EAT — European Assets Trust News Story

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European Assets Tst - Annual Results and Quarterly Dividend

European Assets Trust

20/03/2024 07:00

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RNS Number : 4980H European Assets Trust PLC 20 March 2024

EUROPEAN ASSETS TRUST PLC

Audited Statement of Results for the year ended 31 December 2023

LEI: 213800N61H8P3Z4I8726

20 March 2024

European Assets Trust PLC ("EAT" / "the Company") today announces its results
for the year ended 31 December 2023.

Financial Highlights

· The Sterling Net Asset Value per share total return was 8.2% for
the year ended 31 December 2023. This compares to 9.8% for the benchmark.

· The Sterling Share Price total return was 4.5% for the year ended
31 December 2023.

· A dividend of 5.90 pence per share has been declared for 2024
(2023: 5.80 pence per share). This is equivalent to 6% of the closing Net
Asset Value per share on 31 December 2023. The 2024 dividend will be paid in
four equal instalments. The first interim dividend of 1.475 pence per share
was paid in January 2024 with further dividends payable in April, July, and
October. A dividend of 1.475 pence per share will be paid on 30 April 2024 to
Shareholders on the register on 5 April 2024 with an ex-dividend date of 4
April 2024.

"We continue to have a positive outlook for the European Small and Mid-cap
sector. Following two years of smaller company underperformance versus
larger companies, valuations look attractive."

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 2023 of 8.2% (2022:
-28.2%). This compares to the total return of its Benchmark, which rose 9.8%
(2022: -17.7%) during the same period. With the discount widening from 5.1% as
at 31 December 2022 to 8.8% at the year-end, the Sterling share price total
return for the year was 4.5% (2022: -28.4%).

Market Backdrop

Markets produced a far more supportive backdrop for 2023, although the tension
between tighter Central Bank policy and economic growth remained high. With
investor focus on the latest pronouncements from the US Federal Reserve, whose
policy decisions have been the predominant influence over market sentiment,
there was significant intra-year volatility. We can be reassured though that
the rate of inflation across the developed world has more than halved and
economic activity has remained relatively resilient in the face of the
significant monetary tightening of the last couple of years. The softening
inflation data and some weakness in the US jobs market has led to expectations
for interest rate cuts in 2024, driving a strong finish to the year. Within
this backdrop, the portfolio performance for the year was on one hand
satisfactory, in that it compared well with the peer group and allowed us to
announce an increase in dividend, but also disappointing in that it lagged the
Benchmark.

2023 was another year where European market leadership came from value stocks,
providing a headwind for our growth biased portfolio. Smaller companies also
struggled, for the second consecutive year, when compared with larger
companies, partly due to two of the most significant investment themes of the
year, generative artificial intelligence (AI) and weight-loss drugs, that
significantly boosted some of the world's largest listed businesses. We have
benefited from some exposure to these themes in our portfolio through holdings
in semiconductor equipment companies, which will provide the means of
production for AI powered microchips, and pharmaceutical packaging companies,
which will provide the delivery mechanisms for these medicines. Health and
wellness and digital transformation are two of our most significant themes,
alongside sustainability and emerging growth, which we believe will drive
asset value growth over the long term. This should hold true, particularly
when smaller companies come back into favour to deliver the sort of
performance that, for very good fundamental reasons, they have in the past. If
we look at what held us back last year, in addition to the portfolio's style
tilt, our consumer staples holdings were the main disappointment. This was
principally due to our holdings in drinks companies Remy Cointreau and Royal
Unibrew which both delivered worse earnings than expected in a more
challenging consumer environment.

Review of Investment Performance

Following the Company's disappointing performance in 2022, the Board initiated
a review of the investment strategy, philosophy and process adopted by the
investment manager, with particular focus given to the strengths and
weaknesses of its performance over the past ten years. This work was carried
out by the investment managers supported by the wider resources within
Columbia Threadneedle Investments.

Following this review, a number of changes were made to the composition of the
Company's investment portfolio including an increase in the number of stocks
held, reflecting access to broader research capabilities within Columbia
Threadneedle Investments. The implementation of these changes was coincident
with the decision to take advantage of market opportunities to increase
gearing.

While it is early days since these changes were implemented, the initial
results in the final quarter of 2023 and the early part of 2024 are
encouraging.

A further discussion of these changes, together with details of performance
drivers is made in the Investment Manager's report. The Board will continue to
closely monitor the effectiveness of these and future changes.

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 increased since 31 December 2022, the dividend has also
increased from 5.8 pence per share in 2023 to 5.9 pence per share in 2024.

This 2024 dividend of 5.9 pence per share is payable in four equal instalments
of 1.475 pence on 31 January, 30 April, 31 July and 31 October 2024.

A dividend of 1.475 pence per share will be paid on 30 April 2024 to
Shareholders on the register on 5 April 2024 with an ex-dividend date of 4
April 2024.

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 following thorough selection
processes which included the services of a search company, Kevin Troup and
Kate Cornish-Bowden were appointed to the Board with effect from 19 May 2023
and 2 January 2024 respectively.

Kevin is a qualified Chartered Accountant who 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. He is also a non-executive director
and Chair of the Audit Committee at Baillie Gifford Shin Nippon PLC. His other
appointments include Chair of the Risk, Audit and Compliance Committee at the
BT Pension Scheme Management Limited and he is a Director of Kintail Trustees
Limited, the corporate trustee of The Robertson Trust charity where he is
chair of the Investment Committee.

Kate is the chair of International Biotechnology Trust plc, and a
non-executive director of Finsbury Growth & Income Trust plc and CC Japan
Income & Growth Trust plc, where she is also chair of the audit committee.
Until recently Kate was the senior independent non-executive director of
Schroder Oriental Income Fund Limited. Previously Kate worked for twelve years
as a fund manager for Morgan Stanley Investment Management, where she was
managing director and head of the global equity team.

As a further part of this succession plan Julia Bond retired from the Board 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 had served nine years between both entities. On behalf of the
Board and Shareholders of the Company I thank Julia for her diligence and wise
counsel throughout her period of appointment.

Following the retirement of Julia Bond, Kate Cornish-Bowden has been appointed
the Company's Senior Independent 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. As previously
announced, I will retire from the Board at the conclusion of the Company's
2024 Annual General Meeting and Stuart Paterson, who was appointed to the
Board in July 2019 will become Chairman. Following my retirement and Stuart
Paterson's assumption of the Chairmanship, Kevin Troup will be appointed
Chairman of the Company's Audit and Risk Committee.

My tenure has coincided with a period of continuous change. The Company has
experienced, amongst other events, the Eurozone Crisis, the withdrawal of the
United Kingdom from the European Union, the COVID-19 pandemic and, more
recently, Russian military action in Ukraine. Many of these events still
impact upon the social, macro-economic and political environments in which
this Company operates and I wish to express my sincere thanks to my fellow
Directors and the Company's advisers for their support in successfully
navigating these challenges.

Annual General Meeting

The Annual General Meeting ("AGM") will be held at 3.00 pm on 17 May 2024 at
the offices of Columbia Threadneedle Investments, Cannon Place, 78 Cannon
Street, London EC4N 6AG. 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, by 9.00am on Thursday 16 May 2024. 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 shortly thereafter.

In addition, for the first time this year, the AGM and Investment Manager
presentation will be broadcast live on the Investor Meet Company platform.
This broadcast is open to all existing and potential Shareholders to view.
Questions can be submitted pre-event via the Investor Meet Company dashboard
up until 9.00am on Thursday 16 May 2024. Investors can sign up to Investor
Meet Company for free and add to meet European Assets Trust plc via:
www.investormeetcompany.com/european-assets-trust-plc/registerinvestor.
Investors who already follow European Assets Trust plc on the Investor Meet
Company platform will automatically be invited.

All Shareholders that cannot attend in person, including those viewing the
live broadcast on the Investor Meet Company platform 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

It was probably inevitable that after such a strong finish to the year we
would enter 2024 with some volatility. The market had begun to look forward to
the attractive combination of lower inflation leading to Central Bank easing,
resilient economic growth and good corporate profitability. This is
potentially optimistic given that achieving this balance is not without risks
and has not often been achieved historically. Nonetheless when we look at our
area of the market, European Small and Mid-cap companies, we think a positive
outlook is not being reflected. Following two years of smaller company
underperformance versus larger companies, valuations look attractive. History
would suggest that these are good opportunities to buy into the long-term
favourable characteristics of smaller growth companies.

The investment managers are now fully integrated within the large Columbia
Threadneedle Investment team and are benefitting from a deep pool of research.
Idea generation is therefore felt to be more productive and is reflected in
the higher portfolio turnover figures seen in this report as these new
holdings are incorporated. This also helped provide the investment managers
with the confidence to gear the portfolio following the October market
sell-off. We would expect them to continue to do so as they find attractive
opportunities using the research talent at their disposal and given the strong
long-term outlook that our asset class has.

Jack Perry CBE

Chairman

19 March 2024

Investment Manager's Review

Market Backdrop

While geopolitical events continued to cast a shadow over 2023, macroeconomic
factors were the predominant influence driving market direction for better and
for worse. A surge of investor optimism ultimately pushed equities higher in
the fourth quarter delivering a good year for markets overall. In this
context, European smaller companies achieved an attractive return, however, it
was the second year that they have lagged their larger counterparts, something
we would not expect to be an ongoing trend. Indeed we believe this is an
excellent opportunity for long term investors with valuations looking
particularly appealing.

Inflation and its influence on Central Bank policy decisions were the focus of
investor attention as policy makers sought to balance controlling rising
prices with maintaining economic activity. In aggregate the evidence so far
suggests that they appear to have managed this though Europe's economy was
weaker than the US whose robust labour markets caused some concern that the
Federal Reserve would have to keep interest rates 'higher for longer'. This
caused an aggressive sell off in equities and bonds in September and October.
Sentiment changed completely in November as better inflation data emerged
alongside the first sign of some softening of the US jobs markets, leading to
expectations that both the US Federal Reserve and the European Central Bank
would start cutting rates in 2024. This tension between inflation, monetary
policy and economic activity is likely to

continue to play a big role in driving market direction but we hope that with
inflation appearing more benign, markets may be more driven by stock specific
factors rather than macroeconomics.

Performance

While our performance compared well with our peer group and we delivered an
increase in dividend, our total return lagged the Benchmark. This was partly
because our growth biased portfolio faced the headwind of another year of the
value style outperforming. We detail some of the stock specifics below.

As discussed above macroeconomic factors featured strongly in stock returns,
however, the advent of Generative Artificial Intelligence (AI) and a new class
of weight loss drugs (GLP-1 agonists) provided a strong thematic background
for specific sectors and boosted some of our holdings. For example, two of our
best performing positions were Dutch listed ASMI and BE Semiconductor
Industries, both market leaders in equipment used in the semiconductor
manufacturing process. Generative AI requires significant computing power
which means both a greater demand for semiconductor chips but also an
acceleration of the miniaturisation trend of those chips. The prospects for
both ASMI and BE Semiconductor Industries whose equipment is integral in the
production process of these products have therefore improved at the same time
as there appears to be improvements in the more cyclical areas of demand.

Originally developed for diabetes, the new class of GLP-1 drugs are a huge
breakthrough in inducing significant weight loss, with mostly manageable
side-effects. This is potentially a seismic development given the huge problem
that obesity is for the Western World. Whilst we do not own shares in the
companies responsible for these medicines, because they are amongst the
biggest companies regionally, we have exposure to the theme through
Gerresheimer the German pharmaceutical packaging company. The shares performed
strongly prior to the GLP-1 announcements and expectation of contract wins
related to these obesity drugs propelled their performance further. Siegfried,
the contract development and manufacturing organisation that produces small
molecules and drug products for pharmaceutical companies also had a strong
year. Whilst many in the sector struggled due to weaker demand caused by
excess inventories at customers following the COVID-19 related healthcare
boom, Siegfried executed strongly with the shares getting an additional boost
from hope that they would also receive contracts related to weight loss drugs.

Automation and re-shoring of supply chains is another theme within the
portfolio that worked well for us in 2023. Recent years that have been
dominated by the COVID-19 pandemic and volatile geopolitics have increased the
risk of extended supply chains causing corporates to look closer to home for
key components and materials. With tight labour markets, the need for greater
automation is accelerating. One of our best performers, Kardex, the Swiss
listed leader in intra-logistics solutions provides efficient storage
solutions at a relatively low cost but a higher return on investment. Kardex
has benefitted from the need of corporates to manage their operations more
efficiently. Other stocks that help improve their customers' efficiency in the
face of rising costs and labour shortages are Engcon, the Swedish listed
global leading producer of tiltrotators, and Rational, the global leading
manufacturer of combi-steamer ovens. Both stocks had a good year.

Other strong performers of note were our Irish holdings Cairn Homes, Dalata
Hotel Group, and Glanbia. Ireland is suffering from a severe shortage of
housing and as the largest, and only, volume producer of note, Cairn Homes is
benefitting from its large landbank to deliver affordable homes in an
attractive demand environment. Dalata Hotel Group, a modern hotel operator, is
enjoying the recovery in the hospitality sector in a market where supply is
constrained, and competition is underwhelming. Glanbia, the nutritional
business, simply executed well, leveraging their strong global brand presence.

Conversely, our area of biggest disappointment as a sector was consumer
staples that did not provide the steady performance we would normally expect.
Particularly disappointing were our beverage stocks Royal Unibrew and Remy
Cointreau. Royal Unibrew is a Danish brewer that manages strong local brands
that are both alcoholic and non-alcoholic drinks. They also operate as a
bottler for Pepsi-Cola in the region. Poor weather hampered sales in the key
summer months, and they downgraded their expected contribution from their
recent Dutch acquisition. These led to cuts to earnings that were compounded
by concerns around downtrading in a more challenging economic environment.

The French cognac producer, Remy Cointreau, faced a perfect storm last year.
We initiated a holding early in the year in the knowledge that one of their
key growth engines, the US, was spluttering. We believed however that China,
the other growth engine, would pick up the slack and the valuation was also
attractive. Unfortunately, the US deterioration was worse than expected, and
China growth failed to materialise. While hugely disappointing thus far, we
believe that the valuation is now at such a low level that investors are
paying little more than the realisable inventory value. Although the outlook
is uncertain over the short term, we believe there is a great deal of value
here in what is a unique asset.

I have highlighted some good returns from our healthcare holdings. We did
however suffer from poor performance from our diagnostics equipment stocks,
Swiss listed Tecan and German listed Stratec. Tecan, which provides automated
liquid handling solutions to the life sciences and diagnostics markets,
performed operationally well but saw a substantial de-rating through the year.
The share could not withstand the multiple profit warnings amongst its peers
which all struggled with tough comparisons with the strong COVID-19 period,
and a weakening environment in the biotechnology space (which is itself
suffering from funding issues) as well as more tentative buying habits in
China. Tecan ended the year cheaper than it started and with no deterioration
in franchise, so we continue to hold the stock. Stratec, on the other hand,
struggled operationally. They produce machines for diagnostics equipment
companies who suffered from the industry issues mentioned above. Additionally,
they incurred higher costs from customer specification changes. We felt that
this represented a deterioration of their market position and a loss in
confidence with the management team, so we sold the position.

Other poor performers of note include Coor, the Swedish listed integrated
facilities manager hit by two large contract losses and a margin squeeze as
they struggled to pass on higher costs. With some significant client
negotiations on the horizon, we decided to exit the position. In contrast to
our other semiconductor related companies, Nordic Semiconductor had a poor
year. The low power Bluetooth provider's principal end market is consumer
electronics. With high stock levels of Bluetooth chips at customers that were
only slowly being reduced because of deteriorating consumer demand, Nordic
Semiconductor recorded a significant sales and profit decline. We are of the
view that this, while painful, is temporary so continue to hold the stock.
Similarly, MIPs, the Swedish producer of helmet safety technology struggled as
weak bicycle markets were compounded by high inventories. We do not believe
the long-term growth rate or market position is permanently impaired so also
continue to hold the stock.

Review of Investment Performance

Following mixed performance in recent years, and at the Board's request, the
investment team in conjunction with the Manager's investment risk and
oversight function undertook a review of the Company's investment strategy,
philosophy and process. While no wholesale changes were recommended, we are
evolving our investment process and taking steps towards improvement in its
execution. This is supported by the significant resources available, both in
terms of research but also risk analysis, at Columbia Threadneedle
Investments.

With the aim of reducing the volatility of returns, the portfolio will
increase its number of holdings and balance 'style' exposures. We will
continue to invest in high quality growth companies, but individual holdings
will be more systematically analysed on their risk and style contribution in
order to ensure that when we pay a premium to the market that this valuation
is supported by superior growth and profitability characteristics. A portfolio
that is more diversified will also, where warranted by market opportunity, be
supported with increased gearing. These recommendations which were implemented
towards the end of the year, provide a strong basis on which to look forward.

Portfolio Activity

We are now embedded in the investment teams at Columbia Threadneedle, and have
a significantly larger pool of resources at our disposal. The research
capacity and the reach that we have to engage with potential investee
companies is by far the largest since we have managed the Company. This is
manifesting itself in more frequent and productive idea generation. When
combined with a volatile market at the end of the third quarter, this led to
higher portfolio turnover and more holdings, in line with the evolution of our
process. We also took the opportunity provided by the market falls of
September and October 2023 to deploy gearing. In terms of sales, in addition
to those mentioned above, we exited positions in Alten, the French R&D
outsourcer, and Sparebank, the Norwegian regional bank, having reached our
fair values, thus taking profits. We also exited Sligro, the Dutch food
distributor and HelloFresh, the German listed meal kit business, following
operating disappointments sufficient to derail the investment cases.

In terms of new additions, we diversified our large positions in
semiconductors by adding Melexis, which produces sensors for the automotive
market, and Inficon, which has leading positions in the production of vacuum
technology for both industrial and technology markets. Within industrials, we
added Elis, the European leader in textile rental, Stabilus, the auto-supplier
which is transforming to a broader industrial automation exposed business, and
Accelleron.

Accelleron is relatively new to the listed market having been spun out of the
large Swedish industrial ABB, so not necessarily broadly known. They are the
global market leader in turbochargers primarily for marine and energy
applications. These turbochargers provide substantial cost efficiencies and
reduce emissions, so offer good return on investments for their clients. With
75% of revenues accounted for by services and spare parts, they have
predictable sales and high profit margins, which demonstrate a high-quality
business that is not priced as such by the market.

Other new additions include KPN, the Dutch telecommunication company whose
cash generation is improving as they finalise their fibre network roll-out,
and Smurfit Kappa, the value-added packaging company, which operates in an
oligopoly that should benefit from a recovery in the end markets.

Outlook

The outlook for inflation and its influence on interest rates are likely to
continue to dictate market direction, however, the debate has shifted from
when will rates stop rising, to how quickly will they fall. This should
provide a positive backdrop to investing, though we are aware that the impact
of the rapidly tightening liquidity environment of the last few years has yet
to fully impact the economy which may lead to a risk of wider recession for
this year. Nonetheless, the low valuation of European smaller and mid-cap
companies suggest much of this is priced in. Following two years of
underperformance for smaller companies against the larger market, we think
this is an excellent opportunity for the creation of long-term returns. We
expect to use any further volatility to take advantage of this opportunity and
gear the portfolio further.

Sam Cosh

Lead Investment Manager

19 March 2024

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 32 to 33 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 war in Ukraine, recent events in the Middle East and
inflationary pressures. 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 76. 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. Poor
performance results in reduced demand for the Company's shares and a widening
share price discount.

Ø Increase in overall risk in year.

Mitigation: At each Board meeting the Directors monitor performance against
benchmark and peer group. The Manager attends each regular board meeting and
will discuss the reasons for any over or underperformance.

The Company's broker, Panmure Gordon, will provide market intelligence at each
meeting noting underlying demand for the Company's shares.

The Company has received the necessary authority from Shareholders to regulate
the premium or discount that the Company's shares may trade at by purchasing
or issuing shares.

· Risk description: Relevance/attractiveness of the investment
strategy and policy

An unattractive investment strategy, loss of cost competitiveness and/or a
changing investment product environment, including ESG, leads to a fall in
demand for the Company's shares resulting in an increasing share price
discount.