7
The European
Smaller
Companies
Trust PLC
Annual Report 2024
JHI9228/2024The European Smaller Companies Trust PLC – Annual Report 2024
The European Smaller Companies Trust PLC
Registered as an investment company in England and Wales
Registration Number 2520734
Registered office: 201 Bishopsgate, London EC2M 3AE
SEDOL/ISIN number: Ordinary Shares: BMCF868/GB00BMCF8689
London Stock Exchange (TIDM) Code: ESCT
Global Intermediary Identification Number (GIIN): JX9KYH.99999.SL.826
Legal Entity Identifier (LEI): 213800N1B1HCQG2W4V90
Telephone: 020 7818 1818
Email: ITSecretariat@janushenderson.com
www.europeansmallercompaniestrust.com
JHI9228/2024Typeset by 2112 Communications, London. Printed by Paragon, London.
This report is printed on Revive silk 100% recycled, contains 100% recycled waste and
ismanufactured at a mill certified with ISO 14001 environmental management standard.
The pulp used in this product is bleached using an Elemental Chlorine Free process (ECF).
The European Smaller Companies Trust PLC Annual Report 2024
Strategic Report
Performance highlights 1
Investment proposition 2
Chairman’s statement 4
Fund Manager’s report 6
Portfolio information 10
Historical information 11
Business model 12
Managing risks 16
Responsible investment 18
Key Performance Indicators 22
Governance
Board of Directors 25
Corporate Governance Report 27
Audit Committee Report 34
Management Engagement Committee
Report 36
Nomination and Remuneration
Committee Report 37
Directors’ Remuneration Report 38
Directors’ Report 41
Statement of Directors’ Responsibilities 43
Financial Statements
Independent auditor’s report 45
Financial statements 53
Notes 57
Additional information
Investment portfolio 75
Alternative performance measures 78
Glossary 80
General shareholder information 81
Service providers 82
Our purpose is to deliver a long-term sustainable return
to shareholders from investing in smaller and medium sized
European companies.
Front cover:
Granulated materials being supplied
to a fl uid production process.
NORMA Group
Percentage of portfolio: 0.6%
Geographical area: Germany
Designer and manufacturer of engineered
joining technology such as couplings,
clamps and connectors.
Performance highlights at 30 June
NAV per share at year end
1, 4
2024 2023
201.01p 184.26p
Dividend for year
2
2024 2023
4.80p 4.70p
Ongoing charge excluding the performance fee
3, 4
2024 2023
0.67% 0.65%
Share price at year end
2024 2023
178.40p 154.00p
Net assets
2024 2023
£799m £739m
Ongoing charge including performance fee
3, 4
2024 2023
0.75% 1.67%
Dividends paid
0
1
2
3
4
5
Pence
Dividend
2020 2021 2023 20242022201920182015 2016 2017
2.75
3.13
4.70 4.80
4.35
2.75
1.19
1.81
1.44
2.38
Total return performance for the 10 years to 30 June 2024 (rebased to 100)
4, 5
Jun
14
Jun
15
Jun
16
Jun
17
Jun
18
Jun
19
Jun
20
Jun
21
Jun
24
Jun
23
Jun
22
%
50
100
150
200
250
300
350
Share price
Investment Association European Smaller Companies
NAV AIC sector
6
Benchmark
7
EAA Fund Europe Small-Cap Equity (Morningstar category)
1 Net asset value per ordinary share
2 Includes the interim dividend and final dividend recommended to shareholders for approval
3 Calculated using the methodology prescribed by the Association of Investment Companies (‘AIC’)
4 The NAV per share, NAV total return, share price total return and ongoing charge are regarded as Alternative Performance Measures. More information on these
can be found on pages 78 and 79
5 NAV total return performance per ordinary share assumes all income is reinvested
6 Average NAV total return for the AIC European Smaller Companies sector
7 Euromoney Smaller European Companies (ex UK) Index up to 30 June 2022, thereafter the MSCI Europe ex UK Small Cap Index
Sources: Morningstar Direct, Janus Henderson Investors
A glossary of terms can be found on page 80
The European Smaller Companies Trust PLC Annual Report 2024
1
Why invest in small and medium sized
Europeancompanies?
Source:Morningstar Direct 1 Based on 2018 prices
Small caps have a long term record of outperforming large caps (index total return %, rebased to 100)
Jun
01
Jun
02
Jun
03
Jun
04
Jun
05
Jun
06
Jun
07
Jun
08
Jun
09
Jun
10
Jun
11
Jun
12
Jun
13
Jun
14
Jun
15
Jun
16
Jun
17
Jun
18
Jun
19
Jun
24
Jun
23
Jun
22
Jun
21
Jun
20
US Equities (S&P 500)
European Small Caps (MSCI Europe ex UK Small Cap Index) European Large Caps (MSCI Europe ex UK Index)
%
0
100
200
300
400
500
600
700
800
European small caps have outperformed large caps in 14 of the last 24 years (calendar year total returns)
%
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
2024
YTD
MSCI Europe Small Cap -18.6 -25.9 23.5 10.8 22.2 15.8 14.4 -24.2 20.5 6.2 -8.8 14.1 22.8 -0.2 1.9 20.1 14.3 -8.3 18.8 0.7 18.9 -1.2 14.2 8.0
MSCI Europe Large Cap -7.6 -20.6 45.9 24.2 33.5 27.8 1.1 -36.3 47.3 25.7 -19.2 23.8 37.4 -0.3 17.7 17.3 24.3 -14.6 24.6 10.9 16.6 -17.7 10.7 3.2
Relative -11.0 -5.4 22.3 13.4 11.3 12.1 13.2 -12.1 26.7 19.5 -10.4 9.7 14.6 -0.1 15.8 2.8 10.0 -6.3 5.8 10.2 2.4 -16.4 3.4 4.8
The smaller companies sector is an imperfect market which
is ideal for active fund management. It offers exposure to
high growth niches such as:
Small cap has a larger universe to choose from, stocks are
less well covered by analysts meaning a greater opportunity
to find mispriced securities
e-commerce
Circular
economy
€
Warehouse
automation
Fintech
€
Europe ex UK
NUMBER OF STOCKS
AVERAGE NUMBER
OF SELL SIDE
ANALYST COVERAGE
market cap >£5b
market cap £100m to £5b
1,872
439
18
5
The spending will be focused on
digital and green infrastructure.
This marks the first-ever mutually
financed stimulus programme
and lays the framework for a
period of greater political stability
on the Continent.
The EU has announced:
‘Next Generation EU’;
amounting to €750bn
1
€390b grants
+
€360b loans
Going forward
growth will be
aided by
recovery/green fund
The European Smaller Companies Trust PLC Annual Report 2024
2
Note: Percentage holdings are estimated at 30 June 2024
Early Cycle – show a recent history or forecast of improving return on invested capital accompanied by strong sales growth (in excess of 10% forecast typically)
Quality Growth – exhibits consistently above cost of capital ROIC and shows above GDP level growth on an organic or mergers & acquisitions basis
Mature – consistently earns ROIC in and around the cost of capital
Turnarounds – earns ROIC below cost of capital, or significantly below comparable industry peers, with forecast expectations of improvements over time
Why invest in this Company?
Balanced portfolio seeking attractive valuations and high growth opportunities
European Assets
The European Smaller Companies Trust
Implications for
OUR INVESTORS
Alpha-driven and
not wedded to a
particular style
Deep-Value
Micro Giant
High-Growth
JPMorgan European Discovery
Montanaro European Smaller
Source: Morningstar at 30 June 2024
TRUE SMALL
CAP
VALUATION-
AWARE
APPROACH
INVESTING
ACROSS THE
COMPANY
LIFE CYCLE
Lower average market cap
than peers – circa 40% of
the portfolio in stocks with
a free float <€1b
Willing to look at neglected
areas of the market –
mature and turnaround
situations as well as quality
growth opportunities
We buy companies where
the market misperceives
the true fundamental value
6% 45% 33% 27%
Return on Invested
Capital (‘ROIC’)
1
4
3
2
Turnaround
Mature
Quality Growth
Early
Cycle
Quality Growth Mature
Turnaround
Early Cycle
We take exposure across the company life cycle
Company life cycle
The European Smaller Companies Trust PLC Annual Report 2024
3
Chairman’s
statement
“ Europe is fortunate to
be the provider of the
‘picks and shovels’ of
the big structural
growth trends…
”
The Chairman of the Board,
Christopher Casey reports
on the year to 30 June 2024
S.O.I.T.E.C., 0.9% of the portfolio
Manufacturer of substrates used in the production of semiconductors
4
It has been encouraging to see interest in the European smaller
company arena return over the course of the year and the
Company to have participated profitably from this trend. Inflation
has been tamed though interest rates have yet to meaningfully
decline. Tragically the conflict in Ukraine festers on, although the
energy shock has largely been contained. Aglobal recession
has not manifested and a soft landing looks increasingly
plausible. The Purchasing Managers’ Index has yet to see a
rebound, but there is growing optimism that the market suffering
is close to being over. Smaller companies are well positioned to
benefit from things getting better and the fund management
team is well placed to take advantage of the situation.
Performance
The Company’s portfolio produced a solid return over the year
ended 30 June 2024, with an NAV total return of 12.0%, ahead of
the benchmark by 1.9%. The share price total return was even
more impressive at 19.5%, reflecting the growing interest in
Europe and its smaller companies. This continues the Company’s
long term NAV and share price total return track record, as the
chart on page 1 clearly demonstrates. Over a five-year period,
the NAV total return has been 73.3% versus the benchmark of
37.2%, with the share price total return being 82.8% compared to
the AIC European Smaller Companies sector of 40.1%.
Discount management
The average discount for the period has been 13.5%. Over the
course of the financial year and up to the date of this report,
we repurchased a total of 6.4m shares in the market at an
average price of 167.68p. Doing so has been accretive to the
NAV and was one of several factors contributing to the
narrowing of the discount.
The Board continually monitors the discount to NAV at which
the Company’s shares trade and utilises its ability to
repurchase its own shares in the market with a view to
reducing volatility and maintaining liquidity. We review the
discount taking account of the position of our immediate
competitors in the AIC European Smaller Companies sector,
the investment trust sector as a whole and conditions in the
wider market, particularly those in Europe, which are likely to
have an impact on how the Company is perceived.
Dividend
The Board is recommending a final dividend of 3.35p per
ordinary share to shareholders for approval at the forthcoming
annual general meeting. If approved, the dividend will be paid
to shareholders on the register on 1 November 2024.
Along with an interim dividend of 1.45p which was paid on
3May 2024, this brings the total dividend to 4.80p, an
increase of 2.1% on the total dividend paid last year.
The Company has benefitted from a handful of stocks that
have had very high income distributing capacity in recent
years, but as the fund management team begins to anticipate
an economic expansion, there may be more of a pursuit of
capital growth from among the many exciting investment
opportunities in our market.
Succession planning
The forthcoming annual general meeting will be my last as
Chairman. We were pleased to announce the appointment
ofJames Williams as the chairman designate in October last
year. He brings with him over 30 years’ international business
experience, including 20 years in the investment banking
industry, and a strong suite of leadership skills. I believe I will
be leaving the Company in good hands.
We have further agreed a timeline for the retirement of Simona
Heidempergher and have engaged recruitment consultants to
help in the search for a suitable replacement. Your new
Chairman will keep you updated in this respect.
Annual General Meeting
The 34th Annual General Meeting will be held at 11.00 am on
25 November 2024 at 201 Bishopsgate, London, EC2M 3AE.
The event provides the opportunity for shareholders to meet
with, and hold to account, the directors and fund
management team. The Fund Manager will give his usual
presentation on the year under review and the outlook for the
year ahead. We therefore encourage all shareholders to
attend if they can and to vote their shares, either at the
meeting or via proxy beforehand.
If you are unable to attend in person, you will be able to
watchthe meeting live via the internet by visiting
www.janushenderson.com/esct-agm.
Outlook
I stated last year that I considered inflation to be close to
settling near target. This has proved to be true and we have
begun to see interest rates reduce to more appropriate levels
across the globe, but most importantly in the United States.
This, combined with reserve rate cuts and financial stimulus in
China, is a welcome relief for the global economy and for
European smaller companies.
It is a shame that political uncertainty has poked its head up in
Europe again with the French election being unhelpful for
growth and elections in the US have scope to create further
doubt for our markets. Notwithstanding this, the very low
valuations in Europe, the falling cost of capital and the
improving economic optimism should outweigh the noise of
politics. Europe is fortunate to be the provider of the ‘picks and
shovels’ of the big structural growth trends such as Artificial
Intelligence, the ‘Green Transition’ and industrial automation.
Itis an exciting time for the European smaller company space.
Christopher Casey
Chairman
9 October 2024
Chairman’s statement
The European Smaller Companies Trust PLC Annual Report 2024
5
Fund
Manager’s
Report
Ollie Beckett
Fund Manager
Julia Scheufler
Deputy Fund Manager
Rory Stokes
Deputy Fund Manager
NCAB Group, 0.6% of the portfolio
Manufacturer of printed circuit boards
6
Fund Manager’s report
Introduction
The year to 30 June 2024 was a decent year for the
Company, with an NAV total return of 12.0% outperforming
the benchmark which delivered a return of 10.1%. Despite the
lacklustre economy, investors put fresh eyes on the European
smaller companies universe which helped the start of the
recovery in valuation multiples for the space.
The year was characterised by soft markets in a tepid
European economy. However, hopes of an economic pick-up
began to manifest towards the end of 2023. We encountered
a ‘growth scare’ towards the end of the financial year as fears
that the European Central Bank and the Federal Reserve had
been too slow to cut interest rates were exacerbated by snap
elections called in France and the UK, which temporarily
disrupted economic activity. A recession has been long
awaited following the energy and supply chain shocks that hit
the global economy in 2022. We have, however, been of the
view that the global economy would have a soft landing, but
that inflation and consequently interest rates would remain
higher than prior to the pandemic. So far that has broadly
come to pass, but we do think monetary policy is too tight
inthe West and that central banks need to loosen policy now
that inflation has been largely tamed.
Another phenomena of the markets has been an extreme
concentration in a few very large companies. In the US this
was a group of companies referred to as ‘The Magnificent
Seven’ (Apple, Microsoft, Alphabet, Amazon, Nvidia, Meta
Platforms and Tesla). In Europe no exciting collective noun
was settled on, but names such as semiconductor equipment
titan ASML, GLP-1 producer Novo Nordisk and luxury good
behemoth LVMH have dominated stock market performance
in recent years. However, we began to see the broadening of
the market take place over the year and smaller companies
began to outperform larger companies for the first time since
2021. This was helpful for your Company that has a focus on
investing in genuinely smaller companies.
Perception and reality do not always align. Much of what we
do as a team is to look for companies that have a fundamental
reality that is better than its perception in the stock market and
to consider ways that this can change. In some respects, this
is true of the European smaller company market in general.
One country that firmly has a perception problem is Germany.
An economic model dependent upon cheap Russian energy
and Chinese demand meeting the impending demise of the
internal combustion engine automobile appears to have some
substantial problems. So it is gratifying to have found so many
German businesses that have been able to prove the
naysayers wrong and show the reality that there is some
incredible innovation and great businesses in the country.
The outperformance over the twelve months to 30 June 2024
was primarily driven by stock selection, with a handful of
winners driving performance, many of them being German.
German listed semiconductor equipment manufacturer
SUESS Microtec was a substantial contributor in the period,
as demand for their Temporary Bonder machines, used in the
manufacturing of Artificial Intelligence (‘AI’) chips, increased
dramatically. German listed specialty chemical producer
Alzchem also performed well as a result of the growth in their
creatine and nitroguanidine businesses. Creatine is a chemical
that supplies energy to muscles and has long been favoured
by bodybuilders, but is increasingly being used to fend off
conditions such as sarcopenia. Nitroguanidine is a propellant
that goes in car air bags, but is also a key ingredient in NATO
ammunition. Another German driver of performance was web
hosting and cloud services solutions provider IONOS as a
combination of a cheap valuation and strong earnings
momentum drove the pricing of the shares.
The portfolio
We remain consistent in our strategy of investing across
thecorporate lifecycle with a balance of early-stage growth
stocks, high return on capital growth compounders at
sensible prices, undervalued cash generative mature
companies and self-help turnaround stocks. The price we pay
for shares in a company is a critical component of what we
doand must be justified by the cash generation potential of
abusiness. We are not a ‘value fund’ but we are intensely
valuation aware. Our intention is that the performance of the
portfolio is driven by stock selection rather than macro-
economic factors and one of our key contentions is that
company management matters. It is always gratifying to see
underperforming companies get their act together and one
such name for usthis year has been Fugro, a Dutch listed
collector and interpreter of geological data. The company has
evolved from servicing the oil and gas industry to being a key
part of the green energy transition, helping developers
understand where best to locate offshore wind turbines.
Thecompany had been a stock market darling in the 2000s,
but with the collapse in oil and gas capital expenditure from
2014 onwards had been struggling, earning a paltry return on
capital employed. Weinvested in the company during the
pandemic when the company was loss making and needed to
raise capital. Since then, management has done a terrific job
of improving returns by focusing the business on renewables
and driving better margins and asset efficiency. We think the
return on capital has a way to go yet, but the shares have
begun to catch the markets’ attention again and the holding
was a strong contributor to performance this year.
Performance attribution
The Company benefitted from our investment in Dutch listed
wealth manager Van Lanschot Kempen, which continued to
attract strong fund inflows in the low countries. Swedish listed
digital investment platform Nordnet saw an increase in
business momentum as animal spirits revived in their market.
One of the joys of managing a European smaller companies
portfolio is that the investable universe is so fabulously
heterogeneous that we are able to find companies that are
benefitting from almost any exciting trend in the world.
The European Smaller Companies Trust PLC Annual Report 2024
7
Fund Manager’s report (continued)
Onesuch trend that has obsessed the stock market this year
has been AI and the growth in data centres. Swedish listed
Munters, whose products help manage the climate inside
data centres, has seen a terrific boost to its business as a
result of this and it has been a worthwhile investment for
yourCompany.
Another area of exciting growth is in the world of podcasts,
amedia broadcast over the internet and which is used for
exploring any topic that interests a listener. Swedish listed
Acast is the European leader in hosting, distributing and
monetising podcasts. The stock has performed very well this
year as the company approached profitability and continued
to grow strongly in a weak advertising market.
Corporate activity returned to the European smaller
companies space with bid approaches for Swedish online
gambling company, Kindred and Swedish legal services
expert Karnov. Whilst we didn’t think we captured all the
value possible from Kindred, the offer was reasonable and
we decided to take some profit. However, we, and many other
public market investors, deemed the bid for Karnov to be too
far from its fundamental valuation and rejected it. We are firmly
of the belief that as interest rates begin to fall the very cheap
valuations on display in the European smaller companies
market will see a notable increase in this type of activity.
Detractors from performance have been largely driven by our
misjudging where several companies were in their economic
cycle, but also (unusually) by a handful of stocks that we
missed the opportunity to invest in. The sins of omission
mainly comprised our failure to spot Danish listed GLP-1
anti-obesity drug develop Zealand Pharma and Spanish
bank Banco de Sabadell, which weighed on the Company’s
relative performance. In contrast, our investment in Dutch
listed specialty metal producer AMG Critical Materials,
which has suffered due to the abject collapse in the lithium
price over the course of the year, detracted from performance.
Lithium prices have been poor for a combination of reasons,
but the principal one has been the weakness in the
automotive market for electric vehicles (‘EVs’) due to
regulatory uncertainty on the green transition as well as
interest rates. We have had too much exposure to the
automotive market and a number of burdens for the Company
such as German listed producer of electric boot openers
Stabilus, Italian listed producer of stators and rotors for EVs
Eurogroup Laminations and French listed producer of silicon
carbide used in the rapid charging of EVs Mersen have not
helped performance.
It has been a frustration to relearn some fundamental
investment lessons through the medium of making mistakes,
but disappointingly we have been through that process this
year. One such lesson is not to bet on a binary technology
outcome and German listed Manz whose battery technology
had looked so promising for the EV transition has failed to turn
the science into cash flow. This lesson was rammed home by
our investment in Swiss listed AMS-Osram whose exciting
microLED technology was abandoned by their large American
tech company customer, who has historic form in rough
treatment of its supply chain. We intend to do a better job of
applying such lessons in the future without the impact on our
investors’ capital.
Geographical and sector distribution
Stock selection rather than geographical and sector exposure
is the fundamental core of our investment process, though we
are careful to monitor how we are positioned as part of our
risk management approach. We have never viewed the
benchmark as an input to our process and we are content to
diverge widely from it. Our valuation discipline typically leads
us away from the more expensive markets and sectors in
Europe and as a result we find ourselves underweight to
Switzerland and Sweden. Conversely, we are overweight to
Germany and the Netherlands where multiples are lower.
Similarly, we are underweight to the sectors where we
struggle to find value such as health care, utilities and real
estate. We are overweight to the industrials sector, as
valuations are very cheap and have scope for strong
performance as the economy begins to grow again, as well
asbeing overweight to technology where we continue to see
strong structural growth trends.
Other purchases
Your Company typically invests in Europe outside of the UK,
however, we have a degree of flexibility around this and with
the Board’s approval we took a position in UK listed online
trading provider IG Group as we saw such potential in the
company’s cheap valuation and phenomenal cash generation
capacity coupled with a strong capital return discipline. Whilst
the shares have been very strong, you shouldn’t expect us
toinvest beyond the broad remit with any great frequency.
We have added a handful of defence exposed names to the
portfolio over the course of the year. German listed producer
of gearboxes and transmissions for military vehicles Renk,
Dutch listed producer of night vision goggles Theon
International and French listed Exosens, the producer of the
tubes that go into those goggles, all made it into the portfolio,
benefitting from the need for European rearmament.
All three investments came from new listings on the stock
market known as Initial Public Offerings (‘IPOs’). The IPO
market has been very quiet since the end of 2021 due to a
combination of weak markets and the bad taste left in the
mouth from the terrible vintage of IPOs that came through in
that year. It is pleasing to report that all three investments
listed above plus our investment in Greek bank Optima,
havecontributed positively to performance.
Another feature of the hot markets of 2020 and 2021 was
thecreation of a number of Special Purpose Acquisition
Companies (‘SPACs’). A SPAC is a company that is listed on
the stock market with the sole purpose of reversing a real
company into a listing. You will never encounter us investing
directly in a SPAC and it will not be often that you catch us
The European Smaller Companies Trust PLC Annual Report 2024
8
investing in, the inelegantly titled, de-SPACed companies that
have had a business reversed into them, so it is notable that
we have taken a position in Swiss listed R&S Group which
manufactures transformers, the equipment that alters
alternating current and direct current. A significant investment
in the electricity grid of Europe is required and R&S Group
has an exciting position in this development.
Other disposals
We exited our position in Italian listed SAES Getters having
profited handsomely from the disposal of its medical devices
business. We also took profits by selling our shares in Italian
listed producer of commercial vehicles Iveco. We saw an
increase in mergers and acquisitions activity and the
Company benefitted from bids for French listed financial
adviser Rotheschild & Co. and Swedish listed online
gambling company Kindred. As interest rates reduce and
financial conditions normalise, we would not be surprised to
see more frequent mergers and acquisitions activity, an arena
that usually benefits smaller companies.
Currency
The Company is denominated in sterling, while investing in
largely euro-denominated assets. We do not hedge this
currency exposure.
Outlook
We stated last year that we feared central banks had raised
interest rates too high and we were anxious that, having been
too slow to raise them, they would be too slow to cut them.
Although, the European smaller company universe has seen
an improvement in interest and performance, and remains
veryattractively valued, it typically doesn’t fare well in a
recessionary environment. Monetary policy becoming less
restrictive in recent weeks, albeit not yet supportive, is a
respectable positive indicator for the global economy. We
continue to believe that with sensibly applied monetary policy,
the economy can experience a ‘soft landing’ and thereafter
grow. European smaller companies due to its gearing to global
growth will be a profitable place to invest in such a scenario.
Beyond the attraction of valuation, our investment universe is
rich with opportunity. There are plentiful companies with
exciting technologies, structural growth drivers and strong
market positions. By applying our balanced investment
strategy and remaining disciplined on our ‘valuation aware’
approach, we are confident that we can continue to find
strong investment returns for our shareholders.
Ollie Beckett, Rory Stokes and Julia Scheufler
9 October 2024
Fund Manager’s report (continued)
The European Smaller Companies Trust PLC Annual Report 2024
9
Portfolio Information
Ten largest investments at 30 June 2024
Ranking
2024
Ranking
2023 Company Principal activities Geographical area
Valuation
2024
£’000
Percentage
of portfolio
1 1 Van Lanschot
Kempen
Specialist independent wealth manager that provides
private banking, asset management and merchant
banking to wealthy individuals and institutions.
www.vanlanschot.nl
Netherlands 27,129 3.1
2 2 TKH Technology company specialising in the development
and delivery of systems and networks for the provision
of information, telecommunication, electrotechnical
engineering and industrial production.
www.tkhgroup.com
Netherlands 26,141 3.0
3 62 SUESS
MicroTec
Leading supplier of equipment and process solutions
for the semiconductor industry.
www.suss.com
Germany 17,488 2.0
4 8 KSB Manufacturer of pumps and valves.
www.ksb.com
Germany 17,275 1.9
5 – IG Group Global fintech company that delivers online trading
platforms.
www.ig.com
United
Kingdom
14,791 1.7
6 35 Stroeer Provider of out-of-home advertising, onlline
advertising, billboards and street furniture.
www.stroeer.de
Germany 14,683 1.7
7 17 Fugro Provider of geotechnical, survey, subsea and
geosciences services, as well as essential earth and
related construction testing, inspection and monitoring
data and consulting services.
www.fugro.com
Netherlands 14,269 1.6
8 4 DFDS Northern Europe’s largest integrated shipping and
logistics company.
www.dfds.com
Denmark 13,839 1.6
9 10 Criteo Online advertising company.
www.criteo.com
France 13,660 1.5
10 6 u-blox Developer of embedded positioning and wireless
communication components and software.
www.u-blox.com
Switzerland 12,799 1.4
172,074 19.5
Geographic exposure
2024
%
2023
%
Germany 20.2 17.4
France 12.7 14.6
Netherlands 11.9 11.9
Sweden 10.9 10.0
Switzerland 8.2 8.1
Italy 5.3 10.3
Belgium 5.0 4.2
Spain 4.9 5.4
Denmark 4.0 2.8
Greece 3.1 3.2
2024
%
2023
%
Norway 2.9 2.3
Portugal 2.4 1.3
Ireland 2.2 2.5
Finland 1.7 3.0
United Kingdom 1.7 –
Austria 1.6 2.0
Cyprus 0.8 –
Faroe Islands 0.5 –
Malta – 1.0
2
0
2
3
2
0
2
4
Sector exposure
2024
%
2023
%
2
0
2
3
2
0
2
4
Industrials 36.3 38.6
Consumer Discretionary 17.1 20.9
Financials 13.6 13.0
Technology 13.3 11.6
Basic Materials 5.0 3.2
Real Estate 3.7 2.3
Consumer Staples 3.4 2.0
Health Care 3.1 3.1
Energy 2.0 1.7
Utilities 2.0 3.1
Telecommunications 0.5 0.5
The European Smaller Companies Trust PLC Annual Report 2024
10
Sector exposure
2024
%
2023
%
2
0
2
3
2
0
2
4
Industrials 36.3 38.6
Consumer Discretionary 17.1 20.9
Financials 13.6 13.0
Technology 13.3 11.6
Basic Materials 5.0 3.2
Real Estate 3.7 2.3
Consumer Staples 3.4 2.0
Health Care 3.1 3.1
Energy 2.0 1.7
Utilities 2.0 3.1
Telecommunications 0.5 0.5
1 Net asset value total return per ordinary share
2 Euromoney Smaller European Companies (ex UK) Index up to 30 June 2022, thereafter the MSCI Europe ex UK Small Cap Index
3 The sector is the AIC European Smaller Companies sector
4 Share price total return using closing price
5 The NAV per share, NAV total return, share price total return, discount and ongoing charge are regarded as Alternative Performance Measures. More information on
these can be found on pages 78 and 79
6 Average share price for the AIC European Smaller Companies sector
7 Excludes the performance fee where payable
8 Figures for 2015 to 2021 are restated to take account of the 8:1 share split completed on 13 December 2021
Sources:Morningstar Direct, Janus Henderson Investors
Total return performance to 30 June 2024
(including dividends reinvested and excluding transaction costs)
1 year
%
3 years
%
5 years
%
10 years
%
NAV
1, 5
12.0 2.9 73.3 200.4
Benchmark
2
10.1 0.2 37.2 128.0
Average sector NAV
3
7.9 -7.5 40.3 155.8
Share price
4, 5
19.5 4.5 82.8 211.7
Average sector share price
3, 6
11.1 -8.7 40.1 153.7
Total return performance compared to the benchmark
(assumes the investment of £100 and reinvestment of all dividends)
50
100
150
200
250
300
350
2017 2018201620152014 2023 2024 2022 2021 2020 2019
Share Price
4, 5
NAV
1, 5
Benchmark
2
£
Financial information
At
30June
Net assets
£’000
NAV per
ordinary
share
8
p
Closing
price per
ordinary
share
8
p
Discount
5
%
Profit/(loss)
for year
£’000
Revenue
return
8
p
Capital
return
8
p
Tota l
return
8
p
Tota l
dividend
8
p
Ongoing
charge
5, 7
(AIC
formula)
%
2015 337,645 84.45 78.00 7.6 16,565 1.42 2.72 4.14 1.19 0.78
2016 377,683 94.46 77.50 18.0 44,782 1.69 9.51 11.20 1.44 0.79
2017 569,459 143.19 133.88 6.5 199,540 2.14 47.96 50.10 1.81 0.75
2018 574,591 143.34 127.50 11.0 9,936 2.76 (0.27) 2.49 2.38 0.71
2019 521,023 129.98 111.50 14.2 (42,795) 3.01 (13.69) (10.68) 2.75 0.72
2020 523,374 130.56 105.50 19.2 13,525 1.49 1.88 3.37 2.76 0.73
2021 840,667 209.71 185.63 11.5 328,517 2.59 79.36 81.95 3.13 0.71
2022 652,464 162.76 140.00 14.0 (174,712) 5.16 (48.75) (43.59) 4.35 0.65
2023 738,642 184.26 154.00 16.4 104,381 5.22 20.82 26.04 4.70 0.65
2024 798,594 201.01 178.40 11.2 84,898 5.41 15.81 21.22 4.80 0.67
Historical Information
11
The European Smaller Companies Trust PLC Annual Report 2024
Business model
Purpose
Our purpose is to deliver a long-term sustainable return to
shareholders from investing in smaller and medium sized
European companies.
Strategy
Our strategy is to offer investors a cost effective investment
proposition which provides access to a professionally and
actively managed portfolio of investments.
The Company is an investment trust which is a pooled invest
vehicle, allowing exposure to a diversified range of assets
through a single investment, thus spreading the investment
risk. All services are delivered by reputable third-party service
providers whose performance is overseen by a Board of
Directors (the ‘Board’). The Board is comprised entirely of
non-executive directors accountable to shareholders, who can
remove a director from office where they deem it tobe in the
interests of the Company. The non-executive directors are
independent of the investment manager.
The significant advantages of our business model are its
closed-end nature, which enables the Fund Manager to
remain fully invested, and the ability to use leverage to
increase returns for shareholders.
Values and culture
We aim to be viewed by our shareholders as a sound long-
term investment. Alongside delivering attractive returns, we
believe our shareholders would expect us to act professionally
and with integrity, and to treat their investment with the same
care we would our own. Accordingly, we bring these values to
our deliberations as a Board and seek to build long-term
relationships with like-minded and reputable service
providers. In particular, we apply this approach to our
investment manager as we regard them as our primary
partner in fulfilling our purpose.
Promoting the Company’s success
We seek to create long-term sustainable returns by following
four simple steps:
Buy the right assets: The fund management team maintain
adiversified portfolio with strong valuation disciplines.
Theportfolio comprises investee companies from across
thecorporate lifecycle, with a mix of early stage growth
businesses, sensibly priced quality growth stocks, companies
with mature revenue streams and self-help turnaround stories.
Using the right team: The Company outsources its operations
to third-party service providers. The Board engages high-
calibre, reputable service providers with established track
records to deliver the day-to-day operations. Their level of
service is monitored on an ongoing basis and their continued
appointment formally evaluated at least once a year.
With the right approach: The Company is a closed-end
investment vehicle, approved by HMRC as an investment trust
under theCorporation Tax Act 2010. By adopting a closed-
end structure, we allow the fund management team to take
along-term view when making investments, they can remain
fully invested as there are no redemptions to meet and they
have the ability to use leverage to increase returns for
shareholders. This approach provides a cost-effective
mechanism for delivering operations whilst allowing the
Company to take advantage of the capital gains treatment
afforded to approved investment trusts.
Investment objective
The Company seeks capital growth by investing in smaller
and medium sized companies which are quoted,
domiciled, listed or have operations in Europe (ex UK).
Investment policy
The following investment ranges apply:
Equities: 80% – 100%
Fixed Income and Cash: 0% – 20%
Smaller and medium sized companies are defined as those
whose market capitalisation is equal to or below the largest
member of the MSCI Europe ex UK Small Cap Index
1
at the
time of investing.
Investments may include shares, securities and related
financial instruments, including derivatives. Unquoted
investments are permitted with prior Board approval.
The Company maintains a diversified portfolio. The
Company will not invest more than 7% of its total assets,
calculated as at the time of investment, in any one holding.
The Company can, but normally does not, invest up to 15%
of its gross assets in investment companies (including
listed investment trusts). The Company will not invest more
than 10% of its gross assets in companies that themselves
may invest more than 15% of their gross assets in UK listed
investment companies.
Derivatives
The Company may use financial instruments known
asderivatives for the purpose of efficient portfolio
management while maintaining a level of risk consistent
with the risk profile of the Company.
Gearing
Net gearing (defined as all borrowings less cash balances
andinvestments in cash funds) is limited by the Board to
amaximum of 30% of net asset value at the time of
investment.
With appropriate Board approval, the Company may, but
currently does not, hedge against currency movements.
1 Benchmark with effect from 1 July 2022
The European Smaller Companies Trust PLC Annual Report 2024
12
Business model (continued)
Overseen with the right governance: The Company’s
operations are overseen by a Board of Directors. The Board is
accountable to the Company’s shareholders andare re-
elected by them annually. The directors are independent of
the investment manager and are selected based on their
business experience and personal attributes in order to bring
a balance of skills to the oversight of the Company’s
operations and to ensure thatthe investment manager is
appropriately challenged on their recommendations.
Engaging with stakeholders (s.172)
We, as directors, have the success of the Company foremost in our minds when making decisions. Decisions are taken with the
aim of achieving our purpose and are based on information provided by a range of sources. The impact on stakeholders is
assessed as part of our deliberations, although stakeholders may be affected differently.
The table below sets out the primary ways in which we, as your Board, engage with the Company’s key stakeholders.
Stakeholder Engagement
Shareholders and
potential investors
Purpose:
●
Keep investors updated on the Company’s performance.
●
Promote the Company to new shareholders.
How we engage:
●
Daily NAVs and monthly factsheets are published to keep shareholders up to date with the value of
theportfolio.
●
Meetings with the Fund Manager, members of his team and Board members are offered to
shareholders and potential shareholders to provide insight into the portfolio.
●
Information on the Company and video updates from the Fund Manager are made available on the website
and via social media channels with a view to keeping shareholders informed on the positioning of the portfolio.
●
The half-year report and annual report are published to keep shareholders informed on the Company’s
financial performance, its governance framework and any current issues.
●
Shareholders are encouraged to attend the annual general meeting where they have the opportunity to
meet Board members and the fund management team.
●
The Fund Manager provides a presentation to shareholders and analysts following publication of the
annual report with a view to providing insight on the Company’s performance.
●
The investment manager and corporate broker run a programme of engagement with wealth managers
and other professional investors.
●
The Board makes additional spend available to promote the Company’s investment proposition to retail
investors in the UK and holds an in-person annual general meeting enabling shareholders to attend and
speak to directors and the fund management team.
Outcome:
●
Shareholders are informed and there is regular demand for the Company’s shares.
Investment
manager
Purpose:
●
Maintain a close working relationship with the investment manager as this is key to achieving the
Company’s investment objective and promoting the Company to investors.
How we engage:
●
The fund management team are invited to each Board meeting to provide an update on the
performance of the portfolio and to keep the directors in touch with their view on the markets and
positioning of the portfolio.
●
The investment manager provides data on the key performance indicators at each meeting enabling the
directors to measure performance.
●
The investment manager demonstrates compliance with the parameters of the investment mandate at
each meeting and provides access to senior managers in the Operational Risk and Internal Audit teams
enabling the directors to assess the effectiveness of internal controls in operation.
●
The heads of the investment trusts Sales and Marketing teams are invited to provide regular
presentations to the Board on how the Company is promoted to professional and retail investors.
Outcome:
●
The Board is confident that the Company’s assets are well managed and managed in line with the
investment objective, and within the parameters established by the Board.
●
The Board has a good understanding of how the Company is perceived in the market and whether
theinvestment objective remains relevant in the prevailing market conditions.
The European Smaller Companies Trust PLC Annual Report 2024
13
Business model (continued)
Stakeholder Engagement
Service providers
●
Corporate
broker
●
Custodian
●
Depositary
●
Fund
administrator
●
Registrar
Purpose:
●
The Company’s day-to-day operations run smoothly.
●
The directors are aware of any issues which may arise and can ensure that suitable action is taken to
address them.
How we engage:
●
The Board receives regular reporting and presentations from its key third-party service providers
throughout the year.
●
Designated staff at the investment manager engage regularly with all third-party service providers
through meetings and written reporting, and keep the Board updated with any areas of concern.
●
The Management Engagement Committee annually reviews the level of services delivered by each
service provider and the terms on which they are engaged to ensure that these remain in line with
market practice.
Outcome:
●
The Board is confident in its selection of third-party service providers and maintains good oversight of
the Company’s operations.
Investee
companies and the
environment
Purpose:
●
The Board has an understanding of the Fund Manager’s approach to incorporating environmental,
social and governance matters in stock selection.
How we engage:
●
The fund management team has regular engagement with the management teams of investee
companies enabling them to assess performance and governance arrangements.
●
The shares held in the Company’s portfolio are voted at general meetings and appropriate engagement
undertaken with investee companies where management proposals are not supported.
Outcome:
●
The Company is a responsible investor.
Board decision making
The Board is mindful of acting in the best interests of
shareholders as a whole and has regard to other stakeholders
in making its decisions. The Board takes into consideration
the Company’s purpose, investment objective and policy as
well as the interests of the Company’s stakeholders when
discussing matters and making decisions. In addition to
regular, detailed discussions about the Company’s investment
portfolio, strategy and performance, the following are
examples of discussions held and decisions made by the
Board during the financial year ended 30 June 2024.
Discount control
The Board kept the level of discount and presence of activist
shareholders in the market under regular review. The Company’s
discount, that of its immediate competitors in the AIC
European Smaller Companies sector and the discount of the
investment trust sector as a whole were considered at each
meeting. This resulted in the repurchase of 3.6m shares during
the period which saw the discount narrow from 16.4% at the
start of the financial year to 11.2% at the end of it.
Dividends
The Board considered the revenue forecast at each meeting
and, in reviewing the half-year and full-year accounts,
considered what level of dividend should be distributed to
shareholders. As a result of the healthy revenue position, the
Board declared an interim dividend of 1.45p per share, which
was paid on 3 May 2024. The Board are further recommending
to shareholders that a final dividend of 3.35p per share be
approved at the forthcoming annual general meeting.
Retail marketing strategy
With the increasing number of self-directed retail investors
utilising share dealing platforms, the Board gave careful
consideration to the strategy used to reach and keep these
investors informed. A research driven approach and additional
resource was approved with the view that the stronger
promotional effort should increase awareness and
understanding of the Company’s investment opportunity.
The European Smaller Companies Trust PLC Annual Report 2024
14
Business model (continued)
Fee arrangements
The Company is an Alternative Investment Fund and has
appointed Janus Henderson Fund Management UK Limited
(‘JHFM’) to act as its Alternative Investment Fund Manager
(‘AIFM’). JHFM delegates investment management services
toJanus Henderson Investors UK Limited. Both entities are
authorised and regulated by the Financial Conduct Authority
(‘FCA’) and are part of the Janus Henderson group of
companies. References to ‘Janus Henderson Investors’ or
‘JHI’ refer to the services provided to the Company by the
investment manager’s group.
The investment manager is engaged under the terms of an
agreement initially agreed in 2014 and most recently updated
in 2024. The agreement is terminable on six months’ notice.
The fund management team is led by Ollie Beckett, who has
been in place since 1 July 2011.
The base management fee is 0.55% of net assets up to
£800m and 0.45% thereafter. Fees are charged quarterly
inarrears. The investment manager may also be eligible to
receive a performance related fee. Performance is measured
against, and expressed relative to, the benchmark. Witheffect
from 1 July 2022, the benchmark is the MSCI Europe ex UK
Small Cap Index. For the purposes of calculating the
performance fee, the new benchmark is being introduced
ona rolling basis. Performance has therefore been measured
using the MSCI Europe ex UK Small Cap Index for the years
ended 30 June 2023 and 2024 and the Euromoney Smaller
European Companies (ex UK) Index for the year ended
30June2022.
Performance of the Company and the benchmark is
measured on a NAV total return (with gross income reinvested)
basis and is measured over a rolling three-year period. In any
given year in which a performance fee is payable, the rate is
15% of the positive difference between the average annual
NAV total return and the average annual total return of the
benchmark. The upper limit on the total fee, including the
base fee and any performance fee, for any given accounting
year is 2.0% of the NAV of the Company as at the last day of
the relevant calculation period. A performance hurdle over the
benchmark of 1.0% must be reached before any performance
fee can be earned and is excluded from the performance fee
itself should one be payable. Performance is measured solely
on the basis of NAV total return relative to the total return of
the benchmark index. No account is taken of whether the
NAV grows or shrinks in absolute terms.
The investment manager, and its subsidiaries, provide
accounting, company secretarial, sales, marketing and
general administrative services to the Company. Some of
theadministrative and accounting services are carried out,
onbehalf of the investment manager, by BNP Paribas.
Corporate Secretary
The Corporate Secretary, Janus Henderson Secretarial
Services UK Limited, is a subsidiary of Janus Henderson
Investors withits own reporting lines and audited internal
controls. There are processes and controls in place to ensure
that thereis a clear distinction between the Corporate
Secretary and JHI, particularly when dealing with any conflicts
or issues between the Company and JHI. Correspondence
from shareholders addressed tothe Chairman or the Board
received at theinvestment manager’s offices is forwarded to
theChairman,or addressee, in line with the established
procedures in place.
This Strategic Report, set out on pages 1 to 23, has been
approved by the Board.
On behalf of the Board
Daniel Burgess
Chairman of the Audit Committee
9 October 2024
The European Smaller Companies Trust PLC Annual Report 2024
15
Principal and emerging risks
Investing, by its nature, carries inherent risk. The Board, with the assistance of the investment manager, carries out a robust
assessment of the principal and emerging risks and uncertainties facing the Company which could threaten the business model
and future performance, solvency and liquidity of the portfolio. A matrix of these risks, along with the steps taken to mitigate
them, is maintained and is kept under regular review. The mitigating measures include a schedule of investment limits and
restrictions within which the Fund Manager must operate.
The principal risks which have been identified and the steps we have taken to mitigate these are set out in the table below.
Wedo not consider these risks to havechanged during the period.
Principal risk Mitigating measures
Investment strategy and objective
The investment objective or policy is not appropriate in the
prevailing market or sought by investors, leading to a wide
discount and hostile shareholders.
Investment mandate limits established by the Board are
inappropriate leading to out-of-scope investments which may
negatively impact shareholder value.
Poor investment performance over an extended period leading
to shareholders voting to wind up the Company. This may be
the result of:
●
external factors such as geopolitical instability, including
financial shock, pandemic, climate change, changes in the
regulatory environment, etc.
●
internal factors such as poor stock selection, poor
management of gearing, loss of key members of the fund
management team, etc.
The investment manager periodically reviews the investment
objective and policy in line with best practice and taking account
of investor appetites. The Board receives regular updates on
professional and retail investor activity from the investment
manager, and reports from the corporate broker, both of whom
remain in contact with professional investors throughout the year,
to inform themselves of investor sentiment and how the Company
is perceived in the market. From time to time, research may be
undertaken by a third-party consultant to specifically ascertain
the views of retail investors. The level of discount and share
register are reviewed by the Board at each meeting.
The Board reviews compliance with the investment limits at
each meeting.
The Fund Manager maintains a diverse portfolio (sector, country,
business life cycle) with buy/sell disciplines and employs suitable
quantitative and qualitative metrics, which incorporates
environmental, social and governance (‘ESG’) considerations,
for assessing stocks for inclusion or held within the portfolio.
The Board reviews the Key Performance Indicators (‘KPI’s),
portfolio composition and levels of gearing at each meeting.
TheBoard furthermore maintains an understanding of the fund
management team’s investment process and considers the
potential for climate change to impact the value of the portfolio,
alongside other factors which may have the same effect.
Operational
Failure of, disruption to or inadequate service levels provided
byprincipal third-party service providers leading to a loss of
shareholder value or reputational damage. This includes cyber
security risks which may compromise the integrity of data and
the effective operation of third-party service providers.
The Board engages reputable third-party service providers
and formally evaluates their performance, and terms of
engagement, at least annually.
The Audit Committee assesses the effectiveness of internal
controls in place at the Company’s key third-party service
providers through review of their ISAE 3402 reports, quarterly
internal control reports from the investment manager and
monthly reporting on compliance with the investment limits
established by the Board.
Legal and regulatory
Loss of investment trust status, breach of the Companies Act
2006, Listing Rules, Prospectus Regulation and/or Disclosure
Guidance andTransparency Rules or the Alternative Fund
Managers Directive and/or legal action brought against the
Company and/or directors and/or the investment manager leading
to a decrease in shareholdervalue and reputational damage.
The Board engages reputable third-party service providers
and formally evaluates their performance, and terms of
appointment, at least annually.
The Audit Committee assesses the effectiveness of internal
controls in place at the Company’s key third-party service providers
through review of their ISAE 3402 reports and, inrespect of the
investment manager’s investment trust operations, reporting from
the investment manager’s internal audit function. The investment
manager’s Compliance function has reporting obligations under
AIFMD, with any non-compliance being captured in the investment
manager’s quarterly internal control reporting to the Board.
Managing risks and our viability
The European Smaller Companies Trust PLC Annual Report 2024
16
Managing risks and our viability (continued)
Principal risk Mitigating measures
Financial
Market, liquidity and/or credit risk, inappropriate valuation
ofassets or poor capital management leading to a loss of
shareholder value.
The Board determines the investment limits and monitors
compliance with these at each meeting. The directors review
the portfolio liquidity at each meeting and periodically consider
the appropriateness of hedging the portfolio against currency risk.
The Board reviews the portfolio valuation at each meeting and
considers the effectiveness of controls in place at its principal
third-party service providers, including the fund accountants,
at least annually.
Investment transactions are carried out by a large number of
approved brokers whose credit standard is periodically
reviewed and limits are set on the amount that may be due
from any one broker, cash is only held with the custodian/
depositary or reputable banks.
The Board monitors the broad structure of the Company’s
capital including the need to buy back or allot ordinary shares
and the extent to which revenue in excess of that which is
required to be distributed, should be retained.
Going concern and viability
In keeping with provisions of the Code of Corporate Governance
issued by the Association of Investment Companies (the ‘AIC
Code’), the Board has assessed the prospects of the Company
for a period of at least twelve months from the date of this report,
being 9 October 2025 (our assessment of going concern) and also
over the longer period of three years (our assessment of viability).
We consider the Company’s viability over a three-year period as
we believe this is a reasonable timeframe reflecting the longer
term investment horizon for the portfolio, but acknowledges the
inherent shorter term uncertainties inequity markets.
As part of the assessment, we have considered the
Company’s financial position, as well as its ability to liquidate
the portfolio and meet expenses as they fall due. The following
aspects formed part of our assessment:
●
the closed-end nature of the Company which does not
need to account for redemptions;
●
an assessment of the principal and emerging risks, as well
as the uncertainties facing the Company, including the
potential impact of climate change on the value of
investeecompanies;
●
the diverse nature of the portfolio and its anticipated
liquidity in normal and stressed market conditions;
●
the level of the Company’s revenue reserves and the size
of the bank overdraft facility; and
●
the expenses incurred by the Company, which are
predictable and modest in comparison with the assets
and the fact that there are no capital commitments
currently foreseen which would alter that position.
Also of relevance in contemplating the duration of the
Company, is the three-year cycle for its continuation vote.
Shareholders were last asked at the annual general meeting in
2022 if they wished the Company to continue in operation.
The resolution was passed with the overwhelming support of
84.4% shareholders who voted. The next continuation vote
will be put to shareholders at the annual general meeting in
2025. Based on the voting record since 2000 for such
resolutions, the Board is confident that shareholders will
continue to support the Company. In the event this is not the
case, the Company will be wound up in keeping with the
provisions of the articles.
As well as considering the principal risks and financial position
of the Company, along with the continuation vote, the Board
has made the following assumptions:
●
investors will continue to wish to have exposure to investing
in European small cap companies;
●
investors will continue to invest in closed-end funds;
●
the Company’s performance will continue to be
satisfactory; and
●
the Company will continue to have access to adequate
capital when required.
Based on the results of the assessment, we have concluded
that:
●
the Company has adequate resources to meets its
liabilities for a period of at least twelve months from the
date of this report, being 9 October 2025, meaning it is
therefore appropriate to prepare these financial statements
on a going concern basis; and
●
we have a reasonable expectation that the Company will
be able to continue operations over the coming three-year
period, as well as meeting its expenses and liabilities for
that period.
The European Smaller Companies Trust PLC Annual Report 2024
17
Responsible investment
We aim to make well-informed investment decisions which deliver the returns that our shareholders expect, but not at the
expense of the environment or wellbeing of society. We believe that investing in well-managed, sustainable businesses is the
foundation for achieving good returns. The closed-end nature of the Company makes it ideal for long-term investing and our
focus on small, developing companies provides our fund management team with the opportunity to meaningfully engage with
investee companies as they grow and develop their strategies.
Investment process
The fund management team employ a bottom-up stock selection approach in constructing the portfolio and continuously
monitor the performance of and risks associated with each holding. The approach is designed to deliver the capital growth set
out in the investment objective.
The process involves screening potential investment opportunities, meeting with management teams to understand their
businesses and supplementing this with internal and external research. Understanding the business, the threats to its success,
its competitive position and quality of the management team in the context of the valuation of the company are key to
determining whether an investment is made and also the size of the investment.
Overview of the investment process
Proactive idea
generation
Valuation is
key
Risk
management
Understand
the business
Screening
Across the company
life cycle…
Question ourselves
HOLT quantitative
challenge
Meeting
Management
External
Research
Internal
Research
Seek mispriced
securities
Monitoring and
sell discipline
Source: Janus Henderson Investors
The Company does not pursue an environmental, social or
governance (‘ESG’) strategy, but the fund management team
integrates ESG elements into the investment process on all
bottom-up stock decisions when material to the investment
case. ESG metrics are applied in a non-binding manner.
Thefund management team’s view is that companies scoring
well on ESG and sustainability will warrant a valuation
premium over time and they seek to determine what a fair
premium for those assets should be and invest when stock
can be bought at an attractive price. Negative screening isnot
employed, but instead the fund management team looks to
find companies that can improve.
Defining ESG:
●
Environmental factors include climate change, energy
efficiency, resource depletion, water and waste
management.
●
Social factors include employee and community relations,
diversity, quality of life, enhancements in knowledge and
advances in supportive technology for improved
sustainability.
●
Governance factors include mitigating risks such as
bribery and corruption, questioning board diversity,
executive pay, accounting standards and shareholder
rights, and positively influencing corporate behaviour.
The European Smaller Companies Trust PLC Annual Report 2024
18
Responsible investment (continued)
An assessment of ESG considerations is made for each stock
during the research process when deemed material. The
focus on the analysis is based on the rate of change rather
than existing scores. It is therefore crucial to understand what
procedures and initiatives a company is putting in place to
improve ESG practices.
In terms of governance, the fund management team
specifically considers the track record and execution ability of
management, as well as their attitudes towards public market
investors and the allocation of capital. The governance and
incentive structures which management operate are key
elements in corporate value creation. This can be particularly
important when looking at turnaround situations where
management teams are often new to the business and their
actions are integral to the investment thesis.
Constructive and respectful attitudes to public market
shareholders and the protection of minority interests are also
very important. The responsiveness of a company towards
shareholder concerns is a crucial signal about the ability to
unlock value and distribute it to all of a company’s owners.
Beyond the governance arrangements, our fund management
team’s research looks at several other sources of quantitative
and qualitative information. Environmental and social factors
are an important part of that in combination with fundamental
research into the cash generative potential of a business.
Increasingly environmental and social factors are proving to
be pivotal to the emergence of structural themes, such as
electromobility or renewable energy, making them too
important to ignore.
ESG investment process
Environmental damage
Energy sourcing
Carbon intensity
Sustainability targets
Environmental
Social
Workplace standards
Scandals
Diversity
Societal needs
Governance
Shareholder alignment
Management reputation
Disclosures
Capital allocation
Do we trust them?
Earnings quality
Approximately 600 company
meetings per annum
Led by investment team and
/or /with Governance and Responsible
Investment team
Focus on direction of travel
Informs voting decisions
Presents investment
opportunities and
risks
Position sizing
Informs buy/sell
decisions
Third party feedback
We will hold a low
scoring stock if we
believe it will
improve*
Portfolio implicationsEngagements
Core assumptions ESG Analysis: What we look for
Data integrity is
poor, therefore
engagement is key
Focus on financial
materiality
1
2
Insights
Insights
Source: Janus Henderson Investors
Headline ratings from external providers may be a useful
starting point, but do not offer a complete picture on a
standalone basis. They are often backward looking with data
integrity issues for smaller companies. External providers
face significant difficulties in aligning subjective topics
contained within the ESG arena with attempts at an objective
scoring system used to compare stocks. As a result, there is
often a high level of dispersion in ratings depending on the
agency. Furthermore, certain issues within ESG can be in
conflict, for instance many European smaller companies
have excellent environmental and social benefits, which are
balanced by governance concerns through issues such as
high levels of family ownership. These, along with other
factors, drive the fund management team’s focus upon
improvements in ESG practices and disclosures, in addition
to the existing status.
*Usually based on MSCI ESG Ratings
The European Smaller Companies Trust PLC Annual Report 2024
19
Responsible investment (continued)
Engagement with investee company
Reason for engagement: Many small cap companies may
still be in the process of developing their environmental,
social and governance (‘ESG’) disclosures. As such they
are more likely to be penalised in areas where specific
disclosures have not been made, despite measuring up to
these standards well in practice.
Objective: To engage with a recently listed small, family
owned business to better understand their ESG
disclosures and MSCI rating.
Outcome achieved: Dialogue with the company was
established and they were able to outline how they had
engaged with the index provider to more accurately reflect
the company’s position in respect of ESG factors.
Thecompany was further able to outline steps already
taken and underway with a view to strengthening their ESG
framework and disclosures.
Follow up: The disclosures in the next annual report will be
reviewed and dialogue with the company resumed.
Voting
We believe that voting at general meetings is an important
aspect of corporate stewardship and a means of signalling
shareholder views on board policy, practices and
performance. We have tasked our investment manager with
considering how best to vote the rights attached to the shares
in the Company’s portfolio. This enables us to utilise the
expertise of their Governance and Responsible Investment
team in assessing engagement by investee companies and
the appropriateness of any resolutions which shareholders
may be asked to approve.
The Board retains oversight of the process by receiving
reporting at each meeting indicating how the Company’s
shares have been voted and where support for management
recommendations has not been warranted, and by reviewing
our investment manager’s Responsible Investment Policy and
Proxy Voting Policy and Procedures at least annually.
Voting decisions are guided by the best interests of the
investee companies’ shareholders and made in consultation
with the fund management team, who have an in-depth
understanding of the respective company’s operations.
Thefund management team believe in engaging with
management and boards to resolve issues of concern
ratherthan to vote against shareholder meeting proposals.
Thisapproach is more likely to be effective in influencing
company behaviour.
In the period under review, we voted at 97.9% of the general
meetings held by investee companies. The only proposals not
voted on are those which would have resulted in share-
blocking. This is where voting would have restricted the ability
to trade the shares in advance of the meeting.
At 56.1% of the meetings at which we voted, at least one vote
was cast against management recommendations.
Voting record
88.8% of resolutions were supported
11.1% of resolutions were not supported
0.1% of resolutions were abstained from
88.8%
0.1%
11.1%
Breakdown of resolutions not supported
Auditor related
Capital issuance or structure
Amend articles
Director compensation
Director related (other than compensation)
Other business*
6.1%
8.8%
2.3%
1.4%
39.1%
42.3%
Source: Janus Henderson Investors using Institutional Shareholder Services (ISS)
categories
* We routinely vote against proposals labelled ‘other business’. Although this
request allows the board and shareholders to raise other issues and discuss
them at the meeting, it may lead to subsequent approval of items without prior
disclosure to minority shareholders
The environment
As an investment trust, the Company’s own direct
environmental impact is minimal. The Company has no
greenhouse gas emissions to report from its operations, nor
does it have responsibility for any other emissions producing
sources under the Companies Act 2006 (Strategic Report
and Directors’ Reports) Regulations 2013. For the same
reasons, the Company considers itself to be a low energy
user under the Streamlined Energy & Carbon Reporting
(‘SECR’) regulations and therefore is not required to disclose
energy and carbon information.
The European Smaller Companies Trust PLC Annual Report 2024
20
Responsible investment (continued)
The investment manager recognises the importance of
managing its operational activities in a sustainable way and
minimising any adverse impact on the environment. In 2021
Janus Henderson Investors reached its three-year target to
reduce its carbon footprint by 15% per full-time employee
(‘FTE’) from 2018 levels. In 2022, using guidance from the
Science-Based Target Initiative, Janus Henderson Investors
set ambitious new five-year reduction targets versus a 2019
baseline and per FTE:
●
reduction target of 29.4% in Scope 1 (fuel) and Scope 2
(electricity) emissions;
●
reduction target of 17.5% in Scope 3 (business travel,
freight, paper, water, waste) emissions; and
●
reduction target of 17.5% on water and waste
consumption by FTEs.
In addition to this, the investment manager has maintained
aCarbonNeutral
®
certification since 2007 and offsets all its
operational Scope 1, Scope 2 and Scope 3 emissions each
year. Through this process, the investment manager has
invested in a variety of offset projects around the world,
delivering financial support to essential renewable energy,
forestry and resource conservation projects that support
reductions in greenhouse gas emissions. All projects
supported have been classified as ‘additional’ by an
independent third-party, meaning that they would not happen
without the sale of carbon credits.
Our appointed investment manager discloses its carbon
emissions annually through regulatory and voluntary reporting
frameworks, including SECR and the CDP (formerly the
Carbon Disclosure Project), as well as in its 2023
Responsibility Report, which provide more information.
The investment manager produces product-level Task Force
on Climate-Related Financial Disclosures (‘TCFD’) reports.
These reports include an overview of the climate-related
governance, strategy, risk management, and metrics and
targets of Janus Henderson Investors and its portfolios.
Product-level metrics include absolute carbon emissions,
carbon footprint, weighted average carbon intensity, implied
temperature rise and climate scenario analysis (Climate
Valueat Risk). The investment manager’s TCFD Report
specific tothe Company is available on the Company’s
website at www.europeansmallercompaniestrust.com.
The European Smaller Companies Trust PLC Annual Report 2024
21
Measuring our performance
In order to measure the success of the Company in meeting its investment objective and to evaluate the performance of the
Fund Manager, the directors take into account a number of Key Performance Indicators (‘KPIs’).
NAV and share price total return compared to the benchmark (rebased to 100)
1 year
Jun
2023
Dec
2023
Jun
2024
Sep
2023
Mar
2024
£
Benchmark
2
Share Price
3, 4
NAV
1, 4
85
90
95
100
105
110
115
120
125
130
Key Performance Indicators
NAV total return performance compared to the AIC
5
and open end sectors (rebased to 100)
1 year
85
90
95
100
105
110
115
120
Jun
2023
Dec
2023
Apr
2024
Jun
2024
Aug
2023
Oct
2023
Feb
2024
£
NAV
1, 4
AIC sector
5
IA European Smaller Companies
6
EAA Fund Europe Small-Cap Equity
7
Benchmark
2
Premium/discount
4
compared to the AIC sector average
1 year
Company AIC sector
5
-18
-17
-16
-15
-14
-13
-12
-11
-10
Jun
2023
Dec
2023
Apr
2024
Jun
2024
Aug
2023
Oct
2023
Feb
2024
%
1 NAV total return assuming the reinvestment of all dividends
2 Euromoney Smaller European Companies (ex UK) Index up to 30 June 2022, MSCI Europe ex UK Small Cap Index thereafter
3 Share price total return using closing price
4 NAV total return, share price total return and the discount are regarded as Alternative Performance Measures. More information on these can be found on
pages 78 and 79
The European Smaller Companies Trust PLC Annual Report 2024
22
5 The sector is the AIC European Smaller Companies sector
6 Investment Association sector
7 Morningstar category
Key Performance Indicators (continued)
Premium/discount compared to the AIC sector average
5 year
Company AIC sector
5
Jun
2019
Jun
2020
Jun
2021
Jun
2022
Jun
2023
Jun
2024
%
-20
-18
-16
-14
-12
-10
-8
-6
NAV total return performance compared to the AIC
5
and open end sectors (rebased to 100)
5 year
Jun
2019
Jun
2020
Jun
2021
Jun
2022
Jun
2023
Jun
2024
%
60
80
100
120
140
160
180
200
NAV
1, 4
AIC sector
5
IA European Smaller Companies
6
EAA Fund Europe Small-Cap Equity
7
Benchmark
2
NAV and share price total return compared to the benchmark (rebased to 100)
5 year
%
60
80
100
120
140
160
180
200
NAV
1, 4
Benchmark
2
Share price
3, 4
Jun
2019
Jun
2020
Jun
2021
Jun
2022
Jun
2023
Jun
2024
The European Smaller Companies Trust PLC Annual Report 2024
23
Granges, 0.6% of the portfolio
Company specialising in rolled aluminium products for the
manufacture of brazed heat products
Governance
24
Christopher Casey
Position:
Chairman of the Board (from
25November 2019); formerly the
Chairman of the Audit Committee
(1March 2010 – 25 November 2019)
Date of appointment:
1 March 2010
Career and background
Christopher was a partner of KPMG
LLP and its predecessor firms from
1992. He specialised in audit and
transactions advisory services. He
retired from KPMG LLP in February
2010 and has been a non-executive
director of operating and investment
companies in various jurisdictions since
that time.
Skills and expertise
Christopher has extensive accounting,
auditing, corporate governance and
listed companies experience.
External appointments
He is a non-executive director and the
Audit Committee Chairman of Mobius
Investment Trust plc, CQS Natural
Resources High Yield Trust plc and Life
Settlement Assets PLC.
Daniel (Dan) Burgess
Position:
Chairman of the Audit Committee
Date of appointment:
25 November 2019
Career and background
Dan was a partner at KPMG LLP for
twenty-three years. He initially led the
statutory audits of a number of large
public limited companies and public
interest entities before specialising in
due diligence and regulatory services
on mergers and acquisitions and capital
market transactions.
Skills and experience
He has significant accounting, auditing,
corporate governance and listed
companies experience.
External appointments
Dan is the Chairman of the Audit
Committee of JPMorgan Emerging
Europe, Middle East and Africa
Securities plc.
Ann Grevelius
Position:
Independent non-executive director
Date of appointment:
23 September 2019
Career and background
Ann has more than thirty years´
experience in the asset management
sector and has been active in the
venture capital industry as partner and
senior advisor at GP Bullhound, a
technology advisory and investment
firm. She has held positions as Chief
Investment Officer and Global Head of
Investment Strategy at SEB Wealth
Management and prior to that, Ann was
head of Swedish and Nordic Equities at
SEB Investment Management and
Handelsbanken Asset Management.
Skills and experience
Ann has extensive asset management
experience and her input gives greater
insight on market sentiment and
conditions in continental Europe.
External appointments
She is Chairman and co-founder of
Optise AB, a fintech start-up within
digital asset management and holds a
number of non-executive directorships
including OX2 AB, a renewable energy
company and Aktia Bank PLC, the
Finnish asset manager, bank and life
insurer. She is Chairman of the
Investment Committee at the Swedish
Foundation for Strategic Research.
Board of Directors
The right balance of skills and experience
Christopher Casey Daniel (Dan) Burgess Ann Grevelius
The European Smaller Companies Trust PLC Annual Report 2024
25
Simona Heidempergher
Position:
Senior Independent Director (from
29July 2021) and Chairman of the
Nomination and Remuneration
Committee (from 27 July 2022)
Date of appointment:
1 September 2014
Career and background
Simona is a Managing Director of
Merifin Capital, a privately owned
European investment company with
offices in Europe, Asia and the USA,
which has successfully invested in
traditional and alternative asset classes
for more than 30 years.
Skills and experience
Simona has a wealth of asset
management experience and her
knowledge of European markets
provides useful context to the
investment background.
External appointments
She is a Managing Director of Merifin
Capital, chair of the board of directors
of the Stramongate Group, a
Luxembourg public company, and a
director of Hansa Investment Company
Limited which is listed on the London
Stock Exchange.
James Williams
Position:
Independent non-executive director
Date of appointment:
1 November 2023
Career and background
James has over 30 years’ international
business experience, including nearly
20 years in the investment banking
industry, having held senior roles in Asia
and Europe at ING Barings, ABN AMRO
and Commerzbank. Following his
departure from Commerzbank, he
became a partner at Saginaw Capital
LLP until 2008.
Skills and experience
James has many years’ international
business experience in Asia and
Europe, and a strong knowledge of
theinvestment trust sector and
financialmarkets.
External appointments
James is the non-executive Chairman
of Schroder AsiaPacific Fund plc and a
non-executive director of Net Zero One
Limited and NT Asian Discovery Fund.
Board of Directors (continued)
Simona Heidempergher James Williams
The European Smaller Companies Trust PLC Annual Report 2024
26
Governance codes
The Board is pleased to report to shareholders on how
theCompany has applied the principles of the Code of
Corporate Governance published by the Association of
Investment Companies.
By virtue of the Company’s listing on the London Stock
Exchange, the Board is required to report on how the
principles of the UK Corporate Governance Code (the
‘UKCode’) have been applied. Being an investment company,
a number of the provisions of the UK Code are not applicable
as the Company has no executive directors or internal
operations. Consequently, the Board considers the principles
and recommendations of the Code of Corporate Governance
published by the Association of Investment Companies (the
‘AIC Code’). The AIC Code addresses the principles set out
inthe UK Code as well as additional recommendations on
issues that are of specific relevance to investment companies.
The Company has reported against provisions of the AIC
Code published in 2019, which the Financial Reporting
Council has endorsed. A new UK Code was published in
January 2024, with an updated AIC Code published in August
2024. The new Codes will be applicable to financial years
beginning on or after 1 January 2025.
Copies of the AIC Code and the UK Code can be found on
the respective organisations’ websites: www.theaic.co.uk
and www.frc.org.uk.
Statement of compliance
The Board has considered the principles of the AIC Code
andconfirms that it has complied with these throughout the
reporting period.
The Company has no executive directors so does not
consider executive remuneration. As a fully managed
investment company, the Company has no internal operations
so does notmaintain an internal audit function, although the
Audit Committee regularly considers the need for it.
Overview
The Board is comprised entirely of non-executive directors
and has constituted three principal committees: the Audit
Committee, the Management Engagement Committee and
the Nomination and Remuneration Committee. The Board has
also constituted an Insider Committee which meets when
required to assist the Board in discharging its responsibilities
under the Market Abuse Regulations.
The terms of reference for each Committee are kept under
regular review by the Board and are available on the Company’s
website www.europeansmallercompaniestrust.com.
The Board engages third-party service providers to deliver
theoperations of the Company. Janus Henderson Investors
has been appointed to manage the investment portfolio and is
the Company’s Alternative Investment Fund Manager. The
investment manager also provides the day-to-day accounting,
company secretarial, administrative, sales and marketing
activities. TheCompany has appointed a depositary, which in
turn appoints the custodian and is responsible for the safe
custody of the Company’s assets. The Company has
appointed a registrar to maintain the Register of Members
andassist shareholders with queries in respect of their
holdings. The Company entered into each of these principal
engagements after full and proper consideration of the quality
and cost of the services offered, including the operation of
their internal control environments. The Board and its
committees maintain oversight of third-party service providers
through regular and ad hoc reporting, as well as ongoing
monitoring by the investment manager.
Board leadership and purpose
The Board is responsible for providing leadership and setting
the tone from the top in terms of the Company’s culture and
values. The Board appoints all third-party service providers
and monitors their performance throughout the year. The
directors formally evaluate the quality of the service provided
by each third-party service provider and consider the
appropriateness of the terms of their engagement at least
annually. The Board aligns the Company’s risk appetite
withthe investment objective set by shareholders and
establishes investment restrictions accordingly. The Board
keeps under regular review the risks faced by the Company
and assesses the effectiveness of internal controls put in
place to mitigate these.
As well as making the strategic decisions regarding the
Company’s objectives and establishing and monitoring the
risk management framework, the Board’s purpose is to
provide independent oversight of the operations delivered by
the Company’s third-party service providers and to challenge
the decisions and recommendations made by them,
particularly the investment manager.
The Board does this by meeting formally at least five times a
year, with additional Board or committee meetings arranged
when required. The directors have regular contact with the
Fund Manager and other employees of the investment
manager in connection with the delivery of company
secretarial, sales, marketing and other administrative services.
The Board has a formal schedule of matters specifically
reserved for its decision, which includes setting strategy and
providing oversight of performance against agreed measures.
It approves any changes to the structure and capital
arrangements for the Company, has oversight of financial
reporting and assesses the effectiveness of the internal
control framework. The Board approves communications with
shareholders, the appointment of new directors and oversees
corporate governance matters.
Corporate Governance Report
The European Smaller Companies Trust PLC Annual Report 2024
27
Each meeting follows an agenda agreed with the Chairman
and includes a review of the Company’s investment
performance, financial position, compliance with the
investment parameters and a review of notable changes to the
share register, along with any sales and marketing activities
undertaken. This reporting enables the Board to ensure that
control is maintained over the Company’s affairs.
The investment manager ensures that the directors receive
relevant management, regulatory and financial information.
Employees of the investment manager attend each Board
meeting enabling the directors to probe further on matters
ofconcern.
The Chairman is able to attend meetings of all the chairmen
oftheinvestment companies managed by JHI which provides
a forum to discuss industry matters.
The directors have access to the advice and services of the
Corporate Secretary through its designated representative
who is responsible for ensuring that Board and committee
procedures are followed. The proceedings of all Board and
committee meetings are minuted, with any particular
concerns raised by the directors appropriately recorded.
TheBoard and the investment manager operate ina
supportive, co-operative and open environment.
The Company has a procedure for directors to take
independent professional advice at the expense of the
Company in the furtherance of their duties. In order to enable
them to discharge their responsibilities, all directors have
fulland timely access to relevant information.
Division of responsibilities
Role Primary responsibilities
Shareholders/
investors
The Company’s shareholders are responsible for:
●
approving the Company’s investment objective and policy;
●
making decisions regarding changes to the Company’s constitution;
●
electing and re-electing directors to the Board, or removing them from office if deemed appropriate;
and
●
determining the overall limit for directors’ remuneration.
Chairman The Chairman of the Board is responsible for:
●
leading and managing Board business and ensuring the timely flow of information from service
providers to the Board. He facilitates open, honest and constructive debate among directors;
●
leading the Board in developing succession planning;
●
leading the Board in determining its governance framework, culture and values;
●
representing the Company, alongside the Fund Manager, externally at business, and community
level; and
●
managing the relationship with the investment manager.
Senior Independent
Director
The senior independent director:
●
acts as a sounding board to the Chairman;
●
serves as an intermediary for the other directors and shareholders; and
●
is responsible for leading the performance evaluation of the Chairman.
Independent non-
executive directors
The independent non-executive directors are responsible for:
●
providing constructive and effective challenge, especially to the decisions of the investment
manager;
●
scrutinising and holding to account the performance of the
– fund management team in meeting the investment objective;
– investment manager in the promotion of the Company and day-to-day smooth operations of the
Company’s business; and
●
providing strategic guidance and offering specialist advice.
Corporate Governance Report (continued)
The European Smaller Companies Trust PLC Annual Report 2024
28
Role Primary responsibilities
Committee chairs The Committee chairs are responsible for:
●
the leadership and governance of their committee;
●
maintaining the relationships with specialist service providers delivering services within the remit of
their committees;
●
reporting on the activities of their committee to the Board; and
●
seeking approval from the Board for the responsibilities set out in their respective terms of reference.
Investment manager The investment manager is the Company’s appointed Alternative Investment Fund Manager and is
responsible for:
●
promoting the Company’s investment proposition to professional and retail investors;
●
making the necessary reporting to the FCA regarding the Company’s status as an Alternative
Investment Fund;
●
providing accounting, company secretarial and other administrative services to the Company
ensuring compliance with the applicable statutory and regulatory provisions; and
●
coordinating the delivery of services provided by the Company’s other third-party service providers.
Fund Manager The Fund Manager and his team are responsible for:
●
selecting the stocks held within the portfolio;
●
diversification and risk management through stock selection and size of investment;
●
determining the volume and timing of acquisitions and disposals; and
●
determining the frequency and level of gearing within the overall limits set by the Board.
Board composition
At the date of this report, the Board comprises five
non-executive directors. Their background and business
experience is set out on pages 25 and 26.
Appointment, tenure and retirement of directors
The Board may appoint directors at any time during
theyear. Any director so appointed stands for election
byshareholders atthe next annual general meeting.
Directors are generally expected to serve two terms of
threeyears, which may be extended to a third term, and
occasionally beyond, atthe discretion of the Board and
subject to satisfactory performance evaluation and annual
re-electionby shareholders.
All directors stand for re-election by shareholders annually
inkeeping with the provisions of the AIC Code. The articles
permit shareholders to remove a director before the end of
their term by passing an ordinary resolution at a general
meeting. An appointment may be terminated by either party
giving written notice without compensation payable.
Chairman’s tenure
Given the entirely non-executive nature of the Board and the
fact that the Chairman may not be appointed as such at the
time of their initial appointment as a director, the Chairman’s
tenure may be longer where this is considered by the Board to
be in the best interests of the Company. As with all directors,
the continuing appointment of the Chairman is subject to
satisfactory performance evaluation, annual re-election by
shareholders and may be further subject to the particular
circumstances of the Company at the time they intend to retire
from the Board. The directors are cognisant of the benefits of
regularly refreshing Board membership and seek to do so
while retaining a balance of knowledge of the Company and
the relationship with the investment manager.
Directors’ independence
The independence of the directors is determined with
reference to the AIC Code and is reviewed by the
Nominationand Remuneration Committee at least annually.
The Committee considers each of the director’s other
commitments, as well as their tenure and any connections
they may have with the investment manager or other key
service providers. Following completion of the evaluation
inJuly 2024 the Committee concluded that all directors
continued to be independent in character and judgement.
Simona Heidempergher will have been a director for over nine
years by the time of the annual general meeting in 2024.
Theother directors consider that she is, and has been,
independent since her appointment. Independence stems
from the ability to make decisions that conflict with the interest
of the investment manager and this is a function of
confidence, integrity and judgement. The Board is firmly of the
view that length of service does not impair a director’s ability
to act independently, but that the longer perspective adds
value to the deliberations of the Board, especially in light of
the Company’s business model and the entirely non-executive
nature of the Board.
Corporate Governance Report (continued)
The European Smaller Companies Trust PLC Annual Report 2024
29
Diversity
The Board supports the principle of boardroom diversity,
ofwhich gender and ethnicity are two aspects. A third,
important aspect given the Company’s objective, is the
presence of Europe-based directors on the Bo