Half-year Report
24/02/2023 07:00
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RNS Number : 9094Q European Opportunities Trust PLC 24 February 2023
European Opportunities Trust PLC (the 'Company')
Legal Entity Identifier: 549300XN7RXQWHN18849
Half Yearly Financial Report for the six months to 30 November 2022
Summary of returns for the six months to 30 November 2022
30 November 31 May
2022 2022 % change
Net asset value per share (pence) 844.5 850.6 (0.7)
Net asset value total return (with dividends added back) (*) (0.4)
Middle market share price (pence) 743.0 746.0 (0.4)
Share price total return (with dividends added back)* (0.1)
MSCI Europe Total Return Index in GBP (Benchmark) 2.1
Discount to net asset value (%) (12.0) (12.3)
(*)A dividend of 2.5p was paid on 28 November 2022.
Long term track record
Annualised return since launch
Since launch on 20.11.2000 %
%
3 years 5 years 10 years
To 30 November 2022 % % %
Net asset value total return (with dividends added back) 0.8 19.0 155.8 848.0 10.8
Share price total return (with dividends added back) (8.6) 6.1 124.4 695.9 9.9
MSCI Europe Total Return Index in GBP (Benchmark) 19.4 30.2 128.9 226.3 5.5
Source: MSCI & Devon Equity Management Limited. Past performance is no
guide to the future.
To note: Reduction in management fees.
Chairman's Statement
I am pleased to present these interim results to 30th November 2022 and my
first statement as Chair since taking over at the last AGM. I would like to
take this opportunity to thank my predecessor, Andrew Sutch, for his dedicated
service to the Company and its shareholders as a Director for eleven years,
and Chair for five.
Our Investment Manager's approach to investment
As your Company's Investment Manager, Alexander Darwall, along with his
colleagues at Devon, takes a consciously differentiated approach to
investment, one that has been consistently applied since the launch of the
Company. In his own words, he describes his approach as thinking and acting as
an owner and investor, not as a speculator, and investing in a concentrated
portfolio of 'special' companies. Past experience suggests that the earnings
of our portfolio companies have tended to be resilient in adverse economic
conditions and their share prices have tended to recover strongly in its
aftermath. The Board supports the belief that the consistency of this approach
over the past twenty-two years has been the key contributor to your Company's
significant long-term outperformance since launch relative to its Benchmark,
the MSCI Europe Total Return Index in GBP.
Having said that, the concentrated nature of the Company's portfolio, and its
high degree of differentiation from the Index can lead to shorter-term periods
of underperformance. This has proved true of the six months under review. In
particular, the relative absence of exposure to the hydrocarbon energy and
financial sectors compared to the benchmark, the MSCI Europe Total Return
Index, has weighed on relative returns. While shorter-term factors such as
rising interest rates and disruption to energy supplies due to the invasion of
Ukraine have supported these sectors, they do not meet the Manager's criteria
for superior, visible long-term growth.
On a longer-term basis, our Manager is confident that our portfolio is
well-positioned for growth as the world moves on from the trials of recent
years. More detailed comments on the portfolio are set out in the Investment
Manager's Review.
Investment performance
During the six months to 30 November 2022 the total return on the NAV per
share of the Company was -0.4% (with dividends added back). This compares with
a total return from the MSCI Europe Total Return Index of 2.1% and a share
price total return of -0.1% (with dividends added back) over the same period.
Over the life of the Company (since launch on 20 November 2000 to 30 November
2022), the annualised total return on the NAV per share has been 10.8% and the
annualised total return on the share price has been 9.9%. The annualised total
return on the MSCI Europe Index over the same period has been 5.5%.
As of the close of business on 21 February 2023, your Company had total assets
(with loans added back) of £975 million, the net asset value (NAV) per share
was 889p and the middle market price per share on the London Stock Exchange
was 766p, representing a 13.8% discount to NAV.
Discount Management
The Board considers that it is not in shareholders' interests for the ordinary
shares of the Company to trade at a significant discount to the prevailing net
asset value. The Board's policy is to maintain the discount in single digits
in normal market conditions.
During the period under review, the discount level has generally been outside
the Board's desired parameters, reflecting in part the somewhat abnormal
market conditions. However, a total of 1,144,742 shares were repurchased for
treasury during the period under review pursuant to the Company's policy. On
16 November, the Board also appointed Singer Capital Markets as broker to the
Company, in succession to Cenkos Securities PLC. Our new brokers are working
closely with our Investment Manager in marketing the Company and thereby
identifying new investors whose demand for shares would also serve to improve
the share price.
Continuation Vote
At every third Annual General Meeting ("AGM") an ordinary continuation
resolution is proposed. The next such resolution will be proposed at the 2023
AGM (to be held in November).
Gearing
On 30 November 2022, the net gearing level on the Company's investments was
8.7% (after offsetting cash deposits against the £75 million drawn down on
that date). Our Investment Manager tends to increase gearing at times of
perceived low valuations, whilst reducing it as markets recover. This approach
has added sustained value over the course of your Company's history and we
continue to encourage the Investment Manager to consider the use of gearing as
a tactical tool to improve returns.
The Company renewed its revolving credit facility with The Bank of Nova
Scotia, London Branch on 9 September 2022 with a maximum drawable amount of
£100 million available until September 2023 and credit approval for an
additional 'accordion' amount available upon application for a further £50
million.
Our Investment Manager
In July 2022, our Investment Manager took on responsibility for the regulatory
role of Alternative Investment Fund Manager ("AIFM") to the Company in place
of Fundrock Partners Limited. This transition followed a detailed review of
the Investment Manager's internal controls, compliance and risk environment by
both the Board and our depositary, JP Morgan. The Investment Manager continues
to build on the robust operational platform established in 2019 and, in terms
of the investment team working for your Company, Alexander is now supported
and challenged by three other investment professionals in pursuit of our
strategy.
Reduction in management fee
The Board continues to keep all costs under careful review and remains focused
upon delivering value to shareholders. As part of this oversight, the Board
and Devon have agreed a reduction in the level of the investment management
fee payable to our Investment Manager. With effect from 1 June 2023, Devon
will be entitled to reduced aggregate management fees of 0.80% per annum on
net assets up to £1 billion; 0.70% per annum on any net assets over £1
billion up to £1.25 billion; and 0.60% per annum on net assets above £1.25
billion.
Previously the Investment Manager was entitled to 0.90% per annum on net
assets up to £1 billion and 0.80% in respect of any net assets above £1
billion.
Outlook
To quote the somewhat over-used proverb, these are certainly "interesting
times". It has become a cliché to describe current conditions as
unprecedented, but neither can a major war in Europe and inflation in or near
double figures be described as entirely normal. 2022 will be remembered as a
very difficult time for investors, not just in equities but also in fixed
income and a range of other assets.
It is difficult to envisage a speedy resolution to the global geo-political
and macro-economic challenges, but as a Board we are supportive of the
Manager's focus on a relatively concentrated portfolio of high return,
strongly moated and globally oriented businesses. This high conviction
approach to investment has been consistently applied to the portfolio since
launch and has produced exceptional long-term returns in the past; we believe
that your portfolio is well-placed to produce similar returns in the future.
Matthew Dobbs
Chairman
24 February 2023
Investment Manager's Review
The total return on the net asset value of the Company's shares was -0.4%
during the six months to 30th November 2022. This compares with an increase of
2.1% in our Benchmark, the MSCI Europe Total Return Index in GBP.
Performance
Whilst our investee companies delivered satisfactory or, in some cases, more
than satisfactory results during the period under review, their share prices
did not respond as positively and quickly as we had hoped. There were also
stock mistakes, notably Grifols and Mowi, which we discuss below. Moreover,
the portfolio has a low exposure to oil and gas companies which performed
strongly. Nevertheless, if share price performances did not vindicate our
investment style, we believe that, in the main, company performances did.
On the back of worsening inflation, the COVID era of 'free' money, or rather
artificially low interest rates, has given way to a period of rising interest
rates. The ECB's Main Refinancing rate has risen from 0% in November 2021 to
2% at the end of November 2022. The 3 months Euribor interest rate, which was
a negative 0.6% in November 2021, was a positive 2.0% a year later.
Anticipating further rises in interest rates, markets now price rates to rise
to around 3.1% in the summer of 2023. Indeed, the European Central Bank raised
interest rates by another 50 basis points in December, taking the deposit rate
to 2.5%. Inflation forecasts over the next two years are for about 6.0% in
2023 and 3.4% in 2024. Europe's inflation problems are probably worse than
most other regions of the world. The energy transition is being pursued more
zealously in Europe than elsewhere, this is proving costly. Moreover, in
addition to the headline interest rate increases, Quantitative Easing (QE)
giving way to Quantitative Tightening (QT) has the effect of tightening
financial conditions still further. Europe's low economic growth is also
compounding problems. The IMF forecasts that the EU economy will expand by
0.7% in 2023, as compared with 2.7% for world economic growth. This is
mirrored in corporate earnings, with analysts' expectations for Eurozone
companies' earnings contracting by around 8-10% in 2023, before recovering in
2024.
This combination of rising interest rates and falling earnings, presented a
valuation 'challenge' to highly valued stocks which were caught in a
downdraught. However, as earnings resilience and pricing discipline assert
themselves, we expect the stock market to reward 'true' growth companies with
a rerating. We expect our companies' earnings to benefit both from secular, as
opposed to cyclical, drivers and from their global reach. The evidence to
support our confidence in the earnings growth of our companies is described
below in 'Contribution'. Our 'value not volume' strategy is, we think,
well-placed.
Our positioning remained entirely consistent with your Company's long term
'offer'. Our underweight exposure to the energy sector should be seen in this
context. We eschew commodity companies, just as we generally avoid utilities
(burdened by heavy regulations) and mainstream banks (they have commodity
characteristics). The reason is that over time, 'special' companies, those
which have strong positions, enjoying good growth, and where supply
constraints help keep profitability elevated, should outperform commodity
companies. Supply of commodities will usually respond to good profitability
and erode that profitability in due course. This is not the case with
companies we consider to be 'special'. These, we believe, can grow profits for
longer without undue impact from new competitors and without undue attention
from regulators.
In selecting our investments, we have other important considerations. Our
companies typically have less debt than the average company in our investment
universe. We think this is prudent. However, it is not clear that this stance
helped performance greatly in the period under review. Another facet of the
portfolio is its global exposure. There are many reasons why we like this
global exposure: a bigger addressable market, some risk mitigation, success as
a form of vindication. However, the turmoil of the last year has not
necessarily helped the fund. Lockdowns in China and very high freight costs
have probably been negative. On the other hand, our companies' fortunes will
have been improved by exposure to markets like the US and Brazil where
economic growth was robust.
Contribution
The biggest single contributor to performance was, yet again, Novo Nordisk. In
part, of course, as our biggest holding any success is magnified in terms of
contribution to the fund's performance. The company reported strong results
and increased its guidance. The simple idea remains the same: Novo Nordisk is
a world leader, together with one significant competitor, in addressing two
massive, global therapeutic areas, the treatment of diabetes and obesity. The
company will report progress on important clinical trials in the course of
2023. There is still much to play for. The next most important contributor was
also our second biggest holding, Experian. Its relatively good performance is
due to issuing strong results and guidance, reflecting both the good
conditions for their services in the US and Brazil, and also the new
opportunities to develop its consumer facing businesses. Much the same can be
said of Edenred, the French-listed 'specific purpose' vouchers business. Here
again, Brazil is an important and growing market. Edenred, too, has many
opportunities to develop more consumer facing services. Deutsche Boerse, the
German-listed exchanges business, was another good contributor to performance.
Its revenues have grown faster than previously anticipated on the back of
rising interest rates and volatile energy markets. Neste, listed in Finland,
is a refiner of oil and producer of renewable diesel products. It benefits
from higher energy prices as, typically, they price their renewables products
at a premium to conventional diesel. The company is expanding their production
to meet demand for Sustainable Aviation Fuel (SAF). We expect the market for
SAF to grow rapidly aided by government mandated targets for renewables in the
aviation industry. Finally, we highlight the contribution from Infineon, the
German-listed world leader in power semiconductors. Infineon has delivered
excellent results in 2023 and substantially raised its medium-term guidance.
Electric vehicles (EV) have a much higher content of power semiconductors than
conventional cars and the company should be a significant beneficiary of the
transition to EVs.
The biggest detractor from performance was, once again, Grifols. As one of the
world's leaders in the fractionation of blood plasma, Grifols continues to
suffer from higher donor costs. Covid concerns kept many would-be donors away
from collection centres in the US. They have been slow to return, in part
because generous welfare payments had blunted the supply of donors. Moreover,
as plasma collections are labour intensive, staff shortages and higher
staffing costs have weighed on the company. Another perceived threat to
Grifols' business is a new class of drugs which threatens to substitute
Grifols' plasma fractionated products. However, we believe that the root of
Grifols' problems is poor senior management rather than headwinds for the
business itself. We note the company's stated commitment to a deep-rooted
reorganisation.
Mowi shares also detracted from performance. Our holding in Mowi, the world's
leading salmon farming company, is a good illustration of our policy to have
investments in as broad a range of activities as possible, whilst fitting our
investment criteria. This portfolio is not built narrowly on a few sectors or
ideas, rather it encompasses many diverse, uncorrelated growth opportunities.
Mowi's fundamentals are good. Demand for salmon continues to increase; supply
growth is constrained; and prices have remained elevated. However, we were
taken by surprise by the Norwegian government's proposals to impose new, high
taxes on the sector, effectively a form of nationalisation without
compensation. We await the final, we hope modified, proposals before
finalising our decision.
Another underperformer was Bayer. Although it reported good results and raised
its profit forecasts, the shares are still held back by its legal travails in
the US. The principal driver of its profits' growth is the Crop Science
division, which benefits from the buoyancy of the arable crop markets
worldwide. We believe that the legal liabilities for its glyphosate product
(Roundup) are adequately provisioned in the accounts and more than reflected
in the share price. Consequently, we continue to see this as a good
investment.
Our holding in Intermediate Capital Group (ICG) also reduced our returns. Its
position as a well-diversified private equity and private debt manager means
that it should benefit from the structural growth of 'Alternatives'. However,
concerns about the indebtedness of the private equity sector in general
weighed on its shares. We like the high visibility of ICG's revenues.
Investors' money is locked up in funds run by ICG for many years. Critically,
we think that ICG have avoided the riskiest areas of private equity and have
the added protection of having less risky debt.
Finally, we note the underperformance of our holding in Dassault Systèmes.
The company is a world leader in computer aided design and computer aided
manufacturing technologies. It is constantly innovating and exploring new
opportunities; their ambitions are impressive and well-founded. We remain
confident that this is a high-quality investment.
Activity and gearing
The main effect, and one of the aims, of our trading activity was to reduce
our borrowings by approximately £15 million to £75 million. This has had the
effect of reducing gearing from 9.4% at the end of the last financial year to
8.7% at the end of the period under review. A feature of the portfolio is that
our investee companies have, in general, less debt and stronger balance sheets
than the average. This allows us a little leeway in gearing the portfolio. Our
confidence in our holdings explains the decision to gear the fund. However,
borrowing rates have increased, currently about 2.64%. This is an important
consideration in determining the Company's borrowings and for this reason, all
other things being equal, we are more inclined to reduce the Company's
borrowings.
The biggest sale was that of our entire holding in the Swiss-listed Barry
Callebaut, the world's leading manufacturer of high- quality chocolate and
cocoa products. This is a fine company. However, we concluded that there were
better opportunities elsewhere and sold. We trimmed holdings of Mowi (before
the Norwegian government's tax proposals), GTT, Worldline, Infineon,
bioMérieux and Pets At Home on valuation grounds. The bigger sales of Novo
Nordisk and RELX were prompted by strong performance, reducing already
significant weightings.
The only new purchase of significance was Genmab, a Danish biotech company,
focussed primarily on oncology, producing monoclonal and bispecific
antibodies. It has leadership in the most complex aspects of antibodies
production and an impressive pipeline. We see opportunities for the company to
develop in other therapeutic areas. Their potential addressable market is
huge. We also took a very small position in Elkem, the Norwegian-listed
producer of silicones and silicon products, operating worldwide. We believe
that the company enjoys a sustainably favourable cost position which will
ensure that it remains a leader as demand grows. Other purchases added to
existing positions where we were prompted by good results and news.
Outlook
The challenges faced by Europe are well-known: the energy crisis, inflation,
higher interest rates, weak demand in China for Europe's exports, and
dysfunctional labour markets. European equities are out of fashion and
international investors have been substantial sellers of European equities.
Where there is optimism, it might be unfounded in that the energy crisis is
likely to remain a blight on Europe for years, and interest rates are likely
to remain high for years. Europe's energy transformation, exacerbated by the
conflict in Ukraine, massively increases Europe's energy bill. By some
estimates power and gas costs are increasing by around EUR500bn between 2022
and 2024, something like 3% of the EU's GDP. Consumer spending has remained
remarkably robust, perhaps indicating an expectation that the authorities
will, once again, come to the rescue with cheap or 'free' money. We think this
is unlikely. Inflation has set in, and the authorities will have to keep
interest rates high in an attempt to bring it down. Inflation impairs the
prospects for almost all asset classes including equities. Moreover, the
policy direction is Quantitative Tightening ("QT") not Quantitative Easing
("QE"), meaning that interest rates are likely to remain high.
Against this sobering macro background, we remain confident about our
strategy. We identify significant value creating opportunities with our
investments which trump these macro concerns. We would hope that proof of
progress in capturing these opportunities will come in 2023 with, variously,
the results of clinical trials and drug approvals, new customer wins, profits
growth and technology breakthroughs. Innovations which deliver value for
customers will continue to be rewarded. Our strategy is based on identifying
companies which serve their customers with such value adding innovations. In
most cases, our companies compete and succeed on the world stage, hugely
increasing their addressable markets. Moreover, our selection of companies
with 'measurable, monetisable and collectable' business models is, we think, a
less risky strategy. Our companies, typically, have data to show the
superiority of their products or services; they can price for the value
delivered; and they are serving customers who can and will pay. This approach
contrasts with more consumer-facing and fashion-orientated strategies, which
we believe are vulnerable to a further squeeze on consumers' disposable
incomes. We look forward with confidence.
Alexander Darwall
Devon Equity Management Limited
24 February 2023
Investment Portfolio
as at 30 November 2022
30 November 2022 31 May 2022
Company Sector Country of Listing Market % of Investments % of Investments
Value
£'000
Novo Nordisk Health Care Denmark 113,842 12.3 11.2
Experian Industrials United Kingdom 91,950 9.9 9.1
RELX Industrials Netherlands 83,911 9.0 9.4
Dassault Systèmes Information Technology France 69,769 7.5 8.1
Deutsche Boerse Financials Germany 62,685 6.8 5.4
bioMérieux Health Care France 52,995 5.7 5.8
Edenred Information Technology France 50,017 5.4 4.1
Genus Health Care United Kingdom 48,203 5.2 4.5
Bayer Health Care Germany 46,349 5.0 5.2
SOITEC Information Technology France 37,206 4.0 4.3
Infineon Technologies Information Technology Germany 36,620 3.9 3.7
Intermediate Capital Group Financials United Kingdom 27,350 3.0 3.8
Merck Health Care Germany 26,905 2.9 2.4
Gaztransport & Technigaz Energy France 26,303 2.8 3.3
Neste Energy Finland 25,854 2.8 2.1
Grifols Health Care Spain 24,010 2.6 4.8
Oxford Instruments Information Technology United Kingdom 16,062 1.7 1.4
Darktrace Information Technology United Kingdom 15,825 1.7 1.6
Mowi Consumer Staples Norway 12,284 1.3 2.5
Genmab Health Care Denmark 11,805 1.3 -
Borregaard Materials Norway 9,283 1.0 1.1
Wolters Kluwer Industrials Netherlands 9,096 1.0 0.8
Network International Holdings Information Technology United Kingdom 7,569 0.8 0.5
Grenke Financials Germany 6,545 0.7 0.8
Pets at Home Group Consumer Discretionary United Kingdom 3,997 0.4 0.8
Worldline Information Technology France 3,886 0.4 0.6
Elkem Materials Norway 3,027 0.3 -
OHB Industrials Germany 2,979 0.3 0.3
Grifols Preference Health Care Spain 2,757 0.3 0.5
Total Investments 929,084 100.0
Classification of Investments
as at 30 November 2022
% of Investments % of Investments
Country of Listing 30 November 2022 31 May 2022
Denmark 13.6 11.2
Finland 2.8 2.1
France 25.8 26.2
Germany 19.6 17.8
Netherlands 10.0 10.2
Norway 2.6 3.6
Spain 2.9 5.3
Switzerland - 1.9
United Kingdom 22.7 21.7
Total 100.0 100.0
% of Investments % of Investments
Industry Sector 30 November 2022 31 May 2022
Consumer Discretionary 0.4 0.8
Consumer Staples 1.3 4.3
Energy 5.6 5.4
Financials 10.5 10.0
Health Care 35.3 34.5
Industrials 20.2 19.6
Information Technology 25.4 24.3
Materials 1.3 1.1
Total 100.0 100.0
Contributors to Performance
The following tables detail which stock positions had the greatest impact on
performance during the six months to 30 November 2022 on an absolute basis,
both positive and negative. The Benchmark MSCI Europe Total Return Index in
GBP increased by 2.1% during the period under review:
Positive Contributors
6 month contribution
Portfolio Benchmark weight 6 month to NAV
weight at at 30.11.2022 price return
Stock 30.11.2022 % performance %
% %
Novo Nordisk 12.30 2.18 17.69 2.05
Experian 9.90 0.34 10.74 1.04
Endenred 5.40 0.15 18.61 0.82
Deutsche Boerse 6.80 0.37 14.47 0.82
Neste 2.80 0.23 18.79 0.40
Genus 5.20 - 6.19 0.37
Infineon Technologies 3.90 0.46 10.63 0.37
Network International Holdings 0.80 - 55.02 0.30
RELX 9.00 0.57 2.86 0.30
Woulters Kluwer 1.00 0.31 16.84 0.14
Negative Contributors
6 month contribution
Portfolio Benchmark 6 month to NAV
weight at weight at 30.11.2022 price return
Stock 30.11.2022 % performance %
% %
Grifols 2.90 0.03 (47.27) (2.52)
Mowi 1.30 0.07 (36.22) (0.99)
Bayer 5.00 0.60 (15.42) (0.83)
Intermediate Capital Group 3.00 - (21.14) (0.80)
Dassault Systèmes 7.50 0.26 (8.93) (0.75)
SOITEC 4.00 - (8.56) (0.42)
Borregaard 1.00 - (15.36) (0.41)
Grenke 0.70 - (21.31) (0.19)
Darktrace 1.70 - (7.31) (0.18)
Pets at Home - - (22.42) (0.17)
Contributors to Performance
The following tables detail which sectors had the greatest impact on
performance during the period on an absolute basis, both positive and
negative:
Positive Contributors
6 month contribution
Portfolio Benchmark 6 month to NAV
weight at weight at 30.11.2022 price return
Sector 30.11.2022 % performance %
% %
Industrials 20.20 14.42 7.17 1.48
Energy 5.60 6.85 9.00 0.43
Information Technology 25.40 7.28 1.07 0.21
Negative Contributors
6 month contribution
Portfolio Benchmark 6 month to NAV
weight at weight at 30.11.2022 price return
Sector 30.11.2022 % performance %
% %
Consumer Staples 1.30 13.13 (29.31) (0.95)
Health Care 35.30 15.75 (2.81) (0.74)
Materials 1.30 7.41 (16.65) (0.18)
Financials 10.50 16.32 (1.64) (0.16)
Consumer Discretionary 0.40 10.35 (22.42) (0.15)
Statement of Directors' Responsibilities in Relation to the Financial
Statements
Going Concern
The Half Yearly Financial Report has been prepared on a going concern basis.
The Directors consider that this is the appropriate basis as they have a
reasonable expectation that the Company has adequate resources to continue in
operational existence and meet its financial commitments as they fall due for
a period of at least twelve months from the date of approval of the unaudited
financial statements. In considering this, the Directors took into account the
Company's investment objective, risk management policies and capital
management policies, the diversified portfolio of readily realisable
securities which can be used to meet short-term funding commitments and the
ability of the Company to meet all of its liabilities and ongoing expenses.
The Directors continue to pay particular attention to the operational
resilience and ongoing viability of the Investment Manager and the Company's
other key service providers. Following review, the Directors are satisfied
that Devon and the Company's other key service providers, notably JP Morgan,
have the necessary contingency planning measures in place to ensure that
operational functionality continues to be maintained.
The Directors continue to adopt the going concern basis of accounting in
preparing the unaudited financial statements while recognising that the
Articles of Association of the Company require a continuation vote at every
third AGM, the next of which will take place at this year's AGM in November.
Principal and emerging risks and uncertainties
The principal risks facing the Company are investment strategy risk, market
risk, operational risk and legal and regulatory risk. Full details of these
risks and how they are managed are set out on pages 22 to 23 of the Company's
Annual Report for the year ended 31 May 2022 which is available on the
Company's website at www.europeanopportunitiestrust.com. The principal risks
have not changed since those detailed in the Annual Report. The Board
continues to monitor the principal risks facing the Company.
In addition, the Board monitors emerging risks. No new emerging risks were
identified during the period under review. As part of its assessment of the
viability of the Company, the Board has reviewed and considered the principal
risks and uncertainties that may affect the Company, including emerging risks
and ongoing matters relating to the COVID-19 pandemic, the economic turmoil
following the invasion of Ukraine, rises in energy prices, inflation and
higher taxes. The Board has also considered the Company's business model
including its investment objective and investment policy, a forecast of the
Company's projected income and expenses and the liquidity of the Company's
portfolio to ensure that it will be able to meet its liabilities as they fall
due.
Related Party Transactions
Devon is considered to be a related party of the Company under the Listing
Rules. As such, its appointment as the Company's AIFM and its entry into a new
investment management agreement (the 'Transaction') amounted to a small
related party transaction under Listing Rule 11.1.10 R. On 1 July 2022 Cenkos
Securities PLC, the Company's sponsor, provided written confirmation to the
Company that the Transaction was fair and reasonable as far as the
shareholders of the Company are concerned.
Directors' Responsibility Statement
We, the directors of European Opportunities Trust PLC, confirm to the best of
our knowledge that:
(a) the condensed set of financial statements have been prepared in
accordance with the Accounting Standards Board's statement 'Half Yearly
Financial Reports' and give a true and fair view of the assets, liabilities,
financial position and profit/(loss) of the Company for the period ended 30
November 2022;
(b) the Half-Yearly Financial Report includes a fair review of the
information required by Disclosure Guidance and Transparency Rule 4.2.7R; and
(c) the Half-Yearly Financial Report includes a fair review of the
information required by Disclosure Guidance and Transparency Rule 4.2.8R on
related party transactions.
The Half-Yearly Financial Report has not been audited or reviewed by the
Company's auditors.
By Order of the Board
Matthew Dobbs
Chairman
24 February 2023
Income Statement
for the six months ended 30 November 2022
Six months ended Six months ended
30 November 2022 30 November 2021
(unaudited) (unaudited)
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
(Loss)/gain on investments - (7,075) (7,075) - 110,070 110,070
Other exchange loss/(gain) - 609 609 - (23) (23)
Income from investments 6,455 - 6,455 6,219 - 6,219
Other income 6 - 6 - - -
Total income/(loss) 6,461 (6,466) (5) 6,219 110,047 116,266
Investment management fee (3,745) - (3,745) (4,502) - (4,502)
Other expenses (489) - (489) (577) - (577)
Total expenses (4,234) - (4,234) (5,079) - (5,079)
Net return/(loss) before finance costs and taxation
2,227 (6,466) (4,239) 1,140 110,047 111,187
Finance costs (1,036) - (1,036) (411) - (411)
Return/(loss) before taxation* 1,191 (6,466) (5,275) 729 110,047 110,776
Taxation (374) - (374) (413) - (413)
Net return/(loss) after taxation* 817 (6,466) (5,649) 316 110,047 110,363
Return/(loss) per ordinary share 0.80p (6.35)p (5.55)p 0.30p 104.12p 104.42p
* There is no other comprehensive income and therefore the 'Net return/(loss)
after taxation' is the total comprehensive income/(loss) for the financial
period.
The total column of this statement is the income statement of the Company,
prepared in accordance with IFRS.
The supplementary revenue return and capital return columns are both prepared
under guidance produced by the Association of Investment Companies (AIC). All
items in the above statement derive from continuing operations.
No operations were acquired or discontinued during the period.
Statement of Financial Position
as at 30 November 2022
30 November 31 May
2022 2022
(unaudited) (audited)
£'000 £'000
Fixed assets
Investments 929,084 951,753
Current assets
Debtors 3,395 3,532
Cash and cash equivalents 2,016 5,973
5,411 9,505
Total assets 934,495 961,258
Current liabilities
Creditors - amounts falling due within 1 year (77,890) (88,641)
Total assets less current liabilities 856,605 872,617
Capital and reserves
Called up share capital 1,129 1,129
Share premium 204,133 204,133
Special reserve 33,687 33,687
Capital redemption reserve 45 45
Reserves 617,611 633,623
Total shareholders' funds 856,605 872,617
Net asset value per ordinary share 844.45p 850.64p
Statement of Changes in Equity
for the six months to 30 November 2022
For the six months to Share Capital Share Premium £'000 Special Reserve £'000 Capital Retained Earnings Total
30 November 2022 (unaudited) £'000 Redemption £'000 £'000
Reserve
£'000
Balance at 1 June 2022 1,129 204,133 33,687 45 633,623 872,617
Net profit after taxation - - - - (5,649) (5,649)
Repurchase of ordinary shares into treasury - - - - (7,827) (7,827)
Dividends declared and paid - - - - (2,536) (2,536)
Balance at 30 November 2022 1,129 204,133 33,687 45 617,611 856,605
For the six months to Share Capital Share Premium Special Reserve Capital Retained Earnings Total
30 November 2021 (unaudited) £'000 £'000 £'000 Redemption Reserve £'000 £'000
£'000
Balance at 1 June 2021 1,129 204,133 33,687 45 639,995 878,989
Net loss after taxation - - - - 110,363 110,363
Repurchase of ordinary shares into treasury
- - - - (18,187) (18,187)
Dividends declared and paid - - - - (2,109) (2,109)
Balance at 30 November 2021 1,129 204,133 33,687 45 730,062 969,056
Cash Flow Statement
for the six months to 30 November 2022
Six months ended Six months ended
30 November 2022 30 November 2021
(unaudited) (unaudited)
£'000 £'000
Cash flows from operating activities
Investment income received (gross) 7,493 8,064
Deposit interest received 6 -
Investment management fee paid (3,846) (4,229)
Other cash expenses (500) (507)
Net cash inflow from operating activities before taxation and interest 3,153 3,328
Interest paid (830) (357)
Taxation (578) (632)
Net cash inflow from operating activities 1,745 2,339
Cash flows from investing activities
Purchases of investments (49,883) (111,888)
Sales of investments 64,681 126,815
Net cash inflow from investing activities 14,798 14,927
Cash flows from financing activities
Repurchase of ordinary shares into treasury (8,573) (21,638)
Equity dividends paid (2,536) (2,109)
Repayment of loan (15,000) -
Drawdown of loan 5,000 10,000
Net cash outflow from financing activities (13,747) (13,747)
(Decrease)/increase in cash (4,566) 3,519
Cash and cash equivalents at start of period 5,973 9,892
Realised gain/(loss) on foreign currency 609 (23)
Cash and cash equivalents at end of period 2,016 13,388
Notes to the Financial Statements
1. Accounting Policies
The accounts comprise the unaudited financial results of the Company for the
period to 30 November 2022. The functional and reporting currency of the
Company is sterling because that is the currency of the prime economic
environment in which the Company operates.
The accounts have been prepared in accordance with International Financial
Reporting Standards (IFRS), which comprise
standards and interpretations approved by the International Accounting
Standards Board (IASB) and International Accounting Standards Committee
(IASC), as adopted by the European Union (EU). Where presentational guidance
set out in the Statement of Recommended Practice (SORP) for Investment Trusts
issued by the Association of Investment Companies (AIC) in November 2014 (as
amended in February 2018 and again in October 2019) is consistent with the
requirements of IFRS, the Directors have sought to prepare the financial
statements on a basis compliant with the recommendations of the SORP. The
accounts have also been prepared in accordance with the Disclosure and
Transparency Rules issued by the Financial Conduct Authority (FCA). The
accounting policies applied are consistent with those of the audited annual
financial statements for the year ended 31 May 2022 and are described in those
financial statements. In this regard, comparative figures from previous
periods are prepared to the same standards as the current period, unless
otherwise stated.
The Board continues to adopt the going concern basis in the preparation of the
financial statements.
2. Return/(loss) per ordinary share
Six months to Six months to
30 November 2022 30 November 2021
£'000 £'000
Net revenue profit 817 316
Net capital (loss)/profit (6,466) 110,047
Net total (loss)/profit (5,649) 110,363
Weighted average number of ordinary
shares in issue during the period 101,840,177 105,691,960
Revenue return per ordinary share (p) 0.80 0.30
Capital (loss) / return per ordinary share (p) (6.35) 104.12
Total (loss) / return per ordinary share (p) (5.55) 104.42
3. Retained earnings
The table below shows the movement in the retained earnings analysed between
revenue and capital items.
Revenue* Capital Total
£,000 £'000 £'000
At 1 June 2022 10,942 622,681 633,623
Net return/(loss) for the period 817 (6,466) (5,649)
Repurchase of ordinary shares into treasury - (7,827) (7,827)
Dividends declared (2,536) - (2,536)
At 30 November 2022 9,223 608,388 617,611
* These reserves form the distributable reserves of the Company and may be
used to fund distribution of profits to investors via dividend payments.
4. Net asset value per ordinary share
The NAV per ordinary share is based on the net assets attributable to the
ordinary shareholders of £856,605,000 (31 May 2022: £872,617,000) and on
101,439,098 (31 May 2022: 102,583,840) ordinary shares, being the number of
ordinary shares in issue at the period end.
5. Comparative information
The financial information contained in this interim report does not constitute
statutory accounts as defined in section 434 of the Companies Act 2006. The
financial information for the six months to 30 November 2022 and 30 November
2021 has not been audited. The information for the year ended 31 May 2022 has
been extracted from the latest published audited financial statements. The
audited financial statements for the year ended 31 May 2022 have been filed
with the Register of Companies. The report of the auditors on those accounts
contained no qualification or statement under section 498(2) of the Companies
Act 2006.
6. Related parties
Devon Equity Management Limited ('Devon') has served as Investment Manager to
the Company since 15 November 2019 and became AIFM on 1 July 2022.
With effect from 1 June 2020, Devon has been entitled to aggregate management
fees of 0.90% per annum of net assets (i.e. excluding drawn down borrowings
under the Company's loan facilities) up to £1 billion and 0.80% per annum on
any net assets over this amount.
With effect from 1 June 2023, Devon will be entitled to reduced aggregate
management fees of 0.80% per annum of net assets up to £1 billion; 0.70% per
annum on any net assets over £1 billion up to £1.25 billion; and 0.60% per
annum on any net assets over this amount. All other terms and conditions in
the investment management agreement remain unaltered. No performance fee is
payable to Devon.
Although Devon Equity Management Limited is named as our Company Secretary at
Companies House, J.P. Morgan Europe Limited provides company secretarial
services to the Company as part of its mandate to provide fund administration
services. In line with good governance practice and fostered by the
independence between key suppliers, the Company has put safeguards in place to
ensure effective shareholder communication and direct shareholder engagement
for the Board.
J.P. Morgan Europe Limited has been appointed to provide secretarial and fund
administration services to the Company, albeit that Devon is the Company's
named company secretary at Companies House. In line with good governance
practice and fostered by the independence between key suppliers, the Company
has put safeguards in place to ensure effective shareholder communication and
engagement.
7. Availability of Half Yearly Financial Report
The Half Yearly Financial Report will shortly be available for download from
the Company's website www.europeanopportunitiestrust.com
A copy of the Half Yearly Financial Report will also be submitted to the FCA's
National Storage Mechanism and will soon be available for inspection at
https://data.fca.org.uk/#/nsm/nationalstoragemechanism
For further information, please contact:
Devon Equity Management Limited
Company Secretaries to European Opportunities Trust PLC
Richard Pavry
020 3985 0445
enquiries@devonem.com (mailto:enquiries@devonem.com)
24 February 2023
END
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