UK Smaller Companies Investment Trust PLC

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Annual Report and Accounts 2022

The Montanaro UK Smaller

Companies Investment

Trust PLC (“MUSCIT” or the

“Company”) was launched in

March 1995 and its shares are

premium listed on the London

Stock Exchange.

Investment Objective

MUSCIT’s investment objective is capital appreciation through investing in small

quoted companies listed on the London Stock Exchange or traded on AIM and

to outperform its benchmark, the Numis Smaller Companies Index (excluding

investment companies) (“NSCI”).

No unquoted investments are permitted.

Contents

Highlights 1

Strategic Report including:

Chairman’s Statement 2

Manager’s Report 4

Twenty Largest Holdings 8

Analysis of Investment Portfolio by

Industrial or Commercial Sector 10

Business Model and Strategy 11

Directors’ Duties 16

Board of Directors 19

Directors’ Report 21

Corporate Governance Statement 26

Report from the Audit and

Management Engagement

Committee 30

Directors’ Remuneration Report 33

Statement of Directors’

Responsibilities 36

Independent Auditor’s Report 37

Income Statement 44

Statement of Changes in Equity 45

Balance Sheet 46

Notes to the Financial Statements 47

AIFMD Disclosures 58

Shareholder Information 59

Alternative Performance Measures 61

Glossary of Terms 63

Notice of Annual General Meeting 64

Principal Advisers 72

Montanaro UK Smaller Companies Investment Trust PLC Annual Report and Accounts 2022 page 1

Highlights

for the year ended 31 March 2022

Performance

Total Returns 1 year 3 year 5 year 10 year

Since

launch

Ordinary share price (10.1%)* 34.4%* 48.8%* 139.4%* 969.3%

†

Net Asset Value (“NAV”) (5.0%)* 18.1%* 27.2%* 98.8%* 925.7%

†

Benchmark (Composite) (1.1%)** 21.4%** 26.1%** 151.9%*** 553.0%***

***

†

AIC

NSCI

NSCI, Bloomberg

Montanaro Asset Management

All returns are shown with dividends reinvested.

The Benchmark is a composite index with the NSCI used since 1 April 2013.

2022

2021

For the year ended 31 March

Revenue return per Ordinary share

1.7p

1.2p

Dividends per Ordinary share

6.4p

5.5p

Ongoing charges

0.8%

Portfolio turnover

23.3%

27.8%

As at 31 March

Ordinary share price

125.0p

145.0p

NAV per Ordinary share

135.5p

148.6p

Discount to NAV

7.8%

2.4%

Gross assets

£246.8m

£268.7m

Net assets

£226.8m

£248.7m

Market capitalisation

£209.2m

£242.7m

Net gearing employed

4.3%

4.1%

Details provided in Alternative Performance Measures on page 61.

Details provided in the glossary on page 63.

page 2 Montanaro UK Smaller Companies Investment Trust PLC Annual Report and Accounts 2022

I am pleased to present the

twenty-seventh annual report of MUSCIT

for the year ended 31 March 2022.

Results

In the year to 31 March 2022, the Net

Asset Value (“NAV”) of MUSCIT declined

by 5.0% and the share price declined

by 10.1% as a result of an increase in

the discount of MUSCIT’s share price to

NAV. In comparison, the Numis Smaller

Companies (excluding investment

companies) Index fell by just over 1% (all

figures on a total return basis).

Since inception in 1995, the Company

has delivered a cumulative NAV

total return of 969%, significantly

outperforming the composite benchmark

which delivered a cumulative return

of 553%. Please refer to the Performance

Review section in the Manager’s Report

on page 6 for further details.

Dividends

The Company’s investment objective

is to generate capital growth and this

remains unchanged despite the dividend

policy introduced in July 2018. Dividends

are now paid each quarter equivalent to

1% of the Company’s NAV on the last

business day of the preceding financial

quarter, being the end of March, June,

September and December.

The Board and the Manager have

worked hard to make MUSCIT more

attractive to private clients, including a

five for one share split in 2018, the new

dividend policy, reducing costs and an

increased focus on marketing. These

initiatives continue to bear fruit as more

and more retail investors are on the

share register. Hopefully this will reduce

discount volatility in the shares.

The Company holds substantial reserves

which are available for distribution

in future.

Discount

Over the last financial year, the discount

of MUSCIT’s share price to NAV, as

shown in the graph on page 3, widened

from 2% to 8% as financial markets

experienced a challenging final quarter.

Pleasingly, during the summer of 2021,

MUSCIT’s shares briefly traded at a

premium to NAV. A more prolonged

period of this rating would enable the

Company to issue more shares.

Gearing

The Board, in consultation with the

AIFM, regularly reviews the gearing

strategy of the Company and approves

the arrangement of any gearing facility.

This is a key feature of investment

trusts that we believe offers a strong

competitive advantage over open-ended

investment funds. The ability to gear can

significantly enhance investment returns

to shareholders and as such the Board

strongly encourages active use of the

gearing facility by the Manager.

On 17 December 2021, the borrowing

facilities with ING Bank were renewed for

a period of three years. The interest rate

on the £20 million Fixed Rate Term Loan

was reduced by approximately 0.2% p.a.,

which represents a welcome saving for

shareholders. Similarly, the £10 million

Revolving Credit Facility was renewed

with a lower commitment fee.

At 31 March 2022, net gearing

was 4.3%, a level that the Board

and the Manager considered to be

appropriate in light of the considerable

macroeconomic uncertainty and volatility

in financial markets.

Share Buy Backs

The Board is responsible for the

implementation of share buy-backs

which are undertaken at arms’ length

from Montanaro. No shares were bought

back during the period.

Board

The Board consists solely of independent

Non-Executive Directors with a good

balance of skills, experience, diversity

and knowledge of the Company and

its business.

There were no changes to the Board

during the Financial Year.

ESG

The Board and Montanaro believe there

is a strong correlation between how well

a business fares on Environmental, Social

and Corporate Governance grounds and

the value it creates for its shareholders.

This is why ESG considerations form

an integral part of the Manager’s

assessment of a company’s “Quality”

and have been fully integrated into the

investment process for many years.

Chairman’s Statement

Montanaro UK Smaller Companies Investment Trust PLC Annual Report and Accounts 2022 page 3

The depth of Montanaro’s commitment

is perhaps best exemplified by the

fact that it is one of the few UK asset

managers to be a certified B Corporation

– a certification Montanaro has held

since 2019. Certified B Corporations

are businesses that meet the highest

standards of verified social and

environmental performance, public

transparency and legal accountability to

balance profit and purpose.

An expanded report on ESG is provided in

the Manager’s Report on pages 5 to 6.

AGM

The Annual General Meeting will be

held on 27 July 2022 at 12pm at the

office of Montanaro Asset Management,

53 Threadneedle Street, London EC2R

8AR. Shareholders are encouraged to

attend the Meeting where there will be an

opportunity to meet and ask questions

of the Board and the Manager over

a coffee.

Continuation Vote

We are pleased to report that, at the

AGM held on 12 August 2021, over 99%

of shareholders voted in favour of the

continuation of MUSCIT for a further

five years. The next Continuation Vote is

scheduled to be held in 2027.

Outlook

As the world appears to be finally

emerging from two exhausting years

of a pandemic and lockdowns, we find

ourselves wrestling with extraordinary

macroeconomic and geopolitical

uncertainty once again.

Fears of significant price and wage

increases have resurfaced globally,

including in the UK where inflation has

recently climbed to a 40-year high. The

tragic war in Ukraine is further amplifying

the pressure on food, commodity and

energy prices. Consumers are faced with

the prospect of a significant increase in

the cost of living, while businesses are

doing their best to manage the pressure

on margins from rising input costs and

supply chain challenges. For the first time

in over a decade, significant monetary

tightening by the world’s most important

Central Banks looks likely. In equity

markets, this has translated into a major

rotation away from Quality and Growth

companies in the first quarter of 2022

which had a negative impact on our

relative performance during the past

financial year.

As our shareholders know, the

Montanaro team avoids trying to

forecast macroeconomic developments,

preferring instead to focus on the

fundamentals of our investee companies

most of which are Quality Growth.

For example, high quality companies

with pricing power are best placed

to offset inflationary pressures in the

coming months.

Previous periods of significant

underperformance from Quality Growth

companies have presented good buying

opportunities for those with a long-term

investment horizon. The Board is

confident that Montanaro will continue to

deliver the strong performance that we

have enjoyed over the last 27 years.

ARTHUR COPPLE

Chairman

14 June 2022

Mar 12

Mar 22

Mar 19

Mar 16

Mar 18

Mar 17

Mar 15

Mar 14

Mar 13

Mar 21

Mar 20

Share Price Discount to NAV*

-5

-10

-15

-20

-25

Sources: Montanaro and Bloomberg.* Discount based on NAV over the last ten years.

page 4 Montanaro UK Smaller Companies Investment Trust PLC Annual Report and Accounts 2022

The Attractions of Quoted UK Smaller

Companies (‘SmallCap’)

The key attraction of investing in quoted

smaller companies is their long term

record of delivering higher returns to

investors than large companies. In the

UK, over the last 67 years, this has

amounted to an average of 3.6% per

annum (“the SmallCap Effect”). £1

invested in UK large companies in 1954

would now be worth £1,210 whereas

the same £1 invested in UK smaller

companies would now be worth £10,139

– almost nine times more.

The market for UK smaller companies

is inefficient. While some large

companies are analysed by more than

50 brokers, many smaller companies

have little or no such coverage. Some

have none at all. 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

Montanaro was established in 1991 and

we celebrated our 30th Anniversary

last year. We have one of the largest

and most experienced specialist teams

in the UK dedicated exclusively to

researching and investing in quoted

smaller companies. Our team of thirty six

includes ten nationalities, which gives us

the breadth of resources and scope to

conduct thorough in-house research.

At 31 March 2022, we were looking after

more than £4 billion of assets.

Investment Philosophy and Approach

We specialise in researching and

investing in quoted small companies.

We have a disciplined, two-stage

investment process. Firstly, we identify

“good businesses” within our investable

universe. In the second stage, we

determine the intrinsic value of each

company to ensure they will make a

“good investment” (the two are not

always the same). When we consider

that we have identified a good company,

it must pass our stringent Quality and

ESG Checklists and be approved by

our Investment Committee before it can

be added to the “Approved List”. ESG

has been integrated in our disciplined

investment process for almost two

decades. Only the most attractive

companies make it on to the Approved

List and it is from these that we construct

your Portfolio.

We have an in-house team of twelve

Analysts who are sector specialists.

This is one of the largest such specialist

teams in the country. Utilising their

industry knowledge and a range of

proprietary screens, they are continually

searching for new ideas. With around

1,800 companies to choose from, we are

spoiled for choice.

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 focused

companies that can deliver self-funded

organic growth and remain focused

on their core areas of expertise, rather

than businesses that spend a lot of time

on acquisitions.

Conversely, we avoid those with

stretched balance sheets; poor free

cash flow generation; incomprehensible

or heavily adjusted accounts; unproven

or unreliable management; or that face

structurally challenged business models

with stiff competition.

We believe that a deep understanding

of a company’s business model and

the way it is managed are essential.

In normal circumstances, we visit our

investee companies on a regular basis,

although this has not been possible

during the pandemic. We are looking

forward to these visits resuming as

they have started to do. Nonetheless,

company access during the pandemic

has been excellent: you get a different

perspective talking to a CEO while they

sit at home rather than in the more formal

setting of a board room.

£0–£250m

£250m–£500m

£500m–£1bn

£1bn–£1.5bn

>£1.5bn

£0–£250m

£250m–£500m

£500m–£1bn

£1bn–£1.5bn

>£1.5bn

Breakdown by Market Cap

(Ex Cash)

16%

33%

23%

21%

16%

33%

23%

21%

(8%)

(11%)

(47%)

(11%)

(23%)

(8%)

(11%)

(47%)

(11%)

(23%)

2022 (2021)2022 (2021)

Manager’s Report

* Represents those holdings that are in the FTSE 250 and are above the threshold for the NSCI.

Montanaro UK Smaller Companies Investment Trust PLC Annual Report and Accounts 2022 page 5

Management’s past track record

is examined in detail as we seek to

understand their goals and aspirations.

In small companies, the decisions of

the entrepreneurial management can

make or break a company (which is

why meeting them is so important). We

look closely at the Board structure; the

level of insider ownership; and carefully

examine remuneration and corporate

governance policies.

Once a company has been added to the

Portfolio, our Analysts conduct ongoing

reviews. 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,

focused, 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 ourselves with

our investors by investing meaningful

amounts of our own money alongside

yours. We are significant shareholders

in MUSCIT.

Environmental, Social and Governance

(“ESG”)

In March 2022, Montanaro won the

Best Small & Mid-Cap Sustainable

Investment Boutique award from Ethical

Finance. This recognised Montanaro’s

continuing commitment to sustainable

investing within its own business, across

the investment industry and in our

investment process.

Montanaro became a certified

B Corporation in 2019, placing

sustainability at its core. This was

achieved by meeting verified standards

of social and environmental performance,

transparency and accountability. It

is regarded as one of the toughest

sustainability standards to achieve

globally. Montanaro will recertify for

“B Corp” status once again in 2022 and

we expect to improve our score.

Montanaro continued to achieve industry

leading standards over the last year,

notably becoming a first-wave signatory

to the revised UK Stewardship Code.

The standards for the new code were

significantly higher than for the previous

iteration and one-third of asset managers

failed to have their reports approved by

the Financial Reporting Council.

In addition, during the year Montanaro

played an active role in the development

of sustainable investing in the wider

investment industry. Having become

a signatory to the Net Zero Asset

Managers initiative, Montanaro was the

only UK investment boutique to be invited

to join the Glasgow Financial Alliance for

Net Zero (“GFANZ”) taskforce, chaired

by former Bank of England Governor,

Mark Carney. Our Head of Sustainable

Investment sits on the Real Economy

Transition Workstream, which is working

to improve the guidance given to

corporations on how the financial sector

expects companies to report on the

transition to net zero.

We were also invited to co-chair

the B Corporation Investment &

Working Group, a group of certified

B Corporations in our industry working

together on best practice initiatives. As

part of this, we led a group of investment

boutiques to the UN Climate Change

Summit COP26, in Glasgow, to discuss

the benefits of being a B Corporation in

the financial sector.

These industry standards and our

participation in collaborative initiatives

allows us to stay abreast of an area of the

investment world that is rapidly changing

and ensure that our investment process

evolves accordingly.

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 impact such as

tobacco, gambling, armaments, alcohol,

high-interest-rate lending and fossil fuels.

Similarly, we do not invest in companies

that conduct animal testing, unless

it is required by law for healthcare or

regulatory purposes.

The analysis of Environmental, Social

and Governance (ESG) factors has

long formed part of our definition of

a company’s “Quality”. Over the last

year, our Investment Team continued to

develop our approach to ESG analysis

by redeveloping our bespoke ESG

Checklist, incorporating further data

points that are provided to us by MSCI.

The analysis of such information allows

us to better understand the risks – and

opportunities – that our companies

may be exposed to, from factors such

as climate change, supply chain risks

and the structure of company boards.

Where weaknesses are identified, we

will always seek to use our influence to

improve a company through active and

long-term engagement.

During the year our Analysts were able to

conduct a site visit to a Cranswick facility

in Suffolk to discuss progress of the

company’s ‘Second Nature’ sustainability

programme initiated in 2018. Pleasingly,

Cranswick have announced targets for

Net Zero, carbon neutrality, food waste,

regenerative farming and waste. Other

engagements included Bloomsbury,

who approached us to participate in an

ESG materiality analysis; Ideagen, with

whom we discussed carbon reduction

plans and the composition of their Audit

Committee; and Treatt, in relation to

the company’s ESG footprint and their

research into natural sugar substitutes.

We also engaged extensively with

Marshalls about their carbon emission

reduction plan during the year. The

company has made impressive progress

on that front: they are now using carbon

dioxide from carbon capture projects

to cure concrete bricks and have also

issued a Solar Reflectivity Index (SRI)

score for all of their materials. This is

intended to help combat urban heating

which is exacerbated by the building

materials used. In addition, Marshalls

have implemented a new goal to

achieve Net Zero by 2030 in line with

a 1.5 degree scenario. This has been

developed in line with the new guidance

from the Science Based Targets initiative.

We are pleased that MUSCIT was

awarded a ‘AA’ rating – the second best

rating out of a possible seven – for its

ESG credentials by MSCI.

page 6 Montanaro UK Smaller Companies Investment Trust PLC Annual Report and Accounts 2022

With almost every asset manager

dedicating more time and resource to

ESG and sustainability, we believe that

we remain ahead of the curve. This is

due to our experience, the high level of

in-house resource that we have at our

disposal and our belief that embedding

ESG factors into an investment

process leads to better investment

outcomes. We look forward to sharing

further developments with you in the

coming years.

How to invest

We have invested a great deal of time

to make MUSCIT readily available to all

investors. We have continued to grow

our presence across the UK’s investment

platforms and are delighted to see

a steady increase, year after year, in

MUSCIT’s retail following.

Together with the Board, we have

appointed Marten & Co to provide

sponsored research. The latest report

published in April 2021 is available here:

https://montanaro.co.uk/news-and-

views/ which will be updated this year.

For further details about how to invest,

please refer to the website: https://

montanaro.co.uk/trust/montanaro-uk-

smaller-companies-investment-trust/

The Portfolio

At 31 March 2022, the Portfolio

consisted of 50 companies of which

the top ten holdings represented 34%.

MUSCIT held 21 companies traded on

AIM, representing 35% of the Portfolio

by value.

Sector distribution within the Portfolio

is driven by stock selection. Although

weightings relative to the market are

monitored, overweight and underweight

positions are held based on where the

greatest value and upside are perceived

to be.

Gearing

The Alternative Investment Fund Manager

(“AIFM”), in consultation with the Board,

is responsible for determining the net

gearing level of the Company. At 31 March

2022 net gearing stood at 4.3%.

Performance Review

The NAV fell by 5% over the period,

almost 4% more than the benchmark.

The discount widened to 8% resulting in

a share price decline of 10%.

It was a year of two halves: 31 March

– 30 September 2021 saw strong

outperformance of 9%. This was fully

reversed due to the rotation away

from Quality Growth companies in

the first calendar quarter of 2022

and the appalling war in Ukraine (see

chart below):

It has been the most volatile two-year

period that I can recall in a career in

investing spanning more than four

decades. In 2020, we saw the shortest

Bear Market in recent history caused

by the Covid-19 pandemic that ended

in March 2020 to be followed by

one of the quickest recoveries. The

largest ever rotation away from Quality

Growth companies into Value started

in November 2020 following the launch

of the Pfizer vaccine. This financial

Manager’s Report continued

NAV Return v Benchmark (TR, GBP)

6m to

Sep 18

6m to

Sep 19

6m to

Mar 19

6m to

Mar 20

6m to

Sep 20

2% 2%

-2%

16%

-7%

6m to

Sep 21

6m to

Mar 21

-18%

6m to

Mar 22

-10%

-20

-10

-5

-15

Montanaro UK Smaller Companies Investment Trust PLC Annual Report and Accounts 2022 page 7

year followed a similar pattern with

a challenging start to 2022 when we

suffered the worst quarter of relative

performance for Quality Growth investors

since the Brexit referendum in the

second quarter of 2016.

Since its launch in March 1995, MUSCIT

has delivered share price returns of

over 9% p.a. and outperformed the

benchmark by 2% p.a.

Performance Attribution

The largest positive contributors relative

to the Benchmark over the period were:

Big Yellow, the market leader in the

UK self-storage sector, enjoyed a 35%

share price increase reflecting significant

occupancy growth since the first

lockdown in May 2020 and increased

rental growth;

YouGov, the international on-line market

research and data analytics company,

confirmed strong growth well ahead of

expectations, leading to a 37% gain in

the share price;

Tracsis, which provides business critical

software solutions primarily to Railways

and the Event Traffic management

sectors, enjoyed a strong recovery in

events and announced an attractive

acquisition in America of RailComm.

The shares rose by more than 50% over

the period.

There will always be some investments

that do not go as expected. The largest

negative contributors over the

period were:

Frontier Developments, the developer

of software games such as Elite, Planet

Coaster, Zurassic World and Planet Zoo,

suffered from delays and disappointing

reviews of new releases. The shares

more than halved. We continue to have

confidence in the legendary David

Braben (who has a 32% stake) and his

belief in the potential for future games

such as Warhammer and Formula 1;

Avon Protection, one of the world’s

largest producers of military grade

helmets, had a torrid year after a failure

in bullet proof body armour led to the

closure of the business and additionally

delays in orders and supply chain issues.

The holding has been sold;

Tristel, a supplier of disinfectant

products based on chlorine dioxide

to healthcare providers such as

hospitals, announced the write down of

discontinued parts of the business and

delays in FDA approval of their products

in the United States. The share price

halved over the period. Following a site

visit in November 2021 – the first for our

healthcare Analyst since the pandemic

– we continue to have high hopes for

the company.

Review & Outlook

We have been through several such

challenging periods before – after all,

Montanaro celebrated its 30th anniversary

last year. The macro-economic

uncertainties have rarely been greater

and some of the consequences of the

tragic war in Ukraine are already evident.

However, over the past 40 years I have

learned that forecasting the economic

outlook is fraught with difficulty and

we make no attempt to do so. Instead,

we listen to the companies in which

we invest and have known for many

years. Broadly the message currently

is a confident one and most earnings

announcements are positive. At a time

of rising inflation and supply chain

challenges, high quality well-managed

small companies with strong market

positions and pricing power have been

able to pass on additional costs.

We have also learned that markets

always mean revert. Investors tend to get

carried away and markets have a habit

of proving as many people wrong as

possible. Most have thrown in the towel

on Quality Growth small companies

in favour of Value, commodities and

LargeCap. As a result, SmallCap

valuations are now the most attractive

in many years and the asset class is

unloved. For the long-term investor

such as us, this gives us considerable

confidence and optimism for the future.

I would like to take this opportunity

to welcome Guido Dacie-Lombardo

as Back-up Manager to MUSCIT,

with immediate effect. Some of you

will be familiar with Guido already, as

Co-Manager of the Montanaro UK

Income Fund, one of the best-performing

income funds in the market. Guido and

I have been working closely together for

the past 3 years and I look forward to

extending our collaboration to MUSCIT.

As announced by the Board in last year’s

Annual Report, I will remain the named

Fund Manager until at least 2026.

Finally, I would like to thank you for your

overwhelming support at the AGM last

year at which over 99% of investors

voted for MUSCIT to continue for at least

another five years. I, supported by Guido

and our team, will be working hard to

justify your faith and support.

CHARLES MONTANARO

14 June 2022

page 8 Montanaro UK Smaller Companies Investment Trust PLC Annual Report and Accounts 2022

Twenty Largest Holdings

as at 31 March 2022

1. Treatt

a leading manufacturer of fragrances

and flavourings.

2. Marshalls

the UK’s leading provider of hard

landscaping products.

3. Big Yellow Group

a real estate investment trust focused on

the self-storage market.

4. 4imprint Group

a supplier of promotional merchandise.

5. Clarkson

a leading shipping brokerage business.

6. Kainos Group

a software developer headquartered

in Belfast that specialises in

digital transformation.

7. discoverIE

a designer and manufacturer of

components for electronic applications.

8. Tracsis

a provider of software and consulting

services to UK rail and transportation

markets.

9. Hilton Food Group

a leading food packing business.

10. Yougov

an Internet-based market research and

data analytics company.

11. Ergomed

a global full-service contract research

organisation (CRO) with a core focus on

the US and EU.

12. Ideagen

a supplier of Governance, Risk and

Compliance software for highly

regulated industries.

13. Watches of Switzerland

a British retailer of Swiss watches, with

16 stores in the United Kingdom.

14. Biffa

a UK waste management company.

15. Porvair

a specialist in industrial filtration and

environmental technology.

16. Cranswick

the leading UK supplier of fresh pork

meat products.

17. Judges Scientific

a specialist in the acquisition and

development of a portfolio of scientific

instrument businesses.

18. XP Power

a provider of power solutions.

19. MP Evans

a producer of sustainable Indonesian

palm oil.

20. Liontrust Asset Management

a specialist asset manager launched

in 1995.

Montanaro UK Smaller Companies Investment Trust PLC Annual Report and Accounts 2022 page 9

Holding Sector

Value

£’000

Market cap

£m

% of

portfolio

31 March

2022

% of

portfolio

31 March

2021

Treatt Chemicals 9,080 680 3.8 3.6

Marshalls Construction and Materials 8,513 1,362 3.6 3.5

Big Yellow Group Real Estate Investment Trusts 8,448 2,826 3.6 3.0

4imprint Group Media 8,430 789 3.6 3.3

Clarkson Industrial Transportation 8,325 1,128 3.5 2.1

Kainos Group Software and Computer Services 7,938 1,640 3.4 3.7

discoverIE Group Electronic and Electrical Equipment 7,880 752 3.3 3.8

Tracsis Software and Computer Services 7,840 289 3.3 1.8

Hilton Food Group Food Producers 7,440 1,103 3.1 2.5

Yougov Media 7,193 1,523 3.0 2.8

Ergomed Pharmaceuticals and Biotechnology 7,114 668 3.0 –

Ideagen Software and Computer Services 6,923 626 2.9 3.1

Watches Of Switzerland Group Personal Goods 6,840 2,731 2.9 –

Biffa Waste and Disposal Services 6,400 979 2.7 1.5

Porvair Industrial Engineering 6,300 291 2.7 2.1

Cranswick Food Producers 6,167 1,869 2.6 1.0

Judges Scientific Electronic and Electrical Equipment 6,120 430 2.6 2.2

XP Power Electronic and Electrical Equipment 6,064 681 2.6 3.6

M. P. Evans Group Food Producers 5,775 574 2.4 1.6

Liontrust Asset Management Financial Services 5,733 827 2.4 3.2

Twenty Largest Holdings 144,523 61.0

All investments are in Ordinary shares.

As at 31 March 2022, the Company did not hold any equity interests comprising more than 3% of any company's share capital.

page 10 Montanaro UK Smaller Companies Investment Trust PLC Annual Report and Accounts 2022

Analysis of Investment Portfolio

by Industrial or Commercial Sector

as at 31 March 2022

31 March 2022 31 March 2021

Sector % of portfolio % of NSCI % of portfolio % of NSCI

Software and Computer Services 16.9 5.4 19.5 5.3

Technology Hardware and Equipment 3.3 1.7 3.8 0.8

Technology 20.2 7.1 23.3 6.0

Telecommunications Equipment – 0.2 – 0.3

Telecommunications Service Providers – 0.9 – 1.9

Telecommunications – 1.1 – 2.2

Health Care Providers 2.0 0.8 2.9 0.6

Medical Equipment and Services – 0.4 – 0.3

Pharmaceuticals and Biotechnology 5.1 0.9 7.4 2.4

Health Care 7.1 2.1 10.3 3.2

Banks – 1.4 – 2.3

Finance and Credit Services – 2.1 – 2.1

Investment Banking and Brokerage Services 8.0 11.9 9.5 8.2

Mortgage Real Estate Investment Trusts – – – –

Closed End Investments – – – –

Open End and Miscellaneous Investment Vehicles – – – –

Life Insurance – 1.0 – 1.0

Non-life Insurance – 1.6 – 1.0

Financials 8.0 18.0 9.5 14.6

Real Estate Investment and Services Development – 2.6 – 4.6

Real Estate Investment Trusts 3.6 4.9 3.0 4.3

Real Estate 3.6 7.5 3.0 8.9

Automobiles and Parts – 1.5 – 0.9

Consumer Services – 0.3 – 0.3

Household Goods and Home Construction – 1.3 – 1.4

Leisure Goods 3.9 0.2 3.2 0.1

Personal Goods 2.9 0.3 – 1.3

Media 8.4 2.0 7.9 1.7

Retailers – 3.7 – 3.9

Travel and Leisure – 8.8 – 12.8

Consumer Discretionary 15.2 18.1 11.2 22.5

Beverages – 1.0 – 1.3

Food Producers 8.2 3.1 5.1 2.6

Tobacco – – – –

Personal Care, Drug and Grocery Stores 2.1 0.7 – 0.9

Consumer Staples 10.3 4.7 5.1 4.9

Construction and Materials 4.6 6.4 5.0 4.9

Aerospace and Defense 0.7 3.8 2.4 3.2

Electronic and Electrical Equipment 10.8 2.5 10.3 2.4

General Industrials – 1.2 – 1.0

Industrial Engineering – 1.4 1.5 1.5

Industrial Support Services 9.0 8.1 10.0 8.1

Industrial Transportation 4.0 3.1 3.5 2.6

Industrials 29.1 26.4 32.7 23.7

Industrial Materials – 0.1 – 0.1

Industrial Metals and Mining – 2.0 – 2.9

Precious Metals and Mining – 2.2 – 2.4

Chemicals 3.8 1.9 3.6 1.0

Basic Materials 3.8 6.2 3.6 6.5

Oil, Gas and Coal – 6.5 – 4.6

Alternative Energy – 0.2 – –

Energy

–

6.7 – 4.6

Electricity – 1.0 – 2.0

Gas, Water and Multi-utilities – – – –

Waste and Disposal Services 2.7 1.1 1.5 0.8

Utilities 2.7 2.1 1.5 2.8

Total 100.0 100.0 100.0 100.0

The investment portfolio comprises 50 traded or listed UK equity holdings.

Montanaro UK Smaller Companies Investment Trust PLC Annual Report and Accounts 2022 page 11

PRINCIPAL ACTIVITY

The Company carries on business as an

investment trust and its principal activity

is portfolio management. Its Ordinary

Shares are traded on the Main Market of

the London Stock Exchange.

INVESTMENT OBJECTIVE

MUSCIT’s investment objective is capital

appreciation through investing in small

quoted companies listed on the London

Stock Exchange or traded on AIM and to

outperform its benchmark, the NSCI.

No unquoted investments are permitted.

INVESTMENT POLICY

The Company seeks to achieve its

objective and to manage risk by investing

in a diversified portfolio of quoted UK

small companies. At the time of initial

investment, a potential investee company

must be profitable and no bigger than

the largest constituent of the NSCI,

which represents the smallest 10% of the

UK Stock Market by value. At the start

of 2022 this was any company below

£1.63 billion in size. The Manager focuses

on the smaller end of this Index.

In order to manage risk, the Manager

limits any one holding to a maximum of

4% of the Company’s investments at the

time of initial investment. The portfolio

weighting of each investment is closely

monitored to reflect the underlying

liquidity of the particular company. The

Company’s AIM exposure is also closely

monitored by the Board and is limited to

40% of total investments at the time of

investment, with Board approval required

for exposure above 35%.

The Manager is focused on identifying

high-quality, niche companies operating

in growth markets. This typically leads

the Manager to invest in companies that

enjoy high barriers to entry, pricing power,

a sustainable competitive advantage and

strong management teams. The portfolio

is constructed on a “bottom up” basis.

The Alternative Investment Fund

Manager (“AIFM”), in consultation with

the Board, is responsible for determining

the gearing levels of the Company and

has determined that the Company’s

borrowings should be limited to 25% of

shareholders’ funds. Gearing is used

to enhance returns when the timing is

considered appropriate.

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 UK Listing Authority.

All material changes to the policy will

require shareholder and FCA approval.

TAXATION POLICY

The Company complies at all times with

Section 1158 of the Corporation Tax Act

2010 (“Section 1158”) such that it does

not suffer UK Corporation Tax on capital

gains, and ensures that it submits correct

taxation returns annually to HMRC and

settles promptly any taxation due. The

Board is fully committed to complying

with applicable legislation and statutory

guidelines, including the UK’s Criminal

Finances Act 2017, designed to prevent

tax evasion in the jurisdictions in which

the Company operates.

PRINCIPAL AND EMERGING RISKS

The Board carefully considers the

Company’s principal and emerging risks

and seeks to mitigate these risks through

regular review, policy setting, compliance

with and enforcement of contractual

obligations and active communication

with the Manager, the Administrator

and other third party service providers.

A core element of this process is the

Company’s risk register which identifies

the Company’s key risks, the likelihood

and potential impact of each risk and the

controls for mitigation.

The Board has 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.

A summary of the Company’s risk

management and internal control

processes can be found in the Corporate

Governance Statement on pages 26 to

29. Details of the principal and emerging

risks and how these are mitigated are

set out below. The principal financial

risks are summarised in Note 15 to the

financial statements.

Principal Risks Mitigation

Discount Management:

The Company’s share price performance lags NAV due to poor

performance, or because SmallCap is out of favour.

The Company may be at risk from arbitrageurs or a sale from a

sizeable shareholder.

Share buybacks cause the size of the Company to become too

small to be viable in terms of ongoing charges, or for thresholds

of institutional investors.

No change in overall risk in the year.

The Board regularly reviews:

• the relative level of discount against the sector;

• investment performance

− relative to the competition; and

− the benchmark; and

• the share register.

The Company may buy back shares when it considers it to be

in shareholders’ best interests.

The dividend policy was amended in July 2018 with the

intention of attracting new investors and reducing the discount.

Business Model and Strategy

page 12 Montanaro UK Smaller Companies Investment Trust PLC Annual Report and Accounts 2022

Business Model and Strategy continued

Principal Risks Mitigation

Pandemics and other unforeseeable events:

The AIFM and the Administrator are unable to manage or

administer the portfolio.

No change in overall risk in the year.

The AIFM and the Administrator have appropriate business

continuity plans in place in order to operate effectively.

Poor Investment Performance:

Returns achieved are reliant primarily on the performance of

the portfolio. Underperformance relative to the benchmark

and/or peer group may result in a loss of capital together with

dissatisfied shareholders.

No change in overall risk in the year.

To manage the risk, a review is undertaken at each Board

meeting with the Manager of portfolio performance against the

benchmark and the peer group.

The Board will seek:

• to understand the reasons for any underperformance; and

• comfort over the consistency of investment approach and

style.

Ultimately, the Board can terminate the Investment Management

Agreement if unsatisfactory performance is considered

irreversible and the causes cannot be rectified.

The Company's shares have underperformed relative to the

benchmark during the year, due to value shares outperforming

growth shares, with Montanaro being a growth manager.

The Board is satisfied and accepts the reasons for this

underperformance.

Risk Oversight:

The Manager is taking too much risk in the portfolio leading to

unacceptable volatility in performance or excessive portfolio

turnover.

No change in overall risk in the year.

Risk oversight is primarily the responsibility of the AIFM, but the

Board provides additional oversight through portfolio reviews at

each Board meeting. Portfolio turnover is also reviewed at each

Board meeting.

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 are

falling.

No change in overall risk in the year.

The AIFM, in consultation with the Board, is responsible for

determining the gearing levels of the Company, which is

monitored at each Board meeting.

Key Man Risk:

A change in the key investment management personnel involved

in the management of the portfolio could impact on future

investment performance and lead to loss of investor confidence.

No change in overall risk in the year.

The Manager operates a team approach in the management of

the portfolio which mitigates against the impact of the departure

of any one member of the investment team.

There is an identified lead manager within Montanaro offering

continuity of communication with the Company’s shareholders.

The Board is in regular contact with Montanaro and its

designated back-up Manager and will be asked for their approval

to any proposed change in the lead manager. The Manager

has appointed a designated back-up fund manager for the

management of the portfolio.

Montanaro UK Smaller Companies Investment Trust PLC Annual Report and Accounts 2022 page 13

Principal Risks Mitigation

Operational Risk:

The Company has no employees, in common with most other

investment trusts, and relies on services provided by third

parties. It is therefore dependent on the control systems of the

AIFM, depositary, custodian and administrator who maintain the

Company’s assets, dealing procedures and accounting records.

Key operational risks include:

• transactions not subject to best execution;

• counterparty risk;

• errors in settlement, title and corporate actions;

• misstatement of NAV; and

• breach of the Investment Policy.

No change in overall risk in the year.

The Board monitors operational issues and reviews them in

detail at each Board meeting.

All third party service providers are subject to annual review by

the Audit and Management Engagement Committee as part of

which their internal control reports are reviewed.

The Company’s assets are subject to a liability regime. Unless

the Depositary is able to demonstrate that any loss of financial

assets held in custody was the consequence of an event beyond

its reasonable control, it must return assets of an identical type or

the corresponding amount.

Business continuity plans at all service providers were

implemented in response to the Covid-19 pandemic and services

have continued with no disruption. The Manager has been in

regular contact with the Board and has reported no matters of

concern in continuity of operations.

Cyber Risk:

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.

No change in overall risk in the year.

The Board monitors the preparedness of its service

providers and is satisfied that the risk is given due priority and

consideration in Board meetings.

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. A significant IT and cybersecurity programme

was completed during the reporting period with a migration of

the Manager’s systems to a cloud-based system.

The annual review of the Administrator’s controls includes

consideration of cyber risk. A report confirming that appropriate

internal controls are in place is requested on an annual basis

from all third party service providers.

Administrator

Daily NAV incorrectly stated.

No change in overall risk in the year.

Daily logic checks of the NAVs are undertaken by the AIFM.

Depositary checks are also undertaken.

All financial information is reviewed by the Board at regular

meetings.

The AIFM conducts regular visits of the Administrators.

Breach of Regulation:

The Company must comply with the provisions of the

Companies Act 2006, the Listing Rules and Disclosure,

Guidance & Transparency Rules, the UK Market Abuse

Regulation and the Alternative Investment Fund Manager’s

Directive. Any serious breach could result in the Company and/or

the Directors being fined or the subject of criminal proceedings.

The Company has been accepted by HM Revenue & Customs

as an investment trust, subject to continuing to meet the relevant

eligibility conditions and operates as an investment trust in

accordance with the Corporation Tax Act 2010. As such, the

Company is exempt from capital gains tax on profits realised

from the sale of investments. Any breach of the relevant eligibility

conditions could lead to the loss of investment trust status.

No change in overall risk in the 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.

Compliance with the accounting rules affecting MUSCIT is

closely monitored.

During the year under review, 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.

page 14 Montanaro UK Smaller Companies Investment Trust PLC Annual Report and Accounts 2022

Business Model and Strategy continued

Principal Risks Mitigation

Financial:

The Company’s investment activities expose it to a variety of

financial risks that include interest rate risk and liquidity risk.

Events such as global pandemics could affect share prices in

particular markets.

No change in overall risk in the year.

The liquidity of the portfolio is monitored by the Manager and

reported to the Board, and market conditions and their impacts

are considered.

Further details on these risks are disclosed in note 15 to the

financial statements.

Environmental, Social and Governance (“ESG”):

A consideration of ESG factors when undertaking an investment

has become increasingly important in recent years. Climate

change in particular has started to have a major impact on the

performance of different sectors of the stock market and there is

a risk of being invested in the wrong sectors.

No change in overall risk in the year.

ESG considerations are fully embedded in the investment

process and the Manager will aim to avoid investing in certain

sectors. The Manager is a B Corporation which recognises its

high ESG standards.

KEY PERFORMANCE INDICATORS

(“KPIS”)

At each Board meeting, the Directors

review performance by reference to a

number of KPIs. The KPIs considered

most relevant are those that demonstrate

the Company’s success in achieving its

objectives.

The principal KPIs used to measure

the progress and performance of the

Company are set out below:

Performance to 31 March %

2022

2021

NAV per share total return

(5.0)

35.8

Share price total return

(10.1)

50.0

Relative NAV

per share

performance vs benchmark (3.9) (29.8)

Discount to NAV

2,3,4

7.8

2.4

Ongoing charges ratio

0.78

0.82

Returns for both 2021 and 2022 are Total Returns,

i.e. including dividends reinvested.

Alternative performance measures. Please see

page 61 for further information.

London Stock Exchange closing price.

The percentage difference between the share

price and the NAV.

Performance

At each meeting, the Board reviews the

performance of the portfolio as well as

the NAV and share price. Performance

is reviewed against the benchmark and

compared with the performance of other

companies in the peer group. Information

on the Company’s performance is given in

the Highlights on page 1.

Share price discount or premium

to NAV

The Board monitors the level of the

Company’s premium or discount to NAV

on an ongoing basis. The share price

discount to NAV as at 31 March 2022

was 7.8%, the second lowest discount

in the peer group. During the year, the

shares traded at an average discount to

NAV of 3.0%.

Further details setting out how the

discount or premium at which the

Company’s shares trade is calculated are

provided in the Alternative Performance

Measures on page 61.

Ongoing charges ratio

The Board reviews the ongoing charges

and monitors the expenses incurred by

the Company on an ongoing basis. The

Board notes that the Company’s ongoing

charge during the year was in line with

its peers. Full details of how the ongoing

charges ratio is calculated are included in

the Alternative Performance Measures on

page 61.

VIABILITY STATEMENT

In accordance with the AIC Code of

Governance, the Directors have assessed

the prospects of the Company over a

period longer than the twelve months

required by the ‘Going Concern’ provision

and reviewed the viability of the Company

and its future prospects over the five-year

period to 31 March 20 27.

In the absence of any adverse change

to the regulatory environment and to the

treatment of UK investment trusts, the

rolling five-year period was determined by

the Directors to:

• represent the horizon over which

they do not expect there to be any

significant change to the Company’s

principal risks or their mitigation; and

• the period over which they can form

a reasonable expectation of the

Company’s prospects.

In its assessment, the Board took into

account the Company’s current financial

position, its ability to meet liabilities as

they fall due and the principal risks as set

out on pages 11 to 14. In reviewing the

financial position, the following factors

were taken into consideration:

• the portfolio is comprised solely of

cash balances and equity securities

listed or traded on the London Stock

Exchange;

• the current portfolio could be

liquidated to the extent of 61% within

five trading days and there is no

expectation that the nature of the

investments held within the portfolio

will be materially different in future;

• future revenue and expenditure

projections:

− the expenses and interest

payments of the Company are

predictable and relatively small;

and

− there are no expected capital

outlays.

Montanaro UK Smaller Companies Investment Trust PLC Annual Report and Accounts 2022 page 15

In addition to considering the Company’s

principal risks and the financial position

of the Company as referenced above,

the Directors also took account of the

following assumptions in considering the

Company’s longer-term viability:

• the Board and the Manager will

continue to adopt a long-term view

when making investments;

• it is reasonable to believe that the

Company will maintain the credit

facilities currently provided by

ING Bank;

• the Company invests principally in

the securities of quoted UK small

companies to which investors will

wish to continue to have exposure;

• the Company has a large margin of

safety over the covenants on its debt;

• there will continue to be demand for

investment trusts;

• the next continuation vote will be in

2027. Further details are provided in

the Directors Report on page 21;

• regulation will not increase to a

level that makes the running of the

Company uneconomic; and

• the performance of the Company

will be satisfactory.

Based on the results of their analysis

and in the context of the consideration

given to the Company’s business model,

strategy and operational arrangements,

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 five-year

period of the assessment.

FUTURE PROSPECTS

The Board’s main focus is the

achievement of capital appreciation and

outperformance of the benchmark. The

future of the Company is dependent

upon the success of the Company’s

investment strategy. The Company’s

outlook is discussed in the Chairman’s

Statement on page 3 and the Manager’s

Report on page 7.

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.

DIVERSITY AND INCLUSION

As at 31 March 2022, the Board of

Directors comprised two male and

two female non-executive Directors.

Diversity is an important consideration

in ensuring that the Board and its

committees have the right balance of

skills, experience, independence and

knowledge necessary to discharge their

responsibilities. The Board is composed

solely of non-executive Directors and

has 50% female representation. The

Board’s approach to the appointment of

non-executive Directors is based on its

belief in the benefits of having a diverse

range of experience, skills, length of

service and backgrounds. The Board

therefore continues to consider that it

would be inappropriate to set targets

and will always appoint the best person

for the job based on merit, and will not

discriminate on the grounds of gender,

race, ethnicity, religion, sexual orientation,

age, physical ability or social background.

The right blend of perspective is critical

to ensuring an effective Board and

successful company.

EMPLOYEES, HUMAN RIGHTS AND

COMMUNITY ISSUES

The Board recognises the requirement

under section 414C of the Companies

Act 2006 to provide information about

employees, human rights and community

issues, including information in respect

of any of its policies in relation to these

matters and their effectiveness. These

requirements do not apply to the

Company as it has no employees, all

of the Directors are non-executive and

it has outsourced all of its functions to

third-party providers. The Company has

not, therefore, reported further in respect

of these provisions.

page 16 Montanaro UK Smaller Companies Investment Trust PLC Annual Report and Accounts 2022

Directors’ Duties

SECTION 172 OF THE COMPANIES ACT 2006

Section 172 of the Companies Act 2006 (the “Act”) requires

directors to act in good faith and in a way that is 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

on the consequences of 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. Below,

the Board explains how the Directors have individually and

collectively discharged their duties under section 172 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 also considered the Company’s

culture and values and have 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, a

long-term perspective, maintaining reputation for fairness

and high standards of governance, corporate reporting and

business conduct more generally in the Company’s culture and

processes. The Company’s culture and values are aligned with

ESG goals with further details outlined in the Manager’s Report

on page 5 and Business Model and Strategy on page 14.

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 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, we do not invest in companies that conduct animal

testing, unless it is required by law for healthcare purposes.

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. In November 2021,

Montanaro attended COP26 as a member of the Glasgow

Financial Alliance for Net Zero and has received several awards

in recognition of its sustainable investing achievements.

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 and Management

Engagement Committee, which can be found on pages 30 to

32 of this Report, further explains how the Committee reviews

the risk management and internal controls of the Company.

This includes satisfying itself that relevant systems and controls

in place remain effective and appropriate.

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:

Montanaro UK Smaller Companies Investment Trust PLC Annual Report and Accounts 2022 page 17

Stakeholders Why they are important Board engagement

Shareholders

Continued shareholder support

and engagement are critical to the

existence of the business and the

delivery of the long-term strategy of

the business.

The Company has a large and diversified shareholder base. 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,

which is held at the offices of the Manager. All shareholders

have an opportunity to meet the Directors and ask questions to

the Manager. A presentation is shared with investors and made

available on the Company’s website for those who could not

attend. The Board greatly values the feedback and questions it

receives from shareholders and takes action or makes changes

as and when appropriate;

• Company Information – 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;

• Investor Relations updates – The Manager's marketing

team meet and speak to shareholders on a regular basis and

from time to time, the Manager takes part in conferences and

other webinars. 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.

SERVICE PROVIDERS:

The Manager

(AIFM)

The Manager’s performance is critical

for the Company to successfully

deliver its investment strategy and

meet its objective.

Maintaining a close and constructive working relationship with

the Manager is crucial as the Board and the Manager both aim to

continue to achieve consistent, long-term returns in line with the

Company's investment objective. Important components in the

collaboration with the Manager, which are representative of the

Board’s culture are:

• Encouraging open discussion with the Manager; and

• 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.

Other service

providers,

including:

the Company

Secretary, the

Administrator,

the Registrar, the

Depositary, the

Custodian and

the Broker

In order to function as an investment

trust with a premium listing on

the London Stock Exchange, the

Company relies on a diverse range of

advisors for support with meeting all

relevant obligations.

The Board maintains regular contact with its key external providers,

both through the Board and committee meetings, as well as outside

of the regular meeting cycle. Their advice, as well as needs and

views, are routinely taken into account. In addition, the Board would

expect to meet with all service providers on a regular basis and the

Audit and Management Engagement Committee assesses their

performance on an annual basis.

page 18 Montanaro UK Smaller Companies Investment Trust PLC Annual Report and Accounts 2022

Stakeholders Why they are important Board engagement

Bank

Availability of funding and liquidity

may be helpful to the Company’s

ability to take advantage of investment

opportunities as they arise.

Considering how important the availability of funding is, the Company

aims to demonstrate to lenders that it is a well-managed business,

and in particular, that the Board focuses regularly and carefully on the

management of risk.

Institutional

Investors and

proxy advisors

The evolving practice and support of

the major institutional investors and

proxy adviser agencies are important

to the Directors, as the Company aims

to maintain its reputation and high

standards of corporate governance,

which contributes to the long-term

sustainable success of the Company.

Recognising the principles of stewardship, as promoted by the UK

Stewardship Code, the Board welcomes engagement with all our

investors. The Board recognises that the views, questions from, and

recommendations of many institutional investors and proxy adviser

agencies provide a valuable feedback mechanism and play a part in

highlighting evolving shareholder expectations and concerns.

Regulators

The Company can only operate with

the approval of its regulators who

have a legitimate interest in how the

Company operates in the market and

treats its shareholders.

The Company regularly considers how it meets various regulatory

and statutory obligations and follows voluntary and best-practice

guidance. The Company is also mindful of how any governance

decisions it makes can have an impact on its shareholders and wider

stakeholders, in the short and in the longer-term.

Community and

Environment

The Board recognises that it

has a responsibility to the wider

environment and community.

Our engagement with the community and the environment can be

found on page 16.

PRINCIPAL DECISIONS DURING THE YEAR ENDED 31 MARCH 2022

Examples of the Board’s principal decisions during the year, how the Board fulfilled its duties under section 172 of the Act and the

related engagement activities are set out below:

Principal decision Stakeholder Considerations and Engagement

To undertake a

review of available

credit facilities

and renew the

Company’s fixed

and revolving

credit facilities.

During the year, the Manager requested quotes from a variety of brokers and banks in relation to fixed

and revolving credit facilities. A review was undertaken to ensure that the split between each facility

remained appropriate and the borrowing term was also considered. Following a comprehensive review

the Company renewed its fixed and revolving credit facilities with ING, its current bank, for a period of

three years, effective December 2021.

Availability of funding and liquidity is necessary to enable the Company to take advantage of investment

opportunities as they arise.

To undertake a

deemed consent

exercise to

implement a

paperless strategy

for shareholder

communications.

During the year the Board considered a proposal to switch to a full paperless strategy to align with the

Company’s sustainability credentials. Replacing paper proxy forms, dividend cheques and hard copy annual

reports with electronic versions would result in cost savings, environmental benefits and a reduced risk of

cheque fraud. A letter outlining the proposed changes was sent to applicable shareholders in April 2022.

The change to a full paperless strategy was considered in the context of the Company’s sustainability

principles and wider responsibility to the environment.

The Chairman’s Statement on pages 2 and 3, the Manager’s Report on pages 4 to 7 and the portfolio analysis on page 10 all form

part of this Strategic Report, which has been approved by the Board of Directors.

On behalf of the Board

ARTHUR COPPLE

Chairman

14 June 2022

Directors’ Duties continued

Montanaro UK Smaller Companies Investment Trust PLC Annual Report and Accounts 2022 page 19

Board of Directors

James Robinson – Senior Independent Director and Chairman of the Audit and

Management Engagement Committee

Date of Appointment: 30 September 2013

James is a non-executive Director of JPMorgan Elect plc and a Governor of Lord

Wandsworth College. A chartered accountant, he was previously chief investment

officer (investment trusts) and director of hedge funds at Henderson Global Investors

and a non-executive director of Aberdeen New Thai Investment Trust plc, Invesco

Asia Trust plc and Fidelity European Values plc. He was also formerly Chairman of

Polar Capital Global Healthcare Trust plc and the investment committee of the British

Heart Foundation.

Relevant skills and experience and reasons for re-election: James’ experience

as a chartered accountant brings valuable financial and risk management skills to

the Board, which enables him to assess the financial position of the Company and

to lead discussions regarding the Company’s risk appetite. His experience helps

inform his role as Chairman of the Audit and Management Engagement Committee.

Additionally, he gained significant experience of investment trusts through his role as

chief investment officer, investment trusts at Henderson Global Investors. Following a

rigorous Board evaluation process, the Board agreed that James continues to be an

effective member of the Board.

MUSCIT has a highly experienced Board of Directors with extensive knowledge of investment management and investment trusts.

Arthur Copple – Chairman of the Board

Date of Appointment: 1 March 2017

Arthur was appointed to the Board as an independent non-executive director in 2017

and succeeded Roger Cuming as Chairman on 25 July 2019. Arthur has specialised in

the investment company sector for over 30 years. He was a partner at Kitcat & Aitken,

an executive director of Smith New Court PLC and a managing director of Merrill

Lynch. He is also non-executive chairman of Temple Bar Investment Trust plc.

Relevant skills and experience and reasons for re-election: Arthur 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 Arthur continues to be an effective member of the Board.

Arthur resigned as Chair of the Nomination and Remuneration Committee on 21 April

2022 and Barbara Powley was appointed as Chair as at the same date.

page 20 Montanaro UK Smaller Companies Investment Trust PLC Annual Report and Accounts 2022

Catriona Hoare – Non-Executive Director

Date of Appointment: 19 November 2019

Catriona joined Veritas Investment Partners Limited in 2013. In her current role as

an Investment Partner, she manages client portfolios and sits on the firm’s research

and investment governance committees. Catriona started her career at Newton

Investment Management where she managed a number of portfolios and private

family unit trusts, with a particular focus on international clients.

She is a CFA Charterholder, a member of the Chartered institute For Securities and

Investment and holds a BA (Hons) in History from the University of Bristol.

Relevant skills and experience and reasons for election: Catriona’s experience

as an investment partner at Veritas Investment Partners Limited brings valuable

investment and portfolio analysis skills to the Board, which enables her to assess

and challenge the Manager on Company strategy and performance. Following a

rigorous Board evaluation process, the Board agreed that Catriona continues to be

an effective member of the Board.

Barbara Powley – Chair of the Nomination and Remuneration Committee

Date of Appointment: 18 November 2020

Barbara is a non-executive director of M&G Credit Income Investment Trust plc.

She is a chartered accountant with over 30 years’ experience in the investment trust

industry. Prior to her retirement in March 2018, she was a director in BlackRock’s

closed end funds team from 2005, with responsibility for the oversight and

administration of BlackRock’s stable of investment trusts. From 1996 to 2005, she

held a similar role at Fidelity.

Relevant skills and experience and reasons for election: Barbara has extensive

experience within the investment trust sector, along with significant financial and

accounting experience. Her diverse skill-set facilitates open discussion and allows for

constructive challenge in the boardroom.

Following a rigorous Board evaluation process, the Board agreed that Barbara

continues to be an effective member of the Board.

Barbara was appointed Chair of the Nomination and Remuneration Committee on

21 April 2021.

Board of Directors continued

Montanaro UK Smaller Companies Investment Trust PLC Annual Report and Accounts 2022 page 21

Directors’ Report

MANAGEMENT REPORT

For the purposes of compliance with Disclosure Guidance and

Transparency Rules (‘DTR’) DTR 4.1.5 R (2) and DTR 4.1.8 R,

the required content of the ‘Management Report’ can be found

in the Strategic Report and this Directors’ Report. The following

disclosures required to be included in this Directors’ Report

have been incorporated by way of reference to other sections of

this report and should be read in conjunction with this report:

• Corporate Governance Statement – refer to pages 26 to 29

of this report;

• Strategy and relevant future developments – refer to the

Chairman’s Statement on pages 2 and 3, the Manager’s

Report on pages 4 to 7 of the Strategic Report; 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

note 15 on pages 54 to 57.

The Directors present the Annual Report and Accounts of the

Company for the year ended 31 March 2022.

The outlook for the Company is set out in the Chairman’s

Statement on page 2. Principal and emerging risks can be

found on pages 11 to 14, with further information on risk

management objectives in note 15 to the accounts.

STATUS OF THE COMPANY

The Company was incorporated in England and Wales in 1994

under registered number 3004101 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 58.

The Company’s shares are eligible for inclusion in the stocks

and shares component of an Individual Savings Account (“ISA”).

RESULTS AND DIVIDEND

The results for the Company are set out in the Income

Statement on page 44.

Details of dividends paid and declared in respect of the year,

together with the Company’s dividend policy, are set out in the

Chairman's Statement on page 2 of the report. Further details can

also be found in note 7 on page 52.

CONTINUATION OF THE COMPANY

The Company’s Articles of Association (the “Articles”) provide

that shareholders should have the opportunity to consider the

future of the Company at regular intervals.

The next general meeting for the purpose of considering a

voluntary winding up of the Company must be held on or before

16 July 2027, being a period of not more than five years since

the Directors were last released from the obligation to convene

a general meeting. However, an ordinary resolution may be

passed to release the Directors from the obligation to convene

the general meeting and this meeting must be held not more

than eighteen months before 16 July 2027.

GOING CONCERN

The financial statements of the Company have been prepared

on a going concern basis. After reviewing the Company’s

forecast projections and actual performance on a regular basis

throughout the year and, particularly in light of the ongoing

economic disruption caused by the COVID-19 pandemic, the

Directors believe that this is the appropriate basis. The Directors

consider that the Company has adequate resources to continue

in existence for the foreseeable future, being a period of at least

12 months from the date the financial statements were approved.

In reaching this conclusion, the Directors had particular regard to

the Company’s ability to meet its obligations as they fall due and

the liquidity of the portfolio. The Company is also able to meet

all of its liabilities from its assets and the ongoing charges are

approximately 0.78% per annum.

The Company’s longer-term viability is considered in the Viability

Statement on pages 14 and 15.

CAPITAL STRUCTURE

The Company’s ordinary issued share capital consists of

167,379,790 ordinary shares. There are no shares held in

treasury. The Ordinary shares carry the right to receive

dividends and have one voting right per Ordinary share.

There are no restrictions concerning the transfer of securities;

no special rights with regard to control attached to securities;

no restrictions on voting rights; no agreements between holders

of securities regarding their transfer known to the Company;

and no agreements to which the Company is a party which

might change or fall away on a change of control or trigger any

compensatory payments for Directors following a successful

takeover bid, apart from that disclosed under Change of Control

on page 24.

page 22 Montanaro UK Smaller Companies Investment Trust PLC Annual Report and Accounts 2022

Directors’ Report continued

The Company may cancel or hold Ordinary shares acquired

by way of market purchases in treasury. It is the Board’s

intention that any shares bought back by the Company will

be held in treasury and 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. Any treasury shares re-issued must be at an

absolute profit.

The Directors will only consider repurchasing shares in the

market if they believe it to be in shareholders’ interests and

as a means of correcting any imbalance between supply and

demand for the Company’s shares. The Directors will only issue

new shares at a price representing a premium to the NAV per

share at the time of issuance.

The Company’s current authorities to buy back and sell shares

from treasury and issue shares will expire at the conclusion of

the 2022 Annual General Meeting. The Directors are proposing

that these authorities be renewed at the forthcoming Annual

General Meeting.

Any decisions regarding placing shares into treasury, or selling

shares from treasury, will be taken by the Directors. No shares

were held in treasury, bought back, sold from treasury or issued

during the financial year or during the period from 31 March

2022 to the date of this report.

DIRECTORS

The biographical details of the Directors in office at the date of this

report are provided on pages 19 and 20 and their interests in the

shares of the Company are shown on page 35. All Directors are

independent and non-executive.

The Directors may exercise all powers within their scope to

manage the business of the Company subject to the provisions of

the Articles of Association and the Companies Act 2006. These

powers may be delegated to a Director, committee or a third party.

In accordance with the policy adopted by the Board, all Directors

should submit themselves for re-election at each Annual General

Meeting. Accordingly, Mr Copple, Mr Robinson, Ms Hoare and

Mrs Powley will stand for re-election at the 2022 AGM.

As set out on page 27, following a performance review, the Board

believes that it is in the best interests of shareholders that each

Director continues in their roles and believes that it would be in

the Company’s best interests for each of them to be proposed for

election, or re-election, at the forthcoming AGM given their material

level of contribution, commitment to the role and for the reasons

set out on page 27.

The rules relating to the appointment and removal of Directors are

set out in the Companies Act 2006 and the Company’s Articles

of Association.

DIRECTOR INDEMNIFICATION AND INSURANCE

In addition to Directors’ and Officers’ liability insurance cover,

the Company’s Articles of Association provide, subject to the

provisions of applicable UK legislation, an indemnity for Directors.

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

in force during the year, between the Company and each of its

Directors under which the Company has agreed to indemnify

each Director, to the extent permitted by law, in respect of

certain liabilities incurred as a result of carrying out his or

her role as a Director of the Company. The indemnities are

qualifying third party indemnity provisions for the purposes of

the Companies Act 2006.

CONFLICTS OF INTEREST

The Board has approved a procedure for identifying, reporting

and addressing conflicts of interest, or potential conflicts, and

will regularly review actual or potential conflicts. The Directors

are aware that there remains a continuing obligation to notify

the Company Secretary of any new conflict that may arise, or

any change to a previously notified conflict.

The Board considers that the procedure has worked effectively

during the year under review and intends to continue to review

all notified conflicts on a regular basis.

DISCLOSURE OF INTERESTS

No Director was a party to, or had an interest in, any contract

or arrangement with the Company. All of the Directors are

non-executive and no Director had a contract of services with

the Company at any time during the year.

SUBSTANTIAL SHAREHOLDINGS

At 31 March 2022 the Company had been informed of the

following notifiable interests in its voting rights:

Shareholder:

Ordinary

% of

voting

rights

Rathbone Investment Management Limited 16,772,933 10.0

Border to Coast Pensions Partnership 14,892,000 8.9

Derbyshire County Council 13,174,285 7.9

Lazard Asset Management 8,353,320 5.0

Charles Stanley Group PLC 8,382,647 5.0

Montanaro Asset Management Limited 8,375,000 5.0

Quilter Cheviot Limited 8,356,150 5.0

Newton Investment Management Limited 8,307,825 5.0

Brooks Macdonald Asset

Management Limited 8,363,585 5.0

1607 Capital Partners LLC 7,899,099 4.7

Jupiter Asset Management Limited 7,825,000 4.7

Royal London Asset Management Limited 6,752,830 4.0

City of Bedford Metropolitan District Council 6,142,500 3.7

Montanaro UK Smaller Companies Investment Trust PLC Annual Report and Accounts 2022 page 23

Since 31 March 2022, and as at 14 June 2022, being the latest

practicable date prior to the publication of this annual report,

the Company has received the following notifiable interests in its

voting rights:

Beneficial owner

Ordinary

% of

voting

rights

Rathbone Investment Management Limited 16,746,483 10

INVESTMENT MANAGEMENT AGREEMENT

(THE “AGREEMENT”)

The Board contractually delegated the management of the

investment portfolio to Montanaro under an Investment

Management Agreement dated 19 June 2014. Except in certain

circumstances, the Agreement may only be terminated by the

Manager on giving 12 months’ notice in writing to the Company.

The Company shall be entitled to terminate the Agreement by

notice in writing to the Manager forthwith, or as at the date

specified in such notice.

On receiving such notice, the Manager will be entitled to a

termination fee of 1% of the gross assets of the Company at

the close of business on the last day of the calendar month

immediately preceding the effective date of termination of the

Agreement.

CONTINUING APPOINTMENT OF THE MANAGER

The Board considers arrangements for the provision of

investment management and other services to the Company

on an ongoing basis. A formal annual review is conducted by

the Audit and Management Engagement Committee of all the

Company’s service providers, including the Manager.

During the year, the Board considered the performance of

Montanaro as AIFM and Manager by reference to the investment

process, portfolio performance and how it had fulfilled its

obligations under the terms of the Investment Management

Agreement.

In the opinion of the Board, the continuing appointment of

Montanaro as Manager and AIFM, on the terms referenced

above, is in shareholders’ interests as a whole. Among the

reasons for this view is the Company’s long-term investment

performance relative to that of the markets in which the Company

invests and the depth and experience of the research capability

of Montanaro.

ALTERNATIVE INVESTMENT FUND MANAGERS DIRECTIVE

In order to comply with the Alternative Investment Fund

Managers Directive (“AIFMD”), the Company entered into a

Management Agreement with Montanaro dated 19 June 2014

under which the Manager was appointed by the Company

to act as the AIFM. Montanaro receives an ongoing Fee of

£50,000 per annum to act as the Company’s AIFM.

The AIFMD requires certain information to be made available

to investors in AIFs before they invest. An Investor Disclosure

Document, which sets out this information, is available on the

Company’s website. There have been no material changes

(other than those reflected in this Annual Report) to the

information requiring disclosure.

DEPOSITARY AND CUSTODIAN

The Company is required under the AIFMD to appoint an

AIFMD compliant Depositary. The main role of the Depositary

is to act as a central custodian with additional duties to monitor

the operations of the Company, including its cash flows, and

ensuring that the Company’s assets are valued in accordance

with the relevant regulations and guidance. The Depositary is

also responsible for enquiring into the conduct of the AIFM in

each annual accounting period.

BNY Mellon Trust & Depositary (UK) Limited (“BNYMTD”)

was appointed as the Depositary with effect from 22 July

2014. However, with effect from 1 November 2017, the role of

Depositary was transferred, by way of a novation agreement,

from BNYMTD to its parent company, The Bank of New York

Mellon (International) Limited (“BNYM” or the “Depositary”). The

annual fee for depositary services is 0.034% per annum where

gross assets are between £0 and £150 million, and 0.025% per

annum of gross assets above a value of £150 million, subject to

a minimum fee of £20,000 per annum.

The Depositary Agreement is subject to 90 days’ written notice.

The Depositary’s responsibilities include cash monitoring,

segregation and safekeeping of the Company’s assets and

monitoring the Company’s compliance with investment limits

and leverage requirements. Under the depositary agreement,

the Depositary has delegated the custodian function to The

Bank of New York Mellon SA/NV (London Branch).

ADMINISTRATOR

Link Alternative Fund Administrators Limited has been appointed

as Administrator to the Company. The Administrator receives an

annual fee of £80,000. The agreement may be terminated by either

party by giving not less than six months’ prior written notice.

page 24 Montanaro UK Smaller Companies Investment Trust PLC Annual Report and Accounts 2022

Directors’ Report continued

COMPANY SECRETARY

Link Company Matters Limited has been appointed as

Company Secretary and receives an annual fee of £57,000,

which is subject to annual RPI increases. The agreement

may be terminated by either party by giving not less than six

months’ prior written notice.

REGISTRAR

Link Market Services has been appointed as the Company’s

registrar and receives an annual fee of £36,500. This agreement

is in effect for a period of five years to July 2026 and is based on

an agreed number of shareholders and transfers processed. The

Registry Services Agreement may be terminated on not less than

six months’ notice. The Registrar is also entitled to reimbursement

of all disbursements and out of pocket expenses.

CHANGE OF CONTROL

There are no agreements to which the Company is a party

that might be affected by a change in control of the Company

except for the agreement in relation to the Company's credit

facility. The Company entered into an agreement with ING

Bank N.V. on 17 December 2021 for a £20 million Fixed Rate

Term Loan and a £10 million Revolving Credit Facility. This

agreement could alter or terminate on the change of control of

the Company. Further information is disclosed in note 11 to the

Financial Statements on page 54.

CORPORATE GOVERNANCE

The Corporate Governance Statement, which forms part of this

Directors’ Report, is set out on pages 26 to 29.

FUTURE DEVELOPMENTS OF THE COMPANY

The outlook for the Company is set out in the Chairman’s

Statement on page 2 and the Manager’s Report on page 4.

GLOBAL 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. The Company is aware that the UK’s

Climate Change Act places obligations on the UK Government

to decarbonise the economy by 2050 and to manage the

impacts of climate change. Recognising the significance of the

climate crisis and our role in the UK’s response, we have been

developing a programme to address sustainability risks. Further

details are provided in the ESG section of the Manager's Report

on page 5.

DONATIONS

The Company made no political or charitable donations during the

year (2021: nil) to organisations either within or outside of the EU.

LISTING RULE 9.8.4

Listing Rule 9.8.4 requires the Company to include specified

information in a single identifiable section of the Annual Report

or a table cross referencing where the information is set out.

With the exception of the item below, no disclosures are

required in relation to Listing Rule 9.8.4.

LR 9.8.4 Under the Company’s Remuneration Policy, the SID

(5) (6) is entitled to an additional fee of £1,050. However,

Mr Robinson has waived his entitlement to the

additional £1,050. This decision will be kept under

review and the Remuneration Policy still allows the

flexibility of this additional fee to be paid to the SID.

ARTICLES OF ASSOCIATION

Any amendments to the Company’s Articles of Association

must be made by special resolution.

ANNUAL GENERAL MEETING

The Notice of the Annual General Meeting (“AGM”) to be held

on 27 July 2022 (the “Notice”) is set out on pages 64 to 71.

Resolutions 1 to 11 will be proposed as Ordinary Resolutions

and Resolutions 12 and 13 will be proposed as Special

Resolutions.

Authority to Allot Shares (Resolution 11)

The Directors may only allot shares for cash if authorised to do

so by shareholders in a general meeting. This resolution seeks

to renew the authority of the Directors to allot ordinary shares

for cash up to an aggregate nominal amount of £334,759 which

represents approximately 10% of the Company’s issued ordinary

share capital (excluding any treasury shares) as at 14 June 2022.

This authority will expire at the conclusion of the AGM to be held in

2023 unless renewed prior to that date.

Montanaro UK Smaller Companies Investment Trust PLC Annual Report and Accounts 2022 page 25

Disapplication of Pre-emption Rights (Resolution 12)

The Directors are required by law to seek specific authority

from shareholders before allotting new shares or selling shares

out of treasury for cash without first offering them to existing

shareholders in proportion to their holdings.

Resolution 12 is a special resolution and authorises the

Directors to allot new ordinary shares for cash or to sell shares

held by the Company in treasury, otherwise than to existing

shareholders on a pro rata basis, up to an aggregate nominal

amount of £334,759 which is equivalent to 16,737,979 Ordinary

shares and represents approximately 10% of the Company’s

issued ordinary share capital as at 14 June 2022. This authority

will expire at the conclusion of the AGM to be held in 2023

unless renewed prior to that date.

The Directors will only allot new shares pursuant to the authorities

proposed to be conferred by Resolutions 11 and 12 if they

believe it is advantageous to the Company’s shareholders to

do so and will only issue new shares at a price representing a

premium to the NAV per share at the time of issuance.

Authority to Buy Back Shares (Resolution 13)

The resolution to be proposed will seek to renew the authority

granted to Directors enabling the Company to purchase its

own shares.

The Directors are seeking authority to purchase up to

25,090,230 Ordinary shares or, otherwise if less, 14.99% of the

number of shares in issue immediately following the passing of

this resolution.

This authority will expire at the conclusion of the AGM to be

held in 2023 unless renewed prior to that date.

Any Ordinary shares purchased may be cancelled immediately

upon completion of the purchase or held, sold, transferred or

otherwise dealt with as treasury shares in accordance with the

provisions of the Companies Act 2006.

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, as they intend to do in

respect of their own holdings.

INDEPENDENT AUDITOR

BDO LLP (“BDO”) has confirmed its willingness to continue

in office as the Auditor of the Company (“the Auditor”). A

resolution to re-appoint BDO as the Auditor to the Company

and to authorise the Audit and Management Engagement

Committee to determine the Auditor’s remuneration will be

proposed to the forthcoming Annual General Meeting.

DISCLOSURE OF INFORMATION TO AUDITOR

Each of the Directors who held office at the date of approval

of this Directors’ Report confirm that, so far as they are aware,

there is no relevant audit information of which the Company’s

Auditor is unaware; and each Director has taken all the steps

that they ought to have taken as a Director to make themselves

aware of any relevant audit information and to establish that the

Company’s Auditor is aware of that information.

For and on behalf of the Board

LINK COMPANY MATTERS LIMITED

Company Secretary

14 June 2022

page 26 Montanaro UK Smaller Companies Investment Trust PLC Annual Report and Accounts 2022

ATTENDANCE AT BOARD AND COMMITTEE MEETINGS

The Company holds at least four Board meetings each year at which the Directors review portfolio investments and all other

important issues in relation to the Company’s affairs. The following table sets out the number of scheduled Board and Committee

meetings held during the year ended 31 March 2022 and the number of meetings attended by each Director.

Board Audit and Management Engagement Nomination and 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

Arthur Copple 4 4 3 3 2 2

James Robinson 4 4 3 3 2 2

Catriona Hoare 4 4 3 3 2 2

Barbara Powley 4 4 3 3 2 2

The Board also met informally on a number of occasions during the year.

THE BOARD

The Board currently consists of four non-executive Directors.

As Chairman, Arthur Copple is responsible for leading the

Board and ensuring its effectiveness in all aspects of its role. In

line with the requirements of the AIC Code, the responsibilities

of the Chairman and the Senior Independent Director (SID)

have been agreed on by the Board and are available to view on

the Company’s website: www.montanaro.co.uk/trust/muscit

The Board has formalised the arrangements under which

Directors, in the furtherance of their duties, may take

independent professional advice. The Company also maintains

Directors’ and Officers’ liability insurance. There were no third

party indemnity provisions over the course of the year or since

the year end.

Other than their letters of appointment, none of the Directors

has a contract of service nor have there been any contracts or

arrangements between the Company and any Director at any

time during the year. These letters of appointment are available

for inspection at the Company’s registered office.

The Board has engaged external companies to undertake

the Company’s investment management, administrative

and custodial activities. Clear, documented contractual

arrangements are in place between the Company and its

service providers that define the areas where the Board has

delegated functions to them. Further details of the Investment

Management Agreement are given on page 23. A schedule of

matters specifically reserved to the Board for its decision has

been adopted. These reserved matters include the approval

of annual and half-yearly accounts, the recommendation

of dividends, the approval of press releases and circulars,

Board appointments and removals and the membership of

committees. Decisions regarding the capital structure of the

Company (including share buy backs and treasury share

transactions) are also taken by the Board, while the day-to-day

investment of the portfolio is delegated to the Manager.

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

Principles and Provisions of the AIC Code.

The Company is committed to maintaining the highest

standards of governance and will work to 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 them

relevant for investment companies. The UK Code is available

from the Financial Reporting Council’s website at www.frc.org.uk.

Corporate Governance Statement

Montanaro UK Smaller Companies Investment Trust PLC Annual Report and Accounts 2022 page 27

PERFORMANCE EVALUATION

An annual review of the performance of the Board, its

Committees and individual Directors is undertaken by

the Directors. The Board evaluation process comprises a

detailed questionnaire which assesses the performance and

effectiveness of the Board and each of its committees. The

objective of the evaluation is to obtain constructive feedback to

improve the Board’s effectiveness by highlighting individual and

collective strengths as well as development areas.

Arthur Copple, as Chairman, takes overall responsibility for

the evaluation process and has selected a questionnaire

methodology to achieve these objectives. This is followed by

a feedback session that assesses the effectiveness of the

process, identifying any areas for improvement. The appraisal

of the Chairman is led by James Robinson, as the Senior

Independent Director.

Following review of the Directors’ time commitment and

duties, and their contributions and attendance at all Board and

Committee meetings and discussions held outside these formal

meetings, the Board believes that each Director continues to be

effective and demonstrates the necessary commitment to

the role.

The Board considers that outside commitments have not

impacted on their duties as Directors, and have enhanced the

knowledge brought to the Board meetings.

The results of the Board evaluation process were reviewed

and discussed by the Board. Following evaluation, the Board

concluded that it had the appropriate balance of skills,

experience, length of service and knowledge and that the

Board and its committees continued to operate effectively. As

part of the feedback from the Nomination and Remuneration

Committee performance evaluation undertaken in 2021,

Mrs Barbara Powley took over from Mr Copple as Chair of this

Committee in April 2021. This year’s evaluation did not identify

any areas of particular concern.

The Board considered whether an external performance

evaluation should be undertaken in the future, and has noted

that this is not a requirement under the AIC Code given the

Company is outside of the FTSE 350. The Board has taken

into account the costs and benefits associated with such an

exercise and does not consider the use of external consultants

to conduct this evaluation is likely to provide any meaningful

advantage over the process that has been adopted. However,

the option of doing so will be regularly reviewed.

INDEPENDENCE OF DIRECTORS AND TENURE

The Board has considered the independent status of each

Director under the AIC Code and has determined that all

Directors are independent.

In line with the 2019 AIC Code, the Company has adopted a

formal policy on tenure. The Board does not feel that it would

be appropriate to set a specific tenure limit for individual

Directors or the Chair of the Board or its Committees. Instead,

under normal circumstances, the Board members, including

the Chair, will be expected to serve a maximum tenure of

9 years, thus preserving the cumulative valuable experience

and understanding of the Company, while benefitting from fresh

perspectives and helping to promote diversity. James Robinson

will have completed nine years on the Board in September 2022

and it is expected that the 2022 AGM of the Company will be

the last AGM at which he will stand for re-election.

The Board is of the view that length of service will not

necessarily compromise the independence or contribution of

directors of an investment trust company where continuity and

experience can significantly add to the strength of the Board.

ELECTION/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. All Directors have confirmed that they will be standing

for re-election at the forthcoming Annual General Meeting.

EXERCISE OF VOTING RIGHTS IN INVESTEE COMPANIES

The exercise of voting rights attached to the Company’s

portfolio has been delegated to the Manager.

The Board encourages the Manager to give due consideration

to environmental, social and governance matters whilst

recognising the overall investment policy and objectives of the

Company. Montanaro votes against resolutions it considers

may damage shareholders’ rights or economic interests and

gives due weight to what it considers to be socially responsible

investments when making investment decisions. However, its

overriding objective is to produce good investment returns for

shareholders.

During the year, the Manager on behalf of the Company

exercised its voting authority as follows:

Meetings

Number of meetings voted at: 54

Number of meetings voted against management

or abstained: 9

Resolutions

Number of resolutions where voted with management:

747

Number of resolutions where abstained: 4

Number of resolutions where voted against management: 14

page 28 Montanaro UK Smaller Companies Investment Trust PLC Annual Report and Accounts 2022

Corporate Governance Statement continued

BOARD COMMITTEES

The Chairman of each Board Committee fulfils an important

leadership role similar to that of the Chairman of the Board,

particularly in creating the conditions for overall Committee and

individual Director effectiveness.

Audit and Management Engagement Committee

This Committee is comprised of all Directors and is chaired

by Mr Robinson, who is a Chartered Accountant. The Board

is satisfied that Mr Robinson has recent and relevant financial

experience to guide the Committee in its deliberations.

The report from this Committee is set out on pages 30 to 32.

Nomination and Remuneration Committee

The Committee is comprised of all Directors and meets as

required for the purpose of considering recruitment to, and

removals from, the Board; levels of remuneration paid to the

Directors; and reviews the Directors’ Remuneration Report

and Remuneration Policy. As a result of the feedback from

the Committee Performance evaluation undertaken in 2021,

Barbara Powley was appointed as committee chair in April 2021

and remains Chair at the current date. Further details on this

year's performance evaluation can be found on page 27.

The Committee is a joint Nomination and Remuneration

committee. It is considered that all directors offer valuable

contributions to the Committee and therefore all directors are

members of the Committee.

Further details on performance evaluation, tenure and

independence are provided on page 27 of this Corporate

Governance Statement.

The Committee considers that the performance of each of

the Directors continues to be effective and that they each

demonstrate commitment to their role, including commitment of

time for Board and Committee meetings and any other duties.

The Company's Diversity and Inclusion policy and the Board's

gender balance can be found on page 15.

Each Committee has adopted formal written terms of reference

which are available on the Company’s website

www.montanaro.co.uk/trust/muscit

INTERNAL CONTROL AND FINANCIAL REPORTING

The Board has delegated responsibility to the Audit and

Management Engagement Committee for establishing and

maintaining the Company’s risk management and internal

control processes and for monitoring their effectiveness.

Internal control systems are designed to meet the Company’s

particular needs and the risks to which it is exposed and by

their very nature provide reasonable but not absolute assurance

against misstatement or loss. The Directors have reviewed the

effectiveness of the system of internal controls, including financial,

operational and compliance controls and risk management. The

Committee will take actions to remedy any significant failings or

weaknesses identified or make recommendations to the Board,

as appropriate. Information about the Company's financial risk

management objectives and policies is set out in Note 15 of the

Financial Statements on pages 54 to 57. The key procedures that

have been established to provide effective internal controls are as

follows:

• throughout the year under review and up to the date of

this Annual Report, there has been an ongoing process

for identifying, evaluating and managing the principal risks

faced by MUSCIT, which complies with guidance supplied

by the FRC on risk management, internal control and

related financial and business reporting. This is reviewed on

a regular basis by the Audit and Management Engagement

Committee, on behalf of the Board. Details of the principal

and emerging risks are set out on pages 11 to 14. The

process involves reports from MUSCIT’s Company

Secretary and Manager as described below. In addition,

the Audit and Management Engagement Committee

receives internal control reports from all the third parties to

which the Company delegates functions;

• in accordance with guidance issued to directors of listed

companies, the Board has carried out a review of the

effectiveness of the Company’s risk management and

internal control processes. There were no matters arising

from this review that required further investigation and no

significant failings or weaknesses were identified; and

• a risk register is maintained against which the risks

identified and the controls in place to mitigate those risks

can be monitored. The risks are assessed on the basis

of the likelihood of them happening, the impact on the

business if they were to occur and the effectiveness of

the controls in place to mitigate them. The risk register is

reviewed at each meeting of the Audit and Management

Engagement Committee, and at other times as necessary.

Given the nature of the Company’s activities and the fact that

most functions are sub-contracted, the Board has concluded

that there is no need for the Company to have an internal audit

function. Instead, the Directors obtain information from key third

party suppliers regarding the controls operated by them. The

key procedures which have been established in relation to this

are as follows:

• investment management is provided by Montanaro

which is regulated by the FCA. The Board is responsible

for setting the overall investment policy and monitors

the activity of the Manager at regular Board meetings.

Montanaro provides reports at these meetings, which

cover investment performance and compliance issues;

• Link Alternative Fund Administrators Limited (“LAFA”) is

responsible for the provision of administration duties;

Montanaro UK Smaller Companies Investment Trust PLC Annual Report and Accounts 2022 page 29

• company secretarial duties are undertaken by

Link Company Matters Limited;

• depositary services and custody of assets are undertaken

by BNY Mellon;

• the duties of investment management, accounting and the

custody of assets are segregated;

• the procedures of the individual parties are designed to

complement one another;

• the Board clearly defines the duties and responsibilities

of its agents and advisers in the terms of their contracts.

The appointment of agents and advisers is conducted

by the Board after due diligence involving consideration

of the quality of the parties involved and the Audit and

Management Engagement Committee monitors their

ongoing performance and contractual arrangements;

• mandates for authorisation of investment transactions and

expense payments are set by the Board; and

• the Board reviews financial information produced by the

Administrator in detail on a regular basis.

DIALOGUE WITH SHAREHOLDERS

Communication with shareholders is given a high priority by

both the Board and the Manager. The Directors and Manager

are always available to enter into dialogue with shareholders and

have a policy of regularly inviting major shareholders to meet the

Board and the Manager. Shareholders wishing to communicate

directly with the Board should contact the Company Secretary at

the registered office or the Manager.

The Annual and Half-Yearly Reports of the Company are

prepared by the Board and its advisers to present a fair, balanced

and understandable review of the Company’s position and

performance, business model and strategy.

All shareholders have the opportunity to attend and vote at the

AGM during which the Board and Manager are available to

discuss issues affecting the Company. Engagement from all

shareholders is welcomed by the Chairman of the Board. The

Manager has signed up to the Stewardship Code and publishes

its voting records on its website.

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/muscit

BRIBERY PREVENTION POLICY

The Board takes its responsibility to prevent bribery very

seriously and has a zero tolerance policy towards bribery and

has committed to carry out business fairly, honestly and openly.

The manager has high level, risked based anti-bribery policies

and procedures in place which are periodically reviewed by

the Board.

CRIMINAL FINANCES ACT 2017

The Company has a commitment to zero tolerance towards the

criminal facilitation of tax evasion.

For and on behalf of the Board

ARTHUR COPPLE

Chairman

14 June 2022

page 30 Montanaro UK Smaller Companies Investment Trust PLC Annual Report and Accounts 2022

As Chairman of the Audit and Management Engagement

Committee (the "Committee"), I am pleased to present its Report

to shareholders for the year ended 31 March 2022.

COMPOSITION OF THE COMMITTEE

The Board recognises the requirement for the 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 Committee is chaired by Mr Robinson, a Chartered

Accountant, who has recent and relevant financial experience.

The Committee operates within clearly defined terms of

reference and comprises all the Directors. Given the size of the

Board, and Mr Copple's experience, it is felt appropriate for him

to sit on the Committee. The Directors have a combination of

financial, investment and business experience, specifically with

reference to the investment trust sector.

ROLE OF THE COMMITTEE

The primary responsibilities of the Committee are to:

• monitor the process for the production and integrity of the

Company’s accounts;

• consider compliance with regulatory and financial reporting

requirements;

• review and monitor the effectiveness of the internal control

and risk management systems;

• review annually the need for the Company to have its own

internal audit function;

• consider the terms of appointment, remuneration,

independence, objectivity and effectiveness of the

Company’s Auditor;

• make recommendations to the Board in relation to the

appointment of the Auditor;

• agree the Auditor’s fee;

• develop and implement a policy on the supply of non-audit

services by the Auditor;

• review annually the performance of the Manager and the

terms of its appointment;

• review annually the performance of other third party service

providers; and

• review annually the Manager’s arrangements for its

employees and contractors to raise concerns, in

confidence about possible wrongdoing in financial

reporting or other matters insofar as they affect the

Company.

MATTERS CONSIDERED IN THE YEAR

The Committee meets at least twice a year in advance of the

publication of the annual and half-yearly financial results of the

Company. At the three meetings held during the financial year,

the Committee has:

• reviewed the internal controls and risk management

systems of the Company and its third party providers;

• reviewed the performance of the Company’s third party

service providers and ensured that they complied with

the terms of their agreements and that the terms of the

agreements remain competitive;

• agreed the audit fee and audit plan with the Auditor,

including the principal areas of focus;

• received and discussed with the Auditor their report on the

results of the audit;

• reviewed the Company’s financial statements and advised

the Board accordingly;

• reviewed the Investment Management Agreement to

ensure that the terms remain competitive;

• reviewed the performance of the Manager;

• satisfied itself that the continued appointment of the

Manager was in the interests of shareholders as a whole;

• recommended to the Board that the Manager’s

appointment be continued; and

• reviewed and, where appropriate, updated the Company’s

risk register.

Report from the Audit and Management

Engagement Committee

Montanaro UK Smaller Companies Investment Trust PLC Annual Report and Accounts 2022 page 31

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2022

Subsequent to discussion with the Manager and the Auditor,

the Committee determined the following key areas of risk in

relation to the financial statements of the Company for the year

ended 31 March 2022 and how they were addressed:

Significant issue How the issue was addressed

Valuation and

ownership of

the Company’s

investments

The Board reviews detailed portfolio

valuations at each meeting. It relies on the

Administrator and AIFM to use appropriate

pricing in accordance with the accounting

standards adopted by the Company.

Ownership of listed investments is verified

by reconciliation to the Custodian’s records.

In addition, the Depositary reports to the

Committee in relation to its monitoring

and oversight of the activities of the AIFM,

Administrator and Custodian. No matters of

significance were identified in their monitoring.

Maintenance of

investment trust

status

The Committee regularly considers

the controls in place to ensure that the

regulations for maintaining investment

trust status are observed at all times and

receives supporting documentation from

the Manager and the Administrator.

Incomplete

or inaccurate

revenue

recognition

Income received is accounted for

in accordance with the Company’s

accounting policies as set out in Note 1

to these accounts. The Board receives

income forecasts, including special

dividends, and receives an explanation

from the Manager for any significant

movements from previous forecasts and

prior year figures.

Ensuring the

Annual Report

and Accounts is

fair, balanced and

understandable.

The Committee reviewed 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.

GOING CONCERN

The Committee assesses annually whether it is appropriate

to prepare the Company’s financial statements on a going

concern basis and makes a recommendation to the Board. The

Board concluded that the going concern basis continues to be

appropriate and further information regarding the going concern

assessment is set out in the Directors’ Report on page 21.

INTERNAL CONTROL

The Committee is responsible for ensuring that suitable controls

are in place to prevent and detect fraud, error and misstatement of

financial information. As the Company outsources all of its functions

to third parties, it requires these service providers to report on their

internal controls. There were no significant matters of concern

identified in the Committee’s review of the internal controls of its

third party suppliers. The Committee paid particular attention to the

developing threat of cyber crime, the ongoing impact of COVID-19

and the economic impact of Russian sanctions. The Manager has

made a significant investment into IT cloud-based systems and

security software as mitigation against these cyber security risks. It

is considered that the Company does not require an internal audit

function, principally because the Company delegates its day-to-day

operations to third parties, which are monitored by the Committee

and provide control reports on their operations annually.

EXTERNAL AUDIT, REVIEW AND APPOINTMENT

BDO, first appointed at the Company’s AGM held on 31 July

2020, continues as Auditor. The Audit Committee reviews

the re-appointment of the auditor every year. The Committee

reviewed the effectiveness of the external audit process following

the completion of the process for the year ended 31 March

2021, taking into consideration their standing, skills, experience,

performance and objectivity of the firm and the audit team. The

Committee has reviewed and accepted reports from BDO on its

procedures for ensuring that its independence and objectivity

are safeguarded and that it has complied with relevant auditing

standards. The Committee, from direct observation and enquiry

of the Administrator, is satisfied that BDO provides effective

independent challenge in carrying out its responsibilities.

Following this review, the Committee concluded that the audit

process was effective.

BDO’s fee in respect of the audit for the year ended 31 March

2022 is £33,000 (2021: £31,000). Following professional

guidelines, the audit partner rotates after five years. The year

ended 31 March 2022 is Peter Smith’s second year as

audit partner.

page 32 Montanaro UK Smaller Companies Investment Trust PLC Annual Report and Accounts 2022

POLICY ON NON-AUDIT SERVICES

The Committee regards the continued independence of the

auditor to be a matter of the highest priority. The Company’s

policy with regard to the provision of non-audit services by the

external auditor ensures that no engagement will be permitted if:

• 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

auditor’s independence or objectivity as auditor.

As the Company is a Public Interest Entity listed on the London

Stock Exchange, with effect from 1 April 2017, under EU

legislation, a cap on the level of fees incurred for permissible

non-audit services now applies and should not exceed 70% of

the average audit fee for the previous three years.

No non-audit services were provided in the year under review.

CONCLUSION

Following the consideration of the above and its detailed review

of the half year and annual reports conducted at its meetings,

the Committee is of the opinion that the Annual Report and

Financial Statements, taken as a whole, are fair, balanced and

understandable and provide the information necessary to assess

the Company’s position and performance, business model and

strategy. The Committee reported on these findings to the Board.

The Statement of Directors' Responsibilities in respect of the

Annual Report and Financial Statements is on page 36.

By Order of the Board

JAMES ROBINSON

Chairman, Audit and Management Engagement Committee

14 June 2022

Report from the Audit and Management

Engagement Committee continued

Montanaro UK Smaller Companies Investment Trust PLC Annual Report and Accounts 2022 page 33

Directors’ Remuneration Report

The Board has prepared this Report in accordance with the

requirements of the Large and Medium-Sized Companies and

Groups (Accounts and Reports) (Amendment) Regulations

2013. An ordinary resolution for the approval of this report will

be put to shareholders at the forthcoming AGM.

The law requires the Company’s Auditor, BDO LLP, to audit

certain disclosures provided. Where disclosures have been

audited, they are indicated as such. The Auditor’s opinion is

included in their report on pages 37 to 43.

The Committee is chaired by Mrs Powley and is comprised of all

Directors and meets as required for the purpose of considering

levels of remuneration paid to the Board and any change in the

Directors’ remuneration policy.

All Directors are members of the Committee due to their

experience and understanding of the Company. Given the size

of the Board, and Mr Copple's experience and independence

upon appointment as Chairman of the Board, it is considered

appropriate that he sit on this Committee.

ANNUAL STATEMENT FROM THE CHAIR OF THE

NOMINATION AND REMUNERATION COMMITTEE

(THE "COMMITTEE")

I am pleased to present the Directors’ Remuneration Report for

the year ended 31 March 2022.

Having reviewed the current level of remuneration payable to

Directors, in accordance with the Remuneration Policy, the

Committee has determined that with effect from 1 April 2022

Directors’ Fees would be payable as set out in the Future Policy

Table on page 34. Directors’ fees were last increased with

effect from 1 April 2021. As disclosed on page 24, Mr Robinson

has waived his entitlement to the additional £1,050 which the

Remuneration Policy permits him to take for this role.

In accordance with the Companies Act 2006, the Company

is required to seek shareholder approval for its remuneration

policy on a triennial basis. The Remuneration Policy was last

approved by shareholders at the 2019 AGM and accordingly, a

resolution to approve the policy will be put to shareholders at

the 2022 AGM. There have been no changes to the provisions

of the last approved policy.

It is the intention of the Board that the following policy on

remuneration, will continue to apply for the next three financial

years to 31 March 2025, subject to shareholder approval at the

2022 AGM.

Future Policy Table

The Company’s policy is that remuneration should:

Purpose

and link to

strategy

• be sufficient to attract and retain individuals

of a high calibre with suitable knowledge and

experience to promote the long-term success

of the Company;

• reflect the time spent by the Directors on the

Company’s affairs;

• reflect the responsibilities borne by the

Directors;

• recognise the more onerous roles of the

Chairman of the Board and the Chairman

of the Audit and Management Engagement

Committee through the payment of higher fees.

Directors are remunerated in the form of fees.

The Committee reviews fees on an annual basis

and makes recommendations to the Board.

Reviews will take into account wider factors such

as research carried out on the level of fees paid

to the Directors of the Company’s peers, any

feedback from shareholders, the level of inflation

and any change in, the complexity of the Directors’

responsibilities.

Fixed fee

element

Directors are not eligible to be compensated for

loss of office, nor are they eligible for bonuses,

pension benefits, share options or other

incentives or benefits. There are no performance

related elements to the Directors’ fees.

None of the Directors has a service contract with

the Company and their terms of appointment

are set out in a letter provided when they join the

Board. These letters are available for inspection

at the Company’s registered office.

Description Current levels of fixed annual fee (with effect from

1 April 2022):

• Chairman: £38,500;

• Audit and Management Engagement

Committee Chair: £31,000;

• Directors: £26,500;

• Additional payment for the Senior

Independent Director: £1,100.

Maximum Total remuneration paid to the non-executive

Directors is subject to an annual aggregate

limit of £200,000 in accordance with the

Company’s Articles of Association. Any changes

to this limit will require shareholder approval by

ordinary resolution.

page 34 Montanaro UK Smaller Companies Investment Trust PLC Annual Report and Accounts 2022

Directors’ Remuneration Report continued

Remuneration Policy continued

Taxable

benefits

In accordance with the Company’s Articles

of Association, the Directors are also entitled

to be reimbursed for out-of-pocket expenses

and any other reasonable expenses incurred in

the proper performance of their duties. Such

expenses are treated as a benefit in kind and

are subject to tax and national insurance.

Future Remuneration Policy Table

Following a review of the level of Directors’ fees, the Remuneration

Committee concluded that commencing 1 April 2022, the

Chairman’s fee be increased to £38,500, the Audit and

Management Engagement Committee Chair’s fee be increased to

£31,000 and Director fees be increased to £26,500. The additional

fee which may be paid to the Senior Independent Director will be

increased to £1,100. These changes have been made following

consideration of Directors’ remuneration in the context of its peers,

the wider investment trust sector and inflation. Directors’ fees were

last increased in 2021.

Based on these fees, Directors’ fees for the forthcoming

financial year would be as follows:

31 March 2023 31 March 2022

Chairman 38,500 36,750

Audit and Management

Engagement Committee

Chairman 31,000 29,500

Director 26,500 25,250

Annual percentage change in remuneration of directors

Directors’ pay has increased over the last two years, as set out

in the table below:

2022

2021

Change

2020

Change

Chairman 36,750 35,000 5.00 35,000 –

Audit and

Management

Engagement

Committee

Chairman 29,500 28,000 5.36 28,000 –

Director 25,250 24,000 5.21 24,000 –

The requirements to disclose this information came into force

for companies with financial years starting on or after 10 June

2019 and, as such, this is the second year the Company has

disclosed this information. The comparison will be expanded

in future annual reports until such time as it covers a five

year period.

The Company does not have any employees and therefore no

comparisons are given in respect of Directors’ and employees’

pay increases.

Directors’ Emoluments for the Year (Audited)

The Directors who served in the year received the following emoluments in the form of fees:

Fees

Taxable Benefits

Total

Total fixed

remuneration

Total variable

remuneration

2022 2021 2022 2021 2022 2021 2022 2021 2022 2021

Arthur Copple

36,750

35,000

–

36,750

35,000

36,750

35,000

–

Catriona Hoare

25,250

24,000

–

25,250

24,000

25,250

24,000

–

James Robinson

29,500

28,000

–

29,500

28,000

29,500

28,000

–

Barbara Powley

25,250

8,830

694

–

25,944

8,830

25,250

8,830

694

–

Total

116,750

95,830

694

–

117,444

95,830

116,750

95,830

694

–

No sums are paid to any third parties in respect of Director’s services and no sums were paid to any third parties in respect of

advice from remuneration advisors. There have been no payments to past Directors during the financial year ended 31 March

2022, whether for loss of office or otherwise.

Montanaro UK Smaller Companies Investment Trust PLC Annual Report and Accounts 2022 page 35

Your Company’s Performance

In accordance with the Companies Act 2006, a graph

showing the Company’s share price total return compared to

its benchmark is set out below. The share price includes all

dividends reinvested.

Share Price and Benchmark Performance*

(rebased to 100 on 31 March 2010)

Source: Link Alternative Fund Administrators Limited.

* The Benchmark is a composite index comprising the FTSE SmallCap Index

(excluding investment companies) until 31 March 2013 and the NSCI from

1 April 2013 onwards. The NSCI was selected as the Benchmark because it is

the most commonly used index by UK SmallCap investment trusts.

Voting at AGM

The Directors’ Remuneration Report for the year ended

31 March 2021 and the Remuneration Policy were approved by

shareholders at the AGMs held on 12 August 2021 and 25 July

2019, respectively. The proxy voting was as follows:

Remuneration Report Remuneration Policy

Number of

votes cast %

Number of

votes cast %

For* 93,572,408 99.97 93,556,050 99.94

Against 28,667 0.03 55,857 0.06

Total votes cast 93,601,075 93,611,925

Number of

votes withheld 9,013,329 8.78 9,002,497 8.77

* including votes granting discretion to the Chairman who voted in favour.

Any views expressed by shareholders on the fees being paid

to Directors will be taken into consideration by the Board when

reviewing the Directors’ Remuneration Policy and in the annual

review of Directors’ fees.

Directors’ Beneficial and Family Interests (Audited)

There is no requirement under the Articles of Association for

Directors to hold shares in the Company. The interests of the

current Directors and their families in the voting rights of the

Company are set out below:

As at

31 March 2022

No. of shares

As at

1 April 2021

No. of shares

Arthur Copple

125,000 125,000

Catriona Hoare 9,039 7,339

James Robinson

40,000 40,000

Barbara Powley 11,960 11,458

Includes 25,000 shares held by Mrs Copple

Held jointly by Mr and Mrs Robinson

On 13 May 2022 Barbara Powley acquired 147 shares in the

Company and now holds 12,107 shares in total. There have been

no other changes to the above holdings between 31 March 2022

and the date of this Annual Report. None of the Directors nor any

persons connected with them had a material interest in any of the

Company’s transactions, arrangements or agreements during the

year.

Relative Importance of Spend on Pay

The table below sets out, in respect of the financial year ended

31 March 2022 and the preceding financial year:

a) the remuneration paid to the Directors; and

b) the distributions made to shareholders by way of

dividends.

Year ended

31 March 2022

Year ended

31 March 2021

Change

Total remuneration 117,444 95,830 22.55

Dividend paid 10,779,258 9,239,363 16.67

Statement of implementation of Remuneration Policy in

respect of the financial year ending 31 March 2023

Apart from the fee increases disclosed in this report which will

take effect for the financial year ending 31 March 2023, no other

changes are proposed. The Committee will, as usual, review

Directors’ fees during 2022/23 and consider whether any

further changes to remuneration are required.

On behalf of the Board

BARBARA POWLEY

Chair, Nomination and Remuneration Committee

14 June 2022

100

250

300

200

2012 2013 2014 2015 2016 2017 2018 2022202120202019

Share Price Total Return

Benchmark Total Return

150

page 36 Montanaro UK Smaller Companies Investment Trust PLC Annual Report and Accounts 2022

Statement of Directors’ Responsibilities

in respect of the Annual Report and the Financial Statements

The Directors are responsible for preparing the Annual Report

and the financial statements in accordance with applicable law

and regulations.

Company law requires the Directors to prepare financial

statements for each financial year. Under that law, they have

elected to prepare the financial statements in accordance with

UK Accounting Standards and applicable law (UK Generally

Accepted Accounting Practice) including FRS 102 “The

Financial Reporting Standard applicable in the UK and Republic

of Ireland”.

Under company law, the 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

these financial statements, the Directors are required to:

• select suitable accounting policies and then apply them

consistently;

• make judgements and estimates that are reasonable

and prudent;

• state whether applicable UK Accounting Standards have

been followed, subject to any material departures disclosed

and explained in the financial statements;

• prepare the financial statements on the going concern

basis unless it is inappropriate to presume that the

Company will continue in business; and

• prepare a Directors’ report, a strategic report and

Directors’ remuneration report which comply with the

requirements of the Companies Act 2006.

The Directors are 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 comply with the Companies

Act 2006. They are also 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 responsible for ensuring that the annual

report and accounts, taken as a whole, are fair, balanced, and

understandable and provides the information necessary for

shareholders to assess the Company’s performance, business

model and strategy.

The Directors are responsible for ensuring the annual report

and the financial statements are made available on a website.

Financial statements are published on the company’s website

in accordance with legislation in the United Kingdom governing

the preparation and dissemination of financial statements,

which may vary from legislation in other jurisdictions. The

maintenance and integrity of the company's website is the

responsibility of the directors. The Directors' responsibility also

extends to the ongoing integrity of the financial statements

contained therein.

The Directors confirm to the best of their knowledge that:

• the financial statements, prepared in accordance with

UK Accounting Standards, give a true and fair view of

the assets, liabilities, financial position and return of the

Company; and

• the Strategic Report and the Directors’ Report include a

fair review of the development and performance of the

business and the position of the Company, together with

a description of the principal risks and uncertainties that it

faces.

In the opinion of the Board, the Annual Report and financial

statements, taken as a whole, are fair, balanced and

understandable and provide the information necessary

for shareholders to assess the Company’s position and

performance, business model and strategy.

By Order of the Board

ARTHUR COPPLE

Chairman

14 June 2022

Montanaro UK Smaller Companies Investment Trust PLC Annual Report and Accounts 2022 page 37

OPINION ON THE FINANCIAL STATEMENTS

In our opinion the financial statements:

• give a true and fair view of the state of the Company’s affairs as at 31 March 2022 and of its loss for the year then ended;

• have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and

• have been prepared in accordance with the requirements of the Companies Act 2006.

We have audited the financial statements of Montanaro UK Smaller Companies Investment Trust PLC (the ‘Company’) for the

year ended 31 March 2022 which comprise the Income Statement, the Statement of Changes in Equity, the Balance Sheet and

notes to the financial statements, including a summary of significant accounting policies. The financial reporting framework that

has been applied in their preparation is applicable law and United Kingdom Accounting Standards, including Financial Reporting

Standard 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland (United Kingdom Generally Accepted

Accounting Practice).

BASIS FOR OPINION

We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our

responsibilities under those standards are further described in the Auditor’s 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. Our audit opinion is consistent with the additional report to the audit committee.

Independence

Following the recommendation of the audit committee, we were appointed by the Board of Directors on 17 March 2020 and

subsequently by the members at the AGM on 31 July 2020 to audit the financial statements for the year ending 31 March 2021

and subsequent financial periods. The period of total uninterrupted engagement including retenders and reappointments is two

years, covering the year ending 31 March 2021 and 31 March 2022. We remain independent of the Company in accordance

with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical

Standard as applied to listed public interest entities, and we have fulfilled our other ethical responsibilities in accordance with these

requirements. The non-audit services prohibited by that standard were not provided to the Company.

CONCLUSIONS RELATING TO GOING CONCERN

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. Our evaluation of the Directors’ assessment of the Company’s ability to

continue to adopt the going concern basis of accounting included:

• Obtaining management’s assessment of the going concern status of the Company, which has been approved by the

Directors and which considered the terms and expiry of the borrowing facilities, the current borrowings as a percentage of

NAV and the adjusted NAV of the Company in comparison to the loan covenants, the liquidity of the portfolio and the timing

and expected outcome of the next Continuation vote.

• We performed our own independent testing on the liquidity of the portfolio to corroborate that the portfolio is sufficiently liquid

that if necessary it could be liquidated in order to meet the Company’s liabilities as they fall due.

• Reviewing the loan agreements to identify the covenants and assess the likelihood of them being breached based on the

Directors’ forecasts and our sensitivity analysis.

• Consideration of financial ratios to ascertain the financial health of the Company.

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 relation to the Company’s reporting on how it has 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.

Independent Auditor’s Report

to the Members of Montanaro UK Smaller Companies Investment Trust PLC

page 38 Montanaro UK Smaller Companies Investment Trust PLC Annual Report and Accounts 2022

Independent Auditor’s Report continued

to the Members of Montanaro UK Smaller Companies Investment Trust PLC

OVERVIEW

Key audit matters 2022 2021

• Valuation and ownership of investments

• Revenue recognition

✓

Materiality Company financial statements as a whole

• £2,300,000 (2021:£2,480,000) based on 1% (2021: 1%) of Net Assets

AN OVERVIEW OF THE SCOPE OF OUR AUDIT

Our audit was scoped by obtaining an understanding of the Company and its environment, including the Company’s system

of internal control, and assessing the risks of material misstatement in the financial statements. We also addressed the risk of

management override of internal controls, including assessing whether there was evidence of bias by the Directors that may have

represented a risk of material misstatement.

Montanaro UK Smaller Companies Investment Trust PLC Annual Report and Accounts 2022 page 39

Key audit matters

Key audit matters are those matters that, in our professional judgement, were of most significance in our 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) that we identified, 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 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.

Key audit matter

How the scope of our audit

addressed the key audit matter

Valuation and ownership

of investments

Note 1 and note 9

The investment portfolio comprises quoted investments.

We consider that the valuation and ownership of

investments is the most significant audit area as

investments represent the most significant balance in

the Financial Statements and underpin the principal

activity of the entity. Given the significance of the

investments there is a risk that an error in their valuation

could have a material impact on the financial statements.

Additionally, there is also a risk that the investment

balance includes investments which are not owned by

the Company or for which the bid price used to value

the investment is incorrect.

Due to the significance of this balance we consider this

to be a key audit matter.

We have responded to

this matter by testing the

valuation and ownership

of 100% of the portfolio of

investments. We performed

the following procedures on

valuation:

• Confirmed that bid

price has been used by

agreeing to externally

quoted prices;

• Reviewed trading

volumes around the

year-end to check

that there are no

contra indicators,

such as liquidity

considerations, to

suggest bid price is not

the most appropriate

indication of fair value

by considering the

realisation period for

individual holdings.

In respect of the ownership

of investments we obtained

direct confirmation from

the custodian regarding

all investments held at the

balance sheet date.

Key observations:

Based on our procedures

performed we did not identify

any material exceptions

with regards to valuation or

ownership of investments.

page 40 Montanaro UK Smaller Companies Investment Trust PLC Annual Report and Accounts 2022

Independent Auditor’s Report continued

to the Members of Montanaro UK Smaller Companies Investment Trust PLC

Key audit matter

How the scope of our audit

addressed the key audit matter

Revenue recognition

Note 1 and Note 2

Income arises predominately from UK dividends and to

a lesser extent overseas dividends and is material and

can be volatile, but is a key factor in demonstrating the

performance of the portfolio.

Furthermore, judgement is required in the allocation

of income to revenue or capital. Accordingly, we

considered revenue recognition to be a key audit matter.

We have responded to this

matter by developing an

independent expectation of

income using data analytics

based on the investment

holding and distributions

from independent sources.

We have also cross

checked the portfolio

against corporate actions

and special dividends and

challenged whether these

have been appropriately

accounted for as income

or capital.

We have analysed the

population of dividend

receipts to identify any

items for further discussion

that could indicate a

potential capital distribution,

for example where a

dividend represents a

particularly high yield.

We have then traced a

sample of dividend income

receipts to bank statements.

Key observations:

Based on our procedures

performed we concur

with management’s

judgements and did

not identify any material

exceptions with regards to

revenue recognition.

OUR APPLICATION OF MATERIALITY

We apply the concept of materiality both in planning and performing our audit, and in evaluating the effect of misstatements. We

consider materiality to be the magnitude by which misstatements, including omissions, could influence the economic decisions of

reasonable users that are taken on the basis of the financial statements.

In order to reduce to an appropriately low level the probability that any misstatements exceed materiality, we use a lower

materiality level, performance materiality, to determine the extent of testing needed. Importantly, misstatements below these levels

will not necessarily be evaluated as immaterial as we also take account of the nature of identified misstatements, and the particular

circumstances of their occurrence, when evaluating their effect on the financial statements as a whole.

Montanaro UK Smaller Companies Investment Trust PLC Annual Report and Accounts 2022 page 41

Based on our professional judgement, we determined materiality for the financial statements as a whole and performance

materiality as follows:

Financial statements

2022

Financial statements

2022

Materiality £2,300,000 £2,480,000

Basis for determining materiality 1% of net assets

Rationale for the benchmark applied As an investment trust, net asset value is considered to be the

key measure of performance to the users of the financial statements.

Performance materiality £1,730,000 £1,860,000

Basis for determining performance materiality 75% of materiality of materiality based on the brought forward

uncorrected misstatements, known or expected misstatements for

the current year, prior year corrected misstatements and the number

of areas of the financial statements subject to estimation uncertainty.

Lower testing threshold

We also determined that for items impacting on revenue return, a misstatement of less than materiality for the financial statements

as a whole, could influence the economic decisions of users. As a result, we determined a specific testing threshold for these

items based on 10% of revenue return before tax, being £284,000 (2021: £196,000).

Reporting threshold

We agreed with the Audit Committee that we would report to them all individual audit differences in excess of £115,000

(2021:£128,000) being 5% of materiality. We also agreed to report differences below this threshold that, in our view, warranted

reporting on qualitative grounds.

OTHER INFORMATION

The directors are responsible for the other information. The other information comprises the information included in the Annual

Report and Accounts 2022 other than the financial statements and our auditor’s report thereon. Our opinion on the financial

statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not

express any form of assurance conclusion thereon. 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 course

of the audit, or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material

misstatements, we are required to determine whether this gives rise to a material misstatement in the financial statements

themselves. 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 in this regard.

CORPORATE GOVERNANCE STATEMENT

The Listing Rules require us to review the Directors’ statement 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.

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 or our knowledge obtained during the audit.

Going concern and longer-term viability • The Directors' statement with regards to the appropriateness of adopting the

going concern basis of accounting and any material uncertainties identified;

and

• The Directors’ explanation as to their assessment of the Company’s prospects,

the period this assessment covers and why the period is appropriate.

page 42 Montanaro UK Smaller Companies Investment Trust PLC Annual Report and Accounts 2022

Independent Auditor’s Report continued

to the Members of Montanaro UK Smaller Companies Investment Trust PLC

Other Code provisions • Directors' statement on fair, balanced and understandable;

• Board’s confirmation that it has carried out a robust assessment of the

emerging and principal risks;

• The section of the annual report that describes the review of effectiveness of

risk management and internal control systems; and

• The section describing the work of the audit committee.

OTHER COMPANIES ACT 2006 REPORTING

Based on the responsibilities described below and our work performed during the course of the audit, we are required by the

Companies Act 2006 and ISAs (UK) to report on 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 the Directors’ report for the

financial year for which the financial statements are prepared is consistent

with the financial statements; and

• the Strategic report and the Directors’ report have been prepared in

accordance with applicable legal requirements.

In the light of the knowledge and understanding of the Company and its

environment obtained in the course of the audit, we have not identified material

misstatements in the strategic report or the Directors’ report.

Directors’ remuneration In our opinion, the part of the Directors’ remuneration report to be audited has

been properly prepared in accordance with the Companies Act 2006.

Matters on which we are required to report

by exception

We have nothing to report in respect of the following matters in relation to which

the Companies Act 2006 requires us to report to you if, in our opinion:

• adequate accounting records have not been kept, or returns adequate for our

audit have not been received from branches not visited by us; or

• the financial statements and the part of the Directors’ remuneration report to be

audited are not in agreement with the accounting records and returns; or

• certain disclosures of Directors’ remuneration specified by law are not made; or

• we have not received all the information and explanations we require for our audit.

RESPONSIBILITIES OF DIRECTORS

As explained more fully in the Statement of Directors’ Responsibilities, the Directors are responsible for the preparation of the

financial statements and for being satisfied that they give a true and fair view, and for such internal control as the Directors

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.

AUDITOR’S 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 auditor’s report that includes our opinion. Reasonable assurance

is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a

material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or

in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these

financial statements.

Montanaro UK Smaller Companies Investment Trust PLC Annual Report and Accounts 2022 page 43

Extent to which the audit was capable of detecting irregularities, including fraud

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:

We gained an understanding of the legal and regulatory framework applicable to the Company and industry in which the Company

operates, and considered the risk of acts by the Company which were contrary to applicable laws and regulations, including fraud.

These included but were not limited to compliance with Companies Act 2006, the FCA listing and DTR rules, the principles of the AIC

Code of Corporate Governance, industry practice represented by the AIC SORP and FRS 102. We also considered the Company’s

qualification as an Investment Trust under UK tax legislation.

We considered compliance with this framework through discussions with the Audit Committee, the Investment Manager and the

administrator and performed audit procedures on these areas as considered necessary.

We focused on laws and regulations that could give rise to a material misstatement in the Company financial statements and the

susceptibility of the entity’s financial statements to material misstatement including fraud. Our tests included, but were not limited to:

• agreement of the financial statement disclosures to underlying supporting documentation;

• enquiries of Those Charged With Governance, the Investment Manager and the Administrator relating to the existence of any

non-compliance with laws and regulations and fraud;

• reviewing minutes of board meetings and legal correspondence and invoices throughout the period for instances of non-

compliance with laws and regulations and fraud;

• the procedures as outlined in our key audit matters above;

• checking compliance with each of the Investment Trust tax legislation tests; and; obtaining an understanding of the control

environment in monitoring compliance with laws and regulations;

• we considered the susceptibility of the financial statements to misstatement arising from fraud and believed that the areas in

which fraud might occur were in the management override of controls which was addressed by testing journal postings made

during the year.

We also communicated relevant identified laws and regulations and potential fraud risks to all engagement team members and

remained alert to any indications of fraud or non-compliance with laws and regulations throughout the audit.

Our audit procedures were designed to respond to risks of material misstatement in the financial statements, recognising that

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, misrepresentations or through collusion. There are inherent

limitations in the audit procedures performed and the further removed non-compliance with laws and regulations is from the

events and transactions reflected in the financial statements, the less likely we are to become aware of it.

A further description of our responsibilities is available on the Financial Reporting Council’s website at: www.frc.org.uk/

auditorsresponsibilities. This description forms part of our auditor’s report.

USE OF OUR REPORT

This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act

2006. Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to

state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume

responsibility to anyone other than the Company and the Company’s members as a body, for our audit work, for this report, or for

the opinions we have formed.

PETER SMITH (Senior Statutory Auditor)

for and on behalf of BDO LLP

Statutory Auditor

London, UK

14 June 2022

BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127).

page 44 Montanaro UK Smaller Companies Investment Trust PLC Annual Report and Accounts 2022

Income Statement

for the year to 31 March 2022

Year to 31 March 2022 Year to 31 March 2021

Notes

Revenue

£’000

Capital

£’000

Total

£’000

Revenue

£’000

Capital

£’000

Total

£’000

(Losses)/gains on investments designated at

fair value through profit or loss 9 – (12,089) (12,089) – 66,370 66,370

Investment income 2 3,979 – 3,979 2,994 – 2,994

Management fee 3 (383) (1,147) (1,530) (320) (960) (1,280)

Other expenses 4 (593) – (593) (557) – (557)

Net return before finance costs and taxation 3,003 (13,236) (10,233) 2,117 65,410 67,527

Interest payable and similar charges 5 (160) (481) (641) (154) (462) (616)

Net return before taxation 2,843 (13,717) (10,874) 1,963 64,948 66,911

Taxation 6 – – – – – –

Net return after taxation 2,843 (13,717) (10,874) 1,963 64,948 66,911

Return per Ordinary share: Basic and Diluted 8 1.70p (8.20p) (6.50p) 1.18p 38.80p 39.98p

The total column of this statement is the Statement of Total Comprehensive Income of the Company prepared in accordance with

FRS 102 “The Financial Reporting Standard applicable in the UK and Republic of Ireland”. The supplementary revenue return and

capital return columns are prepared in accordance with the Statement of Recommended Practice issued by the Association of

Investment Companies (“AIC SORP”).

All revenue and capital items in the above statement derive from continuing operations.

There are no items of other comprehensive income and therefore the net loss after taxation is both the profit/loss and the total

comprehensive income for the year.

No operations were acquired or discontinued in the year.

The notes on pages 47 to 58 form part of these financial statements.

Montanaro UK Smaller Companies Investment Trust PLC Annual Report and Accounts 2022 page 45

Statement of Changes in Equity

for the year to 31 March 2022

Year to 31 March 2022 Notes

Called-up

capital

£’000

premium

account

£’000

Capital

redemption

reserve

£’000

Special

reserve**

£’000

Capital

reserve*

£’000

Distributable

revenue

reserve*

£’000

Total equity

shareholders’

funds

£’000

As at 31 March 2021 3,348 19,307 1,362 4,642 219,814 193 248,666

Total comprehensive income:

Fair value movement of

investments 9 – – – – (12,089) – (12,089)

Costs allocated to capital – – – – (1,628) – (1,628)

Net revenue for the year – – – – – 2,843 2,843

– – – – (13,717) 2,843 (10,874)

Dividends paid in the year 7 – – – – (8,339) (2,658) (10,997)

As at 31 March 2022 3,348 19,307 1,362 4,642 197,758 378 226,795

Year to 31 March 2021

Notes

Called-up

capital

£’000

premium

account

£’000

Capital

redemption

reserve

£’000

Special

reserve**

£’000

Capital

reserve*

£’000

Distributable

revenue

reserve*

£’000

Total equity

shareholders’

funds

£’000

As at 31 March 2020 3,348 19,307 1,362 4,642 159,757 1,993 190,409

Total comprehensive income:

Fair value movement of

investments 9 – – – – 66,370 – 66,370

Costs allocated to capital – – – – (1,422) – (1,422)

Net revenue for the year – – – – – 1,963 1,963

– – – – 64,948 1,963 66,911

Dividends paid in the year 7 – – – – (4,891) (3,763) (8,654)

As at 31 March 2021 3,348 19,307 1,362 4,642 219,814 193 248,666

* These reserves, excluding any unrealised capital reserve are distributable. As at 31 March 2022 distributable reserves totalled £151,390,000 (2021: £141,267,000).

** The special reserve can be used for the repurchase of the Company’s own shares.

The notes on pages 47 to 58 form part of these financial statements.

page 46 Montanaro UK Smaller Companies Investment Trust PLC Annual Report and Accounts 2022

Balance Sheet

as at 31 March 2022

31 March 2022

31 March 2021

Notes

£’000 £’000

Fixed assets

Investments at fair value 9 236,487 262,436

Current assets

Debtors 10 359 787

Cash at bank 10,282 10,031

10,641 10,818

Creditors: amounts falling due within one year

Fixed rate term loan 11 – (20,000)

Other creditors 12 (333) (4,588)

(333) (24,588)

Net current assets/(liabilities) 10,308 (13,770)

Total assets less current liabilities 246,795 248,666

Creditors: amounts falling due after more than one year

Fixed rate term loan 11 (20,000) –

Net assets 226,795 248,666

Share capital and reserves

Called-up share capital 13 3,348 3,348

Share premium account 19,307 19,307

Capital redemption reserve 1,362 1,362

Special reserve 4,642 4,642

Capital reserve 197,758 219,814

Distributable revenue reserve 378 193

Total equity shareholders’ funds 226,795 248,666

Net asset value per Ordinary share: Basic and Diluted 135.50p 148.56p

These financial statements were approved and authorised for issue by the Board of Directors on 14 June 2022.

ARTHUR COPPLE

Chairman

Company Registered Number: 3004101

The notes on pages 47 to 58 form part of these financial statements.

Montanaro UK Smaller Companies Investment Trust PLC Annual Report and Accounts 2022 page 47

Notes to the Financial Statements

at 31 March 2022

1 Accounting Policies

Montanaro UK Smaller Companies Investment Trust plc (“MUSCIT”) is a company incorporated and registered in England and

Wales. The principal activity of the Company is that of an investment trust company within the meaning of Sections 1158/1159 of

the Corporation Tax Act 2010. The registered office of the Company is 6

Floor, 65 Gresham Street, London, EC2V 7NQ.

BASIS OF PREPARATION

The financial statements have been prepared under FRS 102 ‘The Financial Reporting Standard applicable in the UK and

Republic of Ireland' and in accordance with UK applicable accounting standards and the Statement of Recommended Practice

regarding the Financial Statements of Investment Trust Companies and Venture Capital Trusts ("SORP"). The Company meets the

requirements of FRS 102 section 7.1.A and therefore has elected not to present the Statement of Cash Flows for the year ended

31 March 2022. The principal accounting policies adopted in the preparation of these financial statements are set out below.

The financial statements have been presented in sterling, which is the Company's functional currency as the UK is the primary

environment in which it operates, rounded to the nearest £'000, except where otherwise indicated.

GOING CONCERN

The financial statements have been prepared on a going concern basis and on the basis that approval as an investment trust

company will continue to be met.

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 a period of at least 12 months from the

date these financial statements were approved.

The Directors noted that the Company, with the current cash balance and holding a portfolio of listed investments, is able to meet

its obligations as they fall due. The current cash balance plus available additional borrowing, through the revolving credit facility

(extended for three years to February 2024), enables the Company to meet any funding requirements and finance future additional

investments. The Company is a closed-end fund, where assets are not required to be liquidated to meet day to day redemptions.

The Company’s Articles of Association (“Articles”) contain a requirement for shareholders to vote on the continuation of the

Company at regular intervals. At the Company’s AGM held on 12 August 2021, shareholders voted to remove the obligation to

convene a General Meeting during 2022 for the purpose of voluntarily winding up the Company. The next Continuation Vote is

scheduled to be held in 2027.

The Directors are not aware of any material uncertainties that may cast significant doubt on the Company's ability to continue as a

going concern, having taken into account the liquidity of the Company's investment portfolio and the Company's financial position

in respect of its cash flows, borrowing facilities and investment commitments (of which there are none of significance). Therefore,

the financial statements have been prepared on the going concern basis.

SEGMENTAL REPORTING

The Directors are of the opinion that the Company is engaged in a single segment of business, being investment business. The

Company primarily invests in listed companies.

INCOME RECOGNITION

Dividends receivable on quoted equity shares are taken to revenue on an ex-dividend basis. Dividends receivable on equity shares

where no ex-dividend date is quoted are recognised when the Company’s right to receive payment is established. Fixed returns on

non-equity shares are recognised on a time-apportioned basis.

Dividends from overseas companies are shown gross of any non-recoverable withholding taxes, which are presented separately

in the Income Statement.

Special dividends are taken to 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 against the IT & VCT SORP guidance.

When the Company has elected to receive scrip dividends in the form of additional shares rather than in cash, the amount of the

cash dividend forgone is recognised as income. Any excess in the value of the cash dividend is recognised in the capital column.

page 48 Montanaro UK Smaller Companies Investment Trust PLC Annual Report and Accounts 2022

Notes to the Financial Statements continued

at 31 March 2022

1 Accounting Policies continued

EXPENSES AND FINANCE COSTS

All expenses and finance costs are accounted for on an accruals basis. On the basis of the Board’s expected long-term split of

total returns, the Company charges 75% of its management fee and finance costs to capital.

Expenses directly incurred in relation to arranging debt and loan facilities have been amortised over the term of the finance.

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 a documented investment strategy, and information about the portfolio is provided internally on that basis to the Company’s

Board of Directors.

In accordance with FRS 102 sections 11 and 12, all investments held by the Company are classified upon initial recognition as

financial assets at fair value through profit or loss and are measured at subsequent reporting dates at fair value, which is the bid

price or the closing price for the Stock Exchange Electronic Trading Service – quotes and crosses (‘SETSqx’). All transaction costs

in relation to the purchase of an investment are included in the initial book cost. The Company derecognises a financial asset

either 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 after transaction costs have been deducted,

and the cumulative gain or loss that had been accumulated is recognised in profit or loss.

All investments for which fair value is measured in the financial statements are categorised within the fair value hierarchy in note 9.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents (which are presented as a single class of asset on the Statement of Financial Position) comprise cash

at bank and in hand.

OTHER RECEIVABLES AND PAYABLES

Trade receivables and trade payables are measures at amortised cost.

TAXATION

UK corporation tax payable is provided on taxable profits at the current rate.

Provision is made for deferred taxation, without discounting, on all timing differences and is calculated using substantively enacted

tax rates.

This is subject to deferred tax assets only being recognised if it is considered more likely than not that there will be suitable profits

from which the future reversal of the underlying timing differences can be deducted.

DIVIDENDS PAYABLE TO SHAREHOLDERS

Interim dividends are recognised in the period in which they have been declared and paid.

Montanaro UK Smaller Companies Investment Trust PLC Annual Report and Accounts 2022 page 49

1 Accounting Policies continued

BANK LOANS AND BORROWINGS

All bank loans and borrowings are carried at amortised cost. Costs in relation to arranging debt finance have been amortised over

the term of the instrument.

SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS

The preparation of the Company's financial statements requires the Directors to make judgements, estimates and assumptions

that affect the reported amounts recognised in the financial statements and disclosure of contingent liabilities. However,

uncertainty about these assumptions and estimates could result in outcomes that could require a material adjustment to the

carrying amount of the asset or liability affected in future periods. The area requiring the most significant judgement is recognition

and classification of unusual or special dividends received as either revenue or capital in nature. The estimates and underlying

assumptions are reviewed on an ongoing basis. There have been no other significant judgements, estimates or assumptions

which have had a significant impact on the financial statements for the current or preceding financial year.

RESERVES

Share premium

The share premium account represents the accumulated premium paid for shares issued in previous periods above their nominal

value less expenses of issuance. This is a reserve forming part of the non-distributable reserves. The following items are taken to

this reserve; costs associated with the issue of equity and premium on the issue of shares.

Capital redemption reserve

The capital redemption reserve represents non-distributable reserves that arise from the purchase and cancellation of shares.

Special reserve

The special reserve was created by the cancellation of the share premium account by order of the High Court in August 1998. The

costs of share buy backs including related stamp duty and transaction costs, are charged to the special reserve.

Revenue reserve

The revenue reserve represents the surplus of accumulated profits from the income derived from holding investment assets less

the costs and interest on cash balances associated with running the company. This reserve can be distributed.

Capital reserve

The following are accounted for in this reserve:

• gains and losses on the realisation of investments;

• net movement arising from changes in the fair value of investments;

• net movement from changes in the fair value of derivative financial instruments;

• expenses, together with related taxation effect, charged to this account in accordance with the above policies;

• dividends paid from the realised Capital Reserve.

The Company’s Articles of Association permit it to distribute from the Capital Reserve any surplus arising from the realisation of its

investments.

page 50 Montanaro UK Smaller Companies Investment Trust PLC Annual Report and Accounts 2022

2 Income

Year to

31 March 2022

£’000

Year to

31 March 2021

£’000

UK dividend income

3,710

2,834

Overseas dividend income

269

160

Income from investments

3,979

2,994

Total income

3,979

2,994

Total income comprises

Dividends from financial assets designated at fair value through profit or loss

3,979

2,994

Dividends

3,979

2,994

3 Management fee

Year to 31 March 2022

Year to 31 March 2021

Revenue

£’000

Capital

£’000

Total

£’000

Revenue

£’000

Capital

£’000

Total

£’000

Management fee

370 1,110 1,480

307 923 1,230

AIFMD fee

13 37 50

383 1,147 1,530

320 960 1,280

The Manager received a monthly management fee equivalent to 1/12 of 0.50% (2021: 0.50%) of the gross assets of the Company

valued at the close of business on the last business day of each month.

At 31 March 2022, £120,000 (2021: £135,000) was due for payment to the Manager.

The AIFMD receives an annual fee of £50,000 (2021: £50,000).

4 Other Expenses

Year to

31 March 2022

£’000

Year to

31 March 2021

£’000

Administration

Company secretarial fees

Directors’ fees

†

117 96

Depositary fee 58 51

Registrar fee 55 57

Auditor’s remuneration for:

– audit 33 31

Custody and other bank charges 22 21

Legal fees 5 4

Other expenses (including VAT)

166

164

593

557

† A breakdown of the Directors' remuneration is set out in the Directors' Remuneration Report on page 34.

The Company has no employees.

Notes to the Financial Statements continued

at 31 March 2022

Montanaro UK Smaller Companies Investment Trust PLC Annual Report and Accounts 2022 page 51

5 Interest Payable and Similar Charges

Year to 31 March 2022

Year to 31 March 2021

Revenue

£’000

Capital

£’000

Total

£’000

Revenue

£’000

Capital

£’000

Total

£’000

Interest payable on loan

154 461 615

143 429 572

Loan commitment fee

6 20 26

11 33 44

160 481 641

154 462 616

6 Taxation

Year to 31 March 2022

Year to 31 March 2021

Revenue

£’000

Capital

£’000

Total

£’000

Revenue

£’000

Capital

£’000

Total

£’000

Current tax:

Overseas tax suffered – – – – – –

– – – – – –

The taxation charge for the year is different from the standard rate of Corporation Tax in the UK of 19% (2021: 19%). The

differences are explained below.

Year to 31 March 2022

Year to 31 March 2021

Revenue

£’000

Capital

£’000

Total

£’000

Revenue

£’000

Capital

£’000

Total

£’000

Net return/(loss) before taxation

2,843 (13,717) (10,874)

1,963 64,948 66,911

Theoretical tax at UK corporation tax rate of 19%

(2021: 19%)

540 (2,606) (2,066)

373 12,340 12,713

Effects of:

– UK dividends that are not taxable

(654) – (654)

(539) – (539)

– Foreign dividends that are not taxable (51) – (51) (30) – (30)

– Non-taxable investment losses – 2,297 2,297 – (12,610) (12,610)

– Unrelieved excess expenses

165 309 474

196 – 196

Taxation charge for the year – – –

– – –

Factors that may affect future tax charges

Deferred tax is not provided on capital gains and losses arising on the revaluation or disposal of investments because the

Company meets (and intends to continue for the foreseeable future to meet) the conditions for approval as an Investment Trust

company. At 31 March 2022, based on current estimates and including the accumulation of net allowable losses, the Company

had unrelieved losses of £52,502,000 (2021: £50,004,000) that are available to offset future taxable revenue. The potential

deferred tax asset has been calculated using a corporation tax rate of 25% (2021:19%). This rate has been enacted and will apply

from 1 April 2023. A deferred tax asset of £13,125,000 (2021: £9,501,000) has not been recognised because the Company is not

expected to generate sufficient taxable income in future periods in excess of the available deductible expenses and accordingly,

the Company is unlikely to be able to reduce future tax liabilities through the use of existing surplus losses.

page 52 Montanaro UK Smaller Companies Investment Trust PLC Annual Report and Accounts 2022

7 Dividends

Year to

31 March 2022

£’000

Year to

31 March 2021

£’000

In respect of the previous period:

Paid

2021 fourth quarter dividend of 1.49p (2020: 1.14p)

2,494

1,908

In respect of the year under review:

Paid

2022 first quarter dividend of 1.65p (2021: 1.26p)

2,762

2,109

2022 second quarter dividend of 1.73p (2021: 1.31p)

2,896

2,193

2022 third quarter dividend of 1.70p (2021: 1.46p)

2,845

2,444

Dividends distributed during the year 10,997

8,654

Declared:

2022 fourth quarter dividend of 1.36p (2021: 1.49p)*

2,276

2,494

* The fourth quarter dividend was declared on 12 April 2022. The ex-dividend date was 21 April 2022 and it was paid 13 May 2022.

The quarters referred to in the table above relate to the Company's financial year.

Any dividends paid in excess of the Revenue Reserve are paid from the realised Capital Reserve.

8 Return/(loss) per Ordinary Share

Year to 31 March 2022

Year to 31 March 2021

Revenue Capital Total

Ordinary share

1.70p (8.20p) (6.50p)

1.18p 38.80p 39.98p

Revenue return per Ordinary share is based on the net revenue after taxation of £2,843,000 (2021: £1,963,000) and 167,379,790

(2021: 167,379,790) Ordinary shares, being the weighted average number of Ordinary shares, excluding any shares held in treasury.

Capital (loss)/return per Ordinary share is based on net capital (losses)/gains for the year of £13,717,000 (2021: £64,948,000),

and on 167,379,790 (2021: 167,379,790) Ordinary shares, being the weighted average number of Ordinary shares, excluding any

shares held in treasury.

Basic and diluted return/(loss) per share are the same as there are no dilutive elements on share capital.

9 Investments

Year to

31 March 2022

£’000

Year to

31 March 2021

£’000

Total investments at fair value

236,487

262,436

The investment portfolio comprises 50 (2021: 50) traded and listed UK equity holdings.

Year to

31 March 2022

£’000

Year to

31 March 2021

£’000

Opening book cost

183,696

183,422

Opening investment holding gains

78,740

12,171

Opening fair value

262,436

195,593

Movements in the year

Purchases at cost

70,559

66,065

Sales – proceeds

(84,419)

(65,592)

– realised gains/(losses) on sales against book cost

19,905

(199)

(Decrease)/increase in investment holding gains

(31,994)

66,569

Total movement in the year (25,949)

66,843

Closing book cost 189,741

183,696

Closing investment holding gains 46,746

78,740

Closing fair value 236,487

262,436

Notes to the Financial Statements continued

at 31 March 2022

Montanaro UK Smaller Companies Investment Trust PLC Annual Report and Accounts 2022 page 53

9 Investments continued

FAIR VALUE HIERARCHY

Financial assets of the Company are carried in the Balance Sheet at their fair value or approximation of fair value. The fair value

is the amount at which the asset could be sold in an ordinary transaction between market participants, at the measurement

date, other than a forced or liquidation sale. The Company measures fair values using the following 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 asset as follows:

• Level 1 – Valued using quoted prices, unadjusted in active markets for identical assets and liabilities.

• Level 2 – Valued by reference to valuation techniques using observable inputs for the asset or liability other than quoted prices

included in 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. Assessing the significance of a particular input requires judgement, considering factors specific to the asset or liability.

The table below sets out the fair value measurement of financial assets and liabilities in accordance with the fair value hierarchy.

31 March 2022

31 March 2021

Level 1

£’000

Total

£’000

Level 1

£’000

Total

£’000

Equity investments

236,487 236,487

262,436 262,436

236,487 236,487

262,436 262,436

There were no level 2 or 3 investments.

TRANSACTION COSTS

During the year, the Company incurred transaction costs of £227,000 (2021: £163,000) and £49,000 (2021: £40,000) on

purchases and sales of investments respectively. These amounts are deducted in determining gains on investments at fair value

as disclosed in the Income Statement.

Year to

31 March 2022

£’000

Year to

31 March 2021

£’000

Net gains/(losses) on investments at fair value

Gains/(losses) on sales

19,905

(199)

Changes in fair value

(31,994)

66,569

(12,089)

66,370

The Company sold investments in the year with proceeds of £84,419,000 (2021: £65,592,000). The book cost of these

investments when purchased was £64,514,000 (2021: £65,790,000). These investments have been revalued over time and until

they were sold any unrealised gains or losses were included in the fair value of the investments.

10 Debtors

Year to

31 March 2022

£’000

Year to

31 March 2021

£’000

Prepayments and accrued income

111

Due from brokers

–

579

Dividends receivable

248

158

359

787

page 54 Montanaro UK Smaller Companies Investment Trust PLC Annual Report and Accounts 2022

11 Fixed Rate Term and Floating Rate Revolving Credit Facilities

Year to

31 March 2022

£’000

Year to

31 March 2021

£’000

Falling due within one year

–

20,000

Falling due after more than one year

20,000

–

On 19 December 2016, the Company agreed a £20,000,000 Fixed Rate Term Loan Facility with ING Bank N.V. At the same time,

the Company also entered into a £10,000,000 Revolving Credit Facility, both of which expired on 19 December 2021.

On 17 December 2021, the Company entered into an agreement with ING Bank N.V. for a £20,000,000 Fixed Rate Term Loan and

£10,000,000 Revolving Credit Facility replacing the existing debt finance.

Fixed Rate Term Loan: The Fixed Rate Term Loan (the “loan”) is available for a three-year term to 17 December 2024. The interest

is payable at a fixed rate of 2.49% (prior agreement to 2021: 2.68%) and has been fully drawn down.

Revolving Credit Facility: The Revolving Credit Facility (the “facility”) is available for a three-year term to 17 December 2024.

Interest chargeable is the RFR plus a margin of 1.55% per annum. Undrawn balances are charged at 0.40% per annum.

Under the terms of both the original and revised agreements, the covenant requires that total borrowing will not at any time

exceed 30% of the adjusted NAV, which itself shall not fall below £80,000,000 in respect of both facilities. The Company remained

compliant with these covenants throughout the year.

12 Other Creditors

Year to

31 March 2022

£’000

Year to

31 March 2021

£’000

Due to brokers

–

4,202

Accruals

333

386

333

4,588

13 Share Capital

31 March 2022

£’000

31 March 2021

£’000

Allotted, called-up and fully paid:

167,379,790 Ordinary shares of 2p each (2021: 167,379,790)

3,348

Treasury shares

At the AGM on 12 August 2021, the Company was granted the authority to purchase 25,090,230 Ordinary shares. This authority is

due to expire at the conclusion of the next AGM.

There were no shares held in treasury at any time during the year (2021: nil) and no shares purchased during the year (2021: nil).

14 Net Asset Value per Ordinary Share

The Net asset value per share of 135.50p (2021: 148.56p) is based on net assets of £226.8 million (2021: £248.6 million) and on

167,379,790 (2021: 167,379,790) Ordinary shares, being the number of Ordinary shares in issue at the year end.

15 Analysis of Financial Assets and Liabilities

Investment Objective and Policy

The Company’s investment objective and policy are detailed on page 11.

The Company’s investing activities in pursuit of its investment objective involve certain inherent risks. The Company’s financial

instruments can comprise:

• shares and debt securities held in accordance with the Company’s investment objective and policies;

• derivative instruments for efficient portfolio management, gearing and investment purposes; and

• cash, liquid resources and short-term debtors and creditors that arise from its operations.

Notes to the Financial Statements continued

at 31 March 2022

Montanaro UK Smaller Companies Investment Trust PLC Annual Report and Accounts 2022 page 55

15 Analysis of Financial Assets and Liabilities continued

The risks identified arising from the Company’s financial instruments are market risk (which comprises market price risk, interest

rate risk and foreign currency exposure risk), liquidity risk and credit and counterparty risk. The Company may enter into derivative

contracts to manage risk. The Board reviews and agrees policies for managing each of these risks, which are summarised below.

These policies have remained unchanged since the beginning of the accounting period.

Market risk

Market risk arises mainly from uncertainty about future prices of financial instruments used in the Company’s business. It

represents the potential loss the Company might suffer through holding market positions by way of price movements, interest rate

movements and exchange rate movements. The Manager assesses the exposure to market risk when making each investment

decision and these risks are monitored by the Manager on a regular basis and the Board at quarterly meetings with the Manager.

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 £236,487,000 (2021: £262,436,000).

If the investment portfolio valuation fell by 10% from the amount detailed in the financial statements as at 31 March 2022, it

would have the effect, with all other variables held constant, of reducing the net capital return before taxation by £23,649,000

(2021: £26,240,000). 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.

Foreign currency risk

Any income denominated in a foreign currency is converted into Sterling upon receipt. At the Balance Sheet date, all the

Company’s assets were denominated in Sterling and accordingly the only currency exposure the Company currently has is

through the trading activities of its investee companies.

Interest rate risk

Changes in interest rates may cause fluctuations in the income and expenses of the Company. The Company has a Fixed Rate

Term Loan Facility (see note 11) so this would not be affected by any changes in interest rates. The Company also has a Floating

Rate Revolving Credit Facility. This was undrawn at the year end so would not yet be affected by any changes in interest rates.

The Company received no interest on cash deposits in the year (2021: £nil).

If interest rates had reduced by 1% from those paid as at 31 March 2022, it would have the effect, with all other variables held

constant, of increasing the net revenue return before taxation on an annualised basis by £nil (2021: £nil). If there was an increase

in interest rates of 1%, the net revenue return before taxation on an annualised basis would have decreased by £nil (2021: £nil).

Liquidity Risk

Liquidity risk is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities. The

Manager does not invest in unlisted securities on behalf of the Company. The investments consist of UK small companies which,

whilst less liquid than quoted large companies, are quoted and tradeable on a recognised stock exchange.

The Company’s liquidity risk is managed on a daily basis by the Manager in accordance with established policies and procedures in

place. The Manager reviews daily forward-looking cash reports which project cash obligations. As the Company is a closed-ended

fund assets do not need to be liquidated to meet redemptions and sufficient liquidity is maintained to meet obligations as they fall due.

Contractual maturities of the financial liabilities at undiscounted amount at the year end, based on the earliest date on which

payment can be required, are detailed on page 56.

Gearing can have amplified effects on the NAV of the Company. It can have a positive or negative effect depending on portfolio

performance. It is the Company’s policy to determine the level of gearing appropriate to its own risk profile.

The AIFM, in consultation with the Board, is responsible for determining the gearing level of the Company, which is disclosed on

page 2. The Directors receive financial information on a regular basis which is used to identify and monitor risk.

page 56 Montanaro UK Smaller Companies Investment Trust PLC Annual Report and Accounts 2022

15 Analysis of Financial Assets and Liabilities continued

Credit risk

Credit risk is the risk of financial loss to the Company if the contractual party to a financial instrument fails to meet its

contractual obligations.

The Company’s listed and traded investments and cash balances are held on its behalf by The Bank of New York Mellon, the

Company’s custodian. Bankruptcy or insolvency of the custodian may cause the Company’s rights with respect to securities held

by the custodian to be delayed. The Board monitors the Company’s risk by reviewing the custodian’s internal controls report.

The Board monitors the credit worthiness of Bank of New York, currently rated at Aa1 (Moody's).

Investment transactions are carried out with a number of brokers whose creditworthiness is reviewed by the Manager.

Transactions are ordinarily undertaken on a delivery versus payment basis within CREST, whereby the transaction will only settle if

the Company and counterparty details are matching.

The maximum exposure to credit risk at 31 March 2022 was:

31 March 2022

£’000

31 March 2021

£’000

Cash at bank (held at Bank of New York Mellon)

10,282

10,031

Debtors

248

629

10,530

10,660

None of the Company's assets are past due or impaired.

FINANCIAL ASSETS

The Company’s financial assets consist of listed and traded equity shares, which neither pay interest nor have a maturity date,

cash at bank and short-term debtors. No fixed interest assets were held at 31 March 2022 (31 March 2021: £Nil) or at any time

during the year. All financial assets are in Sterling.

FINANCIAL LIABILITIES

The Company finances its operations through equity, retained profits and bank borrowings (see note 11).

The interest rate risk profile of the financial liabilities of the Company as at 31 March 2022 was as follows:

Total

£’000

Weighted

average

interest rate

Period until

maturity

Years

Amounts drawn down under Fixed Rate Term Loan Facility

20,000 2.6 2.7

Amounts drawn down under Floating Rate Revolving Credit Facility

– – –

Financial liabilities upon which no interest is paid

333 – –

The interest rate risk profile of the financial liabilities of the Company as at 31 March 2021 was as follows:

Total

£’000

Weighted

average

interest rate

Period until

maturity

Years

Amounts drawn down under Fixed Rate Term Loan Facility 20,000 2.7 0.7

Amounts drawn down under Floating Rate Revolving Credit Facility – – –

Financial liabilities upon which no interest is paid 4,588 – –

Notes to the Financial Statements continued

at 31 March 2022

Montanaro UK Smaller Companies Investment Trust PLC Annual Report and Accounts 2022 page 57

15 Analysis of Financial Assets and Liabilities continued

The maturity profile of the Company’s financial liabilities at undiscounted amount is as follows:

31 March 2022

£’000

31 March 2021

£’000

In three months or less

438

4,673

In more than three months but not more than one year

500

20,288

In more than one year but not more than three years

20,745

–

In more than three years but not more than five years

–

21,683

24,961

16 Capital Management Policies

The structure of the Company’s capital is described on pages 21 and 22 and details of the Company’s reserves are shown in the

Statement of Changes in Equity.

The Company’s capital management objectives are:

• to ensure that it will be able to continue as a going concern;

• to achieve capital growth through a focused portfolio of investments, particularly in UK small companies; and

• to maximise the return to shareholders while maintaining a capital base to allow the Company to operate effectively and meet

obligations as they fall due.

The Board and the AIFM regularly monitor and review the capital on an ongoing basis. These reviews include:

• the level of gearing, which takes account of the Company’s position and the Manager’s views on the market; and

• the extent to which revenue in excess of that which is required to be distributed should be retained.

The Company’s objectives, policies and processes for managing capital are unchanged from last year.

The Company is subject to externally imposed capital requirements:

As a public company, the Company is required to have a minimum share capital of £50,000; and

In accordance with the provisions of Sections 832 and 833 of the Companies Act 2006, the Company as an investment company:

• is only able to make a dividend distribution to the extent that the assets of the Company are equal to at least one and a half

times its liabilities after the dividend payment has been made; and

• is required to make a dividend distribution each year such that it does not retain more than 15% of the income that it derives

from shares and securities.

These requirements are unchanged since last year and the Company has complied with them at all times.

17 Commitments and Contingent Liabilities

At 31 March 2022, there were no capital commitments or contingent liabilities (2021: nil).

18 Related Party Transactions

Under the Listing Rules, the Manager is regarded as a related party and deemed to be Key Management Personnel of the

Company. The amounts paid to the Manager are disclosed in note 3.

The related party transactions with the Directors are set out in the Directors’ Remuneration Report on pages 33 to 35.

page 58 Montanaro UK Smaller Companies Investment Trust PLC Annual Report and Accounts 2022

AIFMD Disclosures (Unaudited)

In accordance with the AIFMD, Montanaro and the Company are required to make certain disclosures available to investors in

relation to the Company’s leverage and the remuneration of the Company’s AIFM. In accordance with the Directive, the AIFM’s

remuneration policy is available from Montanaro on request. The Company’s maximum and average actual leverage levels at

31 March 2022 are shown below:

Leverage exposure

Gross

method

Commitment

method

Maximum limit 200% 200%

Actual 104.3% 108.8%

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 the Company’s NAV and is calculated on both a gross and

commitment method.

An explanation of the methods used can be found in the glossary of terms on page 63.

The leverage limits are set by the AIFM and approved by the Board and are in line with the maximum leverage levels permitted

in the Company’s Articles. 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 Company’s website.

The AIFM has sufficient capital and liquid assets to meet the requirements under AIFMD. In addition, the AIFM has professional

liability insurance cover of £5 million.

The periodic disclosures to investors as required under the AIFMD are made below:

• pages 10 to 36 and note 15 to the financial statements set out the risk profile and risk management systems in place. There

have been no changes to the risk management systems in place in the period under review and no breaches of any of the risk

limits set, with no breach expected;

• information on the investment strategy, geographic and sector investment focus and stock exposures are included on

pages 4 to 9; and

• none of the Company’s assets are subject to special arrangements arising from their illiquid nature.

Montanaro UK Smaller Companies Investment Trust PLC Annual Report and Accounts 2022 page 59

Shareholder Information

Sources of Further Information

Information on the Company is available on the Company’s website: www.montanaro.co.uk/trust/muscit and the Manager’s

website: www.montanaro.co.uk.

Key Dates

The timing of the announcement and publication of the Company’s results would normally be expected in the following months:

June Annual results for the year ended 31 March announced and the annual report and financial statements published

July Annual General Meeting

November Half-yearly results to 30 September announced and published on the Company’s website

Quarterly Dividend

Period ending Declared Payment date

30 June July August

30 September October November

31 December January February

31 March April May

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.

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.

Registrar enquiries

The register for the Ordinary Shares is maintained by Link Asset Services. In the event of queries regarding your holding, please

contact the registrar. You can contact the Registrar by calling 0371 664 0300. 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@linkgroup.co.uk.

Changes of name must be notified in writing to the registrar, whose address is: Link Group, Shareholder Services Department,

The Registry, 29 Wellington Street, Leeds, LS1 4LDA change of address can be updated online via www.signalshares.com.

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/muscit.

page 60 Montanaro UK Smaller Companies Investment Trust PLC Annual Report and Accounts 2022

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; and

• 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.

Website

Your Board is committed to shareholder engagement. To receive regular email news and updates about the Company please

visit: www.montanaro.co.uk/trust/muscit Useful information on the Company, such as investor updates and half year and annual

reports can also be found on the website.

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.

Shareholder Information continued

Montanaro UK Smaller Companies Investment Trust PLC Annual Report and Accounts 2022 page 61

The Company uses the following APMs:

Discount (or Premium)

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 31 March 2022, the Net Asset Value per share was 135.5p

and the share price was 125.0p. The Discount is therefore

calculated at 7.75 % as shown in the highlights on page 1.

Gross Assets

Gross assets are calculated as net assets adding

back borrowings.

31 March 2022

£’000

31 March 2021

£’000

Net Assets

226,795

248,666

Fixed rate term loans

20,000

Gross assets

246,795

268,666

Ongoing Charges (expressed as a percentage)

All operating costs expected to be incurred in 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

31 March 2022

£’000

31 March 2021

£’000

Total expenditure

2,764

2,453

Less interest payable and similar

charges (see note 5)

(641)

(616)

Total (a)

2,123

1,837

Average daily net assets (b)

270,710

225,120

Ongoing charges (c = a/b) (C)

0.78%

0.82%

Net Gearing

Net gearing is the total debt, net of cash and equivalents, as a

percentage of the total shareholders’ funds.

31 March 2022

£’000

31 March 2021

£’000

Fixed rate term loans

20,000

less: Cash at bank

(10,282)

(10,031)

Net debt (a)

9,718

9,969

Shareholders’ funds (b)

226,795

248,666

Net Gearing (a/b)

4.3%

4.0%

Portfolio Turnover

Calculated using the total purchases plus the sales proceeds

divided by two as a percentage of the average total investments

at fair value during the year.

31 March 2022

£’000

31 March 2021

£’000

Purchases at cost 70,559 66,065

Sales proceeds 64,514 65,592

Total (a) 135,073 131,657

Average total (b) (b=a/2) 67,537 65,829

Average daily fair value of

investments (c) 289,578 236,452

Portfolio turnover (b/c) 23.3% 27.8%

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. As at

31 March 2022, the 1 year NAV Total Loss was 5.0% and the

1 year Ordinary share price Total Loss was 10 .1%, as shown in

the highlights on page 1.

NAV Total Return calculation as at 31 March 2022

£’000

NAV per share as at 31 March 2022 135.50 (c)

NAV per share as at 31 March 2021 148.56 (d)

Dividend adjustment factor (+1) 1.042 (a)

Pre-Dividend Reinvestment Factor 0.912 (b) (b=c/d)

NAV Total Return (5.0%) ((a*b)-1)

(a) Dividend Adjustment Factor

Dividend PPS

Dividend XD

date

NAV at

Dividend XD

Date

NAV

Multiplier

Quarterly dividend 1 1.49 22.Apr.21 160.31 0.01

Quarterly dividend 2 1.65 22.Jul.21 167.38 0.01

Quarterly dividend 3 1.73 21.Oct.21 171.00 0.01

Quarterly dividend 4 1.70 10.Feb.22 145.93 0.01

0.04

Alternative Performance Measures (“APMs”) – unaudited

page 62 Montanaro UK Smaller Companies Investment Trust PLC Annual Report and Accounts 2022

NAV Total Return calculation as at 31 March 2021

£’000

NAV per share as at 31 March 2021 148.56 (c)

NAV per share as at 31 March 2020 113.76 (d)

Dividend adjustment factor (+1) 1.040 (a)

Pre-Dividend Reinvestment Factor 1.306 (b) (b=c/d)

NAV Total Return 35.8% ((a*b)-1)

(a) Dividend Adjustment Factor

Dividend PPS

Dividend XD

date

NAV at

Dividend XD

Date

NAV

Multiplier

Quarterly dividend 1 1.14 23.Apr.20 119.82 0.01

Quarterly dividend 2 1.26 23.Jul.20 126.61 0.01

Quarterly dividend 3 1.31 22.Oct.20 134.21 0.01

Quarterly dividend 4 1.46 28.Jan.21 143.57 0.01

0.04

Share price Total Return calculation as at 31 March 2022

Share price as at 31 March 2022 125.00 (c)

Share price as at 31 March 2021 145.00 (d)

Dividend adjustment factor (+1) 1.043 (a)

Pre-Dividend Reinvestment Factor 0.841 (b) (b=c/d)

Share price Total Return (10.1%) ((a*b)-1)

(a) Dividend Adjustment Factor

Dividend PPS

Dividend XD

date

Share price at

Dividend XD

Date

price

Multiplier

Quarterly dividend 1 1.49 22.Apr.21 156.50 0.010

Quarterly dividend 2 1.65 22.Jul.21 168.00 0.010

Quarterly dividend 3 1.73 21.Oct.21 168.00 0.010

Quarterly dividend 4 1.70 10.Feb.22 134.50 0.013

0.043

Share price Total Return calculation as at 31 March 2021

Share price as at 31 March 2021 145.00 (c)

Share price as at 31 March 2022 101.00 (d)

Dividend adjustment factor (+1) 1.045 (a)

Pre-Dividend Reinvestment Factor 1.436 (b) (b=c/d)

Share price Total Return 50.0% ((a*b)-1)

(a) Dividend Adjustment Factor

Dividend PPS

Dividend XD

date

Share price at

Dividend XD

Date

price

Multiplier

Quarterly dividend 1 1.14 23.Apr.20 105.25 0.011

Quarterly dividend 2 1.26 23.Jul.20 108.00 0.012

Quarterly dividend 3 1.31 22.Oct.20 124.00 0.011

Quarterly dividend 4 1.46 28.Jan.21 135.00 0.011

0.045

Alternative Performance Measures (“APMs”) continued

Montanaro UK Smaller Companies Investment Trust PLC Annual Report and Accounts 2022 page 63

Glossary of Terms

Alternative Performance Measure (“APM”)

An APM is a numerical measure of the Company's current,

historical or future financial performance, financial position or

cash flows, other than a financial measure defined or specified

in the applicable financial framework.

Articles

Articles of Association of the Company, being its Constitutional

Document.

Commitment method of calculating leverage

Exposure is calculated without the deduction of cash balances

and after certain hedging and netting positions are offset

against each other.

Gearing

Gearing refers to the ratio of the Company’s debt to its

equity capital. The Company may borrow money to invest in

additional investments for its portfolio. If the Company’s assets

grow, the shareholders’ assets grow proportionately more

because the debt remains the same.

If the value of the Company’s assets falls, the situation is

reversed. Gearing can therefore enhance performance in

rising markets but can adversely impact performance in

falling markets.

Gross method of calculating leverage

Represents the sum of the Company’s positions after

deduction of cash balances, without taking account of any

hedging or netting arrangements.

Montanaro, AIFM or Manager

Montanaro Asset Management Limited.

MUSCIT

Montanaro UK Smaller Companies Investment Trust PLC.

NAV

The NAV is the shareholders’ funds. Shareholders’ funds are

the total value of all of the Company’s assets, at their current

market value, having deducted all liabilities and prior charges at

their par value, or at their asset value as appropriate. The NAV

per share is calculated by dividing the shareholders’ funds by

the number of Ordinary shares in issue excluding treasury

shares.

NSCI

Numis Smaller Companies Index (excluding investment

companies).

PPS

Pence per share.

Relative NAV per share performance vs benchmark

This is the difference between the increase in the NAV as a

percentage over the year and the Benchmark as a percentage

over the year.

page 64 Montanaro UK Smaller Companies Investment Trust PLC Annual Report and Accounts 2022

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 authorised under the Financial

Services and Markets Act 2000 if you are in the United Kingdom or, if not, from another appropriately authorised financial

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 UK Smaller Companies Investment Trust plc (the ‘Company’)

will be held at 53 Threadneedle Street, London EC2R 8AR, on Wednesday 27 July 2022 at 12.00 noon for the purposes of

considering and, if thought fit, passing the following resolutions, of which resolutions 1 to 11 will be proposed as ordinary

resolutions and resolutions 12 and 13 will be proposed as special resolutions.

ATTENDANCE AT THE MEETING

Shareholders intending to attend the Annual General Meeting, are asked to register their intention as soon as practicable by

emailing the Company Secretary at MUSCIT_CoSec@linkgroup.co.uk.

SHAREHOLDER ENGAGEMENT

For shareholders unable to attend the AGM who wish to ask the Board or the Investment Manager any questions, we request

that you do so by either email to: MUSCIT_CoSec@linkgroup.co.uk, or by post, by writing to: The Company Secretary,

Link Company Matters Limited, 6

floor, 65 Gresham St, London EC2V 7NQ. Those questions which are submitted before

Friday 22 July 2022 will be answered ahead of the AGM, and we will endeavour to answer any questions subsequently

received as soon as possible. Any presentation given by the Investment Manager at the AGM will be published on our website:

www.montanaro.co.uk/trust/muscit.

PROXIES

Whether you intend to attend the AGM in person or not we encourage all shareholders to complete and return a proxy form

appointing “the Chair of the meeting”, as their proxy. This will ensure that your vote will be counted if ultimately you (or any other

proxy you might otherwise appoint) are not able to attend the meeting. To be valid, the form of proxy should be completed, signed

and returned in accordance with the instructions printed thereon, as soon as possible, and in any event, to reach the Company’s

registrars, Link Group, no later than 48 hours before the time of the Annual General Meeting, or any adjournment of that meeting.

Notice of Annual General Meeting

Montanaro UK Smaller Companies Investment Trust PLC Annual Report and Accounts 2022 page 65

ORDINARY RESOLUTIONS

RESOLUTION 1 – ANNUAL REPORT AND FINANCIAL STATEMENTS

To receive and, if thought fit, to accept the Strategic Report, the Directors’ Report, the Auditor’s Report and the audited financial

statements of the Company for the year ended 31 March 2022.

RESOLUTION 2 – DIRECTORS’ REMUNERATION REPORT

To receive and approve the Directors’ Remuneration Report for the year ended 31 March 2022.

RESOLUTION 3 – DIRECTORS' REMUNERATION POLICY

To approve the Directors' Remuneration Policy as set out in the Directors' Remuneration Report on pages 33 to 34.

RESOLUTION 4 – DIVIDEND POLICY

To approve the Company’s dividend policy to continue to pay four quarterly interim dividends.

RESOLUTION 5 – RE-ELECTION OF DIRECTOR

To re-elect Arthur Copple as a Director of the Company.

RESOLUTION 6 – RE-ELECTION OF DIRECTOR

To re-elect James Robinson as a Director of the Company.

RESOLUTION 7 – RE-ELECTION OF DIRECTOR

To re-elect Catriona Hoare as a Director of the Company.

RESOLUTION 8 – RE-ELECTION OF DIRECTOR

To re-elect Barbara Powley as a Director of the Company.

RESOLUTION 9 – RE-APPOINTMENT OF AUDITOR

To re-appoint BDO LLP as Auditor to the Company to hold office from the conclusion of this Meeting until the conclusion of the

next General Meeting at which financial statements are laid before the Company.

RESOLUTION 10 – AUDITOR'S REMUNERATION

To authorise the Audit and Management Engagement Committee to determine the Auditor’s remuneration.

RESOLUTION 11 – AUTHORITY TO ALLOT SHARES

THAT the Directors of the Company be and are hereby generally and unconditionally authorised (in substitution for any authorities

previously granted to the Directors to the extent unused) pursuant to Section 551 of the Companies Act 2006 (the “Act”), to

exercise all the powers of the Company to allot shares and to grant rights to subscribe for, or to convert any security into, shares

in the Company (“Rights”) up to an aggregate nominal amount of £334,759 (being approximately 10% of the issued share capital,

excluding treasury shares, as at 14 June 2022) provided that the authorities conferred on the Directors shall, unless renewed,

varied or revoked by the Company in general meeting, expire at the conclusion of the next Annual General Meeting of the

Company after the passing of this resolution, save that the Company may before such expiry make offers or agreements which

would or might require shares to be allotted or Rights to be granted after such expiry and the Directors may allot shares or grant

Rights in pursuance of such offers or agreements 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.

page 66 Montanaro UK Smaller Companies Investment Trust PLC Annual Report and Accounts 2022

Notice of Annual General Meeting continued

SPECIAL RESOLUTIONS

RESOLUTION 12 – DISAPPLICATION OF PRE-EMPTION RIGHTS

THAT, subject to the passing of Resolution 11 (and in substitution for all subsisting authorities to the extent unused but without prejudice to

the exercise of any such power prior to the date hereof), the Directors be and are hereby empowered pursuant to Section 570 and Section

573 of the Companies Act 2006 (the “Act”) to allot equity securities (within the meaning of Section 560 of the Act) and to sell equity

securities held by the Company as treasury shares (as defined in Section 724 of the Act) for cash pursuant to the authority conferred by

Resolution 11 as if Section 561 of the Act did not apply to any such allotment and of sales of equity securities, provided that this power:

(a) shall expire at the conclusion of the Company’s next Annual General Meeting after the passing of this resolution, 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 Directors may allot equity securities in pursuance of any such offer or agreement as if the power conferred by this

resolution had not expired;

(b) shall be limited to the allotment of equity securities and/or sale of equity securities held in treasury for cash up to an aggregate nominal

amount of £334,759 (being approximately 10% of the issued share capital (excluding treasury shares) as at 14 June 2022); and

(c) shall authorise the Directors to issue equity securities at such issue price as the Directors may determine (including, without limitation,

where equity securities are being issued from treasury at a price below the net asset value per ordinary share (including income) of the

Company at the time of the relevant issue).

RESOLUTION 13 – AUTHORITY TO BUY BACK SHARES

THAT in substitution for the Company’s existing authority to make market purchases of Ordinary shares in the capital of the Company

(“Ordinary shares”), the Company be and is hereby generally and unconditionally authorised in accordance with Section 701 of the

Companies Act 2006 (“the Act”) to make market purchases (within the meaning of Section 693(4) of the Act) of Ordinary shares,

provided that:

(i) the maximum number of Ordinary shares hereby authorised to be purchased shall be 25,090,230, or if less, that number of Ordinary

shares which is equal to 14.99% of the number of shares in issue immediately following the passing of this resolution;

(ii) the minimum price (excluding expenses) which may be paid for each Ordinary share is the nominal value of that share;

(iii) the maximum price (excluding expenses) payable by the Company for each Ordinary share is the higher of (i) 105% of the average

closing market value of the Ordinary shares in the Company as derived from the Daily Official List of the London Stock Exchange, for

the five business days prior to the date of the market purchase and (ii) the higher of the price of the last independent trade and the

highest current independent bid on the London Stock Exchange;

(iv) the authority hereby conferred shall expire at the conclusion of the Annual General Meeting of the Company in 2023 unless such

authority is renewed prior to such time; and

(v) the Company may make a contract to purchase Ordinary shares under the authority hereby conferred prior to the expiry of such

authority which will or may be executed wholly or partly after the expiration of such authority and may make a purchase of Ordinary

shares pursuant to any such contract.

All Ordinary shares purchased pursuant to the above authority shall be either:

(i) held, sold, transferred or otherwise dealt with as treasury shares in accordance with the provisions of the Act; or

(ii) cancelled immediately upon completion of the purchase.

By Order of the Board

LINK COMPANY MATTERS LIMITED

Company Secretary

14 June 2022

65 Gresham Street

London EC2V 7NQ

Montanaro UK Smaller Companies Investment Trust PLC Annual Report and Accounts 2022 page 67

Explanation of Notice of Annual General Meeting

Resolution 1 – To receive the Annual Report and Financial Statements

The Directors are required to present the financial statements, Strategic Report, Directors’ Report and Auditor’s Report to the

meeting. These are contained in the Company’s Annual Report and Accounts for the year ended 31 March 2022 (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

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

Resolution 3 – Directors’ Remuneration Policy

The Board proposes a resolution to approve the Remuneration Policy on a binding vote that will apply until it is next put to

shareholders for renewal of that approval, which must be at intervals of not more than three years.

Resolution 4 – Dividend Policy

To approve the Company’s dividend policy to continue to pay four quarterly interim dividends. Further details on the timings of

each quarterly dividend can be found in the Shareholder Information section on page 59.

Resolutions 5 to 8 – 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, Messrs Copple and Robinson, Ms Hoare

and Mrs Powley 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 pages 19 and 20 and are also available for viewing on the Company’s website

www.montanaro.co.uk/trust/muscit. The Nomination and Remuneration 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 9 and 10 – 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 and Management Engagement

Committee, recommends the re-appointment of BDO LLP as auditor to the Company. The auditor’s re-appointment will be

proposed to the AGM as Resolution 9. Resolution 10 authorises the Audit and Management Engagement Committee to fix the

auditor’s remuneration.

Resolution 11 – Authority to allot ordinary shares

Resolution 11 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 £334,759, representing approximately 10% of the issued

ordinary share capital at the date of the Notice. This authority shall expire at the next AGM.

Resolution 12 – Authority to disapply pre emption rights

Resolution 12 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 11 (being in respect of ordinary shares up to an

aggregate nominal value of £334,759, representing approximately 10% of the Company’s issued ordinary share capital 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 11 and 12 if they

believe it is advantageous to the Company’s shareholders to do so and will only issue new shares at a price representing a

premium to the NAV per share at the time of issuance.

page 68 Montanaro UK Smaller Companies Investment Trust PLC Annual Report and Accounts 2022

Notice of Annual General Meeting continued

Resolution 13 – Purchase of own shares

Resolution 13 is a special resolution which will grant the Company authority to make market purchases of up to 25,090,230

ordinary shares, representing 14.99% of the ordinary shares in issue as at the date of the Notice. The ordinary shares bought back

will either be cancelled or placed into treasury, at the determination of the Directors. There are currently no shares held in treasury.

The maximum price which may be paid for each ordinary share must not be more than the higher of (i) 105% 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 £0.02.

It is the Board’s intention that any shares bought back by the Company will be held in treasury and 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. Any treasury shares re-issued must also be at an absolute profit. The Directors will only consider

repurchasing shares in the market if they believe it to be in shareholders’ interests and as a means of correcting any imbalance

between supply and demand for the Company’s shares. Any decisions regarding placing shares into treasury, or selling shares

from treasury, will be taken by the Directors.

This authority shall expire at the next AGM, when a resolution to renew the authority will be proposed.

Montanaro UK Smaller Companies Investment Trust PLC Annual Report and Accounts 2022 page 69

The following notes explain your general rights as a shareholder and your right to attend and vote at this Meeting or to appoint

someone else to vote on your behalf.

1. To be entitled to vote at the Meeting (and for the purpose of the determination by the Company of the number of votes they

may cast), shareholders must be registered in the Register of Members of the Company at close of trading on Monday,

25 July 2022. Changes to the Register of Members after the relevant deadline shall be disregarded in determining the rights of

any person to attend and vote at the Meeting.

2. Shareholders are entitled to appoint another person as a proxy to exercise all or part of their rights to attend and to speak

and vote on their behalf at the Meeting. A shareholder may appoint more than one proxy in relation to the Meeting provided

that each proxy is appointed to exercise the rights attached to a different Ordinary share or Ordinary shares held by that

shareholder. A proxy need not be a shareholder of the Company.

3. In the case of joint holders, where more than one of the joint holders purports to appoint a proxy, only the appointment

submitted by the most senior holder will be accepted. Seniority is determined by the order in which the names of the joint

holders appear in the Company’s Register of Members in respect of the joint holding (the first named being the most senior).

4. A vote withheld is not a vote in law, which means that the vote will not be counted in the calculation of votes for or against the

resolution. If no voting indication is given, your proxy will vote or abstain from voting at his or her discretion. Your proxy will

vote (or abstain from voting) as he or she thinks fit in relation to any other matter which is put before the Meeting.

5. You can vote either:

(i) by logging on to www.signalshares.com and following the instructions;

(ii) You may request a hard copy form of proxy directly from the registrars, Link Group on Tel: 0371 664 0300. 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.

(iii) in the case of CREST members, by utilising the CREST electronic proxy appointment service in accordance with the

procedures set out below. In order for a proxy appointment to be valid a form of proxy must be completed. In each case

the form of proxy must be received by Link Group at PXS 1, 10

Floor, Central Square, 29 Wellington Street, LEEDS,

LS1 4DL by 12 noon on Monday 25 July 2022.

6. If you return more than one proxy appointment, either by paper or electronic communication, the appointment received last

by the Registrar before the latest time for the receipt of proxies will take precedence. You are advised to read the terms and

conditions of use carefully. Electronic communication facilities are open to all shareholders and those who use them will not

be disadvantaged.

7. The return of a completed form of proxy, electronic filing or any CREST Proxy Instruction (as described in note 8 below) will

not prevent a shareholder from attending the Meeting and voting in person if he/she wishes to do so.

8. CREST members who wish to appoint a proxy or proxies through the CREST electronic proxy appointment service may do so

for the Meeting (and any adjournment of the Meeting) by using the procedures described in the CREST Manual (available from

www.euroclear.com/site/public/EUI). CREST Personal Members or other CREST sponsored members, and those CREST

members who have appointed a 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.

9. In order for a proxy appointment or instruction made by means of CREST 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 instructions, as described in the CREST Manual. The message must

be transmitted so as to be received by the issuer’s agent (ID RA10) by 12 noon on Monday 25 July 2022. For this purpose,

the time of receipt will be taken to mean the time (as determined by the timestamp applied to the message by the CREST

application host) from which the issuer’s agent 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.

page 70 Montanaro UK Smaller Companies Investment Trust PLC Annual Report and Accounts 2022

Notice of Annual General Meeting continued

10. CREST members and, where applicable, their CREST sponsors or voting service providers 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 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.

11. Any person to whom this notice is sent who is a person nominated under section 146 of the Companies Act 2006 (the ‘2006

Act’) 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. If a 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.

12. Any corporation which is a shareholder can appoint one or more corporate representatives who may exercise on its behalf all

of its powers as a shareholder provided that no more than one corporate representative exercises powers in relation to the

same shares.

13. 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

a resolution only) it would, if passed, be ineffective (whether by reason of inconsistency with any enactment or the Company’s

constitution or otherwise), (b) it is defamatory of any person, or (c) it is frivolous or vexatious. Such a request may be in hard

copy form or in electronic form, must identify the resolution of which notice is to be given or the matter to be included in the

business, must be authorised by the person or persons making it, must be received by the Company not later than 16 June

2022, 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.

14. As at 14 June 2022 (being the latest practicable business day prior to the publication of this Notice), the Company’s ordinary

issued share capital consists of 167,379,790 ordinary shares of 2 pence each, carrying one vote each. Therefore, the total

voting rights in the Company as at 14 June 2022 are 167,379,790.

15. Under Section 527 of the Companies Act 2006, shareholders meeting the threshold requirements set out in that section

have the right to require the Company to publish on a website a statement setting out any matter relating to: (i) the audit of

the Company’s financial statements (including the Auditor’s Report and the conduct of the audit) that are to be laid before

the Meeting; or (ii) any circumstances connected with an auditor of the Company ceasing to hold office since the previous

meeting at which annual financial statements and reports were laid in accordance with Section 437 of the Companies

Act 2006 (in each case) that the shareholders propose to raise at the relevant meeting. The Company may not require

the shareholders requesting any such website publication to pay its expenses in complying with Sections 527 or 528 of

the Companies Act 2006. Where the Company is required to place a statement on a website under Section 527 of the

Companies Act 2006, 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 Meeting for the relevant financial year

includes any statement that the Company has been required under Section 527 of the Companies Act 2006 to publish on

a website.

16. Any shareholder attending the Meeting has the right to ask questions. The Company must cause to be answered any such

question relating to the business being dealt with at the Meeting but no such answer need be given if: (a) to do so would

interfere unduly with the preparation for the Meeting or involve the disclosure of confidential information; (b) the answer has

already been given on a website in the form of an answer to a question; or (c) it is undesirable in the interests of the Company

or the good order of the Meeting that the question be answered.

Montanaro UK Smaller Companies Investment Trust PLC Annual Report and Accounts 2022 page 71

17. Copies of the Directors’ letters of appointment are available for inspection during normal business hours at the registered

office of the Company on any business day from the date of this Notice until the time of the Meeting and may also be

inspected at the Meeting venue, as specified in this Notice, from 11.45 am on the day of the Meeting until the conclusion of

the Meeting. Shareholders are advised that any inspection at 53 Threadneedle Street, London EC2R 8AR will be subject

to the social distancing guidelines which may be in effect at the time, and as such, shareholders are requested to provide

prior notice of a request to inspect the documents at this location, to be agreed with the Company Secretary beforehand by

emailing MUSCIT_CoSec@linkgroup.co.uk.

18. You may not use any electronic address (within the meaning of Section 333(4) of the Companies Act 2006) provided in either

this Notice or any related documents (including the form of proxy) to communicate with the Company for any purposes other

than those expressly stated.

19. Personal data provided by shareholders at or in relation to the Meeting will be processed in line with the Company’s privacy

policy.

A copy of this Notice, and other information required by Section 311A of the Companies Act 2006, can be found on the

Company’s website at www.montanaro.co.uk/trust/muscit.

page 72 Montanaro UK Smaller Companies Investment Trust PLC Annual Report and Accounts 2022

Principal Advisers

Investment Manager and Alternative Investment Fund

Manager (‘AIFM’)

MONTANARO ASSET MANAGEMENT LIMITED

53 Threadneedle Street

London EC2R 8AR

Tel: 020 7448 8600

Fax: 020 7448 8601

Website: www.montanaro.co.uk

Email: enquiries@montanaro.co.uk

Administrator

LINK ALTERNATIVE FUND ADMINISTRATORS LIMITED

Beaufort House

51 New North Road

Exeter EX4 4EP

Tel: 01392 477500

Fax: 01392 498288

Company Secretary and Registered Office

LINK COMPANY MATTERS LIMITED

Floor, 65 Gresham Street

London EC2V 7NQ

Tel: 07709 515694

Email: Muscit_Cosec@linkgroup.co.uk

Registrar

LINK GROUP

Shareholder Services Department

The Registry

Floor

Central Square

29 Wellington Street

Leeds LS1 4DL

Tel: 0371 664 0300

(calls will cost 12p per minute plus network charges)

Email: shareholderenquiries@link.co.uk

Website: https://www.linkgroup.eu/

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

Banker

ING BANK N.V.

London Branch

60 London Wall

London EC2M 5TQ

Broker

CENKOS SECURITIES

PLC 6.7.8 Tokenhouse Yard

London EC2R 7AS

Auditor

BDO LLP

55 Baker Street

London W1U 7EU

Lawyers

GOWLING WLG

4 More London Riverside

London SE1 2AU

Montanaro UK Smaller Companies Investment Trust PLC

Registered in England and Wales No. 3004101

An investment company as defined under Section 833 of the

Companies Act 2006

Montanaro UK Smaller Companies Investment Trust PLC

53 Threadneedle Street

London EC2R 8AR

Tel: 020 7448 8600

Fax: 020 7448 8601

E-mail: enquiries@montanaro.co.uk

Website: www.montanaro.co.uk