MONTANARO EUROPEAN SMALLER C.TSTPLC

Annual Report • Jun 23, 2023

European Smaller Companies Trust plc Before you invest in a   Annual Report and Accounts 2023 UPDATE INFORMATION This is for internal use only Client Name: Montanaro European Smaller Companies Trust plc Document Type: Annual Report 2023 YF No: YF072 Reference No: DTP 1181 Tracked Version: 20 Time and Date Produced: 17:21 ~ 22 June 2023 The investment objective of Montanaro European Smaller Companies Trust plc (the ‘Company’ or ‘MESCT’) is to achieve capital growth by investing principally in Continental European quoted smaller companies. The Company’s benchmark index is the MSCI Europe ex-UK SmallCap Index (in sterling terms). The Company was launched in May 1981. Its current objective and investment policy were adopted in September 2006. Its Ordinary Shares are listed on the Main Market of the    Contents Highlights 1 Strategic Report Chairman’s Statement 2 Manager's Report 4 ESG Report 8 Twenty Largest Holdings 10 Business Model and Strategy 12 Directors' Duties 19 Governance Report Board of Directors 23 Directors' Report 24 Corporate Governance Statement 29  32 Directors’ Remuneration Report 35 Management Report and Directors’ Responsibilities Statement 38 Financial Report  39 Statement of Comprehensive Income 46 Balance Sheet 47 Statement of Changes in Equity 48  49  50  Disclosures 63 Shareholder Information 64  Measures 66 Glossary of Terms 68  70  78 This document is important and refers to certain matters on which voting action is required. Shareholders who are in any doubt as to what action to take should consult an appropriate independent adviser immediately. If any shareholder has sold or transferred all their shares in the Company, he or she should pass this document to the purchaser or transferee or to the person through whom the transfer or sale was  the transferee or purchaser. Montanaro  page 1 Highlights for the year ended 31 March 2023 Performance Capital Returns% (1) 1 year 3 year 5 year 10 year  (2) Ordinary share price (18.1%)^ 56.4% 72.0% 165.0% 331.1%  (7.6%)^ 65.6% 75.9% 183.1% 363.4%  (5.5%) 50.4% 19.7% 131.4% 178.0% Total Returns% (1) 1 year 3 year 5 year 10 year  (2) Ordinary share price (17.6%)^ 59.2% 78.4% 193.5% 424.5%  (7.1%)^ 68.7% 82.2% 212.1% 452.5%  (3.2%) 58.7% 31.3% 177.1% 278.6% . As at 31 March 2023  31 March 2022 12 month % change Ordinary share price 137.6p 168.0p (18.1%)  158.4p 171.5p (7.6%)  (1) (13.1%) (2.0%)  299,975 324,905 (7.7%)  260,652 318,238 (18.1%) Net gearing employed (1) 3.3% 4.6% Year ended 31 March 2023 Year ended 31 March 2022 12 month % change Revenue return per Ordinary share 1.10p 0.96p 14.6% Dividend per Ordinary share 0.970p 0.925p 4.9% Ongoing charges (1) 1.0% 1.1%  14% 11%   was appointed as Investment Manager.  68 and 69. (1)  66 and 67. (2)   SmallCap Index (in sterling terms).   page 2 Montanaro  Results The MSCI Europe (ex-UK) Small Cap Index (in Sterling terms) fell by -5.5% 31 March   158.4p per share. Over this period, the share price widened from a discount to - result, the share price total return of the Trust was -17.6%.The Board recognises that while it is not out of line with the peer group, this change in discount is  to monitor it closely.   monetary tightening by central banks increased the cost of capital globally. Such increases disproportionately  quality companies underperformed low quality companies in Europe; and growth companies underperformed value companies. These style shifts created headwinds for the Trust as the Manager invests exclusively in high quality, growth   3%, versus -19.3% for the benchmark. The second half of the year saw these headwinds fade as bond yields stabilised  lessen. It was therefore pleasing to see strong returns in both absolute and relative terms during the 6-month period to 31 March total return was 27. 8%, 7.9% ahead of   and 10 years your Trust has delivered  outperforming the benchmark by 50.9% and 35.0% respectively. Since Montanaro were appointed in September 2006  173.9% ahead of the benchmark and 2.5% ahead of the benchmark on a per annum basis. Earnings and Dividends Revenue earnings per share rose to 1.10p in the period (2022: 0.96p). 0.20p per share was paid on 5 2023. The Board  dividend of 0.77p per share payable on 15 September 2023 to shareholders on the register on 18 2023. Subject to shareholder approval, this would bring the total dividends for the year to 0.97p per share. The overall dividend increase of 5% over last year’s dividend  our investments and is made out of this year’s revenue reserves. The Trust also holds substantial revenue reserves available for distribution, which gives the Board the ability to smooth any short-term income volatility. Moreover, the companies in the portfolio continue to have strong balance sheets and therefore do not face the    ESG Montanaro believe there is a clear correlation between how well a business fares on Environmental, Social and Corporate Governance grounds and the value it creates for its shareholders. This is why ESG considerations have formed an integral part of their assessment of a  integrated into their investment process for many years. The depth of Montanaro’s commitment  that they are one of the few UK asset   that meet the highest standards of  performance, public transparency and legal accountability to balance  Montanaro have held since 2019 and which was renewed for a further three years in 2023. Montanaro’s score rose from 81.8 to 105.5 (a strong result), demonstrating their commitment to  Chairman’s Statement for the year ended 31 March 2023 Montanaro  page 3  8 and 9 the developments in Montanaro’s approach and commitment to ESG as well as how they are interacting with  Borrowings The Board, in discussion with the  , regularly reviews the gearing strategy of the Trust and approves any gearing facility. Gearing increases (or decreases) the returns from underlying   The Board has set a maximum limit on borrowing (net of cash) of 30% of shareholders’ funds at the time of  the Trust had borrowings (net of cash) of 3.3% compared to 4.6% at the beginning of the year. The Trust currently has borrowings in the form of a € 10 million  down € 15 million revolving credit facility, both of which are due to mature on 13 September 2023. The Board expect to replace these with new borrowings  Shares The Board actively tracks the level of  peers over the short and medium term and how it compares with the average discount for the whole investment trust sector. We recognise the discount is  around this level since the shift in market sentiment against our quality growth investment style. It is not out of line with our peer group at this time and we have made neither share buy backs nor share issuances in line with our stated policies which are set out on pages 27 and 28. In line with those policies, the Board will seek to renew the Trust's share buyback and issuance authorities at the  Administrator and Company Secretary The Company has appointed, with    Company Matters Limited and Link  respectively. On behalf of the Board and the Manager, I would like to thank the entire team at Link for their service and commitment to the Trust. Communication with Shareholders Over the past few years, the composition of our shareholder base has changed  of individual investors coming onto the register via investment platforms. We continue to explore how best to communicate with all our shareholders irrespective of how they access us. We  open dialogue to keep all shareholders up to date with key developments. Our website – www.montanaro.co.uk/ trust/mesct – is continually updated with factsheets, reports, presentations, webinar recordings and commentaries as well as more details about the Manager, investment philosophy and process. We encourage shareholders to visit regularly and welcome any feedback and suggestions. Annual General Meeting   53 Threadneedle Street, London EC2R 7 September 2023 at 11.00 am. Shareholders are encouraged to attend the Meeting where there will be an opportunity to meet and ask questions of the Board and the Manager. Outlook The last few years have been extraordinary. The aftershocks of Covid-19 continue to be felt across the world and indeed by the companies in  within and between countries show, sometimes tragically, little sign of improving. Banks on both sides of the  rescued. It should be little surprise then that stock markets have been so volatile. The stock market indices do not tell the full story: beneath the surface, we have witnessed some of the biggest style and factor swings in history.   have predicted the combination of a global pandemic, a Russian invasion  interest rates. Yet they have been major drivers of stock markets since. Montanaro believe that, rather than attempting such predictions, investors are best served by long-term ownership of high quality businesses that can thrive and grow irrespective of the general macroeconomic or political environment.   of easing, investors remain relatively  Europe ex-UK Small Cap Index has fallen below its long-term average and sits at a 15% discount to LargeCap.  portfolio declined by more than a third  of March 2023. This is more than the fall   progress of the underlying businesses in the portfolio and their share prices. While doubtless the world will again change in ways we cannot imagine in the coming years, we believe that current  for long-term investors. Together with the Manager’s disciplined investment process, experienced team, and strong track record since being appointed in 2006, this allows us to look forward to  R M CURLING Chairman 22 page 4 Montanaro  Manager’s Report The Attractions of Quoted European Smaller Companies (‘SmallCap’) The key attraction of investing in smaller companies is their long-term record of delivering higher returns to investors than large companies. In the UK, over the last 68 years, this has amounted to an average of 3.1% per annum  UK large companies on  1955    nearly seven times more. There is less comprehensive data on Europe – it only goes back to 2000. However, this suggests that the SmallCap  Continent: as the chart above illustrates,  outperformed by 4.8% p.a. Moreover, while European LargeCaps have underperformed their US counterparts, the same is not true for SmallCaps. Since 2000, the MSCI Europe (ex-UK) Small Cap Index has delivered gross USD returns of 9.4% p.a. – ahead  9.3% p.a. The market for European smaller  large companies are analysed by more than 50 brokers, many smaller companies in Europe have little or no coverage at all. This makes it easier for those with a high level of internal resources to identify attractive, undervalued investment opportunities that are undiscovered by the wider investing community. This in turn makes it possible to deliver long-term performance over and above that of  Montanaro Montanaro was established in 1991. We have one of the largest and most experienced specialist teams in the UK dedicated exclusively to researching and investing in quoted small companies. Our team of 38 includes 14 analysts and 12 nationalities, which gives us the breadth of resources and diversity of experience to conduct thorough fundamental research internally. 31 March 2023, we were looking after  the Investment Manager for your Trust since September 2006. Investment Philosophy and Approach We specialise in researching and investing in quoted small companies. We have a disciplined, two-stage investment process which is applied to all the products we manage, including    universe. We look for high quality companies in markets that are growing.  and experienced management; deliver sustainably high returns on capital employed; enjoy high and ideally  power and a strong market position; and provide goods and services that are in demand and likely to remain so. We prefer companies that can deliver self-funded organic growth and remain focused on their core areas of expertise, rather than businesses that spend a lot of time on acquisitions. Conversely, we avoid those with stretched balance sheets; poor free  or heavily adjusted accounts; unproven or unreliable management; or that face structurally challenged business models  900 600 500 400 300 200 100 0 31 Dec 2000 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 18 2221 31 Mar 2023 MSCI Europe (ex UK) SmallCap (in GBP terms) MSCI Europe (ex UK) LargeCap (in GBP terms) 700 800 17 20 19 Continental European Small v. LargeCap (MSCI Europe ex UK SmallCap v. LargeCap indices, Net TR) (rebased to 100 from 31 December 2000) Montanaro  page 5  quality and ESG checklists. ESG has been integrated into our disciplined investment process for almost  When we have found a company that we believe is high quality, has structural growth and is well managed from a business and ESG perspective, it must be approved by the Investment Committee before it can be added to the Montanaro  We then determine the intrinsic value  List, typically through a proprietary      and which we also believe are attractively valued are then eligible for inclusion in  We have an investment team of 17, including 14 sector and ESG specialists, covering many languages. Utilising their industry knowledge and a range of proprietary screens, they are continually searching for new ideas. With thousands of quoted companies from which to choose, we are spoiled for choice. We believe that a deep understanding of a company’s business model and the way it is managed are essential. We visit our investee companies on a regular basis. We examine management’s past track record in detail as we seek to understand their goals and aspirations. In smaller companies, the decisions of the entrepreneurial management can make or break a company, which is why meeting them is so important. We look closely at the board structure; the level of insider ownership; and examine remuneration and corporate  Once a company has been added to the portfolio, our team conducts ongoing analysis. We will sell a holding if we believe that the company’s underlying quality is deteriorating or if there has been a fundamental change to the investment case or management. In summary, we invest in well managed, high quality, growing companies bought at sensible valuations. We keep turnover and transaction costs low and follow our companies closely over many years. We would rather pay more for a higher quality, more predictable company that can be valued with greater certainty.  investors by investing meaningful amounts of our own money alongside  the Trust. The Portfolio 31 March 2023, the portfolio consisted of 49 companies of which the top ten holdings represented 39%. Sector and country distribution within the portfolio  weightings relative to the market are monitored, overweight and underweight positions are held based on where the greatest value and upside are perceived to be. Performance Attribution The year to 31 March 2023 saw strong performances from some of our largest investments: Kitron is an Electronics Manufacturing Services (EMS) business with its headquarters in Norway. The company had an excellent year as supply chain constraints in the electronics industry eased, allowing Kitron to deliver orders that had built up during the pandemic. Brunello Cucinelli is an Italian luxury goods company that is particularly famous for its cashmere products. Its  in luxury sales worldwide led to the  repeatedly during the year, buoying the share price as a result. Fortnox  accounting systems to companies in Sweden. The stock performed well on news of further price increases combined with continued success in attracting new customers. It has now been a top three contributor for three years in a row. The year was not without some stock price falls as well. Our three largest detractors are detailed below: MIPS develops patented inserts for helmets, which protects the brain against  years of strong performance, destocking by helmet retailers led to a weaker year for the company, particularly in the cycling market. QT Group provides software tools used to design and build graphical user interfaces. The company saw a slowdown in developer license sales as customers pushed out the timing of new projects. We grew concerned that the competitive environment was also worsening and as a result we sold the position. ChemoMetec is a globally leading developer of cell counters that are used in the development of cell therapies. The share price declined due to a slowdown in new instrument sales as the funding environment for cell-based therapy R&D became more restrictive. Consumable and service sales nevertheless continued to grow. Portfolio Changes We try to keep portfolio turnover as low as possible. However, we typically make a few changes each year as we identify new investment ideas that we expect will provide stronger long-term returns than existing holdings. Companies that become too large, are acquired or where the investment case deteriorates are also replaced with new ideas from our  page 6 Montanaro  Manager’s Report continued £0–£500m £500m–£1bn £1bn–£3bn £3bn–£5bn >£5bn £0–£500m £500m–£1bn £1bn–£3bn £3bn–£5bn >£5bn 6.3% 23.0% 22.1% 26.9% 21.7% 6.3% 23.0% 22.1% 26.9% 21.7% 8.9% 9.5% 46.3% 21.8% 13.5% 8.9% 9.5% 46.3% 21.8% 13.5% 20232023 20222022 Market Capitalisation of Holdings by Value (31 March 2023) In the year to 31 March 2023, we exited positions in companies including Vitrolife, the developer of media and  company made an expensive acquisition and saw the departure of key executives. Endor, which sells hardware used for sim racing, was sold as new competitors entered the market. Nolato, a third-party manufacturer of plastic components, was sold as the company grew its tobacco heat-not-burn sales to levels that we deem to be too high to pass our ethical exclusion tests. Technoprobe, the Italian developer of probe cards used in the testing of semiconductors and Bachem, the Swiss peptide contract manufacturer, were additions to the portfolio. Continual Improvement Each year we take time to look back at our successes and mistakes to assess how our systems and processes can  Our Investment Committee has for many years played an important role as   List or, therefore, bought, until the Investment Committee has agreed that it meets our stringent quality and growth  process. The second stage is valuation, where the analysts determine whether  currently good investments. This year we have introduced Investment Committee oversight and approval for this second stage too. We believe this will help to ensure consistency across the team with respect to forecast assumptions as well as improving communication between analysts and fund managers on this critical topic. Sector Distribution (31 March) Source: Montanaro Asset Management Limited 0 5 10 15 25 30 35 20 % Info rmation Technology Industrials Health Care Financials Consumer Discretionary Consumer Staples Communication Services Real Estate Materials 2023 2022 Energy Geographical Analysis (31 March) Source: Montanaro Asset Management Limited 0 5 10 15 35 25 20 30 % Italy Finland Norway Switzerland Netherlands Denmark Portugal Belgium Spain France Sweden Germany 2023 2022 Montanaro  page 7    help us better manage and internally communicate the large amounts of  2022 we successfully moved our entire research team from a legacy on-premise folder based system to a cloud based system built within Microsoft Teams. This new system has better functionality, organisation and security, as well as being globally accessible from anywhere with an internet connection. Moreover,  opened up possibilities to collaborate and cross-reference which were not available before – we are scratching the surface of this at the moment but already developing some interesting tools as a result. Looking ahead, we are keeping  exploring how we can best utilise these tools to improve our processes. The systems overhaul has not been   now have 24/7 threat monitoring and  training including simulated phishing attacks, on top of a state-of-the-art software stack, throughout the company. Gearing   the Board, is responsible for determining the net gearing level of the Trust. The  of 3.3% (31 March 2022: 4.6%). How to Invest We have invested a great deal of time  available to all investors. We have continued to grow our presence across the UK’s investment platforms and are delighted to see a steady increase, year after year, in the Trust’s retail following. With the Board, we have appointed Marten & Co to provide sponsored  report published in March 2019 here: https://www.montanaro.co.uk/mesct- quality-business/ and an update report published in March 2022 here: https://quoteddata.com/research/ montanaro-european-smaller-companies- unfazed-by-market-turmoil-mc/  invest, please refer to the website: www.montanaro.co.uk/trust/mesct MONTANARO ASSET  22 2023 page 8 Montanaro  ESG Report Montanaro continues to place great importance on evolving and strengthening its approach to sustainable investing. Montanaro   much-improved score as noted in the Chairman’s Statement.  of social and environmental performance, transparency and accountability. It is regarded as one of the toughest  Montanaro has become an accredited Living Wage employer. Ethical Restrictions and ESG Analysis Montanaro has a long track record of sustainable investing,  been managed. Ethical restrictions mean that we do not  of sales from products with negative societal impact such as tobacco, gambling, armaments, alcohol, high-interest-rate lending and fossil fuels. Similarly, we do not invest in companies that conduct animal testing unless it is required by law for healthcare or regulatory purposes. The analysis of Environmental, Social and Governance (ESG)   understand the risks – and opportunities – that our companies may be exposed to, from factors such as climate change and supply chain risks to the structure of company boards. Active and long-term engagement      companies are run.   in the UK. Over 30 other CEOs from the companies in which we invest joined us to learn and share experiences of setting net zero carbon targets and the associated challenges. The event was   and proved a huge success in stimulating further action from our companies. Over 18% of the companies in the portfolio  standard. This number was almost zero only a few years ago. During the year, we engaged with a number of portfolio   observed that it had received the lowest possible rating from the ESG research company MSCI. We wanted to understand the reasons for this and discussed with management how the score might be improved in the future. We provided guidance on how the company could improve its sustainability reporting and provide more detailed ESG data to shareholders, something ESG research companies such as MSCI require. The provision of such information continues to be a challenge for smaller companies who often have limited internal   companies continue to submit corporate environmental data to third-party organisations. There were a record number of sign-ups this year. We believe that we can achieve an even higher disclosure rate in 2023.  composition of the Board, which is 100% male. We are pleased to report that the company has now set diversity and inclusion targets for 2027, including a goal of 30% women on the executive leadership team. We will wait to hear how the progress towards this goal develops. Deep Dive research projects Led by our ESG & Impact Specialists, our Investment Team   Deep Dive, focused on understanding how our companies are responding to climate change and setting net zero carbon  part of this project, we conducted meetings with academics, charities, and research organisations to better understand how companies and their investors should appraise the positive and negative impacts of their activities on the biosphere. Montanaro  page 9 Continual investment    Montanaro continued to achieve industry leading standards over the last year, publishing our UK Stewardship Code report, which again received successful signatory status by We also continued our commitments to responsible investing by signing the Tobacco  invest in tobacco related companies, an ethical exclusion that Montanaro has had in place since inception). Signatory date Initiative 2009   2010 UK Stewardship Code 2015   2017  2019 B Corporation 2019   2020  Initiative 2022   2022  During the year, Montanaro played an active role in the development of sustainable investing in the wider investment  co-chaired by former Bank of England Governor, Mark Carney. Our Head of Sustainable Investment sits on the Mainstream   expects companies to report on the transition to net zero.      increased clarity to consumers navigating this space. The development of this regulation is ongoing. We were involved in consultations related to the Taskforce on . The objective of the completed framework is to allow organisations to report and act on evolving nature-related risks, with the aim to support companies, investors, and lenders to shift global  toward nature-positive outcomes. These industry standards and our participation in collaborative initiatives allows us to stay abreast of the developments  changing area of the investment landscape and ensure that our investment process evolves accordingly. Our experience, the high level of in-house resource that we have at our disposal and our belief that embedding ESG factors into an investment process leads to better investment outcomes is fundamental to how we operate and our status as a B Corporation. We look forward to sharing further developments with you in the future. MONTANARO ASSET MANAGEMENT LIMITED 22 2023 page 10 Montanaro   as at 31 March 2023 1. NCAB is a global full-service supplier of printed  2. MTU Aero Engines manufactures and maintains aircraft engines and components. 3. Kitron is a leading Scandinavian Electronics Manufacturing Services (EMS) company. 4. Fortnox is Sweden’s leading provider of cloud-based applications for accounting, invoicing and payroll administration. 5. Melexis is a leading designer of sensors, with a particular focus on automotive applications. 6. Brunello Cucinelli is a luxury fashion company, particularly famous for its cashmere products. 7. IMCD is one of the world’s largest speciality chemical distributors. 8. Brembo is a global leader in the design and production of high end automotive braking systems. 9. VZ Holding  consultant and wealth manager. 10. Amadeus FiRe is a leading personnel service company in Germany, with integrated training and  11. CTS Eventim is the market leading ticketing company in Europe, providing an online platform from which to sell tickets to a range of events such as operas and pop concerts. 12. Sartorius Stedim is a world leading supplier of equipment and technologies used to produce biopharmaceuticals. 13. Bachem is a leading manufacturer of peptides and oligonucleotides. 14. Atoss Software develops and sells workforce management software in Europe. 15. Christian Hansen is a leading developer of microbial solutions for the food, beverage, nutritional, pharmaceutical and agricultural industries. 16. Tecan develops automated instruments and solutions that are used in laboratories. 17. Viscofan is a global leader in the production of casings for meat products. 18. Belimo Holding develops and manufactures electrical motorised control devices (actuators) for air and water. These are predominantly used in large buildings with sophisticated   19. MIPS develops patented inserts for helmets, which protects the brain against rotational motion. 20. Reply is an Italian IT services company. Montanaro  page 11 Holding Country 31 March 2023 Value £’000 31 March 2022   31 March 2023 % of investment portfolio 31 March 2023 % of net assets 31 March 2023 Market cap   Sweden 15,643 18,810 5.0 5.2 887  Germany 14,192 12,444 4.6 4.7 10,840 Kitron Norway 14,173 7,873 4.6 4.7 560  Sweden 12,479 14,196 4.0 4.2 3,382 Melexis Belgium 12,144 5,678 3.9 4.0 3,767 Brunello Cucinelli Italy 12,016 6,730 3.9 4.0 5,437 IMCD Netherlands 11,235 10,494 3.6 3.8 7,518 Brembo Italy 9,972 6,394 3.2 3.3 3,910  Switzerland 9,933 10,837 3.2 3.3 2,648 Re Germany 9,758 8,224 3.2 3.3 696 CTS Eventim Germany 9,356 8,395 3.0 3.1 4,846 Sartorius Stedim  8,674 13,205 2.8 2.9 22,802 Bachem Switzerland 8,091 – 2.6 2.7 6,066  Germany 8,014 9,115 2.6 2.7 1,157 Christian Hansen Denmark 7,999 5,355 2.6 2.7 8,110 Tecan Switzerland 7,948 7,584 2.6 2.6 4,497  Spain 7,250 5,682 2.3 2.4 2,692 Belimo Holdings Switzerland 7,222 7,515 2.3 2.4 4,800  Sweden 7,142 15,030 2.3 2.4 1,069 Reply Italy 6,951 8,238 2.2 2.3 3,708 Twenty Largest Holdings 200,192 64.5 66.7 page 12 Montanaro  Our objective is to achieve capital growth for our shareholders by investing principally in Continental European quoted smaller companies. We seek to invest in well managed, high quality, growth companies. We keep portfolio turnover low and follow our companies closely over many years. INTRODUCTION The Company carries on business as an investment trust. Its Ordinary Shares are traded on the Main Market of the London Stock Exchange. The Company has no employees but contracts investment management and administration to appropriate external service providers, who are subject to oversight by the Board of Directors. The principal service providers during the year were:   ‘Manager’), which was appointed as Investment Manager on 5 September 2006 and  on  2014.   provided fund administration services during the year. – Link Company Matters Limited, which provided company secretarial services during the year. – Equiniti Limited which provided registrar services during the year. – Bank of New York Mellon (International) Limited which provided depositary services during the year.  The Board of Directors is responsible for the overall stewardship of the Company, including investment and dividend policies, gearing, corporate strategy, corporate governance and risk management. Biographical details of the Directors, all of whom are independent and non-executive, can be found on page 23. The Board consists of two male Directors and one female Director. The Directors have considered their duties under section 172(1) of   found on pages 19 to 22. evaluation and appointment of the Manager, which also acts as the . The outcome of the evaluation in the current year is set out on page 30.  Established in 1991, Montanaro is a highly experienced specialist investor in quoted smaller companies. It has one of the largest teams in the UK researching and investing exclusively in quoted smaller companies and currently 4 institutions. Montanaro’s investment philosophy and approach is set out in the Manager’s Report on pages 4 to 7.  The Company’s investment strategy is set out in its objective and investment policy as set out below. Objective The Company’s objective is to achieve capital growth by investing principally in Continental European quoted smaller companies. The Company’s benchmark index is the MSCI Europe ex-UK SmallCap Index (in Sterling terms). Investment Policy The Company invests principally in quoted smaller companies within the European Union, Norway and Switzerland (but is not restricted from investing in smaller companies quoted on other European stock exchanges). In addition, the Company may invest in: • Companies listed on non-European stock exchanges that  • European securities, such as global depositary receipts, listed on other international stock exchanges; and • Debt issued by European governments or denominated in European currencies.  invest in all types of securities of companies, including (but not limited to) equities, preference shares, debt, convertible securities, warrants and other equity-related securities. The Company may also invest, where appropriate, in open-ended collective investment schemes and closed-ended funds that invest in Europe. It is not intended that the Company will acquire securities that are unquoted or unlisted at the time of investment (with the exception of securities which are about to be listed or traded on a stock exchange). However, the Company may continue to hold securities that cease to be quoted or listed if the Manager considers this to be appropriate.   not limited as to country or sector basis weightings, but no investment in the portfolio may exceed 10% of the Company’s total assets at the time of investment. The Company may   portfolio management (i.e. solely for the purpose of reducing, transferring or eliminating investment risk in the Company’s investments, including any technique or instrument used to provide protection against currency and credit risks).  Montanaro  page 13 The Company borrows funds for investment to enhance returns over the long-term and may borrow in Sterling, Euros or other currencies. The Board has set a maximum limit on borrowing, net of cash, of 30% of shareholders’ funds at the time of borrowing. The Company’s portfolio will normally be fully invested. However, during periods in which changes in economic conditions or other factors so warrant, the Company may reduce its exposure to securities and increase its position in cash and money market instruments. The Company will not invest more than 10%, in aggregate, of the value of its total assets at the time of investment in other investment trusts     presentation from the Manager together with a comprehensive  of compliance with investment restrictions during the reporting  31 March 2023 is contained in the Manager’s Report on pages 4 to 7 and the 20 largest holdings are shown on page 10.  The Company’s principal and emerging risks are set out in detail on pages 14 to 17.  The Company’s performance in meeting its objectives is  out on page 1. Reviews of the Company’s returns during the  and the outlook for the coming year are contained in the Chairman’s Statement on pages 2 and 3 and the Manager’s Report on pages 4 to 7, both of which form part of this Strategic Report.  The Company’s primary aim is to deliver capital growth to its shareholders, rather than dividend income. In determining dividend payments, the Board takes account of income forecasts, brought forward revenue reserves, the Company’s dividend payment record and the Corporation Tax rules governing investment trust status. These rules determine the minimum level of dividend which must be paid in order to  respect of the retention of distributable income. Dividends can also be paid from the Capital Reserve from any surplus arising from the realisation of any investment. The Company has revenue reserves which underpin any short-term reduction in dividend income.  The Company complies at all times with Section 1158 of the   submits correct taxation returns annually to HMRC and settles promptly any taxation due. The Board is fully committed to complying with applicable legislation and statutory guidelines, including the UK’s Criminal  jurisdictions in which the Company operates.  Diversity is an important consideration in ensuring that the Board and its committees have the right balance of skills, experience, independence and knowledge necessary to discharge their responsibilities. The Board is composed solely of non-executive Directors and has one third female representation. The Board’s approach to the appointment of  of having a diverse range of experience, skills, length of service and backgrounds. The Board will always appoint the best person for the job and will not discriminate on the grounds of gender, race, ethnicity, religion, sexual orientation, age, social background or physical ability. The right blend of perspective is   The Board recognises that it is long-term share price returns that are most important to the Company’s shareholders. They are largely driven by competitive portfolio returns and by keeping down the level of both the discount and ongoing charges. The Board uses a number of key performance indicators to assess the Company’s success in pursuing its objectives. They are as follows: •  both absolute and against the benchmark; •  • Gearing; and • Ongoing charges.  31 March   shown below. The historic discount and ongoing charges  The Company’s performance for the year against the key performance indicators, together with the outlook for the coming year, is reported within the Highlights on page 1, the Chairman’s Statement on pages 2 and 3 and the Manager’s Report on pages 4 to 7. page 14 Montanaro  continued  6 months % 1 year % 3 year % 5 year % 10 year %  1 ^ % Montanaro European Smaller Companies Trust Share price 28.1 (18.1) 56.4 72.0 165.0 331.1  27.6 (7.6) 65.6 75.9 183.1 363.4  19.3 (5.5) 50.4 19.7 131.4 178.0 1     SmallCap Index (in sterling terms).  68 and 69. HISTORIC RECORD Net assets   per share Ordinary Share price (Discount)/ premium 1 Dividends per share Ongoing Charges ^  60,022 344.0p 322.0p (6.4%) n/a 1.6% 31 March 2007 74,447 426.7p 404.0p (5.3%) 4.00p 1.8% 31 March 2008 69,061 401.6p 340.0p (15.3%) 4.00p 1.8% 31 March 2009 42,653 257.4p 220.8p (14.2%)  1.6% 31 March 2010 71,059 428.8p 373.0p (13.0%) 4.50p 1.7% 31 March 2011 88,837 536.0p 467.0p (12.9%) 4.50p 1.6% 31 March 2012 81,278 471.6p 405.0p (14.1%) 5.50p 1.5% 31 March 2013 93,009 559.2p 519.3p (7.1%) 6.75p 1.5% 31 March 2014 98,683 593.3p 540.0p (9.0%) 7.00p 1.5% 31 March 2015 95,751 572.2p 515.0p (10.0%) 7.50p 1.5% 31 March 2016 106,418 636.0p 540.0p (15.1%) 7.50p 1.4% 31 March 2017 136,050 813.1p 695.0p (14.5%) 8.25p 1.2% 31 March 2018 150,776 901.1p 800.0p (11.2%) 8.50p 1.2% 31 March 2019 169,141 1010.8p 890.0p (12.0%) 9.00p 1.2% 31 March 2020 160,123 956.9p 880.0p (8.0%) 9.25p 1.2% 31 March 2021 276,065 1,589.0p 1,610.0p 1.3% 9.25p 1.2% 10 31 March 2022 324,905 171.5p 168.0p (2.0%) 0.925p 1.1% 31 March 2023 299,975 158.4p 137.6p (13.1%) 0.970p 1.0%     ^  66. 1  66.   and managing the emerging and principal risks faced by the Company. The Board carefully considers the Company’s principal and emerging risks and seeks to mitigate these risks through continued and regular review, policy setting, compliance with and  Most of the principal and emerging risks that could threaten the Company’s objective, strategy, future returns and solvency are market related and comparable to those of other investment trusts investing primarily in quoted securities. 32 to 34 summarises the Company’s internal control and risk management arrangements. By means of the procedures set out in that summary, and in accordance with the Guidance on Risk Management,     those that would threaten its business model, future performance, solvency or liquidity. Montanaro  page 15 The principal and emerging risks and uncertainties faced by the Company, and the Board’s mitigation approach are described below. Notes 16 to 20 their management. Principal Risks Mitigation Investment and strategic risk: Inappropriate strategy, including country and sector allocation and stock selection could lead to poor returns for shareholders. No material change in overall risk in year. At each Board Meeting, the Manager discusses portfolio performance and strategy with the Directors and performance against the benchmark and the peer group is reviewed. The Manager also provides the Board   the performance of the Manager and its terms of appointment annually. Gearing:  borrowings, which can enhance returns to shareholders in a rising stock market. However, gearing exacerbates movements    No change in overall risk in year. The Board is responsible for setting the gearing range within which the Manager may operate and has set a maximum limit on borrowing, net of cash, of 30% of shareholders’ funds at the time of borrowing. The  loan € 10 million and a €  mature in September 2023. As at 31 March 2023, €  down from the revolving credit facility. The Board receives recommendations on gearing levels from the Manager, and monitors and discusses with the Manager the appropriate level of gearing at each Board Meeting.  The Company invests principally in Continental European quoted smaller companies and its principal risks are therefore market related with short term risk arising from the volatility in the prices of the Company’s investments and foreign exchange. Events such as terrorism, disease (such as a global  regulation and taxation, excessive stock market speculation, economic recessions, political instability and movements in    risk at times when the liquidity of the underlying portfolio is poor, such as when smaller companies are out of favour or  is focused on investments in smaller European companies where the opportunities may be more attractive than in larger companies but where overall portfolio liquidity may be more   markets may impact the discount of the Company’s share price  No change in overall risk in year.  consequences of such risky events and the Board reviews the portfolio with the Manager on a regular basis. It is not the Company’s policy to hedge currency risk. The Board has also set investment restrictions and guidelines which are adhered to and reported on by the Manager. If required, it is also possible to raise the level of cash held, thereby  lower portfolio valuations. The portfolio’s liquidity is not managed on the   forced to buy or sell individual holdings at inopportune times. The Manager constantly reviews the underlying liquidity of the portfolio,  enhance its ability to execute and minimise liquidity risk. The liquidity of the portfolio is monitored by the Manager and reported to the Board, and market conditions and their impacts are considered. The Company’s liquidity risk is managed on a daily basis by the Manager in accordance with established policies and procedures in place.   are included in notes  to 20 to the accounts. page 16 Montanaro  Principal Risks Mitigation Discount volatility:   their peer group.  The Board and Manager actively monitor the discount of share price to   has stated its commitment to an active discount management policy, such that it will consider a buyback of shares where the discount of the share price to the NAV per share is greater than 10% for a sustained  trusts. The Board receives regular reports on the discount level of the Trust, its peer group, and the wider investment trust sector which informs any decision to buy back shares. Any such transaction must be value enhancing for shareholders and the Board will take into consideration  Board encourages the Manager to market the Company to new investors to increase demand for the Company’s shares, which may help to reduce the discount. Regulatory: The Company carries on business as an investment trust and has been approved as such by HM Revenue & Customs subject to it continuing to meet eligibility conditions and ongoing  capital gains. Breach of Section 1158 of the Corporation Tax  chargeable gains. Breach of regulatory rules could also lead to suspension of   No change in overall risk in year. The Company Secretary and the Company’s professional advisers provide reports to the Board in respect of compliance with all applicable rules and regulations. The Company complied with all applicable rules and regulations  Regulation and the second Markets in Financial Instruments Directive during the year. The Administrator monitors the Company’s compliance with Section  the amount of proposed dividends to ensure the rules are not breached. The results are reported to the Board at each meeting. The Administrator monitors compliance with the Listing Rules of the Financial Conduct Authority and compliance with the principal rules is reviewed by the Directors at each Board Meeting. The Board and AIFM also monitor changes in legislation which may have an impact on the Company Operational: In common with most other investment trust companies, the Company has no employees. The Company is therefore reliant on the services provided by third parties such as the  of the Depositary). Disruption or failure of the Manager’s  service providers could lead to an inability to provide accurate  or a breach of regulatory and legal regulations. Cyber security risks and their impact on data security are inherent in the operations undertaken by the company's third-party suppliers and risk disruption to business operations  No change in overall risk in year. The Board and the Audit Committee receive regular reports on the operation of internal controls to mitigate against the risk of failure, including those at the Manager, the Administrator and the Custodian as explained in more detail within Risk Management and Internal Control on pages 32 and 33. These reports include controls over risks of cyber security. These have been tested and monitored throughout the year which is evidenced from their control reports regarding their internal controls which are reported on by their reporting accountants. Quarterly reports are also received from the Depositary which is responsible for the safekeeping of all custodial assets of the Company. In addition, the manager is in regular contact with service providers regarding business operations and continuity planning, and has reported no matters of concern. continued Montanaro  page 17 Principal Risks Mitigation Cyber Security The threat of cyber attack is regarded as being as important as more traditional physical threats to business continuity and security. The Company has limited direct exposure to cyber risk. However, the Company’s operations or reputation could  cyber security breach.  The Board monitors the preparedness of its service providers and is  report to the Board at each meeting that covers cyber risk. The Company  Manager around the security of data. The annual review of the Administrator’s controls includes consideration  are in place is requested on an annual basis from all third party service providers. Environmental, Social and Governance (“ESG”) The key risk is that the Manager invests in a company which has poor ESG practices. It is the Manager’s opinion that companies with poor standards of ESG are likely to underperform over the long-term. Key ESG risks include: Environmental •  • Resource depletion, including water • Waste and pollution Social • Working conditions, including no slavery or child labour • Health and safety • Employee relations and diversity Governance • Executive pay • Board diversity and structure (in terms of age, gender, educational and professional background) •  Increased risk due to increased investor focus on this area.  and sustainability issues seriously. A strong and consistently applied  company in which the Manager considers investing. An ethical framework excludes investment in companies that generate   Montanaro’s team of Research Analysts and the Manager only invests in those which pass the criteria set out in this Checklist, which is designed to cover the aforementioned Environmental, Social and Corporate  Overview is provided by Montanaro’s Sustainability Committee, which  with investee companies.  considerations for new and existing investments. Manager Should the Manager not be in a position to continue to manage the Company, performance may be impacted. No change in overall risk in year. Montanaro has one of the largest specialist teams in the UK focusing on quoted European smaller companies. Montanaro operates a team approach in the management of the investment portfolio which mitigates against the impact of the departure of any one member of the investment team. The Manager keeps the Board informed of developments within its business. page 18 Montanaro    Directors have assessed the prospects of the Company over the coming three years. In order to assess the viability of the Company, the Board is required to assess its future prospects and has considered that a number of characteristics of its business model and strategy were relevant to this assessment: • The Company’s objective is to achieve capital growth. • The Company’s investment policy, which is subject to regular Board monitoring, means that the Company is invested principally in the securities of Continental European quoted smaller companies. • The Company is a closed-end investment trust, whose shares are not subject to redemptions by shareholders. • The Company’s business model and strategy is not time limited.  operational arrangements: • The Company retains title to all assets held by the Custodian under the terms of a formal agreement with the Depositary and Custodian. • The borrowing facilities, which remain available until September 2023, are also subject to formal agreements,  complied in full during the year. • Revenue and expenditure forecasts are reviewed by the Directors at each Board Meeting. In considering the viability of the Company, the Directors carried out a robust assessment of the principal risks and uncertainties which could threaten the Company’s objective and strategy, future performance, liquidity and solvency,  adverse currency movements on the Company’s investment portfolio. These risks, their mitigations and the processes for monitoring them are set out on pages 14 to 17 Risks and Uncertainties and Risk Mitigation, pages 32 to 34  accounts. The Directors have also considered: • The level of ongoing charges incurred by the Company which are modest and predictable and that these were covered by investment income and total 1% of average net assets; •  potential impact of reduced dividend income in the short term as a result of market conditions; •  facility of € 10 million, which is due to mature in September 2023, noting that the Company has a large margin of safety over the covenants on this debt. The Company also has a € 15 million revolving credit facility which also matures on 13 September 2023, of which € 5 million was drawn down as at 31 March 2023. This loan was covered 23 times by the Company’s total assets at 31 March 2023 and the Board expect to renew its bank facilities at the end of their terms; • Its ability to meet liquidity requirements given the Company’s investment portfolio consists principally of Continental European quoted smaller companies which can be realised if required. It is estimated that approximately 81% of the portfolio could be liquidated under normal conditions within seven trading days; • The ability to undertake share buybacks if required; • That the Company’s objective and investment policy continue to be relevant to investors; and • The Company has no employees, having only non-executive Directors and consequently does not have redundancy or other employment related liabilities (including pensions) or responsibilities.  2026, and the Board will continue to assess viability over three year rolling periods, taking account of severe but plausible scenarios. In the absence of any adverse change to the regulatory environment and to the treatment of UK investment trusts a rolling three year period represents the horizon over  change to the Company’s principal risks or their mitigation and they believe they can form a reasonable expectation of the Company’s prospects. Based on their assessment, and in the context of the Company’s business model, strategy and operational arrangements set out above, the Directors have a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the  also considers it appropriate to continue adopting the going  continued Montanaro  page 19  SECTION 172(1) Section 172(1) Directors to act in good faith and in a way that is the most likely to promote the success of the company. In doing so, Directors must take into consideration the interests of the various stakeholders of the Company, the impact the Company has on the community and the environment, take a long-term view of consequences of the decisions they make as well as aim to maintain a reputation for high standards of business conduct and fair treatment between the members of the Company.  its Investment Objective and helps to ensure that all decisions are made in a responsible and sustainable way. In accordance with the requirements of the Companies (Miscellaneous Reporting) Regulations 2018, below, the Board explains how the Directors have individually and collectively discharged their duties under section 172(1) reporting period. To ensure that the Directors are aware of, and understand, their duties they are provided with a tailored induction, including details of all relevant regulatory and legal duties  join the Board, and continue to receive regular and ongoing updates and training on relevant legislative and regulatory developments. They also have continued access to the advice and services of the Company Secretary, and when deemed necessary, the Directors can seek independent professional advice. The schedule of Matters Reserved for the Board, as well as the Terms of Reference of its committees are reviewed periodically and further describe Directors’ responsibilities and obligations and include any statutory and regulatory duties. CULTURE  Company’s culture and values and has worked to incorporate these behaviours and processes into the annual review of the Manager, strategic planning, the annual evaluation of Board – thus embedding consideration of stakeholders’ interests, long-term perspective, maintaining reputation for fairness and high standards of governance, corporate reporting and business conduct more generally in the Company’s culture and processes.  The importance of stakeholder considerations, in particular in the context of decision-making, is regularly considered by  paper setting out the Directors' responsibilities under s.172(1)  strategic planning discussions involve careful considerations of the longer-term consequences of any decisions and their implications on shareholders and other stakeholders, and are supported by detailed analysis based on various scenarios, which include assumptions around the Company’s contractual commitments; availability of funding; borrowing; foreign currency management; as well as the wider economic conditions and market performance.  The Board recognises that the Company has certain responsibilities to its shareholders, stakeholders and wider   endorses the Manager’s policy to invest the Company’s funds in a socially responsible manner. Environmental, social and governance factors are an integral part of the investment process. In addition, the Manager does not invest in companies that it deems to be harmful to society or the environment; this includes companies involved in tobacco, fossil fuels, gambling, adult entertainment, weapons manufacturing and alcohol. The Board monitors investment activity to ensure they are compatible with the policy and receives periodic updates from the Manager on its initiatives and performance against its   Investment, the UK Stewardship Code, the Carbon Disclosure    environmental performance, transparency and accountability. In 2021 Montanaro was invited to co-chair the B Corporation Investment & Working Group and attended the UN Climate   in the ESG Report on pages 8 to 9. BUSINESS CONDUCT Board policies are all reviewed on at least an annual basis, and   which can be found on pages 32 to 34 of this Report, further explains how the Committee reviews the risk management and internal controls of the Company. This includes reasonably satisfying itself that relevant systems and controls in place  page 20 Montanaro  continued  The Board seeks to understand the needs and priorities of the Company’s stakeholders and these are taken into account during all its discussions and as part of its decision-making. While as an externally managed investment Company, the Company does not have any employees or customers, its key stakeholders include: Stakeholders Why they are so important? Board engagement Shareholders Continued shareholder support and engagement are critical to the existence of the Company and the delivery of the long-term strategy of the Company. The Company has more than 1,200 shareholders. Over the years, the Company has developed various ways of engaging with its shareholders, in order to gain an understanding of the views of our shareholders. These include: • Annual General Meeting – The Company welcomes  Meeting. The manager delivers a presentation and all shareholders have an opportunity to meet the Directors and ask questions. The Board greatly values the feedback and questions it receives from shareholders and takes action or makes changes as and when appropriate. • Presentations – The annual and interim results, as well as monthly factsheets are available on the Company’s  from the shareholders help the Company to evolve its reporting, aiming to render the reports and updates transparent and understandable; and • Investor Relations updates – the Directors receive updates on the share trading activity, share price performance and any shareholders’ feedback, as well as any publications or comments in the press.  The Manager The Manager’s performance is critical for the Company to successfully deliver its investment strategy and meet its objective. Maintaining a close and constructive working relationship with the Manager is crucial as the Board and the Manager both aim to continue to achieve consistent, long-term returns in line with the Company’s investment objective. Important components in the collaboration with the Manager, which are representative of the Board’s culture are: • Encouraging open discussion with the Manager; • Recognising that the interests of shareholders and the Manager are for the most part well aligned, adopting a tone of constructive challenge, balanced when those interests are not fully congruent by robust negotiation of the Manager’s terms of engagement; and • Willingness to make the Directors’ experience available to support the Manager in the sound, long-term development of its business and resources, recognising that the long-term health of the Manager is in the interests of shareholders in the Company. Montanaro  page 21 Stakeholders Why they are so important? Board engagement Other service providers, including: the Company Secretary, the Administrator, the Registrar, the Depositary, the AIFM, the Custodian and the Broker In order to function as an investment trust with a premium listing on the London Stock Exchange, the Company engages a diverse range of advisors for support with meeting all relevant obligations. The Board maintains regular contact with its key external providers, both through the Board and committee meetings, as well as outside of the regular meeting cycle. Their advice, as well as needs and views are routinely taken into account. In addition, the Board also undertakes periodic reviews of the external service providers and addresses any concerns raised in those reviews. It also holds relationship meetings and formally hears, and acts on, their feedback, as appropriate. Banks  are crucial to the Company’s ability to take advantage of investment opportunities as they arise. In recognition of the importance of funding availability, the Company aims to demonstrate to lenders that it is a well-managed business, and in particular, that the Board focuses regularly and carefully on the management of risk. Institutional Investors and proxy advisors The evolving practice and support of the major institutional investors and proxy adviser agencies are important to the Directors, as the Company aims to maintain its reputation and high standards of corporate governance, which contributes to the long-term sustainable success of the Company. Recognising the principles of stewardship, as promoted by the UK Stewardship Code, the Board welcomes engagement with all our investors. The Board recognises that the views, questions from, and recommendations of many institutional investors and proxy adviser agencies provide a valuable feedback mechanism and play a part in highlighting evolving shareholders’ expectations and concerns. Regulators The Company can only operate with the approval of its regulators who have a legitimate interest in how the Company operates in the market and treats its shareholders. The Company regularly considers how it meets various regulatory and statutory obligations and follows voluntary and best-practice guidance, is mindful of how any governance decisions it makes can have an impact on its shareholders and wider stakeholders, in the short and in the longer-term. Community and Environment The Board recognises that it has a responsibility to the wider environment and community. Our engagement with the community and the environment can be found on page 19 pages 8 and 9. page 22 Montanaro   172(1) the related engagement activities are set out below: Principal decision Stakeholder Considerations and Engagement To approve  dividends during the year  2010 which states that it must not retain more than 15% of its income for each accounting period and the Board balanced its regulatory obligations with those of its shareholders. interim dividend of 0.20 pence per ordinary share0.77 pence per share, subject  Change of Company Secretary and Administrators The Board periodically evaluates all contracts and arrangements with service providers and considers how the Company and its shareholders can best be served for its future  and the Company’s expected future requirements, the Board decided to change service  2023. The Chairman’s Statement on pages 2 and 3, the Manager’s Report on pages 4 to 7, the Twenty Largest Holdings on page 10, all form part of this Strategic Report, which has been approved by the Board of Directors. By order of the Board LINK COMPANY MATTERS LIMITED Company Secretary 22 continued Montanaro  page 23  Caroline Roxburgh – Senior Independent Director and Chair of the Audit Committee Date of Appointment: 8 November 2017   audit experience across a number of industries and sectors bringing extensive experience to the Board. Caroline also holds a number of other board positions including as a Non-Executive director of the Edinburgh Worldwide Investment  position on other Boards of which she is a member. Relevant skills and experience and reasons for re-election:    to lead discussions regarding the Company’s risk management framework and risk appetite and to contribute to developing the Company’s strategy. Her broad range   was appointed Senior Independent Director on 31 December rigorous board evaluation process, the Board agreed that Caroline continues to be  Richard Curling – Chairman of the Board and Chairman of the Nomination Committee Date of Appointment: 2 November 2015 Richard was appointed to the Board as an independent non-executive director in 2015 and was appointed as Chairman of the Board on  2018. Richard has over 30 years’ experience as a fund manager and is currently an investment director  trusts and small company investing. Relevant skills and experience and reasons for re-election: Richard has comprehensive experience of investment management and the wider Investment Company sector. This has provided a strong basis for assessing, and where appropriate challenging, the Manager, on the Company’s performance, and in leading   Gordon Neilly – Non-Executive Director and Chair of the Remuneration Committee Date of Appointment: 21 September 2020 Gordon is Executive Chairman of Whitet Europe, and non-executive director of  Stanprior to which he was Head of Strategy and Corporate rd Investments, Co-Cer of Cantor ald Europe, Chief Executive of Intelli C Business Development Director of Ivory & Sime plc. Relevant skills and experience and reasons for re-election: Gordon has gained an in-depth knowledge of strategic matters, extensive leadership skills and possesses a wealth of experience in business transformation and developing strategies through his executive roles, particularly within the asset and wealth management sectors and investment companies. Gordon’s diverse skill-set and strategic awareness facilitates open discussion and allows for constructive challenge in the boardroom, which brings a unique perspective and insight to the ing a rigorous board evaluation process, the Board agreed that Gordon continues ember of the Board.  page 24 Montanaro    Company for the year ended 31 March 2023.    that, taken as a whole, it is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company’s position and performance, business model and strategy. In reaching this conclusion, the Directors   the investment industry in general and investment trusts in particular. The outlook for the Company is set out in the Chairman’s Statement on page 2 on pages 14 to 17, with further information on risk management objectives in notes 16 to 20 to the accounts.    was paid on  dividend for the year of 0.77p per Ordinary Share payable on 15 September 2023 to shareholders on the register on 18 2023. The ex-dividend date will be 17 2023.  The Company is registered as a public limited company in Scotland (registered number SC074677) and is an investment  2006. Its shares are quoted on the Main Market of the London Stock Exchange. The Company carries on business as an investment trust and has been approved as such by HM Revenue and Customs, subject to it continuing to meet the relevant eligibility conditions and ongoing requirements. It is domiciled in Scotland. The  comply with the requirements.  Having made the requisite enquiries, so far as the Directors    steps that ought to have been taken to make themselves aware of any relevant audit information and to establish that the     proposing its re-appointment and authorising the Directors   in relation to the proposed reappointment can be found on 73. DIRECTORS Biographical details of the Directors, all of whom are independent and non-executive, can be found on page 23. The Directors’ interests in the shares of the Company are shown on page 37. Unless otherwise determined by ordinary resolution, the Company shall not have fewer than two, or more than ten Directors (disregarding alternate Directors). The Company or the Board may appoint any person to be a Director and a Director is not required to hold any shares of the Company.       was last elected. However, as explained in more detail under the Corporate Governance Statement on page 29, the Board    themselves for re-election (Resolutions 5–7). Biographical details of all directors and their reasons for re-election are set out on page 23 performance evaluations, the performance of all directors  to the role, and believes that it is therefore in the interests of shareholders that they are re-elected. In recommending these resolutions, the Board, supported by its Nomination Committee, has considered its current composition, to ensure the overall composition of the Board in terms of skills, experience and background is appropriate. No Director has a contract of service with the Company and no Director has any material interest in any contract to which the Company is  DIRECTORS’ INDEMNITIES  indemnities are in force between the Company and each of its Directors under which the Company has agreed to indemnify each Director, to the extent permitted by law, in respect of certain liabilities incurred as a result of carrying out his or her role as a Director of the Company. The Directors are also  proceedings or any claim by the Company or a regulator as they are incurred provided that where the defence is unsuccessful the Director must repay those defence costs to the Company. The indemnities are qualifying third party indemnity provisions     Montanaro  page 25    meeting by special resolution, the business of the Company is managed by the Board, which may exercise all the powers of the Company whether relating to the management of the business of the Company or not. In particular, the Board may exercise all the powers of the Company to issue shares or other securities and to borrow money and to mortgage or charge all or any part of the Company’s assets.  Each Director has a statutory duty to avoid a situation where they have, or could have, a direct or indirect interest which  Director will not be in breach of that duty if the relevant matter  Board has approved a protocol for identifying and dealing with     Montanaro provides investment management services to the  investment management agreement, Montanaro is entitled to receive a management fee of 0.9% per annum of the Company’s market capitalisation (payable monthly in arrears). Montanaro   by either party giving to the other not less than six months’ notice. The investment management agreement may be terminated earlier by the Company provided that a payment in lieu of notice, equivalent to the amount the Manager would otherwise have received during the notice period, is made.  the size of the company as follows: • 0.90% p.a. of the amount of the Company’s market  • 0.75% p.a. of the amount of the Company’s market  • 0.65% p.a. of the amount of the Company’s market   formally reviewed the Manager’s appointment. In carrying out its review, the Board considered the skills, experience, resources and commitment of the Manager, together with the investment performance during the year and since its appointment. It also considered the length of the notice period of the investment management agreement and the fees  opinion that the continuing appointment of Montanaro as   Manager’s continued strong long-term performance despite the challenging markets for much of 2022 and the greater strength and depth of the Manager’s research team, as well as the stability and capability of the team, which provided strong   The Bank of New York Mellon (International) Limited acts as the Company’s Depositary and Custodian in accordance with the  monitoring, segregation and safe keeping of the Company’s  compliance with investment limits and leverage requirements.  The Company’s capital structure is composed solely of Ordinary Shares. The rights and obligations of shareholders are set out  shares rank equally for dividends and entitlement to capital, and at a general meeting of the Company every shareholder who is present in person or by proxy or by a corporate representative shall have one vote for all of the shares of which they are the holder on a show of hands, and one vote for each share on a poll. Unless the Board decides otherwise, no member is entitled in respect of any share held by them to vote (either personally or by proxy or by a corporate representative) at any general meeting of the Company if any calls or other sums presently payable by them in respect of that share remain unpaid or if    Company with information concerning interests in those shares   Company may by ordinary resolution from time to time declare dividends in accordance with the respective rights of the members, but no dividend can exceed the amount recommended by the Board. Subject to the provisions of    page 26 Montanaro  continued The Board may deduct from any dividend or other moneys payable to a member by the Company on or in respect of any shares all sums of money (if any) payable by them to the Company on account of calls or otherwise in respect of shares of the Company. The Board may also withhold payment of all or any part of any dividends or other moneys payable in respect of the Company’s shares from a person with a minimum of 0.25%   failure to provide the Company with information concerning interests in those shares required to be provided under the  There are no restrictions on voting rights and no restrictions concerning the transfer of shares in the Company except that certain restrictions may from time to time be imposed by laws and regulations (for example, insider trading laws). There are no special rights with regard to control attached to securities; no agreements between holders of securities regarding their transfer known to the Company; and no agreements to which the Company is a party that might change or fall away on a change of control or trigger any compensatory payments for Directors, following a successful takeover bid.  31 March of the following substantial holdings of voting rights (being  Disclosure Guidance and Transparency Rules): Number of shares held  held Hargreaves Lansdown, stockbrokers (EO) 27,913,689 14.74 Interactive Investor (EO) 25,564,291 13.50  11,413,351 6.03 RBC Brewin Dolphin Ireland 9,625,391 5.08  9,000,000 4.75  8,901,832 4.70 Brewin Dolphin, stockbrokers 6,989,046 3.69 Transact (EO) 5,949,845 3.14 The Company has not been advised of any changes to these 31 March 2023 and the date of    arrangements are given in the Corporate Governance Statement, which forms part of this Directors’ Report and can be found on pages 29 to 31.  46  on pages 39 to 45. Shareholders will be asked to approve the  assessing the going concern basis of accounting, the Directors  Reporting Council and have undertaken a rigorous review of the Company’s ability to continue as a going concern. The Directors have taken into account the Company’s investment policy, which is described on pages 12 to 13 and which is subject to regular Board monitoring processes and is designed to ensure that the Company is invested mainly in liquid, listed securities. The Company retains title to all assets  bank borrowings with which it complied during the year.  considered the current cash position of the Company, the  loan, the secured revolving credit facility, compliance with the Company’s banking covenants, the Company’s other liabilities and forecast revenues. In particular, the Directors considered the impact of disruptions arising from recent market factors on the company’s liquidity, market values, bank covenants and continuity of operations. Notes 16 to 20  liabilities of falls and rises in the value of securities, market rates of interest and changes in exchange rates. The Directors believe, in light of the controls and review processes noted above and bearing in mind the nature of the Company’s business and assets and liabilities, that the Company has adequate resources to continue in operational existence for a period of at least twelve months from the date  adopt the going concern basis in preparing the accounts. The Company’s longer term viability is considered in the 18.  The outlook for the Company is set out in the Chairman’s Statement on page 3. Montanaro  page 27    employees or operations of its own and does not generate any greenhouse gas or other emissions or consume any energy  and Directors’ Report) Regulations 2013 or the Companies  and Carbon Report) Regulations 2018, implementing the UK Government’s policy on Streamlined Energy and Carbon Reporting. Under listing rule 15.4.29(R), the Company, as a closed ended investment fund, is exempt from complying with   The Company made no political or charitable donations during the year (2022: nil) to organisations either within or outside of the EU. LISTING RULE DISCLOSURE  disclosure under Listing Rule 9.8.4 in respect of the year ended 31 March 2023.   portfolio, cash balances, bank debt and debtors and creditors that arise directly from its operations, such as sales and purchases awaiting settlement and accrued income. The   risk are disclosed in notes 16 to 20 to the accounts.   7 September 2023 is set out on pages 70 to 77. Directors’ Authority to Allot Shares (Resolution 10)  unissued shares. In accordance with section 551 of the  by shareholders in a general meeting. Resolution 10 to be  the Directors’ authority, granted by shareholders at last year’s   Directors to allot shares up to an aggregate nominal amount of   , representing an amount equal to approximately 10% of the Company’s total issued ordinary share capital as at  2023 (being the latest practicable date before the  shares held in treasury. This authority will expire at the  be held in 2024 or, if earlier, on 30 September 2024. Directors’ Authority to Allot Shares other than on a Pre-emptive Basis (Resolution 11)  grants the Directors authority to allot new shares for cash and to dispose of treasury shares, up to an aggregate nominal amount of , representing an amount equal to approximately 10% of the Company’s issued Ordinary Share capital (including treasury shares) as at  2023, without  their existing holdings. The authority also allows the Directors to take such steps as they consider necessary in relation to the treatment of overseas shareholders, treasury shares and fractional entitlements on pre-emptive share issues. This authority will expire at the conclusion of the Company’s next  30 September 2024 and will enable the Company to issue new shares and to dispose of treasury shares at any price for cash, including where shares are being issued from treasury  time of issue. The Directors will only allot new shares pursuant to the authorities proposed to be conferred by Resolutions 10 and 11 if they believe it is advantageous to the Company’s shareholders to do so and in no circumstances would it result  only issue new shares at a price representing at or a premium  regarding the issue of shares from treasury is described on page 28. The Directors consider that the authorities proposed to be conferred by Resolutions 10 and 11 are necessary to  the Directors, it would be in the best interests of shareholders as a whole. Directors’ Authority to Buy Back Shares (Resolution 12) The Company did not buy back any Ordinary Shares during the year. The current authority of the Company to make market purchases of up to 14.99% of the issued Ordinary   Meeting, seeks renewal of such authority. The renewed authority to make market purchases will be in respect of a maximum of 14.99% of the issued Ordinary Shares of the Company as at the date of the passing of the resolution, excluding treasury shares (approximately 28,395,197 Ordinary  prices which may be paid for any Ordinary Shares purchased under this authority. This power will only be exercised if, in the opinion of the Directors, a purchase would result in an  shareholders as a whole. The Board’s intention is to apply an active discount management policy, and to consider a buyback  share is greater than 10% for a sustained period of time and is  page 28 Montanaro  transaction must be value enhancing for shareholders and the  the liquidity of the Company’s shares.  Shares which are bought back by the Company pursuant to the share buyback authority may be cancelled or held by the Company in treasury and subsequently re-issued. It is the Board’s intention that any shares bought back by the Company will be held in treasury. Shares held in treasury will not carry any voting rights, dividends payable in respect of them will be suspended and they will have no entitlements on a winding-up of the Company. It is the Board’s policy that shares will only be re-issued from   share provided that such discount is lower than the weighted  back by the Company. It is also the Board’s policy that shares  The Board believes that the treasury shares policy will improve liquidity in the shares and help to maintain the size   per share within the parameters described above will, in conjunction with the Company’s share buyback policy, ensure  and subsequently reissuing them from treasury will be an   2023, being the latest practicable date before  189,427,600 Ordinary Shares in issue. No shares are held in  Company is 189,427,6 0 0.  The Directors consider that the passing of each of the  in the best interests of the Company and its shareholders as a whole and they unanimously recommend that all shareholders vote in favour of these resolutions.    of the Directors that the Company will continue to conduct its   LINK COMPANY MATTERS LIMITED Company Secretary 22 continued Montanaro  page 29 The Corporate Governance Statement forms part of the Directors’ Report. INTRODUCTION          to shareholders. www.theaic.co.uk.   them relevant for investment companies. The UK Code is  www.frc.org.uk. During the year, the Company has complied with all of the  The Company is committed to maintaining the highest standards of governance and will ensure that it continues to meet all applicable requirements.  Mr Curling was appointed to the Board as an independent non-executive director in 2015, and as Chairman of the Board on  2018. His biography can be found on page 23.  Chairman of the Nomination Committee. The Board believes it is appropriate for Mr Curling to be a member of both committees as he is considered to bring valuable experience, to   The Board has direct access to the services of the Company Secretary who is responsible for ensuring Board and Committee procedures are followed and that applicable regulations are complied with. The Company Secretary is also responsible to the Board for ensuring the timely delivery of the information and reports which the Directors require and that statutory obligations are met. replace Link Company Matters Limited as Company Secretary on  2023.   Directors are considered by the Board to be independent of the   Meeting after their appointment. New Directors receive an induction from the Manager and Company Secretary on joining the Board, and all Directors are encouraged to attend relevant training courses and seminars. Individual Directors may, at the expense of the Company, seek independent professional advice on any matter that concerns them in the furtherance of their duties. The Company maintains  Board is formed of three independent non-executive Directors. Mr Curling is the Chairman of the Board and Chairman of the  Committee and Senior Independent Director and Mr Neilly is Chairman of the Remuneration Committee.   retire by rotation at least every three years, however, in accordance with corporate governance best practice as set out    General Meeting and Mr Curling, Ms Roxburgh and Mr Neilly    The Board ensures that it has the appropriate balance of skills, experience, knowledge and independence in order to  members and considers all of the Directors to be independent.  formal policy on tenure. The Board does not feel that it would be appropriate to set a  the Board or its Committees. Instead, the Board will regularly review the size and structure of the Board with the aim of new directors bringing the challenge of fresh thinking into the Board’s discussions. By doing so, the Board intends to maintain a broad range of experience in the Board, with Directors who have served a range of periods on the Board of the Company. This will ensure that on each occasion the Board enters into new investment commitments, several members have direct personal experience of negotiating previous commitments with the Manager. This is intended to preserve the cumulative experience and deep understanding of the Company, its  from new perspectives and helping to promote diversity of perspective. It is believed that the Directors provide, individually and collectively, the breadth of skill and experience to manage the Company and ensuring its long-term sustainable success. The basis on which the Company aims to generate value over the longer term is set out in the Business Model and Strategy on pages 12 to 18.  page 30 Montanaro  continued The Board currently meets at least four times a year and, in addition, informally on a regular basis. It receives full information on the Company’s investment performance, assets, liabilities and other relevant information in advance of Board meetings. The Board has approved a formal schedule of matters reserved for it, including, but not limited to: overall strategy, investment policy, capital structure, gearing and monitoring the performance of the Manager. The following table sets out the number of scheduled Board and Committee meetings held during the year ended 31 March 2023 and the number of meetings attended by each Director. Number of meetings attended Board  Committee Remuneration Committee Nomination Committee R M Curling 4/4 2/2 1/1 1/1  4/4 2/2 1/1 1/1 G Neilly 4/4 2/2 1/1 1/1 The Board also met informally on a number of occasions during the year.  During the year, the Directors undertook a formal and rigorous performance evaluation and also considered the output from the previous year’s evaluation. The process was led by the Chairman and was designed to assess the strengths and independence of the board together with the performance of its committees, the Chairman and individual Directors. The Board completed evaluation questionnaires which covered  composition, and corporate governance and were also intended to analyse the focus of meetings and assess whether they are appropriate, or if any additional information may be required to facilitate future Board discussions. The evaluation of the Chairman was carried out by the other Directors of the Company and the process was led by the Senior Independent Director. The results of the board evaluation process were reviewed and discussed by the Board. The Board concluded that it remains  planning and assessing developments in the retail investors’ information needs and investment platforms as areas of focus.  The Manager, in the absence of explicit instructions from the Board, is empowered to exercise discretion in the use of the Company’s voting rights. Environmental, social and governance factors are taken into account by the Manager as part of its investment analysis and decision making processes. The Board is pleased that the Manager has been a signatory of the UK Stewardship Code since its publication in 2010 and its statement can be found on its website www.montanaro.co.uk.   environmental performance, transparency and accountability. COMMITTEES The Board has established three committees to assist with its operations. Throughout the year the following committees  Remuneration Committee and the Nomination Committee. Each of the committees’ delegated responsibilities are clearly  Company’s website https://montanaro.co.uk/trust/montanaro- european-smaller-companies-trust/.  32 to 34 and forms part of this statement.  The Remuneration Committee, chaired by Mr Neilly, comprises the full Board and reviews the appropriateness of the Manager’s continuing appointment and determines the level of Directors’ fees. The Directors’ Remuneration Report on pages 35 to 37 provides information on the remuneration arrangements for the Directors of the Company.  The Nomination Committee, chaired by Mr Curling, comprises the full Board and is convened for the purpose of considering the appointment of new Directors as and when considered appropriate. The Board is composed solely of non-executive Directors and has one third female representation. The Directors will ensure it adheres to set objectives in relation to the diversity of the Board as and when they seek to appoint additional Directors, in the future. The Board considers the   in its recruitment and succession planning. The Company’s Board diversity policy is shown on page 13. Montanaro  page 31 In accordance withx 2.1, the below tables, in prescribed format, show the gender and ethnic background of the Directors at the date of this Report. Gender identity or sex Number of Board members  the Board Number of senior positions on the Board Men 2 66% 1 Women 1 33% 1  – – – Ethnic background Number of Board members  the Board Number of senior positions on the Board White British or other White (including minority white groups) 3 100% 2 Mixed/Multiple Ethnic Groups – – – ish – – – ribbean/ Black British – – – Other Ethnic group – – –  – – – The data in the above tables was collected through self-reporting by the Directors. The Board does not comply with the listing rule requirement for 40% women on the Board and a minimum of one ethnic minority Board member. The Board currently comprises three members, one of whom is a woman who holds a senior position on the Board. The small size of the Board is a constraint to achieving all of these targets but the Board will actively take this into consideration in future recruitment.  The Company welcomes the views of shareholders and places great importance on communication with its shareholders. The Manager holds meetings with the Company’s largest shareholders and reports back to the Board on these meetings.  shareholders every year and are available to meet other  Company provides a forum, both formal and informal, for shareholders to meet and discuss issues with the Directors and      In October 2015, the UK Government introduced the 2015  Company does not provide goods or services in the normal course of business, and does not have customers or turnover.  scope because it does not have turnover and is therefore not   predominately of professional advisers and service providers  relation to this matter.  Details of the principal risks and internal controls applied by the Board are set out on pages 15 to 17 and pages 32 and 33 respectively.  Details of the Company’s share capital structure and other disclosures and details of substantial interests are set out on pages 25 and 26. By order of the Board LINK COMPANY MATTERS LIMITED Company Secretary 65 Gresham Street London  22 page 32 Montanaro    as a whole to have competence relevant to the sector in which the Company operates and at least one member with recent and relevant experience.    reference and comprises all the Directors. Given the size of the Board, and Mr Curling’s experience, it is felt appropriate for him    trust sector.    controls; and the terms of appointment and remuneration of  independence and objectivity.  attendance at both meetings. The attendance of each of the members is set out on page 30. In the course of its duties    reviewed the following matters and reported thereon to  • The annual and half-yearly reports and accounts and results announcements; • The accounting policies of the Company; • The principal risks faced by the Company and the  management environment, including consideration of the  •   appointment, remuneration and terms of engagement; • The implications of proposed new accounting standards and regulatory changes; •   other service providers; and •  and understandable.  The Board has established an ongoing process designed to meet the particular needs of the Company in managing the risks to which it is exposed, consistent with the related guidance  Montanaro’s Compliance and Risk department and Link provide  covering administration, risk and compliance matters.  the Company is exposed, the controls in place and the actions being taken to mitigate them. The Board has a robust process for considering the resulting risk matrix and reviews the  arising as a result. The Company’s principal risks and their mitigations are set out on pages 14 to 17, with additional information provided in notes 16 to 20 of the accounts. The integration of these risks into the consideration of the 18 was also fully considered by the Committee.  The Board is responsible for the Company’s systems of internal  Committee has reviewed and reported to the Board on these controls which aim to ensure that the assets of the Company are safeguarded, proper accounting records are maintained  publication is reliable. The key procedures which have been established to provide an  •   the Board. •   management accounts, forecasts of income and expenditure and detailed analysis relating to the performance of the Company. • The Bank of New York Mellon (International) Limited, as the Company’s Depositary, provides quarterly reports to the Board and carries out daily independent checks on cash and investment transactions. •  the custody of the Company’s investments. Lists of investments held are reconciled to the Company’s records on a regular basis and a report on controls, which is   Committee.  Montanaro  page 33 • Investment management services are provided by   investment performance of the Company in comparison to its stated investment objective, the benchmark index and comparable investment trusts. The Board also reviews the Company’s activities since the last Board Meeting to ensure that Montanaro adheres to the agreed investment policy and approved investment guidelines.   of independent reporting accountants, and which is   provides a semi-annual report to the Board. • Link are responsible for the provision of company secretarial, accounting and administration services to the   independent reporting accountants, for consideration by  • The Board reviews contracts with other third party service providers, including the standard of services provided, on a regular basis.    updates on any material changes in the risk environment and regulatory requirements, and the action taken. These procedures have been in place throughout the year and up   to manage rather than eliminate risk and, by their nature, can only provide reasonable, but not absolute, assurance against material misstatement or loss. The Board has previously reviewed the need for an internal  it has decided that the systems and procedures employed  management and internal audit functions, provide assurance that a sound system of internal control, which safeguards shareholders’ investment and the Company’s assets, is maintained. In addition, reporting is also provided by the Depositary with respect to their monitoring and oversight of the  therefore considered unnecessary.      31 March  it to qualify its audit report nor did it highlight any fundamental  audit report which is included on pages 39 to 45.  table on page 34.  The Committee regards the continued independence of the auditor to be a matter of the highest priority. The Company’s policy with regard to the provision of non-audit services by the external auditor ensures that no engagement will be  • the provision of the services would contravene any regulation or ethical standard; • the auditor is not considered to be an expert provider of the non-audit services; • the provision of such services by the auditor creates a  • the services are considered to be likely to inhibit the auditor’s independence or objectivity as auditor.   2017 a cap on the level of fees incurred for permissible non-audit services now applies and should not exceed 70% of the average audit fee for the previous three years. The Committee amended its non-audit services policy in  Standard 2019, resulting in a ‘whitelist’ of permitted non-audit services as opposed to the former approach of a ‘blacklist’ of prohibited services. page 34 Montanaro   Matter Action Investment Portfolio Valuation The Company’s portfolio is invested in the shares of European quoted smaller companies. Errors in the portfolio valuation could have a material impact on the Company’s net asset value per share. The Board reviews a full portfolio valuation at each Board meeting and, since the semi-annual reports  annual internal controls report, which is reported on by independent external accountants, and which details the systems, processes and controls around the daily pricing of securities, including the application of exchange rate movements. Misappropriation of Assets Misappropriation of the Company’s investments or cash balances could have a material impact on its net asset value   as referred to above, which details the controls around the reconciliation of the  reviewed the Custodian’s annual internal controls report, which is reported on by independent external accountants, and which provides details regarding its   and Depositary. Income Recognition Incomplete or inaccurate income recognition, including allocation between revenue and capital, could have an adverse  and earnings per share and its level of distributable revenue.  report, as referred to above, which details the systems, processes and controls  income received for the year to the budget which was set at the start of the year and considered the accounting treatment of all special dividends received with  Annual Report and Accounts  fair, balanced and understandable.  advised the Board that it is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company’s position and performance, business model and strategy.     independent of the Company and has complied with relevant  taken into consideration the standing, skills and experience of     audit for the year ended 31 March  the impact of a new auditing standard on the scope of the planning documentation required.  31 March 2023 is Shujaat Khan’s second year as audit partner.   performance will continue to be reviewed annually taking into account all relevant guidance and best practice. By Order of the Board C A ROXBURGH  22 2023 continued Montanaro  page 35  The Board consists solely of independent non-executive Directors. The Company has no executive Directors or employees. The level of Directors’ fees is determined by the   details of the Company’s policy with regards to Directors’ fees, and fees paid during the year ended 31 March 2023, are shown below and on page 36. This shows all major decisions on Directors’ remuneration and any substantial changes made during the year relating to Directors’ remuneration, including the context in which any changes occurred. Under company  provided. Where disclosures have been audited they are  on pages 39 to 45.  The Remuneration Committee consists solely of independent non-executive Directors and determines the level of the  Governance. The Company Secretary provides information on comparative levels of Directors’ fees to the Remuneration Committee in advance of each review. The members of the Remuneration Committee are Mr Curling, Ms Roxburgh and the Chair, no executive Directors, the Committee meets annually to determine the level of Directors’ fees and to review the performance of the manager. The outcome of the review of the Manager can be found on page 25. No director is involved in deciding their own remuneration outcome.   I am pleased to present the Directors’ Remuneration Report for the year ended 31 March 2023. During the year, the Committee reviewed the Remuneration  reviews can be found below.  The existing Directors’ remuneration policy was approved at  The Company’s policy is to remunerate Directors exclusively  responsibilities of being a non-executive Director, including the potential liabilities associated with the position, and the time committed by them to these responsibilities including, where appropriate, Board Committee duties. There were no changes to the policy during the year. The fees for the non-executive Directors are determined within   be changed without seeking shareholder approval at a general meeting. There is no performance related remuneration scheme and therefore non-executive Directors are not eligible   service contracts, but new Directors are provided with a letter of appointment. These letters of appointment are available for  Directors’ appointments provide that they should retire and be     General Meeting after they were last elected. However, the Board has agreed that all Directors will retire annually and, if appropriate, seek re-election. There is no notice period and no provision for compensation upon early termination  The Company has not received any views from its shareholders in respect of the levels of Directors’ remuneration. The policy  Company in 2023, at which time a further resolution will be proposed to cover the period until 2026. Voting at Annual General Meeting on Directors’ Remuneration Policy   on 10 September 2020. 99.84% of votes were in favour of the resolution and 0.16% of votes were against. 0.05% of votes    Remuneration Committee concluded that, commencing     per annum, the last increase having been made on  2022. These changes have been made following consideration of Directors’ remuneration in the context of its peers and the wider investment trust sector, as well as the increased time  page 36 Montanaro  continued Based on these fees, Directors’ fees for the forthcoming  31 March 2024 31 March 2023 Chairman £41,000   £35,500  Director £29,500   The principle adopted by the Committee in respect of recruitment of Directors is that the fees for a non-executive  commitment required. The Committee seeks to encourage the enhancement of the Company’s performance and to ensure  designed to attract, retain and motivate Directors of the right calibre.   the aggregate level of Directors’ fees must not exceed a set    Directors’ Emoluments for the Year (audited)  following amounts for services as non-executive Directors for the years ended 31 March 2023 and 31 March 2022 as well as reimbursement for expenses necessarily incurred. No other forms of remuneration were paid during the year. The requirements to disclose this information came into force  2019 and, as such, this is the third year the Company has disclosed this information. The comparison will be expanded   The Company does not have any employees and therefore no comparisons are given in respect of Directors’ and employees’ pay increases. Statement of implementation of Remuneration Policy in  The Committee will, as usual, review Directors’ fees during 2023/24, including the time required to be committed to the business of the Company, and will consider whether any further changes to remuneration are required. Fees for services to the Company (audited) Fees £ Taxable  £ Total £  remuneration £ Total variable remuneration £ 2023 2022 2023 2022 2023 2022 2023 2022 2023 2022 R M Curling 39,000 36,050 1,511 1,675 40,511 37,725 39,000 36,050 1,511 1,675  33,500 30,900 1,727 672 35,227 31,572 33,500 30,900 1,727 672 G Neilly 28,000 25,750 202 396 28,202 26,146 28,000 25,750 202 396 Total 100,500 92,700 3,440 2,743 103,940 95,443 100,500 92,700 3,440 2,743 ^ Comprises amounts reimbursed for expenses incurred in carrying out business for the Company. No sums are paid to any third parties in respect of Directors’ services and no sums were paid to any third parties in respect of 31 March  Annual percentage change in remuneration of directors Directors’ pay has increased over the last four years, as set out in the table below: 2023 £ Change % 2022  Change % 2021  Change % 2020  Chairman £39,000 8.2 36,050 3.0 35,000 9.0 32,000  £33,500 8.4 30,900 3.0 30,000 11.0 27,000 Director £28,000 8.7 25,750 3.0 25,000 9.0 23,000 Montanaro  page 37 Relative Importance of Expenditure on Pay   To enable shareholders to assess the relative importance of expenditure on Directors’ remuneration, the table below shows the actual expenditure during the year in relation to Directors’  expenses and shareholder distributions: 2023 £ 2022  Change %  Remuneration 100,500 92,700 8.9 Management and other  2,918,000 3,728,000 (21.7) Dividends paid to shareholders 1,752,000 1,637,000 7.0   Directors’ Shareholdings (audited)  interests in the shares of the Company were as follows: As at 31 March 2023 No. of shares  31 March 2022 No. of shares R M Curling  150,000 100,000  ^  62,352 61,885 G Neilly  61,867 61,496 ^ Includes 1,654 shares held in Ms Roxburgh’s spouse’s name There is no requirement for Directors to hold shares in the Company. There have been no changes in the Directors’ interests in the shares of the Company between 31 March 2023 and  2023. Company Performance The Board is responsible for the Company’s investment strategy and performance, although the management of the Company’s investment portfolio is delegated to Montanaro through the investment management agreement, as referred to in the Report of the Directors on page 25. The graph below 31 March 2023, the share price total return (assuming all dividends are reinvested) to shareholders compared to the return from the benchmark  for the year ended 31 March 2023 is given in the Chairman’s Statement and the Manager’s Report. Total Return and Benchmark Performance (rebased at 100 on 31 March 2013, GBP) 50 100 300 500 250 400 450 350 200 2013 2014 2015 2016 2017 2018 20232022202120202019 Share Price Total Return Benchmark Total Return 150    (in Sterling terms). This benchmark was selected because it is the most commonly used index for SmallCap investors. Voting at Annual General Meeting on Annual Report  8 September on Directors’ Remuneration for the year ended 31 March 2022. 99.55% of votes were in favour of the resolution and 0.45% were against. 0.24% were withheld.  on Directors’ Remuneration will be put to shareholders at the  By Order of the Board G NEILLY Director 22 2023 page 38 Montanaro      (the ‘Rules’) to include a management report in their annual  management report for the purpose of the Rules is included in the Chairman’s Statement (pages 2 and 3), the Manager’s Report (pages 4 to 7), Twenty Largest Holdings (page 10), the Business Model and Strategy (pages 12 to 18) and the Directors' Report (pages 24 to 28). Therefore, a separate management report has not been included.     United Kingdom law and  . The Directors are also required to prepare a Strategic Report, Directors’ Report, Directors’ Remuneration Report and Corporate Governance Statement. Under company law, the Directors must not approve the  a fair, balanced and understandable report and provide the information necessary for shareholders to assess the Company’s performance, business model and strategy. In  •   Errors’ and then apply them consistently; • present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information; • provide additional disclosures when compliance with the  to understand the impact of particular transactions, other   •  to any material departures disclosed and explained in the  • make judgements and estimates that are reasonable and prudent; and •  unless it is inappropriate to assume that the Company will continue in business. The Directors are responsible for keeping adequate accounting  transactions and disclose with reasonable accuracy at any    safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.     •  , give a true and fair view of the assets, liabilities,  • the Strategic Report (comprising the Chairman’s Statement,   and Strategy) and the Report of the Directors include a fair review of the development and performance of the business and the position of the Company together with a description of the principal risks and uncertainties that it faces; •  statements are fair, balanced and understandable and provide the information necessary for shareholders to assess the Company’s position and performance, business model and strategy; •  transactions; and • having assessed the principal risks and other matters  appropriate to adopt the going concern basis in preparing   and the above responsibility statement was signed on its  R M CURLING Chairman 22 Montanaro  page 39  to the Members of Montanaro European Smaller Companies Trust plc    •  then ended; • have been properly prepared in accordance with UK-adopted international accounting standards; and •   the Balance Sheet as at 31 March 2023; the Statement of Comprehensive Income, the Statement of Changes in Equity and the        Independence We remained independent of the company in accordance with the ethical requirements that are relevant to our audit of the    provided. We have provided no non-audit services to the company in the period under audit.  Context Montanaro European Smaller Companies Trust plc is an Investment Trust Company listed on the London Stock Exchange and invests primarily in equities quoted on European investment markets. The operations of the company are located in the UK. We focus our audit work primarily on the valuation and existence of investments and income from investments. Overview  •  'Manager') to manage its assets. •   administrative functions. • We tailored the scope of our audit taking into account the types of investments within the Company, the involvement of the third parties referred to above, the accounting processes and controls, and the industry in which the company operates. •   page 40 Montanaro  continued to the Members of Montanaro European Smaller Companies Trust plc Key audit matters •  •  •  •  The scope of our audit   accounting estimates that involved making assumptions and considering future events that are inherently uncertain. Key audit matters      and in forming our opinion thereon, and we do not provide a separate opinion on these matters.  Key audit matter How our audit addressed the key audit matter Valuation and existence of investments   The Investment portfolio at the year-end comprised listed equity investments valued at 310 million. We focused on the valuation and existence of investments because investments represent the principal element of the net asset value as  statements. We assessed the accounting policy for the valuation of investments for compliance with accounting standards and performed testing to check that investments are accounted for in accordance with this stated accounting policy. We tested the valuation of all the listed equity investments by agreeing the prices used in the valuation to independent third party sources. We tested the existence of all listed equity investments by agreeing investment   Montanaro  page 41 Key audit matter How our audit addressed the key audit matter Accuracy, occurrence and completeness of investment income    refers to both revenue and capital (including gains and losses on investments). We focused on the accuracy, occurrence and completeness of investment income as incomplete or inaccurate income could have a material impact on the Company's net asset value and dividend cover. We found that the accounting policies implemented were in accordance with  in accordance with the stated accounting policy.   valuation of the portfolio at the year-end, together with testing the reconciliation  of disposal proceeds by agreeing the proceeds to bank statements and we re- performed the calculation of a sample of realised gains/losses. We tested the accuracy of dividend receipts by agreeing the dividend rates from investments to independent third-party data.  in the market to independent third-party data, and traced a sample of cash payments to bank statements To test for completeness, we tested that the appropriate dividends had been received in the year by reference to independent third party data of dividends declared for all listed investments during the year. We also tested the allocation and presentation of dividend income between the revenue and capital return columns of the Statement of Comprehensive Income in   How we tailored the audit scope  statements as a whole, taking into account the structure of the company, the accounting processes and controls, and the industry in which it operates. The impact of climate risk on our audit In planning our audit, we made enquiries of the Directors and Manager to understand the extent of the potential impact of   material because the Company's investment portfolio is made up of level 1 quoted securities which are valued at fair value based on market prices. We found this to be consistent with our understanding of the Company's investment activities.  statements and our knowledge from our audit. page 42 Montanaro  Materiality  These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and    Overall company materiality  How we determined it 1% of Net assets Rationale for benchmark applied We have applied this benchmark, which is a generally accepted auditing practice for investment trust audits. We use performance materiality to reduce to an appropriately low level the probability that the aggregate of uncorrected and  of our audit and the nature and extent of our testing of account balances, classes of transactions and disclosures, for example   In determining the performance materiality, we considered a number of factors - the history of misstatements, risk assessment      Our evaluation of the directors’ assessment of the company’s ability to continue to adopt the going concern basis of  • evaluating the Directors' risk assessment and considering whether it addressed the relevant threats to the Company; • evaluating the Directors' assessment of potential operational impacts to the Company of relevant risks, considering their consistency with other available information and our understanding of the business and assessed the potential impact on  •  operating expenses, their assessment of liquidity as well as their review of the operational resilience of the Company and oversight of key third-party service providers; and •  the Company to operate.      However, because not all future events or conditions can be predicted, this conclusion is not a guarantee as to the company's ability to continue as a going concern. In relation to the directors’ reporting on how they have applied the UK Corporate Governance Code, we have nothing material to  it appropriate to adopt the going concern basis of accounting. Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report. continued to the Members of Montanaro European Smaller Companies Trust plc Montanaro  page 43    the other information and, accordingly, we do not express an audit opinion or, except to the extent otherwise explicitly stated in this report, any form of assurance thereon.   otherwise appears to be materially misstated. If we identify an apparent material inconsistency or material misstatement, we are  misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report based on these responsibilities. With respect to the Strategic report and Directors' Report, we also considered whether the disclosures required by the UK   matters as described below. Strategic report and Directors' Report In our opinion, based on the work undertaken in the course of the audit, the information given in the Strategic report and Directors' Report for the year ended 31 March accordance with applicable legal requirements. In light of the knowledge and understanding of the company and its environment obtained in the course of the audit, we did not identify any material misstatements in the Strategic report and Directors' Report. Directors' Remuneration In our opinion, the part of the Directors' Remuneration Report to be audited has been properly prepared in accordance with the   The Listing Rules require us to review the directors’ statements in relation to going concern, longer-term viability and that part of the corporate governance statement relating to the company’s compliance with the provisions of the UK Corporate Governance  information are described in the Reporting on other information section of this report. Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the corporate  have nothing material to add or draw attention to in relation to: •  •  risks and an explanation of how these are being managed or mitigated; •    • The directors’ explanation as to their assessment of the company’s prospects, the period this assessment covers and why the period is appropriate; and • The directors’ statement as to whether they have a reasonable expectation that the company will be able to continue in operation and meet its liabilities as they fall due over the period of its assessment, including any related disclosures drawing  page 44 Montanaro  Our review of the directors’ statement regarding the longer-term viability of the company was substantially less in scope than an audit and only consisted of making inquiries and considering the directors’ process supporting their statement; checking that the statement is in alignment with the relevant provisions of the UK Corporate Governance Code; and considering whether the  obtained in the course of the audit. In addition, based on the work undertaken as part of our audit, we have concluded that each of the following elements of the  •  provides the information necessary for the members to assess the company's position, performance, business model and strategy; •  and •  We have nothing to report in respect of our responsibility to report when the directors’ statement relating to the company’s  Listing Rules for review by the auditors.   , the directors are  that they give a true and fair view. The directors are also responsible for such internal control as they determine is necessary to   concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the company or to cease operations, or have no realistic alternative but to do so.   misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance  material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or   Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable of detecting irregularities, including fraud, is detailed below.   which non-compliance  that the principal risks were related to posting inappropriate journal entries to increase revenue (investment income and capital  •  compliance with laws and regulation and fraud; •  •  recalculation of numerical aspects of the eligibility conditions; continued to the Members of Montanaro European Smaller Companies Trust plc Montanaro  page 45 •  •  and • designing audit procedures to incorporate unpredictability around the nature, timing or extent of our testing. There are inherent limitations in the audit procedures described above. We are less likely to become aware of instances of non-compliance  resulting from error, as fraud may involve deliberate concealment by, for example, forgery or intentional misrepresentations, or through collusion. Our audit testing might include testing complete populations of certain transactions and balances, possibly using data auditing techniques. However, it typically involves selecting a limited number of items for testing, rather than testing complete populations. We will often seek to target particular items for testing based on their size or risk characteristics. In other cases, we will use audit sampling to enable us to draw a conclusion about the population from which the sample is selected.  www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditors’ report. Use of this report This report, including the opinions, has been prepared for and only for the company’s members as a body in accordance with  responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.  Companies Act 2006 exception reporting  • we have not obtained all the information and explanations we require for our audit; or • adequate accounting records have not been kept by the company, or returns adequate for our audit have not been received from branches not visited by us; or •  •  accounting records and returns. We have no exceptions to report arising from this responsibility. Appointment 9 September 2021 to audit the 31 March engagement is two years, covering the years ended 31 March 2022 to 31 March 2023. SHUJAAT KHAN (Senior statutory auditor) for and on behalf of PricewaterhouseCoopers LLP  Edinburgh 22 page 46 Montanaro   for the year ended 31 March 2023 Year to 31 March 2023 Year to 31 March 2022 Notes Revenue £’000 Capital £’000 Total £’000 Revenue  Capital  Total  Capital (losses)/gains on investments (Losses)/gains on investments held at fair value 9 – (23,070) (23,070) – 18,806 18,806 Exchange losses – (542) (542) – (264) (264) Revenue Investment income 2 4,101 – 4,101 3,788 – 3,788 Other income 2 29 – 29 – – – Total income/(expenses) 4,130 (23,612) (19,482) 3,788 18,542 22,330 Expenditure Management expenses 3 (804) (1,494) (2,298) (1,092) (2,028) (3,120) Other expenses 4 (620) – (620) (570) (38) (608) Total expenditure (1,424) (1,494) (2,918) (1,662) (2,066) (3,728)  2,706 (25,106) (22,400) 2,126 16,476 18,602  5 (84) (156) (240) (56) (104) (160) Return before taxation 2,622 (25,262) (22,640) 2,070 16,372 18,442 Taxation 6 (538) – (538) (348) – (348) Return after taxation 2,084 (25,262) (23,178) 1,722 16,372 18,094 Return per share 8 1.10p (13.34p) (12.24p) 0.96p 9.09p 10.05p The total column of this statement represents the Company’s Income Statement and Statement of Comprehensive Income,   Investment Companies.  No operations were acquired or discontinued in the year.  Montanaro  page 47  as at 31 March 2023 31 March 2023 31 March 2022 Notes £’000 £’000   Non-current assets  9 310,308 339,788 Current assets Trade and other receivables 10 880 967 Cash and cash equivalents 10 3,225 1,821 4,105 2,788 Total assets 314,413 342,576 Current liabilities Trade and other payables 11 (1,260) (787) Interest-bearing bank loans 12 (8,787) – Revolving credit facility 11 (4,391) (8,450) (14,438) (9,237) Non-current liabilities Interest-bearing bank loan 12 – (8,434) Total liabilities (14,438) (17,671) Net assets 299,975 324,905 Capital and reserves Called-up share capital 13 9,471 9,471 Share premium account 44,057 44,057 Capital redemption reserve 2,212 2,212 Capital reserve 240,581 265,843 Revenue reserve 3,654 3,322 Total shareholders’ fund 299,975 324,905 Net asset value per share 14 158.4p 171.5p 46 to 62 were approved and authorised for issue by the Board of Directors on  2023 and signed on its behalf by: R CURLING Director Company Registered Number: SC074677  page 48 Montanaro   for the year ended 31 March 2023 Year to 31 March 2023 Notes Share capital £’000 Share premium account £’000 Capital redemption reserve £’000 Capital reserve £’000 Revenue reserve £’000 Total £’000  9,471 44,057 2,212 265,843 3,322 324,905 Return after taxation – – – (25,262) 2,084 (23,178) Dividends paid 7 – – – – (1,752) (1,752) As at 31 March 2023 9,471 44,057 2,212 240,581 3,654 299,975 Year to 31 March 2022 Notes Share capital  Share premium account  Capital redemption reserve  Capital reserve  Revenue reserve  Total   8,724 12,707 2,212 249,185 3,237 276,065 Return after taxation – – – 16,372 1,722 18,094 Share issues 747 31,350 – 286 – 32,383 Dividends paid 7 – – – – (1,637) (1,637) Balance at 31 March 2022 9,471 44,057 2,212 265,843 3,322 324,905   127,723,000  Montanaro  page 49  for the year ended 31 March 2023 31 March 2023 31 March 2022 Notes £’000   Return before taxation (22,640) 18,442 Investment losses/(gains) 23,070 (18,806) Exchange losses 542 264  240 160 Withholding tax (450) (348) Investment income (4,130) (3,788) Dividends received 4,043 3,838 Other income received 29 – Increase in receivables (43) (197) (Decrease)/increase in payables (79) 30  (31,524) (75,661) Sales of investments 38,643 37,583 Net cash  from operating activities 7,701 (38,483)  (Repayments)/drawdown of loans (4,325) 8,394  – 32,383 Dividends paid 7 (1,752) (1,637) Interest paid (239) (155) Share split costs – (38) Net cash  (6,316) 38,947 Net increase in cash and cash equivalents 1,385 464 Exchange gains/(losses) 19 (410) Increase in cash and cash equivalents 1,404 54 Cash and cash equivalents at beginning of year 1,821 1,767 Cash and cash equivalents at end of year 10 3,225 1,821  page 50 Montanaro   for the year ended 31 March 2023 1 Accounting Policies    with the       currency of the Company’s share capital and the currency in which dividends and expenses are paid.   investment trust company will continue to be met.   nearest thousand pounds unless otherwise indicated.    2024. The Directors noted that the Company holds a portfolio of highly liquid listed investments. The Company is a closed end fund, where assets are not required to be liquidated to meet redemptions. Whilst the economic impact from current market conditions,  experience reductions in income and/or market value, they consider that this should not be at a level, which would threaten the Company‘s ability to continue as a going concern.  24 and 28. In addition to the Going Concern assessment the Directors have assessed the longer term viability of the Company as set out in the viability assessment and statement on page 18.    Certain new accounting standards, amendments to accounting standards and interpretations have been published that are not mandatory for 31 March 2023 reporting periods and have not been early adopted by the Company. These standards, amendments or interpretations are not expected to have a material impact on the entity in the current or future reporting periods and on foreseeable future transactions.  accordance   statements. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making judgements about carrying   unusual or special dividends received as either revenue or capital in nature; and setting the levels of dividends paid and proposed in satisfaction of both the Company’s long-term objective and its obligations to adhere to investment trust status rules under  Dividends received which appear to be unusual in size or circumstance are assessed on a case-by-case basis, based on  the revenue account or capital reserves. Dividends which have clearly arisen out of the investee company’s reconstruction or reorganisation are usually considered to be capital in nature and allocated to capital reserves. Investee company dividends which     Montanaro  page 51 1 Accounting Policies continued  The Board is of the view that the Company is engaged in a single segment of business, of investing in European quoted smaller companies, and that therefore the Company has only a single operating segment.   supplementary information which analyses the Statement of Comprehensive Income between items of a revenue and capital nature has been presented alongside the Statement of Comprehensive Income. The net revenue return is the measure the Directors believe appropriate in assessing the Company’s compliance with certain requirements set out in Section 1158 of the  INCOME Dividends are recognised as income on the date that the related investments are marked ex-dividend. Dividends receivable on equity shares where no ex-dividend date is quoted are recognised when the Company’s right to receive payment is established. Special dividends are taken to the revenue or capital account depending on their nature. In deciding whether a dividend should be regarded as a capital or revenue receipt, the Board reviews all relevant information as to the reasons for the sources of the dividend on a case-by-case basis. Where the Company has elected to receive its dividends in the form of additional shares rather than cash, the amount of the cash dividend foregone is recognised as income.    in connection with the maintenance or enhancement of the value of the Company’s assets and taking account of the expected long-term returns as follows:    investment management fee payable are allocated 35% to revenue and 65% to capital.  The tax expense represents the sum of the tax currently payable and movements in deferred tax. Tax payable is based on the  of Comprehensive Income because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Company’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.  capital returns in the supplementary information in the Statement of Comprehensive Income is the ‘marginal basis’. Under this  of Comprehensive Income, then no tax relief is transferred to the capital return column.      The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer  Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax is charged or credited in the Statement of Comprehensive Income, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity.  page 52 Montanaro  continued 1 Accounting Policies continued    the documented investment strategy and information is provided internally on that basis to the Company’s Board of Directors and other key management personnel.    purchase or sale of investments. When a sale or purchase is made under a contract, the terms of which require delivery within the timeframe of the relevant market, the investments concerned are recognised or derecognised on the trade date.  reporting dates at fair value, which is the bid price or the last traded price depending on the convention of the exchange on      hierarchy levels set out in note 15.  Cash comprises bank balances and cash held by the Company. Cash equivalents are short-term, highly liquid investments that are      or losses arising from changes in exchange rate between Euro and Sterling is included in the capital reserves and shown in the capital column of the Statement of Comprehensive Income.  Share Premium Account The following are included in this reserve: • premium on the issue of shares. • surplus arising on the sale of Ordinary Shares from treasury. • costs associated with the issue of equity. Capital Redemption Reserve The nominal value of Ordinary Shares bought back for cancellation is added to this reserve. This reserve is non-distributable. Capital Reserve The following are included in this reserve: • gains and losses on the realisation of investments. • increases and decreases in the valuation of investments held at the year end. •  • special dividends of a capital nature. •  • cost of purchasing Ordinary Shares to be held in treasury or cancelled. • proceeds from the issue of Ordinary Shares held in treasury equivalent to the weighted average cost of the repurchase. Montanaro  page 53 1 Accounting Policies continued  realisation of its investments. Revenue Reserve  during the year may be deducted from this reserve.       Monetary assets and liabilities expressed in foreign currencies are translated into sterling at rates of exchange ruling at the balance sheet date. Non-monetary items expressed in foreign currencies held at fair value are translated into sterling at rates of exchange ruling at the date the fair value is measured. Transactions in foreign currencies are converted to sterling at the rate ruling at the date of the transaction. Exchange gains and losses are taken to the Statement of Comprehensive Income as a capital or revenue item depending on the nature of the underlying item. Exchange gains and losses on investments are included within ‘(Losses)/gains on investments held at fair value’ and are taken to  as ‘Exchange losses’. Rates of exchange (per Pound Sterling) 31 March 2023 31 March 2022 Change % Danish Krone 8.48 8.80 (3.6%) Euro 1.14 1.18 (3.4%) Norwegian Krone 12.95 11.52 12.4% Swedish Krona 12.82 12.27 4.5%  1.13 1.21 (6.6%) 2 Income Year to 31 March 2023 £’000 Year to 31 March 2022  Investment income Overseas dividend income 4,078 3,785 Exchange gains 23 3 Investment income 4,101 3,788 Bank interest 16 – Other income 13 – Total other income 29 – Total Income 4,130 3,788 3 Management Expenses Year to 31 March 2023 Year to 31 March 2022 Revenue £’000 Capital £’000 Total £’000 Revenue  Capital  Total  Investment management fee 786 1,462 2,248 1,074 1,996 3,070  18 32 50 18 32 50 804 1,494 2,298 1,092 2,028 3,120 Details of the management fee arrangements during the year are contained within the Directors’ Report on page 25 and details of fees owed to the Manager at the balance sheet date are included in note 11. page 54 Montanaro  4 Other Expenses Year to 31 March 2023 Year to 31 March 2022 Revenue £’000 Capital £’000 Total £’000 Revenue  Capital  Total  Directors’ fees 101 – 101 93 – 93  – statutory audit 48 – 48 45 – 45 Secretarial and administration fees 162 – 162 150 – 150 Legal, professional and advisory fees 13 – 13 9 – 9 Custody and depositary fees 102 – 102 118 – 118 Credit facility commitment fee 35 – 35 56 – 56 Share split costs – – – – 38 38 Other 159 – 159 99 – 99 620 – 620 570 38 608 5 Finance Costs Year to 31 March 2023 Year to 31 March 2022 Revenue £’000 Capital £’000 Total £’000 Revenue  Capital  Total  Interest payable on bank borrowings 84 156 240 56 104 160 6 Taxation Year to 31 March 2023 Year to 31 March 2022 Revenue £’000 Capital £’000 Total £’000 Revenue  Capital  Total  Overseas tax 538 – 538 348 – 348   Year to 31 March 2023 £'000 Year to 31 March 2022   on activities before taxation (22,640) 18,442 Corporation tax at standard rate of 19% (2022: 19%) (4,302) 3,504  Non taxable gains on investment 4,383 (3,573) Movement in unutilised expenses 600 739 Non-taxable overseas income (781) (720) Bank interest (3) – Exchange (gains)/losses 103 50 Overseas tax 538 348 Total tax charge for the year 538 348 30,957,000 7,7 39,000  continued Montanaro  page 55 7 Dividends Year to 31 March 2023 £’000 Year to 31 March 2022   – 1,276 Interim dividend for the year ended 31 March 2022 of 0.200p per share – 361  1,373 – Interim dividend for the year ended 31 March 2023 of 0.200p per share 379 – 1,752 1,637 Amounts relating to the year but not paid at the year end:  – 1,373 0.770p per share 1,459 – 1,459 1,373 0.770p per share, payable on 15 September 2023 to all shareholders on the register on   The attributable revenue and the dividends paid and proposed for the purposes of the income retention test for section 1159 of  Year to 31 March 2023 £’000 Year to 31 March 2022  Revenue attributable to equity shareholders 2,084 1,722 Interim dividend for the year ended 31 March 2022 of 0.200p per share – (361) 2 of 0.725p per share – (1,373) Interim dividend for the year ended 31 March 2023 of 0.200p per share (379) – 3 of 0.770p per share (1,459) – Net movement in revenue 246 (12) 8 Return per Share Year to 31 March 2023 Year to 31 March 2022 Revenue Capital Total Revenue Capital Total Basic 1.10p (13.34p) (12.24p) 0.96p 9.09p 10.05p Basic total return per Ordinary Share is based on the total comprehensive loss23,178,000 (2022: gain 189,427,600 (2022: 180,046,654) Ordinary Shares, being the weighted average number of Ordinary Shares in issue during the year. 2,084,000  189,427,600 (2022: 180,046,654) Ordinary Shares, being the weighted average number of Ordinary Shares in issue during the year. Basic capital return per Ordinary Share is based on the net capital loss25,262,000 (2022: gain  and on 189,427,600 (2022: 180,046,654) Ordinary Shares, being the weighted average number of Ordinary Shares in issue during the year. page 56 Montanaro   Year to 31 March 2023 £’000 Year to 31 March 2022  Opening cost 196,337 145,479 Holding gains 143,451 137,096 Opening fair value 339,788 282,575  32,076 75,867 Sales – proceeds (38,486) (37,460) – gains on sales 3,869 12,451 Holding (losses)/gains (26,939) 6,355 Closing fair value 310,308 339,788 Closing cost 193,796 196,337 Holding gains 116,512 143,451 Closing valuation 310,308 339,788  book cost of investments sold.  24,00024,000  Year to 31 March 2023 £’000 Year to 31 March 2022  Gains on sales 3,869 12,451 (Decrease)/increase in holding gains (26,939) 6,355 (Losses)/gains on investments (23,070) 18,806 10 Current Assets  Year to 31 March 2023 £’000 Year to 31 March 2022  Due from brokers – 109  345 235 Overseas tax recoverable 535 623 880 967 The carrying value of the balances above approximates to fair value. There are no amounts which are past due at the year end   These comprise bank balances and cash held by the Company. The carrying amount of these assets approximates to their fair value. Year to 31 March 2023 £’000 Year to 31 March 2022  Cash at bank and on hand 3,225 1,821 continued Montanaro  page 57 11 Current Liabilities Year to 31 March 2023 £’000 Year to 31 March 2022  Trade and other payables:  407 471 Due to broker 739 187 Other creditors 114 129 1,260 787 Year to 31 March 2023 £’000 Year to 31 March 2022  Revolving credit facility: Revolving credit facility 4,391 8,450 The Company has a €  which  at 31 March 2023, € 54,391,000) of the facility was drawn (2022: € 10 million 8,450,000)), at a rate of 3.61%, with € 10 million available to be drawn (31 March 2022: € 5 million).  arising from changes in exchange rates is included in the capital reserve and shown in the capital column of the Statement of Comprehensive Income. Interest costs are charged to capital and revenue in accordance with the Company’s accounting policies. The carrying value of the balances above approximates to fair value. 12 Interest-Bearing Bank Loans Year to 31 March 2023 £’000 Year to 31 March 2022  Opening balance 8,434 8,495  10 10 Non-cash foreign currency movements 343 (71) Closing balance 8,787 8,434 The Company has a €  13 September 2023. The Company also has a €  23 September 2023. Under the bank covenants relating to the loans, the Company is to ensure that at all times the total borrowings of the Company do  45 The carrying value of the balances above approximates to fair value. page 58 Montanaro  13 Called-up Share Capital Listed Held in Treasury In Issue Number  Number  Number  Allotted, issued and fully paid: Ordinary Shares of 5p (2022: 5p) each  189,427,600 9,471 – – 189,427,600 9,471 Balance at 31 March 2023 189,427,600 9,471 – – 189,427,600 9,471 CAPITAL MANAGEMENT   313,153,000 (2022: 341,789,000). Details of the movement through each reserve are shown in the Statement of Changes in Equity. The Company is not subject to any externally imposed capital requirements other than those associated with the  The Company’s capital is managed in accordance with its investment policy, in pursuit of its investment objective, both of which are detailed in the Business Model and Strategy. The Company’s capital structure is also explained in the Directors’ Report on pages 25 and 26. 14 Net Asset Value per Ordinary Share Net asset value per share  Net asset value  2023 p 2022 p 2023 £'000 2022  Net asset value per Ordinary Share 158.4 171.5 299,975 324,905 The net asset value per share is based on net assets at the year end and on 189,427,60 0 (2022: 189,427,600) Ordinary Shares, being the number of Ordinary Shares in issue at the year end, excluding those shares bought back and held in treasury. 15 Financial Instruments   investment objective. The Company makes use of borrowings, as detailed in notes 11 and 12 and the Chairman’s Statement, to achieve improved performance in rising markets. The Company’s principal risks are described in the Business Model and Strategy on pages 12 to 18.  (i)  caused by factors other than interest rate or currency rate movements; (ii)  interest rates; (iii) foreign currency risk, being the risk that the value of investment holdings, investment purchases, investment sales, bank loans  (iv)  has entered into with the Company; and (v) liquidity risk, being the risk that the Company may not be able to liquidate quickly its investments to meet obligations associated  continued Montanaro  page 59 15 Financial Instruments continued FAIR VALUE HIERARCHY  making the measurements.  measurement of the relevant assets as follows: • Level 1 – valued using quoted prices unadjusted in active markets for identical assets or liabilities. • Level 2 – valued by reference to valuation techniques using observable inputs for the asset or liability other than quoted prices included within Level 1. • Level 3 – valued by reference to valuation techniques using inputs that are not based on observable market data for the asset or liability.  hierarchy into which the fair value measurement is categorised.  approximation of fair value as at 31 March 2023: Level 1 £’000 Level 2 £’000 Level 3 £’000 2023 Total £’000 Level 1  Level 2  Level 3  2022 Total  Financial instruments Investments 310,308 – – 310,308 339,788 – – 339,788 Interest-bearing bank loan – (8,787) – (8,787) – (8,434) – (8,434) Revolving credit facility – (4,391) – (4,391) – (8,450) – (8,450) There were no transfers between levels in the fair value hierarchy in the year ended 31 March 2023 (2022: none). 3,225,000345,0001,260,000  16 Market Price Risk  value of investments. The Board manages the risks inherent in the investment portfolio by ensuring full and timely reporting of relevant information from the Manager. Investment performance and exposure are reviewed at each Board meeting. 310,308,000  31,031,000  capital return before taxation. The analysis is based on closing balances only and is not representative of the year as a whole. page 60 Montanaro  17 Interest Rate Risk FIXED RATE The Company has a € 8 million as at 31 March 2023  FLOATING RATE The Company has a € 15 million revolving credit facility term with ING of which € 5 million is drawn, with a Sterling equivalent of 4.43, at a rate of interest of 3.61% per annum. When the Company retains cash balances, the cash is primarily held in accounts at the custodian. Interest received or paid on cash balances and bank overdrafts is at market rates and is monitored and reviewed by the Investment Manager and the Board. 3.2 11,000   11,000 balance sheet dates. 18 Foreign Currency Risk The Company invests in overseas securities and holds foreign currency cash balances and foreign currency borrowings which give rise to currency risks. It is not the Company’s policy to hedge this risk.  As at 31 March 2023 Investments £’000 Trade and other receivables £’000 Cash £’000 Trade and other payables £’000 Revolving credit facility £’000 Interest- bearing bank loan £’000 Net exposure £’000 Danish Krone 14,285 59 – – – – 14,344 Euro 160,976 224 2,884 – (4,391) (8,787) 150,906 Norwegian Krone 22,139 27 – – – – 22,166 Swedish Krona 74,986 131 – – – – 75,117  37,922 285 90 739 – – 39,036 Total 310,308 726 2,974 739 (4,391) (8,787) 301,569  Investments  Trade and other receivables  Cash  Trade and other payables  Revolving credit   Interest- bearing   Net exposure  Danish Krone 16,452 115 – – – – 16,567 Euro 161,658 339 1,462 (186) (8,450) (8,434) 146,389 Norwegian Krone 23,183 60 – – – – 23,243 Swedish Krona 104,584 34 – – – – 104,618  33,911 318 – – – – 34,229 Total 339,788 866 1,462 (186) (8,450) (8,434) 325,046   If the value of Sterling had weakened by 5 15,870,000 strengthened by 5 value would have been negative 14,358,000 exposure balances as at the respective balance sheet dates. continued Montanaro  page 61 19 Credit Risk  entered into with the Company. The Company has in place a monitoring procedure in respect of counterparty risk which is  balance sheet date.  2023 £’000 2022  Cash and cash equivalents 3,225 1,821 Due from brokers and accrued income 192 243 3,417 2,064 Credit risk arising on transactions with brokers relates to transactions awaiting settlement. Risk relating to unsettled transactions  used, which are monitored on an ongoing basis by the Manager. The Manager also monitors the quality of service provided by the brokers used to further mitigate this risk.  investment exceeded 5.0% of the investment portfolio at 31 March 2023 (2022: 5.8%).   custodian. Bankruptcy or insolvency of this or other custodians may cause the Company’s rights with respect to securities held by the custodians to be delayed. The Board monitors the Company’s risk by reviewing the custodian’s internal control reports. 20 Liquidity Risk  realisable. However, as with all smaller company investment trusts, there are times when the liquidity of the underlying portfolio is poor, such as when smaller companies are out of favour or during periods of adverse economic conditions. The Manager focuses on smaller companies where the opportunities may be more attractive but this can decrease overall underlying liquidity. This may result in the Manager being unable to buy or sell individual holdings within the portfolio. The Manager constantly reviews the underlying liquidity of the portfolio and deals with a wide range of brokers to enhance its ability to execute transactions and minimise liquidity risk. The Company’s overall exposure to liquidity risks is monitored on a regular basis by the Board.  3.2 8.8 page 62 Montanaro  20 Liquidity Risk continued   at undiscounted amounts, based on the earliest date on which payment can be required, are as follows: As at 31 March 2023 Within one month £’000 Between one and three months £’000 Between three and twelve months £’000 Between one  £’000 Total £’000 Liabilities: Other creditors 1,163 97 – – 1,260 Revolving credit facility 4,405 – – – 4,405 Loan and loan interest – – 8,847 – 8,847 Total liabilities 5,568 97 8,847 – 14,512  Within one month  Between one and three months  Between three and twelve months  Between one   Total  Liabilities: Other creditors 700 76 11 – 787 Revolving credit facility 8,450 – – – 8,450 Loan and loan interest – – 114 8,507 8,621 Total liabilities 9,150 76 125 8,507 17,858 21 Related Parties and Transactions with the Manager The following are considered related parties: the Board of Directors. The Directors of the Company received fees for their services  pages 35 to 37. Transactions between the Company and the Manager are detailed in note 3 on management fees and note 11 on fees owed to the Manager at the balance sheet date. The existence of an independent Board of Directors demonstrates that the Company is  related party.  The Company has not, in the year to 31 March 2023 (2022: same), participated in any: repurchase transactions; securities lending  UKthat were adopted into UK law through the EU withdrawal legislation. 23 Post Balance Sheet Events  2023. continued Montanaro  page 63  Alternative Investment Fund Managers (‘AIFM’) Directive (‘AIFMD’) 69. and the remuneration   Management Limited on request. The Company’s maximum and actual leverage levels at 31 March 2023 are shown below: Leverage exposure Gross method Commitment method Maximum limit 200% 200%  103.44% 104.52%  and the use of derivatives. It is expressed as a percentage of Company’s exposure to its net asset value and is calculated on both a gross and commitment method. Under the gross method, exposure represents the sum of the Company’s positions after deduction of cash and cash equivalents, without taking account of any hedging or netting arrangements. Under the commitment method, exposure is calculated without     page 64 Montanaro   Annual General Meeting Meeting of Montanaro European Smaller Companies Trust plc will be held on Thursday, 7 September 2023 at 11.00am at 53 Threadneedle Street, Lher details can be found on page 70. Key Dates 31 March 2023 Company year end 7 September 2023  15 September 2023  November 2023 Interim results announced   Dividends Shareholders who wish to have dividends paid directly into a bank account rather than by cheque to their registered address can  page 78. Change of Address Communications with shareholders are mailed to the address shown on the share register. In the event of a change of address or  Frequency of NAV Publication  Non-Mainstream Pooled Investment (“NMPI”) Status    investment products because they are securities in a UK listed investment trust. ISA Status  AIC  Data protection   Montanaro  page 65 Warning to Shareholders – Beware of Share Fraud   If you receive unsolicited investment advice or requests: • www.fca.org.uk  • 0800 111 6768 • www.fca.org.uk/scams. •   •  www.fca.org.uk/scams where  0800 111 6768. 0300 123 2040. page 66 Montanaro    Premium/(discount) If the share price of an Investment Trust is less than its Net   the shares are trading at a premium. 158.4p (2022: 171.5p) and the share price was 137.6p (2022: 168.0p). The discount is therefore calculated at 13.1% (2022: discount 2.0%). Net Gearing Employed Unlike open-ended investment companies, Investment Trusts have the ability to borrow to invest. This term is used to describe the level of borrowings that an Investment Trust has undertaken, and is stated as a percentage of shareholders’ funds. The higher the level of borrowings, the higher the gearing ratio. Net gearing is calculated as total debt, net of cash and cash equivalents, as a percentage of the total shareholders’ funds.  13,178,000, (202216,884,000) cash and 3,225,000 299,975,000 31 March 2023, Gearing is therefore equal to 3.3% (2022: 4.6%). Ongoing Charges (expressed as a percentage)  are payable by the Company expressed as a proportion of the  The costs of buying and selling investments are excluded, as are interest costs, taxation, non-recurring costs and the costs of buying back or issuing Ordinary Shares. Ongoing charges calculation For the year ended 31 March 2023 £’000  year ended 31 March 2022  Total expenditure 2,917 3,728 Less non-recurring costs – (38) Total (a) 2,917 3,690  279,739 338,926 Ongoing charges (c = a/b) (c) 1.0% 1.1% Capital Return – NAV and Share Price Returns   (7.6%) (2022: 7.9%), and the 1 year Ordinary share price Capital Return was (18.1%) (2022: 4.3%). NAV Capital Return calculation as at 31 March 2023  158.40p (a)  171.50p (b) NAV Capital Return (7.6%) ((a-b)/b) NAV Capital Return calculation as at 31 March 2022  171.50p (a)  158.90p (b) NAV Capital Return 7.9% ((a-b)/b) Share Price Capital Return calculation as at 31 March 2023  137.60p (a)  168.00p (b) Share Price Capital Return (18.1%) ((a-b)/b) Share Price Capital Return calculation as at 31 March 2022  168.00 (a)  161.00 (b) Share Price Capital Return 4.3% ((a-b)/b) Total Return – NAV and Share Price Returns    (7.1%) (2022: 8.4%), and the 1 year Ordinary share price Total Return was (17.6%) (2022: 4.8%).   Montanaro  page 67 NAV Total Return calculation as at 31 March 2023  158.40p (c)  171.50p (d) Dividend adjustment factor (+1) 1.0059 (a)  0.9236 (b)(b=c/d) NAV Total Return (7.1) ((ab)-1) (a) Dividend Adjustment Factor Dividend PPS Dividend XD date NAV at Dividend XD date NAV Multiplier Interim dividend 0.200 1 Dec 22 148.30p 0.0013  0.725  156.32p 0.0046 0.0059 NAV Total Return calculation as at 31 March 2022  171.50p (c)  158.90p (d) Dividend adjustment factor (+1) 1.0047 (a)  1.0793 (b)(b=c/d) NAV Total Return 8.4 ((ab)-1) (a) Dividend Adjustment Factor Dividend PPS Dividend XD date NAV at Dividend XD date NAV Multiplier Interim dividend 0.200 3 Dec 21 205.00p 0.0010  0.725  196.90p 0. 0037 0.0047 Share price Total Return calculation as at 31 March 2023 Share price as at 31 March 2023 137.60p (c) Share price as at 31 March 2022 168.00p (d) Dividend adjustment factor (+1) 1.0067 (a)  0.8190 (b)(b=c/d) Share price Total Return (17.6) ((ab)-1) (a) Dividend Adjustment Factor Dividend PPS Dividend XD date Share price at Dividend XD date Share price Multiplier Interim dividend 0.200 1.Dec.22 135.30p 0.0015  0.725  139.60p 0.0052 0.0067 Share price Total Return calculation as at 31 March 2022 Share price as at 31 March 2022 168.00p (c)  161.00p (d) Dividend adjustment factor (+1) 1.0046 (a)  1.0434 (b)(b=c/d) Share price Total Return 4.8 ((ab)-1) (a) Dividend Adjustment Factor Dividend PPS Dividend XD date Share price at Dividend XD date Share price Multiplier Interim dividend 0.200 3.Dec.21 208.50p 0.0010  0.725  201.00p 0.0036 0.0046   page 68 Montanaro   AIFMD   requires that all investment vehicles in the European Union,    Trust, nevertheless, remains fully responsible for all aspects of the Company’s strategy, operations and compliance with regulations. Association of Investment Companies (‘AIC’)  Closed-end Investment Companies (www.theaic.co.uk). Benchmark This is a measure against which an Investment Trust’s performance is compared. The benchmark of the Company is the MSCI Europe ex-UK SmallCap Index (capital return in Sterling terms). The index averages the performance of a  company stock markets and gives an indication of how those markets have performed in any period. Closed-end Investment Company  ordinary share capital which is traded on an exchange at a  company and where shares can only be issued or bought back by the company in certain circumstances. This contrasts with an open-ended investment company, which has units not traded on an exchange but issued or bought back from  Custodian  worldwide, the listed securities and certain cash assets of the Company, as well as the income arising therefrom, through provision of custodial, settlement and associated services. The  (London Branch). Depositary  must appoint a Depositary, whose duties in respect of investments, cash and similar assets include: safekeeping;  The Depositary has strict liability for loss of any investments or other assets where it has safekeeping duties. The Depositary’s oversight duties include, but are not limited to, oversight of share buybacks, dividend payments and adherence to investment limits. The Company’s Depositary is The Bank of New York Mellon (International) Limited. Dividend The income from an investment. Some Investment Trusts pay dividends on a quarterly or monthly basis. Montanaro European Smaller Companies Trust plc currently pays dividends twice a year. Gearing Gearing is calculated as total liabilities less current assets divided by net assets. International Accounting Standards in conformity with the requirements of the Companies act 2006. Investment Manager  Management Limited. The responsibilities and remuneration of the Manager are set out in the Business Model and Strategy on page 12 and in the Directors’ Report on page 25. Investment Trust   Companies which meet these criteria are exempt from having to pay tax on the capital gains they realise from sales of the investments within their portfolios. Montanaro  page 69 Leverage   of cash or securities or leverage embedded in derivative positions. Leverage is broadly equivalent to Gearing, but is expressed as a ratio between the assets (excluding borrowings) and the net assets (after taking account of borrowings). Under the gross method, exposure represents the sum of the Company’s positions after deduction of cash and cash equivalents, without taking account of any hedging or netting arrangements. Under the commitment method, exposure is calculated without the deduction of cash and cash equivalents  against each other. Marked to Market   than its book cost. Market Capitalisation The stock market value of a company as determined by multiplying the number of shares in issue, excluding those shares held in treasury, by the market price of the shares. Net Assets (or Shareholders’ Funds) This is calculated as the value of the investments and other assets of an Investment Trust, plus cash and debtors, less borrowings and any other creditors. It represents the underlying value of an Investment Trust at a point in time. Net Asset Value (‘NAV’) per Ordinary Share This is calculated as the net assets of an Investment Trust divided by the number of Ordinary Shares in issue, excluding those shares held in treasury. Ordinary Shares The main type of equity capital issued by conventional Investment Trusts. Shareholders are entitled to their share of both income, in the form of dividends paid by the Investment Trust, and any capital growth. Montanaro European Smaller Companies Trust plc has only Ordinary Shares in issue. Portfolio Turnover Calculated using total sales proceeds as a percentage of the average monthly net assets during the year. Share Price The value of a share at a point in time as quoted on a stock exchange. The shares of Montanaro European Smaller Companies Trust plc are quoted on the Main Market of the London Stock Exchange. SORP    Total Assets This is calculated as the value of the investments and other assets of an Investment Trust, plus cash and debtors. page 70 Montanaro  THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION. If you are in any doubt about any aspect of the proposals referred to in this document or about the action which you should take, you should seek your own advice immediately from a stockbroker, solicitor, accountant or other independent professional adviser. If you have sold or otherwise transferred all of your shares, please pass this document, together with the accompanying documents, to the purchaser or transferee, or to the person who arranged the sale or transfer, so they can pass these documents to the person who now holds the shares.  7 September 2023 at 11.00am be proposed as ordinary resolutions and resolutions 11 and 12 will be proposed as special resolutions.   31 March 2023 be received.   RESOLUTION 3  31 March 2023 be approved.  0.770p per Ordinary Share be declared.  That Mr R M Curling, who retires annually, be re-elected as a Director.    That Mr G Neilly, who retires annually, be re-elected as a Director.   Meeting until the conclusion of the next general meeting at which accounts are laid before the Company.  That the Directors be authorised to determine the auditor’s remuneration.  Montanaro  page 71  That, in substitution for any existing authority but without prejudice to the exercise of any such authority prior to the date of the passing of this resolution, the Board of Directors of the Company (the ‘Board’) be and is hereby generally and  powers of the Company to allot shares in the Company and to grant rights to subscribe for or to convert any security into shares in the Company up to an aggregate nominal amount of  , provided that this authority shall expire at the 30 September 2024 save that  allotted, or rights to subscribe for or to convert securities into shares to be granted, after such expiry and the Board may  expired. The Directors will use this authority when it is in the best interests of the Company to issue Ordinary shares for    That, subject to the passing of resolution 10 and in substitution for any existing authority, but without prejudice to the exercise of any such authority prior to the date of the passing of this resolution, the Board of Directors of the Company   convert any securities into, ordinary shares of 50 pence each in the capital of the Company (‘Ordinary Shares’)) wholly for cash either pursuant to the authority conferred on them by such resolution 10 or by way of a sale of treasury shares (within  that this power shall be limited to the allotment of equity securities and the sale of treasury shares: (i)   such holders are proportionate (as nearly as may be practicable) to the respective numbers of Ordinary Shares held by them on  Board deem necessary or expedient to deal with shares held in treasury, fractional entitlements to equity securities and to deal with any legal or practical problems or issues arising in any overseas territory or under the requirements of any regulatory body or stock exchange); and (ii) otherwise than pursuant to sub-paragraph (i) above, up to an aggregate nominal amount of , and shall expire (unless  of the Company to be held in 2024 or, if earlier, on 30 September 2024 save that the Company may before such expiry make   shall authorise the Board to issue equity securities at such issue price as the Board may determine (including, without limitation, where equity securities are being issued from treasury at a price below the net asset value per Ordinary Share of the Company at the time of the relevant issue). page 72 Montanaro  continued  That, in substitution for any existing authority but without prejudice to the exercise of any such authority prior to the date of the passing of this resolution, the Company be and is hereby generally and unconditionally authorised for the purposes of   as the Board of Directors may determine provided that: (i) the maximum aggregate number of Ordinary Shares which may be purchased is 28,395,197 (or if less, 14.99 per cent of the number of Ordinary Shares in issue (excluding treasury shares) immediately prior to the passing of this resolution); (ii) the minimum price which may be paid for an Ordinary Share is 5 pence (exclusive of associated expenses); (iii) the maximum price which may be paid for an Ordinary Share (exclusive of associated expenses) is the higher of: (a)  preceding the day on which the Ordinary Share is purchased; and (b) the value of an Ordinary Share calculated on the basis of the higher price quoted for (i) the last independent trade of; and (ii) the highest current independent bid for any number of Ordinary Shares on the trading venue where the purchase is carried out; and (iv)  the Company to be held in 2024 or, if earlier, on 30 September 2024 save that the Company may before such expiry enter into a contract to purchase Ordinary Shares which will or may be completed wholly or partly after such expiry and a purchase of Ordinary Shares may be made pursuant to any such contract. By order of the Board LINK COMPANY MATTERS LIMITED Company Secretary  2023  16 Charlotte Square  Montanaro  page 73 Explanation of Notice of Annual General Meeting Resolution 1 – To receive the Annual Report and Financial Statements  31 March  Report on those accounts is included as an ordinary resolution. Resolution 3 – Remuneration  Resolution 4 – Final dividend 0.770 pence per share in respect of the year ended 31 March 2023. If approved, the 15 September 2023 to all ordinary shareholders who are on the register of members on 18 2023. The shares will be marked ex dividend on 17 2023. Resolutions 5 to 7 – Re election of Directors      23 and are also available for viewing on the Company’s website https://montanaro.co.uk/trust/montanaro-european-smaller-companies-trust/. The Nomination Committee considered the Directors’ performance and recommended their re election and the Board agrees that it is in the best interests of shareholders that each of the Directors be re elected. Resolutions 8 and 9 – Re-appointment and remuneration of Auditor     Resolution 10 – Authority to allot ordinary shares Resolution 10 authorises the Board to allot ordinary shares generally and unconditionally in accordance with Section 551 of the , representing approximately 10 per cent of the issued  Resolution 11 – Authority to disapply pre emption rights Resolution 11 is a special resolution which is being proposed to authorise the Directors to disapply the pre emption rights of existing Shareholders in relation to issues of ordinary shares under Resolution 10 (being in respect of ordinary shares up to an 947,138, representing approximately 10 per cent of the Company’s issued ordinary share capital,  The Directors will only allot new shares pursuant to the authorities proposed to be conferred by Resolutions 10 and 11 if they believe it is advantageous to the Company’s shareholders to do so and in no circumstances would it result in an overall dilution of  issuance. The Board’s policy regarding the issue of shares from treasury is described on page 28. page 74 Montanaro  Resolution 12 – Purchase of own shares Resolution 12 is a special resolution which will grant the Company authority to make market purchases of up to 28,395,197 ordinary shares, representing 14.99 per cent of the ordinary shares in issue as at the date of the Notice. The ordinary shares bought back will either be cancelled or placed into treasury, at the determination of the Directors. There are currently no shares held in treasury. The maximum price which may be paid for each ordinary share must not be more than the higher of (i) 105 per cent which the purchase is made or (ii) the value of an Ordinary Share calculated on the basis of the higher price quoted for: (a) the last independent trade of; and (b) the highest current independent bid for any number of Ordinary Shares on the trading venue where the purchase is carried out.   and be in the best interests of the shareholders as a whole. The Board’s intention is to apply an active discount management 10 per cent   Company’s shares.  continued Montanaro  page 75 Notes 1. Attending the Annual General Meeting in Person   asked to provide evidence of your identity to the Company’s registrar, Equiniti Limited (the ‘Registrar’), prior to being admitted to  2. Appointment of Proxies   member. To be validly appointed a proxy must be appointed using the procedures set out in these notes and in the notes to the accompanying proxy form. If members wish their proxy to speak on their behalf at the meeting, members will need to appoint their own choice of proxy   Members cannot appoint more than one proxy to exercise the rights attached to the same share(s). If a member wishes to appoint more than one proxy, they should contact the Registrar on +44 (0) 371 384 2461. Lines are open from 8.30am to 5.30pm,      she wishes.  have a right to appoint any proxies under the procedures set out in these notes and should read note 8 below. You can appoint a proxy electronically by accessing www.sharevote.co.uk where full instructions on the procedure are given.   service, Shareview, can appoint their proxy electronically by logging on to their portfolio at www.shareview.co.uk using their user   receive it no later than 11.00am on Tuesday 5 September 2023.   the website. 3. Appointment of a Proxy Using a Proxy Form     no later than 48 hours (excluding non-working days) before the time of  If you do not have a proxy form and believe that you should have one, or you require additional proxy forms, please contact the  and Wales. If calling from outside of the UK, please ensure the country code is used. 4. Appointment of a Proxy Through CREST CREST members who wish to appoint a proxy or proxies through the CREST electronic proxy appointment service may do so by using the procedures described in the CREST Manual and by logging on to the following website: www.euroclear.com. CREST personal members or other CREST sponsored members, and those CREST members who have appointed (a) voting service provider(s), should refer to their CREST sponsor or voting service provider(s) who will be able to take the appropriate action on their behalf. page 76 Montanaro  In order for a proxy appointment or instruction made using the CREST service to be valid, the appropriate CREST message (a  and must contain the information required for such instruction, as described in the CREST Manual. The message, regardless of whether it constitutes the appointment of a proxy or is an amendment to the instruction given to a previously appointed  non-working   from which the Registrar is able to retrieve the message by enquiry to CREST in the manner prescribed by CREST.  through other means. CREST members and, where applicable, their CREST sponsors or voting service provider(s) should note that Euroclear UK & Ireland Limited does not make available special procedures in CREST for any particular message. Normal system  member concerned to take (or, if the CREST member is a CREST personal member, or sponsored member, or has appointed a voting service provider(s), to procure that his/her CREST sponsor or voting service provider(s) take(s)) such action as shall be necessary ensure that a message is transmitted by means of the CREST system by any particular time. In this connection, CREST members and, where applicable, their CREST sponsors or voting system providers are referred, in particular, to those sections of the CREST Manual concerning practical limitations of the CREST system and timings.     www.proxymity.io. Your proxy must be lodged by 12:30 pm on 5 September 2023 in order to be considered valid. Before you can  you read these carefully as you will be bound by them, and they will govern the electronic appointment of your proxy. 5. Appointment of Proxy by Joint Holders In the case of joint holders, where more than one of the joint holders purports to appoint one or more proxies, only the purported appointment submitted by the most senior holder will be accepted. Seniority is determined by the order in which the  most senior). 6. Corporate Representatives   Members cannot appoint more than one corporate representative to exercise the rights attached to the same share(s). 7. Entitlement to Attend and Vote  members must be registered in the Company’s register of members at 6.30pm on 5 September Meeting is adjourned, at 6.30pm on the day two days prior to the adjourned meeting). Changes to the register of members  Meeting. 8. Nominated Persons     have a right to give instructions to the member as to the exercise of voting rights. 9. Website Giving Information Regarding the Annual General Meeting   continued Montanaro  page 77 10. Audit Concerns Members should note that it is possible that, pursuant to requests made by members of the Company under section 527 of the     the members requesting any such website publication to pay its expenses in complying with sections 527 or 528 of the 2006  statement to the Company’s auditor not later than the time when it makes the statement available on the website. The business   11. Members resolution  sections have the right to require the Company (a) to give to members of the Company entitled to receive notice of meeting, notice of any resolution which may properly be moved and is intended to be moved at the meeting and/or (b) to include in the business to be dealt with at the meeting any matter (other than a proposed resolution) which may be properly included in the business.   or otherwise), (b) it is defamatory of any person, or (c) it is frivolous or vexatious. Such a request may be in hard copy form or in electronic form, must identify the resolution of which notice is to be given or the matter to be included in the business, must be authorised by the person or persons making it, must be received by the Company not later than  2023, being the date six weeks before the meeting, and (in the case of a matter to be included in the business only) must be accompanied by a statement setting out the grounds for the request. 12. Voting Rights 22 2023 (being the latest practicable date prior to the publication of this notice) the Company had 189,427,600 Ordinary 189,427,60 0 than those held in treasury) carries one vote. The total voting rights in the Company as at 22 2023 were 189,427,600 votes. 13.    respective disclosure obligations under the UK Disclosure Guidance and Transparency Rules. 14. Further Questions and Communication    given on a website in the form of an answer to a question, or it is undesirable in the interests of the Company or the good order of    to communicate with the Company for any purpose other than those expressly stated. 15. Documents Available for Inspection  on any weekday (Saturdays, Sundays and English public holidays excepted) from the date of this notice until the conclusion of the  • copies of the Directors’ letters of appointment; and • copies of the Directors’ deeds of indemnity. None of the Directors has a service contract with the Company. 16. Personal data  page 78 Montanaro   Investment Manager and Alternative Investment Fund Manager (‘AIFM’)  53 Threadneedle Street  Tel: 020 7448 8600  enquiries@montanaro.co.uk www.montanaro.co.uk Administrator  Broadwalk House Southernhay West   28 Walker Street Edinburgh EH3 7HR Tel: 0131 378 0500 Company Secretary  65 Gresham Street  Tel: 0333 300 1950 Contact: mesct@linkgroup.co.uk  28 Walker Street Edinburgh EH3 7HR Tel: 0131 378 0500 Email: cosec@junipartners.com  16 Charlotte Square   28 Walker Street Edinburgh EH3 7HR Registrar   Spencer Road Lancing  Registrar’s Shareholder Helpline  Registrar’s Broker Helpline Tel: 0906 559 6025  Stockbroker  6-8 Tokenhouse Yard  Depositary   One Canada Square  Custodian  One Canada Square  Bankers  60 London Wall  Independent Auditors    144 Morrison Street  Solicitor DICKSON MINTO W.S. 16 Charlotte Square  Montanaro European Smaller Companies Trust plc Registered in Scotland No. SC074677   Montanaro  page 79 Notes page 80 Montanaro  Notes Montanaro European Smaller Companies Trust plc 16 Charlotte Square Edinburgh Scotland EH2 4DF Tel: 020 7448 8600 Fax: 020 7448 8601 E-mail: enquiries@montanaro.co.uk Website: www.montanaro.co.uk