication of how those
markets have performed in any period.
Closed-end Investment Company
ordinary share capital which is traded on an exchange at a
company and where shares can only be issued or bought
back by the company in certain circumstances. This contrasts
with an open-ended investment company, which has units
not traded on an exchange but issued or bought back from
Custodian
worldwide, the listed securities and certain cash assets of the
Company, as well as the income arising therefrom, through
provision of custodial, settlement and associated services. The
(London Branch).
Depositary
must appoint a Depositary, whose duties in respect of
investments, cash and similar assets include: safekeeping;
The Depositary has strict liability for loss of any investments or
other assets where it has safekeeping duties. The Depositary’s
oversight duties include, but are not limited to, oversight
of share buybacks, dividend payments and adherence to
investment limits. The Company’s Depositary is The Bank of
New York Mellon (International) Limited.
Dividend
The income from an investment. Some Investment Trusts
pay dividends on a quarterly or monthly basis. Montanaro
European Smaller Companies Trust plc currently pays
dividends twice a year.
Gearing
Gearing is calculated as total liabilities less current assets
divided by net assets.
International Accounting Standards
in conformity with the
requirements of the Companies act 2006.
Investment Manager
Management Limited. The responsibilities and remuneration of
the Manager are set out in the Business Model and Strategy on
page 12 and in the Directors’ Report on page 25.
Investment Trust
Companies which meet these criteria are exempt from having
to pay tax on the capital gains they realise from sales of the
investments within their portfolios.
Montanaro page 69
Leverage
of cash or securities or leverage embedded in derivative
positions. Leverage is broadly equivalent to Gearing, but is
expressed as a ratio between the assets (excluding borrowings)
and the net assets (after taking account of borrowings).
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
against each other.
Marked to Market
than its book cost.
Market Capitalisation
The stock market value of a company as determined by
multiplying the number of shares in issue, excluding those
shares held in treasury, by the market price of the shares.
Net Assets (or Shareholders’ Funds)
This is calculated as the value of the investments and other
assets of an Investment Trust, plus cash and debtors, less
borrowings and any other creditors. It represents the
underlying value of an Investment Trust at a point in time.
Net Asset Value (‘NAV’) per Ordinary Share
This is calculated as the net assets of an Investment Trust
divided by the number of Ordinary Shares in issue, excluding
those shares held in treasury.
Ordinary Shares
The main type of equity capital issued by conventional
Investment Trusts. Shareholders are entitled to their share of
both income, in the form of dividends paid by the Investment
Trust, and any capital growth. Montanaro European Smaller
Companies Trust plc has only Ordinary Shares in issue.
Portfolio Turnover
Calculated using total sales proceeds as a percentage of the
average monthly net assets during the year.
Share Price
The value of a share at a point in time as quoted on a stock
exchange. The shares of Montanaro European Smaller
Companies Trust plc are quoted on the Main Market of the
London Stock Exchange.
SORP
Total Assets
This is calculated as the value of the investments and other
assets of an Investment Trust, plus cash and debtors.
page 70 Montanaro
THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION. If you are in any doubt about any aspect
of the proposals referred to in this document or about the action which you should take, you should seek your own
advice immediately from a stockbroker, solicitor, accountant or other independent professional adviser. If you have sold
or otherwise transferred all of your shares, please pass this document, together with the accompanying documents, to
the purchaser or transferee, or to the person who arranged the sale or transfer, so they can pass these documents to the
person who now holds the shares.
7 September 2023 at
11.00am
be proposed as ordinary resolutions and resolutions 11 and 12 will be proposed as special resolutions.
31 March 2023 be received.
RESOLUTION 3
31 March 2023 be approved.
0.770p per Ordinary Share be declared.
That Mr R M Curling, who retires annually, be re-elected as a Director.
That Mr G Neilly, who retires annually, be re-elected as a Director.
Meeting until the conclusion of the next general meeting at which accounts are laid before the Company.
That the Directors be authorised to determine the auditor’s remuneration.
Montanaro page 71
That, in substitution for any existing authority but without prejudice to the exercise of any such authority prior to the
date of the passing of this resolution, the Board of Directors of the Company (the ‘Board’) be and is hereby generally and
powers of the Company to allot shares in the Company and to grant rights to subscribe for or to convert any security into
shares in the Company up to an aggregate nominal amount of , provided that this authority shall expire at the
30 September 2024 save that
allotted, or rights to subscribe for or to convert securities into shares to be granted, after such expiry and the Board may
expired. The Directors will use this authority when it is in the best interests of the Company to issue Ordinary shares for
That, subject to the passing of resolution 10 and in substitution for any existing authority, but without prejudice to the
exercise of any such authority prior to the date of the passing of this resolution, the Board of Directors of the Company
convert any securities into, ordinary shares of 50 pence each in the capital of the Company (‘Ordinary Shares’)) wholly for
cash either pursuant to the authority conferred on them by such resolution 10 or by way of a sale of treasury shares (within
that this power shall be limited to the allotment of equity securities and the sale of treasury shares:
(i)
such holders are proportionate (as nearly as may be practicable) to the respective numbers of Ordinary Shares held by them on
Board deem necessary or expedient to deal with shares held in treasury, fractional entitlements to equity securities and to deal
with any legal or practical problems or issues arising in any overseas territory or under the requirements of any regulatory body
or stock exchange); and
(ii) otherwise than pursuant to sub-paragraph (i) above, up to an aggregate nominal amount of , and shall expire (unless
of the Company to be held in 2024 or, if earlier, on 30 September 2024 save that the Company may before such expiry make
shall authorise the Board to issue equity securities at such issue price as the Board may determine (including, without limitation,
where equity securities are being issued from treasury at a price below the net asset value per Ordinary Share of the Company
at the time of the relevant issue).
page 72 Montanaro
continued
That, in substitution for any existing authority but without prejudice to the exercise of any such authority prior to the date of
the passing of this resolution, the Company be and is hereby generally and unconditionally authorised for the purposes of
as the Board of Directors may determine provided that:
(i) the maximum aggregate number of Ordinary Shares which may be purchased is 28,395,197 (or if less, 14.99 per cent of the
number of Ordinary Shares in issue (excluding treasury shares) immediately prior to the passing of this resolution);
(ii) the minimum price which may be paid for an Ordinary Share is 5 pence (exclusive of associated expenses);
(iii) the maximum price which may be paid for an Ordinary Share (exclusive of associated expenses) is the higher of:
(a)
preceding the day on which the Ordinary Share is purchased; and
(b) the value of an Ordinary Share calculated on the basis of the higher price quoted for
(i) the last independent trade of; and
(ii) the highest current independent bid for any number of Ordinary Shares on the trading venue where the
purchase is carried out; and
(iv)
the Company to be held in 2024 or, if earlier, on 30 September 2024 save that the Company may before such expiry enter into
a contract to purchase Ordinary Shares which will or may be completed wholly or partly after such expiry and a purchase of
Ordinary Shares may be made pursuant to any such contract.
By order of the Board
LINK COMPANY MATTERS LIMITED
Company Secretary
2023
16 Charlotte Square
Montanaro page 73
Explanation of Notice of Annual General Meeting
Resolution 1 – To receive the Annual Report and Financial Statements
31 March
Report on those accounts is included as an ordinary resolution.
Resolution 3 – Remuneration
Resolution 4 – Final dividend
0.770 pence per share in respect of the year ended 31 March 2023. If approved, the
15 September 2023 to all ordinary shareholders who are on the register of members
on 18 2023. The shares will be marked ex dividend on 17 2023.
Resolutions 5 to 7 – Re election of Directors
23 and are also available for viewing on the Company’s website
https://montanaro.co.uk/trust/montanaro-european-smaller-companies-trust/. The Nomination Committee considered the
Directors’ performance and recommended their re election and the Board agrees that it is in the best interests of shareholders
that each of the Directors be re elected.
Resolutions 8 and 9 – Re-appointment and remuneration of Auditor
Resolution 10 – Authority to allot ordinary shares
Resolution 10 authorises the Board to allot ordinary shares generally and unconditionally in accordance with Section 551 of the
, representing approximately 10 per cent of the issued
Resolution 11 – Authority to disapply pre emption rights
Resolution 11 is a special resolution which is being proposed to authorise the Directors to disapply the pre emption rights of
existing Shareholders in relation to issues of ordinary shares under Resolution 10 (being in respect of ordinary shares up to an
947,138, representing approximately 10 per cent of the Company’s issued ordinary share capital,
The Directors will only allot new shares pursuant to the authorities proposed to be conferred by Resolutions 10 and 11 if they
believe it is advantageous to the Company’s shareholders to do so and in no circumstances would it result in an overall dilution of
issuance. The Board’s policy regarding the issue of shares from treasury is described on page 28.
page 74 Montanaro
Resolution 12 – Purchase of own shares
Resolution 12 is a special resolution which will grant the Company authority to make market purchases of up to 28,395,197
ordinary shares, representing 14.99 per cent of the ordinary shares in issue as at the date of the Notice. The ordinary shares
bought back will either be cancelled or placed into treasury, at the determination of the Directors. There are currently no
shares held in treasury. The maximum price which may be paid for each ordinary share must not be more than the higher of (i)
105 per cent
which the purchase is made or
(ii) the value of an Ordinary Share calculated on the basis of the higher price quoted for: (a) the last independent trade of; and (b)
the highest current independent bid for any number of Ordinary Shares on the trading venue where the purchase is carried out.
and be in the best interests of the shareholders as a whole. The Board’s intention is to apply an active discount management
10 per cent
Company’s shares.
continued
Montanaro page 75
Notes
1. Attending the Annual General Meeting in Person
asked to provide evidence of your identity to the Company’s registrar, Equiniti Limited (the ‘Registrar’), prior to being admitted to
2. Appointment of Proxies
member. To be validly appointed a proxy must be appointed using the procedures set out in these notes and in the notes to the
accompanying proxy form.
If members wish their proxy to speak on their behalf at the meeting, members will need to appoint their own choice of proxy
Members cannot appoint more than one proxy to exercise the rights attached to the same share(s). If a member wishes to
appoint more than one proxy, they should contact the Registrar on +44 (0) 371 384 2461. Lines are open from 8.30am to 5.30pm,
she wishes.
have a right to appoint any proxies under the procedures set out in these notes and should read note 8 below.
You can appoint a proxy electronically by accessing www.sharevote.co.uk where full instructions on the procedure are given.
service, Shareview, can appoint their proxy electronically by logging on to their portfolio at www.shareview.co.uk using their user
receive it no later than 11.00am on Tuesday 5 September 2023.
the website.
3. Appointment of a Proxy Using a Proxy Form
no later than 48 hours (excluding non-working days) before the time of
If you do not have a proxy form and believe that you should have one, or you require additional proxy forms, please contact the
and Wales. If calling from outside of the UK, please ensure the country code is used.
4. Appointment of a Proxy Through CREST
CREST members who wish to appoint a proxy or proxies through the CREST electronic proxy appointment service may do so
by using the procedures described in the CREST Manual and by logging on to the following website: www.euroclear.com. CREST
personal members or other CREST sponsored members, and those CREST members who have appointed (a) voting service
provider(s), should refer to their CREST sponsor or voting service provider(s) who will be able to take the appropriate action on
their behalf.
page 76 Montanaro
In order for a proxy appointment or instruction made using the CREST service to be valid, the appropriate CREST message (a
and must contain the information required for such instruction, as described in the CREST Manual. The message, regardless
of whether it constitutes the appointment of a proxy or is an amendment to the instruction given to a previously appointed
non-working
from which the Registrar is able to retrieve the message by enquiry to CREST in the manner prescribed by CREST.
through other means. CREST members and, where applicable, their CREST sponsors or voting service provider(s) should note that
Euroclear UK & Ireland Limited does not make available special procedures in CREST for any particular message. Normal system
member concerned to take (or, if the CREST member is a CREST personal member, or sponsored member, or has appointed
a voting service provider(s), to procure that his/her CREST sponsor or voting service provider(s) take(s)) such action as shall be
necessary ensure that a message is transmitted by means of the CREST system by any particular time. In this connection, CREST
members and, where applicable, their CREST sponsors or voting system providers are referred, in particular, to those sections of
the CREST Manual concerning practical limitations of the CREST system and timings.
www.proxymity.io. Your proxy must be lodged by 12:30 pm on 5 September 2023 in order to be considered valid. Before you can
you read these carefully as you will be bound by them, and they will govern the electronic appointment of your proxy.
5. Appointment of Proxy by Joint Holders
In the case of joint holders, where more than one of the joint holders purports to appoint one or more proxies, only the
purported appointment submitted by the most senior holder will be accepted. Seniority is determined by the order in which the
most senior).
6. Corporate Representatives
Members cannot appoint more than one corporate representative to exercise the rights attached to the same share(s).
7. Entitlement to Attend and Vote
members must be registered in the Company’s register of members at 6.30pm on 5 September
Meeting is adjourned, at 6.30pm on the day two days prior to the adjourned meeting). Changes to the register of members
Meeting.
8. Nominated Persons
have a right to give instructions to the member as to the exercise of voting rights.
9. Website Giving Information Regarding the Annual General Meeting
continued
Montanaro page 77
10. Audit Concerns
Members should note that it is possible that, pursuant to requests made by members of the Company under section 527 of the
the members requesting any such website publication to pay its expenses in complying with sections 527 or 528 of the 2006
statement to the Company’s auditor not later than the time when it makes the statement available on the website. The business
11. Members resolution
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.
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 2023, being the date six
weeks before the meeting, and (in the case of a matter to be included in the business only) must be accompanied by a statement
setting out the grounds for the request.
12. Voting Rights
22 2023 (being the latest practicable date prior to the publication of this notice) the Company had 189,427,600 Ordinary
189,427,60 0
than those held in treasury) carries one vote. The total voting rights in the Company as at 22 2023 were 189,427,600 votes.
13.
respective disclosure obligations under the UK Disclosure Guidance and Transparency Rules.
14. Further Questions and Communication
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
to communicate with the Company for any purpose other than those expressly stated.
15. Documents Available for Inspection
on any weekday (Saturdays, Sundays and English public holidays excepted) from the date of this notice until the conclusion of the
•
copies of the Directors’ letters of appointment; and
•
copies of the Directors’ deeds of indemnity.
None of the Directors has a service contract with the Company.
16. Personal data
page 78 Montanaro
Investment Manager and Alternative Investment Fund
Manager (‘AIFM’)
53 Threadneedle Street
Tel: 020 7448 8600
enquiries@montanaro.co.uk
www.montanaro.co.uk
Administrator
Broadwalk House
Southernhay West
28 Walker Street
Edinburgh EH3 7HR
Tel: 0131 378 0500
Company Secretary
65 Gresham Street
Tel: 0333 300 1950
Contact: mesct@linkgroup.co.uk
28 Walker Street
Edinburgh EH3 7HR
Tel: 0131 378 0500
Email: cosec@junipartners.com
16 Charlotte Square
28 Walker Street
Edinburgh EH3 7HR
Registrar
Spencer Road
Lancing
Registrar’s Shareholder Helpline
Registrar’s Broker Helpline
Tel: 0906 559 6025
Stockbroker
6-8 Tokenhouse Yard
Depositary
One Canada Square
Custodian
One Canada Square
Bankers
60 London Wall
Independent Auditors
144 Morrison Street
Solicitor
DICKSON MINTO W.S.
16 Charlotte Square
Montanaro European Smaller Companies Trust plc
Registered in Scotland No. SC074677
Montanaro page 79
Notes
page 80 Montanaro
Notes
Montanaro European Smaller Companies Trust plc
16 Charlotte Square
Edinburgh
Scotland EH2 4DF
Tel: 020 7448 8600
Fax: 020 7448 8601
E-mail: enquiries@montanaro.co.uk
Website: www.montanaro.co.uk