Final Results

European Smaller Companies Tst PLC

10 October 2023

 

Legal Entity Identifier: 213800N1B1HCQG2W4V90 THE EUROPEAN SMALLER COMPANIES TRUST PLC Financial results for the year ended 30 June 2023 This announcement contains regulated information Investment Objective The Company seeks capital growth by investing in smaller and medium sized companies which are quoted, domiciled, listed or have operations in Europe (ex UK).

Total return performance to 30 June 2023 (including dividends reinvested and excluding transaction costs)
	1 year %	3 years %	5 years %	10 years %
NAV1,5	16.4	50.3	43.4	259.9
Benchmark2	10.0	24.3	25.5	162.6
Average sector NAV3	11.2	26.0	31.0	190.3
Share price4,5	13.6	56.9	37.1	271.5
Average sector share price3,5	10.1	27.5	25.8	192.6

Financial highlights	at 30 June 2023	at 30 June 2022
Shareholders' funds
Net assets (£'000)	738,642	652,464
NAV per ordinary share	184.26p	162.76p
Share price	154.00p	140.00p
Year ended 30 June 2023			Year ended 30 June 2022
Profit for year
Net revenue profit (£'000)	20,927	20,703
Net capital profit/(loss) profit (£'000)	83,454	(195,415)
	------------	------------
Profit/(loss) for the year	104,381	(174,712)
	=======	=======
Total return per ordinary share
Revenue	5.22p	5.16p
Capital	20.82p	(48.75p)
	-------------	-------------
Total return per ordinary share	26.04p	(43.59p)
	=======	=======
Ongoing charge excluding performance fee6	0.65%	0.65%
Ongoing charge including performance fee6	1.67%	1.37%
1.     Net asset value (NAV) total return per ordinary share 2.     Euromoney Smaller European Companies (ex UK) Index up to 30 June 2022, thereafter MSCI Europe ex UK Small Cap Index 3.     The sector is the AIC European Smaller Companies sector 4.     Share price total return including dividends reinvested and using closing price 5.     NAV per share, NAV total return, share price total return and ongoing charge are regarded as Alternative Performance Measures.  More information on these can be found in the Annual Report 2023 6.     Calculated using the methodology prescribed by the Association of Investment Companies Sources: Morningstar Direct, Janus Henderson Investors

Chairman's Statement After a challenging year to June 2022 for European small caps where the benchmark1 fell 17.3% and the NAV of your Company by 21%, the year ended June 2023 has been a welcome improvement, notwithstanding that the challenges of 2022 such as surging inflation, rising interest rates, disrupted energy markets and conflict in Ukraine having persisted. The spectre of recession has hung over the global economy for much of the last year, but it has been far more resilient than the bears have suggested it would be. It seems increasingly probable that a 'soft landing' is achievable as supply chain bottlenecks have begun to clear, relieving inflationary pressure, and the labour market has proved to be robust enough for the consumer to be cushioned from the burden of rising interest rates. Smaller companies are a good indicator of the economic cycle improving and normally rally before the economic data confirms the trend. The fund management team has always preached their valuation discipline and we are optimistic that they will be able to take advantage at this stage of the cycle. Performance Despite stock markets that have been extremely volatile and a bias to smaller companies that have, in aggregate, underperformed midcap companies, the net asset value ('NAV') total return performance of the Company for the year ended 30 June 2023 was 16.4%, 6.4% ahead of the benchmark return of 10.0%. The share price total return for the period was 13.6%, ahead of the average of the AIC European Smaller Companies sector, but showing a widening discount against the NAV. Discount management The Company's shares have traded at an average discount of 15.1% over the twelve months to 30 June 2023. This is against the backdrop where the investment trust sector as a whole averaged 13.1% for the same period and widened to an average of 15.8% in the subsequent period from July through September. Our discount reflects the fact that smaller European companies remain out of favour with investors, but also suggests that we have more work to do in terms of communicating our unique proposition to investors. The Board regularly monitors the discount level, though we are of the view that it is not a variable fully in our control. Following regular discussion at Board meetings, we have resolved to practice share buybacks opportunistically when our Fund Manager thinks it will be more accretive to the long-term value creation of the portfolio than other investment opportunities. Post the financial year-end and after temporarily widening, the discount to NAV narrowed on the back of weakness in equity markets. Given the significant price dislocation in the market reflected by the discount of the investment trust sector as a whole, we have not as yet believed it to be in the interests of all shareholders to repurchase our own shares in such an environment. Performance Fee We will be paying a performance fee of £7.2m to the investment manager for the returns achieved over the three-year period to 30 June 2023. To put this into context the Company has delivered an NAV total return outperformance of 26.0%2 relative to the benchmark over this period. This is nearly double the return of our nearest competitor in the AIC European Smaller Companies sector.  The Board regularly revisits the merit of having a very low base fee alongside the performance fee as part of the arrangements with the investment manager and considers that this approach is beneficial to shareholders over time. This mechanism permits the investment manager to earn a higher fee where excellent performance has been achieved over a three-year period, but reduces significantly should performance be poor. Dividend A final dividend of 3.25p (2022: 3.10p) per ordinary share will be put to shareholders for approval at the annual general meeting to be held on 27 November 2023. Together with the interim dividend of 1.45p (2021: 1.25p), this is an increase of 8.0%. The dividend will be paid on 1 December 2023 to shareholders on the register at 3 November 2023. The shares will trade without the dividend on 2 November 2023. We are confident that the Company will continue to be able to deliver progressive dividend growth. We would like to emphasize to our shareholders that the valuation aware investment style employed by the fund management team has led them to certain high yielding stocks in recent years and the extent of recent dividend growth may not be sustainable as portfolio repositioning occurs. In line with the investment objective, the fund management team's focus continues to be prioritising capital growth. Succession planning In keeping with the Board's succession plan, Alexander Mettenheimer retired at the annual general meeting in November 2022. We continue to refresh the Board and engaged recruitment consultants to help with the search to find my replacement. Following successful conclusion of that process, we were pleased to announce the appointment of James Williams on 9 October 2023. He will join the Board with effect from 1 November 2023. He brings with him over 30 years' international business experience, including nearly 20 years in the investment banking industry.  He is very familiar with the investment trust sector and financial markets, and has a strong suite of leadership skills.  James will offer himself for election by shareholders at the annual general meeting later this year. It is my intention to retire at the conclusion of the annual general meeting in 2024, following a suitable hand-over period. We have further agreed a timeline for the retirement of Simona Heidempergher, who, at the time of the forthcoming annual general meeting, will have been on the Board for nine years. We will report to you further on this in due course. Annual General Meeting We are pleased to invite shareholders to attend the 33rd Annual General Meeting which will be held at our registered office, 201 Bishopsgate, London, EC2M 3AE on Monday 27 November 2023 at 12.30pm. The event provides the opportunity for shareholders to meet the directors and the Fund Manager, along with members of his team. The Fund Manager will give his usual presentation on the year under review and will discuss the outlook for the year ahead. The directors and fund management team will also be available to answer questions. If you are unable to attend in person, you will be able to watch the meeting live via the internet by visiting www.janushenderson.com/trustslive. Voting will be held on a poll so we encourage all shareholders to submit their proxy form, or instruct their share dealing platform how they wish their shares to be voted, ahead of the respective deadlines. Voting on a poll means shareholders will have one vote for every share they own and give a clear indication of shareholders' wishes. The results of the poll will be published on the Company's website shortly after the meeting. Outlook I have warned of the prospect of inflation since the Annual Report 2020, but the Board does not expect inflation to remain at the high levels we have been experiencing recently. We are, however, of the view that moderate inflation and elevated interest rates, compared to the recent past, are likely to be a persistent feature of the global economy going forward. The dislocations in the global economy between the USA and China appear structural. Supply chain resilience is clearly now a priority of the corporate sector and will alter the disinflationary dynamic of the last twenty years, notwithstanding that China exiting Zero-Covid should help ameliorate short term inflationary pressures. The 'Green Transition' will require substantial capital expenditure that will also be inflationary. Exciting technologies such as Artificial Intelligence will no doubt create some disinflationary pressure, but we doubt it will be as significant as the advent of the internet. The valuation aware approach employed by the fund management team should be able to flourish in a market that has some very exciting companies trading at extremely low valuations. Whilst Europe doesn't have the global tech titans which have dominated the market in recent years, the plumbing of the new economy has been delivered by smaller companies based in Europe and we are confident that the fund management team can continue to deliver attractive returns for you. Christopher Casey Chairman 9 October 2023 1  Euromoney Smaller European Companies (ex UK) Index up to 30 June 2023, thereafter the MSCI Europe ex UK Small Cap Index 2  Calculated using the Euromoney Smaller European Companies (ex UK) Index for the years ended 30 June 2021 and 2022, and the MSCI Europe ex UK Small Cap Index for the year ended 30 June 2023

FUND MANAGER'S REPORT Introduction After a disappointing year ended June 2022, where the portfolio lagged the benchmark1 by 3.7%, the year to June 2023 proved more gratifying, with a total return of 16.4% outperforming the benchmark by 6.4%. Outperformance over the twelve months to 30 June 2023 was primarily driven by bottom-up stock selection, with Dutch wealth manager Van Lanschot Kempen and German pump manufacturer KSB adding handsomely to returns. In addition to stock selection, the Company gained from its overweight position in cheap financials in the first half of the financial year where the normalisation of interest rates allowed banks to earn a net interest margin for the first time since the global financial crisis. Our view that valuation matters, especially in the absence of 'free money', was positive for performance. In the first part of 2023 the portfolio benefitted from its exposure to the industrial sector as the highly publicised fear of energy shortages did not come to pass. In the remainder of the financial year, the Company performed reasonably well versus the index despite having a lower average market capitalisation during the periods of small cap underperformance and amid the return of growth outperformance on the back of the hype surrounding Artificial Intelligence. Since November, equity markets have been largely rangebound, with ongoing fear that higher interest rates to combat the inevitable post-Covid inflation would lead to a recession. Technically, the latter has occurred in some counties like Germany. The good news is that even if recession does come, it will be the most widely anticipated recession ever. We take the view that inflation should drop in the second half of the 2023 calendar year, but that positive inflation and positive interest rates are likely to be part of the new normal. The geopolitical environment continues to be volatile, with the Russian invasion of Ukraine beginning to look like something of a stalemate, giving investors an excuse to ignore Europe as a region to invest in. However, valuations in Europe now look so cheap compared to the US such that investors are being given considerable reward for running that risk. Some commentators worry about China's ambitions for Taiwan, which we struggle to assess as a risk. Should this occur, it would certainly cause another huge disruption to the semiconductor supply chain as well as adding another appalling conflict to the world. We assume calm heads will prevail. The portfolio We invest across the entire corporate lifecycle, with a mix of early-stage growth stocks, sensibly priced structural growth stocks, undervalued cash generative mature names and self-help turnarounds.   We continue to think that many growth stocks in Europe remain far too expensive, but have begun to add a few names that have fallen to reasonable levels. For instance, we have added Dutch-listed food processing equipment manufacturer Marel which was punished for being slow to increase prices during the supply chain shock and is now playing catch up. The business remains dominant in its field of meat processing, and we think the margin rebuild will improve the return on capital and lead to a re-rating of the shares. We also opened a position in Danish-listed NTG Nordic Transport which is building a global freight forwarding operation. The stock is not well known in the market and suffered from recessionary concerns, allowing us to buy the shares at a very attractive valuation. Despite some terrific performance this year, the equity remains cheap and we think it has scope to deliver far more. In the year ended June 2022, we did not devote much capital to buying the early-cycle growth names as we believed many lacked profitability and started with expensive valuations. However, many of these names sold off strongly as interest rates rose. We used this opportunity to begin to buy stakes in companies that we believe look like winners of the future. We opened a position in Swedish-listed podcast software and service provider Acast. The company is the market leader in Europe and a big challenger in the US; if you are an avid consumer of podcasts, you will have seen its name littered over many of your favourites. Advertising is massively underpenetrated in podcasts versus radio, and we think this will change over the next couple of years. We also added Italian-listed tool maker Eurogroup Laminations which is the leading global supplier of high value-add components critical for making electric motors for the automotive industry, an area that has huge structural growth trends underpinning it. Within the mature names in the portfolio, we have added German-listed electric forklift truck and warehouse automation specialist Jungheinrich. The company currently earns cost of capital returns, but its new management team are focused on boosting this. We believe the structural tailwinds in the company's end markets should help them to achieve this and drive a re-rating of the shares. We invested in specialist high performance material producer Alleima, which was recently divested from Sandvik. Now that the business is free to emerge from the shadow of its parent, we believe management can boost margins, returns and cash flow in the quarters and years to come. Among our turnaround names, we added Swedish-listed vertical access solutions (or lifts as they are otherwise known!) Alimak for its purchase of a near competitor which we believe could drive a big turnaround in its Façade Access division. We invested in Portuguese bank Banco Comercial Portugues as it is improving profitability and the Portuguese economy is one of the best in Europe. Performance attribution The Company benefited from its exposure to the industrial and financial sectors in the year to June 2023. Our biggest contributor was Dutch wealth manager Van Lanschot Kempen, which is in a unique position to consolidate the Low Countries wealth management industry. BFF Bank in Italy was another noticeable contributor as the market has begun to reward its strong return on equity and diligent capital return strategy. In the industrial sector, we benefited from long-term Italian holding SAES Getters after it disposed of its medical division at an attractive premium and converted its Savings Shares to Ordinary Shares. Elsewhere, Dutch-listed vision systems producer TKH made a sizeable contribution with analysts being far too bearish on the company's prospects in 2023. Spanish online travel agent eDreams ODIGEO contributed to returns after benefitting from a notable recovery in tourism following the pandemic. Dutch-listed specialty metals producer AMG Critical Materials gained as its capital expenditure began to bear fruit and the stock market realised the value of its lithium assets. Dutch-listed outsourced customer service company Majorel was bid for by competitor Teleperformance, also adding to performance. Detractors from performance included a combination of last year's winners giving up some performance and certain stock specific mistakes. US-listed Adtran (shares in which we received from the acquisition of German tech hardware company ADVA Optical Networking) detracted as the market reopening left too much inventory on its client's balance sheets. Swedish-listed broadcaster of over-the-top media services and owner of many sports rights, Viaplay, had a profit warning as its Nordic market slowed sharply and management's growth assumptions proved to be wildly optimistic. We subsequently sold the position. Belgian-listed insulation manufacturer, Recticel, suffered weak demand from the construction market and a brutal last-minute renegotiation for the disposal of its Engineered Foams business that hurt the stock significantly. Finally, Swedish-listed legal software and services business Karnov mismanaged an equity placing and unnecessarily spooked the market about its balance sheet hurting the shares. Geographical and sector distribution Our investment process is fundamentally a bottom-up stock picking approach, and we don't allocate capital to specific sectors or geographies, though we do monitor the overall structure of the portfolio to ensure we are actively managing our risk profile. We do not invest with the benchmark as a reference and are content to run the portfolio with significant divergence from it. The largest geographic overweight was France where we have found several very cash generative and lowly valued companies. We are also heavily overweight to the Netherlands where we added property developer CTP, which dominates the logistics development market in South Eastern Europe and in Germany where we added leading display advertiser Stroeer. We remain underweight the relatively more expensive markets such as Sweden, Switzerland and Norway. At the sector level, we are overweight industrials and consumer discretionary, though we have focused our latter overweight on more robust areas such as travel related verticals with companies such as Irish-listed hotel company Dalata, which has had robust trading. We have an overweight in the information technology sector, primarily driven by technology hardware with investments such as Finnish-listed Detection Technology that produces scanning and imaging technology for the medical, industrial and security markets. We are underweight to the health care sector where we struggle to find sensibly priced investments. We remain underweight to the real estate sector, which has benefited the Company in the rising interest rate environment, although we have reduced the underweight position by adding selectively chosen positions such as Swedish-listed Castellum that we took the opportunity to buy at an attractive valuation when they raised money to repair their balance sheet. We remain underweight in the consumer staples sector, where we struggle to find many exciting investment opportunities. Additions and disposals Other notable additions to the portfolio include Italian truck manufacturer, Iveco, which was recently spun out of CNH. The stock is extremely cheap, has a meaningful opportunity to improve margins and has an exciting line in electric buses. We re-initiated a position post a de-rating in German-listed manufacturer of semiconductor equipment, PVA TePla, that sells furnaces for producing silicon carbide crystals. Increasingly silicon carbide wafers are replacing pure silicon in end markets such as electric vehicles. We disposed of our position in Irish-listed bank, AIB, after seeing a considerable return as the market recognised the undervaluation and boost of an improved net interest margin environment. We exited our position in Italian bank, Finecobank, as we considered the market to have too optimistic a view of their earnings. We disposed of German-listed Commerzbank on the concern that the investment was too consensual. This resulted in our meaningful overweight in the financial sector becoming broadly neutral. We sold our position in Norwegian marine services business Froy after it was bid for, Greek renewable energy producer and refiner Motor Oil, after earning considerable profit and Swedish-listed manufacturer, Thule, as we thought forecasts had begun to look too optimistic. We capitulated on our investment in Swedish-listed kitchen maker Nobia as we became concerned by the balance sheet after some ill-timed major capital expenditure. Finally, we exited our position in Belgian cinema operator Kinepolis as our conviction that audiences would return to the cinemas in the same numbers as pre-pandemic waned. Currency The Company is denominated in Sterling, while investing in largely Euro-denominated assets. We do not hedge this currency exposure. Outlook Last year we warned that central banks could overreact to inflation by pushing rates too high and into an energy shock. Today, we think that may still be the case. Concerns of too-high-too-soon rates and the resulting recession has created a fear factor that has dissuaded many from investing in European smaller companies. Our fundamental belief is that there is considerable value to be found in European smaller companies currently, with valuation multiples looking extremely attractive. Much of our investment universe is already priced for a recession. The resilience of labour markets suggest that there is a reasonable chance that the global economy has a 'soft landing'. In such an environment, European smaller companies should be a good area to invest: it is the area of the market that could deliver greater growth and is currently trading at a discount to its more pedestrian larger European counterparts. Throughout, we continue to believe that remaining valuation-aware when seeking out the small cap winners of tomorrow is a key discipline for delivering value for our shareholders. Ollie Beckett, Rory Stokes and Julia Scheufler 9 October 2023 1  Euromoney Smaller European Companies (ex UK) Index for the year ended 30 June 2022, the MSCI Europe ex UK Small Cap Index for the year ended 30 June 2023.

Geographic exposure at 30 June 2023 (% of portfolio excluding cash)
	2023 %	2022 %
Germany	17.4	17.1
France	14.6	14.1
Netherlands	11.9	10.6
Italy	10.3	8.5
Sweden	10.0	8.8
Switzerland	8.1	6.6
Spain	5.4	6.0
Belgium	4.2	4.8
Greece	3.2	2.0
Finland	3.0	4.6
Denmark	2.8	2.4
Ireland	2.5	4.9
Norway	2.3	3.8
Austria	2.0	2.9
Portugal	1.3	1.9
Malta	1.0	1.0
	100.0	100.0

Sector exposure at 30 June 2023 (% of portfolio excluding cash)
	2023 %	2022 %
Industrials	38.6	34.1
Consumer Discretionary	20.9	22.5
Financials	13.0	13.1
Technology	11.6	12.0
Basic Materials	3.2	2.1
Utilities	3.1	5.1
Health Care	3.1	2.1
Real Estate	2.3	1.2
Consumer Staples	2.0	4.1
Energy	1.7	2.0
Telecommunications	0.5	1.7
	100.00	100.0

MANAGING risks Principal risks Investing, by its nature, carries inherent risk. The Board, with the assistance of the investment manager, carries out a robust assessment of the principal and emerging risks and uncertainties facing the Company which could threaten the business model and future performance, solvency and liquidity of the portfolio. A matrix of these risks, along with the steps taken to mitigate them, is maintained and is kept under regular review. The mitigating measures include a schedule of investment limits and restrictions within which the fund management team must operate. The principal risks which have been identified and the steps we have taken to mitigate these are set out below.  We do not consider these risks to have changed during the period. Investment strategy and objective The investment objective or policy is not appropriate in the prevailing market or sought by investors, leading to a wide discount and hostile shareholders. Investment mandate limits established by the Board are inappropriate leading to out-of-scope investments which may negatively impact shareholder value. Poor investment performance over an extended period of time, driven by either external (political uncertainty, financial shock, pandemic, climate change, etc.) or internal factors (poor stock selection, poor management of gearing, loss of key members of the fund management team, etc.), leading to shareholders voting to wind up the Company. The investment manager periodically reviews the investment objective and policy in line with best practice and taking account of investor appetites. The Board receives regular updates on professional and retail investor activity from the investment manager, and reports from the corporate broker, to inform themselves of investor sentiment and how the Company is perceived in the market. From time to time, research may be undertaken by a third-party consultant to specifically ascertain the views of retail investors. The Board reviews compliance with the investment limits at each meeting. The Board considers the Key Performance Indicators ('KPIs') at each meeting and reviews the investment manager's approach to environmental, social and governance matters. The fund management team incorporate environmental, social and governance considerations in investment selection and maintains a diversified portfolio with a view to spreading risk. Consideration is given to the possible impact of climate change on the value of the portfolio as part of the Company's overall risk assessment. Operational Failure of, disruption to or inadequate service levels provided by principal third-party service providers leading to a loss of shareholder value or reputational damage. This includes cyber security risks which may compromise the integrity of data and the effective operation of third-party service providers. The Board engages reputable third-party service providers and formally evaluates their performance, and terms of engagement, at least annually. The Audit Committee assesses the effectiveness of internal controls in place at the Company's key third-party service providers through review of their ISAE 3402 reports, quarterly internal control reports from the investment manager and monthly reporting on compliance with the investment limits established by the Board. Legal and regulatory Loss of investment trust status, breach of the Companies Act 2006, Listing Rules, Prospectus and/or Disclosure Guidance and Transparency Rules or the Alternative Fund Managers Directive and/or legal action brought against the Company and/or directors and/or the investment manager leading to a decrease in shareholder value and reputational damage. The Board engages reputable third-party service providers and formally evaluates their performance, and terms of appointment, at least annually. The Audit Committee assesses the effectiveness of internal controls in place at the Company's key third-party service providers through review of their ISAE 3402 reports and, in respect of the investment manager's investment trust operations, reporting from the investment manager's internal audit function. The investment manager's Compliance function has reporting obligations under AIFMD, with any non-compliance being captured in the investment manager's quarterly internal control reporting to the Board. Financial Market, liquidity and/or credit risk, inappropriate valuation of assets or poor capital management leading to a loss of shareholder value. The Board determines the investment limits and monitors compliance with these at each meeting. The directors review the portfolio liquidity at each meeting and periodically consider the appropriateness of hedging the portfolio against currency risk. The Board reviews the portfolio valuation at each meeting. Investment transactions are carried out by a large number of approved brokers whose credit standard is periodically reviewed and limits are set on the amount that may be due from any one broker, cash is only held with the depositary/custodian or reputable banks. The Board monitors the broad structure of the Company's capital including the need to buy back or allot ordinary shares and the extent to which revenue in excess of that which is required to be distributed, should be retained. Assessing our viability In keeping with provisions of the Code of Corporate Governance issued by the Association of Investment Companies (the 'AIC Code'), the Board has assessed the prospects of the Company over a period longer than the 12 months required by the going concern provision. We consider the Company's viability over a three-year period as we believe this is a reasonable timeframe reflecting the longer term investment horizon for the portfolio, but acknowledges the inherent shorter term uncertainties in equity markets. As part of the assessment, we have considered the Company's financial position, as well as its ability to liquidate the portfolio and meet expenses as they fall due. The following aspects formed part of our assessment: ·      the closed-end nature of the Company which continued to be focused on long-term returns and does not need to account for redemptions; ·      a robust assessment of the principal risks and uncertainties facing the Company, including the challenges posed by climate change, which concluded that no materially adverse issues had been identified; ·      the nature of the portfolio remained diverse and comprised a wide range of stocks which are traded on major international exchanges meaning that, in normal market conditions, three quarters of the portfolio could be liquidated in ten days; ·      the level of the Company's revenue reserves and size of the bank overdraft facility; and ·      the expenses incurred by the Company, which are predictable and modest in comparison with the assets and the fact that there are no capital commitments currently foreseen which would alter that position. As well as considering the principal risks and financial position of the Company, the Board has made the following assumptions: ·      investors will continue to wish to have exposure to investing in European small cap companies; ·      investors will continue to invest in closed-end funds; ·      the Company's performance will continue to be satisfactory; and ·      the Company will continue to have access to adequate capital when required. Based on the results of the viability assessment, we have a reasonable expectation that the Company will be able to continue its operations and meet its expenses and liabilities as they fall due for our assessment period of three years. Forecasting over a longer period is imprecise given the nature of the portfolio. We will revisit this assessment annually and provide shareholders with an update on our view in the annual report. Related party transactions The Company's transactions with related parties in the year were with the directors and the investment manager. There have been no material transactions between the Company and its directors during the year. The only amounts paid to them were in respect of remuneration and expenses for which there were no outstanding amounts payable at the year end. In relation to the provision of services by the investment manager, other than fees payable by the Company in the ordinary course of business and the provision of marketing activities, there have been no material transactions affecting the financial position of the Company during the year under review. Directors' responsibility STATEMENTS Each of the directors in office at the date of this report confirm that, to the best of their knowledge: ·      the financial statements prepared in accordance with UK Adopted International Accounting Standards give a true and fair view of the assets, liabilities, financial position and profit and loss of the issuer and the undertakings included in the financial statements as a whole; and ·      the Strategic Report includes 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. For and on behalf of the Board Daniel Burgess Chairman of the Audit Committee 9 October 2023

Statement of Comprehensive Income

	Year ended 30 June 2023			Year ended 30 June 2022
	Revenue return £'000	Capital return  £'000	Total return £'000	Revenue return £'000	Capital return  £'000	Total return £'000
Investment income	25,054	-	25,054	25,231	-	25,231
Other income	9	-	9	-	-	-
Gains/(losses) on investments held at fair value through profit or loss	-	96,206	96,206	-	(185,662)	(185,662)
	-----------	-----------	------------	-------------	-------------	-------------
Total income	25,063	96,206	121,269	25,231	(185,662)	(160,431)
Expenses
Management and performance fee	(776)	(10,284)	(11,060)	(844)	(8,906)	(9,750)
Other operating expenses	(760)	-	(760)	(830)	-	(830)
	-----------	-----------	-----------	-------------	-------------	-------------
Profit/(loss) before finance costs and taxation	23,527	85,922	109,449	23,557	(194,568)	(171,011)
Finance costs	(595)	(2,382)	(2,977)	(194)	(775)	(969)
	-----------	-----------	-----------	-------------	-------------	-------------
Profit/(loss) before taxation	22,932	83,540	106,472	23,363	(195,343)	(171,980)
Taxation	(2,005)	(86)	(2,091)	(2,660)	(72)	(2,732)
	-----------	-----------	-----------	-------------	-------------	-------------
Profit/(loss) for the year and total comprehensive income	20,927	83,454	104,381	20,703	(195,415)	(174,712)
	======	======	======	=======	=======	=======
Return per ordinary share - basic and diluted	5.22p	20.82p	26.04p	5.16p	(48.75p)	(43.59p)
	======	========	=======	=======	=======	=======
The total column of this statement represents the Statement of Comprehensive Income, prepared in accordance with UK adopted International Accounting Standards. The revenue return and capital return columns are supplementary to this and are prepared under guidance published by the Association of Investment Companies. All revenue and capital items in this statement derive from continuing operations. The accompanying notes are an integral part of the financial statements.

Statement of Changes in Equity

	Year ended 30 June 2023
	Called up share capital £'000	Share premium account £'000	Capital redemption reserve £'000	Other capital reserves £'000	Revenue reserve £'000	Total £'000
Total equity at 1 July 2022	6,264	120,364	13,964	481,409	30,463	652,464
Total comprehensive income:
Profit for the year	-	-	-	83,454	20,927	104,381
Costs relating to sub-division of shares	-	-	-	17	-	17
Ordinary dividends paid	-	-	-	-	(18,220)	(18,220)
	-----------	-----------	-----------	-----------	-----------	-----------
Total equity at 30 June 2023	6,264	120,364	13,964	564,880	33,170	738,642
	======	======	======	======	======	======

	Year ended 30 June 2022
	Called up share capital £'000	Share premium account £'000	Capital redemption reserve £'000	Other capital reserves £'000	Revenue reserve £'000	Total £'000
Total equity at 1 July 2021	6,264	120,364	13,964	676,886	23,189	840,667
Total comprehensive income:
(Loss)/profit for the year	-	-	-	(195,415)	20,703	(174,712)
Costs relating to sub-division of shares	-	-	-	(62)	-	(62)
Ordinary dividends paid	-	-	-	-	(13,429)	(13,429)
	------------	------------	------------	------------	------------	------------
Total equity at 30 June 2022	6,264	120,364	13,964	481,409	30,463	652,464
	=======	=======	=======	=======	=======	=======

Balance Sheet

	At 30 June 2023  £'000	At 30 June 2022 £'000
Non current assets
Investments held at fair value through profit or loss	835,744	725,441
	------------	-----------
Current assets
Receivables	7,323	6,986
Cash and cash equivalents	2	11
	------------	----------
	7,325	6,997
	------------	-----------
Total assets	843,069	732,438
	-------------	-----------
Current liabilities
Payables	(10,411)	(11,155)
Bank overdrafts	(94,016)	(68,819)
	------------	------------
	(104,427)	(79,974)
	------------	------------
Net assets	738,642	652,464
	=======	=======
Equity attributable to equity shareholders
Called up share capital	6,264	6,264
Share premium account	120,364	120,364
Capital redemption reserve	13,964	13,964
Retained earnings:
Other capital reserves	564,880	481,409
Revenue reserve	33,170	30,463
	------------	------------
Total equity	738,642	652,464
	=======	=======
Net asset value per ordinary share - basic and diluted	184.26p	162.76p
	=======	=======

Cash Flow Statement

	Year ended 30 June 2023  £'000	Year ended 30 June 2022  £'000
Operating activities
Profit/(loss) before taxation	106,472	(171,980)
Add back: interest payable	2,977	969
(Less)/add back: (Gains)/losses on investments held at fair value through profit or loss	(96,206)	185,662
Sales of investments held at fair value through profit or loss	274,632	317,888
Purchases of investments held at fair value through profit or loss	(290,536)	(295,427)
Withholding tax on dividends deducted at source	(3,510)	(3,691)
Increase in prepayments and accrued income	(881)	(320)
Decrease/(increase) in amounts due from brokers	1,215	(2,462)
(Decrease)/increase in accruals and deferred income	(451)	2,910
(Decrease)/increase in amounts due to brokers	(636)	1,100
	-----------	----------
Net cash (outflow)/inflow from operating activities before interest and taxation1	(6,924)	34,649
	-----------	----------
Interest paid	(2,618)	(969)
Taxation recovered	749	167
	-----------	----------
Net cash (outflow)/inflow from operating activities	(8,793)	33,847
	-----------	----------
Financing activities
Equity dividends paid (net of refund of unclaimed dividends)	(18,220)	(13,429)
Costs relating to sub-division of shares	-	(62)
Net drawndown/(repayment) of bank overdraft	27,004	(20,345)
	-----------	-----------
Net cash raised/(used in) financing activities	8,784	(33,836)
	-----------	-----------
(Decrease)/increase in cash and cash equivalents	(9)	11
Cash and cash equivalents at the start of the year	11	-
	-----------	----------
Cash and cash equivalents at the end of the year	2	11
Comprising:
Cash at bank	2	11
	-----------	----------
	2	11
	======	======
1.     In accordance with IAS7.31 cash inflow from dividends was £24,157,000 (2022: £24,892,000) and cash inflow from interest was £3,000 (2022: £nil).

Notes to the Financial Statements 

1.   Accounting policies Basis of preparation The European Smaller Companies Trust PLC is a company incorporated in England and Wales and subject to the provisions of the Companies Act 2006.  The Company is domiciled in the United Kingdom. The Company financial statements for the year ended 30 June 2023 have been prepared in accordance with UK adopted International Accounting Standards. These comprise standards and interpretations approved by the International Accounting Board ('IASB'), together with interpretations of the International Accounting Standards and Standing Interpretations Committee approved by the IFRS Interpretations Committee ('IFRS IC') that remain in effect, to the extent that IFRSs have been adopted by the UK Endorsement Board. The financial statements have been prepared on a going concern basis. They have also been prepared on the historical cost basis, except for the revaluation of certain financial instruments at fair value through profit and loss. The principal accounting policies adopted are set out in the Annual Report 2023. Where presentational guidance set out in the Statement of Recommended Practice ('SORP') for investment companies issued by the Association of Investment Companies ('AIC') in July 2022, is consistent with the requirements of UK adopted International Accounting Standards, the directors have sought to prepare the financial statements on a basis consistent with the recommendations of the SORP. The financial position of the Company is described in the Annual Report 2023, which includes the Company's policies and process for managing its capital; its financial risk management objectives; and details of financial instruments and exposure to credit risk and liquidity risk. In preparing these financial statements the directors have considered the impact of climate change risk and concluded there was no impact as the investments are valued based on market quoted prices.
2.  Management and performance fees
2023 2022 Revenue  return  £'000 Capital  return  £'000 Total  return  £'000 Revenue  return  £'000 Capital  return  £'000 Total  return  £'000 Management fee 776 3,104 3,880 844 3,375 4,219 Performance fee - 7,180 7,180 - 5,531 5,531 --------- --------- --------- -------- -------- -------- Total 776 10,284 11,060 844 8,906 9,750 ===== ===== ===== ===== ===== =====
3.  Return per ordinary share The return per ordinary share figure is based on the net profit for the year of £104,381,000 (2022 loss: £174,712,000) and on the weighted average number of ordinary shares in issue during the year of 400,867,176 (2022: 400,867,176). The return per ordinary share figure detailed above can be further analysed between revenue and capital, as below. The Company has no securities in issue that could dilute the return per ordinary share. Therefore the basic and diluted return per ordinary share are the same.
	2023 £'000		2022 £'000
Net revenue profit	20,927		20,703
Net capital (loss)/profit	83,454		(195,415)
	------------		------------
Net profit/(loss)	104,381		(174,712)
	=======		=======
Weighted average number of ordinary shares in issue during the year	400,867,175		400,867,176
	2023 Pence		2022 Pence
Revenue return per ordinary share	5.22		5.16
Capital return per ordinary share	20.82		(48.75)
	-----------		-----------
Total return per ordinary share	26.04		(43.59)
	======		======
4.  Net asset value per ordinary share The NAV per ordinary share is based on the net assets attributable to the ordinary shares of £738,642,000 (2022: £652,464,000) and on the 400,867,176 ordinary shares in issue at 30 June 2023 (2022: 400,867,176). The Company has no securities in issue that could dilute the NAV per ordinary share (2022: same). The NAV per ordinary share at 30 June 2023 was 184.26p (2022: 162.76p).
The movements during the year in assets attributable to the ordinary shares were as follows:
	2023 £'000	2022 £'000
Net assets attributable to ordinary shares at start of year	652,464	840,667
Profit/for the year	104,381	(174,712)
Dividends paid in the year	(18,220)	(13,429)
Costs relating to sub-division of shares	17	(62)
	------------	------------
Net assets at 30 June	738,642	652,464
	=======	=======
5.  Dividends 2023 £'000 2022 £'000 Amounts recognised as distributions to equity holders in the year: Final dividend of 3.10p for the year ended 30 June 2022 (2021: 2.10p) 12,427  8,418 Interim dividend of 1.45p per ordinary share for the year ended 30 June 2023 (2022: 1.25p) 5,812  5,011 Unclaimed dividends from prior years (19) - --------- --------- 18,220 13,429 ===== ===== The final dividend of 3.10p per ordinary share in respect of the year ended 30 June 2022 was paid on 2 December 2022 to shareholders on the Register of Members at the close of business on 21 October 2022. The total dividend paid amounted to £12,427,000. Subject to approval at the annual general meeting in November 2023, the proposed final dividend of 3.25p per ordinary share will be paid on 1 December 2023 to shareholders on the Register of Members at the close of business on 3 November 2023. The shares will be quoted ex-dividend on 2 November 2023. The proposed final dividend for the year ended 30 June 2023 has not been included as a liability in these financial statements. Under UK adopted International Accounting Standards, these dividends are not recognised until approved by shareholders. The total dividends payable in respect of the financial year which form the basis of the test under s.1158 are set out below:
2023 £'000 2022 £'000 Revenue available for distribution by way of dividends for the year 20,927  20,703 Interim dividend of 1.45p per ordinary share for the year ended 30 June 2023 (2022: 1.25p) (5,812) (5,011) Proposed final dividend of 3.25p per ordinary share for the year ended 30 June 2023 (2022: 3.10p) (based on 400,867,176 shares in issue at 9 October 2023) (13,028) (12,427) ---------- ---------- Transfer to Revenue reserve  2,087  3,265 ====== ======
The Company's undistributed revenue represents 8.3% (2022: 12.9%) of total income.
6.  Called up share capital 2023 2022 number of shares £'000 number of shares £'000 Allotted, issued and fully paid ordinary shares of 1.5625p 400,867,176 6,264 400,867,176 6,264 During the year no ordinary shares were issued (2022: no shares issued) for proceeds of £nil (2022: £nil). In the current year to date and prior financial year, the Company has not repurchased any shares for cancellation.
7.  2023 Financial information The figures and financial information for the year ended 30 June 2023 are extracted from the Company's annual financial statements for that period and do not constitute statutory accounts. The Company's annual financial statements for the year to 30 June 2023 have been audited but have not yet been delivered to the Registrar of Companies. The Independent Auditors' Report on the 2023 annual financial statements was unqualified, did not include a reference to any matter to which the auditors drew attention without qualifying the report, and did not contain any statements under Sections 498(2) or 498(3) of the Companies Act 2006. 8. 2022 Financial information The figures and financial information for the year ended 30 June 2022 are compiled from an extract of the published financial statements for that year and do not constitute statutory accounts. Those financial statements have been delivered to the Registrar of Companies and included the Independent Auditor's Report which was unqualified, did not include a reference to any matter to which the auditors drew attention without qualifying the report, and did not contain any statements under Sections 498(2) or 498(3) of the Companies Act 2006.
9. Annual Report The annual report will be posted to shareholders in October 2023.  A video of the Fund Manager discussing the financial results will shortly be available on the Company's website, www.europeansmallercompaniestrust.com    along with the annual report.
10. Annual General Meeting The annual general meeting will be held on Monday 27 November 2023 at 12.30pm at 201 Bishopsgate, London, EC2M 3AE. The Notice of Meeting will be sent to shareholders with the annual report.
11. General information Company Status The European Smaller Companies Trust PLC is registered in England and Wales, no. 2520734, has its registered office at 201 Bishopsgate, London EC2M 3AE and is listed on the London Stock Exchange.  SEDOL/ISIN:  BMCF868/GB00BMCF8689 London Stock Exchange (TIDM) code:  ESCT Global Intermediary Identification Number (GIIN):  JX9KYH.99999.SL.826 Legal Entity Identifier (LEI):  213800N1B1HCQG2W4V90 Directors and Secretary The directors of the Company are Christopher Casey (Chairman), Daniel Burgess (Chairman of the Audit Committee), Ann Grevelius, and Simona Heidempergher.  On 9 October 2023, the Company announced the appointment of James Williams as a director with effect from 1 November 2023. The Corporate Secretary is Janus Henderson Secretarial Services UK Limited. Website Details of the Company's share price and net asset value, together with general information about the Company, monthly factsheets and data, copies of announcements, reports and details of general meetings can be found at www.europeansmallercompaniestrust.com.

For further information please contact:
Ollie Beckett Fund Manager The European Smaller Companies Trust PLC Telephone: [phone]
Dan Howe Head of Investment Trusts Janus Henderson Investors Telephone: [phone]	Harriet Hall PR Manager Janus Henderson Investors Telephone: [phone]
Neither the contents of the Company's website nor the contents of any website accessible from hyperlinks on the Company's website (or any other website) is incorporated into, or forms part of, this announcement.

 

END