Interim Results

Montanaro European Smaller C.TstPLC
08 November 2007



MONTANARO EUROPEAN SMALLER COMPANIES TRUST PLC



Date: 08 November 2007



HALF YEARLY FINANCIAL REPORT FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2007



Investment Objective



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





Financial Highlights



•     Net Asset Value ('NAV') +2.3% (£76.2 million)

•     Benchmark index -4.7%

•     Total assets +7.5% (£91.2 million)

•     Share price +3.2%





INTERIM MANAGEMENT REPORT



'The Company made further good progress during the period under review, with a
rise in the net asset value, outperformance of the benchmark index and a stable
discount level.'



Performance

Over the six month period ended 30 September 2007, the Company's net asset value
('NAV') increased by 2.3% to 436.49 pence per share.  This represents a
significant outperformance of 7.0% over the benchmark index, the MSCI Europe
Small Cap Index, which decreased by 4.7%.  The share price increased by 3.2% to
417.0 pence per share.



Economic indicators in Europe continued to be strong during the period under
review.  GDP growth in Continental Europe remains higher than in the US and
unemployment is low.  Inflation would not appear to be a major threat to growth
prospects although the European Central Bank increased interest rates to 3.75%
in March 2007 and rates in the UK were increased to 5.75% in July.  Further
increases are possible as the consumer, in particular in the UK, continues to
show a propensity to spend.



In the summer months, increasing concerns over the US sub-prime debt market
caused panic in credit markets and a sharp increase in stock market volatility.
It is already clear that the liquidity crisis which followed is likely to have
an adverse effect on growth forecasts.  The MSCI Europe Small Cap Index fell by
13.8% between 1 June and 16 August 2007 and, although there was a certain
inevitability of some sort of market correction following a long period of
relaxation in lending standards and a mispricing of risk, the full impact of the
problem may not be known for some time. Uncertainty and volatility in financial
markets are therefore likely to continue until confidence returns.



Discount Management Policy

As shareholders will be aware, the Board has stated its intention to apply an
active discount management policy, buying back shares if the market price is at
a discount greater than 5% to the NAV per share for a sustained period.  This
policy came into effect following approval by shareholders of the change of
investment objective in September 2006.  The discount as at 30 September 2007
was 4.5%.



The making and timing of any share buy backs will be at the absolute discretion
of the Board. No shares were bought back during the period.



Dividends

Revenue earnings per Ordinary Share were 3.04 pence per Ordinary Share in
respect of the six months ended 30 September 2007 (2006: 2.31 pence).  The Board
has declared an interim dividend of 1.75 pence per Ordinary Share, payable on 11
January 2008 to shareholders on the register on 14 December 2007.



Gearing

Following the maturity of the Company's previous loan facility during the
period, a new €22.2 million (sterling equivalent £15.5 million) revolving credit
facility was put in place.  The amount drawn down as at 30 September 2007 was
€19.8 million (sterling equivalent £13.9 million).



Gearing increased during the period. Net of cash, as at 30 September 2007,
gearing was 16.7% which compares with 5.2% as at 31 March 2007.



VAT on Investment Management Fees

The European Court of Justice ruling in June 2007, that investment trusts should
be regarded as special investment funds, has recently been accepted in principle
by H M Revenue & Customs. As a result of this decision, investment management
fees paid by the Company will not be subject to VAT although a number of legal
and procedural matters remain to be resolved. In addition, there is a
probability that the Company will be able to recover at least some of the VAT
paid in the past on investment management fees.



Outlook

Until the full impact of the liquidity crisis is known, it is likely that there
will be a continuing high level of volatility in financial markets with
potential adverse effects on economic growth forecasts.  Europe will not be
immune from these issues.  In addition, continuing inflationary pressures may
lead to further interest rate rises. However, it is worth highlighting that the
portfolio has minimal exposure to property, financials and high-end consumer
sectors.



Against these downside risks, the economic and corporate fundamentals in Europe
remain strong.  Consumer confidence is high, company balance sheets are
generally robust with companies continuing to report strong earnings. Smaller
company stock market valuations are at historically low levels.  The focus of
the Manager will continue to be on smaller companies across Europe with good
growth prospects and strong balance sheets.



The Board continues to believe that the Company is well placed within the
investment trust market, offering investors the opportunity to invest in a well
managed portfolio of shares in Pan-European quoted smaller companies at an
attractive time.



A R Irvine

Chairman








Condensed Unaudited Group Balance Sheet


                                                                 As at 30         As at 30      As at 31
                                                           September 2007   September 2006    March 2007
                                                                    £'000            £'000         £'000

Non-current assets
Investments held at fair value                                     88,851           54,156        78,306
                                                                  _______          _______       _______

Current assets
Due from brokers                                                        -            2,790           178
Other receivables                                                      51               66           198
Cash and cash equivalents                                           2,315           11,280         6,152
                                                                  _______          _______       _______

                                                                    2,366           14,136         6,528
                                                                  _______          _______       _______

Total assets                                                       91,217           68,292        84,834
                                                                  _______          _______       _______

Current liabilities
Revolving credit facility                                        (13,851)          (6,000)      (10,074)
Due to brokers                                                          -            (436)             -
Other payables                                                    (1,206)            (506)         (313)
                                                                  _______          _______       _______

Total liabilities                                                (15,057)          (6,942)      (10,387)
                                                                  _______          _______       _______

Net assets                                                         76,160           61,350        74,447
                                                                  _______          _______       _______

Capital and reserves
Called-up share capital                                             8,724            8,724         8,724
Share premium account                                               3,935            3,935         3,935
Capital redemption reserve                                          2,212            2,212         2,212
Capital reserve - realised                                         45,582           30,521        44,552
                - unrealised                                       13,761           14,366        13,215
Revenue reserve                                                     1,946            1,592         1,809
                                                                  _______          _______       _______

Shareholders' funds                                                76,160           61,350        74,447
                                                                  _______          _______       _______

Net asset value per share                                         436.49p          351.61p       426.67p
                                                                  _______          _______       _______





Unaudited Statement of Changes in Equity



                                     Share     Share      Capital     Capital      Capital     Revenue    Total
                                   Capital   Premium   Redemption     Reserve      Reserve     Reserve
                                             Account      Reserve    Realised   Unrealised
                                     £'000     £'000        £'000       £'000        £'000       £'000    £'000

For the six months ended 30 September 2007

Balance as at 1 April 2007           8,724     3,935        2,212      44,552       13,215       1,809   74,447
Net gain on realisation of               -         -            -       2,262            -           -    2,262
investments
Increase in unrealised                   -         -            -           -          948           -      948
appreciation
Currency gains/(losses)                  -         -            -          81        (402)           -    (321)
Management fee charged to capital        -         -            -     (1,140)            -           -  (1,140)
Interest charged to capital              -         -            -       (173)            -           -    (173)
Retained net revenue for the             -         -            -           -            -         530      530
period
Dividends paid                           -         -            -           -            -       (393)    (393)
                                     _____    ______       ______      ______       ______      ______   ______
Balance as at 30 September 2007      8,724     3,935        2,212      45,582       13,761       1,946   76,160
                                     _____    ______       ______      ______       ______      ______   ______

For the six months ended 30 September 2006

Balance as at 1 April 2006           8,724     3,935        2,212      25,458       21,272       1,582   63,183
Net gain on realisation of               -         -            -       5,522            -           -    5,522
investments
Decrease in unrealised                   -         -            -           -      (6,906)           -  (6,906)
appreciation
Currency gains                           -         -            -          62            -           -       62
Management fee charged to capital        -         -            -       (174)            -           -    (174)
Interest charged to capital              -         -            -       (104)            -           -    (104)
Other expenses charged to capital        -         -            -       (243)            -           -    (243)
Retained net revenue for the             -         -            -           -            -         403      403
period
Dividends paid                           -         -            -           -            -       (393)    (393)
                                     _____    ______       ______      ______       ______      ______   ______
Balance as at 30 September 2006      8,724     3,935        2,212      30,521       14,366       1,592   61,350
                                     _____    ______       ______      ______       ______      ______   ______

For the year ended 31 March 2007

Balance as at 1 April 2006           8,724     3,935        2,212      25,458       21,272       1,582   63,183
Net gain on realisation of               -         -            -      19,615            -           -   19,615
investments
Decrease in unrealised                   -         -            -           -      (7,983)           -  (7,983)
appreciation
Currency gains/(losses)                  -         -            -         219         (74)           -      145
Management fee charged to capital        -         -            -       (271)            -           -    (271)
Interest charged to capital              -         -            -       (228)            -           -    (228)
Other expenses charged to capital        -         -            -       (241)            -           -    (241)
Retained net revenue for the year        -         -            -           -            -         925      925
Dividends paid                           -         -            -           -            -       (698)    (698)
                                     _____    ______       ______      ______       ______      ______   ______
Balance as at 31 March 2007          8,724     3,935        2,212      44,552       13,215       1,809   74,447
                                     _____    ______       ______      ______       ______      ______   ______




Condensed Unaudited Group Income Statement


                                                                     Six Months to 30 September 2007

                                                                     Revenue        Capital          Total
                                                                       £'000          £'000          £'000
Income
Investment income                                                      1,089              -          1,089
Other operating income                                                    87              -             87
                                                                      ______         ______         ______
                                                                       1,176              -          1,176

Gains on investments held at fair value                                    -          3,210          3,210
Exchange differences                                                       -          (321)          (321)
                                                                      ______         ______         ______
Total income                                                           1,176          2,889          4,065

Expenses
Investment management fee
Basic                                                                  (153)          (283)          (436)
                                                            
Performance                                                                -          (857)          (857)
                                                                 
Other expenses                                                         (268)              -          (268)
                                                                      ______         ______         ______
Profit before finance costs and tax                                      755          1,749          2,504

Finance costs                                                           (93)          (173)          (266)
                                                                      ______         ______         ______
Net operating profit before tax                                          662          1,576          2,238

Tax                                                                    (132)              -          (132)
                                                                      ______         ______         ______
Net profit                                                               530          1,576          2,106
                                                                      ______         ______         ______

Earnings per share                                                     3.04p          9.03p         12.07p
                                                                      ______         ______         ______




The total column of this statement represents the Group Income Statement,
prepared in accordance with International Financial Reporting Standards
('IFRS ').  The supplementary revenue and capital return columns are both 
prepared under guidance published by the Association of Investment Companies.



All revenue and capital items in the above statement derive from continuing
operations.



No operations were acquired or discontinued during the period.



Condensed Unaudited Group Income Statement


                                                                       Six Months to 30 September 2006

                                                                    Revenue        Capital           Total
                                                                      £'000          £'000           £'000
Income
Investment income                                                       785              -             785
Other operating income                                                  117              -             117
                                                                     ______         ______          ______
                                                                        902              -             902

Losses on investments held at fair value                                  -        (1,384)         (1,384)
Exchange differences                                                      -             62              62
                                                                     ______         ______          ______
Total income                                                            902        (1,322)           (420)

Expenses
Investment management fee
Basic                                                                  (94)          (174)           (268)
Performance                                                               -              -               -
Other expenses                                                        (349)          (243)           (592)
                                                                     ______         ______          ______
Profit before finance costs and tax                                     459        (1,739)         (1,280)

Finance costs                                                          (56)          (104)           (160)
                                                                     ______         ______          ______
Net operating profit before tax

                                                                        403        (1,843)         (1,440)

Tax                                                                       -              -               -
                                                                     ______         ______          ______
Net profit/(loss)                                                       403        (1,843)         (1,440)
                                                                    ______          ______          ______

Earnings per share                                                    2.31p       (10.56)p         (8.25)p
                                                                     ______         ______          ______



Condensed Unaudited Group Income Statement

              
                                                                          Year to 31 March 2007

                                                                  Revenue         Capital           Total
                                                                    £'000           £'000           £'000
Income
Investment income                                                   1,566               -           1,566
Other operating income                                                206               -             206
                                                                   ______          ______          ______
                                                                    1,772               -           1,772

Gains on investments held at fair value                                 -          11,632          11,632
Exchange differences                                                    -             145             145
                                                                   ______          ______          ______
Total income                                                        1,772          11,777          13,549

Expenses
Investment management fee
Basic                                                               (134)           (249)           (383)
Performance                                                             -            (22)            (22)
Other expenses                                                      (570)           (241)           (811)
                                                                   ______          ______          ______
Profit before finance costs and tax                                 1,068          11,265          12,333

Finance costs                                                       (123)           (228)           (351)
                                                                   ______          ______          ______
Net operating profit before tax                                       945          11,037          11,982

Tax                                                                  (20)               -            (20)
                                                                   ______          ______          ______
Net profit                                                            925          11,037          11,962
                                                                   ______          ______          ______

Earnings per share                                                  5.30p          63.26p          68.56p
                                                                   ______          ______          ______


Condensed Unaudited Group Statement of Cash Flows


                                                       Six months to       Six months to             Year to
                                                        30 September        30 September            31 March
                                                                2007                2006                2007
                                                               £'000              £ '000               £'000

Net cash inflow from operating activities                        560                 415                 460
Cash flows from investing activities                         (7,119)               7,513             (1,505)
Cash flows from financing activities                           2,641               (471)               3,217
                                                              ______              ______              ______
                                                             (3,918)               7,457               2,172
Realised currency gains                                           81                  62                 219
                                                              ______              ______              ______

(Decrease)/increase in cash and cash equivalents             (3,837)               7,519               2,391
                                                              ______              ______          ______

Reconciliation of net operating profit/(loss) before finance costs
and tax to net cash flow from operating activities

Net operating profit/(loss) before finance costs               2,504             (1,280)              12,333
and taxation
(Gains)/losses on investments held at fair value             (3,210)               1,384            (11,632)
Interest received                                               (87)                (74)               (175)
Exchange differences                                             321                (62)               (145)
Changes in working capital and other non cash
items
                                                               1,032                 447                  79
                                                              ______              ______              ______
Net cash inflow from operating activities                        560                 415                 460
                                                              ______              ______              ______




Directors' Responsibility Statement in Respect of the Interim Report



We confirm that to the best of our knowledge:



  • the condensed set of financial statements has been prepared in accordance
    with IAS 34 'Interim Financial Reporting', as adopted in the EU;



  • the Interim Management Report includes a fair review of the information
    required by:



(a) DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of
important events that have occurred during the first six months of the financial
year and their impact on the condensed set of financial statements; and a
description of the principal risks and uncertainties for the remaining six
months of the year; and



(b) DTR 4.2.8R of the Disclosure and Transparency Rules, being related party
transactions that have taken place in the first six months of the current
financial year and that have materially affected the financial position or
performance of the Company during that period; and any changes in the related
party transactions described in the last Annual Report that could do so.



By Order of the Board,

F&C INVESTMENT BUSINESS LIMITED

Company Secretary




Notes



1.   The accounting policies adopted in the preparation of the interim
financial statements are consistent with those followed in the preparation of
the annual report and financial statements for the year ended 31 March 2007.



2.   Earnings for the first six months should not be taken as a guide to
the results for the full year.



3.   Earnings per Ordinary Share is based on a weighted average of
17,448,260 Ordinary Shares in issue during the period (year end 31 March 2007:
17,448,260; six months ended 30 September 2006: 17,448,260).



4.   The interim dividend of 1.75 pence per Ordinary Share will be paid on
11 January 2008 to shareholders on the Register on 14 December 2007.



5.   The net asset value per Ordinary Share is based on 17,448,260
Ordinary Shares in issue at the end of the period (31 March 2007: 17,448,260; 30
September 2006: 17,448,260).



6.   The Group results consolidate those of MESCT Securities Limited, a wholly 
owned non-trading subsidiary.



7.   These are not statutory accounts in terms of Section 240 of
the Companies Act 1985 and are unaudited.  The information for the year ended 31
March 2007 has been extracted from the latest published financial statements
which received an unqualified audit report and have been filed with the
Registrar of Companies.  No statutory accounts in respect of any period after 31
March 2007 have been reported on by the Company's Auditor or delivered to the
Registrar of Companies.




For further information contact:



Montanaro Investment Managers Limited : tel. [phone]




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