European Smaller Companies Trust plc
Annual Report and Accounts 2024
Before you invest in a
Smaller Company you need to
understand their hopes and fears
The investment objective of Montanaro European Smaller
Companies Trust plc (the “Company” or “Trust”) is to achieve
capital growth by investing principally in Continental European
quoted smaller companies.
The Company’s benchmark index is the MSCI Europe ex-UK
SmallCap Index (in Sterling terms).
The Company was launched in May 1981. Its current objective
and investment policy were adopted in September 2006.
Its Ordinary shares are listed on the Main Market of the
LondonStock Exchange.
The Company conducts its affairs so that its Ordinary shares can be recommended by IFAs to ordinary retail investors
inaccordance with the FCA’s rules relating to non-mainstream investment products and intends to continue to do so.
Contents
Highlights 1
Strategic Report
Chairman’s Statement 2
Manager’s Report 5
ESG Report 8
Twenty Largest Holdings 10
Portfolio Analysis 12
Historic Record 13
Business Model and Strategy 14
Principal and Emerging Risks
16
Directors’ Duties 20
Governance
Board of Directors 23
Directors’ Report 24
Corporate Governance Statement 28
Report of the Audit Committee 31
Directors’ Remuneration Report 34
Statement of Directors’
Responsibilities
37
Financial Report
Independent Auditors’
Report 38
Statement of Comprehensive
Income 45
Balance Sheet 46
Statement of Changes in Equity 47
Statement of Cash Flows 48
Notes to the Financial Statements 49
Other Information
AIFMD Disclosures 62
Alternative Performance
Measures 63
Glossary of Terms 65
Shareholder Information 67
Notice of Annual General Meeting 69
Advisers IBC*
This document is important
and refers to certain matters on
which voting action is required.
Shareholders who are in any
doubt as to what action to take
should consult an appropriate
independent adviser immediately.
If any shareholder has sold or
transferred all their shares in the
Company, they should pass this
document to the purchaser or
transferee or to the person through
whom the transfer or sale was
effected for onward transmission
to the transferee or purchaser.
* Inside Back cover
Montanaro European Smaller Companies Trust plc Annual Report and Accounts 2024 page 1
Highlights
for the year ended 31 March 2024
Performance
Total return% 1 year 3 year 5 year 10 year MAM*
Net Asset Value (“NAV”) per share
(1)
4.9% 5.7% 68.6% 203.4% 478.5%
Share Price
(1)
4.3% (9.8%) 65.7% 190.4% 447.4%
Benchmark**
(2)
5.9% 6.4% 45.6% 124.7% 301.1%
Capital return% 1 year 3 year 5 year 10 year MAM*
NAV per share
(1)
4.2% 3.7% 63.0% 177.7% 382.0%
Share Price
(1)
3.6% (11.5%) 60.1% 163.9% 346.4%
Benchmark**
(2)
3.4% (0.1%) 32.1% 86.7% 187.5%
Sources: Morningstar Direct, Association of Investment Companies (“AIC”), Montanaro Asset Management Limited (“MAM”).
As at 31 March 2024 2023 % change
Ordinary share price 142.5p 137.6p 3.6
NAV per Ordinary share** 165.1p 158.4p 4.2
Discount to NAV
(1)
(13.7%) (13.1%)
Net assets** (£’000s) 312,720 299,975 4.2
Market capitalisation** (£’000s) 269,934 260,652 3.6
Net gearing employed
(1)
2.9% 3.3%
Year ended 31 March 2024 2023 % change
Revenue return per Ordinary share 1.42p 1.10p 29.1
Dividend per Ordinary share
(1)
1.125p 0.970p 16.0
Ongoing charges
(1)
1.0% 1.0%
Portfolio turnover
(1)
16% 14%
* From 5September 2006, when MAM was appointed as Investment Manager.
** Details provided in the Glossary on pages65 and 66.
(1)
Refer to Alternative Performance Measures on page63.
(2)
From 5September 2006, the benchmark was the MSCI Europe SmallCap Index. The benchmark was changed on 1June 2009 to the MSCI Europe ex-UK
SmallCap Index (in Sterling terms).
page 2 Montanaro European Smaller Companies Trust plc Annual Report and Accounts 2024
Chairman’s Statement
For the year ended 31 March 2024
Results
The Net Asset Value (“NAV”) (with dividends reinvested) rose by 4.9% to 165.1p per share during the financial year ended
31March 2024. In comparison, the benchmark (the MSCI Europe (ex-UK) Small Cap Index) rose by 5.9% (in Sterling terms).
Theshare price (with dividends reinvested) gained 4.3% as the discount to NAV widened from 13.1% to 13.7%.
The first half of the period was characterised by an environment where ‘growth’ companies underperformed ‘value’ and
high-quality companies underperformed low quality. As Montanaro Asset Management (“Montanaro”, “MAM” or the “Manager”)
seeks to invest exclusively in high quality, growing companies, these style shifts acted as a headwind. These headwinds subsided
around the end of October 2023 which led to better performance in the second half of the year to 31 March 2024.
Whilst recognising that recent short-term performance has been challenging, Montanaro have a long-term investment approach.
Over 5 and 10 years, your Trust has delivered NAV total returns of 68.6% and 203.4%, outperforming the benchmark by 23.0%
and 78.7% respectively. The Trust’s performance compares favourably with the European Smaller Companies peer group, with
the NAV total return being second over five years and first over ten years. Since Montanaro were appointed in September 2006,
the NAV total return has been 478%, 177% ahead of the benchmark and 2.1%per annum ahead of the benchmark.
Earnings and Dividends
Revenue earnings per share rose to 1.42p in the period
(2023: 1.10p).
An interim dividend of 0.225p per share was paid on
26January 2024. The Board recommends the payment of a
final dividend of 0.9p per share payable on 16September 2024
to shareholders on the register on 16August 2024. Subject to
shareholder approval, this would bring the total dividends for
the year to 1.125p per share, an increase of 16%.
The Trust holds substantial revenue reserves available for
distribution, which gives the Board the ability to smooth any
short-term income volatility.
Environmental, Social and Governance (“ESG”)
Montanaro believe there is a clear correlation between how
well a business fares on Environmental, Social and Governance
grounds and the value it creates for its shareholders. This
is why ESG considerations have formed an integral part of
their assessment of a company’s ‘quality’ and have been fully
integrated into their investment process for many years.
The depth of Montanaro’s commitment is perhaps
best exemplified by the fact that they are one of the
few UK asset managers to be a certified B Corporation.
CertifiedBCorporations are businesses that meet the highest
standards of verified social and environmental performance,
public transparency and legal accountability to balance profit
and purpose. It is a certification Montanaro have held since
2019 and which was renewed for a further three years in
2022. Montanaro’s score rose from 81.8 to 105.5 (classified
as ‘outstanding’), which demonstrates their commitment to
continual improvement. Montanaro’s commitment to ESG
has been recognised: they have won two awards: one from
Ethical Finance for “Best Small & Mid-Cap Sustainable Investment
Boutique 2024 – UK” ; and another from Investors’ Chronicle
and the Financial Times for “ESG Company of the Year 2023”.
An ESG Report is included on pages 8 and 9 of this Annual
Report. It covers the developments in Montanaro’s approach
and commitment to ESG as well as how they are interacting
with investee companies.
Board Composition
The Board is actively engaged in an independent recruitment
process for a fourth non-executive Director. We expect the
Board to be comprised of four members going forward
following this process.
Montanaro European Smaller Companies Trust plc Annual Report and Accounts 2024 page 3
Borrowings
The Board, regularly reviews the gearing strategy of the
Trust and approves any gearing facility. Gearing amplifies the
returns from underlying profits or losses generated by the
investmentportfolio.
The Board has set a maximum limit on borrowing (net of cash)
of 30% of shareholders’ funds at the time of borrowing. At the
end of the financial year, the Trust had borrowings (net of cash)
of 2.9% compared to 3.3% at the beginning of the year.
During the year, the Trust’s borrowings in the form of a
€10million fixed rate loan and a €15 million revolving credit
facility matured. The Board has replaced these facilities with
a new €10 million fixed rate loan and a new €15 million
revolving credit facility, both of which are due to mature on
13September 2026.
Authority to Issue and Buyback Shares
Our stated policies on share buybacks and share issuances are
set out on page 27. The Board will seek to renew the Trust’s
share buyback and issuance authorities at the forthcoming
Annual General Meeting (see page 69).
The Board actively monitors the level of NAV discount for
the Trust relative to its peers and how it compares with the
average discount for the investment trust sector as a whole.
The discount was high by historical standards at the year-end,
but in line with the peer group. As a result, no share buybacks
were implemented during the period.
Communication with Shareholders
Over the past few years, the composition of our shareholder
base has changed significantly with an increasing number of
individual investors coming onto the register via investment
platforms. We are keen to encourage an open dialogue to
keep all shareholders up to date with key developments. Our
website – www.montanaro.co.uk/trust/mesct – is continually
updated with factsheets, reports, presentations, webinar
recordings and commentaries as well as more details about
the Manager, investment philosophy and process. We
encourage shareholders to visit regularly and welcome any
feedback and suggestions.
Annual General Meeting (“AGM”)
The AGM will be held at the offices of Montanaro Asset
Management Limited, 53 Threadneedle Street, London
EC2R8AR on 5 September 2024 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
theManager.
Outlook
As reported in our Interim Results, European SmallCap valuation indicators remain at levels significantly below their long-term
average. Since the peak in August 2020, the forward P/E of SmallCaps in Continental Europe has fallen from over 23x to around
13x at the end of March 2024. This de-rating means they sit at a discount to their long-term history, as shown in the chart below:
MSCI Europe ex-UK SmallCap – 12 month forward P/E
6
8
10
12
14
16
18
20
22
24
03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23
24
Source: Montanaro Asset Management, MSCI, FactSet. Note: Thick red line = average +2 standard deviations (dashed red line = average + 1 standard deviation).
Thickgreen line = average -2 standard deviations (dashed green line = average -1 standard deviation). Black line = average.
page 4 Montanaro European Smaller Companies Trust plc Annual Report and Accounts 2024
Chairman’s Statement continued
Moreover, European SmallCap is valued at a discount to the wider market, which is unusual. Indeed, the discount is at a level last
seen in the depths of the Global Financial Crisis:
Europe ex-UK Small v. Market – 12 month forward P/E
(MSCI Europe ex-UK SmallCap v. MSCI Europe ex-UK Index, GBP)
-1
5%
-1
0%
-5%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
55%
60%
03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23
Feb 2024: -12%Dec 2008: -3%
24
Source: Montanaro Asset Management, MSCI, FactSet. Note: Thick red line = average +2 standard deviations (dashed red line = average + 1 standard deviation).
Thickgreen line = average -2 standard deviations (dashed green line = average -1 standard deviation). Black line = average.
These two charts suggest that European SmallCap is attractive on both an absolute and relative basis.
Over the long term, we believe that earnings are the most important driver of share prices. In 2023, the average company in your
portfolio grew its earnings by double digits and delivered high returns on capital. This, combined with attractive absolute and
relative valuations for the asset class, means that we look forward to the future with confidence.
R M CURLING
Chairman
20 June 2024
Montanaro European Smaller Companies Trust plc Annual Report and Accounts 2024 page 5
The Attractions of Quoted European Smaller Companies (‘SmallCap”)
The key attraction of investing in smaller companies is their long-term record of delivering higher returns to investors than
large companies. In the UK, over the last 69 years, this has amounted to an average of 3.1% per annum (the “SmallCap Effect”).
£1 invested in UK large companies on 1 January 1955 would now be worth £1,357 whereas the same £1 invested in smaller
companies would now be worth £9,171 – almost seven times more.
Continental European Small v. LargeCap
(MSCI Europe ex UK SmallCap v. LargeCap indices, Net Total Return)
(rebased to 100 from 31December 2000)
31 Dec
2000
MSCI Europe (ex UK) SmallCap (in GBP terms)MSCI Europe (ex UK) LargeCap (in GBP terms)
1000
900
800
700
600
500
400
300
200
100
0
01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 18 21 22
17 2019
23 24
There is less comprehensive data on Europe – it only goes back to 2000. However, this suggests that the SmallCap Effect is even
more pronounced on the Continent: as the chart above illustrates, European ‘small’ companies have outperformed by 4.2% p.a.
Remarkably, European SmallCaps have returned just shy of 10% p.a. since the turn of the century, thereby outperforming the
vast majority of SmallCap markets around the world including the UK, Japan, Australia, the BRICs (Brazil, Russia, India and China)
and even the USA (based on the Russell 2000 index).
The market for European smaller companies is inefficient. While some large companies are analysed by more than 50 brokers,
many smaller companies in Europe have little or no coverage. We believe that this makes it easier for those with a high level of
internal resources to identify attractive, undervalued and overlooked investment opportunities. This in turn makes it possible to
deliver long-term performance over and above that of the benchmark.
Montanaro Asset Management
Montanaro was established in 1991. We have one of the
largest and most experienced specialist teams in the UK
dedicated exclusively to researching and investing in quoted
small companies. Our team of 39 includes 12 nationalities and
18 Analysts and Portfolio Managers, which gives us the breadth
of resources required to conduct thorough in-house research.
At 31 March 2024, we were looking after around £3.3 billion of
client assets. We have been the Manager of your Trust since
September 2006.
Investment Philosophy and Approach
We specialise in researching and investing in quoted
smallercompanies. We have a disciplined, two-stage
investment process.
In the first stage, we identify ‘good businesses’ within our
investable universe. We look for high quality companies in
markets that are growing. They must be profitable; have good
and experienced management; deliver sustainably high returns
on capital employed; enjoy high and ideally growing profit
margins reflecting pricing power and a strong market position;
and provide goods and services that are in demand and likely
to remain so. We prefer companies that can deliver self-funded
organic growth and remain focused on their core areas of
expertise, rather than businesses that spend a lot of time
onacquisitions.
Manager’s Report
page 6 Montanaro European Smaller Companies Trust plc Annual Report and Accounts 2024
Conversely, we avoid those with stretched balance sheets;
poor free cash flow generation; incomprehensible or heavily
adjusted accounts; unproven or unreliable management;
or that face structurally challenged business models with
stiffcompetition.
A company must also pass our stringent quality and ESG
checklists. ESG has been integrated into our disciplined
investment process for almost two decades.
When we have identified a company that we believe is high
quality, has structural growth and is well managed from a
business and ESG perspective, it is reviewed by our Investment
Committee before it can proceed to the next stage. Companies
that do not possess all these attributes are rejected.
Companies that pass the first stage then undergo a valuation
assessment. We determine their intrinsic value, typically
through a proprietary discounted cash flow analysis, to
ensure they will make a ‘good investment’ (‘good businesses’ and
‘good investments’ are not always the same). The Investment
Committee scrutinises the forecasts and assumptions made
for each business and discusses the risk profile with the
Analyst for a company before adding it to our Approved List.
Companies that are on the Approved List and which we also
believe are attractively valued are then eligible for inclusion in
your portfolio.
Our Investment Team use their industry knowledge and a
range of proprietary screens to continually search 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 and motivation 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 governance policies carefully.
Once a company has been added to the portfolio, our
Investments 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. We will get things wrong and
make mistakes, but we try to learn from them.
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. Finally, we align our interests with our
investors by investing meaningful amounts of our own money
alongside yours. We are significant shareholders in the Trust.
The Portfolio
At 31 March 2024, the portfolio consisted of 50 companies
of which the top ten holdings represented 37%. Sector and
country distributions within the portfolio are driven by stock
selection. Although weightings relative to the market are
monitored, overweight and underweight positions are based
on where the greatest value and upside are perceived to be.
Performance Attribution
The largest positive contributors over the period were:
ATOSS Software is a developer of workforce management
software, primarily within the DACH region. The company had
an excellent year, with strong demand for its products driving
continued double-digit revenue and earnings growth.
VZ Holding is a Swiss independent financial consultant and
wealth manager. The company had another strong year of
underlying growth while higher interest rates on deposits
provided an additional boost to profits.
CTS Eventim is the market leading ticketing company in
Europe. A few years ago, this was one of the largest detractors
as Covid-19 lockdowns meant concert ticket sales disappeared
almost entirely. As long-term shareholders, we did not sell our
position as we expected concert attendance to rebound once
restrictions ended. It is pleasing to see this has happened with
the company now posting record results.
Inevitably the year was not without some stock price declines
as well. Our largest detractors were:
Melexis develops sensors that are mainly used in cars. The
shares fell during the year as investors fretted about the
potential impact of destocking among itscustomers.
Medistim is the global market leader for transit time flow
measurement devices used in coronary bypass surgeries.
The company struggled in 2023 as constrained hospital
budgets and a shift to a direct sales model in China held back
revenuegrowth.
Amadeus FiRe is a German provider of staffing and training
services. The stock fell as investors were concerned about
the state of the German economy and consequently the
employment market, despite the company increasing its
revenues and profits.
We believe the long term outlook for these businesses
continues to be positive and we remain shareholders.
Manager’s Report continued
Montanaro European Smaller Companies Trust plc Annual Report and Accounts 2024 page 7
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
Approved List.
In the year to 31 March 2024, we exited positions in companies
including Photocure, which sells pharmaceuticals used to
help in the detection of bladder cancer, as the reimbursement
landscape for its procedures deteriorated. Meanwhile,
SimCorp, the developer of investment management software,
received a takeover offer from Deutsche Boerse at a significant
premium to the pre-announcement share price.
Borregaard, the supplier of specialised biochemicals
manufactured from renewable sources, and BioGaia,
which develops and sells probiotic products, were added
totheportfolio.
Continual Improvement
Each year we take time to look back at our successes and
mistakes to assess how our systems and processes can
beimproved.
The IT investments that we wrote about last year continue
to bear fruit. One example of this is we are now able to
seamlessly record, transcribe and summarise our meetings
using AI tools. The output is not perfect but it is rapidly
improving and already good enough to materially reduce the
amount of time our team spend typing up notes – a necessary
but time consuming task. Every minute we save is a minute
that can be spent thinking and doing more research.
Montanaro has continued to invest in the wider business as
well. For example, our HR function has been improved with
the addition of an external consultant; a new cloud-based HR
system for employees; and a benchmarking exercise around
policies and benefits. We have an extremely low staff turnover
both at group level and within the Investments Team. We
believe that this is in part due to our employees having the
right support and working environment, something that we
will continue to develop. We focus on getting the work/life
balance right.
MONTANARO ASSET MANAGEMENTLIMITED
20 June 2024
page 8 Montanaro European Smaller Companies Trust plc Annual Report and Accounts 2024
Montanaro has been a certified B Corporation (“B Corp”)
since 2019, a company verified for meeting high standards
of social and environmental performance, transparency
and accountability. BCorp status is regarded as one of
the toughest sustainability standards to achieve globally.
Montanaro aims to ‘practice what we preach’ as we expect high
ESG standards from the companies in which we invest.
Ethical Restrictions and ESG Analysis
Montanaro has a long track record of sustainable investing,
which has always been represented in the way the portfolio
has been managed. Ethical restrictions mean that we do not
invest in companies that generate a significant proportion
of sales from products with negative societal impacts 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”) factors forms part of our definition of a company’s
fundamental ‘quality’. Montanaro has an internally designed
‘ESG Checklist’ which is used to appraise the ESG strengths
and weaknesses of companies. This has been developed and
refined over many years, including a major update in 2023.
The analysis of ESG information allows our Analysts to better
understand the risks and opportunities that companies may be
exposed to, from factors such as climate change, supply chain
risks and the structure of company boards.
Active and Long-term Engagement
Where weaknesses are identified, we seek to use our
influence to improve a company through active and long-term
engagement. As an investor in quoted smaller companies,
Montanaro has access to the people who can really make a
difference in how companies are run: the CEOs.
During the year, we engaged with a number of portfolio
companies including Surgical Science, a company that we
believe has a satisfactory ESG profile, but one that is not
recognised by ESG research providers such as MSCI. We
suggested improvements senior management could make
to improve the market-wide perception of the company.
This included the establishment of Remuneration and Audit
Committees, chaired by independent individuals with relevant
financial experience and qualifications. Pleasingly, the company
has taken steps to establish these Committees and also to
improve the reporting of ESG information.
The provision of such information continues to be a challenge
for smaller companies although it is moving in the right
direction. As part of this effort, during the year, we again joined
other financial institutions as part of the CDP: Non-Disclosure
Campaign, requesting that companies continue to submit
corporate environmental data to third-party organisations.
A new requirement emerged in relation to sustainability
reporting: double materiality, which forms part of the
European Union’s Corporate Sustainability Reporting Directive
(“CSRD”). This requires companies to report both on how ESG
issues affect a company’s financial condition and operating
performance, as well as the impact of the company’s
operations on the environment and society. Several portfolio
companies such as Brembo asked us to complete double
materiality surveys to help them prioritise sustainability topics.
Another engagement that progressed positively was with
ATOSS Software. Last year, we asked management to consider
the gender composition of its Board, which is 100% male.
Pleasingly, management have set diversity and inclusion targets
for 2027, including a goal of 30% women on the executive
leadership team.
Deep Dive Research Projects
Led by our ESG and Impact Specialists, our Investment
Team conducts ‘Deep Dive’ ESG focused research projects.
We published the fourth annual update of our ‘Net Zero
Carbon’ Deep Dive, focused on understanding how our
companies are responding to climate change and setting
net zero carbon targets. The team also published a Deep
Dive on ‘The Built Environment’. By speaking to academics,
charities, and research organisations, Montanaro enhanced
its understanding of the investment opportunities and
challenges facing cities and towns as they transition to a more
sustainablefooting.
Continual Investment
Montanaro continues to remain at the forefront of sustainable
investing. Another ESG and Impact Specialist joined the
Investment Team in April 2023, further strengthening
ourcapabilities.
Montanaro achieved industry leading standards over the
year, publishing its UK Stewardship Code report, which again
received successful signatory status by the Financial Reporting
Council (“FRC”). We also continued our commitments to
responsible investing by contributing to, among other things,
the Task Force for Nature Related Financial Disclosures
(“TNFD”) consultation; the Investor Coalition on Food Policy;
and two ShareAction collaborative initiatives focused on health
and workforce disclosure.
ESG Report
Montanaro European Smaller Companies Trust plc Annual Report and Accounts 2024 page 9
Montanaro’s industry commitments:
Signatory
date Initiative
2009
UN Principles for Responsible
Investment (“PRI”)
2010 UK Stewardship Code
2015
Carbon Disclosure Project
(“CDP”)
2017 LGPS Code of Transparency
2019
B Corporation
2019
Farm Animal Investment Risk
and Return (“FAIRR”)
2020
Net Zero Asset Managers
Initiative
2022
Tobacco Free Portfolios
Finance Pledge
2022 Living Wage Accreditation
2023
Task Force for Nature Related
Financial Disclosures (“TNFD”)
2023
UK Sustainable Investment and
Finance Association (“UKSIF”)
2023
Investor Coalition on Food
Policy
2023
ShareAction – Long-term
Investors in People’s Health
(“LIPH”)
2023
ShareAction – Workforce
Disclosure Initiative (“WDI”)
In September 2023, Montanaro’s Head of Sustainable
Investments was elected to the Board of the UK Sustainable
Investment & Finance Association, a membership body of
over 300 financial firms representing over £19 trillion in assets
under management. This provides Montanaro with a greater
ability to contribute to the development of sustainable finance
across the financial sector helping us to stay at the heart of
industry developments and associated policy making.
We continued to participate in the Glasgow Financial Alliance
for Net Zero (“GFANZ”) taskforce, a coalition of leading
financial institutions committed to accelerating the net-zero
transition. Having participated in the FCA’s Sustainability
Disclosure Requirements (“SDR”) consultation, a member of
Montanaro’s Investment Team also joined an industry SDR
working group run by UKSIF ahead of this regulation coming
into force in April 2024.
During the year, Montanaro joined financial institutions
worldwide in signing a statement advocating for a robust
International Legally Binding Instrument to combat plastic
pollution. The initiative is a coalition of the UN Environment
Programme Finance Initiative, PRI, Finance for Biodiversity
Foundation, Business Coalition for a Global Plastics Treaty,
VBDO (a Dutch sustainable investment body) and CDP.
Montanaro also co-signed an investor statement to support
the development of the new Modern Slavery Bill, focusing on
human rights. We pledged ongoing support to the campaign
and are committed to improving our approach to managing
human rights risks.
Finally, we not only engaged with ShareAction’s campaign on
air quality but also contributed to broader investor education
by presenting challenges and methodologies for incorporating
air quality considerations into ESG investing at a ShareAction-
hosted event.
These industry standards and our participation in collaborative
initiatives allows us to stay abreast of the developments
influencing and driving sustainable investment, a rapidly
changing area of the investment landscape and ensure that
our investment process evolves accordingly.
It is pleasing that our efforts were recognised by two awards:
one from Ethical Finance for ‘Best Small & Mid-Cap Sustainable
Investment Boutique 2024 – UK’ (for the second time); and
another from Investors’ Chronicle and the Financial Times for
‘ESG Company of the Year 2023’.
MONTANARO ASSET MANAGEMENT LIMITED
20 June 2024
page 10 Montanaro European Smaller Companies Trust plc Annual Report and Accounts 2024
1 NCAB
is a global full-service supplier of printed
circuit boards (PCBs).
2 MTU Aero Engines
manufactures and maintains aircraft
engines and components.
3 ATOSS Software
develops and sells workforce
management software in Europe.
4 CTS Eventim
is the market leading ticketing company
in Europe, providing an online platform
selling tickets to a range of events such
as operas and pop concerts.
5 Fortnox
is Sweden’s leading provider of cloud-
based applications for accounting,
invoicing and payroll administration.
6 IMCD
is one of the world’s largest speciality
chemical distributors.
7 Esker
offers a cloud-based platform that allows
companies to digitise and automate
their accounts payable and receivable
processes.
8 Kitron
is a leading Scandinavian Electronics
Manufacturing Services (“EMS”) company.
9 VZ Holding
is a Swiss independent financial
consultant and wealth manager.
10 Brunello Cucinelli
is a luxury fashion company, particularly
famous for its cashmere products.
11 Tecan
develops automated instruments and
solutions that are used in laboratories.
12 Reply
is an IT services company.
13 Brembo
is a global leader in the design and
production of high end automotive
braking systems.
14 Bachem
is a leading manufacturer of peptides
and oligonucleotides.
15 Melexis
is a leading designer of sensors, with
a particular focus on automotive
applications.
16 Amadeus FiRe
is a leading personnel service company
in Germany, with integrated training and
further education offerings.
17 Sartorius Stedim
is a world leading supplier of equipment
and technologies used to produce
biopharmaceuticals.
18 Rational
is the global market leader in the
field of advanced cooking systems for
commercial kitchens.
19 Belimo Holding
develops and manufactures electrical
motorised control devices (actuators) for
air and water. These are predominantly
used in large buildings with sophisticated
Heating, Ventilation and Air Conditioning
(HVAC) systems.
20 Thule Group
is a global market leader of niche
products and solutions for outdoor
activities, including equipment such as
bike racks and roof boxes for vehicles.
Twenty Largest Holdings
as at 31 March 2024
Montanaro European Smaller Companies Trust plc Annual Report and Accounts 2024 page 11
Holding Country
31 March
2024
Value
£’000
31 March
2023
Value
£’000
31 March
2024
% of
net assets
31 March
2023
% of
net assets
31 March
2024
Market cap
£m
NCAB Sweden 14,350 15,643 4.6 5.2 976
MTU Aero Engines Germany 14,121 14,192 4.5 4.7 10,858
ATOSS Software Germany 14,058 8,014 4.5 2.7 1,863
CTS Eventim Germany 13,075 9,356 4.2 3.1 6,785
Fortnox Sweden 12,493 12,479 4.0 4.2 3,047
IMCD Netherlands 11,870 11,235 3.8 3.7 7,958
Esker France 10,344 6,918 3.3 2.3 959
Kitron Norway 9,964 14,173 3.2 4.7 494
VZ Holding Switzerland 9,663 9,933 3.1 3.3 3,865
Brunello Cucinelli Italy 9,518 12,016 3.0 4.0 6,164
Tecan Switzerland 8,996 7,948 2.9 2.6 4,182
Reply Italy 8,976 6,951 2.9 2.3 4,197
Brembo Italy 8,628 9,972 2.7 3.3 3,389
Bachem Switzerland 8,339 8,091 2.7 2.7 5,686
Melexis Belgium 8,338 12,144 2.7 4.0 2,591
Amadeus FiRe Germany 8,182 9,758 2.6 3.3 556
Sartorius Stedim France 7,907 8,674 2.5 2.9 20,826
Rational Germany 7,558 5,427 2.4 1.8 7,812
Belimo Holding Switzerland 7,186 7,222 2.3 2.4 4,778
Thule Group Sweden 7,177 5,970 2.2 2.0 2,529
Twenty Largest Holdings 200,743 64.2 65.2
page 12 Montanaro European Smaller Companies Trust plc Annual Report and Accounts 2024
Portfolio Analysis
Market Capitalisation of Holdings by Value (31March)
0
5
10
15
20
25
30
>£5bn£3bn–£5bn£1bn–£3bn£500m–£1bn£0–£500m
%
8.2
6.3
18.2
23.0
24.6
22.1
24.7
26.9
24.3
21.7
2024
2023
Source: Montanaro Asset Management
Sector Distribution (31March)
0
5
10
15
20
25
30
35
MaterialsReal EstateConsumer
Staples
Communication
Services
FinancialsConsumer
Discretionary
Health CareIndustrialsInformation
Technology
%
30.7
29.6
23.9
23.7
17.3
16.8
8.7
11.6
6.6
6.1
4.1
3.0
4.0
3.7
2.9
2.8
1.9
2.6
2024
2023
Source: Montanaro Asset Management
Geographical Analysis (31March)
0
5
10
15
20
25
GreeceDenmarkBelgiumSpainNorwayNetherlandsFranceSwitzerlandItalyGermanySweden
%
24.0 24.0
21.0
18.0
15.0
14.0
12.0 12.0
7.0 7.0
4.0
5.0
6.0
7.0
4.0 4.0
3.0
4.0
2.0
5.0
1.0
0.0
2024
2023
Source: Montanaro Asset Management
Montanaro European Smaller Companies Trust plc Annual Report and Accounts 2024 page 13
Net assets
£’000s
NAV
per share
Ordinary
share price
(Discount)/
premium^
Dividends
per share
Ongoing
charges^
5September 2006* 60,022 344.0p 322.0p (6.4%) n/a 1.6%
31March 2007 74,447 426.7p 404.0p (5.3%) 4.00p 1.8%
31March 2008 69,061 401.6p 340.0p (15.3%) 4.00p 1.8%
31March 2009 42,653 257.4p 220.8p (14.2%) 7.33p** 1.6%
31March 2010 71,059 428.8p 373.0p (13.0%) 4.50p 1.7%
31March 2011 88,837 536.0p 467.0p (12.9%) 4.50p 1.6%
31March 2012 81,278 471.6p 405.0p (14.1%) 5.50p 1.5%
31March 2013 93,009 559.2p 519.3p (7.1%) 6.75p 1.5%
31March 2014 98,683 593.3p 540.0p (9.0%) 7.00p 1.5%
31March 2015 95,751 572.2p 515.0p (10.0%) 7.50p 1.5%
31March 2016 106,418 636.0p 540.0p (15.1%) 7.50p 1.4%
31March 2017 136,050 813.1p 695.0p (14.5%) 8.25p 1.2%
31March 2018 150,776 901.1p 800.0p (11.2%) 8.50p 1.2%
31March 2019 169,141 1010.8p 890.0p (12.0%) 9.00p 1.2%
31March 2020 160,123 956.9p 880.0p (8.0%) 9.25p 1.2%
31March 2021 276,065 1,589.0p 1,610.0p 1.3% 9.25p 1.2%
10 for 1 share split effective from 14September 2021
31March 2022 324,905 171.5p 168.0p (2.0%) 0.925p 1.1%
31March 2023 299,975 158.4p 137.6p (13.1%) 0.970p 1.0%
31 March 2024 312,720 165.1p 142.5p (13.7%) 1.125p 1.0%
* Date of commencement of current management arrangements.
** Includes special dividends of 2.83p per share.
^ Alternative Performance Measures, refer to page 63.
Performance since commencement of current management arrangements
(rebased to 100 from 1 September 2006)
100
200
300
400
500
600
700
800
900
0
Net Asset Value Total Return
Benchmark Total Return
Share Price Total Return
1 Sept
2006
07 08 09 11 12 13 14 15 16 17 18 19 20 21 22 23 2410
Source: Montanaro Asset Management
Historic Record
page 14 Montanaro European Smaller Companies Trust plc Annual Report and Accounts 2024
The purpose of this report is to provide shareholders with
details of the Company’s strategy, objectives and business
model. It should be read in conjunction with the Chairman’s
Statement on pages 2 and 3 and the Manager’s Report
on pages 5 to 7, which provide a review of the Company’s
investment activity and a look to the future.
The Board is responsible for the stewardship of the Company,
including overall strategy, investment policy, borrowings,
dividends, corporate governance procedures and risk
management. Biographies of the Directors can be found on
page23.
PRINCIPAL ACTIVITY
The Company carries on business as an investment trust and
its principal activity is portfolio management. Its Ordinary
shares are traded on the Main Market of the London
StockExchange.
The Company has no employees but contracts investment
management and administration to appropriate external
service providers, who are subject to oversight by the Board of
Directors. The principal service providers during the year were:
•
Montanaro Asset Management Limited (“Montanaro”,
“MAM” or the “Manager”), which was appointed as
Investment Manager on 5 September 2006 and the
Company’s Alternative Investment Fund Manager (“AIFM”)
on 22 July 2014.
•
Juniper Partners Limited, which provided company
secretarial and fund administration services from 1July
2023. Prior to this Link Company Matters provided
company secretarial services and Link Alternative Fund
Administrators provided fund administration services.
•
Equiniti Limited which provided registrar services during
the year.
•
Bank of New York Mellon (International) Limited which
provided depositary services during the year.
STATUS OF THE COMPANY
The Company was incorporated in Scotland in 1981 under
registered number SC074677, and is domiciled in the United
Kingdom and registered as an investment company as defined
in Section 833 of the Companies Act 2006.
The Company has been approved by HMRC as an investment
trust under Sections 1158 and 1159 of the Corporation Tax Act
2010, subject to continuing to meet eligibility requirements.
The Directors are of the opinion that the Company has
conducted its affairs in a manner compliant with the conditions
for continued approval and intends to continue to do so. As
an investment company that is managed and marketed in the
United Kingdom, the Company is an Alternative Investment
Fund (“AIF”) falling within the scope of, and subject to, the
requirements of the Alternative Investment Fund Managers
Directive (“AIFMD”). Further details are provided in the AIFMD
Disclosures on page 62.
INVESTMENT OBJECTIVE
The Company’s objective is to achieve capital growth by
investing principally in Continental European quoted smaller
companies. The Company’s benchmark index is the MSCI
Europe ex-UK SmallCap Index (in Sterling terms).
INVESTMENT POLICY
The Company invests principally in quoted smaller companies
within the European Union, Norway and Switzerland (but is not
restricted from investing in smaller companies quoted on other
European stock exchanges). In addition, the Company may invest in:
•
Companies listed on non-European stock exchanges that
derive significant revenues or profits from Europe;
•
European securities, such as global depositary receipts,
listed on other international stock exchanges; and
•
Debt issued by European governments or denominated
in European currencies.
The Company’s investment policy is flexible, enabling it to
invest in all types of securities of companies, including (but
not limited to) equities, preference shares, debt, convertible
securities, warrants and other equity-related securities. The
Company may also invest, where appropriate, in open-ended
collective investment schemes and closed-ended funds that
invest in Europe. It is not intended that the Company will
acquire securities that are unquoted or unlisted at the time of
investment (with the exception of securities which are about to
be listed or traded on a stock exchange). However, the Company
may continue to hold securities that cease to be quoted or listed
if the Manager considers this to be appropriate.
Investment risk is diffused through holding a range of securities
in different countries and industry sectors. Investments are
not limited as to country or sector basis weightings, but no
investment in the portfolio may exceed 10% of the Company’s
total assets at the time of investment. The Company may invest
in derivatives, financial instruments, money market instruments
and currencies solely for the purpose of efficient portfolio
management (i.e. solely for the purpose of reducing, transferring
or eliminating investment risk in the Company’s investments,
including any technique or instrument used to provide
protection against currency and credit risks).
The Company borrows funds for investment to enhance
returns over the long-term and may borrow in Sterling, Euros
or other currencies. The Board has set a maximum limit on
borrowing, net of cash, of 30% of shareholders’ funds at the
time of borrowing.
Business Model and Strategy
Montanaro European Smaller Companies Trust plc Annual Report and Accounts 2024 page 15
The Company’s portfolio will normally be fully invested.
However, during periods in which changes in economic
conditions or other factors so warrant, the Company may
reduce its exposure to securities and increase its position in
cash and money market instruments. The Company will not
invest more than 10%, in aggregate, of the value of its total
assets at the time of investment in other investment trusts
or investment companies admitted to the Official List of the
Financial Conduct Authority.
DIVIDEND POLICY
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
comply with Section 1158 of the Corporation Tax Act 2010 in
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.
KEY PERFORMANCE INDICATORS
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:
•
Capital and total return – NAV and share price returns,
both absolute and against the benchmark;
•
Discount of share price to NAV per share;
•
Gearing; and
•
Ongoing charges.
The NAV and share price returns against the benchmark index
for the one, three, five and ten year periods ended 31March
2024 and for the period since Montanaro were appointed
as Manager are shown on page 1. The historic discount and
ongoing charges figures are included in the Historic Record on
page 13.
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 page1, the
Chairman’s Statement on pages2 and 3 and the Manager’s
Report on pages5 to 7.
THE MANAGER
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
manages circa £3.3 billion, mainly on behalf of leading financial
institutions. Montanaro’s investment philosophy and approach
is set out in the Manager’s Report on pages5 to 7.
The Manager is a signatory to the Principles for Responsible
Investment, the UK Stewardship Code, the Carbon Disclosure
Project and the LGPS Code of Transparency. In June 2019,
Montanaro became a B Corporation, a business certified
for meeting the highest verified standards of social and
environmental performance, transparency and accountability.
The Manager is a signatory to a number of industry
commitments as detailed on page 9. Montanaro is also a
B Corporation, a business certified for meeting the highest
verified standards of social and environmental performance,
transparency and accountability. Further information is
included in the ESG Report on pages 8 and 9.
THE BOARD
At the date of signing this report, the Company has three
Directors. Two are men and one is a woman. The Company
hasno employees.
JUNIPER PARTNERS LIMITED
Company Secretary
20 June 2024
page 16 Montanaro European Smaller Companies Trust plc Annual Report and Accounts 2024
Principal and Emerging Risks
In accordance with the AIC Code of Corporate Governance, the Board has an established process for identifying, evaluating
and managing the emerging and principal risks faced by the Company. The Board carefully considers the Company’s principal
and emerging risks and seeks to mitigate these risks through continued and regular review, policy setting, compliance with and
enforcement of contractual obligations and active communication with the Manager, the Administrator and shareholders.
Most of the principal and emerging risks that could threaten the Company’s objective, strategy, future returns and solvency are
market related and comparable to those of other investment trusts investing primarily in quoted securities.
The Report of the Audit Committee on pages31 to 33 summarises the Company’s internal control and risk management
arrangements. By means of the procedures set out in that summary, and in accordance with the Guidance on Risk Management,
Internal Control and Related Financial and Business Reporting, issued by the Financial Reporting Council, the Board has
established an ongoing process for identifying, evaluating and managing the significant risks faced by the Company. It has also
regularly reviewed the effectiveness of the Company’s risk management and internal control systems for the period. During
the year, the Audit Committee have carried out a robust assessment of the principal and emerging risks facing the Company,
including those that would threaten its business model, future performance, solvency or liquidity.
The Board believes that there is an emerging risk faced by the Company (and the wider investment trust sector) as a result of the
evolving nature of the shareholder base. As more retail shareholders hold their shares through retail investment platforms, it makes
it more difficult to communicate with and engage directly with shareholders. The Company’s principal risks and impact this emerging
risk has on the principal risks is described below.
Notes 15 to 20 to the accounts provide detailed explanations of the risks associated with the Company’s financial instruments
and their management.
Principal Risks Mitigation
Investment and strategic risk:
Inappropriate strategy, including country and sector
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
with quarterly reports. The portfolio is well diversified with typically 45-55
holdings, thereby reducing stock-specific risk. The Board formally reviews
the performance of the Manager and its terms of appointment annually.
The Board reviews the shareholder register on a quarterly basis and
considers the most effective ways to communicate with all shareholders
to ensure clear understanding of the Company’s strategy.
Gearing:
One of the benefits of an investment trust is its ability to use
borrowings, which can enhance returns to shareholders in a
rising stock market. However, gearing exacerbates movements
in the NAV both positively and negatively and will exaggerate
declines in NAV when share prices of investee companies
arefalling.
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 Company currently has borrowing facilities in the form of a fixed
rate loan €10million and a €15million revolving credit facility, both of
which mature in September 2026.
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.
Montanaro European Smaller Companies Trust plc Annual Report and Accounts 2024 page 17
Principal Risks Mitigation
Other financial risks:
The Company invests principally in Continental European
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
pandemic), protectionism, inflation or deflation, changes in
regulation and taxation, excessive stock market speculation,
economic recessions, political instability and movements in
interest rates and exchange rates could affect share prices in
particularmarkets.
As with all small company investment trusts, there is liquidity
risk at times when the liquidity of the underlying portfolio is
poor, such as when smaller companies are out of favour or
during periods of adverse financial conditions. The portfolio
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
challenging. This may result in difficulties in buying or selling
individual holdings in difficult markets. In addition, illiquid stock
markets may impact the discount of the Company’s share price
to the NAV per share.
No change in overall risk in year.
Portfolio diversification, both geographical and sectoral, can mitigate the
consequences of such risky events and the Board reviews the portfolio
with the Manager on a regular basis. It is not the Company’s 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
reducing the risk of declining share prices and the effect of gearing on
lower portfolio valuations. The portfolio’s liquidity is not managed on the
basis of timing short-term market fluctuations.
One of the benefits of an investment trust is that the Manager is rarely
forced to buy or sell individual holdings at inopportune times. The
Manager constantly reviews the underlying liquidity of the portfolio,
which is well diversified, and deals with a wide range of brokers to
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.
Further details on the financial risks arising from the Company’s
financial instruments, together with the policies for managing these
risks are included in Notes 15 to 20 to the accounts.
Discount volatility:
As with all small company investment trusts, discounts can
fluctuate significantly both in absolute terms and relative to
their peer group, this can also lead to issues with respect to
the liquidity of the Company’s shares.
This risk has increased in the year.
The Board and Manager actively monitor the discount of share price
to NAV per share and seek to influence this through liaising closely with
the Company’s Broker, share buybacks and effective marketing. The
Board 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 period of time and is significantly wider than the average for
similar trusts. The Board receives regular reports on the discount level
of the Company, its peer group, and the wider investment trust sector
which informs any decision to buy back shares. Any such transaction
must be value enhancing for shareholders and the Board will take into
consideration the effect of the buyback on the liquidity of the Company’s
shares. The Board monitors liquidity of the Company’s shares and
encourages the Manager to market the Company’s shares.
page 18 Montanaro European Smaller Companies Trust plc Annual Report and Accounts 2024
Principal and Emerging Risks continued
Principal Risks Mitigation
Regulatory:
The Company carries on business as an investment trust and
has been approved as such by HM Revenue & Customs subject
to it continuing to meet eligibility conditions and ongoing
requirements. As a result, it is not liable to corporation tax on
capital gains. Breach of Section 1158 of the Corporation Tax
Act 2010 could lead to the Company being subject to tax on
chargeable gains.
Breach of regulatory rules could also lead to suspension of
the Company’s Stock Exchange listing, financial penalties or a
qualified audit report.
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
including AIFMD, the Packaged Retail and Insurance-based Products
Regulation and the second Markets in Financial Instruments Directive
during the year.
The Administrator monitors the Company’s compliance with Section
1158 of the Corporation Tax Act 2010 including revenue forecasts and
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
Manager, the Administrator and the Custodian (as a delegate
of the Depositary). Disruption or failure of the Manager’s or
Administrator’s systems, or those of other third-party service
providers could lead to an inability to provide accurate
reporting and monitoring of the Company’s financial position
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 or
financial loss.
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 pages31 and 32. 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
overseeing 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.
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
be affected if any of its service providers suffered a major cyber
security breach.
Increased risk due to impact of global conflicts.
The Board monitors the preparedness of its service providers and is
satisfied that the risk is given due priority. The Manager provides a
report to the Board at each meeting that covers cyber risk. The Company
benefits from the network and information technology controls of the
Manager around the security of data.
The annual review of service providers includes a consideration of cyber
risk. As part of this review, external controls reports for each service
provider are reviewed to ensure that suitable cyber security controls are
in place.
Montanaro European Smaller Companies Trust plc Annual Report and Accounts 2024 page 19
Principal Risks Mitigation
Environmental, Social and Governance (“ESG”):
A key risk is that the Manager invests in a company which has
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
•
Climate change and greenhouse gas emissions (“GHG”)
•
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)
•
Anti-bribery and corruption
No change in overall risk in year.
Montanaro is a certified B Corporation and therefore takes ESG
and sustainability issues seriously. A strong and consistently applied
investment process is in place and ESG risks are considered for every
company in which the Manager considers investing.
An ethical framework excludes investment in companies that generate
a significant proportion of sales from products with negative societal
impact. A bespoke ESG Checklist is completed for every company by
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 Governance Risks.
Overview is provided by Montanaro’s Sustainability Committee, which
reviews ESG stock analyses and coordinates detailed engagement activity
with investee companies.
The Board receives reports at each Board meeting which include ESG
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 is financially robust, and keeps the Board
informed of developments within its business.
page 20 Montanaro European Smaller Companies Trust plc Annual Report and Accounts 2024
SECTION 172(1) OF THE COMPANIES ACT 2006
Section 172(1) of the Companies Act 2006 (the “Act”) requires
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.
Fulfilling this duty naturally supports the Company in achieving
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, the Board explains below, how
the Directors have individually and collectively discharged their
duties under section 172(1) of the Act over the course of the
reporting period.
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
as a Director of a UK public limited company when they first
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
During the year, the Directors confirmed the 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
effectiveness and reporting to stakeholders – 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.
DECISION-MAKING
The importance of stakeholder considerations, in particular
in the context of decision-making, is regularly brought to the
Board’s attention by the Company Secretary and taken into
account at every Board meeting. A paper reminding Directors
of that is tabled at the start of every Board meeting. For
example, the strategic planning discussions involve careful
considerations of the longer-term consequences of any
decisions and their implications on shareholders and other
stakeholders.
COMMUNITY AND ENVIRONMENT
The Manager is a signatory to the Principles for Responsible
Investment, the UK Stewardship Code, the Carbon Disclosure
Project, the LGPS Code of Transparency and the Net Zero
Asset Managers initiative. In June 2019, Montanaro became
a B Corporation, a business certified for meeting the highest
verified standards of social and environmental performance,
transparency and accountability.
The Board recognises that the Company has certain
responsibilities to its shareholders, stakeholders and wider
society. While the Company itself does not have employees or
offices, the Board endorses the Manager’s policy to invest the
Company’s funds in a socially responsible manner. ESG factors
are an integral part of the investment process. In addition,
the Manager does not invest in companies it deems to be
harmful to society or the environment; this includes companies
involved in tobacco, fossil fuels, gambling, adult entertainment,
weapons manufacturing, alcohol and high interest rate lending.
Similarly, they do not invest in companies that conduct animal
testing, unless it is required by law for healthcare purposes.
The Board monitors investment activity to ensure that it is
compatible with the policy and receives periodic updates
from the Manager on its initiatives and performance against
its ESG goals.
BUSINESS CONDUCT
The Matters Reserved for the Board, Board Committees’
terms of reference, the Share Dealing Code and other Board
policies are all reviewed on at least an annual basis and the
Directors ensure that they appropriately define obligations
and correct procedures. The Report of the Audit Committee,
which can be found on pages 31 to 33 of this Report, further
explains how the Committee reviews the risk management and
internal controls of the Company. This includes satisfying itself
that relevant systems and controls in place remain effective
andappropriate.
Directors’ Duties
Montanaro European Smaller Companies Trust plc Annual Report and Accounts 2024 page 21
STAKEHOLDERS
The Board seeks to understand the needs and priorities of the Company’s stakeholders and these are taken into account during
all its discussions and as part of its decision-making. While as an externally managed investment company, the Company does
not have any employees or customers, its key stakeholders include:
Stakeholders Board engagement
Shareholders The Company has more than 1,200 shareholders. Over the years, the Company has developed
various ways of engaging with its shareholders, in order to gain an understanding of the views of
our shareholders. These include:
•
Annual General Meeting – The Company welcomes attendance from shareholders at its
Annual General Meeting. The Manager delivers a presentation and all shareholders have an
opportunity to meet the Directors and ask questions. The Board greatly values the feedback
and questions it receives from shareholders and takes action or makes changes as and when
appropriate;
•
Presentations – The annual and interim results, as well as monthly factsheets are available
on the Company’s website. Feedback and/or questions the Company receives from the
shareholders help the Company to evolve its reporting, aiming to render the reports and
updates transparent and understandable; and
•
Investor Relations updates – At every Board meeting, the Directors receive updates on the
share trading activity, share price performance and any shareholders feedback, as well as any
publications or comments in the press.
The Manager Maintaining a close and constructive working relationship with the Manager is crucial as the
Board and the Manager both aim to continue to achieve consistent, long-term returns in line
with the Company’s Investment Objective. Important components in the collaboration with the
Manager, which are representative of the Board’s culture are:
•
Encouraging open discussion with the Manager;
•
Recognising that the interests of shareholders and the Manager are for the most part well
aligned, adopting a tone of constructive challenge, balanced when those interests are not fully
congruent by robust negotiation of the Manager’s terms of engagement; and
•
Willingness to make the Directors’ experience available to support the Manager in the sound,
long-term development of its business and resources, recognising that the long-term health
of the Manager is in the interests of shareholders in the Company.
Other service providers,
including:
the Company Secretary,
the Administrator, the
Registrar, the Depositary,
the Custodian and the
Broker
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 In recognition of the importance of funding availability, the Company aims to demonstrate to
lenders that it is a well-managed business, and in particular, that the Board focuses regularly and
carefully on the management of risk.
Community and
Environment
Our engagement with the community and the environment can be found on page20. A detailed
ESG Report can be found on pages8 and 9.
page 22 Montanaro European Smaller Companies Trust plc Annual Report and Accounts 2024
PRINCIPAL DECISIONS DURING THE YEAR ENDED 31 MARCH 2024
Examples of the Board’s principal decisions during the year, how the Board fulfilled its duties under section 172(1) of the Act and
the related engagement activities are set out below:
Principal decision Stakeholder Considerations and Engagement
To approve interim and final
dividends during the year
The Company must comply with the provisions of Section 1158 of the Corporation Tax
Act 2010 which states that it must not retain more than 15% of its income for each
accounting period and the Board balanced its regulatory obligations with those of its
shareholders. As a result, the Board paid an increased interim dividend of 0.225pence
per Ordinary share in January 2024 and has declared a final dividend of 0.9pence per
share, subject to approval by shareholders at the upcoming AGM. This increase reflects
the expected income generated by the Company’s portfolio, balanced by the Board’s
intention to maintain a relatively consistent level of dividend.
Board composition The Board is actively engaged in an independent recruitment process for another non-
executive Director. It is expected that the Board will be comprised of four members
going forward. This is a benefit to shareholders as this is expected to complement the
current skills and experience of the Board and is expected to increase its depth of
experience in a number of key areas, such as marketing andstrategy.
The Chairman’s Statement on pages2 and 3, the Manager’s Report on pages5 to 7, the Twenty Largest Holdings on pages 10
and 11, all form part of this Strategic Report, which has been approved by the Board of Directors.
By order of the Board
JUNIPER PARTNERS LIMITED
Company Secretary
20 June 2024
Directors’ Duties continued
Montanaro European Smaller Companies Trust plc Annual Report and Accounts 2024 page 23
The Directors of the Company who were in office during the financial year and up to the date of signing the financial statements were:
Richard Curling – Chairman of the Board and Chair of the Nomination Committee
Date of Appointment: 2November 2015
Richard was appointed to the Board as an independent non-executive director in 2015
and was appointed as Chairman of the Board on 29August 2018. Richard has over
30years’ experience as a fund manager and is currently an investment director at Jupiter
Fund Management Plc. He has extensive experience of both investment trusts and small
company investing.
Relevant skills and experience and reasons for re-election:
Richard has comprehensive experience of investment management and the wider Investment
Company sector. This has provided a strong basis for assessing, and where appropriate
challenging, the Manager, on the Company’s performance, and in leading the Board in
strategic discussions. Following a rigorous board evaluation process, the Board agreed that
Richard continues to be an effective member of the Board.
Caroline Roxburgh – Senior Independent Director and Chair of the Audit Committee
Date of Appointment: 8November 2017
Caroline is a Chartered Accountant and was previously a partner at PricewaterhouseCoopers
LLP until 2016. She has over 30 years’ business, finance and audit experience across a
number of industries and sectors bringing extensive experience to the Board. Caroline
also holds a number of other board positions including as a non-executive director of the
Edinburgh Worldwide Investment Trust plc. She is an experienced chair of audit and risk
committees and holds that position on other boards of which she is a member.
Relevant skills and experience and reasons for re-election:
Caroline’s experience as a senior board advisor, assurance partner and chartered
accountant brings valuable business, financial, governance and risk management skills
to the Board, which enables her to assess the financial position of the Company, to lead
discussions regarding the Company’s risk management framework and risk appetite
and to contribute to developing the Company’s strategy. Her broad range of experience
as a chair of audit and risk committees helps inform her role as Chair of the Company’s
Audit Committee. Given her experience on the Board, Caroline was appointed Senior
Independent Director on 31December 2020. Following a rigorous board evaluation
process, the Board agreed that Caroline continues to be an effective member of the Board.
Gordon Neilly – Non-Executive Director and Chair of the Remuneration Committee
Date of Appointment: 21September 2020
Gordon has considerable experience and knowledge of investment trusts. Gordon is
executive chairman of WhiteStar Asset Management Europe, a director of Clearlake Capital
Group UK Limited and a non-executive director of Personal Assets Trust plc. He was
previously Chief of Staff at Standard Life Aberdeen. Prior to this he was Head of Strategy and
Corporate Activity at Aberdeen Standard Investments, Co-Chief Executive Officer of Cantor
Fitzgerald Europe, Chief Executive of Intelli Corporate Finance and Finance and Business
Development Director of Ivory & Sime.
Relevant skills and experience and reasons for re-election:
Gordon has gained an in-depth knowledge of strategic matters, extensive leadership
skills and possesses a wealth of experience in business transformation and developing
strategies through his executive roles, particularly within the asset and wealth
management sectors and investment companies. Gordon’s diverse skill-set and strategic
awareness facilitates open discussion and allows for constructive challenge in the
boardroom, which brings a unique perspective and insight to the Board. Following a
rigorous board evaluation process, the Board agreed that Gordon continues to be an
effective member of the Board.
Board of Directors
page 24 Montanaro European Smaller Companies Trust plc Annual Report and Accounts 2024
Directors’ Report
The Directors present the Annual Report and Accounts of the
Company for the year ended 31 March 2024.
For the purposes of compliance with Disclosure Guidance
and Transparency Rules (“DTR”) DTR 4.1.5 R (2) and
DTR4.1.8R, the required content of the Management Report
can be found in the Strategic Report and this Directors’
Report. The following disclosures required to be included
in this Directors’ Report have been incorporated by way of
reference to other sections of this report and should be read
in conjunction with this report:
•
Corporate Governance Statement – refer to pages28 to
30 of this report;
•
Strategy and relevant future developments – refer to
the Chairman’s Statement on pages2 and 3 and the
Manager’s Report on pages5 to 7; and
•
Financial risk management objectives and policies. An
analysis of the portfolio along with further information
about financial instruments and capital disclosures is
provided in Notes 15 to 21 on pages 57 to 61.
The outlook for the Company is set out in the Chairman’s
Statement on pages 2 and 3. Principal and emerging risks can
be found on pages 16 to 19, with further information on risk
management objectives in Notes 15 to 20 to the accounts.
RESULTS AND DIVIDENDS
The results for the year are set out in this Annual Report and
Accounts. An interim dividend of 0.225p per Ordinary share
was paid on 26January 2024. The Board recommends a final
dividend for the year of 0.9p per Ordinary share payable
on 16September 2024 to shareholders on the register on
16August 2024. The ex-dividend date will be 15August 2024.
DIRECTORS
Biographical details of the Directors, all of whom are
independent and non-executive, can be found on page23.
TheDirectors’ interests in the shares of the Company are
shown on page36.
DIRECTOR INDEMNIFICATION AND INSURANCE
In addition to Directors’ and Officers’ liability insurance cover,
the Company’s Articles provide, subject to the provisions of
applicable UK legislation, an indemnity forDirectors.
Indemnities are in force as at the date of this report, and were
in force during the year, between the Company and each of its
Directors under which the Company has agreed to indemnify
each Director, to the extent permitted by law, in respect of
certain liabilities incurred as a result of carrying out his or her
role as a Director of the Company.
POWERS OF THE DIRECTORS
Subject to the provisions of the Companies Act 2006, the
Articles and to any directions given by the Company in general
meeting by special resolution, the business of the Company
is managed by the Board, which may exercise all the powers
of the Company whether relating to the management of the
business of the Company or not. In particular, the Board may
exercise all the powers of the Company to issue shares or
other securities and to borrow money and to mortgage or
charge all or any part of the Company’s assets.
CONFLICTS OF INTEREST
Each Director has a statutory duty to avoid a situation where
they have, or could have, a direct or indirect interest which
conflicts, or may conflict with the interests of the Company. A
Director will not be in breach of that duty if the relevant matter
has been authorised in accordance with the Articles. The
Board has approved a protocol for identifying and dealing with
conflicts and has resolved to conduct a regular review of actual
or possible conflicts and any authorised conflicts. No conflicts
or potential conflicts were identified during the year.
INVESTMENT MANAGEMENT AGREEMENT
Montanaro provides investment management services to the
Company and is the Company’s AIFM. Under the terms of the
investment management agreement, Montanaro is entitled
to receive a management fee of 0.9% per annum of the
Company’s market capitalisation (payable monthly in arrears).
Montanaro is also entitled to a fee of £50,000 per annum
for acting as the Company’s AIFM (this fee will be reduced
to £25,000 for the year to 31 March 2025, and waived for all
years subsequent to this). Montanaro’s appointment may be
terminated by either party giving to the other not less than
six months’ notice. The investment management agreement
may be terminated earlier by the Company provided that
a payment in lieu of notice, equivalent to the amount the
Manager would otherwise have received during the notice
period, is made.
MAM is entitled to receive a management fee that is linked to
the size of the Company as follows:
•
0.90% p.a. of the amount of the Company’s market
capitalisation up to £500million;
•
0.75% p.a. of the amount of the Company’s market
capitalisation between £500million and £750million; and
•
0.65% p.a. of the amount of the Company’s market
capitalisation above £750million.
Montanaro European Smaller Companies Trust plc Annual Report and Accounts 2024 page 25
CONTINUING APPOINTMENT OF THE MANAGER
In February 2024, the Remuneration Committee and the
Board formally reviewed the Manager’s appointment. In
carrying out its review, the Board considered the skills,
experience, resources and commitment of the Manager,
together with the investment performance during the year
and since its appointment. It also considered the length of
the notice period of the investment management agreement
and the fees payable to the Manager. Following this review,
it is the Directors’ opinion that the continuing appointment
of Montanaro as Manager and AIFM, on the terms agreed,
is in the interests of shareholders as a whole. Among the
reasons for this was the Manager’s continued strong long-
term performance despite the challenging markets for much
of 2023 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 benefits to the Company.
DEPOSITARY AND CUSTODIAN
The Bank of New York Mellon (International) Limited acts as the
Company’s Depositary and Custodian in accordance with the
AIFM Directive. The Depositary’s responsibilities include cash
monitoring, segregation and safe keeping of the Company’s
financial instruments and monitoring the Company’s
compliance with investment limits and leverage requirements.
REGISTRAR
Equiniti has been appointed as the Company’s registrar.
The Registry Services Agreement may be terminated on
not less than six months’ notice. The Registrar is also
entitled to reimbursement of all disbursements and out of
pocketexpenses.
COMPANY SECRETARY AND ADMINISTRATOR
Juniper Partners Limited (“Juniper”) was appointed as the
Company’s Company Secretary and Administrator with effect
from 1July 2023. Prior to this Link Company Matters provided
company secretarial services and Link Alternative Fund
Administrators provided fund administration services. Juniper
Partners Limited receives a base annual fee of £145,000
plus 0.02% per annum on net assets of up to £1 billion, and
0.01% per annum on net assets over £1 billion. The total fee
is discounted by £30,000 in the first year of service, and by
£15,000 in the second year.
The Company Secretarial and Administration Agreement is
subject to six months’ written notice.
SUBSTANTIAL SHAREHOLDINGS
As at 31March 2024, the Company had received notification
of the following substantial holdings of voting rights (being
only those received under the Financial Conduct Authority’s
Disclosure Guidance and Transparency Rules):
Number of
shares held
Percentage
held
Hargreaves Lansdown, stockbrokers (EO) 27,913,689 14.74
Interactive Investor (EO) 25,564,291 13.50
AJ Bell, stockbrokers (EO) 11,413,351 6.03
RBC Brewin Dolphin Ireland 9,625,391 5.08
Montanaro Asset Management 9,000,000 4.75
1607 Capital Partners 8,901,832 4.70
Brewin Dolphin, stockbrokers 6,989,046 3.69
Transact (EO) 5,949,845 3.14
The Company has not been advised of any changes to these
notified interests between 31March 2024 and the date of
thisreport.
GOING CONCERN
In assessing the going concern basis of accounting, the
Directors have had regard to the guidance issued by the
Financial Reporting Council and have undertaken a rigorous
review of the Company’s ability to continue as a going concern.
The Directors have taken into account the Company’s
Investment Policy, which is described on pages14 to 15 and
which is subject to regular Board monitoring processes and
is designed to ensure that the Company is invested mainly in
liquid, listed securities. The Company retains title to all assets
held by its custodian, and has financial covenants relating to its
bank borrowings with which it complied during the year.
In performing the assessment of the Company’s ability to
meet its liabilities as they fall due, the Directors took into
consideration the following factors:
•
cash and cash equivalents balances and the portfolio of
readily realisable securities which can be used to meet
short-term funding commitments;
•
the ability of the Company to meet all of its liabilities and
ongoing expenses from its assets;
•
revenue, operating and finance cost forecasts for the
forthcoming year;
•
continued adherence to the loan covenants;
•
the ability of third-party service providers to continue to
provide services; and
•
consideration of a number of severe downside
scenarios, the impact of which would still leave the
Company with sufficient liquid assets to remain a
goingconcern.
Notes 15 to 20 to the accounts set out the financial risk profile
of the Company and indicate the effect on its assets and
liabilities of falls and rises in the value of securities, market
rates of interest and changes in exchange rates.
page 26 Montanaro European Smaller Companies Trust plc Annual Report and Accounts 2024
Directors’ Report continued
The Directors believe, in light of the controls and review
processes noted above and bearing in mind the nature of
the Company’s business and assets and liabilities, that the
Company has adequate resources to continue in operational
existence for a period of at least twelve months from the date
of approval of the accounts. For this reason, they continue to
adopt the going concern basis in preparing the accounts.
VIABILITY ASSESSMENT
In accordance with the AIC Code of Corporate Governance, the
Directors have assessed the prospects of the Company over
the coming three years. In order to assess the viability of the
Company, the Board is required to assess its future prospects
and has considered that a number of characteristics of its
business model and strategy were relevant to this assessment:
•
The Company’s objective is to achieve capital growth.
•
The Company’s investment policy, which is subject to
regular Board monitoring, means that the Company
is invested principally in the securities of Continental
European quoted smaller companies.
•
The Company is a closed-end investment trust, whose
shares are not subject to redemptions by shareholders.
•
The Company’s business model and strategy is not time
limited.
Also relevant were a number of aspects of the Company’s
operational arrangements:
•
The Company retains title to all assets held by the
Custodian under the terms of a formal agreement with
the Depositary and Custodian.
•
The borrowing facilities, which remain available until
September 2026, are also subject to formal agreements,
including financial covenants with which the Company
complied in full during the year.
•
Revenue and expenditure forecasts are reviewed by the
Directors at each Board Meeting.
In considering the viability of the Company, the Directors
carried out a robust assessment of the principal risks and
uncertainties which could threaten the Company’s objective
and strategy, future performance, liquidity and solvency,
including the impact of a significant fall in equity markets or
adverse currency movements on the Company’s investment
portfolio. These risks, their mitigations and the processes for
monitoring them are set out on pages16 to 19 in Principal
Risks and Uncertainties and Risk Mitigation, pages31 and
32 in the Report of the Audit Committee and in the notes to
theaccounts.
The Directors have also considered:
•
The level of ongoing charges incurred by the Company
which are modest and predictable and that these were
covered by investment income and total 1% of average
net assets.
•
Future revenue and expenditure projections and the
potential impact of reduced dividend income.
•
The Company’s borrowing in the form of a fixed rate
loan facility of €10million, which is due to mature in
September 2026, noting that the Company has a large
margin of safety over the covenants on this debt. The
Company also has a €15million revolving credit facility
which also matures on 13September 2026, of which
€1million was drawn down as at 31March 2024. This
loan was covered 34 times by the Company’s total assets
at 31March 2024 and the Board expect to replace 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 88% 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.
•
The Company has no employees, having only non-
executive Directors and consequently does not have
redundancy or other employment related liabilities
(including pensions) or responsibilities.
These matters were assessed over a three year period to June
2027, and the Board will continue to assess viability over three
year rolling periods, taking account of severe but plausible
scenarios. In the absence of any adverse change to the
regulatory environment and to the treatment of UK investment
trusts a rolling three year period represents the horizon over
which the Directors do not expect there to be any significant
change to the Company’s principal risks or their mitigation and
they believe they can form a reasonable expectation of the
Company’s prospects.
Based on their assessment, and in the context of the
Company’s business model, strategy and operational
arrangements set out above, the Directors have a reasonable
expectation that the Company will be able to continue in
operation and meet its liabilities as they fall due over the
three year period to June 2027. For this reason, the Board
also considers it appropriate to continue adopting the going
concern basis in preparing the Report and Accounts.
CAPITAL STRUCTURE
The Company’s structure is composed solely of Ordinary
shares. At 31 March 2024 189,427,600 Ordinary shares were
in issue, no shares are held in Treasury shares. There has been
no change in the number of Ordinary share in issue in the year.
Montanaro European Smaller Companies Trust plc Annual Report and Accounts 2024 page 27
GREENHOUSE GAS EMISSIONS
All of the Company’s activities are outsourced to third parties.
As such it does not have any physical assets, property,
employees or operations of its own and does not generate any
greenhouse gas or other emissions or consume any energy
reportable under the Companies Act 2006 (Strategic Report
and Directors’ Report) Regulations 2013 or the Companies
(Directors’ Report) and Limited Liability Partnerships (Energy
and Carbon Report) Regulations 2018, implementing the
UK Government’s policy on Streamlined Energy and Carbon
Reporting. Under Listing Rule 15.4.29(R), the Company, as a
closed ended investment fund, is exempt from complying with
the Task Force on Climate related Financial Disclosures.
CRIMINAL FINANCES ACT 2017
The Board is fully committed to complying with applicable
legislation and statutory guidelines, including the UK’s Criminal
Finances Act 2017, designed to prevent tax evasion in the
jurisdictions in which the Company operates.
DONATIONS
The Company made no political or charitable donations during
the year (2023: nil) to organisations either within or outside of
the EU.
LISTING RULE DISCLOSURE
The Company confirms that there are no items which require
disclosure under Listing Rule 9.8.4 in respect of the year ended
31 March 2024.
FINANCIAL INSTRUMENTS
The Company’s financial instruments comprise its investment
portfolio, cash balances, bank debt and debtors and creditors
that arise directly from its operations, such as sales and
purchases awaiting settlement and accrued income. The
financial risk management objectives and policies arising from
its financial instruments and the exposure of the Company to
risk are disclosed in Notes 15 to 20 to the accounts.
ANNUAL GENERAL MEETING
The Notice of Annual General Meeting to be held on
5September 2024 is set out on pages69 to 71.
Resolutions 1 to 9 will be proposed as Ordinary Resolutions
and Resolutions 10 and 11 will be proposed as Special
Resolutions. Please refer to pages 72 and 73 for a full
explanation of all resolutions.
Recommendation
The Directors consider that the passing of each of the
resolutions to be proposed at the Annual General Meeting is
in the best interests of the Company and its shareholders as a
whole and they unanimously recommend that all shareholders
vote in favour of these resolutions.
TREASURY SHARES
Shares which are bought back by the Company pursuant to
the share buyback authority may be cancelled or held by the
Company in treasury and subsequently re-issued. It is the
Board’s intention that any shares bought back by the Company
will be held in treasury. Shares held in treasury will not carry
any voting rights, dividends payable in respect of them will be
suspended and they will have no entitlements on a winding-up
of the Company. It is the Board’s policy that shares will only
be re-issued from treasury either at a price representing a
premium to the NAV per share at the time of re-issue, or at
a discount to the NAV per share provided that such discount
is lower than the weighted average discount to the NAV per
share when they were bought back by the Company. It is
also the Board’s policy that shares may be held in treasury
indefinitely. The Board believes that the treasury shares policy
will improve liquidity in the shares and help to maintain the
size of the Company. Furthermore, the Board believes that
the re-issuance of shares from treasury at a discount to the
NAV per share within the parameters described above will, in
conjunction with the Company’s share buyback policy, ensure
that the overall effect of the ‘round trip’ of repurchasing shares
and subsequently reissuing them from treasury will be an
enhancement to the NAV per share. As at 19June 2024, being
the latest practicable date before the publication of the Annual
Report and Accounts, there were 189,427,600 Ordinary Shares
in issue. No shares are held in treasury. Accordingly, the total
number of voting rights in the Company is 189,427,600.
INDEPENDENT AUDITOR
PricewaterhouseCoopers LLP (“PwC”) has confirmed its
willingness to continue in office as the Auditors of the
Company (the “Auditors”). A resolution to re-appoint PwC
as the Auditors to the Company and to authorise the Audit
Committee to determine the Auditors’ remuneration will be
proposed to the forthcoming Annual General Meeting.
DISCLOSURE OF RELEVANT INFORMATION TO THE AUDITOR
Having made the requisite enquiries, so far as the Directors
are aware, there is no relevant audit information (as defined
by Section 418(3) of the Companies Act 2006) of which the
Company’s Auditors are unaware and each Director has taken
all steps that ought to have been taken to make themselves
aware of any relevant audit information and to establish that
the Company’s Auditors are aware of that information.
For and on behalf of the Board
JUNIPER PARTNERS LIMITED
Company Secretary
20 June 2024
page 28 Montanaro European Smaller Companies Trust plc Annual Report and Accounts 2024
Corporate Governance Statement
The Corporate Governance Statement forms part of the Directors’ Report.
STATEMENT OF COMPLIANCE
The Board has considered the Principles and Provisions of
the AIC Code of Corporate Governance published in February
2019 (“AIC Code”). The AIC Code addresses the Principles and
Provisions set out in the 2018 UK Corporate Governance Code
(the “UK Code”), as well as setting out additional Provisions on
issues that are of specific relevance to the Company.
The Board considers that reporting against the Principles
and Provisions of the AIC Code, which has been endorsed
by the Financial Reporting Council, provides more relevant
information to shareholders.
During the year, the Company has complied with all of the
recommendations of the AIC Code.
The Company is committed to maintaining the highest
standards of governance and will ensure that it continues to
meet all applicable requirements.
The AIC Code is available on the AIC website www.theaic.co.uk.
It includes an explanation of how the AIC Code adapts the
Principles and Provisions set out in the UK Code to make
themrelevant for investment companies. The UK Code is
available from the Financial Reporting Council’s website at
www.frc.org.uk.
THE CHAIRMAN OF THE COMPANY
Mr Curling was appointed to the Board as an independent
non-executive Director in 2015, and as Chairman of the Board
on 29August 2018. His biography can be found on page23.
Mr Curling is also a member of the Audit Committee and
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 be independent and there are no conflicts of interest.
THE COMPANY SECRETARY
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.
THE BOARD
The Board consists solely of non-executive Directors. All
Directors are considered by the Board to be independent of
the Manager. Under the requirements of the Articles, Directors
are subject to election at the next Annual General 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 appropriate directors’ and officers’ liability insurance.
The Board is formed of three independent non-executive
Directors. Mr Curling is the Chairman of the Board and
Chairman of the Nomination Committee, MsRoxburgh is Chair
of the Audit Committee and Senior Independent Director and
Mr Neilly is Chair of the Remuneration Committee.
ATTENDANCE AT BOARD AND COMMITTEE MEETINGS
The Board currently meets at least four times a year and, in addition, informally on a regular basis. It receives full information
on the Company’s investment performance, assets, liabilities and other relevant information in advance of Board meetings. The
Board has approved a formal schedule of matters reserved for it, including, but not limited to: overall strategy, investment policy,
capital structure, gearing and monitoring the performance of the Manager.
The following table sets out the number of scheduled Board and Committee meetings held during the year ended 31March
2024 and the number of meetings attended by each Director.
Board Audit Nomination Remuneration
Number of
meetings held
Number of
meetings
attended
Number of
meetings held
Number of
meetings
attended
Number of
meetings held
Number of
meetings
attended
Number of
meetings held
Number of
meetings
attended
R M Curling 4 4 2 2 1 1 1 1
C A Roxburgh 4 4 2 2 1 1 1 1
G Neilly 4 4 2 2 1 1 1 1
The Board also met informally on a number of occasions during the year.
Montanaro European Smaller Companies Trust plc Annual Report and Accounts 2024 page 29
INDEPENDENCE OF DIRECTORS AND TENURE
The Board ensures that it has the appropriate balance of
skills, experience, knowledge and independence in order to
remain effective and regularly reviews the independence of its
members and considers all of the Directors to be independent
in line with the 2019 AIC Code.
The Board does not feel that it would be appropriate to set a
specific tenure limit for individual Directors or the Chairman of
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
commitments and investment portfolio, while benefiting
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 pages14 and 15.
PERFORMANCE EVALUATION
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
a range of areas including processes and effectiveness, size
and 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
IndependentDirector.
The results of the Board evaluation process were reviewed and
discussed by the Board. The Board concluded that it remains
effective and highlighted the continuing attention to succession
planning and assessing developments in the retail investors’
information needs and investment platforms as areas of focus.
RE-ELECTION OF DIRECTORS
Under the provisions of the Company’s Articles, the Directors
retire by rotation at least every three years, however, in
accordance with corporate governance best practice as set out
in the AIC Code, all Directors should put themselves forward
for re-election every year. As such, each of the Directors is
subject to annual re-election by the shareholders at the Annual
General Meeting and Mr Curling, Ms Roxburgh and Mr Neilly
have confirmed that they will be standing for re-election at the
forthcoming Annual General Meeting.
VOTING POLICY ON PORTFOLIO INVESTMENTS
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.
In June 2019, Montanaro became a B Corporation, a business
certified for meeting the highest verified standards of social and
environmental performance, transparency and accountability.
RELATIONS WITH SHAREHOLDERS
The Company welcomes the views of shareholders and places
great importance on communication with its shareholders.
Please refer to page21 for details of engagement activity in the
year to 31 March 2024.
BOARD COMMITTEES
The Board has established three Committees to assist with
its operations. Throughout the year the following Committees
have been in operation, namely the Audit Committee, the
Remuneration Committee and the Nomination Committee.
Each of the Committees’ delegated responsibilities are clearly
defined in formal terms of reference which are available on the
Company’s website https://montanaro.co.uk/trust/montanaro-
european-smaller-companies-trust/.
Audit Committee
The Report of the Audit Committee is included on pages31 to
33 and forms part of this statement.
Remuneration Committee
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
pages34 to 36 provides information on the remuneration
arrangements for the Directors of the Company.
page 30 Montanaro European Smaller Companies Trust plc Annual Report and Accounts 2024
Corporate Governance Statement continued
Nomination Committee
The 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
guidance set out in the Hampson-Alexander Report and the
Parker Review in considering the composition of the Board
and in its recruitment and succession planning. The Company’s
Board diversity policy is shown below.
DIVERSITY AND INCLUSION
The Board’s policy on diversity is to ensure that the Directors
on the Board have a broad range of experience, skills and
knowledge, with diversity of thinking, background and
perspective. Appointments to the Board are made on merit
against objective criteria, having regard to the benefits of
diversity and the current and future needs of the business and
the other factors set out in the AIC Code.
The Board continues to develop its succession planning in
line with these recommendations. In accordance with Listing
Rule 9 Annex 2.1. the tables below, in prescribed format,
show the gender and ethnic background of the Directors at
20June 2024.
Gender identity or sex
Number
of Board
members
Percentage on
the Board
Number of
senior positions
on the Board
Men 2 66 1
Women 1 34 1
Not specified/prefer not to say – – –
Ethnic background
Number
of Board
members
Percentage on
the Board
Number of
senior positions
on the Board
White British or other
White (including minority
whitegroups)
3 100 2
Mixed/Multiple Ethnic Groups – – –
Asian/Asian British – – –
Black/African/Caribbean/
BlackBritish
– – –
Other Ethnic group – – –
Not specified/prefer not to say – – –
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.
MODERN SLAVERY ACT 2015
As an investment trust, the Company does not provide goods
or services in the normal course of business and does not
have customers. Accordingly, the Directors consider that
the Company is not required to make any slavery or human
trafficking statement under the Modern Slavery Act 2015.
RISK MANAGEMENT AND INTERNAL CONTROLS
Details of the principal risks and internal controls applied by
the Board are set out on pages16 to 19 and pages31 and
32respectively.
By order of the Board
JUNIPER PARTNERS LIMITED
Company Secretary
28 Walker Street
Edinburgh
EH3 7HR
20 June 2024
Montanaro European Smaller Companies Trust plc Annual Report and Accounts 2024 page 31
COMPOSITION OF THE COMMITTEE
The Board recognises the requirement for the Audit
Committee 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.
The Audit Committee is chaired by Ms Roxburgh, a Chartered
Accountant, who has recent and relevant financial experience,
and the Committee operates within clearly defined terms of
reference and comprises all the Directors. Given the size of
the Board, and Mr Curling’s experience, it is felt appropriate
for him to sit on the Audit Committee as permitted by the
AIC Code. The Directors have a combination of financial,
investment and business experience, specifically with respect
to the investment trust sector.
ROLE OF THE COMMITTEE
The duties of the Audit Committee include reviewing: the
annual and interim financial statements; the system of internal
controls; and the terms of appointment and remuneration of
the Auditor, PricewaterhouseCoopers LLP (“PwC”) including its
independence and objectivity.
The Audit Committee met twice during the year, with PwC in
attendance at both meetings. The attendance of each of the
members is set out on page28. In the course of its duties
throughout the year, the Committee had direct access to
PwC, Juniper and Montanaro. Amongst other things, the Audit
Committee considered and reviewed the following matters and
reported thereon to theBoard:
•
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
effectiveness of the Company’s internal control and risk
management environment, including consideration of the
assumptions underlying the Board’s Viability Assessment
and Statement;
•
The effectiveness of the audit process and related non-
audit services and the independence and objectivity
of PwC, its appointment, remuneration and terms of
engagement;
•
The implications of proposed new accounting standards
and regulatory changes;
•
The receipt of AAF (01/06) and ISAE 3402 reports or their
equivalent from the Manager, Administrator, Custodian
and other service providers; and
•
Whether the Annual Report and Accounts is fair, balanced
and understandable.
In May 2023 the Financial Reporting Council published Audit
Committees and the External Audit: Minimum Standard, (the
“Standard”) setting out guidance on the expectations for audit
committees of FTSE 350 companies. Whilst the Committee is
not required to comply with the Standard, it has reviewed and
updated its terms of reference to ensure that the Committee
continues to adhere to best practices within the industry.
RISK MANAGEMENT
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 issued by the Financial Reporting Council.
Montanaro’s Compliance and Risk department and Juniper
provide regular control reports to the Audit Committee and the
Board covering administration, risk and compliance matters.
A key risk summary is produced to identify the risks to which
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
significance of the risks, reasons for any change and actions
arising as a result.
The Company’s principal risks and their mitigations are set
out on pages16 to 19, with additional information provided in
Notes 15 to 20 of the accounts.
The integration of these risks into the consideration of the
Viability Assessment and Statement on page26 was also fully
considered by the Committee.
INTERNAL CONTROL
The Board is responsible for the Company’s systems of internal
controls and for reviewing their effectiveness. The Audit
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
and the financial information used within the business and for
publication is reliable.
The key procedures which have been established to provide an
effective internal control environment are outlined below:
•
Board procedures are set within clearly defined
parameters, as set out in matters specifically reserved for
the Board.
•
At every Board meeting the Directors review financial
information prepared by the Administrator, including
management accounts, forecasts of income and
expenditure and detailed analysis relating to the
performance of the Company.
Report of the Audit Committee
page 32 Montanaro European Smaller Companies Trust plc Annual Report and Accounts 2024
•
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 Bank of New York Mellon SA/NV is responsible
for 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
reviewed by a firm of independent reporting accountants,
is produced annually for consideration by the Audit
Committee.
•
Investment management services are provided by
Montanaro, which is regulated by the Financial Conduct
Authority. At each Board meeting the Board monitors the
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.
On an annual basis, Montanaro produces an AAF 01/06
Report on internal controls, which is reviewed by a firm
of independent reporting accountants, and which is
then reviewed and considered by the Audit Committee.
Montanaro is also the Company’s AIFM and in this
capacity provides a semi-annual report to the Board.
•
Juniper are responsible for the provision of company
secretarial, accounting and administration services to
the Company. On an annual basis, Juniper produce an
ISAE 3402 Report on internal controls, which is reviewed
by a firm of independent reporting accountants, for
consideration by the Audit Committee.
•
The Board reviews contracts with other third party service
providers, including the standard of services provided, on
a regular basis.
A formal annual review of these procedures is carried out by
the Audit Committee. The review meeting is attended by the
Company’s Auditor. During the year, the Committee received
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 the date of approval of the Annual Report, and the Board is
satisfied with their effectiveness. The procedures are designed
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
audit function. As an externally managed investment trust,
it has decided that the systems and procedures employed
by the Manager and the Administrator, including their risk
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 Company. An internal audit function, specific to the
Company, is therefore considered unnecessary.
EXTERNAL AUDIT PROCESS AND SIGNIFICANT MATTERS
CONSIDERED BY THE AUDIT COMMITTEE
As part of its review of the scope and results of the audit,
during the year the Audit Committee considered and approved
PwC’s plan for the audit of the financial statements for the
year ended 31March 2024. At the conclusion of the audit,
PwC did not highlight any issues to the Audit Committee which
would cause it to qualify its audit report nor did it highlight any
fundamental internal control weaknesses. PwC has issued an
unqualified audit report which is included on pages38 to 44.
The significant issues considered by the Audit Committee are
discussed in the table below.
Significant Issues Considered by the Audit Committee in Relation to the Financial Statements
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 NAV per share.
The Board reviews a full portfolio valuation at each Board meeting and, since
the implementation of the AIFM Directive in July 2014, receives semi-annual
reports from the AIFM and Depositary. The Audit Committee reviewed the
Administrator’s 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.
Report of the Audit Committee continued
Montanaro European Smaller Companies Trust plc Annual Report and Accounts 2024 page 33
Matter Action
Misappropriation of Assets:
Misappropriation of the Company’s
investments or cash balances could have a
material impact on its NAV pershare.
The Audit Committee reviewed the Administrator’s annual internal control
report, as referred to above, which details the controls around the
reconciliation of the Administrator’s records to those of the Custodian. The
Audit Committee also reviewed the Custodian’s annual internal controls
report, which is reported on by independent external accountants, and which
provides details regarding its control environment. As stated above, since the
implementation of the AIFM Directive in July 2014, the Board receives semi-
annual reports from the AIFM and Depositary.
Income Recognition:
Incomplete or inaccurate income recognition,
including allocation between revenue and
capital, could have an adverse effect on the
Company’s NAV and earnings per share and
its level of distributable revenue.
The Audit Committee reviewed the Administrator’s annual internal controls
report, as referred to above, which details the systems, processes and controls
around the recording of investment income. It also compared the final level
of 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 the Manager.
Annual Report and Accounts:
Ensuring the Annual Report and Accounts is
fair, balanced and understandable.
The Audit Committee read and discussed this Annual Report and Accounts and
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.
NON-AUDIT SERVICES
The Committee regards the continued independence of the
Auditors 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
permittedif:
•
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
conflict of interest for either the Board or the Manager;
and
•
the services are considered to be likely to inhibit the
auditors independence or objectivity as auditors.
AUDITOR ASSESSMENT, INDEPENDENCE AND APPOINTMENT
The Audit Committee reviews the re-appointment of the
auditor every year. As part of this year’s review of auditor
independence and effectiveness, PwC has confirmed that it is
independent of the Company and has complied with relevant
auditing standards. In evaluating PwC, the Audit Committee has
taken into consideration the standing, skills and experience of
the firm and the audit team. The Audit Committee, from direct
observation and enquiry of the Administrator, remains satisfied
that PwC continues to provide effective independent challenge
in carrying out its responsibilities. PwC’s fee in respect of the
audit for the year ended 31March 2024 is £54,340 (2023:
£48,000). The increase in fees reflects the cumulative effect of
inflationary pressures since the audit tender.
Following professional guidelines, the audit partner rotates
after five years. The year ended 31March 2024 is Shujaat
Khan’s third year as audit partner.
On the basis of their assessment, the Audit Committee has
recommended the re-appointment of PwC to the Board. PwC’s
performance will continue to be reviewed annually taking into
account all relevant guidance and best practice.
On behalf of the Board
C A ROXBURGH
Chair of the Audit Committee
20 June 2024
page 34 Montanaro European Smaller Companies Trust plc Annual Report and Accounts 2024
ANNUAL STATEMENT FROM THE CHAIR OF THE
REMUNERATION COMMITTEE (THE “COMMITTEE”)
I am pleased to present the Directors’ Remuneration Report
for the year ended 31March 2024.
During the year, the Committee reviewed the Remuneration
Policy and the Directors’ fees. The outcomes of each of these
reviews can be found below.
This report shows all major decisions on Directors’
remuneration and any substantial changes made during
the year relating to Directors’ remuneration, including the
context in which any changes occurred. Under company law,
the Auditor is required to audit certain disclosures provided.
Where disclosures have been audited they are indicated
as such. The Auditor’s opinion is included in its report on
pages38 to 44.
The Remuneration Committee consists solely of independent
non-executive Directors and determines the level of the
Directors’ fees in accordance with the AIC Code of Corporate
Governance. The Company Secretary provides information
on comparative levels of Directors’ fees to the Remuneration
Committee in advance of each review.
The members of the Remuneration Committee are Mr Curling,
Ms Roxburgh and the Chair, Mr Neilly. As the Company
has no executive Directors, the Committee meets annually
to determine the level of Directors’ fees and to review the
performance of the Manager. The outcome of the review of the
Manager can be found on page25. No Director is involved in
deciding their own remuneration outcome.
DIRECTORS’ REMUNERATION POLICY
The existing Directors’ Remuneration Policy was approved at
the Company’s Annual General Meeting in 2023.
The Company’s policy is to remunerate Directors exclusively
by fixed fees in cash at a rate which should reflect the
responsibilities of being a non-executive Director, including the
potential liabilities associated with the position, and the time
committed by them to these responsibilities including, where
appropriate, Board Committee duties. There were no changes
to the policy during the year.
The fees for the non-executive Directors are determined within
the limits set out in the Company’s Articles of Association. The
present limit is £200,000 in aggregate per annum and may not
be changed without seeking shareholder approval at a general
meeting. There is no performance related remuneration
scheme and therefore non-executive Directors are not eligible
for bonuses, pension benefits, share options, long-term
incentive schemes or other benefits. Directors do not have
service contracts, but new Directors are provided with a letter
of appointment. These letters of appointment are available for
inspection at the Company’s registered office. The terms of
Directors’ appointments provide that they should retire and be
subject to election at the next Annual General Meeting after
their appointment. Under the terms of the Company’s Articles
of Association, Directors are obliged to offer themselves for
re-election by shareholders by not later than the third Annual
General Meeting after they were last elected. However, the
Board has agreed that all Directors will retire annually and,
if appropriate, seek re-election. There is no notice period
and no provision for compensation upon early termination
ofappointment.
APPROACH TO RECRUITMENT REMUNERATION
The principle adopted by the Committee in respect of
recruitment of Directors is that the fees for a non-executive
Director should reflect the responsibilities and time
commitment required. The Committee seeks to encourage
the enhancement of the Company’s performance and to
ensure that remuneration packages offered are competitive
and designed to attract, retain and motivate Directors of the
rightcalibre.
Any new non-executive Director would be paid on the same
basis as the existing non-executive Directors. As noted above
the aggregate level of Directors’ fees must not exceed a set
limit, as set out in the Company’s Articles of Association, which
is currently £200,000 per annum.
Directors’ Remuneration Report
Montanaro European Smaller Companies Trust plc Annual Report and Accounts 2024 page 35
FUTURE POLICY TABLE
Following a review of the level of Directors’ fees, the Remuneration Committee concluded that, commencing 1April 2024, the
Chairman’s fee be increased to £43,000 per annum, the Audit Committee Chair’s fee be increased to £37,500 per annum and
other Directors’ fees be increased to £31,000 per annum, the last increase having been made on 1April 2023. These changes
have been made following consideration of Directors’ remuneration in the context of its peers and the wider investment trust
sector, as well as the increased time commitment of Directors in order to fulfil their duties.
Based on these fees, Directors’ fees for the forthcoming financial year would be as follows:
31March 2025 31March 2024
Chairman £43,000 £41,000
Audit Committee Chair £37,500 £35,500
Director £31,000 £29,500
DIRECTORS’ EMOLUMENTS FOR THE YEAR (AUDITED)
The Directors who served during the financial year received the following amounts for services as non-executive Directors for the
years ended 31March 2024 and 31March 2023 as well as reimbursement for expenses necessarily incurred. No other forms of
remuneration were paid during the year.
Fees
£
Taxable
Benefits^
£
Total
£
Total fixed
remuneration
£
Total variable
remuneration
£
2024 2023 2024 2023 2024 2023 2024 2023 2024 2023
R M Curling 41,000 39,000 1,130 1,511 42,130 40,511 41,000 39,000 1,130 1,511
C A Roxburgh 35,500 33,500 1,455 1,727 36,945 35,227 35,500 33,500 1,455 1,727
G Neilly 29,500 28,000 455 202 29,955 28,202 29,500 28,000 455 202
Total 106,000 100,500 3,030 3,440 109,030 103,940 106,000 100,500 3,030 3,440
^ Comprises amounts reimbursed for expenses incurred in carrying out business for the Company.
No sums are paid to any third parties in respect of Directors’ services and no sums were paid to any third parties in respect of
advice from remuneration advisors. There have been no payments to past Directors during the financial year ended 31March
2024, whether for loss of office or otherwise.
ANNUAL PERCENTAGE CHANGE IN REMUNERATION OF DIRECTORS
Directors’ pay has increased over the last four years, as set out in the table below:
2024
£
Change
%
2023
£
Change
%
2022
£
Change
%
2021
£
Change
%
2020
£
Chairman 41,000 5.1 £39,000 8.2 36,050 3.0 35,000 9.0 32,000
Audit Committee Chair 35,500 6.0 £33,500 8.4 30,900 3.0 30,000 11.0 27,000
Director 29,500 5.4 £28,000 8.7 25,750 3.0 25,000 9.0 23,000
The requirements to disclose this information came into force for companies with financial years starting on or after 10June
2019 and, as such, this is the fourth year the Company has disclosed this information. The comparison will be expanded in future
annual reports until such time as it covers a five yearperiod.
The Company does not have any employees and therefore no comparisons are given in respect of Directors’ and employees’ pay
increases.
page 36 Montanaro European Smaller Companies Trust plc Annual Report and Accounts 2024
Directors’ Remuneration Report continued
COMPANY PERFORMANCE
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 page24. The graph
below compares, for the ten financial years ended 31March
2024, the share price total return (assuming all dividends are
reinvested) to shareholders compared to the return from the
benchmark index. An explanation of the performance of the
Company for the year ended 31March 2024 is given in the
Chairman’s Statement and the Manager’s Report.
Share Price and Benchmark Performance**
(rebased at 100 on 31March 2014, GBP)
400
35
0
30
0
25
0
20
0
150
100
50
2014 2015 2016 2017 2018 2019 20242023202220212020
Share Price Total Return
Benchmark Total Return
** From 5September 2006: MSCI Europe SmallCap Index. The benchmark
was changed on 1June 2009 to the MSCI Europe ex-UK SmallCap Index
(in Sterling terms). This benchmark was selected because it is the most
commonly used index for SmallCap investors.
VOTING AT AGM
At the Company’s last Annual General Meeting, held on
7September 2023, shareholders approved the Annual Report
on Directors’ Remuneration for the year ended 31March 2023.
99.27% of votes were in favour of the resolution and 0.71%
were against. 0.02% were withheld.
An ordinary resolution for the approval of this Annual Report
on Directors’ Remuneration will be put to shareholders at the
forthcoming Annual General Meeting.
The Directors’ Remuneration Policy was last approved by
shareholders at the Company’s Annual General Meeting, held
on 7 September 2023. 99.25% of votes were in favour of the
resolution and 0.73% of votes were against. 0.02% of votes
were withheld.
RELATIVE IMPORTANCE OF DIRECTORS’ FEES
As the Company has no employees, the table above
represents the total remuneration costs and benefits paid by
the Company. 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’ remuneration (excluding taxable benefits),
other operating expenses and shareholder distributions:
2024
£
2023
£
Change
%
Aggregate Directors’
remuneration 106,000 100,500 5.5
Management and other
operating expenses* 2,982,000 2,918,000 2.2
Dividends paid to
shareholders 1,885,000 1,752,000 7.6
* Includes Directors’ remuneration.
DIRECTORS’ INTERESTS (AUDITED)
The Directors who held office during the year and their
interests in the shares of the Company were as follows:
As at
31March 2024
No. of shares
As at
31March 2023
No. of shares
R M Curling Beneficial 150,000 150,000
C A Roxburgh^ Beneficial 62,833 62,352
G Neilly Beneficial 62,293 61,867
^ 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 31March
2024 and 20June 2024.
STATEMENT OF IMPLEMENTATION OF REMUNERATION POLICY
IN RESPECT OF THE FINANCIAL YEAR ENDING 31MARCH 2025
The Committee will, as usual, review Directors’ fees during
2024/25, including the time required to be committed to
the business of the Company, and will consider whether any
further changes to remuneration are required.
By Order of the Board
G NEILLY
Chair of the Remuneration Committee
20 June 2024
Montanaro European Smaller Companies Trust plc Annual Report and Accounts 2024 page 37
The Directors are responsible for preparing the Annual Report
and Accounts and the financial statements in accordance with
applicable law and regulation.
Company law requires the directors to prepare financial
statements for each financial year. Under that law the Directors
have prepared the financial statements in accordance with UK-
adopted international accounting standards.
Under company law, Directors must not approve the financial
statements unless they are satisfied that they give a true and
fair view of the state of affairs of the Company and of the
profit or loss of the Company for that period. In preparing the
financial statements, the Directors are required to:
•
select suitable accounting policies and then apply
themconsistently;
•
state whether applicable UK-adopted international
accounting standards have been followed, subject to
any material departures disclosed and explained in the
financial statements;
•
make judgements and accounting estimates that are
reasonable and prudent; and
•
prepare the financial statements on the going concern
basis unless it is inappropriate to presume that the
Company will continue in business.
The Directors are responsible for safeguarding the assets of
the Company and hence for taking reasonable steps for the
prevention and detection of fraud and other irregularities.
The Directors are also responsible for keeping adequate
accounting records that are sufficient to show and explain the
Company’s transactions and disclose with reasonable accuracy
at any time the financial position of the Company and enable
them to ensure that the financial statements and the Directors’
Remuneration Report comply with the Companies Act 2006.
The Directors are responsible for the maintenance and
integrity of the Company’s website. Legislation in the United
Kingdom governing the preparation and dissemination
of financial statements may differ from legislation in
otherjurisdictions.
DIRECTORS’ CONFIRMATIONS
Each of the Directors, whose names and functions are listed in
Board of Directors confirm that, to the best of their knowledge:
•
the financial statements, which have been prepared in
accordance with UK-adopted international accounting
standards, give a true and fair view of the assets, liabilities,
financial position and return of the Company; and
•
the Report of the Audit Committee includes a fair review
of the development and performance of the business and
the position of the Company, together with a description
of the principal risks and uncertainties that it faces.
In the case of each Director in office at the date the Directors’
report is approved:
•
so far as the Director is aware, there is no relevant
audit information of which the Company’s auditors are
unaware;and
•
they have taken all the steps that they ought to have
taken as a Director in order to make themselves aware of
any relevant audit information and to establish that the
Company’s auditors are aware of that information.
R M CURLING
Chairman
20 June 2024
Statement of Directors’ Responsibilities
in respect of the Financial Statements
page 38 Montanaro European Smaller Companies Trust plc Annual Report and Accounts 2024
REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS
OPINION
In our opinion, Montanaro European Smaller Companies Trust plc’s financial statements:
•
give a true and fair view of the state of the Company’s affairs as at 31 March 2024 and of its return and cash flows for the
year then ended;
•
have been properly prepared in accordance with UK-adopted international accounting standards; and
•
have been prepared in accordance with the requirements of the Companies Act 2006.
We have audited the financial statements, included within the Annual Report and Accounts (the “Annual Report”), which comprise:
the Balance Sheet as at 31 March 2024; the Statement of Comprehensive Income, the Statement of Changes in Equity and the
Statement of Cash Flows for the year then ended; and the notes to the financial statements, comprising material accounting
policy information and other explanatory information.
Our opinion is consistent with our reporting to the Audit Committee.
BASIS FOR OPINION
We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law. Our
responsibilities under ISAs (UK) are further described in the Auditors’ responsibilities for the audit of the financial statements section
of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Independence
We remained independent of the Company in accordance with the ethical requirements that are relevant to our audit of the
financial statements in the UK, which includes the FRC’s Ethical Standard, as applicable to listed public interest entities, and we
have fulfilled our other ethical responsibilities in accordance with these requirements.
To the best of our knowledge and belief, we declare that non-audit services prohibited by the FRC’s Ethical Standard were
notprovided.
We have provided no non-audit services to the company in the period under audit.
OUR AUDIT APPROACH
Context
Montanaro European Smaller Companies Trust plc is an Investment Trust Company listed on the London Stock Exchange and
invests primarily in equities quoted on European investment markets. The operations of the company are located in the UK. We
focus our audit work primarily on the valuation and existence of investments and income from investments.
Overview
Audit scope
•
The Company is a standalone Investment Trust Company and engages Montanaro Asset Management Limited (the
“Manager”) to manage its assets.
•
We conducted our audit of the financial statements using information from Juniper Partners Limited, (the “Administrator”) to
whom the Board has, delegated the provision of certain administrative functions.
•
We tailored the scope of our audit taking into account the types of investments within the Company, the involvement of the
third parties referred to above, the accounting processes and controls, and the industry in which the Company operates.
•
We obtained an understanding of the control environment in place at both the Manager and the Administrator and adopted
a fully substantive testing approach using reports obtained from the Administrator.
Independent Auditors’ Report
to the Members of Montanaro European Smaller Companies Trust plc
Montanaro European Smaller Companies Trust plc Annual Report and Accounts 2024 page 39
Key audit matters
•
Valuation and existence of investments
•
Income from and gains/losses on investments
Materiality
•
Overall materiality: £3,127,200 (2023: £2,999,000) based on 1% of Net Assets.
•
Performance materiality: £2,345,400 (2023: £2,249,250).
The scope of our audit
As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial
statements. In particular, we looked at where the Directors made subjective judgements, for example in respect of significant
accounting estimates that involved making assumptions and considering future events that are inherently uncertain.
Key audit matters
Key audit matters are those matters that, in the auditors’ professional judgement, were of most significance in the audit of the
financial statements of the current period and include the most significant assessed risks of material misstatement (whether
or not due to fraud) identified by the auditors, including those which had the greatest effect on: the overall audit strategy; the
allocation of resources in the audit; and directing the efforts of the engagement team. These matters, and any comments we
make on the results of our procedures thereon, were addressed in the context of our audit of the financial statements as a
whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
This is not a complete list of all risks identified by our audit.
The key audit matters below are consistent with last year.
Key audit matter How our audit addressed the key audit matter
Valuation and existence of investments
Refer to the Material Accounting Policies and
the Notes to the financial statements.
The Investment portfolio at the year-end
comprised listed equity investments valued at
£321.6 million.
We focused on the valuation and existence of
investments because investments represent
the principal element of the net asset value
as disclosed in the Balance Sheet in the
financialstatements.
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 the listed equity investments by agreeing the prices
used in the valuation to independent third party sources for all investments.
We tested the existence of the investment portfolio by agreeing investment
holdings to an independent custodian confirmation.
No material issues were identified.
page 40 Montanaro European Smaller Companies Trust plc Annual Report and Accounts 2024
Independent Auditors’ Report continued
to the Members of Montanaro European Smaller Companies Trust plc
Key audit matter How our audit addressed the key audit matter
Income from and gains/losses
oninvestments
Refer to Material Accounting policies and
Notes to the Financial Statements.
For the Company we consider that ‘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
assetvalue.
We also focused on the accounting policy
for income recognition and its presentation
in the Statement of Comprehensive
Income as set out in the requirements of
The Association of Investment Companies
Statement of Recommended Practice
(the “AIC SORP”) as incorrect application
could result in a misstatement in income
recognition.
We found that the accounting policies implemented were in accordance with
accounting standards and the AIC SORP, and that income has been accounted for
in accordance with the stated accounting policy.
The gains/losses on investments held at fair value through profit or loss
comprise realised and unrealised gains/losses. For unrealised gains and losses,
we tested the valuation of the portfolio at the year-end, together with testing
the reconciliation of opening and closing investments. For realised gains/losses,
we tested a sample of disposal proceeds by agreeing the proceeds to bank
statements and we re-performed the calculation of a sample of realised
gains/losses. We also tested a sample of purchases to underlying supporting
documentation.
We tested the accuracy of dividend receipts by agreeing the dividend rates from
investments to independent third-party data.
To test for occurrence, we confirmed that all dividends recorded had occurred
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 income between the revenue
and capital return columns of the Statement of Comprehensive Income in
line with the requirements set out in the AIC SORP by assessing the treatment
applied in the context of the underlying facts and circumstances of a sample of
specialdividends.
No material issues were identified.
How we tailored the audit scope
We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial
statements as a whole, taking into account the structure of the Company, the accounting processes and controls, and the
industry in which it operates.
All audit procedures were conducted by a UK audit team. We tested and examined information using sampling and other
auditing techniques, to the extent we considered necessary to provide a reasonable basis for us to form our own judgements.
The impact of climate risk on our audit
As part of our audit we made enquiries of management to understand the extent of the potential impact of climate risk on the
Company’s financial statements, and we remained alert when performing our audit procedures for any indicators of the impact of
climate risk. Our procedures did not identify any material impact as a result of climate risk on the Company’s financial statements.
Montanaro European Smaller Companies Trust plc Annual Report and Accounts 2024 page 41
Materiality
The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality.
These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and
extent of our audit procedures on the individual financial statement line items and disclosures and in evaluating the effect of
misstatements, both individually and in aggregate on the financial statements as a whole.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Overall company materiality £3,127,200 (2023: £2,999,000).
How we determined it 1% of Net Assets
Rationale for benchmark applied We have applied this benchmark, which is a generally accepted auditing practice
for investment trust audits.
We use performance materiality to reduce to an appropriately low level the probability that the aggregate of uncorrected and
undetected misstatements exceeds overall materiality. Specifically, we use performance materiality in determining the scope
of our audit and the nature and extent of our testing of account balances, classes of transactions and disclosures, for example
in determining sample sizes. Our performance materiality was 75% (2023: 75%) of overall materiality, amounting to £2,345,400
(2023: £2,249,250) for the Company financial statements.
In determining the performance materiality, we considered a number of factors – the history of misstatements, risk assessment
and aggregation risk and the effectiveness of controls – and concluded that an amount at the upper end of our normal range
wasappropriate.
We agreed with the Audit Committee that we would report to them misstatements identified during our audit above £156,360
(2023: £149,950) as well as misstatements below that amount that, in our view, warranted reporting for qualitative reasons.
CONCLUSIONS RELATING TO GOING CONCERN
Our evaluation of the Directors’ assessment of the Company’s ability to continue to adopt the going concern basis of
accountingincluded:
•
evaluating the Directors’ risk assessment and considering whether it addressed the relevant threats to the Company;
•
evaluating the Directors’ assessment of potential operational impacts to the Company of relevant risks, considering their
consistency with other available information and our understanding of the business and assessed the potential impact on
the financial statements;
•
reviewing the Directors’ assessment of the Company’s financial position in the context of its ability to meet future expected
operating expenses, their assessment of liquidity as well as their review of the operational resilience of the Company and
oversight of key third-party service providers; and
•
assessing the implication of potential significant reductions in NAV as a result of market movements on the ongoing ability of
the Company to operate.
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that,
individually or collectively, may cast significant doubt on the Company’s ability to continue as a going concern for a period of at
least twelve months from when the financial statements are authorised for issue.
In auditing the financial statements, we have concluded that the Directors’ use of the going concern basis of accounting in the
preparation of the financial statements is appropriate.
However, because not all future events or conditions can be predicted, this conclusion is not a guarantee as to the Company’s
ability to continue as a going concern.
In relation to the Directors’ reporting on how they have applied the UK Corporate Governance Code, we have nothing material
to add or draw attention to in relation to the Directors’ statement in the financial statements about whether the Directors
considered it appropriate to adopt the going concern basis of accounting.
Our responsibilities and the responsibilities of the Directors with respect to going concern are described in the relevant sections
of this report.
page 42 Montanaro European Smaller Companies Trust plc Annual Report and Accounts 2024
Independent Auditors’ Report continued
to the Members of Montanaro European Smaller Companies Trust plc
REPORTING ON OTHER INFORMATION
The other information comprises all of the information in the Annual Report other than the financial statements and our auditors’
report thereon. The Directors are responsible for the other information. Our opinion on the financial statements does not cover
the other information and, accordingly, we do not express an audit opinion or, except to the extent otherwise explicitly stated in
this report, any form of assurance thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained
in the audit, or otherwise appears to be materially misstated. If we identify an apparent material inconsistency or material
misstatement, we are required to perform procedures to conclude whether there is a material misstatement of the financial
statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that
there is a material misstatement of this other information, we are required to report that fact. We have nothing to report based
on these responsibilities.
With respect to the Strategic Report and Directors’ Report, we also considered whether the disclosures required by the UK
Companies Act 2006 have been included.
Based on our work undertaken in the course of the audit, the Companies Act 2006 requires us also to report certain opinions
and matters as described below.
Strategic Report and Directors’ Report
In our opinion, based on the work undertaken in the course of the audit, the information given in the Strategic Report and
Directors’ Report for the year ended 31 March 2024 is consistent with the financial statements and has been prepared in
accordance with applicable legal requirements.
In light of the knowledge and understanding of the Company and its environment obtained in the course of the audit, we did not
identify any material misstatements in the Strategic Report and Directors’ Report.
Directors’ Remuneration
In our opinion, the part of the Directors’ Remuneration to be audited has been properly prepared in accordance with the
Companies Act 2006.
CORPORATE GOVERNANCE STATEMENT
The Listing Rules require us to review the Directors’ statements in relation to going concern, longer-term viability and that part of
the Corporate Governance Statement relating to the Company’s compliance with the provisions of the UK Corporate Governance
Code specified for our review. Our additional responsibilities with respect to the Corporate Governance Statement as other
information are described in the reporting on other information section of this report.
Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the Corporate
Governance Statement is materially consistent with the financial statements and our knowledge obtained during the audit, and
we have nothing material to add or draw attention to in relation to:
•
The Directors’ confirmation that they have carried out a robust assessment of the emerging and principal risks;
•
The disclosures in the Annual Report that describe those principal risks, what procedures are in place to identify emerging
risks and an explanation of how these are being managed or mitigated;
•
The Directors’ statement in the financial statements about whether they considered it appropriate to adopt the going
concern basis of accounting in preparing them, and their identification of any material uncertainties to the Company’s ability
to continue to do so over a period of at least twelve months from the date of approval of the financial statements;
•
The Directors’ explanation as to their assessment of the Company’s prospects, the period this assessment covers and why
the period is appropriate; and
•
The directors’ statement as to whether they have a reasonable expectation that the Company will be able to continue in
operation and meet its liabilities as they fall due over the period of its assessment, including any related disclosures drawing
attention to any necessary qualifications or assumptions.
Montanaro European Smaller Companies Trust plc Annual Report and Accounts 2024 page 43
Our review of the Directors’ statement regarding the longer-term viability of the Company was substantially less in scope than
an audit and only consisted of making inquiries and considering the Directors’ process supporting their statement; checking that
the statement is in alignment with the relevant provisions of the UK Corporate Governance Code; and considering whether the
statement is consistent with the financial statements and our knowledge and understanding of the Company and its environment
obtained in the course of the audit.
In addition, based on the work undertaken as part of our audit, we have concluded that each of the following elements of the
Corporate Governance Statement is materially consistent with the financial statements and our knowledge obtained during the
audit:
•
The Directors’ statement that they consider the Annual Report, taken as a whole, is fair, balanced and understandable,
and provides the information necessary for the members to assess the Company’s position, performance, business model
andstrategy;
•
The section of the Annual Report that describes the review of effectiveness of risk management and internal control
systems; and
•
The section of the Annual Report describing the work of the Audit Committee.
We have nothing to report in respect of our responsibility to report when the Directors’ statement relating to the Company’s
compliance with the Code does not properly disclose a departure from a relevant provision of the Code specified under the
Listing Rules for review by the auditors.
RESPONSIBILITIES FOR THE FINANCIAL STATEMENTS AND THE AUDIT
Responsibilities of the Directors for the financial statements
As explained more fully in the Statement of Directors’ Responsibilities in respect of the Financial Statements, the Directors are
responsible for the preparation of the financial statements in accordance with the applicable framework and for being satisfied
that they give a true and fair view. The Directors are also responsible for such internal control as they determine is necessary to
enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the Directors are responsible for assessing the Company’s ability to continue as a going
concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the
Directors either intend to liquidate the Company or to cease operations, or have no realistic alternative but to do so.
Auditors’ responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance
is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a
material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or
in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these
financialstatements.
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our
responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which
our procedures are capable of detecting irregularities, including fraud, is detailed below.
Based on our understanding of the Company and industry, we identified that the principal risks of non-compliance with laws and
regulations related to breaches of section 1158 of the Corporation Tax Act 2010, the Companies Act 2006, and we considered
the extent to which non-compliance might have a material effect on the financial statements. We evaluated management’s
incentives and opportunities for fraudulent manipulation of the financial statements (including the risk of override of controls),
and determined that the principal risks were related to posting inappropriate journal entries to increase revenue (investment
income and capital gains) or to increase net asset value of the Company. Audit procedures performed by the engagement team
included:
•
discussions with the Manager and Audit Committee, including consideration of known or suspected instances of non-
compliance with laws and regulation and fraud;
•
reviewing relevant committee meeting minutes, including those of the Board and Audit Committee;
page 44 Montanaro European Smaller Companies Trust plc Annual Report and Accounts 2024
Independent Auditors’ Report continued
to the Members of Montanaro European Smaller Companies Trust plc
•
assessment of the Company’s compliance with the requirements of section 1158 of the Corporation Tax Act 2010, including
recalculation of numerical aspects of the eligibility conditions;
•
review of financial statement disclosures to underlying supporting documentation;
•
identifying and testing manual journal entries posted by the Administrator during the preparation of the financial statements;
and
•
designing audit procedures to incorporate unpredictability around the nature, timing or extent of our testing.
There are inherent limitations in the audit procedures described above. We are less likely to become aware of instances of non-
compliance with laws and regulations that are not closely related to events and transactions reflected in the financial statements.
Also, the risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from
error, as fraud may involve deliberate concealment by, for example, forgery or intentional misrepresentations, or through
collusion.
Our audit testing might include testing complete populations of certain transactions and balances, possibly using data auditing
techniques. However, it typically involves selecting a limited number of items for testing, rather than testing complete populations.
We will often seek to target particular items for testing based on their size or risk characteristics. In other cases, we will use audit
sampling to enable us to draw a conclusion about the population from which the sample is selected.
A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at:
www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditors’ report.
Use of this report
This report, including the opinions, has been prepared for and only for the company’s members as a body in accordance with
Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume
responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save
where expressly agreed by our prior consent in writing.
OTHER REQUIRED REPORTING
Companies Act 2006 exception reporting
Under the Companies Act 2006 we are required to report to you if, in our opinion:
•
we have not obtained all the information and explanations we require for our audit; or
•
adequate accounting records have not been kept by the Company, or returns adequate for our audit have not been
received from branches not visited by us; or
•
certain disclosures of Directors’ remuneration specified by law are not made; or
•
the financial statements and the part of the Directors’ Remuneration to be audited are not in agreement with the accounting
records and returns; or
•
a Corporate Governance Statement has not been prepared by the Company.
We have no exceptions to report arising from this responsibility.
Appointment
Following the recommendation of the Audit Committee, we were appointed by the members on 9 September 2021 to audit
the financial statements for the year ended 31 March 2022 and subsequent financial periods. The period of total uninterrupted
engagement is three years, covering the years ended 31 March 2022 to 31 March 2024.
SHUJAAT KHAN (Senior statutory auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
Edinburgh
20 June 2024
Montanaro European Smaller Companies Trust plc Annual Report and Accounts 2024 page 45
Year to 31March 2024 Year to 31March 2023
Notes
Revenue
£’000
Capital
£’000
Total
£’000
Revenue
£’000
Capital
£’000
Total
£’000
Capital gains/(losses) on investments
Gains/(losses) on investments held at fair value 9 – 13,543 13,543 – (23,070) (23,070)
Exchange gains/(losses) – 135 135 – (542) (542)
Revenue
Investment income 2 4,576 – 4,576 4,101 – 4,101
Other income 2 116 – 116 29 – 29
Total income 4,692 13,678 18,370 4,130 (23,612) (19,482)
Expenditure
Management expenses 3 (803) (1,490) (2,293) (804) (1,494) (2,298)
Other expenses 4 (689) – (689) (620) – (620)
Total expenditure (1,492) (1,490) (2,982) (1,424) (1,494) (2,918)
Return before finance costs and taxation 3,200 12,188 15,388 2,706 (25,106) (22,400)
Finance costs 5 (134) (248) (382) (84) (156) (240)
Return before taxation 3,066 11,940 15,006 2,622 (25,262) (22,640)
Taxation 6 (376) – (376) (538) – (538)
Return after taxation 2,690 11,940 14,630 2,084 (25,262) (23,178)
Return per share 8 1.42p 6.30p 7.72p 1.10p (13.34p) (12.24p)
The total column of this statement represents the Company’s Income Statement and Statement of Comprehensive Income,
prepared to UK-adopted International Accounting Standards in conformity with the Companies Act 2006.
The supplementary revenue return and capital return columns are both prepared under guidance published by the Association
of Investment Companies.
All revenue and capital items in the above statement derive from continuing operations.
No operations were acquired or discontinued in the year.
The accompanying notes are an integral part of the financial statements.
Statement of Comprehensive Income
for the year ended 31 March 2024
page 46 Montanaro European Smaller Companies Trust plc Annual Report and Accounts 2024
31March 2024 31March 2023
Notes £’000 £’000
Non-current assets
Investments held at fair value through profit or loss 9 321,676 310,308
Current assets
Trade and other receivables 10 885 880
Cash and cash equivalents 10 242 3,225
1,127 4,105
Total assets 322,803 314,413
Current liabilities
Trade and other payables 11 (754) (1,260)
Interest-bearing bank loan 12 – (8,787)
Revolving credit facility 11 (856) (4,391)
(1,610) (14,438)
Non-current liabilities
Interest-bearing bank loan 12 (8,473) –
Total liabilities (10,083) (14,438)
Net assets 312,720 299,975
Capital and reserves
Called-up share capital 13 9,471 9,471
Share premium account 44,057 44,057
Capital redemption reserve 2,212 2,212
Capital reserve 252,521 240,581
Revenue reserve 4,459 3,654
Total shareholders’ funds 312,720 299,975
Net asset value per share 14 165.1p 158.4p
The financial statements on pages45 to 61 were approved and authorised for issue by the Board of Directors on 20June 2024
and signed on its behalf by:
R CURLING
Director
Company Registered Number: SC074677
The accompanying notes are an integral part of the financial statements.
Balance Sheet
as at 31 March 2024
Montanaro European Smaller Companies Trust plc Annual Report and Accounts 2024 page 47
Year to 31March 2024 Notes
Share
capital
£’000
Share
premium
account
£’000
Capital
redemption
reserve
£’000
Capital
reserve
£’000*
Revenue
reserve
£’000*
Total
£’000
As at 1 April 2023 9,471 44,057 2,212 240,581 3,654 299,975
Return after taxation – – – 11,940 2,690 14,630
Dividends paid 7 – – – – (1,885) (1,885)
As at 31 March 2024 9,471 44,057 2,212 252,521 4,459 312,720
Year to 31March 2023 Notes
Share
capital
£’000
Share
premium
account
£’000
Capital
redemption
reserve
£’000
Capital
reserve
£’000*
Revenue
reserve
£’000*
Total
£’000
As at 1 April 2022 9,471 44,057 2,212 265,843 3,322 324,905
Return after taxation – – – (25,262) 2,084 (23,178)
Dividends paid 7 – – – – (1,752) (1,752)
As at 31 March 2023 9,471 44,057 2,212 240,581 3,654 299,975
The accompanying notes are an integral part of the financial statements.
* These reserves are distributable. However the amount that is distributable is not necessarily the full amount of the reserves as disclosed in these financialstatements.
Statement of Changes in Equity
for the year ended 31 March 2024
page 48 Montanaro European Smaller Companies Trust plc Annual Report and Accounts 2024
31March 2024
£’000
31March 2023
£’000
Cash flows from operating activities
Return before taxation 15,006 (22,640)
Investment (gains)/losses (13,543) 23,070
Exchange (gains)/ losses (135) 542
Finance costs 381 240
Withholding tax (374) (450)
Investment income (4,692) (4,130)
Dividends received 4,675 4,043
Other income received 116 29
Purchases of investments (33,701) (31,524)
Sales of investments 35,136 38,643
Increase in receivables (100) (43)
Increase/(decrease) in payables 222 (79)
Net cash inflow from operating activities 2,991 7,701
Cash flows from financing activities
Repayments of loan (4,327) (5,159)*
Drawdown on revolving credit facility 855 834*
Loan arrangement fees (94) –
Dividends paid (1,885) (1,752)
Interest paid (353) (239)
Net cash outflow from financing activities (5,804) (6,316)
Net (decrease)/increase in cash and cash equivalents (2,813) 1,385
Exchange (losses)/gains (170) 19
(Decrease)/increase in cash and cash equivalents (2,983) 1,404
Cash and cash equivalents at beginning of year 3,225 1,821
Cash and cash equivalents at end of year 242 3,225
* In the prior year repayments of loans and drawdown on the revolving credit facility were presented on a net basis. These balances have been re-presented on a
gross basis to align to the current year presentation.
The accompanying notes are an integral part of the financial statements.
Statement of Cash Flows
for the year ended 31 March 2024
Montanaro European Smaller Companies Trust plc Annual Report and Accounts 2024 page 49
Notes to the Financial Statements
for the year ended 31 March 2024
1 Material Accounting Policies
A summary of the principal accounting policies is set out below.
BASIS OF ACCOUNTING
The financial statements of the Company have been prepared in accordance with International Accounting Standards in conformity
with the requirements of the UK-adopted International Accounting Standards and with the requirements of the Companies Act 2006
as applicable to companies reporting under those standards. The annual financial statements have been prepared in accordance
with the Statement of Recommended Practice issued by the Association of Investment Companies (“AIC SORP”) for the financial
statements of investment trust and venture capital trusts, except to any extent where it is not consistent with the requirements of
International Accounting Standards in conformity with the Companies Act 2006.
The functional and presentational currency of the Company is Pounds Sterling and has been determined on the basis of the
currency of the Company’s share capital and the currency in which dividends and expenses are paid.
The financial statements have been prepared on a going concern basis, under historical cost convention, except for the
measurement at fair value of investments measured at fair value through profit or loss and on the expectation that approval as
an investment trust company will continue to be met.
The financial statements have adopted the following accounting policies in their preparation, which remain consistent with the
accounting policies adopted in the audited financial statements for the year ended 31March 2023. All values are rounded to the
nearest thousand pounds unless otherwise indicated.
The Directors have made an assessment of the Company’s ability to continue as a going concern and are satisfied that the
Company has adequate resources to continue in business for the foreseeable future, being until at least 20June 2025. Please
refer to pages 25 and 26 for full details of the Directors’ going concern assessment.
ACCOUNTING DEVELOPMENTS
Certain new accounting standards, amendments to accounting standards and interpretations have been published that are
not mandatory for 31March 2024 reporting periods and have not been early adopted by the Company. These standards,
amendments or interpretations are not expected to have a material impact on the entity in the current or future reporting
periods and on foreseeable future transactions. The Company has yet to assess the full impact of IFRS 18-Presentation and
Disclosure in Financial Statements which is effective from 1 January 2027.
CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY
The preparation of financial statements in accordance with International Accounting Standards in conformity with the Companies
Act 2006, requires management to make judgements, estimates and assumptions that affect the application of policies and the
reported amounts in the Balance Sheet, the Statement of Comprehensive Income and the disclosure of contingent assets and
liabilities at the date of the financial statements. The estimates and associated assumptions are based on historical experience
and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of
making judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results
may differ from these estimates.
The areas requiring the most significant judgement in the preparation of the financial statements are: recognising and classifying
unusual or special dividends received as either revenue or capital in nature; and setting the levels of dividends paid and
proposed in satisfaction of both the Company’s long-term objective and its obligations to adhere to investment trust status rules
under Section 1158 of the Corporation Tax Act 2010.
Dividends received which appear to be unusual in size or circumstance are assessed on a case-by-case basis, based on
interpretation of the investee companies’ relevant statements, to determine their allocation in accordance with the SORP to either
the revenue account or capital reserves. Dividends which have clearly arisen out of the investee company’s reconstruction or
reorganisation are usually considered to be capital in nature and allocated to capital reserves. Investee company dividends which
appear to be paid in excess of current year profits will still be considered as revenue in nature unless evidence suggests otherwise.
The estimates and underlying assumptions are reviewed on an ongoing basis. Any revisions to accounting estimates are
recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision
and future period if the revision affects both current and future periods.
page 50 Montanaro European Smaller Companies Trust plc Annual Report and Accounts 2024
Notes to the Financial Statements continued
1 Material Accounting Policies continued
SEGMENTAL REPORTING
The Board is of the view that the Company is engaged in a single segment of business, of investing in European quoted smaller
companies, and that therefore the Company has only a single operating segment.
PRESENTATION OF STATEMENT OF COMPREHENSIVE INCOME
In order to better reflect the activities of an investment trust company and in accordance with guidance issued by the AIC,
supplementary information which analyses the Statement of Comprehensive Income between items of a revenue and capital
nature has been presented alongside the Statement of Comprehensive Income. The net revenue return is the measure the
Directors believe appropriate in assessing the Company’s compliance with certain requirements set out in Section 1158 of the
Corporation Tax Act 2010.
INCOME
Dividends are recognised as income on the date that the related investments are marked ex-dividend.
Dividends receivable on equity shares where no ex-dividend date is quoted are recognised when the Company’s right to receive
payment is established.
Special dividends are taken to the revenue or capital account depending on their nature. In deciding whether a dividend should
be regarded as a capital or revenue receipt, the Board reviews all relevant information as to the reasons for the sources of the
dividend on a case-by-case basis.
Where the Company has elected to receive its dividends in the form of additional shares rather than cash, the amount of the
cash dividend foregone is recognised as income.
All other income is accounted for on a time apportioned basis.
EXPENSES AND FINANCE COSTS
All expenses and finance costs are accounted for on an accruals basis and are charged against revenue, except where incurred
in connection with the maintenance or enhancement of the value of the Company’s assets and taking account of the expected
long-term returns as follows:
– finance costs payable are allocated 35% to revenue and 65% to capital.
– investment management fees payable are allocated 35% to revenue and 65% to capital.
TAXATION
The tax expense represents the sum of the tax currently payable and movements in deferred tax. Tax payable is based on the
taxable profit for the year and withholding tax payable. Taxable profit differs from profit before tax as reported in the Statement
of Comprehensive Income because it excludes items of income or expense that are taxable or deductible in other years and it
further excludes items that are never taxable or deductible. The Company’s liability for current tax is calculated using tax rates
that have been enacted or substantively enacted by the balance sheet date.
In line with the recommendations of the SORP, the allocation method used to calculate tax relief on expenses presented against
capital returns in the supplementary information in the Statement of Comprehensive Income is the ‘marginal basis’. Under this
basis, if taxable income is capable of being offset entirely by expenses presented in the revenue return column of the Statement
of Comprehensive Income, then no tax relief is transferred to the capital return column.
Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and
liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted
for using the balance sheet liability method. Deferred tax liabilities are recognised for all taxable temporary differences and
deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible
temporary differences can be utilised.
The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer
probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.
Montanaro European Smaller Companies Trust plc Annual Report and Accounts 2024 page 51
1 Material Accounting Policies continued
Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is
realised. Deferred tax is charged or credited in the Statement of Comprehensive Income, except when it relates to items charged
or credited directly to equity, in which case the deferred tax is also dealt with in equity.
Investment trusts which have approval under Section 1158 of the Corporation Tax Act 2010 are not liable to taxation on capital gains.
INVESTMENTS
The Company’s business is investing in financial assets with a view to profiting from their total return in the form of income and
capital growth. This portfolio of financial assets is managed and its performance evaluated on a fair value basis in accordance with
the documented investment strategy and information is provided internally on that basis to the Company’s Board of Directors
and other key management personnel.
The investments held by the Company are designated by the Company as ‘at fair value through profit or loss’.
All gains and losses are allocated to the capital return within the Statement of Comprehensive Income as ‘Gains or losses on
investments held at fair value through profit or loss’. Also included within this heading are transaction costs in relation to the
purchase or sale of investments. When a sale or purchase is made under a contract, the terms of which require delivery within
the timeframe of the relevant market, the investments concerned are recognised or derecognised on the trade date.
All investments are classified upon initial recognition as held at fair value through profit or loss, and are measured at subsequent
reporting dates at fair value, which is the bid price or the last traded price depending on the convention of the exchange on
which the investment is listed. The Company derecognises a financial asset only when the contractual rights to the cash flows
from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the
asset to another entity. On derecognition of a financial asset, the difference between the asset’s carrying amount and the sum of
consideration received and receivable and the cumulative gain or loss that had been accumulated is recognised in profit or loss.
All investments for which a fair value is measured or disclosed in the financial statements are categorised within the fair value
hierarchy levels set out in Note 15.
CASH AND CASH EQUIVALENTS
Cash comprises bank balances and cash held by the Company. Cash equivalents are short-term, highly liquid investments that
are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.
LOANS
The loans are valued at amortised cost. Costs in relation to arranging the debt finance have been capitalised and are amortised
over the term of the finance. Hence, amortised cost is the par value less the amortised cost of issue.
The Euro loan is shown at amortised cost with the exchange difference on the principal amounts to be repaid reflected. Any gains
or losses arising from changes in exchange rate between Euro and Sterling is included in the capital reserves and shown in the
capital column of the Statement of Comprehensive Income.
RESERVES
Share Premium Account
The following are included in this reserve:
•
premium on the issue of shares.
•
surplus arising on the sale of Ordinary shares from Treasury.
•
costs associated with the issue of equity.
Capital Redemption Reserve
The nominal value of Ordinary shares bought back for cancellation is added to this reserve. This reserve is non-distributable.
page 52 Montanaro European Smaller Companies Trust plc Annual Report and Accounts 2024
Notes to the Financial Statements continued
1 Material Accounting Policies continued
Capital Reserve
The following are included in this reserve:
•
gains and losses on the realisation of investments.
•
increases and decreases in the valuation of investments held at the year end.
•
exchange differences of a capital nature.
•
special dividends of a capital nature.
•
expenses and finance costs, together with the related taxation effect, charged in accordance with the above policies.
•
cost of purchasing Ordinary shares to be held in Treasury or cancelled.
•
proceeds from the issue of Ordinary shares held in Treasury equivalent to the weighted average cost of the repurchase.
In addition, the Company’s Articles of Association permit it to distribute from the Capital Reserve any surplus arising from the
realisation of its investments.
Revenue Reserve
The net profit arising in the revenue column of the Statement of Comprehensive Income is added to this reserve. Dividends paid
during the year may be deducted from this reserve.
FINANCIAL INSTRUMENTS
Financial assets and financial liabilities are recognised on the Balance Sheet of the Company when the Company becomes a party
to the contractual provisions of the instrument. The Company shall offset financial assets and financial liabilities if it has a legally
enforceable right to set off the recognised amounts and intends to settle on a net basis. As at 31March 2024, no financial assets
or financial liabilities had been offset (31March 2023: nil).
FOREIGN CURRENCIES
Monetary assets and liabilities expressed in foreign currencies are translated into Sterling at rates of exchange ruling at the
balance sheet date. Non-monetary items expressed in foreign currencies held at fair value are translated into Sterling at rates
of exchange ruling at the date the fair value is measured. Transactions in foreign currencies are converted to Sterling at the rate
ruling at the date of the transaction. Exchange gains and losses are taken to the Statement of Comprehensive Income as a capital
or revenue item depending on the nature of the underlying item.
Exchange gains and losses on investments are included within ‘Gains/(losses) on investments held at fair value’ and are taken
to the Capital Reserve. Exchange differences on other financial instruments are included in the Statement of Comprehensive
Income as ‘Exchange gains/(losses)’.
Rates of exchange (per Pound Sterling)
31March
2024
31March
2023
Change
%
Danish Krone 8.72 8.48 2.8%
Euro 1.17 1.14 2.6%
Norwegian Krone 13.65 12.95 5.4%
Swedish Krona 13.44 12.82 4.8%
Swiss Franc 1.14 1.13 0.9%
Montanaro European Smaller Companies Trust plc Annual Report and Accounts 2024 page 53
2 Income
Year to
31March 2024
£’000
Year to
31March 2023
£’000
Investment income
Overseas dividend income 4,582 4,078
Exchange (losses)/gains (6) 23
Investment income 4,576 4,101
Bank interest 100 16
Other income 16 13
Total other income 116 29
Total income 4,692 4,130
3 Management Expenses
Year to 31March 2024 Year to 31March 2023
Revenue
£’000
Capital
£’000
Total
£’000
Revenue
£’000
Capital
£’000
Total
£’000
Investment management fee 785 1,458 2,243 786 1,462 2,248
AIFM fee 18 32 50 18 32 50
803 1,490 2,293 804 1,494 2,298
Details of the management fee arrangements during the year are contained within the Directors’ Report on page24 and details
of fees owed to the Manager at the Balance Sheet date are included in Note 11.
4 Other Expenses
Year to 31March 2024 Year to 31March 2023
Revenue
£’000
Capital
£’000
Total
£’000
Revenue
£’000
Capital
£’000
Total
£’000
Directors’ fees
106 – 106
101 – 101
Auditor’s remuneration for:
– statutory audit* 54 – 54 48 – 48
Secretarial and administration fees 173 – 173 162 – 162
Legal, professional and advisory fees 13 – 13 13 – 13
Custody and depositary fees 96 – 96 102 – 102
Credit facility commitment fee 43 – 43 35 – 35
Other 204 – 204 159 – 159
689 – 689
620 – 620
* The statutory audit for the year to 31 March 2024 is £54,340 (2023: £48,000)
5 Finance Costs
Year to 31March 2024 Year to 31March 2023
Revenue
£’000
Capital
£’000
Total
£’000
Revenue
£’000
Capital
£’000
Total
£’000
Interest payable on bank borrowings 134 248 382 84 156 240
6 Taxation
Year to 31March 2024 Year to 31March 2023
Revenue
£’000
Capital
£’000
Total
£’000
Revenue
£’000
Capital
£’000
Total
£’000
Overseas tax 376 – 376 538 – 538
page 54 Montanaro European Smaller Companies Trust plc Annual Report and Accounts 2024
Notes to the Financial Statements continued
6 Taxation continued
FACTORS AFFECTING TAX CHARGE FOR THE YEAR
The corporation tax rate was 25% (2023: 19%). The tax charge for the year differs from the charge resulting from applying the
standard rate of corporation tax in the UK for an investment trust company. The differences are explained below:
Year to
31March 2024
£’000
Year to
31March 2023
£’000
Profit/(loss) on activities before taxation 15,006 (22,640)
Corporation tax at standard rate of 25% (2023: 19%) 3,752 (4,302)
Effect of:
Non-taxable (gains)/losses on investments (3,386) 4,383
Movement in unutilised expenses 841 600
Non-taxable overseas income (1,173) (781)
Bank interest – (3)
Exchange (gains)/losses (34) 103
Overseas tax 376 538
Total tax charge for the year 376 538
As at 31March 2024, the Company had unutilised management expenses for taxation purposes of £34,320,000 (2023:
£30,957,000). A deferred tax asset of £8,580,000 (2023: £7,739,000) has not been recognised on the unutilised expenses as it is
unlikely that there will be suitable taxable profits from which the future reversal of the deferred tax could be deducted.
7 Dividends
Year to
31March 2024
£’000
Year to
31March 2023
£’000
Final dividend for the year ended 31 March 2022 of 0.725p per share – 1,373
Interim dividend for the year ended 31 March 2023 of 0.200p per share – 379
Final dividend for the year ended 31 March 2023 of 0.725p per share 1,459 –
Interim dividend for the year ended 31 March 2024 of 0.225p per share 426 –
1,885 1,752
Amounts relating to the year but not paid at the year end:
Final dividend for the year ended 31 March 2023 of 0.770p per share – 1,459
Final dividend for the year ended 31 March 2024 of 0.9p per share 1,705 –
1,705 1,459
The Directors have proposed a final dividend in respect of the year ended 31March 2024 of 0.9p per share, payable on
16September 2024 to all shareholders on the register on 16August 2024. The final dividend is subject to approval by
shareholders at the Annual General Meeting.
The attributable revenue and the dividends paid and proposed for the purposes of the income retention test for Section 1158 of
the Corporation Tax Act 2010, are set out below:
Year to
31March 2024
£’000
Year to
31March 2023
£’000
Revenue attributable to equity shareholders 2,690 2,084
Interim dividend for the year ended 31 March 2023 of 0.200p per share – (379)
Proposed final dividend for the year ended 31 March 2023 of 0.770p per share – (1,459)
Interim dividend for the year ended 31 March 2024 of 0.225p per share (426) –
Proposed final dividend for the year ended 31 March 2024 of 0.9p per share (1,705) –
Net movement in revenue 560 246
Montanaro European Smaller Companies Trust plc Annual Report and Accounts 2024 page 55
8 Return per Share
Year to 31March 2024 Year to 31March 2023
Revenue Capital Total Revenue Capital Total
Basic 1.42p 6.30p 7.72p 1.10p (13.34p) (12.24p)
Basic total return per Ordinary share is based on the total comprehensive gain for the financial year of £14,630,000 (2023: loss of
£23,178,000) and on 189,427,600 (2023: 189,427,600) Ordinary shares, being the weighted average number of Ordinary shares
in issue during the year.
Basic revenue return per Ordinary share is based on the net revenue return on ordinary activities after taxation of £2,690,000
(2023: £2,084,000), and on 189,427,600 (2023: 189,427,600) Ordinary shares, being the weighted average number of Ordinary
shares in issue during the year.
Basic capital return per Ordinary share is based on the net capital gain for the financial year of £11,940,000 (2023: loss of
£25,262,000), and on 189,427,600 (2023: 189,427,600) Ordinary shares, being the weighted average number of Ordinary shares
in issue during the year.
9 Investments held at Fair Value Through Profit or Loss
Year to
31March 2024
£’000
Year to
31March 2023
£’000
Opening cost 193,796 196,337
Holding gains 116,512 143,451
Opening fair value 310,308 339,788
Purchases at cost 43,002 32,076
Sales – proceeds (45,177) (38,486)
– gains on sales 1,732 3,869
Holding gains/(losses) 11,811 (26,939)
Closing fair value 321,676 310,308
Closing cost 193,353 193,796
Holding gains 128,323 116,512
Closing valuation 321,676 310,308
Net gains on the realisation of investments during the year represents the difference between the net proceeds of sale and the
book cost of investments sold.
TRANSACTION COSTS
The Company incurred transaction costs on the purchase of investments of £29,000 and sale of investments of £18,000 (2023:
£24,000 on purchases and £24,000 on sales).
Year to
31March 2024
£’000
Year to
31March 2023
£’000
Gains on sales 1,732 3,869
Increase/(decrease) in holding gains 11,811 (26,939)
Gains/(losses) on investments 13,543 (23,070)
page 56 Montanaro European Smaller Companies Trust plc Annual Report and Accounts 2024
Notes to the Financial Statements continued
10 Current Assets
TRADE AND OTHER RECEIVABLES
31March 2024
£’000
31March 2023
£’000
Prepayments and accrued income 221 345
Overseas tax recoverable 664 535
885 880
The carrying value of the balances above approximates to fair value. There are no amounts which are past due at the year end
(2023: £nil).
CASH AND CASH EQUIVALENTS
These comprise bank balances and cash held by the Company. The carrying amount of these assets approximates to their fair value.
31March 2024
£’000
31March 2023
£’000
Cash at bank and on hand 242 3,225
11 Current Liabilities
31March 2024
£’000
31March 2023
£’000
Trade and other payables:
Investment management and AIFM fee 595 407
Due to broker – 739
Other creditors 159 114
754 1,260
31March 2024
£’000
31March 2023
£’000
Revolving credit facility:
Revolving credit facility 856 4,391
856 4,391
The Company’s €15 million five year secured revolving credit facility with ING Bank N.V. (“ING”) matured on 13 September
2023. The Company entered into a new three year secured revolving credit facility which will mature on 13 September 2026.
Drawdowns from the facility are charged at margin over the relevant EURIBOR rate. As at 31 March 2024, €1 million (£856,000)
of the facility was drawn (2023: €5million (£4,391,000)), at a rate of 5.68%, with €14million available to be drawn (31March 2023:
€10million).
Once drawn, the facility will be measured at amortised cost and revalued for exchange rate movements. Any gain or loss
arising from changes in exchange rates is included in the capital reserve and shown in the capital column of the Statement of
Comprehensive Income. Interest costs are charged to capital and revenue in accordance with the Company’s accounting policies.
The carrying value of the balances above approximates to fair value.
Montanaro European Smaller Companies Trust plc Annual Report and Accounts 2024 page 57
12 Interest-Bearing Bank Loans
31March 2024
£’000
31March 2023
£’000
Opening balance 8,787 8,434
Set up Cost (98) –
Amortisation of set-up costs 22 10
Non-cash foreign currency movements (238) 343
8,473 8,787
The Company’s fixed rate loan facilities totaling €10 million matured on 13 September 2023. The Company refinanced €10 million
by entering into a three year secured loan at a fixed rate of 5.105% per annum (previously 1.33%) with ING. This loan will mature
on 13 September 2026.
The Company also has a €15million five year secured revolving credit facility with ING which will also mature on 13September 2026.
Under the bank covenants relating to the loans, the Company is to ensure that at all times the total borrowings of the Company
do not exceed 35% of the Adjusted Net Asset Value (as defined in the loan agreements) and that the Adjusted Net Asset Value
does not fall below £45million (2023: £45million). The Company met all covenant conditions during the year.
The carrying value of the balances above approximates to fair value.
13 Called-up Share Capital
Listed Held in Treasury In Issue
Number £’000 Number £’000 Number £’000
Allotted, issued and fully paid:
Ordinary shares of 5p each
Balance at 1 April 2023 189,427,600 9,471 – – 189,427,600 9,471
Balance at 31 March 2024 189,427,600 9,471 – – 189,427,600 9,471
CAPITAL MANAGEMENT
The Company’s capital is represented by the issued Share Capital, Share Premium Account, Capital Redemption Reserve,
Capital Reserve, Revenue Reserve and external debt financing. As at the year end this balance stood at £322,049,000 (2023:
£313,153,000). Details of the movement through each reserve are shown in the Statement of Changes in Equity. The Company is
not subject to any externally imposed capital requirements other than those associated with the loan finance.
The Company’s capital is managed in accordance with its Investment Policy, in pursuit of its Investment Objective, both of which
are detailed in the Business Model and Strategy on pages 14 and 15. The Company’s capital structure is also explained in the
Directors’ Report on pages26 and 27.
14 Net Asset Value per Share
Net asset value per share
As at 31March
Net asset value
As at 31March
2024
p
2023
p
2024
£’000
2023
£’000
NAV per Ordinary share 165.1 158.4 312,720 299,975
The NAV per share is based on net assets at the year end and on 189,427,600 (2023: 189,427,600) Ordinary shares, being the
number of Ordinary shares in issue at the year end, excluding those shares bought back and held in Treasury.
15 Financial Instruments
The Company’s financial instruments comprise its investment portfolio, cash balances, bank loans, and debtors and creditors
that arise directly from its operations. As an investment trust the Company holds a portfolio of financial assets in pursuit of its
investment objective. The Company makes use of borrowings, as detailed in Notes 11 and 12 and the Chairman’s Statement, to
achieve improved performance in rising markets.
The Company’s principal risks are described in the Business Model and Strategy on pages14 and 15.
page 58 Montanaro European Smaller Companies Trust plc Annual Report and Accounts 2024
Notes to the Financial Statements continued
15 Financial Instruments continued
Financial risks arising from the Company’s financial instruments are:
(i) market price risk, being the risk that the value of investment holdings will fluctuate as a result of changes in market prices
caused by factors other than interest rate or currency rate movements;
(ii) interest rate risk, being the risk that the future cash flows of a financial instrument will fluctuate because of changes in
market interest rates;
(iii) foreign currency risk, being the risk that the value of investment holdings, investment purchases, investment sales, bank
loans and accrued income will fluctuate because of movements in currency rates;
(iv) credit risk, being the risk that a counterparty to a financial instrument will fail to discharge an obligation or commitment that
it has entered into with the Company; and
(v) liquidity risk, being the risk that the Company may not be able to liquidate quickly its investments to meet obligations
associated with its financial liabilities.
FAIR VALUE HIERARCHY
The Company measures fair values using the following fair value hierarchy that reflects the significance of the inputs used in
making the measurements.
Categorisation within the hierarchy has been determined on the basis of the lowest level input that is significant to the fair value
measurement of the relevant assets as follows:
•
Level 1 – valued using quoted prices unadjusted in active markets for identical assets or liabilities.
•
Level 2 – valued by reference to valuation techniques using observable inputs for the asset or liability other than quoted
prices included within Level 1.
•
Level 3 – valued by reference to valuation techniques using inputs that are not based on observable market data for the
asset or liability.
The tables below set out fair value measurements of financial instruments as at the year end, by the level in the fair value
hierarchy into which the fair value measurement is categorised.
The Company held the following categories of financial instruments all of which are included fair value or amortised cost with is
an approximation of fair value as at 31March 2024:
Level 1
£’000
Level 2
£’000
Level 3
£’000
2024
Total
£’000
Level 1
£’000
Level 2
£’000
Level 3
£’000
2023
Total
£’000
Financial instruments
Investments 321,676 – – 321,676 310,308 – – 310,308
Interest-bearing bank loan – (8,549) – (8,549) – (8,787) – (8,787)
Revolving credit facility – (856) – (856) – (4,391) – (4,391)
There were no transfers between levels in the fair value hierarchy in the year ended 31March 2024 (2023: none).
Cash balances of £242,000 (2023: £3,225,000), debtors of £221,000 (2023: £345,000) and creditors of £754,000 (2023:
£1,260,000) are considered financial instruments.
16 Market Price Risk
Market price risk (i.e. changes in market prices other than those arising from currency risk or interest rate risk) may affect the
value of investments.
The Board manages the risks inherent in the investment portfolio by ensuring full and timely reporting of relevant information
from the Manager. Investment performance and exposure are reviewed at each Board meeting.
The maximum exposure to market price risk is the fair value of investments of £321,676,000 (2023: £310,308,000).
If the investment portfolio valuation fell by 10% from the amount detailed in the financial statements as at 31March 2024, it
would have the effect, with all other variables held constant, of reducing the net capital return before taxation by £32,167,000
(2023: £31,031,000). An increase of 10% in the investment portfolio valuation would have an equal and opposite effect on the net
capital return before taxation. The analysis is based on closing balances only and is not representative of the year as a whole.
Montanaro European Smaller Companies Trust plc Annual Report and Accounts 2024 page 59
17 Interest Rate Risk
FIXED RATE
The Company has a €10million fully drawn fixed rate term loan with ING, with a Sterling equivalent of £8,473,000 as at 31March
2024, at a rate of interest of 5.105% per annum. An interest rate sensitivity analysis has not been performed as the Company has
borrowed at a fixed rate of interest.
FLOATING RATE
The Company has a €15million revolving credit facility term with ING of which €1million was drawn, with a Sterling equivalent of
£856,000 as at 31March 2024, at a rate of interest of 5.68% per annum.
When the Company retains cash balances, the cash is primarily held in accounts at the custodian. Interest received or paid
on cash balances and bank overdrafts is at market rates and is monitored and reviewed by the Manager and the Board. As at
31March 2024, the cash position of the Company was £242,000 (2023: £3,225,000).
If interest rates had increased by 1.0%, the impact on the profit or loss and the NAV would have been negative £6,000 (2023:
negative £11,000). If interest rates had decreased by 1.0%, the impact on the profit or loss and the NAV would have been positive
£6,000 (2023: positive £11,000). The calculations are based on the floating rate balances as at the respective balance sheet dates.
18 Foreign Currency Risk
The Company invests in overseas securities and holds foreign currency cash balances and foreign currency borrowings which
give rise to currency risks. It is not the Company’s policy to hedge this risk.
Foreign currency exposure:
As at 31March 2024
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 6,251 60 – – – – 6,311
Euro 176,388 243 192 – (855) (8,549) 167,415
Norwegian Krone 20,223 27 – – – – 20,250
Swedish Krona 78,642 18 – – – – 78,660
Swiss Franc 40,172 317 – – – – 40,489
Total 321,676 665 192 – (855) (8,549) 313,125
As at 31March 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
Swiss Franc 37,922 285 90 739 – – 39,036
Total 310,308 726 2,974 739 (4,391) (8,787) 301,569
* Par value excluding amortised Costs
If the value of Sterling had weakened by 5% (2023: 5%) against each of the currencies in the portfolio, the impact on the profit or
loss and the NAV would have been positive £16,084,000 (2023: positive £15,870,000). If the value of Sterling had strengthened
by 5% (2023: 5%) against each of the currencies in the portfolio, the impact on the profit or loss and the NAV would have been
negative £16,084,000 (2023: negative £14,358,000). These calculations are based on the foreign currency exposure balances as
at the respective balance sheet dates.
page 60 Montanaro European Smaller Companies Trust plc Annual Report and Accounts 2024
Notes to the Financial Statements continued
19 Credit Risk
Credit risk is the risk that a counterparty to a financial instrument will fail to discharge an obligation or commitment that it has
entered into with the Company. The Company has in place a monitoring procedure in respect of counterparty risk which is
reviewed on an ongoing basis. The carrying amounts of financial assets best represent the maximum credit risk exposure at the
balance sheet date.
The Company had the following categories of financial assets exposed to credit risk as at 31March:
2024
£’000
2023
£’000
Cash and cash equivalents 242 3,225
Due from brokers and accrued income 90 192
332 3,417
Credit risk arising on transactions with brokers relates to transactions awaiting settlement. Risk relating to unsettled transactions
is considered to be small due to the short settlement period involved and the financial stability and credit quality of the brokers
used, which are monitored on an ongoing basis by the Manager. The Manager also monitors the quality of service provided by
the brokers used to further mitigate this risk.
There were no significant concentrations of credit risk to counterparties at 31March 2024 or 31March 2023. No individual
investment exceeded 5.0% of the investment portfolio at 31March 2024 (2023: 5.0%).
A significant majority of the assets of the Company, including those that are traded on a recognised exchange, are held in
segregated accounts on behalf of the Company by The Bank of New York Mellon SA/NV (London Branch), the Company’s
custodian. Bankruptcy or insolvency of this or other custodians may cause the Company’s rights with respect to securities held by
the custodians to be delayed. The Board monitors the Company’s risk by reviewing the custodian’s internal control reports.
20 Liquidity Risk
The Company does not hold unlisted securities (2023: £nil). The Company’s listed securities are considered to be readily
realisable.
However, as with all smaller company investment trusts, there are times when the liquidity of the underlying portfolio is poor,
such as when smaller companies are out of favour or during periods of adverse economic conditions. The Manager focuses
on smaller companies where the opportunities may be more attractive but this can decrease overall underlying liquidity. This
may result in the Manager being unable to buy or sell individual holdings within the portfolio. The Manager constantly reviews
the underlying liquidity of the portfolio and deals with a wide range of brokers to enhance its ability to execute transactions and
minimise liquidity risk. The Company’s overall exposure to liquidity risks is monitored on a regular basis by the Board.
Liquidity risk is mitigated as the Company maintains sufficient cash to pay accounts payable and accrued expenses. As at
31March 2024, the cash position of the Company was £242,000 (2023: £3,225,000) and the Company has undrawn bank
facilities of £12,199,000 (2023: £8,748,000).
Montanaro European Smaller Companies Trust plc Annual Report and Accounts 2024 page 61
20 Liquidity Risk continued
CONTRACTUAL MATURITY ANALYSIS FOR FINANCIAL LIABILITIES
Contractual maturities of the financial liabilities at the year end at undiscounted amounts, based on the earliest date on which
payment can be required, are as follows:
As at 31March 2024
Within
one month
£’000
Between
one and
three months
£’000
Between
three and
twelve months
£’000
Between
one and
five years
£’000
Total
£’000
Liabilities:
Other creditors 754 – – – 754
Revolving credit facility 856 – – – 856
Loan and loan interest – – – 8,314 8,314
Total liabilities 1,610 – – 8,314 9,924
As at 31March 2023
Within
one month
£’000
Between
one and
three months
£’000
Between
three and
twelve months
£’000
Between
one and
five years
£’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
21 Related Parties and Transactions with the Manager
The following are considered related parties: the Board of Directors. The Directors of the Company received fees for their services
and dividends from their shareholdings in the Company. Further details are provided in the Directors’ Remuneration Report on
pages34 to 36.
Transactions between the Company and the Manager are detailed in Note 3 on management fees and Note 11 on fees owed to
the Manager at the balance sheet date. The existence of an independent Board of Directors demonstrates that the Company is
free to pursue its own financial and operating policies and therefore, under the AIC SORP, the Manager is not considered to be a
related party.
page 62 Montanaro European Smaller Companies Trust plc Annual Report and Accounts 2024
Alternative Investment Fund Managers (“AIFM”) Directive (“AIFMD”)
In accordance with the AIFMD, information in relation to the Company’s leverage (as defined on page64). and the remuneration
of the Company’s AIFM, Montanaro Asset Management Limited, is required to be made available to investors. Detailed regulatory
disclosures including those on the AIFM’s remuneration policy are available on the Company’s website or from Montanaro Asset
Management Limited on request. The Company’s maximum and actual leverage levels at 31March 2024 are shown below:
Leverage exposure
Gross
method
Commitment
method
Maximum limit 200% 200%
Actual 102.95% 102.96%
For the purposes of the AIFMD, leverage is any method which increases the Company’s exposure, including the borrowing of cash
and the use of derivatives. It is expressed as a percentage of Company’s exposure to its NAV and is calculated on both a gross
and commitment method.
Under the gross method, exposure represents the sum of the Company’s positions after deduction of cash and cash equivalents,
without taking account of any hedging or netting arrangements. Under the commitment method, exposure is calculated without
the deduction of cash and cash equivalents and after certain hedging and netting positions are offset against each other.
The leverage limits are set by the AIFM and approved by the Board. The AIFM is also required to comply with the gearing
parameters set by the Board in relation to borrowings. Detailed regulatory disclosures to investors in accordance with the AIFMD
are contained on the AIFM’s website.
AIFMD Disclosures (Unaudited)
Montanaro European Smaller Companies Trust plc Annual Report and Accounts 2024 page 63
Alternative Performance Measures (“APMs”)
The Company uses the following APMs:
Dividends per Ordinary share
Total dividends paid to shareholders in respect of the year
ended 31 March 2024, comprising the interim dividend, paid
on 26 January 2024 of 0.225p and the final dividend, paid on
16 September 2024 of 0.9p.
Premium/(discount)
If the share price of an investment trust is less than its NAV per
share, the shares are trading at a discount. If the share price
is greater than the Net Asset Value per share, the shares are
trading at a premium.
As at 31March 2024, the NAV per share was 165.1p (2023:
158.4p) and the share price was 142.5p (2023: 137.6p). The
discount is therefore calculated at 13.7% (2023: discount 13.1%).
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.
As at 31March 2024, interest bearing bank loans and revolving
credit facility were £9,329,000, (2023: £13,178,000) cash and
cash equivalents were £242,000 (2023: £3,225,000) and net
assets were £312,720,000 (2023: £299,975,000). As at 31March
2024, gearing is therefore equal to 2.9% (2023: 3.3%).
Ongoing Charges (expressed as a percentage)
All operating costs expected to be incurred in the future and
that are payable by the Company expressed as a proportion of
the average net assets of the Company over the reporting year.
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
31March 2024
£’000
For the
year ended
31March 2023
£’000
Total expenditure (a) 2,982 2,917
Average Monthly net asset (b) 286,505 279,739
Ongoing Charges (c=a/b) (c) 1.0% 1.0%
Portfolio turnover
Calculated using total sales proceeds as a percentage of the
average monthly net assets during the year.
For the
year ended
31March 2024
For the
year ended
31March 2023
Average net assets (£’000) (a) 286,505 279,739
Sales (£’000) (b) 45,177 38,486
Portfolio turnover (b)/(a) 16% 14%
page 64 Montanaro European Smaller Companies Trust plc Annual Report and Accounts 2024
Capital Return – NAV and Share Price Returns
Capital returns measure the effect of any rise or fall in the share price or NAV, excluding any dividends paid.
NAV Capital Return calculation as at 31March 2024
NAV per share as at 31 March 2024 165.10p (a)
NAV per share as at 31 March 2023 158.40p (b)
NAV Capital Return 4.2% ((a-b)/b)
Share Price Capital Return calculation as at 31March 2024
Share price as at 31 March 2024 142.50p (a)
Share price as at 31 March 2023 137.60p (b)
Share Price Capital Return 3.6% ((a-b)/b)
Total Return – NAV and Share Price Returns
Total returns measure the effect of any rise or fall in the share price or NAV, plus dividends paid which are reinvested at the
prevailing NAV or share price on the ex-dividend date.
NAV Total Return calculation as at 31March 2024
NAV per share as at 31 March 2024 165.10p (c)
NAV per share as at 31 March 2023 158.40p (d)
Dividend adjustment factor (+1) 1.0067 (a)
Pre-Dividend Reinvestment Factor 1.0423 (b)(b=c/d)
NAV Total Return 4.9% ((a*b)-1)
(a) Dividend Adjustment Factor
Dividend PPS
Dividend XD
date
NAV at
Dividend
XD date
NAV
Multiplier
Interim dividend 0.225 1 Dec 2023 144.10p 0.0016
Final dividend 0.77 11 Aug 2023 151.50p 0.0051
0.0067
Share price Total Return calculation as at 31March 2024
Share price as at 31 March 2024 142.50p (c)
Share price as at 31 March 2023 137.60p (d)
Dividend adjustment factor (+1) 1.0076 (a)
Pre-Dividend Reinvestment Factor 1.0356 (b)(b=c/d)
Share Price Total Return 4.3% ((a*b)-1)
(a) Dividend Adjustment Factor
Dividend PPS
Dividend XD
date
Share price
at Dividend
XD date
NAV
Multiplier
Interim dividend 0.225 1 Dec 2023 123.00p 0.0018
Final dividend 0.77 11 Aug 2023 132.30p 0.0058
0.0076
Alternative Performance Measures (“APMs”) continued
Montanaro European Smaller Companies Trust plc Annual Report and Accounts 2024 page 65
Glossary of Terms
Alternative Investment Fund Managers Directive (“AIFMD”)
Issued by the European Parliament in 2012 and 2013, the
Directive requires that all investment vehicles in the European
Union, including investment trusts, must, with effect from
22July 2014, appoint a Depositary and an Alternative
Investment Fund Manager (“AIFM”). The board of directors of
an investment trust, nevertheless, remains fully responsible
for all aspects of the Company’s strategy, operations and
compliance with regulations.
Association of Investment Companies (“AIC”)
The Association of Investment Companies is the trade body for
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
defined selection of companies listed in European smaller
company stock markets and gives an indication of how those
markets have performed in any period.
Closed-end Investment Company
A company, including an investment trust, with a fixed issued
ordinary share capital which is traded on an exchange at
a price not necessarily related to the NAV of the 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 investors at a
price directly related to the NAV.
Custodian
A specialised financial institution responsible for safeguarding,
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
Company’s Custodian is The Bank of New York Mellon SA/NV
(London Branch).
Depositary
Under the AIFMD rules applying from 22July 2014, the
Company must appoint a Depositary, whose duties in respect
of investments, cash and similar assets include: safekeeping;
verification of ownership and valuation; and cash monitoring.
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. The Company
currently pays dividends twice a year.
Gearing
Gearing is calculated as total liabilities less current assets
divided by net assets.
International Accounting Standards
International Accounting Standards in conformity with the
requirements of the Companies act 2006.
Investment Manager
The Company’s investment manager is Montanaro Asset
Management Limited. The responsibilities and remuneration of
the Manager are set out in the Business Model and Strategy on
page15 and in the Directors’ Report on page24.
Investment Trust
A Closed-end investment company which satisfies the
requirements of Section 1158 of the Corporation Tax Act 2010.
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.
page 66 Montanaro European Smaller Companies Trust plc Annual Report and Accounts 2024
Leverage
As defined under the AIFMD rules, leverage is any method
by which the exposure of an AIF is increased through
borrowing 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 and after certain hedging and netting positions are
offset against each other.
Marked to Market
Accounting for the fair value of an asset or liability that can
change over time and reflects its current market value rather
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. The Company has only Ordinary
shares in issue.
Share Price
The value of a share at a point in time as quoted on a stock
exchange. The shares of The Company are quoted on the Main
Market of the London Stock Exchange.
Statement of Recommended Practice (“SORP”)
Statement of Recommended Practice “Financial Statements
of Investment Trust Companies and Venture Capital Trusts”
issued by the AIC.
Total Assets
This is calculated as the value of the investments and other
assets of an investment trust, plus cash and debtors.
Glossary of Terms continued
Montanaro European Smaller Companies Trust plc Annual Report and Accounts 2024 page 67
Shareholder Information
Source of Further Information
Your Board is committed to shareholder engagement. To receive regular email news and updates about the Company please
visit: www.montanaro.co.uk/trust/mesct.
Useful information on the Company, such as investor updates and half year and annual reports can also be found on the website.
Key Dates
31March 2024 Company year end
5September 2024 Annual General Meeting
16September 2024 Payment of final dividend
November 2024 Interim results announced
January 2025 Payment of expected interim dividend
Dividends
Shareholders who wish to have dividends paid directly into a bank account rather than by cheque to their registered address can
complete a Mandate Form for this purpose. Mandates can be obtained from Equiniti Limited on request at the address shown on
page77.
Non-Mainstream Pooled Investment (“NMPI”) Status
The Company currently conducts its affairs so that the shares it issues can be recommended by financial advisers to retail
investors in accordance with the FCA’s rules in relation to non-mainstream investment products. It is intended to continue to do
so for the foreseeable future. The Company’s securities are excluded from the FCA’s restrictions which apply to non-mainstream
investment products because they are securities in a UK listed investment trust.
Registrar Enquiries
The register for the Ordinary shares is maintained by Equiniti Limited. In the event of queries regarding your holding, please
contact the registrar. You can contact the registrar by calling +44 (0)371 384 2030. Calls are charged at the standard geographic
rate and will vary by provider. Calls outside the United Kingdom will be charged at the applicable international rate. Lines are
open between 09:00 – 17:30, Monday to Friday excluding public holidays in England and Wales. Or alternatively you may contact
the registrar at shareholderenquiries@equniti.com.
Share Price and NAV
The Company’s Ordinary shares are listed on the main market of the London Stock Exchange. The market price of these shares
can be found in the London Stock Exchange Daily Official List. The Company’s NAV is published daily and released through the
London Stock Exchange’s Regulatory News Service and is available on the Company’s website.
Common Reporting Standard
Under the Common Reporting Standard financial institutions, including investment trust companies, are required to provide
personal information to HMRC on investors who meet certain criteria set out in the legislation. On an annual basis, the Company
will provide information to the local tax authority on the tax residencies of non-UK based certificated shareholders and corporate
entities. The local tax authority may exchange this information with the tax authorities of another country or countries in which
the shareholder may be a tax resident, where those countries, or the tax authorities in those countries, have entered into
agreements to exchange financial account information. New shareholders, excluding those whose shares are held in CREST,
entered on the Company’s share register, will be sent a certification form for the purposes of collecting this information.
Share Dealing
Investors wishing to purchase more shares in the Company or to sell all or part of their existing holding may do so through their
financial adviser, stockbroker or, if financial advice is not required, through a fund supermarket or any other execution-only
platform. Further information can be found at: www.montanaro.co.uk/trust/mesct.
page 68 Montanaro European Smaller Companies Trust plc Annual Report and Accounts 2024
Data Protection
The Company is committed to protecting and respecting the confidentiality, integrity and security of the personal data it holds.
For information on the processing of personal data, please see the privacy policy on the website at www.montanaro.co.uk.
Nominee Code
Where shares are held in a nominee company name, the Company undertakes:
•
to provide the nominee company with multiple copies of shareholder communications, so long as an indication of quantities
has been provided in advance;
•
to allow investors holding shares through a nominee company to attend general meetings, provided the correct authority
from the nominee company is available; and
•
nominee companies are encouraged to provide the necessary authority to underlying shareholders to attend the Company’s
general meetings.
AIC
The Company is a member of the Association of Investment Companies.
Stocks and Shares Individual Savings Accounts (“ISA”)
ISAs are a tax-efficient method of investment and the Company’s shares are eligible investments for inclusion in an ISA.
Packaged Retail and Insurance-Based Investment Products (“PRIIPS”) Regulation (the “Regulation”)
Shares issued by investment trusts fall within the scope of the European Union’s PRIIPs Regulation. Investors should be aware
that the PRIIPs Regulation requires the AIFM, as PRIIPs manufacturer, to prepare a key information document (“KID”) in respect
of the Company. This KID must be made available, free of charge, to EEA retail investors prior to them making any investment
decision. The Company is not responsible for the information contained in the KID and investors should note that the procedures
for calculating the risks, costs and potential returns are prescribed by law. The figures in the KID may not reflect the expected
returns for the Company and anticipated performance returns cannot be guaranteed. The PRIIPs KID in respect of the Company
can be found at: www.montanaro.co.uk/trust/mesct
Warning to Shareholders – Beware of Share Fraud
Fraudsters use persuasive and high-pressure tactics to lure investors into scams. They may offer to sell shares that turn out to be
worthless or non-existent, or to buy shares at an inflated price in return for an upfront payment.
If you receive unsolicited investment advice or requests:
•
Check the Financial Services Register at www.fca.org.uk to see if the person or firm contacting you is authorised by the
Financial Conduct Authority (“FCA”).
•
Call the FCA on 0800 111 6768 if the firm does not have contact details on the Register or you are told they are out of date.
•
Search the list of unauthorised firms to avoid at www.fca.org.uk/scams.
•
Consider that if you buy or sell shares from an unauthorised firm you will not have access to the Financial Ombudsman
Service or Financial Services Compensation Scheme.
•
Think about getting independent financial and professional advice.
If you are approached by fraudsters please tell the FCA by using the share fraud reporting form at www.fca.org.uk/scams where
you can find out more about investment scams. You can also call the FCA Consumer Helpline on 0800 111 6768.
If you have already paid money to share fraudsters you should contact Action Fraud on 0300 123 2040.
Shareholder Information continued
Montanaro European Smaller Companies Trust plc Annual Report and Accounts 2024 page 69
Notice of Annual General Meeting
THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION. If you are in any doubt about any aspect
of the proposals referred to in this document or about the action which you should take, you should seek your own advice
immediately from a stockbroker, solicitor, accountant or other independent professional adviser. If you have sold or otherwise
transferred all of your shares, please pass this document, together with the accompanying documents, to the purchaser or
transferee, or to the person who arranged the sale or transfer, so they can pass these documents to the person who now holds
the shares.
Notice is hereby given that the Annual General Meeting of Montanaro European Smaller Companies Trust plc (the “Company”)
will be held at Montanaro Asset Management, 53 Threadneedle Street, London, EC2R 8AR, on Thursday, 5September 2024 at
11.00am for the purposes of considering and, if thought fit, passing the following Resolutions, of which Resolutions 1 to 9 will be
proposed as Ordinary Resolutions and Resolutions 10 and 11 will be proposed as Special Resolutions.
ORDINARY RESOLUTIONS
RESOLUTION 1 – ANNUAL REPORT AND ACCOUNTS
That the Annual Report and Accounts of the Company for the year ended 31March 2024 be received.
RESOLUTION 2 – ANNUAL REPORT ON DIRECTORS’ REMUNERATION
That the Annual Report on Directors’ Remuneration for the year ended 31March 2024 be approved.
RESOLUTION 3 – FINAL DIVIDEND
That a final dividend of 0.9p per Ordinary share be declared.
RESOLUTION 4 – RE-ELECTION OF DIRECTOR
That Mr R M Curling, who retires annually, be re-elected as a Director.
RESOLUTION 5 – RE-ELECTION OF DIRECTOR
That Ms C A Roxburgh, who retires annually, be re-elected as a Director.
RESOLUTION 6 – RE-ELECTION OF DIRECTOR
That Mr G Neilly, who retires annually, be re-elected as a Director.
RESOLUTION 7 – RE-APPOINTMENT OF AUDITORS
That PricewaterhouseCoopers LLP be re-appointed as the Company’s Auditors, to hold office from the conclusion of this Meeting
until the conclusion of the next general meeting at which accounts are laid before the Company.
RESOLUTION 8 – AUDITOR’S REMUNERATION
That the Directors be authorised to determine the Auditor’s remuneration.
page 70 Montanaro European Smaller Companies Trust plc Annual Report and Accounts 2024
RESOLUTION 9 – AUTHORITY TO ALLOT SHARES
That, in substitution for any existing authority but without prejudice to the exercise of any such authority prior to the date of the
passing of this resolution, the Board of Directors of the Company (the “Board”) be and is hereby generally and unconditionally
authorised pursuant to and in accordance with section 551 of the Companies Act 2006 to exercise all the powers of the Company
to allot shares in the Company and to grant rights to subscribe for or to convert any security into shares in the Company up to an
aggregate nominal amount of £947,138, provided that this authority shall expire at the conclusion of the Annual General Meeting
of the Company to be held in 2025 or, if earlier, on 30September 2025 save that the Company may before such expiry make
an offer or enter into an agreement which would or might require shares to be allotted, or rights to subscribe for or to convert
securities into shares to be granted, after such expiry and the Board may allot shares or grant such rights in pursuance of such
an offer or agreement as if the authority conferred hereby had not expired. The Directors will use this authority when it is in the
best interests of the Company to issue Ordinary shares for cash and will only issue new shares at a price representing a premium
to the NAV per share at the time of issuance.
SPECIAL RESOLUTIONS
RESOLUTION 10 – AUTHORITY TO ALLOT SHARES OTHER THAN ON A PRE-EMPTIVE BASIS
That, subject to the passing of Resolution 9 and in substitution for any existing authority, but without prejudice to the exercise
of any such authority prior to the date of the passing of this resolution, the Board of Directors of the Company (the “Board”)
be and is hereby generally empowered pursuant to sections 570 and 573 of the Companies Act 2006 (the “Act”) to allot equity
securities (within the meaning of section 560 of the Act) (including the grant of rights to subscribe for, or to convert any securities
into, Ordinary shares of 5pence each in the capital of the Company (“Ordinary shares”)) wholly for cash either pursuant to the
authority conferred on them by such Resolution 9 or by way of a sale of Treasury shares (within the meaning of section 560(3) of
the Act) as if section 561(1) of the Act did not apply to any such allotment or sale, provided that this power shall be limited to the
allotment of equity securities and the sale of Treasury shares:
(i) in connection with a rights issue, open offer or other pre-emptive offer in favour of the holders of Ordinary shares who are
on the register of members on a date fixed by the Board where the equity securities respectively attributable to the interests
of all such holders are proportionate (as nearly as may be practicable) to the respective numbers of Ordinary shares held
by them on that date (subject to such exclusions or other arrangements in connection with the rights issue, open offer
or other offer as the Board deem necessary or expedient to deal with shares held in Treasury, fractional entitlements to
equity securities and to deal with any legal or practical problems or issues arising in any overseas territory or under the
requirements of any regulatory body or stock exchange); and
(ii) otherwise than pursuant to sub-paragraph (i) above, up to an aggregate nominal amount of £947,138, and shall expire
(unless previously renewed, varied or revoked by the Company in general meeting) at the conclusion of the Annual General
Meeting of the Company to be held in 2025 or, if earlier, on 30September 2025 save that the Company may before such
expiry make an offer or agreement which would or might require equity securities to be allotted after such expiry and the
Board may allot equity securities in pursuance of such an offer or agreement as if the authority conferred hereby had not
expired. This power shall authorise the Board to issue equity securities at such issue price as the Board may determine
(including, without limitation, where equity securities are being issued from Treasury at a price below the net asset value per
Ordinary share of the Company at the time of the relevant issue).
Notice of Annual General Meeting continued
Montanaro European Smaller Companies Trust plc Annual Report and Accounts 2024 page 71
RESOLUTION 11 – AUTHORITY TO BUYBACK SHARES
That, in substitution for any existing authority but without prejudice to the exercise of any such authority prior to the date of the
passing of this resolution, the Company be and is hereby generally and unconditionally authorised for the purposes of section
701 of the Companies Act 2006 (the “Act”) to make one or more market purchases (as defined in section 693(4) of the Act) of
ordinary shares of 5pence each in the capital of the Company (“Ordinary shares”) on such terms and in such manner as the
Board of Directors may determine provided that:
(i) the maximum aggregate number of Ordinary shares which may be purchased is 28,395,197 (or if less, 14.99% of the
number of Ordinary shares in issue (excluding Treasury shares) immediately prior to the passing of this resolution);
(ii) the minimum price which may be paid for an Ordinary share is 5pence (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) 105per cent of the average of the market value of an Ordinary share for the five business days immediately preceding
the day on which the Ordinary share is purchased; and
(b) the value of an Ordinary share calculated on the basis of the higher price quoted for
(i) the last independent trade of; and
(ii) the highest current independent bid for any number of Ordinary shares on the trading venue where the purchase
is carried out; and
(iv) unless previously renewed, varied or revoked, this authority shall expire at the conclusion of the Annual General Meeting
of the Company to be held in 2025 or, if earlier, on 30September 2025 save that the Company may before such expiry
enter into a contract to purchase Ordinary shares which will or may be completed wholly or partly after such expiry and a
purchase of Ordinary shares may be made pursuant to any such contract.
By order of the Board
JUNIPER PARTNERS LIMITED
Company Secretary
20 June 2024
Registered office:
28 Walker Street
Edinburgh EH3 7HR
page 72 Montanaro European Smaller Companies Trust plc Annual Report and Accounts 2024
Notice of Annual General Meeting continued
Explanation of Notice of Annual General Meeting
Resolution 1 – To receive the Annual Report and Financial Statements
The Directors are required to present the financial statements, Strategic Report, Directors’ Report and Auditor’s Report to the
meeting. These are contained in the Company’s Annual Report and Accounts for the year ended 31March 2024 (the “Annual
Report”). A resolution to receive the financial statements, together with the Strategic Report, Directors’ Report and the Auditor’s
Report on those accounts is included as an ordinary resolution.
Resolution 2 – Remuneration Report
An advisory resolution to approve the Directors’ Remuneration Report (set out in the Annual Report) is included.
Resolution 3 – Final dividend
The Board proposes a final dividend of 0.9pence per share in respect of the year ended 31March 2024. If approved, the
recommended final dividend will be paid on 16September 2024 to all ordinary shareholders who are on the register of members
on 16August 2024. The shares will be marked ex dividend on 15August 2024.
Resolutions 4 to 6 – Re-election of Directors
In line with the recommendations of the 2019 AIC Corporate Governance Code, all Directors of the Company are required to
retire and offer themselves for re-election at each AGM. In accordance with this requirement, Mr Curling, Ms Roxburgh and
MrNeilly will retire and offer themselves for re-election as Directors.
All of the Directors seeking re-election are recommended by the Board for re-election. Full biographies of all of the Directors are
set out in the Annual Report on page23 and are also available for viewing on the Company’s website https://montanaro.co.uk/
trust/montanaro-european-smaller-companies-trust/. The Nomination Committee considered the Directors’ performance and
recommended their re election and the Board agrees that it is in the best interests of shareholders that each of the Directors be
re-elected.
Resolutions 7 and 8 – Re-appointment and remuneration of Auditor
At each meeting at which the Company’s financial statements are presented to its members, the Company is required to appoint
an auditor to serve until the next such meeting. The Board, on the recommendation of the Audit Committee, recommends the
re-appointment of PricewaterhouseCoopers LLP as Auditor to the Company. The Auditor’s re-appointment will be proposed to
the AGM as Resolution 7. Resolution 8 authorises the Directors to fix the Auditor’s remuneration.
Resolution 9 – Authority to allot ordinary shares
Resolution 9 authorises the Board to allot Ordinary shares generally and unconditionally in accordance with Section 551 of the
Companies Act 2006 (the “Act”) up to an aggregate nominal value of £947,138, representing approximately 10% of the issued
Ordinary share capital at the date of the Notice, excluding shares held in Treasury. This authority shall expire at the nextAGM.
Resolution 10 – Authority to disapply pre-emption rights
Resolution 10 is a special resolution which is being proposed to authorise the Directors to disapply the pre-emption rights of
existing Shareholders in relation to issues of Ordinary shares under Resolution 9 (being in respect of Ordinary shares up to an
aggregate nominal value of £947,138, representing approximately 10% of the Company’s issued Ordinary share capital, excluding
Treasury shares, as at the date of the Notice). This authority shall expire at the next AGM.
The Directors will only allot new shares pursuant to the authorities proposed to be conferred by Resolutions 9 and 10 if they
believe it is advantageous to the Company’s shareholders to do so. The Board’s policy regarding the issue of shares from
Treasury is described on page27.
Montanaro European Smaller Companies Trust plc Annual Report and Accounts 2024 page 73
Resolution 11 – Purchase of own shares
Resolution 11 is a special resolution which will grant the Company authority to make market purchases of up to 28,395,197
Ordinary shares, representing 14.99% of the Ordinary shares in issue as at the date of the Notice. The Ordinary shares bought
back will either be cancelled or placed into Treasury, at the determination of the Directors. There are currently no shares held
in Treasury. The maximum price which may be paid for each Ordinary share must not be more than the higher of (i) 105per
cent of the average of the market value of an Ordinary shares for the five business days immediately preceding the day on
which the purchase is made or (ii) the value of an Ordinary share calculated on the basis of the higher price quoted for: (a) the
last independent trade of; and (b) the highest current independent bid for any number of Ordinary shares on the trading venue
where the purchase is carried out. The minimum price which may be paid for each Ordinary share is £0.05.
This power will only be exercised if, in the opinion of the Directors, a purchase would result in an increase in the NAV per share
and be in the best interests of the shareholders as a whole. The Board’s intention is to apply an active discount management
policy, and to consider a buyback of shares where the discount of the share price to the NAV per share is greater than 10%
for a sustained period of time and is significantly wider than the average for similar trusts. Any such transaction must be
value enhancing for shareholders and the Board will take into consideration the effect of the buyback on the liquidity of the
Company’sshares.
This authority shall expire at the next AGM, when a resolution to renew the authority will be proposed.
page 74 Montanaro European Smaller Companies Trust plc Annual Report and Accounts 2024
Notice of Annual General Meeting continued
Notes
1. Attending the Annual General Meeting in Person
If you wish to attend the Annual General Meeting in person, you should arrive at the venue for the Annual General Meeting in
good time to allow your attendance to be registered. It is advisable to have some form of identification with you as you may be
asked to provide evidence of your identity to the Company’s registrar, Equiniti Limited (the “Registrar”), prior to being admitted to
the Annual General Meeting.
2. Appointment of Proxies
Members are entitled to appoint one or more proxies to exercise all or any of their rights to attend, speak and vote at the Annual
General Meeting. A proxy need not be a member of the Company but must attend the Annual General Meeting to represent a
member. To be validly appointed a proxy must be appointed using the procedures set out in these notes and in the notes to the
accompanying proxy form.
If members wish their proxy to speak on their behalf at the meeting, members will need to appoint their own choice of proxy (not
the Chairman of the Annual General Meeting) and give their instructions directly to them.
Members can only appoint more than one proxy where each proxy is appointed to exercise rights attached to different shares.
Members cannot appoint more than one proxy to exercise the rights attached to the same share(s). If a member wishes to
appoint more than one proxy, they should contact the Registrar on +44 (0) 371 384 2461. Lines are open from 8.30am to
5.30pm, Monday to Friday excluding public holidays in England and Wales. If calling from outside of the UK, please ensure the
country code is used. A member may instruct their proxy to abstain from voting on any resolution to be considered at the
meeting by marking the ‘Abstain’ option when appointing their proxy. It should be noted that an abstention is not a vote in law
and will not be counted in the calculation of the proportion of votes ‘For’ or ‘Against’ the resolution.
The appointment of a proxy will not prevent a member from attending the Annual General Meeting and voting in person if he or
she wishes.
A person who is not a member of the Company but who has been nominated by a member to enjoy information rights does not
have a right to appoint any proxies under the procedures set out in these notes and should read note 8 below.
It is possible for you to submit your proxy votes online by visiting Equiniti’s Shareview website at www.shareview.co.uk and logging
in to your Shareview Portfolio.
Click on the link to vote and follow the on-screen instructions. If you have not yet registered for a Shareview Portfolio, please go
to www.shareview.co.uk and enter the requested information. It is important that you register for a Shareview Portfolio to allow
enough time to complete the registration and authentication processes. For an electronic proxy appointment to be valid, the
Registrar must receive it no later than 11.00am on 3September 2024.
Should you complete your Form of Proxy electronically and then post a hard copy, the Form that arrives last will be counted to
the exclusion of instructions received earlier, whether electronic or postal. Please refer to the terms and conditions of the service
on the website.
3. Appointment of a Proxy Using a Proxy Form
A proxy form for use in connection with the Annual General Meeting is enclosed. To be valid, any proxy form or other instrument
appointing a proxy, together with any power of attorney or other authority under which it is signed or a certified copy thereof,
must be received by post or (during normal business hours only) by hand by the Registrar at FREEPOST RTHJ-CLLL KBKU, Equiniti,
Aspect House, Spencer Road, Lancing BN99 6DA no later than 48 hours (excluding non-working days) before the time of the
Annual General Meeting or any adjournment of that meeting.
If you do not have a proxy form and believe that you should have one, or you require additional proxy forms, please contact the
Registrar on +44 (0) 371 384 2461. Lines are open from 8.30am to 5.30pm, Monday to Friday excluding public holidays in England
and Wales. If calling from outside of the UK, please ensure the country code is used.
4. Appointment of a Proxy Through CREST
CREST members who wish to appoint a proxy or proxies through the CREST electronic proxy appointment service may do so by using
the procedures described in the CREST Manual and by logging on to the following website: www.euroclear.com. CREST personal
members or other CREST sponsored members, and those CREST members who have appointed (a) voting service provider(s), should
refer to their CREST sponsor or voting service provider(s) who will be able to take the appropriate action on their behalf.
Montanaro European Smaller Companies Trust plc Annual Report and Accounts 2024 page 75
In order for a proxy appointment or instruction made using the CREST service to be valid, the appropriate CREST message (a
“CREST Proxy Instruction”) must be properly authenticated in accordance with Euroclear UK & Ireland Limited’s specifications,
and must contain the information required for such instruction, as described in the CREST Manual. The message, regardless of
whether it constitutes the appointment of a proxy or is an amendment to the instruction given to a previously appointed proxy,
must in order to be valid, be transmitted so as to be received by the Registrar (ID RA19) no later than 48 hours (excluding non-
working days) before the time of the Annual General Meeting or any adjournment of that meeting. For this purpose, the time of
receipt will be taken to be the time (as determined by the timestamp applied to the message by the CREST Application Host) from
which the Registrar is able to retrieve the message by enquiry to CREST in the manner prescribed by CREST.
After this time any change of instructions to proxies appointed through CREST should be communicated to the appointee
through other means. CREST members and, where applicable, their CREST sponsors or voting service provider(s) should note
that Euroclear UK & Ireland Limited does not make available special procedures in CREST for any particular message. Normal
system timings and limitations will, therefore, apply in relation to the input of CREST Proxy Instructions. It is the responsibility of
the CREST member concerned to take (or, if the CREST member is a CREST personal member, or sponsored member, or has
appointed a voting service provider(s), to procure that his/her CREST sponsor or voting service provider(s) take(s)) such action
as shall be necessary to ensure that a message is transmitted by means of the CREST system by any particular time. In this
connection, CREST members and, where applicable, their CREST sponsors or voting system providers are referred, in particular,
to those sections of the CREST Manual concerning practical limitations of the CREST system and timings.
The Company may treat as invalid a CREST Proxy Instruction in the circumstances set out in Regulation 35(5)(a) of the
Uncertificated Securities Regulations 2001.
If you are an institutional investor, you may be able to appoint a proxy electronically via the Proxymity platform, a process which
has been agreed by the Company and approved by the Registrar. For further information regarding Proxymity, please go to
www.proxymity.io. Your proxy must be lodged by 11.00am on 3September 2024 in order to be considered valid. Before you can
appoint a proxy via this process you will need to have agreed to Proxymity’s associated terms and conditions. It is important that
you read these carefully as you will be bound by them, and they will govern the electronic appointment of your proxy.
5. Appointment of Proxy by Joint Holders
In the case of joint holders, where more than one of the joint holders purports to appoint one or more proxies, only the
purported appointment submitted by the most senior holder will be accepted. Seniority is determined by the order in which the
names of joint holders appear in the Company’s register of members in respect of the joint holding (the first named being the
most senior).
6. Corporate Representatives
Any corporation which is a member can appoint one or more corporate representatives. Members can only appoint more than
one corporate representative where each corporate representative is appointed to exercise rights attached to different shares.
Members cannot appoint more than one corporate representative to exercise the rights attached to the same share(s).
7. Entitlement to Attend and Vote
To be entitled to attend and vote at the Annual General Meeting (and for the purpose of determining the votes they may cast),
members must be registered in the Company’s register of members at 6.30pm on 3September 2024 (or, if the Annual General
Meeting is adjourned, at 6.30pm on the day two days prior to the adjourned meeting). Changes to the register of members
after the relevant deadline will be disregarded in determining the rights of any person to attend and vote at the Annual General
Meeting.
8. Nominated Persons
Any person to whom this notice is sent who is a person nominated under section 146 of the Companies Act 2006 to enjoy
information rights (a “Nominated Person”) may, under an agreement between him/her and the member by whom he/ she
was nominated, have a right to be appointed (or to have someone else appointed) as a proxy for the Annual General Meeting.
Nominated Person has no such proxy appointment right or does not wish to exercise it, he/she may, under any such agreement,
have a right to give instructions to the member as to the exercise of voting rights.
9. Website Giving Information Regarding the Annual General Meeting
Information regarding the Annual General Meeting, including information required by section 311A of the 2006 Act, and a copy of
this notice of Annual General Meeting is available from www.montanaro.co.uk.
page 76 Montanaro European Smaller Companies Trust plc Annual Report and Accounts 2024
Notice of Annual General Meeting continued
10. Audit Concerns
Members should note that it is possible that, pursuant to requests made by members of the Company under section 527 of
the 2006 Act, the Company may be required to publish on a website a statement setting out any matter relating to: (a) the audit
of the Company’s accounts (including the Auditor’s report and the conduct of the audit) that are to be laid before the Annual
General Meeting; or (b) any circumstance connected with an auditor of the Company ceasing to hold office since the previous
meeting at which annual accounts and reports were laid in accordance with section 437 of the 2006 Act. The Company may not
require the members requesting any such website publication to pay its expenses in complying with sections 527 or 528 of the
2006 Act. Where the Company is required to place a statement on a website under section 527 of the 2006 Act, it must forward
the statement to the Company’s auditor not later than the time when it makes the statement available on the website. The
business which may be dealt with at the Annual General Meeting includes any statement that the Company has been required
under section 527 of the 2006 Act to publish on a website.
11. Members resolution
Under Section 338 and Section 338A of the Companies Act 2006, members meeting the threshold requirements in those sections
have the right to require the Company (a) to give to members of the Company entitled to receive notice of meeting, notice of any
resolution which may properly be moved and is intended to be moved at the meeting and/or (b) to include in the business to be
dealt with at the meeting any matter (other than a proposed resolution) which may be properly included in the business.
A resolution may properly be moved or a matter may properly be included in the business unless (a) (in the case of resolution only) it
would, if passed, be ineffective (whether by reason of inconsistency with any enactment or the Company’s constitution or otherwise),
(b) it is defamatory of any person, or (c) it is frivolous or vexatious. Such a request may be in hard copy form or in electronic form, must
identify the resolution of which notice is to be given or the matter to be included in the business, must be authorised by the person or
persons making it, must be received by the Company no
t later than 25July 2024, being the date six weeks before the meeting, and (in
the case of a matter to be included in the business only) must be accompanied by a statement setting out the grounds for the request.
12. Voting Rights
As at 19June 2024 (being the latest practicable date prior to the publication of this notice) the Company had 189,427,600 Ordinary
shares in issue of £0.05 each. Each Ordinary share (other than those held in Treasury) carries one vote. The total voting rights in the
Company as at 19June 2024 were 189,427,600 votes.
13. Notification of Shareholdings
Any person holding 3% or more of the total voting rights of the Company who appoints a person other than the Chairman of the
Annual General Meeting as his/her proxy will need to ensure that both he/she, and his/her proxy, comply with their respective
disclosure obligations under the UK Disclosure Guidance and Transparency Rules.
14. Further Questions and Communication
Under section 319A of the 2006 Act, the Company must cause to be answered any question relating to the business being dealt
with at the Annual General Meeting put by a member attending the meeting unless answering the question would interfere
unduly with the preparation for the meeting or involve the disclosure of confidential information, or the answer has already
been given on a website in the form of an answer to a question, or it is undesirable in the interests of the Company or the good
order of the meeting that the question be answered. Members who have any queries about the Annual General Meeting should
contact the Company Secretary, Juniper Partners Limited at 28 Walker Street, Edinburgh EH3 7HR. Members may not use any
electronic address provided in this notice or in any related documents (including the Annual Report and Accounts and proxy
form) to communicate with the Company for any purpose other than those expressly stated.
15. Documents Available for Inspection
The following documents will be available for inspection at the registered office of the Company during normal business hours
on any weekday (Saturdays, Sundays and English public holidays excepted) from the date of this notice until the conclusion of the
Annual General Meeting:
•
copies of the Directors’ letters of appointment; and
•
copies of the Directors’ deeds of indemnity.
None of the Directors has a service contract with the Company.
16. Personal data
Personal data provided by shareholders at or in relation to the Meeting will be processed in line with the Company’s privacy policy.
Montanaro European Smaller Companies Trust plc Annual Report and Accounts 2024
Investment Manager and Alternative Investment
FundManager (“AIFM”)
MONTANARO ASSET MANAGEMENT LIMITED
53 Threadneedle Street
London EC2R 8AR
Tel: 020 7448 8600
Fax: 020 7448 8601
enquiries@montanaro.co.uk
www.montanaro.co.uk
Administrator
JUNIPER PARTNERS LIMITED
28 Walker Street
Edinburgh EH3 7HR
Tel: 0131 378 0500
Company Secretary
JUNIPER PARTNERS LIMITED
28 Walker Street
Edinburgh EH3 7HR
Tel: 0131 378 0500
Email: cosec@junipartners.com
Registered Office
28 Walker Street
Edinburgh EH3 7HR
Registrar
EQUINITI LIMITED
Aspect House
Spencer Road
Lancing
West Sussex BN99 6DA
Registrar’s Shareholder Helpline
Tel: +44 (0)371 384 2030*
Registrar’s Broker Helpline
Tel: 0906 559 6025
* Lines are open 8.30am to 5.30pm, Monday to Friday.
Stockbroker
CAVENDISH FINANCIALS PLC
One Bartholomew Close
London EC1A 7BL
Depositary
THE BANK OF NEW YORK MELLON
(INTERNATIONAL) LIMITED
One Canada Square
London E14 5AL
Custodian
BANK OF NEW YORK MELLON SA/NV
One Canada Square
London E14 5AL
Bankers
ING BANK N.V., LONDON BRANCH
60 London Wall
London EC2M 5TQ
Independent Auditors
PRICEWATERHOUSECOOPERS LLP
Atria One
144 Morrison Street
Edinburgh EH3 8EX
Solicitor
DICKSON MINTO W.S.
16 Charlotte Square
Edinburgh EH2 4DF
Montanaro European Smaller Companies Trust plc
Registered in Scotland No. SC074677
An investment company as defined under Section 833
of the Companies Act 2006.
Advisers
Montanaro European Smaller Companies Trust plc
28 Walker Street
Edinburgh EH3 7HR
Tel: 020 7448 8600
Fax: 020 7448 8601
E-mail: enquiries@montanaro.co.uk
Website: www.montanaro.co.uk