EAT — European Assets Trust News Story

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European Assets Tst - Annual Results and Quarterly Dividend

European Assets Trust

29/03/2023 07:00

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RNS Number : 5395U European Assets Trust PLC 29 March 2023

EUROPEAN ASSETS TRUST PLC

Audited Statement of Results for the year ended 31 December 2022

LEI: 213800N61H8P3Z4I8726

29 March 2023

European Assets Trust PLC ("EAT" / "the Company") today announces its results
for the year ended 31 December 2022.

Financial Highlights

· The Sterling Net Asset Value per share total return was -28.2%
for the year ended 31 December 2022. This compares to -17.7% for the
benchmark, EMIX Smaller European Companies (ex UK) Index.

· The Sterling Share Price total return was -28.4% for the year
ended 31 December 2022.

· A dividend of 5.80 pence per share has been declared for 2023
(2022: 8.80 pence per share). This is equivalent to 6% of the closing Net
Asset Value per share on 31 December 2022. The 2023 dividend will be paid in
four equal instalments. The first interim dividend of 1.45 pence per share
was paid in January 2023 with further dividends payable in April, July, and
October.

"Europe's valuation metrics continue to look more attractive both in relative
and absolute terms. In a very volatile environment there is the risk that
any pronouncement one day may look imprudent the next. So, while recognising
that risk, we still look forward with a degree of tentative optimism."

Jack Perry CBE

Chairman

Chairman's Statement

Fellow Shareholders

European Assets Trust PLC ("the Company") recorded a Sterling Net Asset Value
("NAV") total return for the year ended 31 December 2022 of -28.2% (2021:
16.3%). This compares to the total return of its benchmark, the EMIX Smaller
European Companies (ex UK) Index, which fell -17.7% (2021: 14.9%) during the
same period. With the discount widening from 4.4% as at 31 December 2021 to
5.1% at the year-end, the Sterling share price total return for the year was
-28.4% (2021: 23.2%).

The year was clearly very challenging. Almost all asset classes, with the
exception of commodities, registered large losses. Global themes of rising
inflation, central bank tightening and recession concerns dominated for much
of the year. In addition, Europe had to contend with a war on its doorstep
exacerbating the already difficult challenges that policy makers faced with
rising prices, declining personal incomes and potential gas shortages in the
region. Thankfully the worst fears of gas rationing hitting European
industrial production were not realised as we entered a mild winter with full
gas storage leading to lower prices and better economic data than expected.
This helped the year end on a much more positive note with Europe leading
global markets higher, perhaps a timely reminder that for long term investors
the most challenging periods can lead to the best opportunities.

So while there are plenty of mitigating economic factors, the Company's poor
relative performance in 2022 is clearly very disappointing. The principal
reason for this underperformance was the dramatic rotation out of quality,
growth stocks, into value areas. This created an unusual market where normally
stable and defensive areas, such as healthcare, led the market down, while
traditionally more volatile and economically sensitive sectors, such as
commodities significantly outperformed. Given our quality, growth philosophy,
this headwind was too much to overcome. We also were hit by having stock
specific exposure to an under-pressure consumer and some 'COVID-19
beneficiaries' that suffered from a normalisation of demand. A more detailed
discussion of performance attribution can be found in the Investment Managers
Review.

Dividend

The level of dividend paid each year is determined in accordance with the
Company's distribution policy. The Company has stated that, barring unforeseen
circumstances, it will pay an annual dividend equivalent to six per cent of
its NAV at the end of the preceding year. As the net asset value per share
of the Company has decreased since 31 December 2021, the dividend has also
decreased from 8.80 pence per share in 2022 to 5.80 pence per share in 2023.

While this is unwelcome, it is worth highlighting that the Company's
distribution policy offers Shareholders the opportunity of both growth and a
high yield from an asset class that comprises some of Europe's most dynamic
companies that have significant long-term potential.

This 2023 dividend of 5.80 pence per share is payable in four equal
instalments of 1.45 pence on 31 January, 28 April, 31 July and 31 October
2023.

A dividend of 1.45 pence per share will be paid on 28 April 2023 to
Shareholders on the register on 11 April 2023 with ex-dividend date of 6 April
2023.

Ownership of the Manager

On 8 November 2021, BMO sold its asset management business in Europe, the
Middle East and Africa, ("BMO GAM EMEA") to Columbia Threadneedle Investments.
Since November 2021, Columbia Threadneedle Investments has been working to
integrate both organisations, focused on delivering the best possible outcomes
for all clients. The combined business has more than 2,500 staff, including
over 650 investment professionals based in North America, Europe and Asia. At
31 December 2022 it managed £485 billion of client assets.

On 4 July 2022, the entire BMO GAM EMEA business was rebranded as Columbia
Threadneedle Investments. As part of this process, the Company's appointed
Investment Manager, BMO Investment Business Limited, was renamed Columbia
Threadneedle Investment Business Limited.

Throughout this process, the Board has sought and received confirmation from
senior management at Columbia Threadneedle Investments of the importance of
maintaining stability and continuity of the teams which presently support your
Company. The Board welcomes these assurances and will keep Shareholders
informed of developments as this new relationship evolves.

Responsible Investment

As longstanding Shareholders will know, consideration of Environmental, Social
and Governance ("ESG") issues have long been an important part of the
investment process. Following the acquisition of BMO GAM EMEA your Manager
has one of the largest and longest established teams dedicated to ESG.

There is a detailed report on pages 24 to 27 of the Annual Report which
explains the Manager's ESG policies, how these are implemented in the
management of the portfolio and its engagement with our investee companies.

Directorate Change

European Assets Trust PLC ("EAT PLC") was incorporated on 12 November 2018.
It should though be remembered that EAT PLC is the UK domiciled successor of
the Company's Dutch predecessor, European Assets Trust NV ("EAT NV") which was
dissolved on 16 March 2019. All of the directors of the Supervisory Board of
EAT NV were appointed to the Board of EAT PLC on the date of its
incorporation. Although EAT PLC and EAT NV were separate legal entities, for
governance purposes, the Board regards the date of first appointment to the
Supervisory Board of EAT NV as the date of appointment to the continuing
business.

As part of the Board's succession plan and in accordance with corporate
governance best practice, it is anticipated that Julia Bond, the Company's
Senior Independent Director, will retire on 31 January 2024. Julia was
appointed as a Director of the Supervisory Board of the Company's Dutch
predecessor, European Assets Trust NV, in April 2014 and upon retirement will
have served nine years between both entities. The Company has benefited
immensely from Julia's wide ranging financial and market experience. On behalf
of the Board and Shareholders of the Company I thank Julia for her diligence
and wise counsel throughout her period of appointment. In advance of Julia's
retirement, the Board will recruit a new Director.

I was also appointed to the Supervisory Board of the Company's predecessor in
April 2014 and became its Chairman with effect from April 2015. In accordance
with corporate governance best practice, and to allow a handover period, I
announce my intention to retire from the Board at the conclusion of the
Company's 2024 Annual General Meeting.

Upon my retirement, Stuart Paterson, who was appointed to the Board in July
2019 will become Chairman. Stuart has extensive sector experience as a
technology investor with over 25 years of equity investing in European private
companies. Stuart has also been an exceptionally diligent and effective
Chair of the Audit and Risk Committee. I know that he will continue to serve
the Company well.

As a further part of this plan, a search company was commissioned to find a
new Director for the Board. Following a thorough selection process, Kevin
Troup will be appointed to the Board and its committees with effect from 19
May 2023.

Kevin is a qualified Chartered Accountant. He has worked in the fund
management industry since 1995 with senior investment roles at Scottish Life,
Martin Currie and Standard Life Investments. He is now a non-executive
director at Baring Fund Managers Limited, TPI Fund Managers Limited and at
Baillie Gifford Shin Nippon PLC. He is also a charity Trustee at The Robertson
Trust.

Following my retirement and Stuart Paterson's assumption of the Chairmanship,
Kevin Troup will be appointed Chair of the Company's Audit and Risk Committee.

Benchmark

The Company's stated investment policy allows the Manager to invest in small
and medium-sized European companies (excluding the UK) which have a market
capitalisation below that of the largest company in the EMIX Smaller European
Companies (ex UK) Index.

IHS Market Benchmark Administration has announced its intention to cease
calculation of its EMIX indices with effect from 31 July 2023. The current
benchmark of the Company, the EMIX Smaller European Companies (ex UK) Index
(Net Return) will therefore be discontinued.

The Board, together with its advisers have carefully considered alternative
benchmarks to replace the EMIX Smaller European Companies (ex UK) Index and
have concluded that the MSCI Europe Ex UK SMID Cap Index, on a net return
basis, represents the most appropriate choice, noting, that this index has the
greatest overlap of those indices considered with the current portfolio, as
well as a similar number of constituents to the current benchmark.

The MSCI Europe Ex UK SMID Cap Index, which is composed of European small and
mid-cap companies, does have a broader range of market capitalisation within
its constituents which is relevant to the upper size limit contained in the
investment policy of the Company. The adoption of the MSCI Europe Ex UK SMID
Cap Index should therefore be treated as a material change to the Company's
investment policy. However, the Manager has confirmed that the selection of
the new benchmark does not imply that there will be any change to the existing
selection process for investments.

The Board is therefore seeking Shareholder approval for the material change to
the investment policy that this new benchmark represents at the Annual General
Meeting to be held on 18 May 2023 prior to its adoption with effect from 1
June 2023.

Annual General Meeting

The Annual General Meeting ("AGM") will be held at 3.00 pm on 18 May 2023 at
the offices of Columbia Threadneedle Investments, Exchange House, Primrose
Street, London EC2A 2NY. This will be followed by a presentation by the
Investment Manager on the Company and its investment portfolio.

For Shareholders who are unable to attend the meeting, any questions they may
have regarding the resolutions proposed at the AGM or the performance of the
Company can be directed to a dedicated email account,
eatagm@columbiathreadneedle.com (mailto:eatagm@columbiathreadneedle.com) , by
Thursday 11 May 2023. The Board will endeavour to ensure that questions
received by such date will be addressed at the meeting. The meeting will be
recorded and will be available to view on the Company's website,
www.europeanassets.co.uk (http://www.europeanassets.co.uk) shortly thereafter.
All Shareholders that cannot attend in person are encouraged to complete and
submit their Form of Proxy or Form of Direction in advance of the meeting to
ensure that their votes will count.

Outlook

After a strong start to the year, markets have weakened substantially
following the failure of Silicon Valley Bank, other smaller regional banks in
the US, and the sell-off of Credit Suisse in Europe. Although investors have
been encouraged by the recent bail out of Credit Suisse by UBS and the Swiss
authorities, there is clear concern over the risk of contagion to the rest of
the financial system and of a renewed financial crisis. While it is too early
to draw conclusions we believe that regulators and central banks have reacted
quickly and with substance. This combined with more stringent regulation,
particularly in Europe, since the global financial crisis provides further
support. We do hold banks in the portfolio but these are conservatively run,
well capitalised and do not have any funding mismatches. Consequently, we
believe they will navigate through this period operationally well. We will
however continue to monitor the situation closely.

The market's initial assessment of the impact of the banking crisis is that
credit conditions are likely to tighten impacting economic growth and this may
lower interest rate expectations. This more sober outlook is frustrating given
that European markets were leading global markets higher on the combination of
attractive valuations and a more optimistic outlook. This view has not yet
been completely derailed and Europe's valuation metrics continue to look more
attractive both in relative and absolute terms. In a very volatile
environment there is the risk that any pronouncement one day may look
imprudent the next. So, while recognising that risk, we still look forward
with a degree of tentative optimism.

Jack Perry CBE

Chairman

28 March 2023

Investment Manager's Review

Market Backdrop

2022 was a challenging year for almost all asset classes and European smaller
companies were no exception, registering significant falls. The initial
sell-off, at the beginning of the year, was precipitated by inflation data
that caused bond yields to rise and expectations of an earlier and more
aggressive interest rate tightening cycle led by the US Federal Reserve. While
this theme dominated for most of the year, the bearish sentiment was
exacerbated by Russia's invasion of Ukraine in February. Energy and food
prices spiked, adding further to inflation concerns, while investors digested
what a war on Europe's doorstep would mean for the region's economic activity,
with potential gas shortages the principal area of concern. Meanwhile, China's
zero COVID-19 policy and regional lockdowns added to global supply chain
restrictions that were already under severe pressure, further fuelling rising
input costs. In response, central banks became increasingly hawkish,
prioritising the fight against inflation over supporting economic activity.
Geopolitical risks, rapidly rising interest rates and increasing recessionary
expectations therefore dominated markets for most of the year until the fourth
quarter brought some much-needed respite. Encouragingly, Europe finished the
year particularly strongly, leading global markets higher. While rates kept
rising, US and European inflation data came in below expectations, allowing
investors to ponder lower peak rates. Economic indicators, whilst still
pointing to activity softening, were also better than expected. In Europe this
was helped by the dramatic decline in natural gas prices due to the
combination of a mild start to winter and full gas storage facilities. Despite
a strong year end, however, 2022 was a poor year for investors.

Performance

Our portfolio performed poorly last year, significantly underperforming the
index. The main reason was the dramatic rotation out of quality, growth stocks
into value areas of the market. This was caused by interest rate rises which
have a detrimental impact on the valuation of companies whose value is derived
from cash flows that grow over a long time frame. This rotation was
exacerbated by the strong moves in commodities, the only major asset class
that registered gains last year, driven by a rush towards energy security
following the war in Ukraine. Our philosophy and portfolio style are biased
towards growth companies, so it is perhaps no surprise that we performed
poorly, however, we are clearly disappointed by the scale of our relative
underperformance. Within the portfolio, we had built some balance with
exposure to rising interest rates, principally through our holdings in
financials, but this balance was overwhelmed by the scale of sector rotation.

The performance was also heavily impacted by some stocks that were exposed to
a consumer whose disposable incomes were under pressure from rising costs.
These stocks were also having to contend with a period of softening demand as
they digested the hangover from some unusually strong COVID-19 years. For
example, MIPs, who supply technology for principally cycle helmets, and Thule,
who sell stylish products for active families and outdoor enthusiasts, both
announced disappointing trading updates. Whilst neither of these companies are
suffering from excess inventories of their products in the retail channel, nor
a demand problem, retailers are struggling with excess inventories of other,
low value items in their stores that need to be cleared before they can
restock with higher end products from MIPs and Thule. Once this inventory is
cleared, which may take some time, we would expect both companies see demand
patterns in line with their long-term positive trajectory. Other consumer
related stocks that suffered from difficult comparisons with very strong
trading in recent years were Fluidra, the swimming pool equipment suppliers,
and HelloFresh, the leading meal kit provider. We continue to hold these
positions in anticipation of better demand trends later in the year and
because we believe in the long-term structural growth opportunities for these
businesses.

The technology sector was also an area that struggled from similar themes.
Despite delivering good operational performance through the year, our
semiconductor stocks ASMI, the equipment provider, and Nordic Semiconductor,
the leading Bluetooth company, saw their valuations heavily de-rated through
the year as investors sold out of growth companies. Industrials also
struggled, and while we were underweight the sector, stock specifics
overwhelmed sector allocation. Forbo, the Swiss listed flooring company, and
Norma Group, the German listed autosupplier, both delivered poor operational
updates that caused us to sell these holdings. Wizz Air, was another poor
performer as it faced the twin headwinds of higher fuel costs and a weaker
consumer. We cut the position significantly at the outset of the Ukrainian
war, mitigating the damage, before adding later in the year. This proved to be
a good decision with the shares recovering strongly into this year.

Turning to more positive outcomes, our best contributor to our performance in
terms of sector came from healthcare. This was slightly peculiar because the
sector, unusually in a down market, was the worst performer, underperforming
even consumer discretionary at the index level. Our positive stock selection
meant that this was the best contributor though, with Tecan, the Swiss listed
diagnostics company, leading the way supported by an upgrade to guidance at
their first half results.

The materials sector also yielded some good performance with both our sector
allocation and stock selection being good. Of note were our holdings in
Verallia, the French glass manufacturer, and SIG, the Swiss listed aseptic
packaging supplier, both of which consistently delivered strong operational
results. One of our new positions, Hexpol, the supplier of polymer compounds,
also performed well due partly to its large exposure to the strong dollar but
mainly due to encouraging results.

Finally, in terms of sectors, our traditional financials contributed well.
Interest rates, a long-term headwind for the sector have finally turned
supportive. Ringkjoebing Landbobank, listed in Denmark, Sparebank, listed in
Norway, and Storebrand, the Norwegian life insurance company, all had strong
years. Bank of Ireland, a new holding, was, however, the highlight being the
best performer as investors began to appreciate the strong economic backdrop
that Ireland offers, the cheap valuation, higher interest rates, a
consolidated market and improving results.

Other stocks worthy of mention include Lotus Bakeries, the owner of the
Biscoff brand, whose consistent profit delivery was appreciated by the
markets. Finally, another new addition, Schoeller Bleckmann, performed
strongly. Austrian listed, this company is the leading supplier of
non-magnetic steel components to the oil and gas industry and, rose after its
results outperformed on the back of the scramble towards energy security
caused by Russia's invasion of Ukraine.

Portfolio Activity

Portfolio turnover was broadly in line with long-term averages. Trading was
driven by a combination of executing our philosophy and process whilst
recognising emerging priorities. On the latter, we are aware that energy
security is a key geopolitical focus now. Following a decade of
underinvestment on the supply side we may be at the start of a new capital
cycle in the sector. We have invested in quality companies that are exposed to
this; Schoeller Bleckman mentioned above and TGS, the seismic analytics
company. We also believe that tight labour markets and re-shoring of
industrial production will lead to a greater investment in automation and so
have started positions in Kardex, whose equipment optimises and automates
logistical workflows, and Engcon, the Swedish listed market leader of tilt
rotators that improve the productivity of excavators. The other characteristic
of this market cycle is likely to be higher interest rates as core inflation
remains high in contrast to the previous decade. We have expressed this view
through our holdings in regional banks and life insurance, which was augmented
by the decision to add Bank of Ireland early in the year.

We have also been cognisant that market falls usually provide opportunity.
While we have not been as active in this regard compared to what we executed
during the outset of the COVID-19 pandemic, following our process has meant
that we have added some new positions in addition to those mentioned earlier
in this commentary. Examples include Viscofan, the market leader in the global
synthetic sausage skin oligopoly, Siegfried, which holds a strong position as
an outsourced manufacturer of small molecules for pharmaceutical companies,
and Vidrala, the Spanish bottling company.

Our sell decisions were driven by a more critical appraisal of operational
performance during a period when quality credentials were tested. For example,
following disappointing trading updates, we sold, in addition to those
mentioned above, holdings in Cancom, the German IT reseller, Marr, the Italian
food services business, Simcorp, the asset management software business, and
FlatexDegiro, the German listed, low-cost retail brokerage firm.

Outlook

The year had started strongly, with Europe pleasingly leading the way. This
has, however, been derailed by the failure of Silicon Valley Bank (SVB) in the
US and Credit Suisse in Europe. This has caused a significant sell-off across
the market driven by the financial sector. The failure of any financial
institution brings back memories of the Global Financial Crisis, however we
think, there are reasons to be less concerned this time. Financial regulation
in terms of capital requirements and funding, particularly in Europe, are much
more robust, whilst central banks and financial regulators have reacted
quickly. There will, however, be some significant ramifications from this of
which some will not be understood yet. Initially, it is fair to assume that
credit conditions will be tighter, adding further to the challenging
calculations that central bankers are having to make with regard interest rate
rises.

In terms of stock picking the clear lesson from recent events is to avoid
companies whose business models have been supported by low rates and are
challenged by the dramatic change in interest rate regime that we have seen
over the last year. There will be further casualties, but we believe our
quality biased approach avoids such exposure. We are, however, looking closely
at the opportunities that may present themselves as good businesses
potentially get dragged down by recent events. Prior to the sell-off, Europe
looked attractively valued both in absolute levels and relative to global
markets. This provides an attractive backdrop to stock picking and future
long-term returns.

Sam Cosh

Lead Investment Manager

28 March 2023

Principal Risks and Future Prospects

The principal risks together with their mitigations are set out below. The
Board's processes for monitoring them and identifying emerging risks are set
out on pages 28 to 29 and in note 22 of the Report & Accounts.

Most of the Company's principal risks are market related and no different to
those of other investment trusts investing in listed markets.

The global economy continues to suffer considerable disruption due to the
effects of the COVID-19 pandemic, inflationary concerns and the war in
Ukraine. The Directors have reviewed the risk register for the Company which
identifies the risks that the Company is exposed to, the controls in place and
the actions being taken to mitigate them. The principal ongoing risks and
uncertainties currently faced by the Company, and the controls and actions to
mitigate those risks, are described below.

In addition a detailed review of the risks of the Company's investment
portfolio including market, credit, foreign currency and liquidity is provided
in note 22 of the Report & Accounts beginning on page 67. Details of
actions taken to reduce the potential impact of these risks is also provided.

· Risk description: Poor absolute and/or relative performance

Inappropriate stock selection, asset allocation and gearing levels result in
poor NAV and share price performance against benchmark and/or peer group.
Failing performance results in reduced demand for the Company's shares and a
widening share price discount.