REG - European Assets Tst - Annual Financial Report
03/04/2025 07:00
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RNS Number : 4216D European Assets Trust PLC 03 April 2025
EUROPEAN ASSETS TRUST PLC
Audited Statement of Results for the year ended 31 December 2024
LEI: 213800N61H8P3Z4I8726
3 April 2025
European Assets Trust PLC ("EAT" / "the Company") today announces its results
for the year ended 31 December 2024.
Below is an abridged version of the Company's Annual Report & Accounts for
the year ended 31 December 2024. The full version, together with a copy of
this announcement, will shortly be available on the Company's website at
www.europeanassets.co.uk (http://www.europeanassets.co.uk) , where further
information can also be found, including daily NAVs, share prices and the
monthly factsheets.
About European Assets Trust
The Company's Investment Objective is to achieve growth of capital through
investment in quoted small and medium sized companies in Europe, excluding the
United Kingdom. The Company's benchmark is the MSCI Europe Ex UK Small Mid Cap
(Net Return) Index. The portfolio has a quality growth bias and typically
holds 50-70 investments.
The Company has in place a high distribution policy of six per cent of the
Company's net asset value at its preceding 31 December financial year end,
with dividends paid out of current year revenue profits and the Distributable
Reserve. The Company's portfolio is therefore managed on a total return
basis.
The Company has been managed by Columbia Threadneedle Investment Business
Limited and its predecessors since its creation in 1972. The Lead Investment
Manager is Mine Tezgul, Head of Pan European Small Cap Equities at Columbia
Threadneedle Investments. She is assisted by Philip Dicken, Head of European
Equities and Head of International Equities at Columbia Threadneedle
Investments.
Financial Highlights for the Year Ended 31 December 2024
Year ended Year ended
31 December 2024
31 December 2023
Sterling net asset value total return (0.8%) 8.2%
Sterling share price total return (3.6%) 4.5%
Sterling Benchmark index((1)) 2.4% 9.8%
Sterling net asset value per share (NAV) 91.82p 98.31p
Sterling price per share 80.80p 89.70p
Sterling share price discount to NAV (12.0%) (8.8%)
Sterling dividends per share paid 5.90p (4 x 1.475p) 5.80p (4 x 1.45p)
Sterling net assets £330.6 million £354.0 million
Sterling market capitalisation £290.9 million £323.0 million
Gearing (maximum 20%) 5.0% 6.8%
Ongoing Charges 1.01% 1.04%
Shares issued Nil Nil
Shares bought back Nil Nil
(1) At 1 April 2021 the Benchmark changed from EMIX Smaller European Companies
(ex UK) Index (gross) to EMIX Smaller European Companies (ex UK) Index (net).
With effect from 1 June 2023 the Benchmark changed from EMIX Smaller European
Companies (ex UK) Index (net) to MSCI Europe excluding United Kingdom Small
Mid Cap (Net Return) Index. A time apportioned composite of each indices has
therefore been calculated and disclosed.
2025 dividend 5.52p
In accordance with the Company's aim to pay dividends at an annual rate of six
per cent of the closing Net Asset Value of the preceding year, the Board has
declared a total dividend for 2025 of 5.52 pence per share (2024: 5.90 pence
per share), which will be paid out of current year revenue profits and the
Distributable Reserve. At 31 December 2024 the Distributable Reserve stood at
£266.8 million, or 74.1 pence per share, equivalent to approximately 13x the
2025 dividend.
The first interim dividend of 1.38 pence per share was paid on 31 January
2025, with further dividends payable on 30 April, 31 July, and 31 October. As
previously announced, the next dividend will be paid to Shareholders on 30
April 2025 to those on the register on 4 April 2025, with an ex-dividend date
of 3 April 2025.
Chair'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 2024 of -0.8% (euro:
+3.9%). This compares to the total return of its Benchmark, the MSCI Europe
(ex UK) Small Mid Cap (Net Return) Index which rose +2.4% (euro: +7.3%) during
the same period. With the discount widening from 8.8% as at 31 December 2023
to 12.0% at the year-end, the sterling share price total return for the year
was -3.6% (euro: +1.0%). Stock selection was the main contributor to
underperformance relative to the Benchmark, while the 5% weakening of the euro
vs sterling detracted significantly from the sterling absolute returns.
The longer-term performance of the Company has also been disappointing. The
sterling NAV total return for the five- and ten-year periods ended 31 December
2024 are 9.3% and 75.8% respectively. These compared to 26.3% and 137.1% for
the sterling Benchmark total returns for the same periods.
Market Backdrop
Markets were turbulent during 2024. Although European equities returned
positive performance, progress was less than in the US, and in both stock
markets, small companies lagged large cap. Macroeconomic factors significantly
impacted equity returns, particularly through fluctuating interest rate
expectations. These expectations were shaped by evolving inflation forecasts
which were influenced by potential trade tariffs and heightened demands on
bond markets, driven by increased European government spending.
Politics also had an effect, both inside and outside Europe. Trump's
Presidential re-election changed the background for many companies,
particularly those which export into the US which now face the likely negative
impact of tariffs. However, an end to the war in Ukraine would be welcomed, as
would falling energy costs.
In Europe, we witnessed turbulence in French politics and in Germany a full
Bundestag election was scheduled for February 2025 following the collapse of
the ruling SDP-led coalition. When the election took place, it resulted in
strong gains for right-wing parties. The largest vote share was won by the
CDU, whose leader Freidrich Merz is likely to form a new coalition which he
will lead as Chancellor.
Within markets, leadership in the US for much of the year came from the
"Magnificent Seven," whilst others lagged. Europe was little different. For
most of the year, much of the performance came from a small number of large
companies. In small cap, unlike large cap, value stocks outperformed growth
and quality, and this was unhelpful given our focus within the Company's
portfolio on stocks of high quality. This style headwind has been a feature
over the last three years, since the invasion of Ukraine, and returns were
further worsened by disappointing stock selection. However, looking forward,
this means that the relative valuation of the stocks we own has in most cases
become even more attractive.
Portfolio Manager Change
On the 2nd of May 2024, the Board announced that following the further
integration of the European equities team by Columbia Threadneedle Investments
("the Manager"), Mine Tezgul would succeed Sam Cosh as the Company's Lead
Investment Manager. Mine is Head of Pan European Small Cap Equities and is
supported by Philip Dicken, Head of European Equities and Head of
International Equities at the Manager.
The Board acknowledges that the growth of European economies has faced
persistent challenges in recent times. Furthermore, the recent recovery in
European stock markets has largely favoured large-cap and value companies -
areas that fall outside the Company's focus on quality growth investments.
Nevertheless, the Board is dissatisfied with the overall investment
performance, particularly the disappointing stock selection. We are closely
monitoring the new team's implementation of the investment process to assess
the impact on performance relative to both the Benchmark and the Company's
peer group.
Amendment to the Investment Management Fee
On the 2nd of May 2024 the Board also announced an amendment to the basis of
calculation of the investment management fee payable to the Manager.
Previously, the Manager received a fee equal to 0.75% per annum of the value
of funds under management up to €400 million, and in cases where the value
of funds under management exceeded €400 million, the applicable rate over
such excess value was 0.6% per annum.
Following the amendment, which was effective from 1 January 2024, the funds
under management to which the applicable rate of 0.75% is applied has been
lowered from €400 million to €300 million. For funds under management in
excess of €300 million, the applicable rate has been reduced from 0.60% to
0.55% per annum. The basis of calculation for funds under management remains
unchanged. The impact of this change was to reduce the 2024 management fee
payable from £2.8 million to £2.6 million.
Share Price Discount
As at 31 December 2024 the share price discount was 12.0%. This was in
comparison to 8.8% as at 31 December 2023. The discount also widened relative
to those reported by the Company's peer group and resulted in a subdued share
price total return for investors for the year. The Board recognises the
importance of movements in the Company's discount upon the return that
investors receive and monitors closely the discount's absolute and relative
levels.
At the Annual General Meeting ("AGM") to be held on 24 June 2025, the Board
will seek to renew the authority from Shareholders to buy back up to 14.99% of
the Company's share capital. Buybacks can only be made at a cost per share
which is below the prevailing NAV. Shares bought back will be held in
treasury. At the forthcoming AGM the Board will also seek authority from
Shareholders to re-issue treasury shares or issue new shares, subject to
limitations on the number and price. The Board seeks these authorities to
allow the Company to intervene in the market for its shares when considered
appropriate to do so. During the year ended 31 December 2024 the Company did
not buyback nor issue any of its shares (2023:none).
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 NAV per share of the Company
has decreased since 31 December 2023, the dividend has also decreased from
5.90 pence per share in 2024 to 5.52 pence per share in 2025.
The Company's dividend is funded from a combination of current year revenue
profits and the Distributable Reserve. As at 31 December 2024, the value of
the Distributable Reserve was £266.8 million. In comparison, the cost of the
2024 dividend was £21.2 million.
The 2025 dividend of 5.52 pence per share is payable in four equal instalments
of 1.38 pence on 31 January, 30 April, 31 July and 31 October 2025. As at 31
December 2024 this represented a share price yield of 6.8%.
Gearing
In March 2024, the Company entered into a multi-currency revolving loan
agreement with The Royal Bank of Scotland International, London Branch
("RBSI") with a maximum potential facility of £60 million. This replaced a
similar but smaller facility with The Bank of Nova Scotia, London Branch.
Following the year end, the Company's loan facility with RBSI was extended
until February 2026 on similar terms.
The Company had net debt at 31 December 2024 of £16.4 million (31 December
2023: (£23.9 million)). This represented gearing of 5.0% (31 December 2023:
6.8%). There was, however, a higher average level of gearing employed during
2024 in comparison to the prior year.
Directorate Change
European Assets Trust PLC ("EAT PLC") was incorporated on 12 November 2018.
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
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.
The Board recognises the value in both attracting fresh talent and the
maintenance of continuity and accordingly a plan has been developed to ensure
an orderly succession as Directors retire. As part of this plan it is
anticipated that Martin Breuer will retire from the Board at the conclusion of
the Company's AGM to be held on 24 June 2025. Martin was appointed as a
Director of the Supervisory Board of the Company's Dutch predecessor, European
Assets Trust NV, in May 2016 and upon retirement will have served nine years
between both entities. On behalf of the Board and Shareholders of the Company
I thank Martin for his diligence and insight throughout his period of
appointment.
As a further part of the Board's succession plan and following a thorough
selection process which included the services of a search company, Monica
Tepes was appointed to the Board with effect from 7 February 2025. Monica
brings 20 years of investment trust experience built in a variety of roles,
buy-side and sell-side, which have given her varied insights into the sector.
Monica is currently a non-executive director of Golden Prospect Precious
Metals Limited. From 2017 to 2023 she was a director at finnCap Capital
Markets Limited (now Cavendish Capital Markets Limited), where she cofounded
and developed the Investment Companies team. Prior to this she was Head of
Investment Companies Research at Cantor Fitzgerald Europe and a no.1 Extel
rated alternatives funds analyst. She began her career as a funds analyst and
assistant portfolio manager at Killik & Co Wealth Managers. She is a
member of the AIC Statistics Committee, a CFA charterholder and has a degree
in Finance, Insurance, Banks and Capital Markets from the Academy of Economic
Studies Bucharest.
Annual General Meeting
The Company's AGM will be held at 3.00 pm on 24 June 2025 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 17 June 2025. 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, 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 23 June
2025. 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
Since the start of 2025 European markets have been impacted by two primary
factors: the threat of global trade tariffs from the new US administration and
the attempt to negotiate a rapid peace deal in Ukraine.
Against this backdrop the "Magnificent Seven" and the technology index in the
US have retraced. European equities have performed relatively much better.
The European bourses have been led by large cap stocks with the small and
mid-cap universe of the Company lagging.
The prospect of further interest rate cuts makes Europe more attractive as an
investment destination than the US, where expansionary policies may boost
inflation at least in the short term. The underperformance of Europe over the
last years relative to the US does not reflect the better European macro
environment. The US Federal Reserve has been cautious about interest rate cuts
whilst the European Central Bank has a freer hand. Overall there is much to
say about Europe which is positive. Economic growth may be low, but remains
resilient, further interest rate reductions should stimulate activity, and
valuations are lower than elsewhere, especially the US. As at February 2025,
the MSCI Europe 12-month forward P/E traded on a 33 per cent discount to the
S&P 500.
In terms of the outlook for European corporate performance, consensus
expectations are for high single digit European earnings growth, which is only
marginally less than the expectations for US average earnings growth. The
Manager expects smaller companies' earnings in Europe to match what is
expected in large cap. The market has begun to look forward to the attractive
combination of lower inflation leading to Central Bank easing, resilient
economic growth, and good corporate profitability. A rejuvenation in Europe,
prompted by economic growth, with the German government's plans acting as a
key stimulus, should boost earnings. This should be particularly helpful for
smaller companies, which typically have a greater exposure to their domestic
markets. Following three 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 Board is steadfast in prioritising Shareholders' interests. We expect the
Manager to clearly demonstrate that the measures taken over the past 18 months
are translating into improved investment performance against the Benchmark and
peers. This is coupled with the Board's recognition of the Company's
longer-term underperformance. With this in mind, and given the more
favourable outlook for Europe, the Board remains focused on delivering
performance for Shareholders and is alert to considering all opportunities for
the Company to achieve this.
Stuart Paterson
Chair
2 April 2025
Investment Manager's Review
Market Background
2024 proved a positive year for European stock markets, although the best
returns were achieved by larger companies. Drivers included falling
inflation, anticipation of interest rate cuts, which were duly implemented,
and encouraging corporate earnings. The resilience of the US economy caused
doubts over the pace of monetary easing, and geopolitics remained tense;
political uncertainty within the eurozone was a key theme.
The US started reducing interest rates in September 2024, with a cut of 50
basis points in response to cooling inflation and concerns that the economy
would weaken. US stocks hit highs as Donald Trump's presidential victory paved
the way for tax cuts and reduced regulation. But these may be inflationary,
so expectations for rate cuts in 2025 were dialled back.
Like the US Federal Reserve, the European Central Bank ("ECB") began the year
calling for patience, citing concerns about services inflation and wage
growth. Subsequent progress on inflation, and worries about economic softness,
prompted a rate reduction in June 2024 followed by three further cuts over the
year. Inflation in the eurozone fell below the target in September 2024 before
ticking higher late in the year.
Eurozone economic data remained mixed. The composite Purchasing Managers'
Index ("PMI") escaped contraction territory in March 2024, driven by growth in
services. The gauge continued to indicate growth until it slipped in
September; expansion in services contrasted with a decline in manufacturing.
Soft economic data hurt sentiment but raised hopes of monetary easing, and the
ECB continued to strike a dovish tone.
Politics caused bouts of volatility. President Macron called a French
parliamentary election, and a far-right victory was avoided, but Prime
Minister Barnier was ousted following a no-confidence vote. The German
government broke apart, and elections were held in February 2025 which will
probably result in a coalition headed by Friedrich Merz, of the CDU. Trump's
presidential victory and the threat of US tariffs dampened sentiment toward
European exporters.
Despite this confused backdrop, European markets ended the year posting gains
overall. However, due to limited risk appetite from investors and the
uncertain path of politics, economic growth and interest rates, smaller
companies lagged, as did growth-oriented stocks. This trend was disappointing,
as it was a continuation of the trends over 2022 and 2023 and contrasted with
the strong historic performance from smaller companies over longer time
periods.
Performance
For the year ended 31 December 2024 the Company recorded a sterling NAV total
return of -0.8% (euro: +3.9%). This compares to the total return of its
Benchmark, which rose +2.4% (euro: +7.3%) during the same period. The
sterling return to Shareholders for the year was impacted negatively by the
euro's weakness relative to sterling.
At the start of May, the management of the portfolio was transferred to me,
assisted by Philip Dicken. The combination of headwinds meant that the
Company's total return lagged the Benchmark. The Company's quality- and
growth-biased portfolio faced another year of value style outperforming,
though to a lesser extent than in the previous two years. Stock decisions
delivered some successes, whilst some positions were more problematic. I will
explain this in more detail later in my Review.
Macroeconomic factors continued to affect stock returns. This meant that
strong secular trends which provided a tailwind for smaller companies and
growth stocks have been less clear. The most important example of this has
been the long-term decline in interest rates. In sectoral terms the portfolio
was underweight financials and overweight technology relative to the
Benchmark. Both positions hindered relative returns, although stock
selection was the main driver of the underperformance.
Strong performers of note included our holdings in Cairn Homes (+74.8%),
Smurfit Westrock (+42.4%) Karnov (+67.0%) and CTS Eventim (+26.7%). An
overview of these holdings is provided below:
Cairn Homes, Consumer Discretionary, Ireland, £1.2 billion market cap, 4.0%
of net assets at year end
The shortage of housing stock in Ireland continues, and this gives Cairn
Homes, as one of the largest suppliers, a source of demand stretching out for
the foreseeable future. This is increasingly reflected in the company's
published guidance regarding future profitability. The change in government
in Ireland did not bring any change in the key policy which is termed
'Housing for All - a New Housing Plan for Ireland' and which provides a
supportive framework for the sector, and therefore for Cairn Homes' business,
until 2030.
Smurfit Westrock, Basic Materials, Ireland, £22.3 billion market cap, 3.6% of
net assets at year end
Smurfit Westrock was a notable positive contributor over the year. Towards the
end of the year the paper and packaging firm released its first quarterly
results as a combined entity and expressed optimism regarding its future
prospects in sustainable packaging. The company now has a large footprint in
Europe and the US and stands to benefit from merger efficiencies. This is a
business and a sector which was attractive even before the merger: when we
bought the stock it was called Smurfit Kappa, but the combination of Smurfit
Kappa with Westrock in the US gives the business a global footprint. This
brings synergy benefits, and the company is also now attracting wider
shareholder interest due to it is global operations and brand recognition.
Karnov, Industrials, Sweden, £646 million market cap, 1.7% of net assets at
year end
Karnov is a Swedish provider of online legal information services. The company
received a bid at a 28% premium to the prevailing share price from two private
equity groups, although it was rejected by larger shareholders and the private
equity groups retreated. The share price has held its position at the higher
levels, as even though the bid failed, it did so as shareholders believed the
premium was not high enough. This has led to a reappraisal of the value of the
company by the market. We sold some of the Company's position profitably at
these higher levels.
CTS Eventim, Consumer Discretionary, Germany, £6.5 billion market cap, 3.0%
of net assets at year end
CTS Eventim performed well for us - it is a German business providing an
online platform for ticketing for concerts and events. It also manages some
major venues which provides a further boost to this business. The company
produced strong Q2 results, better than the market expected, following a
strong first quarter. At the same time, management are merging two of their
promotion businesses, Peter Rigeer Konzertagentur and Dreamhaus, which will
increase efficiency and impact. They have now consolidated See Tickets,
another acquisition, reaffirming their successful M&A strategy. Success at
the Paris Olympics and Paralympics, where they were one of the lead ticketing
providers, has been followed up by signing the Los Angeles Olympics in 2028.
The recent Adele tour has also provided a useful fillip. Q3 2024 results
were less strong, partly as the equivalent period last year was boosted by
revenues from the Taylor Swift tour, but we expect growth to pick up later.
Some portfolio holdings turned in more disappointing performances over the
year. Gerresheimer, the German manufacturer of syringes for administering
prescription drugs, warned that inventory problems would depress
profitability. This is likely to keep the shares under a cloud for the
foreseeable future, especially as competitors are voicing concerns about the
market too. The company had experienced a boom during the pandemic as a
consequence of demand for injectable vaccines. This phase is now past. We
carefully reassessed this holding and decided to exit the investment.
Tecan, a Swiss-based laboratory automation business, was initially affected by
poor sector sentiment after a peer issued a profit warning. Later the company
themselves said they had seen market weakness and order delays, and this
prompted downgrades from analysts. Whilst results early in the year were
behind expectations, with demand proving weaker than expected, we believe the
second half is likely to have been better. The comparable period last year
saw weak Chinese demand, giving the company a lower hurdle to beat. We are
maintaining a holding in Tecan but have reduced its size to reflect our lower
level of optimism about prospects for the company.
Stabilus, the German manufacturer of gas springs, dampers and
electromechanical drives cut its financial guidance owing to weakness in the
automotive and commercial vehicle markets, particularly in premium cars which
are heavy users of its products. We have sold the position. Whilst the
shares have been a poor performer, we fear that the election of President
Trump and rising tariffs, may cast a shadow over the European automotive
sector, to which Stabilus is inextricably linked, for some time. Similarly
we have sold the position in Melexis, which provides integrated semiconductors
for use in the automotive industry. Weak trends in that industry will affect
Melexis too.
Portfolio Activity
The change in portfolio manager has brought the Company's access to the full
resources of Columbia Threadneedle Investments to a higher level. The previous
managers had already begun a process of alignment of portfolio holdings with
some of the idea generation produced by this team. So while there was no
wholesale revamp of the portfolio during 2024, notable changes have been made
which are outlined below.
For some years the Company has held a position in Azimut, a specialist Italian
fund management business which has been developing a global reach. The
market in Italy has become more competitive requiring greater digital
investment, and Azimut is, in our view, not well placed to benefit from these
changes. Even though its reach is global, and it is the largest independent
operator in Italy, it lacks the scale to compete effectively on the world
stage. For this reason we sold the Company's position and have instead
invested in Finecobank. Finecobank is a larger business and offers not only a
fund distribution platform, but access to banking and other financial services
online. Finecobank has cost advantages over traditional Italian financial
services firms which have labour intensive client servicing offerings paid for
by higher fees. More cost sensitive clients perceive that they can access a
cheaper service from Finecobank, who are able, via their scale and reach, to
negotiate good fees with third party fund providers. Because of this, they
have been gaining market share rapidly, and their model is capital-light,
enabling high returns on capital.
Also in Italy, we have invested in cables business Prysmian. There are two
major elements to this business, and both have exciting prospects. Firstly,
the move to alternative energy entails a huge reinforcement and expansion of
the electricity supply grid. Windfarms, for example, are often situated
offshore or in relatively inaccessible places and need extensive cabling to
link them to the grid. This is a major specialisation for Prysmian, who have a
particular expertise in the most difficult installations, where competition is
less evident and margins higher. The second part of Prysmian's business is in
data transmission cables; this area is also growing faster with the spread of
data centres and new demand as digitisation, including AI, expands.
We bought a holding in Konecranes, the Finnish crane manufacturer, which has
since reported strong results, driven by good performance across all business
segments. Konecranes is involved not only in cranes, but also in the wider
business of port installation, where it has gained market share as many
western clients are unwilling to use their Chinese competitors. Konecranes
does have a major western competitor, Cargotec, but Cargotec is undergoing a
major restructuring which potentially places them at a disadvantage owing to
the distractions involved.
During the year we sold Dalata Hotels. Whilst a well-managed business, the
VAT rise in Ireland and cost inflation due to higher wages are likely to
result in pressure on margins, EBITDA and customer demand. The recently
announced strategic review may bring some benefits, but we believe investors'
patience has worn thin.
Outlook
After a long period of low inflation and interest rates, markets have been
dominated by macroeconomic factors.
Central banks underestimated the inflation problem and had to raise interest
rates. Tighter monetary policy took effect and inflation fell. After these
falls in inflation, the interest-rate environment in Europe looks benign, more
so than in the United States. The ECB and the Federal Reserve have started
easing monetary policy and further interest-rate cuts are anticipated so a
recession can be avoided. Bond yields have risen; but in Europe this is more
because of domestic politics rather than inflation worries. Global
geopolitical conflicts and tensions are a concern, as is political uncertainty
in France and Germany.
In the United States, President Trump's majority in Congress should enable him
to push through policies on immigration, taxation, energy prices, trade
tariffs and global conflicts. All of these have an element of unpredictability
as we expect President Trump to make deals with countries and sectors to
cement his legacy. In European equities, there are reasons to remain
optimistic. Company valuations have been reset due to higher interest rates
and, over the longer term, share prices tend to follow earnings. As a result,
good companies can continue to grow, and their lower valuations have created
opportunities in the current climate. The impact of tariffs may be more muted
than expected on both European businesses and on inflation.
In managing the Company, our focus is on stock selection, informed by economic
and thematic views. However, the backdrop has been unhelpful, and we will
continue to carefully adjust the portfolio to reflect the economic
environment.
The portfolio is positioned for sustainable, secular growth and, following
underperformance, is more attractively valued in both absolute terms and
relative to the index.
We prefer companies that have a competitive advantage and pricing power
generated by brands, patented processes, regulatory barriers to entry and
strong market positions. All of this applies to European companies and is in
line with our philosophy and approach but is perhaps even more apparent in
small and mid-sized quality growth companies which, have been out of favour
for some years.
Mine Tezgul
Lead Investment Manager
2 April 2025
Principal Risks and Changes in the Year
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 23 of the Report and Accounts 2024.
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, events in the Middle East, and the threat of US
trade tariffs. The Directors have reviewed the risk register, which identifies
the risks that the Company is exposed to, the controls in place and the
actions being taken to mitigate them. A description of the principal ongoing
risks and uncertainties currently faced by the Company, and the controls and
actions to mitigate those risks, follows.
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.
No change 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 Liberum, 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.
Action: An annual strategy meeting of the Board is held to consider longer
term issues and opportunities for the Company. Representatives of the
Company's broker attended most Board meetings and updated Directors with
regard to changes in the demand for the Company's shares. During the year the
Board sought and received from Shareholders at the Annual General Meeting held
in May 2024 the powers to issue and buyback shares. On 2 May 2024, the Board
announced that Mine Tezgul would succeed Sam Cosh as the Company's Lead
Investment Manager. Mine is supported by Philip Dicken. Their biographies are
provided on page 13 of the Report and Accounts 2024. Following this, a number
of changes were made to the composition of the Company's investment portfolio.
The Board is closely monitoring the new team's implementation of the
investment process to assess the impact on performance relative to both the
Benchmark and the Company's peer group.
· 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 competition from other
investment vehicles, leads to a fall in demand for the Company's shares
resulting in an increasing share price discount, share buybacks and a
shrinking number of shares in issue.
Increase in overall risk in year.
Mitigation: Investment policy and performance are reviewed by the Board at
each meeting. Rigorous individual stock reviews are regularly performed by the
Manager and action taken to either hold, accumulate or sell. Cash, borrowing
and gearing limits are set and monitored regularly.
The Board closely monitors the level of discount and cost competitiveness.
Action: At each meeting of the Board, the Directors consider and discuss the
investment performance of the Company with the Company's investment managers.
The Board held its annual strategy meeting in October 2024. The Board reviews
at each meeting the level of and movements in the discount and the cost
competitiveness of the Company. With the increase in the Company's discount
during the year, the level of this risk has been raised by the Board.
· Risk description: The Manager
Failure of the Manager or loss of senior staff could cause reputational damage
and/or place the business in jeopardy.
Reduction in overall risk in year.
Mitigation: The Board meets regularly with the management of Columbia
Threadneedle Investments and receives an annual Audit Assurance Faculty Report
on its procedures. The Manager's appointment can be terminated at six months'
notice. Key man risk is limited by the team approach adopted by the investment
teams at Columbia Threadneedle Investments. In prior years, this also included
execution risk arising from the post-acquisition integration of BMO GAM EMEA
and Columbia Threadneedle Investments. This process is now complete.
Action: The Board reviewed the level of execution risk during the year. It was
lowered to reflect the successful completion of the integration process.
· Risk description: Service provider failure
Errors, fraud or control failures at service providers or loss of data through
increasing cyber threats or business continuity failure could damage
reputation or investors' interests or result in losses.
No change in overall risk in year.
Mitigation: The Board receives regular control reports from the Manager
covering risk and compliance including oversight of third-party service
providers. The Board has access to the Manager's Risk Manager and requires any
significant issues directly relevant to the Company to be reported
immediately. The Depositary is specifically liable for loss of any of the
Company's securities and cash held in custody.
Action: The Manager continues to strengthen and develop its Risk, Compliance
and Internal Control functions including IT security. Supervision of
third-party service providers has been maintained by the Manager and includes
assurances regarding IT security and cyber threat. The Depositary oversees
custody of investments and cash and reports to the Company in accordance with
the Alternative Investment Fund Managers Directive. During the year the Audit
and Risk Committee met with members of the Manager's internal audit function
to discuss the outcome of their recent reviews and planned activities.
· Risk description: Dividend Policy
The Company's high distribution policy becomes unsustainable.
No change in overall risk in year.
Mitigation: The annual dividend is calculated as six per cent of the closing
Net Asset Value of the Company as at 31 December of the preceding year. As
at 31 December 2024 the Distributable reserves of the Company was £266.8
million in comparison to a 2024 dividend cost of £21.2 million.
Action: On 8 January 2025 the Board declared an annual dividend for 2025 of
5.52 pence per share. This was calculated as six per cent of the 31 December
2024 NAV of the Company. At each Board meeting during the year the Directors
monitor the dividend yield of the Company. The Directors also monitor the
Company's distributable reserves, and the Net Asset Value five years
previously.
· Risk description: Geopolitical issues and their impact
Geopolitical issues including the impact of the war in Ukraine, conflict in
the Middle East and the threat of US trade tariffs.
No change in overall risk in year.
Mitigation: The Company has a clearly defined and approved strategy. The Board
can hold additional board meetings at short notice to discuss the impact of
significant changes in the macroeconomic and geopolitical environment. The
Company maintains a portfolio of diversified stocks. Forward looking stress
tests ranging from moderate to extreme scenarios are provided by the Manager
to the Board to support the Viability and Going Concern Statements.
Action: At each meeting of the Board, the Directors consider and discuss the
investment performance of the Company with the Company's investment managers.
The Board held its annual strategy meeting in October 2024. During its annual
strategy meeting, the Board received a presentation from a strategist from a
major German bank on the prospects for the German and wider Eurozone
economies. At the March 2025 Audit and Risk Committee meeting, the Directors
reviewed updated forward looking stress tests prepared by the Manager
providing support for the Viability and Going Concern Statements disclosed on
page 38 of the Report and Accounts 2024. As this remains highly elevated it is
an area of focus for Board review.
· Cyber risk
The risk of financial loss, disruption or damage to the reputation of the
Company due to the failure of information technology systems (including those
of a third party). The risk includes intentional damage to systems and the
theft of assets or data.
Increase in overall risk in year.
Mitigation: Performance of service providers is reviewed annually. The Board
receives an annual Audit Assurance Faculty Report from Columbia Threadneedle
Investments and other key service providers.
Columbia Threadneedle Investments operate extensive testing of cyber controls
including simulated attacks.
Action: The Board has raised the risk level due to the increased potential for
attacks and fraud. During the year members of the Information Security team at
Columbia Threadneedle Investments presented to the Board on its 2024
development and testing programmes.
· Regulatory and compliance (including ESG reporting)
To maintain its investment trust status, the Company is required to comply
with Section 1158 of the UK Corporation Tax Act 2010. The Company is also
required to comply with UK company law, is subject to the requirements of the
AIFMD and the relevant regulations of the London Stock Exchange and the
Financial Conduct Authority.
No change in overall risk in year.
Mitigation: At each Board meeting the Company receives an update from the
Secretary on legal, regulatory and accounting developments. The Company is a
member of the Association of Investment Companies which provides guidance on
regulatory developments. The Company has appointed EY LLP as its tax advisor
and Shepherd and Wedderburn as its legal counsel. The Manager has a long
established and highly regarded Responsible Investment team which presents to
the Board annually.
Action: The Manager continues to strengthen and develop its Risk, Compliance
and Internal Control functions. The
Depositary oversees custody of investments and cash and reports to the Company
in accordance with the Alternative Investment Fund Managers Directive
("AIFMD").
Five Year Horizon
The UK Corporate Governance Code requires a board to assess the future
prospects for a company, and report on the assessment within the annual
report.
Through a series of connected stress tests ranging from moderate to extreme
scenarios and based on historical information, but forward looking over the
five years commencing 1 January 2025, the Board assessed the risks of:
· the liquidity of the Company's portfolio;
· the existence of a borrowing facility;
· the effects of any significant future falls in investment values
and income receipts on the ability to repay and re-negotiate borrowings;
· the maintenance of dividend payments and the retention of
investors;
· the potential need for more share issuance capacity in the event
of unexpected market demand; and
· minimising the discount between the Company's share price and Net
Asset Value.
Based on their assessment, and in the context of the Company's business model,
strategy and operational arrangements set out above, the Board has a
reasonable expectation that the Company will be able to continue in operation
and meet its liabilities as they fall due over the five year period to April
2030. For this reason, the Board also considers it appropriate to continue
adopting the going concern basis in preparing the Report and Accounts.
Statement of Directors' Responsibilities in Respect of the Financial Statement
Each of the Directors, whose names and functions are listed on pages 34 and 35
of the Report & Accounts, confirm that, to the best of their knowledge:
· the Company financial statements, have been prepared in
accordance with UK-adopted International Accounting Standards, give a true and
fair view of the assets, liabilities, financial position and profit of the
Company;
· the Strategic Report includes a fair review of the development
and performance of the business and the position of the Company, together with
a description of the principal risks and uncertainties that it faces; and
· the annual report and financial statements, taken as a whole, are
fair, balanced and understandable and provide the information necessary for
Shareholders to assess the Company's position and performance, business model
and strategy.
On behalf of the Board
Stuart Paterson
Chair
2 April 2025
Statement of Comprehensive Income
For the year ended For the year ended
31 December 2024 31 December 2023
Revenue Capital Total Revenue Capital Total
£'000s £'000s £'000s £'000s £'000s £'000s
Gains on investments held at fair value through profit or loss - 9,515 9,515 - 32,185 32,185
Foreign exchange (losses)/gains (41) 150 109 2 (17) (15)
Income 9,029 554 9,583 7,874 - 7,874
Management fees (521) (2,085) (2,606) (550) (2,200) (2,750)
Other expenses (1,098) (47) (1,145) (969) (60) (1,029)
Profit before finance costs and taxation 7,369 8,087 15,456 6,357 29,908 36,265
Finance costs (276) (1,102) (1,378) (141) (564) (705)
Profit before taxation 7,093 6,985 14,078 6,216 29,344 35,560
Taxation (666) - (666) (672) - (672)
Profit for the year and total comprehensive income 6,427 6,985 13,412 5,544 29,344 34,888
Earnings per Ordinary Share (basic and diluted) 1.78 1.94 3.72 1.54 8.15 9.69
- pence
The total column of this statement represents the Company's Statement of
Comprehensive Income, prepared in accordance with UK-adopted International
Accounting Standards. The supplementary revenue return 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.
Statement of Changes in Equity
for the year ended
31 December 2024
Cumulative Total
Share Distributable Capital Revenue translation Shareholders'
capital reserve Reserves reserve reserve funds
£'000s £'000s £'000s £'000s £'000s £'000s
Balance as at 31 December 2023 37,506 281,605 38,015 - (3,130) 353,996
Movements during the year ended
31 December 2024
Interim dividends distributed - (14,817) - (6,427) - (21,244)
Total comprehensive income - - 6,985 6,427 - 13,412
Cumulative translation adjustment - - - - (15,555) (15,555)
Balance as at 31 December 2024 37,506 266,788 45,000 - (18,685) 330,609
for the year ended
31 December 2023
Cumulative Total
Share Distributable Capital Revenue translation Shareholders'
capital reserve Reserves reserve reserve Funds
£'000s £'000s £'000s £'000s £'000s £'000s
Balance as at 31 December 2022 37,506 296,945 8,671 - 4,505 347,627
Movements during the year ended
31 December 2023
Interim dividends distributed - (15,340) - (5,544) - (20,884)
Total comprehensive income - - 29,344 5,544 - 34,888
Cumulative translation adjustment - - - - (7,635) (7,635)
Balance as at 31 December 2023 37,506 281,605 38,015 - (3,130) 353,996
Statement of Financial Position
at 31 December 2024 2023
£'000s £'000s
Non-current assets
Investments at fair value through profit or loss 344,724 375,066
Current assets
Other receivables 2,502 3,063
Cash and cash equivalents 12,544 2,089
Total current assets 15,046 5,152
Current liabilities
Other payables (223) (226)
Bank Loan (28,938) (25,996)
Total current liabilities (29,161) (26,222)
Net current liabilities (14,115) (21,070)
Net assets 330,609 353,996
Capital and reserves
Share capital 37,506 37,506
Distributable reserve 266,788 281,605
Capital reserves 45,000 38,015
Revenue reserve - -
Cumulative translation reserve (18,685) (3,130)
Total Shareholders' funds 330,609 353,996
Net Asset Value per Ordinary Share - pence 91.82 98.31
Statement of Cash Flows
for the year ended 31 December 2024 2023
£'000s £'000s
Cash flows from operating activities before interest and dividends received
and interest paid
(3,174) (4,328)
Dividends received 9,783 7,388
Interest received 240 321
Interest paid (1,387) (654)
Cash flows from operating activities 5,462 2,727
Investing activities
Purchase of investments (123,311) (138,453)
Sale of investments 145,945 128,176
Other capital expenses (47) (60)
Cash flows from investing activities 22,587 (10,337)
Cash flows before financing activities 28,049 (7,610)
Financing activities
Equity dividends distributed (21,244) (20,884)
Drawdown of bank loan 4,301 26,293
Repayment of bank loan - (8,589)
Cash flows from financing activities (16,943) (3,180)
Net movement in cash and cash equivalents 11,106 (10,790)
Cash and cash equivalents at the beginning of the year 2,089 13,317
Effect of movement in foreign exchange 109 (15)
Translation adjustment (760) (423)
Cash and cash equivalents at the end of the year 12,544 2,089
Represented by:
Cash at bank 26 18
Short term deposits 12,518 2,071
12,544 2,089
Notes
1 Basis of preparation
The functional currency of the Company is the euro and presentational currency
is pound sterling as the Board believe this will provide clarity of the
Company's financial statements for its Shareholders, the overwhelming majority
of whom are located in the United Kingdom.
2 Earnings per ordinary share
Revenue return
The revenue return per share of 1.78p (2023: 1.54p) is based on the revenue
return attributable to Shareholders of £6,427,000 profit (2023: £5,544,000
profit).
Capital return
The capital return per share of 1.94p (2023: 8.15p) is based on the capital
return attributable to Shareholders of £6,985,000 profit (2023: £29,344,000
profit).
Total return
The total return per share of 3.72p (2023: 9.69p) is based on the total return
attributable to Shareholders of £13,412,000 profit (2023: £34,888,000
profit).
Weighted average ordinary shares in issue
The returns per share are based on a weighted average of 360,069,279 (2023:
360,069,279) ordinary shares in issue during the year.
3 Dividends
The Board has declared a total dividend for 2025 of 5.52 (2024: 5.90) pence
per share in accordance with its aim of paying at a rate of six per cent of
the closing Net Asset Value of the preceding year.
4 Financial risk management
The Company is an investment company, listed on the London Stock Exchange, and
conducts its affairs so as to qualify in the United Kingdom ("UK") as an
investment trust under the provisions of section 1158 of the CTA. In so
qualifying, the Company is exempted in the UK from corporation tax on capital
gains on its portfolio of investments.
The Company invests in equities in order to achieve its investment objective,
which is to achieve growth of capital through investment in quoted small and
medium-sized companies in Europe, excluding the United Kingdom. In pursuing
this objective, the Company is exposed to financial risks which could result
in a reduction in the Company's value of the net assets and profits available
for distribution by way of dividend. These financial risks are principally
related to the market (currency movements, interest rate changes and security
price movements), liquidity and credit. The Board, together with the Manager,
is responsible for the Company's risk management. The full details of
financial risks are contained in note 22 of the Report and Accounts.
5 Annual general meeting
The 2025 AGM will be held on 24 June 2025 at 3.00pm at Cannon Place, 78 Cannon
Street, London EC4N 6AG. The Notice of the AGM is set out on pages 83 to 86 of
the annual report.
6 Report and accounts
The report and accounts for the year ended 31 December 2024 will be posted to
Shareholders and made available on the website www.europeanassets.co.uk
(http://www.europeanassets.co.uk) shortly. Copies may also be obtained by
mailing the Company's registered office, Cannon Place, 78 Cannon Street,
London EC4N 6AG.
By order of the Board
Columbia Threadneedle Investment Business Limited, Secretary
2 April 2025
- ENDS -
Enquiries:
Scott McEllen
Columbia Threadneedle Investment Business
Limited Tel: 0131 573 8300
Alex Collins and Tom Scrivens
Panmure Liberum Limited - Corporate Broker and
Financial
Adviser
Tel: 020 3100 2000
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