UK Smaller Companies Investment Trust PLC
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Annual Report and Accounts 2023
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 smaller
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 10
Industrial or Commercial Sector 12
Business Model and Strategy 13
Directors’ Duties 19
Board of Directors 23
Directors’ Report 25
Corporate Governance Statement 30
Report from the Audit and
Management Engagement
Committee 34
Directors’ Remuneration Report 37
Statement of Directors’
Responsibilities 40
Independent Auditor’s Report 41
Income Statement 48
Statement of Changes in Equity 49
Balance Sheet 50
Notes to the Financial Statements 51
AIFMD Disclosures 62
Shareholder Information 63
Alternative Performance Measures 65
Glossary of Terms 67
Notice of Annual General Meeting 68
Principal Advisers 76
Montanaro UK Smaller Companies Investment Trust PLC Annual Report and Accounts 2023 page 1
Highlights
for the year ended 31 March 2023
Performance
Total Returns 1 year 3 year 5 year 10 year
Since
launch
Ordinary share price
1
(12.4%)
*
18.1%
*
16.4%
*
63.6%
*
836.4%
†
Net Asset Value (“NAV”)
1
(12.2%)
*
12.8%
*
4.0%
*
43.1%
*
801.3%
†
Benchmark (7.9%)
**
50.8%
**
10.4%
**
80.7%
**
501.3%
***
*
**
***
†
1
AIC
NSCI
Composite sourced from NSCI and Bloomberg.
Montanaro Asset Management
Details provided in Alternative Performance Measures on page 65.
All returns are shown with dividends reinvested.
The Benchmark is a composite index with the NSCI used since 1 April 2013.
2023 2022
For the year ended 31 March
Revenue return per Ordinary share 2.3p 1.7p
Dividends per Ordinary share 4.5p 6.4p
Ongoing charges
1
0.9% 0.8%
Portfolio turnover
1
22.2% 23.3%
As at 31 March
Ordinary share price 105.0p 125.0p
NAV per Ordinary share
2
114.5p 135.5p
Discount to NAV
1
8.3% 7.8%
Gross assets
1
£211.6m £246.8m
Net assets £191.6m £226.8m
Market capitalisation £175.7m £209.2m
Net gearing employed
1
4.8% 4.3%
1
Details provided in Alternative Performance Measures on page 65.
2
Details provided in the glossary on page 67.
page 2 Montanaro UK Smaller Companies Investment Trust PLC Annual Report and Accounts 2023
I am pleased to present the
twenty-eighth annual report of MUSCIT
for the year ended 31 March 2023.
Results
In the year to 31 March 2023, the total
return on the Net Asset Value (“NAV”)
and share price of MUSCIT was minus
12%. In comparison, the Numis Smaller
Companies (excluding investment
companies) Index was minus 7.9%.
Please refer to the Performance Review
section of the Manager’s Report on page
6 for further details.
Since inception in 1995, the Company
has delivered a cumulative NAV total
return of 801% and a cumulative share
outperforming the composite
benchmark which delivered a cumulative
return of 501%.
Dividends
The Company’s investment objective has
always been to generate capital growth.
This remains unchanged. A new dividend
policy was 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
June, September and December.
During the Financial Year, the Company
declared four quarterly dividends
amounting to a total of 4.5p, equivalent
to 3.8% of the share price at the start of
the year and 4.5% of the share price at
the end of the period. MUSCIT remains
one of the highest yielding UK SmallCap
investmenttrusts.
The Company holds substantial reserves
which are available for distribution
infuture.
Discount
of MUSCIT’s share price to NAV, as shown
in the graph on page 3, widened slightly,
from 7.8% to 8.3%.
The Board and the Manager have
worked hard to make MUSCIT attractive
to private clients, including implementing
an increased focus on marketing. These
initiatives continue to bear fruit as more
and more retail investors appear on the
share register. Hopefully this will help to
reduce discount volatility in the shares of
MUSCIT.
Share Buy Backs
The Board is responsible for the
implementation of share buy-backs
which are undertaken at arms’ length
from the Manager. No shares were
bought back during the Financial Year.
Board
The Board consists exclusively 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.
James Robinson, a Director for nine
years, has indicated that he intends to
retire at the Company’s forthcoming
AGM. James will hand over the chair of
the Audit Committee to Barbara Powley
and the Board will look to appoint a new
director later this year. On behalf of the
Board, I would like to thank James for his
during his tenure. He will be missed.
Administrator and Company Secretary
The Company has appointed, with
1 July 2023, Juniper
Partners Limited as Company Secretary
and Administrator, in place of Link
Company Matters Limited and Link
Alternative Fund Administrators Limited
respectively. On behalf of the Board and
the Manager, I would like to thank the
entire team at Link for their service and
commitment to our Trust over almost
three decades.
Chairman’s Statement
Montanaro UK Smaller Companies Investment Trust PLC Annual Report and Accounts 2023 page 3
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.
The depth of Montanaro’s commitment
that they are one of the few UK asset
has held
are businesses that meet the highest
environmental performance, public
transparency and legal accountability to
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
of Montanaro Asset Management, 53
Threadneedle Street, London EC2R 8AR.
Shareholders are warmly invited to
attend the Meeting where there will
be an opportunity to meet and ask
questions of the Board and the Manager.
Continuation Vote
At the AGM held on 12 August 2021, over
99% of shareholders voted in favour of
the continuation of MUSCIT for a further
next Continuation Vote will be held in
2027.
Outlook
As we move forward into the post-
COVID era, there are two major factors
the pandemic and rising interest rates.
implications for investors.
In addition to a global economic
recession and unprecedented
government interventions, the pandemic
also brought about profound shifts in
consumer behaviour, some permanent.
These include, for example, the
a substantial increase in e-commerce
demand for digital entertainment and
by companies to make their supply
chains more resilient. In turn, these
trends are resulting in new demand
for an array of products and services
ranging from cyber-security and digital
payments to healthcare products.
The second factor that investors are
having to wrestle with is rising interest
of hand, the Bank of England has raised
interest rates by more than 4% since
December 2021 in its fastest rate-hiking
cycle in three decades. This is already
having an impact on consumer spending
and residential property markets across
the UK. Companies with fragile balance
sheets and high amounts of debt
may struggle to renew their loans on
reasonable terms. Some will simply not
survive this new reality.
Stock pickers such as Montanaro are well
placed to capitalise on this new reality.
Their large team of analysts can help
to navigate the risks and opportunities
arising from new consumer behaviours.
Meanwhile, their focus on quality
businesses with sound balance sheets
is reassuring. The past three years
outperformance of Value stocks, but a
renewed focus on corporate balance
sheets could put an end to this. The
Board believes that the Manager is well
placed to make the most of this new
environment and looks to the future
with
ARTHUR COPPLE
Chairman
19 June 2023
Mar 13
Mar 23
Mar 19
Mar 16
Mar 18
Mar 17
Mar 15
Mar 14
Mar 22
Mar 21
Mar 20
%
Share Price Discount to NAV*
0
-5
-10
-15
-20
-25
5
* Discount based on NAV over the last ten years.
page 4 Montanaro UK Smaller Companies Investment Trust PLC Annual Report and Accounts 2023
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 68 years, this
has amounted to an average of 3.1%
invested in UK large companies in 1955
would now be worth £1,255 whereas
the same £1 invested in UK smaller
companies would now be worth £8,326
– almost seven times more (see chart
below).
The market for UK smaller companies
companies are analysed by more than
50 brokers, many smaller companies
have little or no such coverage. Some
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.
experienced specialist teams in the UK
dedicated exclusively to researching and
investing in quoted smaller companies.
Our team of thirty-eight which includes
twelve nationalities, gives us the breadth
of resources to conduct thorough
in-house research.
At 31 March 2023, we were looking after
around £4 billion of assets.
Investment Philosophy and Approach
investing in quoted smaller companies.
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).
our stringent Quality and ESG Checklists
and be approved by our Investment
Committee before it can be added to our
“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.
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
companies quoted in the UK to choose
from, we are spoiled for choice.
markets that are growing. They must be
services that are in demand and likely to
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
structurally challenged business models
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 was not possible during the
pandemic. Thankfully, these visits have
now resumed and the team is busy.
Manager’s Report
Cumalative Nominal Return of £1 invested on January 1955 (to 31 December 2022)
4,000
3,000
2,000
1,000
8,000
10,000
7,000
6,000
5,000
0
55
Numis Small Cap Numis Small Cap (ex-IC): +14.2%
Numis Large Cap (ex-IC): +11.1%
Small Cap Effect = 3.1% p.a.
£8,326
£1,255
Numis Large Cap
20 2256 58 60 62 64 66
68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18
9,000
Montanaro UK Smaller Companies Investment Trust PLC Annual Report and Accounts 2023 page 5
Management’s past track record
is examined in detail as we seek to
understand their goals and aspirations.
In smaller companies, the decisions of
the entrepreneurial management can
make or break a company (which is
look closely at the b
examine remuneration and corporate
governance policies.
Once a company has been added to the
Portfolio, our Analysts conduct ongoing
believe that the company’s underlying
quality is deteriorating or if there has
been a fundamental change to the
will get some 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.
happy to 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
MUSCIT.
Environmental, Social and Governance
(“ESG”)
B Corporation in 2019, placing
sustainability at its core. This was
standards of social and environmental
performance, transparency and
accountability. It is regarded as one of
the toughest sustainability standards to
for “B Corp” status in 2022 and achieved
a score of 105.5, well above the 81.8
originally achieved in 2019 and an
achievement of which we are proud.
In 2021, 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. 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 continued to achieve industry
leading standards over the last year.
In particular, we recently announced
our commitment to becoming carbon
negative and removing 100% of our
historical emissions by 2030. In March
2023, we entered into a partnership
with Klimate, a Danish carbon removal
specialist. Together, we are building an
innovative portfolio of carbon removal
projects to achieve our targets. This
will include projects such as direct air
independently to ensure
publicly stated such ambitious goals.
These industry standards and our
participation in collaborative initiatives
allow us to stay abreast of an area of the
investment world that is rapidly changing
and ensure that our investment process
pioneers and to lead by example.
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
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 ESG factors has long
company’s “Quality”. The analysis of
such information allows us to better
understand the risks – and opportunities
– that our companies may be exposed to.
An important research and engagement
project conducted during the year
focussed on biodiversity. The purpose
of this Deep Dive Report was to
gain a greater understanding of
how companies are coping with the
biodiversity crisis. One of the companies
we were able to talk to about their
ecological footprint and how they
measure their impact on nature was
M.P. E v a ns, a company that owns,
manages and develops sustainable palm
oil estates in Indonesia.
CEO about the company’s approach to
sustainability and nature preservation
of biodiversity to the business and how
they plan to protect it whilst managing
their plantations inIndonesia.
companies to discuss good governance
practices. The Chairman of the Diploma
Remuneration committee contacted
us regarding proposals for their new
Remuneration Policy. The company
wished to increase executive salaries and
how pay had been considered in the
were pleased with the increased focus
on Earnings Per Share ("EPS") over
Total Shareholder Returns ("TSR") as an
indicator and expressed our preference
about some of the ESG work being
undertaken as part of the company’s
‘Delivering Value Responsibly’ campaign.
As a result, we opted to support
management at the AGM and voted in
favour of their proposals.
the Farm Animal Investment Risk and
Return (“FAIRR”) initiative engagement
with Cranswick to discuss labour rights.
Through discussion with the CFO, we
established that the majority of its
workforce is directly employed and
labour metrics are reported to the
Board on a monthly basis, with follow-
up reports on actions taken to mitigate
labour practices at the company but are
transparency.
$18 trillion investor coalition urging The
Food and Agricultural Organization
of the United Nations (the “FAO”) to
set a roadmap to 1.5°C for the global
food sector. A letter was presented to
the FAO ahead of a council meeting in
June 2022. In response, in November
2022 at COP27, FAO Deputy Director,
underway to produce a roadmap for the
page 6 Montanaro UK Smaller Companies Investment Trust PLC Annual Report and Accounts 2023
Agriculture, Forestry and Other Land
Use (AFOLU) sector to align with 1.5°C by
2050 and they are aiming for publication
by COP28.
awarded a ‘AA’ rating – the second best
rating out of a possible seven – for its
ESG credentials by MSCI.
dedicating more time and resource to
ESG and sustainability, we believe that
we remain ahead of the curve. This is
in-house resources that we have at our
ESG factors into an investment
process leads to better investment
further developments with you in the
comingyears.
How to invest
to make MUSCIT readily available to all
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
For further details about how to invest,
The Portfolio
At 31 March 2023, the Portfolio consisted
of 40, high conviction investments of
which the top ten holdings represented
42%. MUSCIT held 14 companies
traded on AIM, representing 30% 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
2023, gearing stood at 4.8%.
Performance Review
The total return on NAV was minus 12%
over the period, the benchmark total
return was minus 7.9%. As the discount
only slightly widened compared to a
year ago, the share price also declined
by 12%. The negative performance of
UK SmallCap as an asset class can be
rising interest rates coupled with investor
concerns over a possible recession in
the UK. According to the Investment
Association, investors redeemed a
record £1.3 billion from open-ended
UK SmallCap funds in the 12 months
to 31 March 2023. In addition to this,
on Quality and Growth companies, which
as a whole underperformed, as detailed
in the Review & Outlook section. In other
words, the underperformance cannot
be explained by a small number of large
detractors. Pleasingly, MUSCIT posted
the second strongest NAV and share
price return of the peer group of eight
investment trusts.
Since its launch in March 1995, MUSCIT
has delivered an annualised NAV total
return of 8.2%, which represents an
outperformance of 1.6% p.a. compared
to the benchmark.
Performance Attribution
The largest positive contributors over the
4imprint, the supplier of promotional
merchandise, saw its share price rise
by more than 70% during the year as it
economy after the pandemic.
AIM-traded Ideagen, which develops
compliance and risk software, received
Pooled Management at 350p, valuing
the business at £1.1 billion. The shares
climbed by 46% on the day of the
farewell to a management team we like
and admire.
Games Workshop, the designer of
the hobby miniature creature behind
and announced a possible collaboration
with Amazon to produce a movie.
There will always be some investments
that do not go as expected. The
largest negative contributors over the
period
Marshalls, the UK’s leading hard
landscaping manufacturer, fell on
concerns about the outlook for the
residential property market following
a rapid increase in mortgage rates.
guidance three times since August
2022. Nonetheless, we regard the
management team highly.
Manager’s Report continued
Montanaro UK Smaller Companies Investment Trust PLC Annual Report and Accounts 2023 page 7
Treatt, the specialist in citrus oils and
from the impact of lower US consumer
demand on its range of tea products
(and iced tea in particular).
NCC Group, a leading cyber security
largely as a result of its tech-heavy
US customer base reducing
its business activity in a weak
macroeconomicenvironment.
Review & Outlook
The IMF is forecasting that interest
rates will return to “rock bottom” due
to chronic low growth in the developed
world, linked to low productivity and
ageing populations. Such forecasts are
interesting insofar as they highlight just
how unusual 2022 was. Interest rates
soared as a result of the economic
dislocation of COVID and the war
in Ukraine, rather than underlying
structural trends.
Unusually, the Quality and Growth styles
last year.
As Quality Growth, SmallCap investors, it
will always be challenging when Quality,
Growth and SmallCap all underperform
– especially at such extreme levels. UK
SmallCap posted its worst performance
relative to LargeCap (21%) in 2022. It was
MUSCIT’s third worst year ever in terms
of NAV performance, in a calendar year
(see chart below)
However, it is unwise to become too
long argued that UK SmallCap is an
attractive asset for long-term investors.
It is important to give companies
cycles. Taking a longer perspective,
since January 1955, UK SmallCap has
outperformed in 78% of the 70 ten-year
rolling periods since then and in 99%
of the 30-year rolling periods (see
chart
MUSCIT Calendar Year NAV Returns (TR, GBP)
80%
70%
60%
50%
40%
30%
20%
10%
0%
-10%
-20%
-30%
-40%
96
16%
9%
-5%
97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22
16%
27% 27%
37%
21%
25%
23%
28% 29%
34%
48%
44%
8%
67%
-4%
-2% -2%
-7% -6%
-37%
-19%
-28%
-18%
-32%
% of Periods of Outperformance of UK SmallCap v. LargeCap
(Numis Smaller Companies v. Numis Large Cap Index,
rolling monthly returns, Jan 1955 – Feb 2023, GBP)
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
55%
1m 6m 1Y 3Y 5Y 7Y 10Y 15Y 30Y
58%
62%
72%
76%
78%
79%
99%
71%
page 8 Montanaro UK Smaller Companies Investment Trust PLC Annual Report and Accounts 2023
Manager’s Report continued
As time ticks by, the impact of the black
swan events described above appears
stabilised and investors are now pricing
September 2023 in the US and March
2024 in the UK. The headwinds of
the past 18 months might soon turn
into tailwinds. However, we claim no
expertise in forecasting macro-economic
developments and waste little time in
trying to do so.
Instead, we talk to our companies.
performance. Many (not all) have posted
good numbers in the latest reporting
in our quest for good companies
with outstanding management, we
only growing, but are doing so from
a position of strength. History has
shown us that it pays to invest in and
back high quality companies with good
pricing power, strong competitive
positions in markets with high barriers
to entry, robust balance sheets and
highly motivated, entrepreneurial
management with exemplary standards
of corporategovernance.
Although SmallCap remains out of favour
as we write these lines, we cannot help
but feel increasingly positive about what
it holds in store for the coming years.
At 31 March 2023, the Numis Smaller
Companies (ex-IC) index was trading
on 9.8x 12 months-forward earnings,
22% below its long-term average
UK SmallCap – 12 month Forward P/E (to 31 March 2023)
(Numis Smaller Companies ex-IC Index)
18
16
14
12
10
8
6
4
06 22
9.8x
Sept 2022:
8.1x
Mar 2020:
8.5x
Oct 2008:
5.7x
13 14 15 16 17 18 19 20 2107 08 09 10 11 12
Montanaro UK Smaller Companies Investment Trust PLC Annual Report and Accounts 2023 page 9
Numis Smaller Companies Index - Worst Returns since 1955 (GBR, TR)
130%
80%
30%
-20%
-70%
1974 2008 1973
-50%
78%
13%
117%
85%
28%
47%
67%
79%
18%
46%
32%
140%
?
Truncated
(347%)
-40%
2002 1990 2022 2001 2018 1969 2011 1966 2007 1994 1998
-27%
-24%
-23%
-16%
-15%
-11%
-11%
-9%
-8%
-6%
-4%
-4%
1Y Return
Return over the next 3Y
To put things into perspective, since
of below 10x in 23 of the 198 months,
i.e. 11% of the time. Every single time
this has happened, it was followed by
a year where SmallCap outperformed
23%).
More importantly, as someone brought
up to recognise that you cannot eat
relative performance, when UK SmallCap
has fallen then the following three years
have seen strong absolute returns. Last
year saw the sixth worst year of absolute
returns as the chart below shows (we will
next three years).
asset class. As someone with more grey
hair than most who has lived through
seven Bear markets, it is hard not to be
excited about investment opportunities
especially for long-term investors. To
borrow the words of Andrew Jones,
the highly regarded Chief Executive of
when you
invest in quality, time will help you to create
wealth”.
Since UK SmallCap appears to be cheap,
you would expect take-over activity to
pick up. Already there are signs that
M&A activity is indeed rearing its head
again (two of our holdings – Ideagen and
Dechra – received bids in the past year).
in January 2000, we consider the Chief
Executive Ian Page to be one of the very
best managers we have had the good
not have to part company. So, Private
Equity seems to share our view that the
pickings are as attractive as they have
been for several years.
I am sorry, as a fellow shareholder, that
worst three-year underperformance
since launch in 1995 but also a decline in
value. This is unprecedented. However,
for those willing to close their ears to the
noise and to ignore the doomsters at the
Bank of England, opportunities abound.
CHARLES MONTANARO
19 June 2023
page 10 Montanaro UK Smaller Companies Investment Trust PLC Annual Report and Accounts 2023
Twenty Largest Holdings
as at 31 March 2023
1. 4imprint
a supplier of promotional merchandise.
2. Games Workshop
the largest hobby miniatures company
in the world and the owner of the
3. Greggs
the bakery chain.
4. Diploma
a supplier of specialised consumables
in industrial seals, control systems
and healthcare mainly in Europe and
5. Clarkson
a leading shipping brokerage business.
6. discoverIE
a designer and manufacturer of
components for electronic applications.
7. Kainos
a software developer headquartered
in Belfast that specialises in digital
transformation.
8. Big Yellow
a real estate investment trust focused on
the self-storage market.
9. Marshalls
the UK’s leading provider of hard
landscaping products.
10. Tracsis
a provider of software and consulting
services to UK rail and transportation
markets.
11. Ergomed
a global full-service contract research
organisation (CRO) with a core focus on
the US and EU.
12. Watches of Switzerland
a British retailer of Swiss watches, with 16
stores in the United Kingdom.
13. Porvair
environmental technology.
14.
a specialist in the acquisition and
instrument businesses.
15. Boku
a mobile payments company.
16. Liontrust Asset Management
a specialist asset manager launched in
1995.
17. Dechra Pharmaceuticals
an animal health specialist.
18. Cranswick
the leading UK supplier of fresh pork
meat products.
19. Cerillion
a provider of billing, charging and
customer management systems.
20. Yougov
an Internet-based market research and
data analytics company.
Montanaro UK Smaller Companies Investment Trust PLC Annual Report and Accounts 2023 page 11
Holding Sector
Value
£’000
Market cap
£m
% of
portfolio
31 March
2023
% of
portfolio
31 March
2022
4imprint Media 14,475 1,355 7.2 3.6
Leisure Goods 9,640 3,173 4.8 1.4
Greggs Personal Care, Drug and Grocery Stores 9,016 2,833 4.5 2.1
Diploma Industrial Support Services 7,728 3,766 3.9 1.4
Clarkson Industrial Transportation 7,725 946 3.9 3.5
discoverIE Electronic and Electrical Equipment 7,710 743 3.8 3.3
Kainos Software and Computer Services 7,601 1,722 3.8 3.4
Big Yellow Real Estate Investment Trusts 7,306 2,154 3.6 3.6
Marshalls Construction and Materials 7,047 792 3.5 3.6
Tracsis Software and Computer Services 7,040 263 3.5 3.3
Ergomed Pharmaceuticals and Biotechnology 6,132 515 3.1 3.0
Personal Goods 6,116 1,954 3.0 2.9
Porvair Industrial Engineering 6,000 278 3.0 2.7
Electronic and Electrical Equipment 5,738 542 2.9 2.6
Boku Industrial Support Services 5,695 399 2.8 1.8
Liontrust Asset Management Finance and Credit Services 5,621 664 2.8 2.4
Dechra Pharmaceuticals Pharmaceuticals and Biotechnology 5,300 3,017 2.6 0.9
Cranswick Food Producers 5,257 1,610 2.6 2.6
Cerillion Software and Computer Services 5,214 330 2.6 1.8
Yougov Media 4,600 1,010 2.3 3.0
Twenty Largest Holdings 140,961 70.2
All investments are in ordinary shares.
As at 31 March 2023, the Company did not hold any equity interests comprising more than 3% of any company's share capital.
page 12 Montanaro UK Smaller Companies Investment Trust PLC Annual Report and Accounts 2023
Analysis of Investment Portfolio
by Industrial or Commercial Sector
as at 31 March 2023
31 March 2023 31 March 2022
Sector % of portfolio % of NSCI % of portfolio % of NSCI
Software and Computer Services 14.9 5.9 16.9 5.4
Technology Hardware and Equipment – 0.9 3.3 1.7
Technology 14.9 6.8 20.2 7.1
Telecommunications Equipment 1.3 0.8 – 0.2
Telecommunications Service Providers – 0.8 – 0.9
Telecommunications 1.3 1.6 – 1.0
Health Care Providers 1.4 0.8 2.0 0.8
Medical Equipment and Services – 0.2 – 0.4
Pharmaceuticals and Biotechnology 5.7 0.8 5.1 0.9
Health Care 7.1 1.8 7.1 2.2
Banks – 3.8 – 1.4
Finance and Credit Services – 2.1 – 2.1
Investment Banking and Brokerage Services 7.2 11.1 8.0 11.9
Life Insurance – 1.0 – 1.0
Non-life Insurance – 1.7 – 1.6
Financials 7.2 19.8 8.0 18.0
Real Estate Investment and Services Development – 2.6 – 2.6
Real Estate Investment Trusts 4.5 6.9 3.6 4.9
Real Estate 4.5 9.5 3.6 7.5
Automobiles and Parts – 1.7 – 1.5
Consumer Services – 0.3 – 0.3
Household Goods and Home Construction – 2.1 – 1.3
Leisure Goods 5.4 0.3 3.9 0.2
Personal Goods 3.0 0.1 2.9 0.3
Media 11.6 3.7 8.4 2.0
Retailers – 4.6 – 3.7
Travel and Leisure – 8.8 – 8.8
Consumer Discretionary 20.1 21.5 15.2 18.1
Beverages – 0.9 – 1.0
Food Producers 6.9 2.7 8.2 3.1
Personal Care, Drug and Grocery Stores 4.5 1.3 2.1 0.7
Consumer Staples 11.4 4.9 10.2 4.7
Construction and Materials 5.2 5.0 4.6 6.4
Aerospace and Defense – 2.4 0.7 3.8
Electronic and Electrical Equipment 13.2 2.9 10.8 2.5
General Industrials – 1.2 – 1.2
Industrial Engineering – 2.2 – 1.4
Industrial Support Services 11.3 5.9 9.0 8.1
Industrial Transportation 3.8 2.2 4.0 3.1
Industrials 33.6 21.9 29.1 26.4
Industrial Materials – 0.1 – 0.1
Industrial Metals and Mining – 2.2 – 2.0
Precious Metals and Mining – 2.5 – 2.2
Chemicals – 3.0 3.8 1.9
Basic Materials – 7.8 3.8 6.1
Oil, Gas and Coal – 4.0 – 6.5
Alternative Energy – 0.1 – 0.2
Energy – 4.0 – 6.8
Electricity – – – 1.0
– 0.3 2.7 1.1
Utilities – 0.4 2.7 2.0
Total 100.0 100.0 100.0 100.0
The investment portfolio comprises 40 traded or listed UK equity holdings.
Montanaro UK Smaller Companies Investment Trust PLC Annual Report and Accounts 2023 page 13
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
smaller 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 di
of quoted UK smaller companies.
At the time of initial investment, a
potential investee company must
bbigger than the
largest constituent of the NSCI, which
represents the smallest 10% of the UK
Stock Market by value. At the start of
2023 this was any company below £1.62
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
mohe 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
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
doporation 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 third party service
providers. A core element of this
process is the Company’s risk register
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 30 to 33. Details of the principal
and emerging risks and how these
are mitigated are set out below. The
al risks are summarised
in Note 15 to
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;
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 14 Montanaro UK Smaller Companies Investment Trust PLC Annual Report and Accounts 2023
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
Poor Investment Performance:
Returns achieved are reliant primarily on the performance of
the portfolio. Underperformance relative to the benchmark
No change in overall risk in the year
To manage the risk, a review is undertaken at each quarterly 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
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.
underperformance.
Risk Oversight:
The Manager is taking too much risk in the portfolio leading
to unacceptable volatility in performance or excessive
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:
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
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
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.
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. In January 2023
the Manager appointed a designated Co-Manager, Guido
Dacie-Lombardo for the management of the portfolio.
Montanaro UK Smaller Companies Investment Trust PLC Annual Report and Accounts 2023 page 15
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.
•
•
•
•
•
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
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 the continuity
of operations.
Cyber Risk:
The threat of cyber attack is regarded as being as important
as more traditional physical threats to business continuity
The Company has limited direct exposure to cyber risk.
However, the Company’s operations or reputation could be
security breach.
No change in overall risk in the year
The Board monitors the preparedness of its service providers and
Board meetings.
The Manager provides a report to the Board at each meeting
and information technology controls of the Manager around the
took place in the previous reporting period with a migration of the
Manager’s systems to a cloud-based system. During the current
reporting period the Manager appointed a specialist IT and cyber
monitoring and management provider to provide continuous
The annual review of the Administrator’s controls includes
cyber security controls are in place is requested on an annual basis
from all third party service providers.
Administrator
Daily NAV incorrectly stated.
Risk rating decreased given the absence of NAV errors.
Daily logic checks of the NAVs are undertaken by the AIFM.
Depositary checks are also undertaken.
meetings.
The AIFM conducts regular visits to 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
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
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.
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 16 Montanaro UK Smaller Companies Investment Trust PLC Annual Report and Accounts 2023
Business Model and Strategy continued
Principal Risks Mitigation
Financial:
The Company’s investment activities expose it to a variety of
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
Environmental, Social and Governance (“ESG”):
ESG in the context of investing continues to gain prominence,
therefore a consideration of ESG factors when undertaking
an investment is vital. Climate change and other ESG matters
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 and has been awarded various industry awards
recognising its commitment to ESG.
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
Performance to 31 March %
2023
1
2022
1
NAV per share total return
2
(12.2) (5.0)
Share price total return (12.4) (10.1)
Relative NAV per share
(4.3) (3.9)
Discount to NAV
2,3,4
8.3 7.8
Ongoing charges ratio
2
0.90 0.78
1
Returns for both 2022 and 2023 are Total
Returns, i.e. including dividends reinvested.
2
Alternative performance measures. Please see
page 65 for further information.
3
London Stock Exchange closing price.
4
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
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
2023 was 8.3%. During the year, the
shares traded at an average discount to
NAV of 6.2%.
Further details setting out how the
discount or premium at which the
Company’s shares trade is calculated
is provided in the Alternative
Performance Measures on page 65.
Ongoing charges ratio
The Board reviews the ongoing charges
and monitors the expenses incurred by
the Company on an ongoing basis. Full
details of how the ongoing charges ratio
is calculated is included in the Alternative
Performance Measures on page 65.
VIABILITY STATEMENT
In accordance with the AIC Code of
Corporate 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
31 March 2028.
In the absence of any adverse change to
the regulatory environment and to the
treatment of UK investment trusts, the
•
represent the horizon over which
they do not expect there to be any
and
•
the period over which they can form
a reasonable expectation of the
Company’s prospects.
In its assessment, the Board took into
position, its ability to meet liabilities as
they fall due and the principal risks as set
out on pages 13 to 16. In reviewing the
•
the portfolio is comprised solely of
cash balances and equity securities
listed or traded on the London Stock
•
the current portfolio could be
liquidated to the extent of 73%
is no expectation that the nature
of the investments held within the
•
future revenue and expenditure
the expenses and interest
payments of the Company
are predictable and relatively
there are no expected capital
outlays.
Montanaro UK Smaller Companies Investment Trust PLC Annual Report and Accounts 2023 page 17
In addition to considering the Company’s
of the Company as referenced above,
the Directors also took account of the
following assumptions in considering the
•
the Board and the Manager will
continue to adopt a long-term view
•
it is reasonable to believe that the
Company will maintain the credit
facilities currently provided by
•
the Company invests principally in
the securities of quoted UK smaller
companies to which investors will
•
the Company has a large margin
of safety over the covenants on
•
there will continue to be demand for
•
the next continuation vote will be in
2027. Further details are provided in
the Directors’ Report on page 25
•
regulation will not increase to a
level that makes the running of the
•
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
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
Modern Slavery Act 2015.
DIVERSITY AND INCLUSION
The Board’s policy on diversity is to
ensure that the Directors on the Board
have a broad range of experience,
skills and knowledge, with diversity of
thinking, background and perspective.
Appointments to the Board are made on
merit against objective criteria, having
the current and future needs of the
business and the other factors set out in
the AIC Code.
Diversity, including, but not limited to,
gender, social background, ethnicity,
age, sexual orientation, disability and
knowledge, 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 notes the new
Leaders Review and the Parker Review
on gender and diversity, as well as the
new FCA rules on diversity and inclusion
on company boards, namely, that from
accounting periods starting on or after
1 April
(a) At least 40% of individuals on the
(b) At least one senior Board position to
(c) At least one individual on the
Board to be from a minority ethnic
background.
The Board continues to develop its succession planning in line
with these recommendations. In accordance with Listing Rule
9 Annex 2.1. The tables below, in prescribed format, show the
gender and ethnic background of the Directors at the date of
this Report.
Gender identity
or sex
Number of
1
Percentage
Number of
Men 2 50% 2
2 50% –*
prefer not to say
NA NA NA
1. The Company does not disclose the number of Directors in executive
management as this is not applicable for an externally managed
InvestmentTrust.
the Board’, Barbara Powley is Chair of the Nomination and Remuneration
Committee and will replace James Robinson as SID when James steps down
Ethnic background
Number of
Percentage
Number of
senior
(including
minority white
groups)
4 100% 100%
prefer not to say
NA NA NA
The data in the above tables was collected through
self-reporting by the Directors.
page 18 Montanaro UK Smaller Companies Investment Trust PLC Annual Report and Accounts 2023
Business Model and Strategy continued
The Board is pleased to report that for
the period ended 31 March 2023, the
Company exceeded the requirement
to have a minimum of 40% female
representation on the Board, with two
out of four Directors on the Board
being women. Since April 2021, the
role of Nomination and Remuneration
Committee Chair has been held by
Barbara Powley. It is intended that
Barbara Powley will succeed James
Robinson both as Senior Independent
Director (“SID”) and Chair of the
Audit and Management Engagement
Committee when he steps down
from the Board at the conclusion of
the upcoming AGM. Therefore, the
a senior Board position to be held by
a woman from the conclusion of the
The Company does not currently meet
the target of at least one member
of the Board from a minority ethnic
background.
feel that it would be appropriate to set
targets as all appointments must be
made on merit, the Board supports the
recommendation to seek candidates
from a diverse pool and will consider
ethnic representation within the wider
context of objective criteria such as
relevant skills during the recruitment
process for a new director.
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
no employees, all of the Directors are
non-executive and it has outsourced all
of its functions to third-party providers,
these requirements do not apply and the
Company has not, therefore, reported
further in respect of these provisions.
Montanaro UK Smaller Companies Investment Trust PLC Annual Report and Accounts 2023 page 19
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.
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
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
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 16.
DECISION-MAKING
The importance of stakeholder considerations, in particular
in the context of decision-making, is regularly brought to the
Board’s attention by the Company Secretary and taken into
account at every Board meeting. A paper reminding Directors
of that is tabled at the start of every Board meeting. For
example, the strategic planning discussions involve careful
considerations of the longer-term consequences of any
decisions and their implications on shareholders and other
stakeholders.
COMMUNITY AND ENVIRONMENT
The Manager is a signatory to the Principles for Responsible
Investment, the UK Stewardship Code, the Carbon Disclosure
Project, the LGPS Code of Transparency and the Net Zero
Asset Managers initiative. In June 2019, Montanaro became a
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 recognises that the Company has certain
responsibilities to its shareholders, stakeholders and wider
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
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 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
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
correct procedures. The Report of the Audit and Management
Engagement Committee, which can be found on pages 34 to
36 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
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.
Company does not have any employees or customers, its key
page 20 Montanaro UK Smaller Companies Investment Trust PLC Annual Report and Accounts 2023
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.
years, the Company has developed various ways of engaging with its
shareholders in order to gain an understanding of the views of our
•
Annual General Meeting – The Company welcomes
attendance from shareholders at its Annual General Meeting,
have an opportunity to meet the Directors and put questions
to the Manager. A presentation is shared with investors and
made available on the Company’s website for those who are not
attending. The Board greatly values the feedback and questions
it receives from shareholders and takes action or makes
•
Company Information – The annual and interim results, as well
as monthly factsheets, are available on the Company’s website.
the shareholders help the Company to evolve its reporting,
aiming to render the reports and updates transparent and
and
•
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.
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 collectively 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,
•
•
Recognising that the interests of shareholders and the
Manager are for the most part well aligned, adopting a tone of
constructive challenge.
Directors’ Duties continued
Montanaro UK Smaller Companies Investment Trust PLC Annual Report and Accounts 2023 page 21
Stakeholders Why they are important Board 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
to support it with meeting all of its
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 at least on an annual basis.
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. 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.
Details of our engagement with the community and the environment
can be found on page 19.
page 22 Montanaro UK Smaller Companies Investment Trust PLC Annual Report and Accounts 2023
PRINCIPAL DECISIONS DURING THE YEAR ENDED 31 MARCH 2023
Principal decision Stakeholder Considerations and Engagement
To provide a live
webcast facility at
the Company’s 2022
Annual General
Meeting (“AGM”) to
enable shareholders
to attend the
additional arrangements to ensure that shareholders were able to attend the AGM via a live audio
webcast facility. An announcement was issued to the market on 20 July 2022 to inform shareholders of
the alternative method of attending the AGM and encouraging them to vote in advance of the meeting
to ensure their votes were counted. These details were also published on the Company’s website.
Shareholders were also encouraged to submit any questions to the Board ahead of the AGM.
shareholder participation, to ensure that shareholders were not disadvantaged by travel implications.
To put in place
succession planning
for the Audit and
Management
Engagement
Chair and Senior
Independent
Director,
During the year the Board considered succession planning for James Robinson, noting that he would
complete a tenure of nine years as at September 2022. Following review and in light of her recent and
Management Engagement Chair and Senior Independent Director when he stood down from the Board.
As a consequence of Mr Robinson’s forthcoming resignation, the Directors considered their collective
skills and used this exercise as a basis for identifying the criteria for a new Director appointment.
The Chairman’s Statement on pages 2 and 3, the Manager’s Report on pages 4 to 9 and the portfolio analysis on page 12 all form
part of this Strategic Report, which has been approved by the Board of Directors.
On behalf of the Board
ARTHUR COPPLE
Chairman
19 June 2023
Directors’ Duties continued
Montanaro UK Smaller Companies Investment Trust PLC Annual Report and Accounts 2023 page 23
Board of Directors
James Robinson – Senior Independent Director and Chairman of the Audit and
Management Engagement Committee
30 September 2013
James is Until December 2022, James was
a non-executive Director of JPMorgan Elect plc. A chartered accountant, he was
Henderson Global Investors and held non-executive director positions at 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: James’ experience as a chartered accountant brings
Company’s risk appetite. His experience helps inform his role as Chairman of the
investment trusts at Henderson Global Investors.
As the longest-serving director on the Board, James Robinson reached a tenure
of nine years in September 2022 and has announced his intention to retire at the
conclusion of the 2023 AGM. Accordingly, he will not be standing for re-election and
27 July 2023.
MUSCIT has a highly experienced Board of Directors with extensive knowledge of investment management and investment trusts.
Arthur Copple – Chairman of the Board
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.
Relevant skills and experience and reasons for re-election: Arthur served on
the Board of Temple Bar Investment Trust Plc for 12 years and 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
page 24 Montanaro UK Smaller Companies Investment Trust PLC Annual Report and Accounts 2023
Catriona Hoare – Non-Executive Director
19 November 2019
Catriona joined Veritas Investment Partners Limited in 2013. In her current role as
and investment governance committees. She was appointed as Director of Veritas
Investment Management (UK) Limited in May 2022. 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 re-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
Barbara Powley – Chair of the Nomination and Remuneration Committee
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 re-election: Barbara has extensive
and accounting experience. Her diverse skill-set facilitates open discussion and
allows for constructive challenge in the boardroom. Barbara has been Chair of the
Nomination and Remuneration Committee since April 2021.
Following a rigorous Board evaluation process, the Board agreed that Barbara
Barbara will succeed James Robinson as Chair of the Audit and Management
Engagement Committee and SID when James steps down from the Board,
27 July 2023.
Board of Directors continued
Montanaro UK Smaller Companies Investment Trust PLC Annual Report and Accounts 2023 page 25
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
•
Corporate Governance Statement – refer to pages 30 to 33
•
Strategy and relevant future developments – refer to the
Chairman’s Statement on pages 2 and 3, the Manager’s
Report on pages 4 to 9
•
Financial risk management objectives and policies. An
analysis of the portfolio along with further information
provided in Note 15 on pages 58 to 61.
The outlook for the Company is set out in the Chairman’s
Statement on page 3. Principal and emerging risks can be
found on pages 13 to 16, with further information on risk
management objectives in Note 15 to the accounts.
The Directors present the Annual Report and Accounts of the
Company for the year ended 31 March 2023.
STATUS OF THE COMPANY
under registered number 3004101 and is domiciled in the
United Kingdom and registered as an investment company as
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
continued approval and intends to continue to do so. As an
investment company that is managed and marketed in the
United Kingdom, the Company is an Alternative Investment
Fund (“AIF”) falling within the scope of, and subject to, the
requirements of the Alternative Investment Fund Managers
Directive (“AIFMD”). Further details are provided in the AIFMD
Disclosures on page 62.
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 48.
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 56.
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. 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
on a going concern basis. After reviewing the Company’s
forecast projections and actual performance on a regular
basis throughout the year, the Directors believe that this is the
appropriate basis. The Directors consider that the Company
has adequate resources to continue in existence until at least
31 March 2025. 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 Board also considered potential downside scenarios
which could lead to a breach in the Company’s loan covenants,
including consideration of when total borrowings would exceed
30% of (adjusted) NAV and the required fall in net assets for the
NAV to fall below £80m. Both scenarios were deemed unlikely
and therefore there is not a material risk that the Company will
breach its loan covenants. The Company is also able to meet
all of its liabilities from its assets and the ongoing charges are
approximately 0.9
The Company’s longer-term viability is considered in the
Viability Statement on pages 16 and 17.
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.
holders of securities regarding their transfer known to the
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 28.
page 26 Montanaro UK Smaller Companies Investment Trust PLC Annual Report and Accounts 2023
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
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 2023 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
31 March
2023 to the date of this report.
DIRECTORS
this report are provided on pages 23 and 24 and their interests
in the shares of the Company are shown on page 39. 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, Ms Hoare
and Mrs Powley will stand for re-election at the 2023 AGM. It is
noted that Mr Robinson completed nine years on the Board in
September 2022. Mr Robinson stood for re-election for the last
time at the 2022 AGM and has announced that he intends to
retire at the conclusion of the 2023 AGM.
As a consequence of Mr Robinson’s upcoming departure, the
recruitment process for a new independent Non-Executive
Director is underway.
As set out on page 31, following a performance review, the
Board believes that it is in the best interests of shareholders
that each Director (with the exception of Mr Robinson)
continue in their roles and believes that it would be in the
Company’s best interests for each of them to be proposed for
re-election at the forthcoming AGM, given their material level of
contribution, commitment to the role and for the reasons set
out on page 31.
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
the Company’s Articles of Association provide, subject to
the provisions of applicable UK legislation, an indemnity
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.
CONFLICTS OF INTEREST
The Board has approved a procedure for identifying, reporting
are aware that there remains a continuing obligation to notify
during the year under review and intends to continue to review
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.
Montanaro UK Smaller Companies Investment Trust PLC Annual Report and Accounts 2023 page 27
SUBSTANTIAL SHAREHOLDINGS
At 31 March 2023, the Company had been informed of the
Ordinary
shares
% of
voting
rights
Rathbone Investment Management
Limited 16,720,283 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 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
6,142,500 3.7
Since 31 March 2023, and as at 19 June 2023, being the
latest practicable date prior to the publication of this annual
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
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
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
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
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
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
22 July 2014.
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.
page 28 Montanaro UK Smaller Companies Investment Trust PLC Annual Report and Accounts 2023
Directors’ Report continued
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
ADMINISTRATOR
Link Alternative Fund Administrators Limited is the appointed
Administrator until 30 June 2023. They receive an annual
fee of £88,890, which is subject to annual RPI increases. The
agreement may be terminated by either party giving not less
than six months’ prior written notice.
The Company has appointed Juniper Partners Limited as
1 July 2023.
COMPANY SECRETARY
Link Company Matters Limited is the appointed Company
Secretary until 30 June 2023. They receive an annual fee
of £59,556, which is subject to annual RPI increases. The
agreement may be terminated by either party giving not less
than six months’ prior written notice.
The Company has appointed Juniper Partners Limited as
1 July 2023.
JUNIPER PARTNERS
As noted in the Chairman’s Statement, the Company has
1 July 2023, Juniper Partners
Limited (“Juniper”) as Company Secretary and Administrator,
in place of Link Company Matters Limited and Link Alternative
Fund Administrators Limited respectively. Juniper are entitled
0.01 per cent per annum of the value of Shareholders’ Funds
over £1 billion. The Board and Juniper have agreed that the
following the appointment and by £15,000 for the 12 months
thereafter.
The agreement may be terminated by either party 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
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
CHANGE OF CONTROL
There are no agreements to which the Company is a party
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 58.
CORPORATE GOVERNANCE
The Corporate Governance Statement, which forms part of this
Directors’ Report, is set out on pages 30 to 33.
FUTURE DEVELOPMENTS OF THE COMPANY
The outlook for the Company is set out in the Chairman’s
Statement on page 3 and the Manager’s Report on page 7.
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
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 EU.
Montanaro UK Smaller Companies Investment Trust PLC Annual Report and Accounts 2023 page 29
LISTING RULE 9.8.4
or a table cross referencing where the information is set out.
required in relation to Listing Rule 9.8.4.
LR 9.8.4(5)(6) Under the Company’s Remuneration Policy, the
SID is entitled to an additional fee of £1,200.
However, Mr Robinson has waived his entitlement
to the additional £1,200. This decision will be kept
under review and the Remuneration Policy still
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 2023 (the “Notice”) is set out on pages 68 to 75.
Resolutions 1 to 9 will be proposed as Ordinary Resolutions and
Resolutions 10 and 11 will be proposed as Special Resolutions.
Authority to Allot Shares (Resolution 9)
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
19 June 2023.
This authority will expire at the conclusion of the AGM to be
held in 2024 unless renewed prior to that date.
Disapplication of Pre-emption Rights (Resolution 10)
from shareholders before allotting new shares or selling shares
shareholders in proportion to their holdings.
Resolution 10 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 19 June 2023. This authority
will expire at the conclusion of the AGM to be held in 2024
unless renewed prior to that date.
The Directors will only allot new shares pursuant to the
authorities proposed to be conferred by Resolutions 9 and 10 if
they believe it is advantageous to the Company’s shareholders
to do so 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 11)
The resolution to be proposed will seek to renew the authority
granted to Directors enabling the Company to purchase its
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 2024 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
“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
there is no relevant audit information of which the Company’s
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
19 June 2023
page 30 Montanaro UK Smaller Companies Investment Trust PLC Annual Report and Accounts 2023
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
meetings held during the year ended 31 March 2023 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 1 1
James Robinson 4 4 3 3 1 1
Catriona Hoare 4 4 3 3 1 1
Barbara Powley 4 4 3 3 1 1
The Board also met informally on a number of occasions during the year.
THE BOARD
As Chairman, Arthur Copple is responsible for leading the
line with the requirements of the AIC Code, the responsibilities
of the Chairman and the Senior Independent Director (“SID”)
have been agreed by the Board and are available to view on
The Board has formalised the arrangements under which
Directors, in the furtherance of their duties, may take
independent professional advice. The Company also maintains
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
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
delegated functions to them. Further details of the Investment
Management Agreement are given on page 27. A schedule of
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 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
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 2023 page 31
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
The objective of the evaluation is to obtain constructive
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
process, identifying any areas for improvement. The appraisal
of the Chairman is led by 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
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, and knowledge and that the Board and its
arising from the evaluation concerned succession planning for
James Robinson. Mr Robinson announced his retirement from
27 July 2023, in February 2023. The Board
recognises the opportunity to recruit a new Non-Executive
Director and will consider the updated diversity and inclusion
Listing Rule guidance in this regard. The Board has completed
a skills matrix exercise to the existing skills of the
Board as a collective and to identify the criteria for a suitable
candidate.
The Board
considered whether an external performance evaluation
should be undertaken in the future and notes 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
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
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
fresh perspectives and helping to promote diversity. It is noted
that James Robinson completed nine years on the Board in
September 2022. Mr Robinson stood for re-election for the last
time at the 2022 AGM and intends to retire at the conclusion
of the 2023 Annual General Meeting. 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
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
for re-election at the forthcoming Annual General Meeting,
with the exception of James Robinson who has announced
his intention to retire at the conclusion of the 2023 Annual
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
page 32 Montanaro UK Smaller Companies Investment Trust PLC Annual Report and Accounts 2023
Corporate Governance Statement continued
During the year, the Manager on behalf of the Company
Meetings
48
Number of meetings voted against management
5
Resolutions
676
1
8
BOARD COMMITTEES
leadership role similar to that of the Chairman of the Board,
particularly in creating the conditions for overall Committee and
Audit and Management Engagement Committee
This Committee is comprised of all Directors and is chaired by
James Robinson, who is a Chartered Accountant. The Board
experience to guide the Committee in its deliberations. In light
27 July 2023)
it is intended that Barbara Powley will take over as Chair of the
Audit and Management Engagement Committee as at the same
date.
The report from this Committee is set out on pages 34 to 36.
Nomination and Remuneration Committee
The Committee is comprised of all Directors and is chaired
by Barbara Powley. The Committee meets as required for the
purpose of considering recruitment to, and removals from, the
the Directors’ Remuneration Report and Remuneration Policy.
The Committee is a joint Nomination and Remuneration
committee. It is considered that all D
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 31 of this Corporate
Governance Statement.
The Committee considers that the performance of each of
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 required
disclosures in accordance with Listing Rule 9.8.6R (9) can be
found on page 17.
Each Committee has adopted formal written terms of
reference which are available on the Company’s website
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
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
risk management. The Committee will take actions to remedy
recommendations to the Board, as appropriate. Information
and policies is set out in Note 15 of the Financial Statements on
pages 58 to 61. The key procedures that have been established
•
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
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 13 to
16. 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
•
in accordance with guidance issued to directors of listed
companies, the Board has carried out a review of the
internal control processes. There were no matters arising
from this review that required further investigation and no
•
a risk register is maintained against which the risks
can be monitored. The risks are assessed on the basis
of the likelihood of them happening, the impact on the
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.
Montanaro UK Smaller Companies Investment Trust PLC Annual Report and Accounts 2023 page 33
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
•
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
•
Link Alternative Fund Administrators Limited (“LAFA”) is
•
company secretarial duties are undertaken by Link
•
depositary services and custody of assets are undertaken
•
the duties of investment management, accounting and the
•
the procedures of the individual parties are designed to
•
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
•
mandates for authorisation of investment transactions and
•
Administrator in detail on a regular basis.
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
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
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
returns for the Company and anticipated performance returns
cannot be guaranteed. The PRIIPs KID in respect of the
BRIBERY PREVENTION POLICY
The Board takes its responsibility to prevent bribery very
seriously, 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
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
19 June 2023
page 34 Montanaro UK Smaller Companies Investment Trust PLC Annual Report and Accounts 2023
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 2023.
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 James Robinson, a Chartered
Having completed nine years on the Board in September
2022, Mr Robinson has announced his intention to retire
at the conclusion of the 2023 Annual General Meeting and
MrsBarbara Powley will take over his role as Chair of the
Committee as at the same date.
reference and comprises all the Directors. Given the size
of the Board and Mr Arthur Copple’s experience, it is felt
appropriate for him to sit on the Committee. The Directors have
ROLE OF THE COMMITTEE
•
monitor the process for the production and integrity of the
•
•
•
review annually the need for the Company to have its own
•
consider the terms of appointment, remuneration,
•
make recommendations to the Board in relation to the
•
•
develop and implement a policy on the supply of non-audit
•
review annually the performance of the Manager and the
•
review annually the performance of other third party
•
review annually the Manager’s arrangements for
its employees and contractors to raise concerns, in
,
MATTERS CONSIDERED IN THE YEAR
The Committee meets at least three times a year. At the three
•
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 their
agreements remain competitive
•
agreed the audit fee and audit plan with the Auditor,
•
received and discussed with the Auditor their report on the
•
•
reviewed the Manager’s arrangements for its employees
•
reviewed the Investment Management Agreement to
•
•
•
recommended to the Board that the Manager’s
•
reviewed and, where appropriate, updated the Company’s
•
reviewed its own performance as a Committee and its own
Terms of Reference.
Report from the Audit and Management
Engagement Committee
Montanaro UK Smaller Companies Investment Trust PLC Annual Report and Accounts 2023 page 35
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
Subsequent to discussion with the Manager and the Auditor,
the Committee determined the following key areas of risk in
ended 31 March
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.
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
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
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
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 25.
INTERNAL CONTROL
The Committee is responsible for ensuring that suitable
controls are in place to prevent and detect fraud, error and
outsources all of its functions to third parties, it requires
these service providers to report on their internal controls.
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 economic
impact of Russian sanctions and any residual impact relating
cloud-based systems and security software during 2021, the
Manager has continued to put in place additional mitigations
against cyber security risks. These mitigations included
the appointment of a specialist IT and cyber monitoring
and management provider in 2022, providing continuous
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.
31 July
2020, continues as Auditor. The Audit Committee reviews the
re-appointment of the auditor every year. The Committee
following the completion of the annual audit process for the
year ended 31 March 2023, taking into consideration their
standing, skills, experience, performance and objectivity of
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
independent challenge in carrying out its responsibilities.
Following this review, the Committee concluded that the audit
page 36 Montanaro UK Smaller Companies Investment Trust PLC Annual Report and Accounts 2023
BDO’s fee in respect of the audit for the year ended 31 March
year ended 31 March 2023 is Peter Smith’s third year as
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
•
the provision of the services would contravene any
•
the Auditor is not considered to be an expert provider of
•
the provision of such services by the auditor creates a
•
the services are considered to be likely to inhibit the
auditor’s independence or objectivity as auditor.
As the Company is a Public Interest Entity listed on the London
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 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
The Statement of Directors' Responsibilities in respect of the
Annual Report and Financial Statements is on page 40.
By order of the Board
JAMES ROBINSON
Chairman, Audit and Management Engagement Committee
19 June 2023
Report from the Audit and Management
continued
Montanaro UK Smaller Companies Investment Trust PLC Annual Report and Accounts 2023 page 37
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
have been audited, they are indicated as such. The Auditor’s
opinion is included in their report on pages 41 to 47.
The Committee is chaired by Barbara Powley and is comprised
of all Directors. The Committee 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
I am pleased to present the Directors’ Remuneration Report for
the year ended 31 March 2023.
Having reviewed the current level of remuneration payable
to Directors, in accordance with the Remuneration Policy, the
1 April 2023
Directors’ Fees would be payable as set out in the Future Policy
Remuneration Table on page 38. As disclosed on page 29,
Mr Robinson has waived his entitlement to the additional
£1,200 which the Remuneration Policy permits him to take for
his role as Senior Independent Director.
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 2022 AGM. The Board has
reviewed the Remuneration Policy and believes that it remains
appropriate, with no changes required. Accordingly, it is
expected that a resolution to approve the policy will next be put
to shareholders at the 2025 AGM.
Remuneration Policy
Purpose
and link to
strategy
•
individuals of a high calibre with suitable
knowledge and experience to promote the
•
•
•
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
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
Directors responsibilities.
Fixed fee
element
Directors are not eligible to be compensated
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
Description Annual fees are set at a competitive level for
the industry and also appropriate for the role,
based on individual skills, time commitment
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
OResolution.
page 38 Montanaro UK Smaller Companies Investment Trust PLC Annual Report and Accounts 2023
Directors’ Remuneration Report continued
Remuneration Policy continued
Taxable
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
are subject to tax and national insurance.
Future Remuneration Policy Table
Following a review of the level of Directors’ fees, the Nomination
and Remuneration Committee concluded that commencing
1 April 2023, the Chairman’s fee be increased to £41,500, the
Audit and Management Engagement Committee Chair’s fee
be increased to £33,500 and Director fees be increased to
£28,500. The additional fee which may be paid to the Senior
Independent Director will be increased to £1,200. These
changes have been made following consideration of Directors’
remuneration in the context of its peers, the wider investment
2.
Based on these fees, Directors’ fees for the forthcoming
ending
ending
31 March 2023
Chairman 41,500 38,500
Audit and Management
Engagement Committee
Chairman 33,500 31,000
Director 28,500 26,500
Annual percentage change in remuneration of Directors
2023
£
Change
%
2022
£
Change
%
2021
£
Change
%
2020
£
Chairman 38,500 4.8 36,750 5.0 35,000 – 35,000
Audit and Management Engagement
CommitteeChairman 31,000 5.1 29,500 5.4 28,000 – 28,000
Director 26,500 5.0 25,250 5.2 24,000 – 24,000
10 June 2019
and, as such, this is the third year the Company has disclosed this information. The comparison will be expanded in future annual
Directors’ Emoluments for the Year (Audited)
Fees
£
£
Total
£
remuneration
£
Total variable
remuneration
£
2023 2022 2023 2022 2023 2022 2023 2022 2023 2022
Arthur Copple 38,500 36,750 – – 38,500 36,750 38,500 36,750 – –
Catriona Hoare 26,500 25,250 – – 26,500 25,250 26,500 25,250 – –
James Robinson 31,000 29,500 229 – 31,229 29,500 31,000 29,500 229 –
Barbara Powley 26,500 25,250 1,376 694 27,876 25,944 26,500 25,250 1,376 694
Total 122,500 116,750 1,605 694 124,105 117,444 122,500 116,750 1,605 694
No sums are paid to any third parties in respect of Directors services, and no sums were paid to any third parties in respect of
31 March
Montanaro UK Smaller Companies Investment Trust PLC Annual Report and Accounts 2023 page 39
The Company does not have any employees and therefore no
comparisons are given in respect of employees’ pay increases.
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 2013)
* The Benchmark is the NSCI since 1 April 2013. 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 2022 and the Remuneration Policy were approved by
shareholders at the AGM held on 27 July 2022. The proxy voting
Remuneration Report Remuneration Policy
Number of
votes cast %
Number of
votes cast %
For* 83,279,364 99.90 83,266,732 99.89
Against 87,399 0.10 90,399 0.11
Total votes cast 83,366,763 83,357,131
Number of
votes withheld 12,773 0.02 22,405 0.03
* 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.
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
As at
31 March 2023
No. of shares
As at
1 April 2022
No. of shares
Arthur Copple
1
125,000 125,000
Catriona Hoare 9,039 9,039
James Robinson
2
40,000 40,000
Barbara Powley 12,449 11,960
1
Includes 25,000 shares held by Mrs Copple
2
Held jointly by Mr and Mrs Robinson
On 11 May 2023, Barbara Powley acquired 132 shares in
the Company and now holds 12,581 shares in total. There
have been no other changes to the above holdings between
31 March 2023 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
31 March
a)
b) the distributions made to shareholders by way of
dividends.
Year ended
31 March 2023
£
Year ended
31 March 2022
£
Change
%
Total remuneration 124,105 117,444 5.67
Dividends paid 7,565,567 10,779,258 (29.81)
Statement of implementation of Remuneration Policy in
Apart from the fee increases disclosed in this report which
31 March 2024,
no other changes are proposed. The Committee will, as usual,
any further changes to remuneration are required.
On behalf of the Board
BARBARA POWLEY
Chair, Nomination and Remuneration Committee
19 June 2023
80
100
160
220
140
200
180
201320142015201620172018 20232022202120202019
Share Price Total Return
Benchmark Total Return
120
page 40 Montanaro UK Smaller Companies Investment Trust PLC Annual Report and Accounts 2023
Statement of Directors’ Responsibilities
in respect of the Annual Report and the Financial Statements
The Directors are responsible for preparing the Annual Report
and regulations.
UK Accounting Standards and applicable law (UK Generally
Accepted Accounting Practice) including FRS 102 “The Financial
Reporting Standard applicable in the UK and Republic
Under company law, the Directors must not approve the
•
select suitable accounting policies and then apply them
•
make judgements and estimates that are reasonable
•
state whether applicable UK Accounting Standards
have been followed, subject to any material departures
•
basis unless it is inappropriate to presume that the
•
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
transactions and disclose with reasonable accuracy at any
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
Financial statements are published on the Company’s website
in accordance with legislation in the United Kingdom governing
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
contained therein.
•
UK Accounting Standards, give a true and fair view of
•
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
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
19 June 2023
Montanaro UK Smaller Companies Investment Trust PLC Annual Report and Accounts 2023 page 41
OPINION ON THE FINANCIAL STATEMENTS
•
•
•
have been prepared in accordance with the requirements of the Companies Act 2006.
year ended 31 March 2023 which comprise the Income Statement, the Statement of Changes in Equity, the Balance Sheet and
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
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 July31 March 2021 and
years, covering the years ended 31 March 2021 to 31 March
requirements. The non-audit services prohibited by that standard were not provided to the Company.
CONCLUSIONS RELATING TO GOING CONCERN
•
Evaluating the appropriateness of the Directors’ method of assessing the going concern in light of market volatility and the
•
Assessing the appropriateness of the Directors’ assumptions and judgements made by considering our knowledge of the
entity obtained through the audit and comparing the prior year forecasted income and costs projected for the 12 months to
•
Assessing the appropriateness of the Directors’ assumptions and judgements made in their forecasts including consideration
•
Challenging the Directors’ assumptions and judgements made in their forecasts by performing an independent analysis of
•
Reviewing the loan agreements to identify the covenants and assessing the likelihood of them being breached based on the
Directors’ forecasts and our sensitivity analyses.
In relation to the Company’s reporting on how it has applied the UK Corporate Governance Code, we have nothing material to add
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 42 Montanaro UK Smaller Companies Investment Trust PLC Annual Report and Accounts 2023
Independent Auditor’s Report continued
to the Members of Montanaro UK Smaller Companies Investment Trust PLC
Key audit matters 2023 2022
• Valuation and ownership of investments
• Revenue recognition
Revenue recognition is no longer considered to be a KAM given the
Company has a capital objective.
Materiality
•
Our audit was scoped by obtaining an understanding of the Company and its environment, including the Company’s system
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 2023 page 43
Key audit matters
Key audit matter
How the scope of our audit addressed the
Valuation and ownership
of investments
Note 1 and Note 9
The investment portfolio at the year-end comprised of
quoted equity investments.
There is a risk that the prices used for the quoted
fair value and the risk that errors made in the recording
of investments owned by the Company.
Therefore we considered the valuation and ownership
area as the quoted investments also represent the
underpin the principal activity of the entity.
For these reasons and the materiality of the balance
considered this to be a key audit matter.
by testing the valuation and
ownership of the whole portfolio
performed the following
•
price was used by agreeing to
•
Assessed if there were
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
•
Recalculated the valuation
by multiplying the number of
shares held per the statement
obtained from the custodian
and
•
of the number of shares
held per equity investment
from the custodian regarding
all investments held at the
balance sheet date.
Key observations:
Based on our procedures
performed we consider the
valuation and ownership of the
quoted equity investments to be
appropriate.
page 44 Montanaro UK Smaller Companies Investment Trust PLC Annual Report and Accounts 2023
Independent Auditor’s Report continued
to the Members of Montanaro UK Smaller Companies Investment Trust PLC
OUR APPLICATION OF MATERIALITY
ncept of materiality both in planning and performing our audit, and in evaluatin
consider materiality to be the magnitude by which misstatements, including omissions, economic decisions of
reasonable users that are taken on theial 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 ofments, and the
particular circumstances of their occurrence, when evaluating theancial statements as a whole.
Based on our professional judgement, we determined materiality for thes as a whole and performance
materiality
2023
£
2023
£
Materiality £1,916,000 £2,300,000
Basis for determining materiality 1% of Net assets
Rationale for the benchmark applied As an investment trust, the net asset value is the
Performance materiality £1,440,000 £1,730,000
Basis for determining performance materiality 75% of materiality
Basis for determining performance materiality The level of performance materiality applied was set after having considered
a number of factors including the expected total value of known and likely
misstatements and the level of transactions in the year.
Lower testing threshold
investments after expenses. As a result, we determined a lower testing threshold for those items impacting revenue return of
Reporting threshold
OTHER INFORMATION
The directors are responsible for the other information. The other information comprises the information included in the
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
of the audit, or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material
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.
Montanaro UK Smaller Companies Investment Trust PLC Annual Report and Accounts 2023 page 45
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
Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the Corporate
Going concern and longer-term viability
•
The Directors' statement with regards to the appropriateness of adopting the
and
•
The Directors’ explanation as to their assessment of the Company’s prospects,
the period this assessment covers and why the period is appropriate.
Other Code provisions
•
•
•
•
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
•
the information given in the Strategic report and the Directors’ report for the
•
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
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
•
adequate accounting records have not been kept, or returns adequate for
•
•
or
•
we have not received all the information and explanations we require for
page 46 Montanaro UK Smaller Companies Investment Trust PLC Annual Report and Accounts 2023
Independent Auditor’s Report continued
to the Members of Montanaro UK Smaller Companies Investment Trust PLC
RESPONSIBILITIES OF DIRECTORS
As explained more fully in the Statement of Directors’ Responsibilities, the Directors are responsible for the preparation of the
to fraud or error.
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
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
Extent to which the audit was capable of detecting irregularities, including fraud
responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which
Non-compliance with laws and regulations
•
•
•
AIC Code of Corporate Governance, industry practice represented by the AIC SORP, the applicable accounting framework, and
various deductions and exemptions from corporation tax.
•
•
•
•
Reviewing the calculation in relation to Investment Trust compliance to check that the Company was meeting its requirements
to retain their Investment Trust Status.
Montanaro UK Smaller Companies Investment Trust PLC Annual Report and Accounts 2023 page 47
Fraud
•
•
•
•
Internal controls established to mitigate risks related to fraud.
•
•
Based on our risk assessment, we considered the areas most susceptible to be management override of controls.
•
•
•
•
evidence of bias by the Investment Manager and Directors that represented a risk of material misstatement due to fraud.
who were all deemed to have appropriate competence and capabilities and remained alert to any indications of fraud or
non-compliance with laws and regulations throughout the audit.
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
. 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
19 June 2023
page 48 Montanaro UK Smaller Companies Investment Trust PLC Annual Report and Accounts 2023
Income Statement
for the year to 31 March 2023
Year to 31 March 2023 Year to 31 March 2022
Notes
Revenue
£’000
Capital
£’000
Total
£’000
Revenue
£’000
Capital
£’000
Total
£’000
Losses on investments designated at fair value
9 – (29,891) (29,891) – (12,089) (12,089)
Investment income 2 4,986 – 4,986 3,979 – 3,979
Management fee 3 (287) (858) (1,145) (383) (1,147) (1,530)
Other expenses 4 (643) – (643) (593) – (593)
4,056 (30,749) (26,693) 3,003 (13,236) (10,233)
Interest payable and similar charges 5 (134) (402) (536) (160) (481) (641)
Net return before taxation 3,922 (31,151) (27,229) 2,843 (13,717) (10,874)
Taxation 6 – – – – – –
Net return after taxation 3,922 (31,151) (27,229) 2,843 (13,717) (10,874)
Return per Ordinary share: Basic and
Diluted 8 2.34p (18.61p) (16.27p) 1.70p (8.20p) (6.50p)
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.
comprehensive income for the year.
No operations were acquired or discontinued in the year.
The notes on pages 51 to 6
Montanaro UK Smaller Companies Investment Trust PLC Annual Report and Accounts 2023 page 49
Statement of Changes in Equity
for the year to 31 March 2023
Year to 31 March 2023 Notes
Called-up
share
capital
£’000
Share
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 2022 3,348 19,307 1,362 4,642 197,758 378 226,795
Fair value movement of
investments 9 – – – – (29,891) – (29,891)
Costs allocated to capital – – – – (1,260) – (1,260)
Net revenue for the year – – – – – 3,922 3,922
– – – – (31,151) 3,922 (27,229)
Dividends paid in the year 7 – – – – (4,189) (3,728) (7,917)
As at 31 March 2023 3,348 19,307 1,362 4,642 162,418 572 191,649
Year to 31 March 2022
Notes
Called-up
share
capital
£’000
Share
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
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
* These reserves, excluding any unrealised capital reserve are distributable. As at 31 March 2023 distributable reserves totalled £151,204,000
** The special reserve can be used for the repurchase of the Company’s own shares.
The notes on pages 51 to 6
page 50 Montanaro UK Smaller Companies Investment Trust PLC Annual Report and Accounts 2023
Balance Sheet
as at 31 March 2023
31 March 2023 31 March 2022
Notes £’000 £’000 £’000 £’000
Fixed assets
Investments at fair value 9 200,777 236,487
Current assets
Debtors 10 352 359
Cash at bank 10,856 10,282
11,208 10,641
Creditors: amounts falling due within one year
Other creditors 12 (336) (333)
(336) (333)
Net current assets 10,872 10,308
Total assets less current liabilities 211,649 246,795
Creditors: amounts falling due after more than one year
Fixed rate term loan 11 (20,000) (20,000)
Net assets 191,649 226,795
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 162,418 197,758
Distributable revenue reserve 572 378
Total equity shareholders’ funds 191,649 226,795
Net asset value per Ordinary share: Basic and Diluted 114.50p 135.50p
19 June 2023.
ARTHUR COPPLE
Chairman
The notes on pages 51 to 6
Montanaro UK Smaller Companies Investment Trust PLC Annual Report and Accounts 2023 page 51
Notes to the Financial Statements
at 31 March 2023
1 Accounting Policies
Montanaro UK Smaller Companies Investment Trust plc (“MUSCIT”) is a company incorporated and registered in England and
th
Floor, 65 Gresham Street, London, EC2V 7NQ.
BASIS OF PREPARATION
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
environment in which it operates, rounded to the nearest £'000, except where otherwise indicated.
GOING CONCERN
company will continue to be met.
Company has adequate resources to continue in business for the foreseeable future, being until at least 31 March 2025.
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 December
additional investments. The Company is a closed-end fund, where assets are not required to be liquidated to meet day to day
redemptions. The Board considered potential downside scenarios which could lead to a breach in the Company’s loan covenants,
including consideration of when total borrowings would exceed 30% of (adjusted) NAV and the required fall in net assets for the
NAV to fall below £80,000,000. Both scenarios were deemed unlikely and therefore there is not a material risk that the Company
will breach its loan covenants.
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 2023 for the purpose of voluntarily winding up the Company. The next Continuation Vote is
scheduled to be held in 2027.
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.
cash dividend forgone is recognised as income. Any excess in the value of the cash dividend is recognised in the capital column.
page 52 Montanaro UK Smaller Companies Investment Trust PLC Annual Report and Accounts 2023
Notes to the Financial Statements continued
at 31 March 2023
1 Accounting Policies continued
EXPENSES AND FINANCE COSTS
INVESTMENTS
with a documented investment strategy. Information about the portfolio is provided internally on that basis to the Company’s
Board of Directors.
price or the closing price for the Stock Exchange Electronic Trading Service – quotes and crosses (‘SETSqx’). All transaction costs in
asset's carrying amount and the sum of consideration received and receivable after transaction costs have been deducted, and
N
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
enacted tax rates.
DIVIDENDS PAYABLE TO SHAREHOLDERS
Interim dividends are recognised in the period in which they have been paid.
Montanaro UK Smaller Companies Investment Trust PLC Annual Report and Accounts 2023 page 53
1 Accounting Policies continued
the term of the instrument.
SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS
uncertainty about these assumptions and estimates could result in outcomes that could require a material adjustment to the
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
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 costs and interest on cash balances associated with running the Company. This reserve can be distributed.
Capital reserve
•
•
•
•
•
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
page 54 Montanaro UK Smaller Companies Investment Trust PLC Annual Report and Accounts 2023
2 Income
Year to
31 March 2023
£’000
Year to
31 March 2022
£’000
UK dividend income 4,497 3,710
Overseas dividend income 313 269
Income from investments 4,810 3,979
Bank interest 176 –
Total income 4,986 3,979
Total income comprises
4,810 3,979
Interest received 176 –
Dividends 4,986 3,979
3 Management fee
Year to 31 March 2023 Year to 31 March 2022
Revenue
£’000
Capital
£’000
Total
£’000
Revenue
£’000
Capital
£’000
Total
£’000
Management fee 274 821 1,095 370 1,110 1,480
AIFMD fee 13 37 50 13 37 50
287 858 1,145 383 1,147 1,530
0.50
valued at the close of business on the last business day of each month.
At 31 March 2023, £111,000
The AIFMD receives an annual fee of £50,000
4 Other Expenses
Year to
31 March 2023
£’000
Year to
31 March 2022
£’000
Administration 87 80
Company secretarial fees 59 57
Directors’ fees
†
123 117
Depositary fee 46 58
Registrar fee 55 55
– audit 38 33
Custody and other bank charges 22 22
Legal fees 6 5
Other expenses (including VAT) 207 166
643 593
† A breakdown of the Directors' remuneration is set out in the Directors' Remuneration Report on page 38.
The Company has no employees.
Notes to the Financial Statements continued
at 31 March 2023
Montanaro UK Smaller Companies Investment Trust PLC Annual Report and Accounts 2023 page 55
5 Interest Payable and Similar Charges
Year to 31 March 2023 Year to 31 March 2022
Revenue
£’000
Capital
£’000
Total
£’000
Revenue
£’000
Capital
£’000
Total
£’000
Interest payable on loan 124 372 496 154 461 615
Loan commitment fee 10 30 40 6 20 26
134 402 536 160 481 641
6 Taxation
Year to 31 March 2023 Year to 31 March 2022
Revenue
£’000
Capital
£’000
Total
£’000
Revenue
£’000
Capital
£’000
Total
£’000
– – – – – –
– – – – – –
19
Year to 31 March 2023 Year to 31 March 2022
Revenue
£’000
Capital
£’000
Total
£’000
Revenue
£’000
Capital
£’000
Total
£’000
3,922 (31,151) (27,229) 2,843 (13,717) (10,874)
Theoretical tax at UK corporation tax rate of 19%
745 (5,919) (5,174) 540 (2,606) (2,066)
– UK dividends that are not taxable (799) – (799) (654) – (654)
– Foreign dividends that are not taxable (60) – (60) (51) – (51)
– Non-taxable investment losses – 5,679 5,679 – 2,297 2,297
– Unrelieved excess expenses 114 240 354 165 309 474
Taxation charge for the year – – – – – –
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 2023, based on current estimates and including the accumulation of net allowable losses, the Company
had unrelieved losses of £54,358,000
deferred tax asset has been calculated using a corporation tax rate of 25
from 1 April 2023. A deferred tax asset of £13,590,000
. Accordingly, the
Company is unlikely to be able to reduce future tax liabilities through the use of existing surplus losses.
page 56 Montanaro UK Smaller Companies Investment Trust PLC Annual Report and Accounts 2023
7 Dividends
Year to
31 March 2023
£’000
Year to
31 March 2022
£’000
In respect of the previous period:
Paid
2022 fourth quarter dividend of 1.36p 2,276 2,494
In respect of the year under review:
Paid
1.15p 1,925 2,762
2023 second quarter dividend of 1.04p 1,741 2,896
2023 third quarter dividend of 1.18p 1,975 2,845
Dividends distributed during the year 7,917 10,997
Declared:
2023 fourth quarter dividend of 1.15p 1,925 2,276
* The fourth quarter dividend was declared on 13 April 2023. The ex-dividend date was 20 April 2023 and it was paid 11 Ma y 2023.
Any dividends paid in excess of the Revenue Reserve are paid from the realised Capital Reserve.
8 Return per Ordinary Share
Year to 31 March 2023 Year to 31 March 2022
Revenue Capital Total Revenue Capital Total
Ordinary share 2.34p (18.61p) (16.27p) 1.70p (8.20p) (6.50p)
Revenue return per Ordinary share is based on the net revenue after taxation of £3,922,000
167,379,790
held in treasury.
Capital return per Ordinary share is based on net capital losses for the year of £31,151,000
167,379,790
held in treasury.
9 Investments
Year to
31 March 2023
£’000
Year to
31 March 2022
£’000
Total investments at fair value 200,777 236,487
The investment portfolio comprises 40 (2022
Year to
31 March 2023
£’000
Year to
31 March 2022
£’000
Opening book cost 189,741 183,696
Opening investment holding gains 46,746 78,740
Opening fair value 236,487 262,436
Movements in the year
Purchases at cost 41,452 70,559
Sales – proceeds (47,271) (84,419)
– realised gains on sales against book cost 5,069 19,905
Decrease in investment holding gains (34,960) (31,994)
Total movement in the year (35,710) (25,949)
Closing book cost 188,991 189,741
Closing investment holding gains 11,786 46,746
Closing fair value 200,777 236,487
Notes to the Financial Statements continued
at 31 March 2023
Montanaro UK Smaller Companies Investment Trust PLC Annual Report and Accounts 2023 page 57
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
•
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
31 March 2023 31 March 2022
Level 1
£’000
Total
£’000
Level 1
£’000
Total
£’000
Equity investments 200,777 200,777 236,487 236,487
200,777 200,777 236,487 236,487
There were no level 2 or 3 investments.
TRANSACTION COSTS
During the year, the Company incurred transaction costs of £198,00030,000
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 2023
£’000
Year to
31 March 2022
£’000
Gains on sales 5,069 19,905
Changes in fair value (34,960) (31,994)
(29,891) (12,089)
The Company sold investments in the year with proceeds of £47,271,000
when purchased was £42,202,000
unrealised gains or losses were included in the fair value of the investments.
10 Debtors
Year to
31 March 2023
£’000
Year to
31 March 2022
£’000
Prepayments and accrued income 84 111
Dividends receivable 268 248
352 359
page 58 Montanaro UK Smaller Companies Investment Trust PLC Annual Report and Accounts 2023
11 Fixed Rate Term and Floating Rate Revolving Credit Facilities
Year to
31 March 2023
£’000
Year to
31 March 2022
£’000
Falling due after more than one year 20,000 20,000
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.
and has been fully drawn down.
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 2023
£’000
Year to
31 March 2022
£’000
Accruals 336 333
336 333
13 Share Capital
31 March 2023
£’000
31 March 2022
£’000
3,348 3,348
Treasury shares
At the AGM on 27 July 2022, 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.
14 Net Asset Value per Ordinary Share
The Net Asset Value per share of 114.50191.6
167,379,790 (2022
15 Analysis of Financial Assets and Liabilities
Investment Objective and Policy
The Company’s investment objective and policy are detailed on page 13.
•
•
•
cash, liquid resources and short-term debtors and creditors that arise from its operations.
Notes to the Financial Statements continued
at 31 March 2023
Montanaro UK Smaller Companies Investment Trust PLC Annual Report and Accounts 2023 page 59
15 Analysis of Financial Assets and Liabilities continued
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
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
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 £200,777,000
If the investment portfolio valuation fell by 10
£20,078,000
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
Term Loan Facility (see N
The Company received £176,000
constant, of increasing the net revenue return before taxation on an annualised basis by £nil
in interest rates of 1%, the net revenue return before taxation on an annualised basis would have decreased by £nil
Liquidity Risk
Manager does not invest in unlisted securities on behalf of the Company. The investments consist of UK smaller 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
amounts at the year end, based on the earliest date on which
payment can be required, are detailed on page 60.
The AIFM, in consultation with the Board, is responsible for determining the gearing level of the Company, which is disclosed on
page 62
page 60 Montanaro UK Smaller Companies Investment Trust PLC Annual Report and Accounts 2023
15 Analysis of Financial Assets and Liabilities continued
Credit risk
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.
31 March 2023
£’000
31 March 2022
£’000
Cash at bank (held at Bank of New York Mellon) 10,856 10,282
Debtors 352 248
11,208 10,530
None of the Company's assets are past due or impaired.
FINANCIAL ASSETS
FINANCIAL LIABILITIES
Note 11).
Total
£’000
Weighted
average
interest rate
%
Period until
maturity
Years
Amounts drawn down under Fixed Rate Term Loan Facility 20,000 2.5 1.7
Amounts drawn down under Floating Rate Revolving Credit Facility – – –
Financial liabilities upon which no interest is paid 336 – –
Total
£’000
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 – –
Notes to the Financial Statements continued
at 31 March 2023
Montanaro UK Smaller Companies Investment Trust PLC Annual Report and Accounts 2023 page 61
15 Analysis of Financial Assets and Liabilities continued
31 March 2023
£’000
31 March 2022
£’000
In three months or less 445 438
In more than three months but not more than one year 248 500
In more than one year but not more than three years 20,497 20,745
21,190 21,683
16 Capital Management Policies
The structure of the Company’s capital is described on pages 25 and 26 and details of the Company’s reserves are shown in the
Statement of Changes in Equity.
•
•
to achieve capital growth through a focused portfolio of investments, particularly in UK smaller
•
meet obligations as they fall due.
•
•
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.
•
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
•
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
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 37 to 39.
page 62 Montanaro UK Smaller Companies Investment Trust PLC Annual Report and Accounts 2023
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
Leverage exposure
Gross
method
Commitment
method
Maximum limit 200% 200%
Actual 110.4% 104.8%
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 67.
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.
liability insurance cover of £5 million.
•
pages 13 to 40 and N
have been no changes to the risk management systems in place in the period under review and no breaches of any of the risk
•
information on the investment strategy, geographic and sector investment focus and stock exposures are included on
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 2023 page 63
Shareholder Information
Sources of Further Information
Key Dates
June
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
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
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
Registrar at shareholderenquiries@linkgroup.co.uk.
PX1, 10
th
4DL. Change of address can be updated online via
www.signalshares.com.
Common Reporting Standard
personal information to HMRC on investors who meet certain criteria set out in the legislation. On an annual basis, the Company
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
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
page 64 Montanaro UK Smaller Companies Investment Trust PLC Annual Report and Accounts 2023
Nominee Code
•
to provide the nominee company with multiple copies of shareholder communications, so long as an indication of quantities
•
to allow investors holding shares through a nominee company to attend general meetings, provided the correct authority
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
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)
Shareholder Information continued
Montanaro UK Smaller Companies Investment Trust PLC Annual Report and Accounts 2023 page 65
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 2023, the Net Asset Value per share was 114.5p
and the share price was 105.0p. The Discount is therefore
calculated at 8.3% as shown in the highlights on page 1.
Gross Assets
Gross assets are calculated as net assets adding
31 March 2023
£’000
31 March 2022
£’000
Net Assets 191,649 226,795
Fixed rate term loans 20,000 20,000
Gross assets 211,649 246,795
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 2023
£’000
31 March 2022
£’000
Total expenditure 2,324 2,764
Less interest payable and similar
charges (see Note 5)
(536) (641)
Total (a) 1,788 2,123
Average daily net assets (b) 199,390 270,710
0.90% 0.78%
Net Gearing
Net gearing is the total debt, net of cash and equivalents, as a
percentage of the total shareholders’ funds.
31 March 2023
£’000
31 March 2022
£’000
Fixed rate term loans 20,000 20,000
(10,856) (10,282)
Net debt (a) 9,144 9,718
Shareholders’ funds (b) 191,649 226,795
4.8% 4.3%
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 2023
£’000
31 March 2022
£’000
Purchases at cost
41,452 70,559
Sales proceeds
47,271 64,514
Total (a)
88,723 135,073
44,362 67,537
Average daily fair value of
investments (c) 199,390 289,578
22.2% 23.3%
Total Return – NAV and Share Price Returns
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 2023, the 1 year NAV Total Loss was 12.2% and the
12.4%, as shown in
the highlights on page 1.
NAV Total Return calculation as at 31 March 2023
£’000
NAV per share as at 31 March 2023 114.50 (c)
NAV per share as at 31 March 2022 135.50 (d)
Dividend adjustment factor (+1) 1.039 (a)
Pre-Dividend Reinvestment Factor 0.845
NAV Total Return (12.2%) ((a*b)-1)
(a) Dividend Adjustment Factor
Dividend PPS
Dividend XD
date
NAV at
Dividend XD
Date
NAV
Multiplier
Quarterly dividend 1 1.36 21 Apr 22 134.88 0.01
Quarterly dividend 2 1.15 21 Jul 22 121.11 0.01
Quarterly dividend 3 1.04 20 Oct 22 105.26 0.01
Quarterly dividend 4 1.18 19 Jan 23 120.15 0.01
0.04
Alternative Performance Measures (“APMs”) – unaudited
page 66 Montanaro UK Smaller Companies Investment Trust PLC Annual Report and Accounts 2023
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
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
Share price Total Return calculation as at 31 March 2023
Share price as at 31 March 2023 105.00 (c)
Share price as at 31 March 2022 125.00 (d)
Dividend adjustment factor (+1) 1.043 (a)
Pre-Dividend Reinvestment Factor 0.840
Share price Total Return (12.4%) ((a*b)-1)
(a) Dividend Adjustment Factor
Dividend PPS
Dividend XD
date
Share price at
Dividend XD
Date
Share
price
Multiplier
Quarterly dividend 1 1.36 21 Apr 22 126.00 0.011
Quarterly dividend 2 1.15 21 Jul 22 109.00 0.011
Quarterly dividend 3 1.04 20 Oct 22 98.40 0.011
Quarterly dividend 4 1.18 19 Jan 23 118.50 0.010
0.043
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
Share price Total Return (10.1%) ((a*b)-1)
(a) Dividend Adjustment Factor
Dividend PPS
Dividend XD
date
Share price at
Dividend XD
Date
Share
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
Alternative Performance Measures (“APMs”) continued
Montanaro UK Smaller Companies Investment Trust PLC Annual Report and Accounts 2023 page 67
Glossary of Terms
Alternative Performance Measure (“APM”)
An APM is a numerical measure of the Company's current,
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
against each other.
Gearing
Gearing refers to the ratio of the Company’s net 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
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’
treasury shares.
NSCI
Numis Smaller Companies Index (excluding investment
companies).
PPS
Pence per share.
Relative NAV per share performance vs benchmark
change in the NAV as a
percentage over the year and the Benchmark as a percentage
over the year.
page 68 Montanaro UK Smaller Companies Investment Trust PLC Annual Report and Accounts 2023
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
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 Thursday, 27 July 2023 at 12.00 noon for the purposes of considering
9 will be proposed as Ordinary Resolutions and
resolutions 10 and 11 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 the email address provided below.
SHAREHOLDER ENGAGEMENT
For shareholders unable to attend the AGM who wish to ask the Board or the Investment Manager any questions, we request
cosec@junipartners.comJuniper Partners,
. Those questions which are submitted before Friday, 21 July 2023 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
PROXIES
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 2023 page 69
ORDINARY RESOLUTIONS
RESOLUTION 1 – ANNUAL REPORT AND FINANCIAL STATEMENTS
statements of the Company for the year ended 31 March 2023.
RESOLUTION 2 – DIRECTORS’ REMUNERATION REPORT
To receive and approve the Directors’ Remuneration Report for the year ended 31 March 2023.
RESOLUTION 3 – DIVIDEND POLICY
To approve the Company’s dividend policy to continue to pay four quarterly interim dividends.
RESOLUTION 4 – RE-ELECTION OF DIRECTOR
To re-elect Arthur Copple as a Director of the Company.
RESOLUTION 5 – RE-ELECTION OF DIRECTOR
To re-elect Catriona Hoare as a Director of the Company.
RESOLUTION 6 – RE-ELECTION OF DIRECTOR
To re-elect Barbara Powley as a Director of the Company.
RESOLUTION 7 – RE-APPOINTMENT OF AUDITOR
RESOLUTION 8 – AUDITOR'S REMUNERATION
To authorise the Audit and Management Engagement Committee to determine the Auditor’s remuneration.
RESOLUTION 9 – 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 19 June 2023) 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
which would or might require shares to be allotted or Rights to be granted after such expiry and the Directors may allot shares
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 70 Montanaro UK Smaller Companies Investment Trust PLC Annual Report and Accounts 2023
Notice of Annual General Meeting continued
SPECIAL RESOLUTIONS
RESOLUTION 10 – DISAPPLICATION OF PRE-EMPTION RIGHTS
THAT, subject to the passing of Resolution 9 (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
pursuant to the authority conferred by Resolution 9 as if Section 561 of the Act did not apply to any such allotment and of sales of
(a) shall expire at the conclusion of the Company’s next Annual General Meeting after the passing of this resolution, save that the
(b)
nominal amount of £334,759 (being approximately 10% of the issued share capital (excluding treasury shares) as at 19 June
(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 11 – 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
(i) the maximum number of Ordinary shares hereby authorised to be purchased shall be 25,090,230, or if less, that number of
(ii)
(iii) the maximum price (excluding expenses) payable by the Company for each Ordinary share is the higher of (i) 105% of the
(iv) the authority hereby conferred shall expire at the conclusion of the Annual General Meeting of the Company in 2024 unless
(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.
(i)
(ii) cancelled immediately upon completion of the purchase.
By order of the Board
LINK COMPANY MATTERS LIMITED
Company Secretary
19 June 2023
65 Gresham Street
London EC2V 7NQ
Montanaro UK Smaller Companies Investment Trust PLC Annual Report and Accounts 2023 page 71
Explanation of Notice of Annual General Meeting
Resolution 1 – To receive the Annual Report and Financial Statements
meeting. These are contained in the Company’s Annual Report and Accounts for the year ended 31 March 2023 (the Annual
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 – 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 63.
Resolutions 4 to 6 – Re-election of Directors
In line with the recommendations of the 2019 AIC Corporate Governance Code, all Directors of the Company are required to retire
-election at each AGM. In accordance with this requirement, Mr Copple, Ms Hoare and Mrs Powley will
.
All of the Directors seeking election
are set out in the Annual Report on pages 23 and 24 and are also available for viewing on the Company’s website
recommended their re-election and the Board agrees that it is in the best interests of shareholders that each of the Directors be
re-elected.
Resolutions 7 and 8 – Re-appointment and remuneration of Auditor
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 7. Resolution 8
Auditor’s remuneration.
Resolution 9 – Authority to allot Ordinary shares
Resolution 9 authorises the Board to allot Ordinary shares generally and unconditionally in accordance with Section 551 of the
Companies Act 2006 (the "Act") up to an aggregate nominal value of £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 10 – Authority to disapply pre emption rights
Resolution 10 is a Special Resolution which is being proposed to authorise the Directors to disapply the pre emption rights of
existing Shareholders in relation to issues of Ordinary shares under Resolution 9 (being in respect of Ordinary shares up to an
aggregate nominal value of £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 Ordinary shares pursuant to the authorities proposed to be conferred by Resolutions 9 and 10
if they believe it is advantageous to the Company’s shareholders to do so and will only issue new shares at a price representing a
premium to the NAV per share at the time of issuance.
page 72 Montanaro UK Smaller Companies Investment Trust PLC Annual Report and Accounts 2023
Notice of Annual General Meeting continued
Resolution 11 – Purchase of own shares
Resolution 11 is a Special Resolution which will grant the Company authority to make market purchases of up to 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
is made or (ii) the value of an Ordinary s
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
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 2023 page 73
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 Tuesday, 25 July
2023. 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
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
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
5.
(i) or
(ii) y
charged at the standard geographic rate and will vary by provider. Calls outside the United Kingdom will be charged at the
(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
th
Tuesday, 25 July 2023.
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. Note 8 below) will
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
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
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 Tuesday, 25 July 2023. 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 74 Montanaro UK Smaller Companies Investment Trust PLC Annual Report and Accounts 2023
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
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
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,
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
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 19 June 2023 (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 19 June 2023 are 167,379,790.
15. Under Section 527 of the Companies Act 2006, shareholders meeting the threshold requirements set out in that section
A
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
Act 2006, it must forward the statement to the Company’s auditor not later than the time when it makes the statement
16. Any shareholder attending the Meeting has the right to ask questions. The Company must cause to be answered any such
or the good order of the Meeting that the question be answered.
Montanaro UK Smaller Companies Investment Trust PLC Annual Report and Accounts 2023 page 75
17. Copies of the Directors’ letters of appointment are available for inspection during normal business hours at the registered
of the Meeting. Shareholders are advised that any inspection at 53 Threadneedle Street, London EC2R 8AR will be subject
prior notice of a request to inspect the documents at this location, to be agreed with the Company Secretary beforehand by
emailing cosec@junipartners.com.
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
page 76 Montanaro UK Smaller Companies Investment Trust PLC Annual Report and Accounts 2023
Principal Advisers
Investment Manager and Alternative Investment Fund
Manager (‘AIFM’)
MONTANARO ASSET MANAGEMENT LIMITED
53 Threadneedle Street
London EC2R 8AR
Administrator
LINK ALTERNATIVE FUND ADMINISTRATORS LIMITED
Broadwalk House
Exeter EX1 1TS
JUNIPER PARTNERS LIMITED (from 1 July 2023)
Edinburgh EH3 7HR
LINK COMPANY MATTERS LIMITED
6
th
Floor, 65 Gresham Street
London EC2V 7NQ
from 1 July 2023
53 Threadneedle Street
London EC2R 8AR
JUNIPER PARTNERS LIMITED (from 1 July 2023)
Edinburgh EH3 7HR
Registrar
LINK GROUP
Central Square,
Leeds LS1 4DL
Calls are charged at the standard geographic rate and will
vary by provider.
Depositary
(INTERNATIONAL) LIMITED
160 Queen Victoria Street
London EC4V 4LA
Custodian
160 Queen Victoria Street
London EC4V 4LA
Banker
ING BANK N.V.
London Branch
8-10 Moorgate
London EC2R 6DA
Broker
CENKOS SECURITIES PLC
Tokenhouse Yard
London EC2R 7AS
Auditor
BDO LLP
55 Baker Street
Lawyers
4 More London Riverside
London SE1 2AU
Montanaro UK Smaller Companies Investment Trust PLC
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