Interim Management Statement

Montanaro European Smaller C.TstPLC
31 January 2008

Montanaro European Smaller Companies Trust plc



Interim Management Statement



For the Three Month Period From 1 October 2007 to 31 December 2007





Investment Objective



Montanaro European Smaller Companies Trust plc aims to achieve capital growth by
investing principally in European quoted smaller companies.





Performance Summary


                                                     As at                  As at

                                               31 December      30 September 2007

Capital Return                                        2007                                      Movement

Net asset value (000s)                             £72,543                £76,160                  -4.7%
Net asset value per share                           419.4p                 436.5p                  -3.9%
MSCI Europe Small Cap Index

                                                     152.7                  155.9                  -2.1%
Share price                                         370.0p                 417.0p                 -11.3%
Discount                                             11.8%                   4.5%
Net gearing                                          11.7%                  16.7%





                                                     As at                  As at

                                               31 December        31 March   2007

Capital Return                                        2007                                      Movement

Net asset value (000s)                             £72,543                £74,447                  -2.6%
Net asset value per share                           419.4p                 426.7p                  -1.7%
MSCI Europe Small Cap Index

                                                     152.7                  163.5                  -6.6%
Share price                                         370.0p                 404.0p                  -8.4%
Discount                                             11.8%                   5.3%
Net gearing                                          11.7%                   5.2%






Review for the Period



The Company's net asset value per share fell by 3.9% during the three month
period ended 31 December 2007, compared to a decrease of 2.1% in the benchmark
index. For the nine month period ended 31 December 2007 the net asset value per
share fell by 1.7%, compared to a fall of 6.6% in the benchmark.



The final quarter of the year saw a significant increase in risk aversion by
investors in the face of rising concerns about the impact of the credit crunch
on global economic growth. Banks and hedge funds continued to announce large
losses due to write downs of their sub-prime exposure. The result of the
uncertainties and deteriorating investor sentiment saw a flight to liquidity,
causing small companies to underperform the broader market by 11% over the year.
The European SmallCap sector was among the worst performing asset classes in
2007.



In contrast to market perceptions and investor sentiment companies are generally
reporting strong numbers and are upbeat with secure order books. However, as the
economic environment becomes more challenging it is likely that there will be
earnings downgrades from weaker companies across the cyclical sectors in the
coming months. The Manager therefore continues to invest in quality companies
with high margins, solid balance sheets, pricing power and reasonable
valuations.



Within the portfolio, there were strong performances from Genus (UK based animal
genetics company providing services to cattle breeders) which moved to the full
list of the London Stock Exchange; Smit International (Dutch towage and salvage
company) which announced that profits in 2007 would rise by 35%; and Foseco (UK
foundry) which is the subject of a take-over by Cookson.



The weakest performances came from two companies suffering from negative
sentiment to the construction sector: Wavin (Dutch manufacturer of plastic
piping) and YIT (Finnish commercial and residential builder).  In addition, TGS
Nopec, an oil and gas seismic testing company announced a weak quarter as
clients delayed orders.  More-over, its recent take-over of Wavefield has been
contested raising the possibility that it will not go ahead.



Dividend:

An interim dividend of 1.75p per share was paid on 11 January 2008 to
shareholders on the register on 14 December 2007.



Share Buyback:



On 17 December 2007 the company purchased 150,000 of its own ordinary shares, to
be held in treasury, at a price of £3.70 per share, representing a discount of
9.5% to the net asset value.



Top Ten Holdings as at 31 December 2007




                                                                                      Percentage of
                                                                                       total assets


Company                                          Country

Poyry                                            Finland                                        2.9
Smit International                               Netherlands                                    2.7
Frigoglass                                       Greece                                         2.6
Schoeller Bleckmann Oilfield                     Austria                                        2.6
Nokian Renkaat                                   Finland                                        2.4
Sweco                                            Sweden                                         2.4
Genus                                            United Kingdom                                 2.4
Belimo                                           Switzerland                                    2.3
Prosegur Seguridad                               Spain                                          2.3
GFK                                              Germany                                        2.1

Total                                                                                          24.7




Geographical Analysis as at 31 December 2007


                                                                                       Percentage of
                                                                                        total assets


Country

UK                                                                                              17.2
Finland                                                                                         13.8
Sweden                                                                                          11.1
Netherlands                                                                                      8.3
Germany                                                                                          6.9
Greece                                                                                           6.5
France                                                                                           5.7
Austria                                                                                          4.5
Norway                                                                                           4.5
Ireland                                                                                          3.2
Italy                                                                                            2.8
Switzerland                                                                                      2.3
Spain                                                                                            2.3
Belgium                                                                                          2.0
Malta                                                                                            1.2
Czech Republic                                                                                   0.7
Liquidity                                                                                        7.0

Total                                                                                          100.0



Sector Distribution as at 31 December 2007


                                                                                       Percentage of
                                                                                        total assets


Sector

Industrials                                                                                     44.9
Financials                                                                                      10.8
Oil & Gas                                                                                        8.9
Consumer Goods                                                                                   8.9
Health Care                                                                                      7.8
Consumer Services                                                                                5.3
Basic Materials                                                                                  4.5
Technology                                                                                       1.9
Liquidity                                                                                        7.0

Total                                                                                          100.0





Since the end of the period there have been significant stockmarket falls and an
increase in market volatility. The Board is not aware of any other significant
events or transactions which have occurred since 31 December 2007 and the date
of publication of this statement which would have a material impact on the
financial position of the Company.




Daily and Key Information



Further information regarding the Company, including monthly factsheets, can be
found at the Manager's website: www.montanaro.co.uk.



For further information please contact:



Charles Montanaro

Montanaro Investment Managers Limited

Tel: [phone]


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