Half-year Report

RNS Number : 6853G

Montanaro European Smaller C.TstPLC

17 November 2022

 

Montanaro European Smaller Companies Trust plc

LEI:  213800CWSC5B8BG3RS21

Unaudited Half-Yearly Report for the Six Months Ended 30 September 2022

The Board of Montanaro European Smaller Companies Trust plc (the "Company") announces the unaudited half-yearly results of the Company for the six months ended 30 September 2022.

 Highlights (unaudited)

  for the six months ended 30 September 2022

Performance

Capital Returns%(2)	6 Month	1 year	3 year	5 year	10 year	MAM*
Ordinary share price	(36.1)	(46.3)	5.0	32.7	166.8	236.4
Net Asset Value('NAV') per Ordinary share**	(27.6)	(37.5)	13.5	37.0	169.3	263.2
Benchmark (Composite)(1)**	(20.8)	(25.4)	2.3	(1.1)	134.9	133.0

Total Returns%(2)	6 Month	1 year	3 year	5 year	10 year	MAM*
Ordinary share price	(35.7)	(46.0)	7.0	37.7	196.3	308.8
NAV per Ordinary share**	(27.3)	(37.4)	14.8	41.0	195.1	332.4
Benchmark (Composite)(1)**	(19.3)	(23.7)	7.7	8.2	180.9	215.7

Sources: Morningstar Direct, Association of Investment Companies ('AIC'), Montanaro Asset Management Limited.

	As at 30 September 2022	As at 30 September 2021	12 month % change	As at 31 March 2022 (Audited)	6 month % change
Ordinary share price*	107.4p	200.0p	(46.3%)	168.0p	(36.1%)
NAV per Ordinaryshare**	124.1p	198.7p	(37.5%)	171.5p	(27.6%)
(Discount)/Premium to NAV(2)	(13.5%)	0.7%		(2.0%)
Gross assets**(2,3) (£'000s)	248,314	365,590	(32.1%)	341,789	(27.3%)
Net assets** (£'000s)	235,173	357,015	(34.1%)	324,905	(27.6%)
Market capitalisation** (£'000s)	203,445	359,365	(43.4%)	318,238	(36.1%)
Net gearing employed(2)	5.3%	0.9%		4.6%

	6 months ended 30 S eptember 2022	6 months ended 30 September 2021	12 month % change	12 months ended 31 March 2022 (Audited)	6 month % change
Revenue return per Ordinaryshare	1.02p	0.80p	27.5%	0.96p	6.3%
Dividend per Ordinaryshare	0.200p	0.200p		0.925p
Ongoing charges (annualised)(2)	1.0%	1.1%	-	1.1%
Portfolio turnover (annualised)**	19%	15%		11%

*From 5 September 2006, when Montanaro Asset Management Limited ('MAM') was appointed as Investment Manager.

**Details provided in the Glossary below.

(1) From 5 September 2006, the benchmark was the MSCI Europe SmallCap Index. The benchmark was changed on 1 June 2009 to the MSCI Europe SmallCap (ex UK) Index (in sterling terms).

(2) Refer to Alternative Performance Measures below.

(3) Gross assets from prior period have been represented due to the change in definition, see Glossary for new definition.

Chairman ' s Statement

 

Performance The first six months of the financial year saw a weak period of absolute and relative performance for your Company. It should be noted that previous year numbers have been adjusted to account for the share split for comparative purposes, details of which are available in the annual report.  The Net Asset Value fell by -27.6% to 124.1p per share, underperforming the Benchmark (MSCI Europe SmallCap (ex-UK) index), which fell by -20.8%. At the end of the period the discount was 13.5% versus 2.0% at the start. As a result, the share price of the company fell by -36.1% during the period, providing a total return of -35.7%. This is a disappointing short-term performance, reflecting a number of headwinds. Inflationary pressures and subsequent monetary tightening by central banks have increased the cost of capital globally. Such increases have disproportionately affected quality growth stocks, with high quality companies underperforming low quality companies in Europe and growth companies underperforming value companies. Montanaro seeks to invest exclusively in high quality, growing companies and so these style shifts have created a headwind during the period. Montanaro take a long-term approach to investing and despite the setback so far this year, your Company has delivered NAV per share total returns of 14.8%, 41.0% and 195.1% over the three, five and ten year periods to 30 September 2022 respectively - well ahead of the Benchmark for each of these periods. The Board believes that Montanaro's quality growth investment philosophy, combined with their high level of internal resources and rigorous focus on company fundamentals, positions the Company to emerge stronger from the current period of market upheaval.  Through consistent application of their investment process, Montanaro have been able to successfully weather multiple economic cycles and take advantage of periods of high market volatility over the past 30 years. This gives us confidence that your Company is well positioned to continue delivering strong returns over the long term. The Board recognises shareholders will be disappointed that the share price has declined by more than the net asset value as a result of the discount widening.  This has been a common feature amongst investment trusts this year and the investment trust sector as a whole now trades on a significantly wider discount than it did at the start of the year. The current level of discount for our company is in line with our sector peers. The Board will continue to monitor the situation closely.

Earnings and Dividends Revenue earnings per share increased in the period to 1.02p (2021: 0.80p). The Board has declared an interim dividend of 0.2p per Ordinary Share (2021: 0.2p per share) payable on 5 January 2023 to shareholders on the register on 2 December 2022.

Borrowings At the end of the period, the Company had gearing, net of cash, of 5.3% compared to 4.6% at 31 March 2022.

Outlook The global economic backdrop has been deteriorating as inflation and higher interest rates put pressure on consumer demand and corporate profit margins. The ongoing conflict in Ukraine and escalating concerns around energy security have exacerbated these stresses. We believe that the nature of this cycle is changing. While central banks have yet to show signs of easing monetary policy, many of the inflationary forces seen in 2021 are reversing: container freight rates have fallen significantly and several commodity prices are now in outright decline. There are signs that wage inflation is normalising. Meanwhile, the companies in your portfolio are reporting a rapidly improving availability of semiconductor chips. We therefore expect investor focus to shift away from such supply chain issues and towards company resilience, quality of earnings and balance sheet strength as recessionary fears increase. In other words, we would expect the high-quality nature of your portfolio to be rewarded by investors once again. The other significant change is in investor sentiment and expectations. Forward P/E ratios for European Small Caps have fallen to lows not seen for a decade. In the last two decades their discount to Large Caps has only been lower in the depths of the Global Financial Crisis and Covid.  While trying to perfectly time markets is probably futile, and while the depressed multiples likely portend earnings estimate downgrades, we believe the outlook for long term investors is becoming increasingly attractive.  Indeed, the combination of high levels of market volatility and significant (and sometimes unjustified) share price falls for many high quality growth companies represents a compelling opportunity for the Manager.  Pleasingly, they have recently begun to increase positions in some of their core holdings and established entirely new positions in companies previously deemed to be overvalued.  This gives the Board reason for optimism about the outlook for the Company.

R M CURLING Chairman 16 November 2022

Portfolio Summary

Twenty Largest Holdings

As at 30 September 2022

Holding	Country	Value £'000	% of investment portfolio	% of net assets
NCAB	Sweden	12,821	5.2	5.5
Sartorius Stedim	France	9,730	3.9	4.1
VZ Holding	Switzerland	9,482	3.8	4.0
MTU Aero Engines	Germany	9,442	3.8	4.0
IMCD	Netherlands	9,136	3.7	3.9
Tecan	Switzerland	8,736	3.5	3.7
Melexis	Belgium	7,973	3.2	3.4
CTS Eventim	Germany	7,869	3.2	3.3
Fortnox	Sweden	7,838	3.2	3.3
Kitron	Norway	7,732	3.1	3.3
Reply	Italy	6,604	2.7	2.8
Brunello Cucinelli	Italy	6,560	2.7	2.8
Belimo	Switzerland	6,176	2.5	2.6
Viscofan	Spain	6,126	2.5	2.6
MIPS	Sweden	6,045	2.5	2.6
Brembo	Italy	5,958	2.4	2.5
Esker	France	5,627	2.3	2.4
Thule	Sweden	5,385	2.2	2.3
Amadeus FiRe	Germany	5,161	2.1	2.2
Atoss Software	Germany	5,059	2.0	2.2
Twenty Largest Holdings		149,460	60.5%	63.6%

Geographical Analysis

As at 30 September 2022

Country	% of investment portfolio
Sweden	26%
Germany	16%
Switzerland	13%
Italy	12%
France	8%
Norway	6%
Denmark	6%
Netherlands	5%
Spain	4%
Belgium	3%
Finland	1%

Source: Montanaro Asset Management Limited

Sector Analysis

As at 30 September 2022

Sector	% of investment portfolio
Information Technology	29%
Healthcare	21%
Industrials	21%
Consumer Discretionary	10%
Financials	7%
Consumer Staples	4%
Communications	3%
Real Estate	3%
Materials	2%

Source: Montanaro Asset Management Limited

Interim Management Report

The important events that have occurred during the period under review and the key factors influencing the financial statements are set out in the Chairman's Statement above.

StatementofPrincipalRisksandUncertainties: Most of the principal risks that could threaten the Company's objective, strategy, future returns and solvency are market related and comparable to those of other investment trusts investing primarily in quoted securities. The principal risks faced by the Company are investment and strategic, gearing, financial, discount volatility, regulatory, operational, cyber security, ESG and manager risks. These risks and the way in which they are mitigated are described in more detail under the heading 'Principal and Emerging Risks and Uncertainties and Risk Mitigation' within the Business Model and Strategy section on pages 14 to 17 of the Company's Annual Report for the year ended 31 March 2022. The Company's principal risks and uncertainties have not changed materially since the date of that report and are not expected to change materially for the remaining six months of the Company's financial year.

Related party transactions: Related party transactions are disclosed in note 15 below. There have been no material changes in the related party transactions described in the last Annual Report.

Going concern: As stated in note 14 to the condensed financial statements, the Directors are satisfied that the Company has sufficient resources to continue in operation for the foreseeable future, a period of not less than 12 months from the date of this report. Accordingly, they continue to adopt the going concern basis in preparing the condensed financial statements.

 

 

Directors' Responsibility Statement in respect of the Half-Yearly Report

We confirm that to the best ofourknowledge:

•	the condensed set of f inancial statements have been preparedinaccordancewith IAS34'InterimFinancialReporting'andgive a trueandfairviewoftheassets,liabilities, financialpositionandprofit or lossoftheCompany;
•	the Interim Management Report includes a fair reviewoftheinformationrequiredbytheDisclosureGuidanceandTransparency Rule ('DTR')4.2.7R,being an indicationof important eventsthathaveoccurredduringthefirst six monthsofthefinancialyearandtheirimpact on thefinancialstatements;
•	the Statement of Principal Risks and Uncertainties shownaboveis a fairreviewoftheinformationrequiredbyDTR4.2.7R;and
•	the Chairman's Statement, together with the condensed set of financial statements, include a fairreviewoftheinformationrequiredbyDTR4.2.8R,beingrelatedpartytransactionsthathavetakenplaceinthefirst six monthsofthefinancialyearandthathavemateriallyaffectedthefinancialposition or performance oftheCompanyduringthe period,andany changes intherelatedpartytransactionsdescribedinthelast Annual Report thatcould do so.
	The Half-Yearly Report andAccountswereapprovedbytheBoardandtheaboveresponsibility statementwassigned on its behalf by:
	R M CURLING Chairman
	16 November 2022

 

Condensed Statement of Comprehensive Income (unaudited)

for the six months ended 30 September 2022

		Six months to 30 September 2022			Six months to 30 September 2021			Year to 31 March 2022 (Audited)
	Note	Revenue £'000	Capital £'000	Total £'000	Revenue £'000	Capital £'000	Total £'000	Revenue £'000	Capital £'000	Total £'000
(Losses)/gains on investments held at fair value		-	(88,982)	(88,982)	-	69,767	69,767	-	18,806	18,806
Exchange losses		-	(500)	(500)	-	(114)	(114)	-	(264)	(264)
Revenue
Investment income	3	2,981	-	2,981	2,447	-	2,447	3,788	-	3,788
Total income		2,981	(89,482)	(86,501)	2,447	69,653	72,100	3,788	18,542	22,330
Expenditure
Management expenses	4	(396)	(736)	(1,132)	(530)	(984)	(1,514)	(1,092)	(2,028)	(3,120)
Other expenses		(293)	-	(293)	(271)	(36)	(307)	(570)	(38)	(608)
Total expenditure		(689)	(736)	(1,425)	(801)	(1,020)	(1,821)	(1,662)	(2,066)	(3,728)
Return before finance costs and tax		2,292	(90,218)	(87,926)	1,646	68,633	70,279	2,126	16,476	18,602
Finance costs		(39)	(73)	(112)	(28)	(51)	(79)	(56)	(104)	(160)
Return before tax		2,253	(90,291)	(88,038)	1,618	68,582	70,200	2,070	16,372	18,442
Tax		(321)	-	(321)	(222)	-	(222)	(348)	-	(348)
Return after taxation		1,932	(90,291)	(88,359)	1,396	68,582	69,978	1,722	16,372	18,094
Return per share	5	1.02p	(47.67p)	(46.65p)	0.8p	39.14p	39.94p	0.96p	9.09p	10.05p

The totalcolumnofthisstatementrepresentstheCompany'sIncomeStatementand StatementofComprehensive Income, prepared in accordancewithInternationalFinancial Reporting Standards.

The supplementary revenuereturnandcapitalreturncolumnsarebothprepared under guidancepublishedbytheAIC.

All revenueandcapitalitemsintheabovestatementderivefromcontinuingoperations. No operationswereacquired or discontinuedduringtheperiod.

Condensed Balance Sheet (unaudited)

as at 30 September 2022

	Note	As at 30 September 2022 £'000	As at 30 September 2021 £'000	As at 31March2022 (Audited) £'000
Non-current assets
Investments held at fair value through profit and loss	7	247,129	357,152	339,788
Current assets
Trade and other receivables		886	3,636	967
Cash and cash equivalents		771	5,465	1,821
		1,657	9,101	2,788
Total assets		248,786	366,253	342,576
Current liabilities
Trade and other payables		(472)	(663)	(787)
Revolving credit facility		(4,384)	-	(8,450)
Interest-bearing bank loans	8	(8,757)	-	-
		(13,613)	(663)	(9,237)
Non-current liabilities
Interest-bearing bank loans	8	-	(8,575)	(8,434)
Total liabilities		(13,613)	(9,238)	(17,671)
Net assets		235,173	357,015	324,905
Capital and reserves
Called-up share capital		9,471	8,984	9,471
Share premium account		44,057	24,410	44,057
Capital redemption reserve		2,212	2,212	2,212
Capital reserve		175,552	318,052	265,843
Revenue reserve		3,881	3,357	3,322
Shareholders' funds		235,173	357,015	324,905
NAV per share	9	124.1p	198.7p	171.5p

Condensed Statement of Changes in Equity (unaudited)

for the six months ended 30 September 2022

	Share capital £'000	Share premium account £'000	Capital redemptionreserve £'000	Capital reserve £'000	Revenue reserve £'000	Total £'000
As at 1 April2022	9,471	44,057	2,212	265,843	3,322	324,905
Return after taxation	-	-	-	(90,291)	1,932	(88,359)
Dividends paid	-	-	-	-	(1,373)	(1,373)
Balance at 30 September 2022	9,471	44,057	2,212	175,552	3,881	235,173

for the six months ended 30 September 2021 (unaudited)

	Share capital £'000	Share premium account £'000	Capital redemptionreserve £'000	Capital reserve £'000	Revenue reserve £'000	Total £'000
As at 1 April2021	8,724	12,707	2,212	249,185	3,237	276,065
Return after taxation	-	-	-	68,582	1,396	69,978
Share issues	260	11,703		285		12,248
Dividends paid	-	-	-	-	(1,276)	(1,276)
Balance at 30 September 2021	8,984	24,410	2,212	318,052	3,357	357,015

for the year ended 31 March 2022 (Audited)

	Share capital £'000	Share premium account £'000	Capital redemptionreserve £'000	Capital Reserve £'000	Revenue reserve £'000	Total £'000
As at 1 April2021	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	-	-	-	-	(1,637)	(1,637)
Balance at 31 March 2022	9,471	44,057	2,212	265,843	3,322	324,905

Condensed Statement of Cash Flows (unaudited)

for the six months ended 30 September 2022

	Six months to 30 September 2022 £'000	Six months to 30 September 2021 £'000	Year to 31   March 2022 (Audited) £'000
Net cash inflow/(outflow) from operating activities	4,717	(7,098)	(38,483)
Cash outflow from financing activities	(5,813)	10,858	38,947
	(1,096)	3,760	464
Exchange gains	46	(62)	(410)
(Decrease)/increase in cash and cash equivalents	(1,050)	3,698	54
Reconciliation of profit before finance costs and tax to net cash inflow from operating activities
Return before taxation	(88,038)	70,200	18,442
Losses/(Gains) on investments held at fair value	88,982	(69,667)	(18,806)
Exchange losses	500	114	264
Finance costs	112	79	160
Withholding tax	(373)	(222)	(348)
Purchases of investments	(22,614)	(28,563)	(75,661)
Sales of investments	26,243	20,863	37,583
Changes in working capital and other non-cash items	(95)	98	(117)
Net cash inflow/(outflow) from operating activities	4,717	(7,098)	(38,483)

N otes to the Accounts (unaudited )

1.	The condensed unauditedfinancialstatementshave been preparedinaccordancewith InternationalFinancial Reporting Standard('IFRS')IAS34'InterimFinancialReporting'andtheaccountingpoliciessetoutinthestatutoryaccountsoftheCompanyfortheyear ended 31March2022. The condensedfinancialstatements do notincludealloftheinformationrequiredfor a completesetofIFRSfinancialstatementsandshould be readinconjunctionwiththefinancialstatementsoftheCompanyfortheyear ended 31March2022,whichwereprepared under fullIFRSrequirements.
2.	Earnings for the first six monthsshouldnot be taken as a guidetotheresultsforthe fullyear.
3.	Income for the period isderived from:

	Six months to 30 September 2022 £'000	Six months to 30 September 2021 £'000	Year ended 31 March 2022 (Audited) £'000
Overseas dividend income	2,933	2,445	3,785
Exchange gains	35	1	3
Other Income	13	1	-
Total	2,981	2,447	3,788

4.	Management fee:

	Six months to 30 September 2022 £'000			Six months to 30 September 2021 £'000			Year ended 31 March 2022 (Audited) £'000
	Revenue £'000	Capital £'000	Total £'000	Revenue £'000	Capital £'000	Total £'000	Revenue £'000	Capital £'000	Total £'000
Investment management fee	387	719	1,107	521	968	1,489	1,074	1,996	3,070
AIFM fee	9	16	25	9	16	25	18	32	50
	396	736	1,132	530	984	1,514	1,092	2,028	3,120

	As set out in the Company's Annual Report, the management fee will be linked to the size of the Company, as follows: · 0.90% p.a. of the amount of the Company's market capitalisation up to £500 million; · 0.75% p.a. of the amount of the Company's market capitalisation between £500 million and £750 million; and · 0.65% p.a. of the amount of the Company's market capitalisation above £750 million. The management fee is payable monthly in arrears. MAM is also entitled to a fee of £50,000 per annum for acting as the Company's Alternative Investment Fund Manager ("AIFM").
5.	Return per Share Earnings per Ordinary Shareisbased on a weightedaverageof189,427,600 Ordinary Sharesinissueduringthe period (year ended 31March2022:180,046,654and six months ended 30 September2021:175,223,174),excludingthosesharesboughtbackandheldintreasury.
6.	Dividends The interimdividendrelatingtotheyearended31March2023of0.2p per Ordinary Sharewill be paid on 5 January 2023toshareholders on theregister on 2 December 2022.InaccordancewithIFRS,thisdividend has not been recognisedinthesefinancialstatements. The ex-dividenddateforthispaymentis1 December 2022.
	A finaldividendrelatingtotheyear ended 31March2022of0.725p per Ordinary Share waspaidduringthe six monthsto 30 September2022andamountedto£1,373,350.
7.	Investments at Fair Value Through Profit and Loss:

	30 September 2022 £'000	30 September 2021 £'000	31 March 2022 £'000 (Audited)
Opening book cost	196,337	145,479	145,479
Holding gains	143,451	137,096	137,096
Opening fair value	339,788	282,575	282,575
Purchases at cost	22,427	28,563	75,867
Sales - proceeds	(26,104)	(23,753)	(37,460)
- gainsonsales	4,019	10,085	12,451
Holding ( losses)/gains	(93,001)	59,682	6,355
Closing fair value	247,129	357,152	339,788
Closing book cost	196,679	160,374	196,337
Holding gains	50,450	196,778	143,451
Closing valuation	247,129	357,152	339,788

8.	Interest-Bearing Bank Loans:

	30 September 2022 £'000	30 September 2021 £'000	31 March 2022 £'000 (Audited)
Opening balance	8,434	8,495	8,495
Amortisation of set-up costs	5	5	10
Non-cash foreign currency movements	318	75	(71)
Closing balance	8,757	8,575	8,434

	The Companyhas a €10millionsecuredloanwithINGBankN.V.('ING')at a fixedrateof1.33% per annum.Thisloanwillmature on 13September2023. The Companyalso has a €15millionfiveyearsecuredrevolvingloanfacility withINGwhichwillalsomature on 13September2023.
	As at 30 September2022,€5 million wasdrawndown under thesefacilities.
9.	Under the bank covenants relating to these facilities, the Company is to ensure that at all times the total borrowings of the Company do notexceed 40% oftheAdjustedNAV(asdefinedintheloanagreements)andthattheAdjustedNAV does notfallbelow £45million. The Companymetallcovenantconditionsduringtheperiod. The carrying value of the balances above approximates tofairvalue. Share Capital Allotted, issued and fully paid Ordinary Shares of 5p each For the six months ended 30 September 2022 Listed In Issue Number £'000 Number £'000 Opening balance in issue 189,427,600 9,471 189,427,600 9,471 Closing balance in issue 189,427,600 9,471 189,427,600 9,471
10.	Net Assets Value per Ordinary Share The NAV per Ordinary Share was based on 189,427,600 Ordinary Shares in issue at the end of the period (31 March 2022: 189,427,600 and 30 September 2021: 179,682,600), excluding those shares bought back and held in treasury. As at 30 September 2022, there were no Ordinary Shares held in treasury (31 March 2022: Nil and 30 September 2021: Nil).
11.	Fair value Hierarchy The Company measures fair values using the following fair value hierarchy that reflects the significance of the inputs used in making the measurements. Categorisation within the hierarchy has been determined on the basis of the lowest level input that is significant to the fair value measurement of the relevant assets as follows: • Level 1 - valued using quoted prices unadjusted in active markets for identical assets or liabilities. • Level 2 - valued by reference to valuation techniques using observable inputs for the asset or liability other than quoted prices included within Level 1. • Level 3 - valued by reference to valuation techniques using inputs that are not based on observable market data for the asset or liability. The tables below set out fair value measurements of financial instruments as at the period end, by the level in the fair value hierarchy into which the fair value measurement is categorised. Level 1 £'000 Level 2 £'000 Level 3 £'000 Total £'000 30 September 2022 Investments 247,129 - - 247,129 Loan - (13,141) (13,141) 30 September 2021 Investments 357,152 - - 357,152 Loan - (8,575) - (8,575) 31 March 2022 (Audited) Investments  339,788 - - 339,788 Loan - (16,884) - (16,884) There werenotransfersbetweenlevelsduringthe period ended 30 September2022(year ended 31March2022and period ended 30 September2021:None). Listed investments held (see note7)arevaluedatfairvaluethroughprofit or loss.Forlistedsecuritiesthisiseitherbidprice or thelasttradedpricedepending on theconventionoftheexchange on whichtheinvestmentislisted. The fairvalueoftheloansiscalculatedusing a discounted cash flowtechniquebased on relevantcurrentinterestratescomparedtotheirvalue as stated on theBalanceSheetat amortised costof£13,141,000(31 March 2022: £16,884,000 and 30 September 2021: £8,575,000). The fair valueofallotherfinancialassetsandliabilitiesisrepresentedbytheir carrying valuein theBalanceSheetshown above. Other aspects of the Company's financial risk management objectives and policies are consistent with those disclosed in the financial statements, as atandfortheyear ended, 31March2022.

12.	Rates of exchange (to Sterling):

	30 September 2022 £'000	30 September   2021   £'000	31 March   2022   £'000   (Audited)
Danish Krone	8.48	8.65	8.80
Euro	1.14	1.16	1.18
Norwegian Krone	12.17	11.77	11.52
Swedish Krona	12.40	11.80	12.27
Swiss Franc	1.10	1.26	1.21

13.	The Board has consideredtherequirementsofIFRS 8 'OperatingSegments'. The BoardisoftheviewthattheCompanyisengagedin a singlesegmentofbusiness,thatof investinginEuropeanquoted smaller companies,andthatthereforetheCompany has only a singleoperatingsegment. The BoardofDirectors, as a whole, has been identified as constitutingthechiefoperatingdecisionmakeroftheCompany. The keymeasureof performance usedbytheBoardto assess theCompany's performance isthetotalreturn on theCompany'snetassetvalue, as calculated under IFRS,andthereforenoreconciliationisrequiredbetweenthemeasureofprofit or lossusedbythe Boardandthatcontainedinthefinancialstatements.
14.	Going Concern: In assessing the going concern basisofaccounting,theDirectorshavehadregardtotheguidanceissuedbytheFinancial Reporting Councilandhave undertaken a rigorous reviewoftheCompany's ability tocontinue as a goingconcern.Theyhaveconsideredthecurrent cash positionoftheCompany,theavailabilityoftheborrowingfacilityto13September2023 and the likelihood of its renewal,compliancewiththeircovenants,theCompany'sotherliabilities andforecastrevenues. The DirectorshavealsotakenintoaccounttheCompany'sinvestmentpolicy,whichissubjecttoregularBoardmonitoringprocessesandis designed toensurethattheCompanyisinvestedmainlyinliquid,listedsecurities. The Companyretainstitletoallassetsheldbyitscustodianand has financialcovenants,relatingtoitsbankborrowingswithwhich it compliedduringtheperiod.
	The Directorsbelieve,inlightofthecontrolsandreviewprocessesnotedaboveandbearinginmindthenatureoftheCompany'sbusinessandassetsandliabilities,thatthe Company has adequateresourcestocontinueinoperationalexistencefor a period ofat least twelvemonthsfromthedateofapprovaloftheaccounts.Forthisreason,theycontinuetoadoptthegoing concern basisinpreparingtheaccounts.
15.	Related Parties: The following are considered related parties: the Board of Directors. The Directors of the Company received fees for their services and dividends from their shareholdings in the Company as outlined below.
	The amount charged by the Manager during the period was £1,132,000 (six months to 30 September 2022: £1,514,000; year to 31 March 2021: £3,120,000). At 30 September 2022, the amount due to the Manager, included in creditors, was £340,000. The existence of an independent Board of Directors demonstrates that the Company is free to pursue its own financial and operating policies.
	Directors' Emoluments At 30 September 2022, the Board consisted of three non-executive Directors. All Directors are considered to be independent of the Manager. None of the Directors has a service contract with the Company. The Chairman receives an annual fee of £39,000, the Chair of the Audit Committee receives an annual fee of £33,500 and non-executive Directors receive £28,000 per annum.
	At 30 September 2022, the amount outstanding in respect of Directors' fees was £nil (31 March 2022: £nil).
	At 30 September 2022, the interests of the Directors in the Ordinary Shares of the Company were as follows:
		As at 30 September 2022 No. of shares	As at 31 March 2022  No. of shares
	R M Curling	150,000	100,000
	G J Neilly	61,796	61,496
	C A Roxburgh*	61,885	61,885
	* Includes 3,580 shares held by Ms Roxburgh's spouse.
	The following changes in the Directors' interests occurred between 30 September 2022 and the date of this report: C A Roxburgh acquired 384 shares on 12 October 2022.
16.	These are not statutory accounts in terms of Section 434 of the Companies Act 2006 and have not been audited or reviewedbytheCompany'sAuditor. The informationfortheyear ended 31March2022 has been extractedfromthelatestpublishedfinancialstatementsandwhichhave been filedwiththeRegistrarofCompanies. The Auditor's report on thoseaccountswasnotqualified,didnotinclude a referencetoanymatterstowhichtheauditordrewattentionbywayof emphasis without qualifying the report anddidnotcontainstatements under section498(2) or (3)oftheCompaniesAct2006. No statutoryaccountsin respect ofany period after31March2022have been reported on bytheCompany'sAuditor or deliveredtothe RegistrarofCompanies.

Alternative Performance Measures ("APMs")

The Company uses thefollowingAPMs:

Capital Return - NAV and Share Price Returns Capital returns measure the effect of any rise or fall in the share price or NAV, excluding any dividends paid. As at 30 September 2022, the 6 month NAV Capital Return was (27.6%), and the 6 month Ordinary share price Capital Return was 36.1%, as shown in the Highlights above. NAV Capital Return calculation as at 30 September 2022 NAV per share as at 30 September 2022 124.10 (a) NAV per share as at 31 March 2022 171.50 (b) NAV Capital Return (27.6%) ((a-b)/b) Share Price Capital Return calculation as at 30 September 2022 Share Price as at 30 September 2022 107.40 (a) Share Price as at 31 March 2022 168.00 (b) Share Price Capital Return (36.1%) ((a-b)/b)

Total Return - NAV and Share Price Returns Total returns measure the effect ofanyrise or fallintheshareprice or NAV,plusdividends paidwhicharereinvestedattheprevailingNAV or shareprice on theex-dividenddate. As at 30 September2022,the 6 monthNAV TotalReturnwas(27.3%), andthe 6 month Ordinary sharepriceTotalReturnwas(35.74%), as shownintheHighlightsabove. NAV Total Return calculation as at 30 September 2022 NAV per share as at 30 September 2022 124.10 (c) NAV per share as at 31 March 2022 171.50 (d) Dividend adjustment factor (+1) 1.0046 (a) Pre-Dividend Reinvestment Factor 0.7240 (b)(b=c/d) NAV Total Return (27.3%) ((a*b)-1) (a) Dividend Adjustment Factor Dividend PPS Dividend XD date NAV at Dividend XD date Share price Multiplier Final dividend* 0.725 11.Aug.22 156.32 0.0046 Share price Total Return calculation as at 30 September 2022 Share price as at 30 September 2022 107.40 (c) Share price as at 31 March 2022 168.00 (d) Dividend adjustment factor (+1) 1.0052 (a) Pre-Dividend Reinvestment Factor 0.6393 (b)(b=c/d) Share price Total Return (35.7%) ((a*b)-1) (a) Dividend Adjustment Factor Dividend PPS Dividend XD date Share price at Dividend XD date Share price Multiplier Final dividend* 0.725 11.Aug.22 139.60 0.0052

Discount or Premium to NAV If the share price of an InvestmentTrustis less thanitsNAV per share,thesharesaretradingat a discount.IfthesharepriceisgreaterthantheNAV per share,thesharesaretradingat a premium.

As at 30 September2022,theNAV per sharewas124.1pandthesharepricewas 107. 4p . The discount is therefore calculated at 13.5 % as showninthehighlights above. Gross assets Gross assets are calculated as netassetsadding back bank borrowings. As at As at As at 30/09/2022 30/09/2021 31/03/2022 £'000 £'000 £'000 Net Assets 235,173 357,015 324,905 Bank borrowings 13,141 8,575 16,884 Gross assets 248,314 365,590 341,789

Net gearing employed Unlike open-ended investmentcompanies,InvestmentTrustshavethe ability toborrowtoinvest.Thistermisusedtodescribethelevelofborrowingsthat an InvestmentTrust has undertaken andisstated as a percentageofshareholders'funds. The higherthelevelofborrowings,thehigherthegearingratio.

Net gearing is calculated as totaldebt,netof cash and cash equivalents, as a percentageofthetotalshareholders'funds.

As at 30 September2022,interestbearingbankloanswere(£13,151,000), cash and cash equivalents were £771,000 and net assets were £235,173,000. As at 30 September 2022,Gearingwasthereforeequalto5.3% as showninthehighlights above.

Ongoing charges (expressed as a percentage) OngoingchargesaretheCompany'srevenue andcapitalexpenses(excludingfinancecostsand certain non-recurringitems)expressed as a percentageoftheaveragedailynetassetsoftheCompanyduringtheperiod.

Ongoing charges calculation

		Six months to 30 September 2022 £'000	Six months to 30 September 2021 £'000	31 March 2022 £'000 (Audited)
Total expenditure		1,425	1,785	3,728
Less negative interest		-	-	(38)
Total	(a)	1,425	1,785	3,690
Average daily net assets	(b)	279,257	325,750	338,296
Ongoing charges (c = a/b)*	(c)	1.0%	1.1%	1.1%

* 30 September 2022 and 30 September 2021 figures annualised for comparison (c = (a/b) x 2).

Glossary of terms
AIFMD Alternative Investment Fund Managers Directive.IssuedbytheEuropeanParliamentin2012and2013,theDirectiverequiresthatallinvestmentvehiclesintheEuropeanUnion,includingInvestmentTrusts,must,with effect from22July2014,appoint a Depositary and an AIFM. The BoardofDirectorsof an InvestmentTrust,nevertheless,remainsfullyresponsibleforall aspectsoftheCompany'sstrategy,operationsandcompliancewithregulations.
AIC The AssociationofInvestmentCompaniesisthetrade body forClosed-endInvestment Companies(www.theaic.co.uk).
Benchmark This is a measureagainstwhich an InvestmentTrust's performance iscompared. The benchmark oftheCompanyistheMSCIEuropeSmallCap (ex UK)Index (capital returninSterlingterms). The indexaveragesthe performance of a definedselectionofcompanieslistedinEuropean smaller companystockmarketsandgives an indicationofhowthosemarketshave performed inanyperiod.
Closed-end Investment Company A company,including an InvestmentTrust,with a fixedissued ordinary sharecapitalwhich istraded on an exchangeat a pricenot necessarily relatedtotheNAVofthecompanyandwhereshares can only be issued or boughtbackbythecompanyin certain circumstances. Thiscontrastswith an open-ended investmentcompany,which has unitsnottraded on an exchangebutissued or boughtbackfrominvestorsat a pricedirectlyrelatedtotheNAV.
Custodian A specialisedfinancialinstitutionresponsibleforsafeguarding,worldwide,thelistedsecuritiesand certain cash assetsoftheCompany, as well as theincomearisingtherefrom,throughprovisionofcustodial,settlementandassociated services. The Company'sCustodianis Bank ofNewYorkMellonSA/NV.
Depositary Under AIFMD rules applyingfrom22July2014,theCompanymustappoint a Depositary, whosedutiesin respect ofinvestments, cash andsimilarassetsinclude:safekeeping; verificationofownershipandvaluation;and cash monitoring. The Depositary has strict liability forlossofanyinvestments or otherassetswhere it has safekeepingduties. The Depositary'soversightdutiesinclude,butarenotlimitedto,oversightofsharebuybacks, dividendpaymentsandadherencetoinvestmentlimits. The Company's Depositary is The Bank ofNewYorkMellon(International)Limited.
Dividend The incomefrom an investment. Some InvestmentTrustspaydividends on a quarterly or monthlybasis.MontanaroEuropean Smaller Companies Trustplccurrentlypaysdividends twice a year.
Gearing Gearing is calculated as totalliabilities less currentassetsdividedbynetassets.
Gross assets Gross assets are calculated as netassetsadding back bank borrowings.
IFRS International Financial Reporting Standards.
Investment Manager The Company'sInvestment Manager isMontanaroAssetManagementLimited.
Investment Trust A Closed-endInvestmentCompanywhichsatisfiestherequirementsofSection1158ofthe CorporationTaxAct2010.Companieswhichmeetthesecriteriaareexemptfromhavingtopaytax on thecapitalgainstheyrealisefrom sales oftheinvestmentswithintheirportfolios.
Leverage As defined under theAIFMDrules,Leverageisanymethodbywhichtheexposureof an AIFisincreasedthroughborrowingof cash or securities or leverage embedded inderivativepositions.LeverageisbroadlyequivalenttoGearing,butisexpressed as a ratiobetween theassets(excludingborrowings)andthenetassets (after takingaccountofborrowings). Underthegrossmethod,exposurerepresentsthesumoftheCompany'spositionsafter deductionof cash and cash equivalents,withouttakingaccountofanyhedging or netting arrangements. Under thecommitmentmethod,exposureiscalculatedwithoutthe deductionof cash and cash equivalentsandafter certain hedgingandnettingpositionsareoffsetagainst each other.
Marked to Market Accounting for the fair value of an asset or liability that can changeovertimeandreflectsitscurrentmarketvalueratherthanits book cost.
Market Capitalisation The stockmarketvalueof a company as determinedbymultiplyingthe number ofsharesin issue,excludingthosesharesheldintreasury,bythemarketpriceoftheshares.
N AV per OrdinaryShare This is calculated as thenetassetsof an InvestmentTrustdividedbythe number ofshares inissue,excludingthosesharesheldintreasury.
Net Assets (or Shareholders' Funds) This is calculated as thevalueoftheinvestmentsandotherassetsof an InvestmentTrust,plus cash anddebtors, less borrowingsandanyothercreditors.Itrepresentstheunderlying valueof an InvestmentTrustat a pointintime.
Net Gearing Net Gearing is calculated as totaldebt,netof cash and cash equivalents, as a percentageofthetotalshareholders'funds.
Ordinary Shares The main type of equity capitalissuedbyconventionalInvestmentTrusts.Shareholdersare entitledtotheirshareofbothincome,intheformofdividendspaidbytheInvestmentTrust,andanycapitalgrowth.MontanaroEuropean Smaller Companies Trustplc has only Ordinary Sharesinissue.
Portfolio Turnover Calculated using total sales proceeds as a percentage of the average monthly net assets during the period, annualised.
Related Party Transactions Under the Listing Rules, the Manager is regarded as a related party of the Company.
Share Price The valueof a shareat a pointintime as quoted on a stockexchange. The sharesofMontanaroEuropean Smaller CompaniesTrustplcarequoted on theMainMarketoftheLondonStockExchange.
SORP Statement of Recommended Practice"FinancialStatementsofInvestmentTrustCompaniesandVentureCapitalTrusts"issuedbytheAIC.
Total Assets This is calculated as thevalueoftheinvestmentsandotherassetsof an InvestmentTrust,plus cash anddebtors.
Directors and Advisers
Registered Office 16 Charlotte Square Edinburgh EH2 4DF	Depositary THE BANK OF NEWYORKMELLON(INTERNATIONAL)LIMITED One Canada SquareLondonE145AL
Registered in Scotland No. SC074677
An investmentcompany as definedunderSection833oftheCompaniesAct2006.	Custodian BANK OF NEWYORKMELLONSA/NV One Canada SquareLondonE145AL
Directors R M Curling (Chairman) C A Roxburgh G J Neilly
Investment Manager and Alternative Investment Fund Manager ('AIFM') MONTANARO ASSET MANAGEMENTLIMITED 53 Threadneedle Street London EC2R 8AR Tel: [phone] Email: [e-mail] www.montanaro.co.uk	Registrar EQUINITI LIMITED Aspect House, Spencer Road,Lancing West Sussex BN99 6DA Registrar's Shareholder Helpline Tel: [phone]* *Lines are open 8.30am to 5.30pm, Monday to Friday, excluding UK public holidays
Administrator LINK ALTERNATIVE FUND ADMINISTRATORS LIMITED Beaufort House 51 New North Road,ExeterEX44EP	Stockbroker CENKOS SECURITIES PLC 6.7.8 Tokenhouse Y ard London EC2R 7AS
Company Secretary LINK COMPANY MATTERS LIMITED 65 Gresham StreetLondonEC2V7NQ Tel: [phone] Contact:  [e-mail]	Auditor PRICEWATERHOUSECOOPERS LLP Atria One 144 Morrison Street Edinburgh EH3 8EX
Solicitor DICKSON MINTO W.S. 16 Charlotte Square   Edinburgh EH2 4DF	Website https://montanaro.co.uk/trust/montanaro-european-smaller-companies-trust/
Neither the contents of the Company's website nor the contents of any website accessible from hyperlinks on this announcement (or any other website) is incorporated into, or forms part of, this announcement.
For further information, please contact:
Montanaro Asset Management Limited
Tel: [phone]

 

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