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1. Montanaro European Smaller Companies TrustQ4 2013 www.montanaro.co.uk enquiries@montanaro.co.uk Tel: +44 (0)20 7448 8600

2. Performance since Montanaro were appointed Source: Montanaro, MSCI, FTSE. * Effective June 1st 2009 the index used for comparison purposes is the MSCI European Smaller Companies Index ex-UK. The performance history prior to June 1st 2009 was the MSCI European Smaller Companies Index. Note: The FTSE Eurotop 100 index includes the UK, which differs from the benchmark which became ex-UK on 1 June 2009.

3. Who are Montanaro? • Leading specialists in long-only European SmallCap • Established in London in 1991 → 22-year track record • Founded by Charles Montanaro • Independent – privately-owned • We manage over €2bn in SmallCap: • €1bn in UK SmallCap • €1.2bn in Continental SmallCap • We are told we have the largest SmallCap team in Europe Source: Montanaro.

4. A truly pan-European Team with eight different nationalities Head of Systems Mark Petar INVESTMENT Committee: Charles Montanaro (Chairman) Cedric Durant des Aulnois Anna Lundén Veikko Valli Head of Research ** RISK Committee: Matthew Francis (Chairman) Cedric Durant des Aulnois John Ensor Bill Jiang Charles Montanaro Chief Executive Officer Lead Fund Manager Head of Business Development Cedric Durant des Aulnois Head of Investments Anna Lundén Head of Risk Management & Admin. Matthew Francis Compliance Officer [Anders Jegers] ** Head of Research David Lindley Analyst/Fund Manager Andrea Shen Senior Analyst Veikko Valli Fund Manager/Senior Analyst Christian Albuisson Head of Client Relationship Management Henrik Schmidt Client Relations Manager Sarah Bridges Compliance / ESG Executive Gareth Bateman Fund Administration Supervisor Parm Kamboh Fund Administrator Richard Cromarty Fund Administrator Nere Asumendi Analyst/Fund Manager George Cooke Analyst/Fund Manager Stefan Fischerfeier Analyst/Fund Manager Raj Jilka Analyst/Fund Manager Jack Stonehouse * Analyst Tom Norman-Butler Client Relations Manager Bill Richards Client Relations Manager Bill Jiang Risk Analyst John Ensor Client Reporting / Administration Manager Rachel Camfield Client Reporting Executive Eleanor Phelan Office Manager/PA Gillian Edwardes-Ker Accountant Lowri Brown Client Relations Assistant 10 Analysts / 8 Fund Managers * Started January 2014 ** Anders left on 31 December 2013; will be replaced Source: Montanaro.

5. Our Team

6. Our investors are primarily based in Europe By Geography: 14% 9% By Type: 33% 27% 10% 16% Source: Montanaro.Data as at 31/12/2013.

7. AEGON UK (Kames Capital) AXA Azimut (Italy) British Airways Pension Fund British Steel Pension Fund Church Commissioners for England Delta Lloyd Bank (Belgium) Derbyshire Pension Fund Devon County Council East Riding Pension Fund Fidelity Fonds de Réserve pour les Retraites (FRR) Generali (France) Henderson Asset Management HSBC J.O. Hambro Investment Management JP Morgan Asset Management Jupiter Fund Managers Kåpan Pension Fund (Sweden) KBL European Private Bankers (Luxembourg) Kempen (Netherlands) Lombard Odier (Switzerland) Newton Investment Management OFI Asset Management (France) Pohjola Asset Management (Finland) Quilter Cheviot Reliance Mutual Insurance Society Royal London Asset Management Skandia (Sweden) South Yorkshire Pension Fund Stefnir (Iceland) UBS Global Asset Management University of London West Yorkshire Pension Fund Our clients are leading, global financial institutions Source: Montanaro.

8. Our Funds Source: Montanaro.

9. Why invest in Continental European SmallCap? Higher returns– the “SmallCap Effect”: UK SmallCap v. LargeCap*: +3.5% p.a. (1955 - 2013) Absolute returns: +15.5% p.a. EUROPE SmallCap v. LargeCap**: +7% p.a. (2000 - 2013) Huge choice: ~4,000 quoted companies - many global market leaders Under researched: LargeCap = passive management SmallCap = active management - opportunity to add value Better access to management: more dynamic / more entrepreneurial / faster growing companies Source: Montanaro, Numis. * UK Returns: Numis Smaller Companies Index v. FTSE All Share ** European Returns: MSCI Europe SmallCap v. FTSE Eurotop 100.

10. SmallCap is under-researched (our focus is €100m - €3bn) Source: Montanaro, Factset. Data as of 31/12/13.

11. The European “SmallCap Effect” has been over 7% p.a. since 2000 +5.1% p.a. +7.5% p.a. -2.4% p.a. Source: Montanaro, Bloomberg.

12. Our investment philosophy Invest in businesses: ‘Buy a business, don’t rent stocks.’(W. Buffett) Be mindful of your circle of competence: 'Never invest in a business you cannot understand.’ (W. Buffett) Invest for the long term: ‘Our favorite holding period is forever.’ (W. Buffett) Buy profitable businesses: ‘Buy companies with strong histories of profitability and with a dominant business franchise.’ (W. Buffett) Avoid recovery stocks / special situations: ‘Turnarounds seldom turn.’ (W. Buffett)

13. … is to keep it simple Never compromise on quality: ‘It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price’ (W. Buffett) Avoid the disasters: ‘An investor needs to do very few things right as long as he or she avoids big mistakes’(W. Buffett) Do the work yourself: “I never talk to brokers or analysts. Wall Street is the only place that people who ride to work in a Rolls Royce get advice from those who take the subway.” (W. Buffett) Back strong management teams: “In SmallCap, management makes or breaks a business. The key to successful investment in SmallCap is management, management, management." (Montanaro).

14. We invest in the best - “Blue Chip” SmallCap • Simple businesses we can understand: • focused, good order visibility, in control of own destiny, in our “circle of competence” • Niche businesses in growth markets: • non-cyclical, organic self-funded growth, long-term franchises • Market leaders: • strong market position, pricing power, high intellectual property, USPs • Companies with high operating margins: • high barriers to entry, sustainable competitive advantage • Profitable companies • Good management we trust: • experienced, high insider ownership, open, sound corporate governance & Board structure Source: Montanaro.

15. We have a disciplined investment process Stage 1: QUALITATIVE (Identify good businesses) New Ideas Screens Best-in-Class Reviews Client/company meetings • Mini-checklist Fundamentals Assessment of the company, ESG/SRI and its industry:  Full Checklists Valuation Discipline  Maximum P/E  Consensus Review Added to Approved List (c.200 Companies)  Stage 2: QUANTITATIVE (Value the business) Meetings Regular/on-site Well prepared Valuation 1. DCF 2. DDM 3. EVA 4. Peer Group Valuation 1. DCF 2. DDM 3. EVA 4. Peer Group Price Target & Rating Investment Only from Approved List “Best in Class”   Source: Montanaro.

16. The Checklist is at the heart of our investment process Source: Montanaro

17. All companies on our Approved List have a 3-pillar rating 1 2 3 QUALITY Rating Is it a good Company? VALUATION Rating Is it attractively valued? RISK Rating How risky are the shares?* A Checklist ≥ 66 1 O/P v. Market > +15% 1 20% Lowest Risk of the Approved List B Checklist ≥ 60 2 O/P v. Market > +5% 2 PASS C Checklist ≥ 55 3 +/- 5 % v. Market 3 FAIL D Checklist < 55 4 U/P v. Market < - 5% 4 5 U/P v. Market < - 15% 5 Top 20% Highest Risk of the Approved List Source: Montanaro.* The Risk Rating represents Liquidity Risk and share Price Volatility/Drawdown Risk.

18. We travel around the world to engage with our companies in situ Germany Fuchs , Rational, Pfeiffer Vacuum, Wasag, Wincor Nixdorf, Mobotix, Sartorius, GfK, Delticom, Carl Zeiss, KWS, Stratec, Bertrandt Netherlands Vopak Belgium Van de Velde, Sipef Sweden Hufvudstaden, Avanza, Axis Communications, Elekta, Hoganas, AF Group, Hexpol, Loomis 35 Site Visits in 2013 Norway TGS Nopec Russia Nokian Renkaat Finland Vacon Denmark Chr. Hansen, Novozymes UK Genus, Domino Printing, Shaftesbury, Dignity, Chemring, Booker, Albemarle & Bond, Domino’s Pizza, Ultra Elec., Oxford Instr., Cineworld, Hampson, Helical Bar, Brooks MacDonald, James Halstead, Fenner, Victrex, Rotork, Renishaw, NCC, Brammer, Rightmove, Carclo, A.G.Barr, Telecity, Fenner, Spirax, MP Evans, Consort Medical, NW Brown, Ted Baker, Dunelm, Devro, Games Workshop, Dechra, Marshalls, Entertainment one Czech Republic Devro China Fenner, Elringklinger, Konecranes, Outotec, Vacon Brazil Ocean Wilsons, Genus, James Fisher, Prosegur Spain Viscofan, Prosegur, Bolsas y Medcados Espanoles France Virbac, Stallergenes, Euler-Hermes, SILIC Greece Frigoglass, Jumbo Italy Diasorin, Brembo, Yoox Austria Kapsch Trafficom Switzerland LEM, Temenos, Newave, Belimo Indonesia MP Evans Source: Montanaro / Note: The site visits shown above have taken place in recent years; Montanaro does not have investments in all the companies listed

19. The Montanaro European Smaller Companies Trust Source: Montanaro, Morningstar (Rating as at presentation date).

20. The Board determines buy back policy • Andrew Irvine (Chairman): • Jones Lang LaSalle (Scotland), British & Irish Lions, Securities Trust of Scotland, Fidelity Special Values • Bruce Graham: • former Partner at PricewaterhouseCoopers • Alex Hammond-Chambers: • Hansa Trust, International Biotechnology Trust • Richard Martin: • former CIO T Bailey Asset Management, F&C Managed Portfolio Trust, Invesco Perpetual Aim VCT, Aurora IT • Merryn Somerset Webb: • Editor-in-Chief of MoneyWeek, columnist for the Financial Times • Board decisions (in consultation with the Manager): • level of gearing • Treasury shares / buy back policy and implementation

21. Structuring the portfolio Well-diversified: 40 – 60 holdings max. 10% in any one company (across all funds) top-slice at 4% Liquidity closely monitored: smaller investments in less liquid companies initial holding 1% - 2.5% of portfolio Country / Sector weightings: max 10% + / - relative to the index Source: Montanaro.

22. Top 20 holdings Source: Montanaro.

23. Sectors – overweight industrials (no banks) Source: Montanaro, MSCI, Bloomberg. Based on GICS classification.

24. Countries – a focus on Northern Europe for higher quality Source: Montanaro, MSCI, Bloomberg.

25. Our companies sell all around the world WESTERN EUROPE inc UK = 56% REST OF THE WORLD = 44% Source: Montanaro.

26. Breakdown by size Source: Montanaro, MSCI, Bloomberg.

27. A high quality portfolio Source: Montanaro, Factset, Bloomberg. Note: PE & EPS growth figures are calculated excluding loss-makers. * All risk statistics over three years, monthly data.

28. Consensus EPS growth figures are too positive for the index Source: Montanaro, Factset.Note: EPS growth figures are calculated excluding loss-makers.* Figures are based on the MSCI Europe SmallCap Index prior to 2009, in line with the Trust’s benchmark at the time.

29. … whereas our companies deliver (i.e. pay more for “certainty”) Source: Montanaro, Factset.Note: EPS growth figures are calculated excluding loss-makers. * Figures are based on the MSCI Europe SmallCap Index prior to 2009, in line with the Trust’s benchmark at the time.

30. Holding Sold Relative performance attribution – Q4 2013 Source: Montanaro, Factset

31. Holding Sold Relative performance attribution – 12 Months Source: Montanaro, Factset.

32. Performance Source: Montanaro.

33. Outperformance of 2.1% p.a. ** Source: Montanaro, MSCI, FTSE. * Effective June 1st 2009 the index used for comparison purposes is the MSCI European Smaller Companies Index ex-UK. The benchmark history for the European Trust prior to June 1st 2009 was the MSCI European Smaller Companies Index. Note: The FTSE Eurotop 100 index includes the UK, which differs from the benchmark which became ex-UK on 1 June 2009.

34. Why did we underperform in 2013? • “Quality Growth” has underperformed for 18 months (from June 2012): • we have seen this twice before (2003 and 2009) • investors enjoyed strong absolute returns during both years • The reasons are clear: • style rotation: from Growth to Value, High Quality to Low Quality, Low to High Beta • countries & sectors: from Emerging Market exporters to domestic (consumer) stocks • Our core holdings have not suddenly become “bad” businesses – no disasters! • What we are NOT doing: • changing our focus on “Quality Growth” • changing our Investment Process Source: Montanaro.

35. Benchmark Returns by Country & Sector – 12 Months Source: Montanaro, FactSet.Returns based on the MSCI Europe SmallCap Index in EUR // Sectors are based on the ICB Level 1 Classification.

36. The outperformance of SmallCap Value v. Growth may be over soon Value outperformed by 17% over 13 months Value outperformed by 19% since May 2012 (18 months) The end of the Value run? Source: Montanaro, Bloomberg.

37. Quality European SmallCap has underperformed by 29% since May 2012 Montanaro European SmallCap Quality Indices (EUR indices, rebased) +68% LOW QUALITY outperf. by 29% since May 2012 +39% Source: Montanaro, Bloomberg.

38. Gains in 2013 came from P/E expansion rather than EPS Growth Source: Montanaro, Numis.

39. Quality Growth is now attractive again Source: Montanaro, Bloomberg, MSCI.

40. Fiscal year returns Source: Montanaro.

41. We have outperformed in 6 out of 7 fiscal years Source: Montanaro, MSCI.* Effective June 1st 2009 the index used for comparison purposes is the MSCI European Smaller Companies Index ex-UK. The benchmark history for the European Trust prior to June 1st 2009 was the MSCI European Smaller Companies Index.

42. Performance since Montanaro were appointed Source: Montanaro, MSCI, FTSE. * Effective June 1st 2009 the index used for comparison purposes is the MSCI European Smaller Companies Index ex-UK. The performance history prior to June 1st 2009 was the MSCI European Smaller Companies Index. Note: The FTSE Eurotop 100 index includes the UK, which differs from the benchmark which became ex-UK on 1 June 2009.

43. Low discount volatility Source: Montanaro, Bloomberg, Cenkos.

44. The Trust typically has a low beta Source: Montanaro, Bloomberg. 3 year trailing monthly returns.* Effective June 1st 2009 the index used for comparison purposes is the MSCI European Smaller Companies Index ex-UK. The benchmark history for the European Trust prior to June 1st 2009 was the MSCI European Smaller Companies Index.

45. Strategy Little to do on the Portfolio: keep a more balanced portfolio number of holdings to remain stable at c.50 Strong focus on Research & meeting companies: no change to core investment process and quality focus many site visits more internal work on cash flow based valuation Source: Montanaro.

46. The Montanaro European Smaller Companies Trust • Montanaro has over 20 years of experience investing in SmallCap • Strong and consistent returns: • +7.2% p.a. (net of fees) since inception in 2006 * • alpha of +2.1% p.a. ** • outperformance in 6 out of 7 years (but not this year) • Focus on “Quality Growth” • A strong Board: • active share buyback policy Source: Montanaro. * Montanaro were appointed managers to the Trust in 2006. ** Effective June 1st 2009 the index used for comparison purposes is the MSCI European Smaller Companies Index ex-UK. The benchmark history for the European Trust prior to June 1st 2009 was the MSCI European Smaller Companies Index.

47. Outlook The Bull Market has further to run: market not yet at “euphoria” stage expect acceleration of inflows into equities in 2014; out of bonds SmallCap outperforms in Bull Markets * But expect a more “normal” year for equity returns: 10% - 14% returns in European SmallCap led by EPS growth A market correction of 5% - 10% in H1 would be healthy and is overdue The Value rally may be losing steam – finally back to Growth in 2014? “Quality Growth” style now attractively valued again back to fundamentals – good for stock pickers Source: Montanaro. * Based on a Montanaro analysis that shows that SmallCap in the UK has historically outperformed LargeCap by 8% p.a. (using data for the Numis Smaller Companies index and the FTSE All Share index over the 1954 – 2013 period)

48. Disclaimer Important Notice This document is issued by Montanaro Asset Management Limited (“MAM”) for distribution only to persons of the kind described in Article 11(3) of the Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order 1995, or of a kind to whom this document may otherwise lawfully be issued or passed on. It may not be copied or distributed or otherwise made available to any recipient without the express written consent of MAM. The document is neither a prospectus, nor listing particulars, nor an offer or invitation to subscribe for, underwrite or purchase securities. The information contained in this memorandum is for background purposes only, is not to be relied upon by any recipient, and is subject to material updating, revision and amendment and no representation or warranty, express or implied, is made, and no liability whatsoever is accepted in relation thereto. This memorandum does not constitute investment advice. References to the outlook for markets are intended simply to help investors with their thinking about markets and the multiple possible outcomes. Investors should always consult their advisers before investing. All data contained herein have MAM as its source unless otherwise stated. All data contained herein is at the date specified at the top of the page unless stated otherwise. All performance data have been calculated by MAM. Performance Attribution data in particular should be treated as indicative rather than definitive. Past performance is not necessarily a guide to future performance. The value of securities may go down as well as up. Foreign exchange exposure may increase the volatility of returns. The value of securities may go down as well as up. As the discount or premium to which the investment trust shares trade relative to the NAV per share may vary significantly, the shorter term share price movements of the listed investment trust shares may not reflect the shorter term underlying investment performance in terms of NAV per share. The Board of Directors of the investment trust has authorised the Investment Manager to use bank borrowings, allowing increased portfolio investment, and therefore potentially to leverage the overall portfolio. This gearing as well as foreign exchange exposure may increase the volatility of returns. MAM is authorised and regulated by the Financial Conduct Authority (“FCA”).