Half-year Report
29/02/2024 07:00
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RNS Number : 8395E European Opportunities Trust PLC 29 February 2024
European Opportunities Trust PLC (the 'Company')
Legal Entity Identifier: 549300XN7RXQWHN18849
Half Yearly Financial Report for the six months to 30 November 2023
Financial Highlights
· Net asset value total return of 4.3% and share price total return of
7.7% for the period, compared with a total return of 3.5% for the Company's
Benchmark, the MSCI Europe Index.
· Net asset value total return per share of 921.8% since launch on 20
November 2000 (equivalent to 10.6% compound per year), outperforming the total
return of the Benchmark of 253.5% over the same period (equivalent to 5.6%
compound per year).
· Continued buy back activity during the period with a total of 2.2
million shares repurchased at a cost of £17.2 million.
· A 25% tender offer was initiated following the passing of the
Continuation Vote at the Company's AGM on 15 November 2023. This was
implemented post-period end in January 2024.
· At the period end, the Company's discount to NAV had narrowed to
8%.
· Reduced management fees took effect from 1 June 2023, as disclosed
in the annual report.
Matthew Dobbs, Chair of the Company commented:
"The six months under review saw the Company modestly outperform its
Benchmark, initiate a 25% tender offer that was completed in January and
continue to buy back shares in accordance with the Board's discount management
policy. The portfolio's outperformance can be attributed to stock selection.
Looking ahead, our Investment Manager anticipates that the earnings growth of
the portfolio in 2024 will be superior to that of the Benchmark, providing a
solid foundation for continued relative outperformance."
Sell side call
There will be a presentation for sell side analysts at 11.00 a.m. today, 29
February 2024. Please contact Buchanan for details on EOT@buchanancomms.co.uk.
Summary of returns for the six months to 30 November 2023
30 November 31 May
2023 2023 % change
Net asset value per share (pence) 910.8 876.5 3.9
Net asset value total return (with dividends added back)(*) 4.3
Middle market share price (pence) 838.0 781.0 7.3
Share price total return (with dividends added back)* 7.7
MSCI Europe Total Return Index in GBP (Benchmark) 3.5
Discount to net asset value (%) (8.0) (10.9)
(*)A dividend of 3.5p was paid on 27 November 2023.
Long term track record
Annualised return since launch
Since launch on 20.11.2000 %
%
3 years 5 years 10 years
To 30 November 2023 % % %
Net asset value total return (with dividends added back) 17.9 24.7 128.4 921.8 10.6
Share price total return (with dividends added back) 16.4 16.4 107.5 794.4 10.0
MSCI Europe Total Return Index in GBP (Benchmark) 27.0 45.8 100.3 253.5 5.6
Source: MSCI & Devon Equity Management Limited. Past performance is no
guide to the future.
Chair's Statement
I am pleased to present the Company's interim results covering the six months
ended 30 November 2023.
During the period under review the total return on the net asset value per
share of the Company was 4.3% (with the annual dividend added back), which
compares with a total return of 3.5% from our Benchmark, the MSCI Europe index
in Sterling. The total return on the middle market price of the Company's
shares was 7.7%. A more detailed analysis of performance is set out in the
Investment Manager's Review below.
Since the period end the net asset value per share has increased by 7.5% to
979.0p (as at 23 February 2024), outperforming the Benchmark index, which
increased by 6.9% over that period. The market price of the Company's shares
increased by 4.7%, resulting in in a modest widening of the discount to net
asset value to 10.4% on that date.
Tender Offer
On 6 November 2023, we announced that the Company would undertake a tender
offer for up to 25% of our issued share capital. The tender offer, which was
subsequently approved by Shareholders at a General Meeting held on 21
December, was concluded at a tender price equal to a 2% discount to the
prevailing net asset value per share (less the costs) at the end of January.
The effect of the tender offer, which was fully taken up, was to reduce the
Company's net assets under management by 25% to £696 million as at the end of
January.
The Board had previously announced, on 12 October 2023, proposals for a
further performance related tender offer to be made as soon as is practicable
after the Annual General Meeting in 2026 if the Company's net asset value
total return does not equal or exceed the Benchmark total return over the
three-year period beginning 1 June 2023 and ending on 31 May 2026. I am
pleased to report that the Company's performance since 1 June 2023 is
currently ahead of its Benchmark total return, as indicated above.
Discount Management
The Board has an active discount management policy, the primary purpose of
which is to reduce discount volatility and to maintain the discount in single
digits in normal market conditions. Buying shares at a discount also results
in an enhancement to the NAV per share.
The Board believes that the most effective means of minimising any discount at
which the shares may trade is for the Company to deliver strong, consistent,
long-term performance from the investment portfolio (in both absolute and
relative terms) supported by an active marketing strategy aimed at prospective
and existing investors. Nevertheless, wider market conditions and other
considerations inevitably affect the rating of the shares from time to time.
Although the discount was within the Board's guidelines at 8.0% at the end of
the period, it ranged between 13.5% and 7.3% during the period. Consequently,
the Board actively pursued share buybacks with a total of 2.2 million
repurchased into treasury at a cost of £17.2 million. In addition to the
tender offer referenced above, the regular repurchase policy has been
continued since the end of November with a further 3.5 million shares taken
into treasury at an aggregate cost of £30.0 million (as at 23 February 2024).
Gearing
The Board believes that borrowing will enhance returns to investors over the
long term. The Board monitors the level of gearing carefully within a defined
risk control framework for this purpose which is reviewed at each Board
meeting. All gearing is subject to the Investment Manager's confidence in
identifying attractive investment opportunities. Acting within parameters
determined by the Board, the Investment Manager tends to increase gearing at
times of perceived low valuations, while reducing it as markets recover.
The Company has a secured multi-currency revolving credit facility with The
Bank of Nova Scotia, London Branch with a maximum drawable amount of £85
million and credit approval for an additional 'accordion' amount available
upon application for a further £50 million. There was £10 million drawn down
as at 30 November 2023, increased to £40 million as at the date of this
statement (representing gearing of 6%).
Board Composition
On 12 December 2023 we were delighted to announce the appointment of Neeta
Patel, CBE as a non-executive Director of the Company with effect from 1
January this year.
Neeta is a highly experienced executive with over 35 years of strategy and
operational leadership in technology, media, insurance and education sectors,
as well as in start-ups and scaling companies. Her experience includes senior
leadership roles at Legal & General plc, ft.com (the Financial Times'
website) and the British Council, the government's international education and
cultural agency. More recently she was the founding CEO of the Centre for
Entrepreneurs, a board adviser at Tech London Advocates, a member of the
advisory board at City University Ventures and an entrepreneur
mentor-in-residence at London Business School. We welcome her to the Board.
Lord Lamont, who has served on the Board since June 2015 and as your Senior
Independent Director since the 2023 AGM in November, has indicated that he
intends to retire from the Board at the forthcoming Annual General Meeting. He
has made an exceptional contribution to the Company throughout his tenure.
We continue to review Board composition and Directors' succession on a regular
basis to ensure that we have a Board which provides diversity of perspective
together with the range of appropriate skills and experience for the Company.
Outlook
Your Board and I appreciate the shareholder support that we have received
during the period under review and the time that many of you have taken to
meet with me and colleagues to express your views, in some cases with
refreshing candour. Supported by the superior characteristics and earnings
growth of the underlying portfolio, we believe that the Company is well
positioned to offer an attractive investment proposition to existing and new
investors alike.
I would like to express my thanks to all of our shareholders and stakeholders
for their continuing support.
Matthew Dobbs
Chair
29 February 2024
Investment Manager's Review
The Company's modest outperformance during the period under review was, as
always, due to stock selection. Although some of our investee companies have
not yet reported their 2023 results, we expect them to have delivered
significantly better earnings growth in 2023 compared with our Benchmark. JP
Morgan estimates that earnings for the MSCI Europe index contracted by 2% in
2023. We estimate that our portfolio will report approximately 10% earnings
growth in 2023. The same pattern is expected again in 2024, with our portfolio
expected to deliver 14% earnings growth vs 6% for the Benchmark. We expect our
companies' earnings to benefit both from secular, as opposed to cyclical,
drivers, and from their global reach. Positive news flow, not simply results,
from our companies was another factor helping performance and providing some
confidence for the future. Of course, there were also stock mistakes, notably
Bayer, which we discuss below.
Positioning
Given the perils of macro economic forecasting, our portfolio is not built on
the expectation of a particular economic outcome. Rather we aim to construct a
portfolio that can flourish in a range of economic scenarios. More
specifically we focus on identifying "special" companies whose fortunes depend
largely on their own efforts, not macro developments. We believe this
represents better quality risk.
We consider 'special' companies to be those that can prosper in a range of
economic conditions and which are well protected from competitive pressures.
Typically, these are companies with strong proprietary characteristics, strong
intellectual property (IP), serving customers for whom their products are
non-discretionary and often with a global presence.
We have continued our policy of avoiding commodity companies and, for this
reason, have minimal exposure to energy, metals and mining companies. We also
avoid companies whose prospects depend unduly on a favourable macro
environment and, hence, have a minimal exposure to banks, real estate or other
mainstream financial companies.
Our investee companies enjoy relatively recurrent and growing demand trends,
as their products are non-discretionary. As a corollary, we have a
lower-than-average exposure to discretionary consumer demand. Typically, our
investee companies' products and services are sold to other corporates or to
government buyers. For example, Novo Nordisk, our largest investment,
manufactures and sells insulin, an essential hormone for your body to function
properly. For type 2 diabetics, whose bodies can't produce enough insulin
naturally, the need for insulin is 'non-discretionary'.
Nor is the portfolio built narrowly on few sectors or ideas; rather it
encompasses many diverse, uncorrelated growth opportunities. While 35% of the
fund is invested in Health Care, there is plenty of diversification within
this segment of the portfolio, which covers everything from animal genetics
(Genus) to treatment of opioid addiction (Camurus) and the collection of blood
plasma (Grifols). These companies also generate revenues across a diverse
geographic footprint.
Contributors
The following table details the five stock positions which had the greatest
positive impact on performance during the six months to 30 November 2023 on an
absolute basis:
Security Portfolio weight Benchmark weight at 30.11.2023 6 month price 6 month contribution
at 30.11.2023 % performance to portfolio return
% % %
Novo Nordisk 12.7 3.3 25.1 2.7
RELX 8.2 0.7 21.9 1.7
SOITEC 3.5 - 27.0 1.0
Gaztransport & Technigaz 2.6 - 34.6 0.8
Intermediate Capital Group 4.1 - 16.5 0.6
The contribution to portfolio return is the result of the price performance of
each stock over the period, calculated on a transaction basis and including
the impact of foreign currency rates.
The biggest contributor to performance and biggest holding at period end, was
Novo Nordisk. The company is the world leader in the treatment of diabetes and
obesity. The main driver of its performance, was the company's success in
treating diabetes and obesity with its drugs, Wegovy and Ozempic. These drugs
are from a new class of drugs, GLP-1 agonists. Creating a new therapeutic
area, the treatment of obesity, with this new class of drugs is an
extraordinary development. There are associated benefits, treating
co-morbidities such as cardiovascular and kidney diseases. Novo Nordisk is,
with one significant competitor, leading the way in addressing these two
massive and growing therapeutic areas. For all the success so far, the market
for the treatment of obesity is still in its infancy. There are many factors
that will determine the size of the opportunity and Novo Nordisk's share of
that market. One of the reasons that we maintain a heavy weighting in the
shares is that there are some reasons to think that Novo Nordisk's GLP-1
molecule, semaglutide, is superior to other GLP-1 molecules; for example, it
might be that some of the cardiovascular benefits are specific to semaglutide,
not solely a class effect. At present, only Novo Nordisk's drug, Ozempic, has
approval from the U.S. Food and Drug Administration (FDA) to claim that it can
reduce the risk of major adverse cardiovascular events (MACE) such as heart
attack, stroke, or death in adults with type 2 diabetes and known heart
disease. In 2024, we expect results from ongoing clinical trials demonstrating
further benefits from semaglutide including cardiovascular, NASH (liver
disease), chronic kidney disease (CKD), sleep apnoea, peripheral artery
disease, hypertension and Alzheimer's.
In 2024, we expect to get a better understanding of the differences between
GLP-1 receptor agonists. Further, there will also be data available for
several new treatments, such as the first of many clinical results of Novo
Nordisk's next generation CagriSema treatment. The company is also developing
an oral version of Wegovy.
The next most important contributor was RELX. The shares were rerated on the
back of upgrades to long-term growth expectations of the company -. RELX is
seen as a winner from artificial intelligence (AI). This is most obvious in
their 'Risk' division, the biggest division in the company and the fastest
growing. Risk provides customers with information-based analytics and decision
tools, utilising public and industry-specific content in proprietary
algorithms, assisting customers in evaluating, predicting, and pricing risk.
It also helps to detect and prevent online fraud and money laundering, and
delivers insights to customers such as insurance companies. Rising data usage
from the 'connected car' telematics, used to improve insurance quotes, is one
example of rising demand from new technology. Growing demand from corporates
and governments, together with improving algorithms, has lifted the growth
rate of this division. We think this higher growth rate is sustainable.
Another division, 'Law', is growing faster in recent years in part, again, due
to AI but also reflecting significant investments made over the years. Across
the group, more data is driving RELX's analytics and solutions for customers.
Shares in SOITEC, the French technology company, performed well. SOITEC has
unique technology in thedesign and manufacture of semiconductor materials.
They produce substrates for miniaturizing chips, improving their performance
and reducing their energy usage. The new potential growth area is the adoption
of SOITEC's technology in the production of silicon carbide devices, itself a
play on the growing electric vehicle market. The news flow here is
encouraging. STMicroelectronics (STM), the largest European semiconductor
manufacturing and design company, and SOITEC announced a cooperation agreement
to qualify SOITEC's Silicon Carbide (SiC) substrates. The adoption by STM of
SOITEC's SmartSiC technology for its 200mm substrate manufacturing is likely
to be followed by others.
The French company, Gaztransport & Technigaz (GTT), also improved our
returns. It provides engineering and design technologies for the transport of
liquid fuels. Liquefied natural gas ('LNG') carriers and the engineering and
design technologies for LNG propulsion systems for ships has been and still is
their core business. It is diversifying both into containment solutions for
onshore, offshore and multi-gas transport applications and into new areas:
digital smart shipping solutions and in the design and assembly of
electrolysers for producing green hydrogen. In the medium term, we expect
demand for natural gas will remain strong. It is a vital ''transition'' fuel,
that can substitute oil and coal with lower carbon dioxide emissions. US LNG
production is rising; new capacity is being developed in Australia and Qatar;
and demand from Asia and Europe is growing. The US has become the largest LNG
exporter in the world and accounted for 40% of EU imports in 2023. Against
this background, GTT enjoys very good prospects.
Intermediate Capital Group (ICG), too, added to our returns. ICG is a
UK-listed company, investing across private asset classes. It has more
exposure to private debt than to private equity, which should, all other
things being equal, mean that the assets are more secure. It should continue
to benefit from the structural growth in demand from asset managers for
'alternative' assets. Results continue to impress. Its 'direct lending'
strategy is growing as corporates seek to refinance their debt and asset
gathering continues apace. This direct lending strategy disintermediates the
banks which are constrained in their efforts to compete by capital
requirements and other regulatory standards effective with Basel III.
Detractors
The following table details the five stock positions which had the greatest
negative impact on performance during the six months to 30 November 2023 on an
absolute basis:
Security Portfolio weight Benchmark weight at 30.11.2023 6 month price 6 month contribution
at 30.11.2023 % performance to portfolio return
% % %
Bayer 2.0 0.3 (39.4) (1.9)
Edenred 5.6 0.1 (15.2) (1.1)
Genus 4.2 - (21.0) (1.0)
Worldline 0.8 0.0 (62.4) (0.6)
Oxford Instruments 2.0 - (23.2) (0.6)
The most disappointing stock in the period under review was Bayer. Bayer is a
German conglomerate operating globally with core competencies in life
sciences, healthcare and technology for agriculture. Legal difficulties in the
US, principally, but not only, relating to the use of glyphosate (roundup) in
the retail channel in the US account for much of investors' concern. It also
faces legal action over the marketing in the 1970s of polychlorinated
biphenyls (PCBs) by Monsanto, the US company that Bayer bought in 2018. The US
legal system appears to be hostile to Bayer. To date, the company has set
aside approximately $13 billion to settle with most plaintiffs. There is a
risk of further costs. The company also has too much debt, the result of poor
financial discipline. We have sold the position since the period end.
The next biggest detractor from performance was Edenred, the French provider
of specific-purpose payment solutions for companies, employees and merchants.
Edenred is the inventor of Ticket Restaurant, and now processes and promotes
payment solutions for food (such as meal benefits), incentives (such as
employee engagement platforms), mobility (such as multi-energy, maintenance,
toll, parking and commuter solutions) and corporate payments (such as virtual
cards). It operates schemes for governments and corporates which want to give
benefits to employees for specific purposes. There has been no slowdown in its
revenue growth and profits with guidance upgraded during 2023, driven by new
government initiatives, digitalisation, and a dynamic Brazilian market.
Management, in our opinion, is exceptionally good; we have great confidence in
their strategy. However, the company's prospects are troubled by the threat of
new regulations in France and Brazil which might clip returns. We do not
believe the proposals are likely to be implemented and have decided to
maintain our holding.
Shares in Genus, the world leader in the development and supply of porcine and
bovine genetics, fell sharply. Trading is slightly weaker as the livestock
industry shows some cyclicality. Meat consumption worldwide is still rising
even as consumption in Europe eases. The Chinese market, an important one for
Genus, has weakened partly because of the ravages of African Swine Fever and
partly because Covid-related lockdowns have dampened demand for pork. The
company has filed its application for regulatory approval of its gene editing
technology for Porcine Reproductive and Respiratory Syndrome virus
(PRRSv)-resistant animals in the US. We think this is a huge, transformational
opportunity for Genus. We expect regulatory approval in the US in the 2025
fiscal year, although it would take a number of years for the full commercial
benefit to be seen as the supply of gene edited pigs would need to be ramped
up. In due course, the company hopes to gain approval for this gene editing
technology in China, another massive opportunity. We remain confident about
the core business and see tremendous potential value in the company's gene
editing technology. Accordingly, we retained our holding.
Shares in the French-listed Worldline also fell. The company is a leading
payment services provider, offering both acquiring and issuing solutions for
mainly off-line services to consumer-facing retailers and hospitality
businesses. It is a 'scale' player, being a consolidator with a strategy of
being the lowest cost provider in Europe. The share price fall was due partly
to the concern about weaker consumer demand in Europe as interest rates rose,
but mainly because Worldline is closing some highly profitable accounts. This
move was prompted by the German regulator, BaFin, which changed its approval
criteria for online merchant accounts, believing some of them to be related to
illegal activity. There are no implications for Worldline, having followed
BaFin's guidance, other than closing these accounts.
Oxford Instruments shares also retreated despite the business performing well.
There are some problems with obtaining export licenses to China for certain
products, but this is a not a material concern. The appointment of a new CEO
may have unsettled investors, though we are happy with the transition and have
engaged with the new CEO. We retain the holding as we believe Oxford
Instruments to be an impressive company, well focused, and capable of building
on its good track record.
Portfolio activity
During the period under review, we raised approximately £97 million net,
representing about 11% of the portfolio. We sold about £238 million of stocks
(27% of the portfolio) and reinvested around £141 million (16% of the
portfolio). The number of holdings in the portfolio reduced from 33 to 29.
There were three new investments and seven complete sales.
Largest net purchases £'m Largest net sales £'m
Camurus 12.8 Novo Nordisk 32.9
Worldline 10.7 Experian 18.1
Thales 6.2 RELX 16.7
Genus 4.0 Bayer 9.8
BAE Systems 3.6 Network International 9.7
The biggest sale was that of shares in Novo Nordisk, a partial disposal as we
retain a significant weighting. We reduced the holding to keep the weighting
at what we regarded as a prudent level. We remain wholly confident in Novo
Nordisk's outlook. We also reduced our holding of shares in Experian, for the
same reason.
We also reduced positions in Bayer, disappointed with the company's litigation
problems and the poor performance of its pharmaceutical division. The position
has been completely sold since the period end. The main outright sales during
the period under review, Network International, OHB and SUSE, were all subject
to successful bids from private equity. Whilst this represents a small,
positive boost to the fund, it is concerning that some smaller companies
become almost completely ignored by the public markets, leaving them
vulnerable to bids from private equity, which, in our opinion, undervalues
these companies.
We also sold two Norwegian holdings, Borregaard and Elkem. This follows our
sale in a previous reporting period of Mowi. The Norwegian government imposed
new taxes on activities undertaken by these three companies and prompted us
to sell. The Norwegians are not the only ones looking to raise new taxes
which they justify as necessary to combat climate change. France, which does
not enjoy strong public finances, has also imposed new taxes on airports, and
it is looking for other areas to tax, all in the cause, they say, of fighting
climate change. We will avoid as far as possible those activities which we
believe may become subject to new taxes.
We made a new investment in Camurus because we believe that its proprietary
extended-release technology for therapeutic drugs can be widely adopted. It is
particularly effective in the prevention of withdrawal symptoms caused by
stopping the use of opioids for pain management therapy. We believe that the
opportunity is huge.
We also established a new position in Thales, the French multinational company
that designs, develops and manufactures systems, devices and equipment for the
aerospace, defence and security sectors. It is a leader in cyber security and
data
protection. Increasing demand for their products and services is evident. A
further new investment for the portfolio was BAE Systems, the UK-listed
defence and aerospace company. The company is gaining business in the US and
also looks well placed to grow in Asia where there is clearly increasing long
term demand for defence solutions. Both Thales and BAE Systems endeavour to
offer services in land, sea, air, space and cyber. Competence across all these
areas is thought to improve the value proposition of each offering.
We decided to add to the holding of Worldline, the payment services provider,
as we believe that sentiment, as reflected in the share price, is unduly
negative. We also judged that the weak share price of Genus presented a good
buying opportunity.
Since the period-end we have raised approximately £220m in cash in order to
meet the cost of the tender offer at the end of January. Portfolio weightings
in the continuing portfolio remain similar to those prior to the corporate
action. During the month of January we held cash raised against the cost of
the tender offer in two ETFs linked to the total return on our Benchmark, the
MSCI Europe index, in order to minimise the impact of 'cash drag' on the
portfolio during the interim.
Gearing
At the period end we had reduced drawn down borrowings to £10 million
(increasing to £40 million or 6% of net assets as at the date of this
report). In a period of higher interest rates we are not inclined to gear the
portfolio significantly further at this time. Nevertheless, the Company's
flexible borrowing facility is important, a key feature of the investment
trust structure, allowing us to take strategic advantage of market
opportunities.
Outlook
The outlook for the portfolio is shaped against a more difficult economic
backdrop. Whilst interest rates are expected to decline over the next eighteen
months, this is only one factor to consider. Buoyancy of European consumer
spending is likely to be tested in 2024. The market has been sustained by the
resilience of the European economies but as household savings are used up, and
as quantitative tightening grinds on to reverse the expansionary effects of
quantitative easing, in due course, the present benign economic conditions
will give way to a much tougher economic climate.
There are signs of weaker consumer spending. Energy costs are at present lower
than might be expected with various conflicts around the world causing
disruption to energy trading. Yet the risk of higher energy costs remains a
significant consideration not least because Europe's rapid energy transition
risks putting European manufacturers at a relative disadvantage. the
combination of weak public finances and the need for increased defence
spending, is likely to squeeze discretionary consumer spending. This provides
a further incentive to invest in companies that have strong extra-European
businesses.
Trade conflicts are an increasing concern. Globalisation has been a salient
feature of economic growth in recent years and the growing threats to
efficient global trade flows are clearly damaging. We are careful to try and
identify companies whose overseas trading falls below the radar of political
interest.
The outlook for the portfolio is, we think, improving. Our portfolio is less
exposed to weaker consumer demand and the risk of higher input costs. The
extent to which the portfolio delivers is much less macro related, and more
driven by individual companies crystalising their transformational
opportunities. Concluding successful clinical trials, continued innovation,
resiliency of business models, and geographic expansion are some of the
outcomes that we anticipate from our investee companies this year. These
companies have the necessary ingredients for success: we expect them to
deliver.
Alexander Darwall
CIO, Devon Equity Management Limited
29 February 2024
Investment Portfolio
as at 30 November 2023
30 November 2023 31 May 2023
Company Sector Country of Listing Market % of Investments % of Investments
Value
£'000
Novo Nordisk Health Care Denmark 112,312 12.7 13.0
Dassault Systèmes Information Technology France 74,019 8.4 8.3
RELX Industrials Netherlands 72,957 8.2 8.0
Experian Industrials United Kingdom 72,575 8.2 9.4
Deutsche Boerse Financials Germany 57,537 6.5 6.1
BioMérieux Health Care France 53,957 6.1 5.6
Edenred Information Technology France 49,343 5.6 6.2
Genus Health Care United Kingdom 37,044 4.2 4.6
Intermediate Capital Group Financials United Kingdom 36,001 4.1 3.4
SOITEC Information Technology France 31,274 3.5 3.4
Infineon Technologies Information Technology Germany 30,726 3.5 3.5
Grifols Health Care Spain 30,549 3.4 2.7
Gaztransport & Technigaz Energy France 23,436 2.6 2.2
Darktrace Information Technology United Kingdom 20,127 2.3 1.7
Ryanair Holdings Industrials Ireland 19,609 2.2 1.6
Merck Health Care Germany 19,282 2.2 2.4
Neste Energy Finland 18,813 2.1 2.0
Bayer Health Care Germany 17,563 2.0 4.7
Oxford Instruments Information Technology United Kingdom 17,502 2.0 2.0
Camurus Health Care Sweden 16,104 1.8 -
Prysmian Industrials Italy 13,695 1.5 1.3
AirLiquide Materials France 13,479 1.5 1.4
Genmab Health Care Denmark 11,597 1.3 1.4
Grenke Financials Germany 8,937 1.0 1.0
Worldline Information Technology France 7,245 0.8 0.2
Thales Industrials France 5,902 0.7 -
Grifols Preference Health Care Spain 4,790 0.5 0.5
Bachem Holding Health Care Switzerland 4,317 0.5 0.5
BAE Systems Industrials United Kingdom 3,673 0.4 -
BFF Bank Financials Italy 1,810 0.2 0.2
Total Investments 886,175 100.0
Classification of Investments
as at 30 November 2023
% of Investments % of Investments
Country of Listing 30 November 2023 31 May 2023
Denmark 14.0 14.4
Finland 2.1 2.0
France 29.2 27.3
Germany 15.2 18.0
Ireland 2.2 1.6
Italy 1.7 1.5
Luxembourg - 0.2
Netherlands 8.2 8.2
Norway - 0.6
Spain 3.9 3.2
Sweden 1.8 -
Switzerland 0.5 0.5
United Kingdom 21.2 22.5
Total 100.0 100.0
% of Investments % of Investments
Industry Sector 30 November 2023 31 May 2023
Energy 4.7 4.2
Financials 11.8 10.7
Health Care 34.7 35.8
Industrials 21.2 20.8
Information Technology 26.1 26.5
Materials 1.5 2.0
Total 100.0 100.0
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 the AGM in November 2026.
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 31 to 34 of the Company's
Annual Report for the year ended 31 May 2023 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 economic turmoil following the invasion of
Ukraine, the war in the Middle East, rises in interest rates and inflation
across Europe and worldwide. 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.
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 2023;
(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.
Matthew Dobbs
Chair
29 February 2024
Income Statement
for the six months ended 30 November 2023
Six months ended Six months ended
30 November 2023 30 November 2022
(unaudited) (unaudited)
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Gains/(losses) on investments - 34,914 34,914 - (7,075) (7,075)
Other exchange (losses)/gains - (100) (100) - 609 609
Income from investments 5,985 - 5,985 6,455 - 6,455
Other Income 38 - 38 6 - 6
Total income/(loss) 6,023 34,814 40,837 6,461 (6,466) (5)
Investment management fee (3,425) - (3,425) (3,745) - (3,745)
Other expenses (627) - (627) (489) - (489)
Total expenses (4,052) - (4,052) (4,234) - (4,234)
Net return/(loss) before finance costs and taxation 1,971 34,814 36,785 2,227 (6,466) (4,239)
Finance costs (1,780) - (1,780) (1,036) - (1,036)
Return/(loss) before taxation 191 34,814 35,005 1,191 (6,466) (5,275)
Taxation (341) - (341) (374) - (374)
Net (loss)/return after taxation* (150) 34,814 34,664 817 (6,466) (5,649)
(Loss)/return per ordinary share (0.15)p 35.85p 35.70p 0.80p (6.35)p (5.55)p
* 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 2023
30 November 31 May
2023 2023
(unaudited) (audited)
£'000 £'000
Fixed assets
Investments 886,175 936,318
Current assets
Debtors 3,600 3,445
Cash and cash equivalents 3,055 6,951
6,655 10,396
Total assets 892,830 946,714
Current liabilities
Creditors - amounts falling due within 1 year (15,756) (83,776)
Total assets less current liabilities 877,074 862,938
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 638,080 623,944
Total shareholders' funds 877,074 862,938
Net asset value per ordinary share 910.81p 876.46p
Statement of Changes in Equity
for the six months to 30 November 2023
For the six months to Share Capital Share Premium £'000 Special Reserve £'000 Capital Retained Earnings Total
30 November 2023 (unaudited) £'000 Redemption £'000 £'000
Reserve
£'000
Balance at 1 June 2023 1,129 204,133 33,687 45 623,944 862,938
Net profit after taxation - - - - 34,664 34,664
Repurchase of ordinary shares into treasury - - - - (17,153) (17,153)
Dividends declared and paid - - - - (3,375) (3,375)
Balance at 30 November 2023 1,129 204,133 33,687 45 638,080 877,074
For the six months to Share Capital Share Premium Special Reserve Capital Retained Earnings Total
30 November 2022 (unaudited) £'000 £'000 £'000 Redemption Reserve £'000 £'000
£'000
Balance at 1 June 2022 1,129 204,133 33,687 45 633,623 872,617
Net loss 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
Cash Flow Statement
for the six months to 30 November 2023
Six months ended Six months ended
30 November 2023 30 November 2022
(unaudited) (unaudited)
£'000 £'000
Cash flows from operating activities
Investment income received (gross) 6,812 7,493
Deposit interest received 38 6
Investment management fee paid (3,674) (3,846)
Other cash expenses (659) (500)
Net cash inflow from operating activities before taxation and interest 2,517 3,153
Interest paid (2,412) (830)
Taxation (332) (578)
Net cash (outflow)/inflow from operating activities (227) 1,745
Cash flows from investing activities
Purchases of investments (70,849) (49,883)
Sales of investments 157,850 64,681
Net cash inflow from investing activities 87,001 14,798
Cash flows from financing activities
Repurchase of ordinary shares into treasury (22,195) (8,573)
Equity dividends paid (3,375) (2,536)
Repayment of loan (65,000) (15,000)
Drawdown of loan - 5,000
Net cash outflow from financing activities (90,570) (21,109)
Decrease in cash (3,796) (4,566)
Cash and cash equivalents at start of period 6,951 5,973
Realised (loss)/gain on foreign currency (100) 609
Cash and cash equivalents at end of period 3,055 2,016
Notes to the Financial Statements
1. Accounting Policies
The accounts comprise the unaudited financial results of the Company for the
period to 30 November 2023. 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 UK-adopted International
Accounting Standards and the requirements of the Companies Act 2006.
Where presentational guidance set out in the Statement of Recommended Practice
for Investment Trusts issued by the Association of Investment Companies in
April 2021 (the 'AIC SORP') is consistent with the requirements of UK-adopted
International Accounting Standards in conformity with the Companies Act 2006,
the Directors have sought to prepare the financial statements on a basis
compliant with the recommendations of the AIC SORP. The Accounts have also
been prepared in accordance with the Disclosure and Transparency Rules issued
by the Financial Conduct Authority. The accounting policies applied are
consistent with those of the audited annual financial statements for the year
ended 31 May 2023 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.
(a) Income
Ordinary dividends from investments are recognised when the investment is
quoted ex-dividend on or before the date of the Statement of Financial
Position.
Ordinary dividends receivable from equity shares are taken to the revenue
return column of the Income Statement. Deposit and other interest receivable
are accounted for on an accruals basis. These are classified within operating
activities in the cash flow statement. Special dividends are reviewed on a
case by case basis to determine if the dividend is to be treated as revenue or
capital.
(b) Presentation of Income Statement
In order to better reflect the activities of an investment trust company and
in accordance with guidance issued by the Association of Investment Companies
(AIC), supplementary information which analyses the Income Statement between
items of a revenue and capital nature has been presented alongside the
statement. In accordance with the Company's Articles of Association, net
capital returns may not be distributed by way of dividend. An analysis of
retained earnings broken down into revenue (distributable) items and capital
(non-distributable) items is given in Note 3. All other operational costs
including administration expenses and finance costs are charged to revenue.
(c) Basis of valuation of investments
Investments are recognised and derecognised on a trade date where a purchase
and sale of an investment is under contract whose terms require delivery of
the investment within the timeframe established by the market concerned, and
are initially measured at cost, being the consideration given.
The investments are designated as fair value through profit or loss on initial
recognition as this is consistent with the Company's documented investment
strategy.
All investments are measured at fair value with changes in their fair value
recognised in the Income Statement in the period in which they arise. The fair
value of listed investments is based on their quoted bid price at the
reporting date without any deduction for estimated future selling costs.
Foreign exchange gains and losses on fair value through profit or loss
investments are included within the changes in the fair value of the
investments.
For investments that are not actively traded and/or where active stock
exchange quoted bid prices are not available, fair value is determined by
reference to a variety of valuation techniques. These techniques may draw,
without limitation, on one or more of: the latest arm's length traded prices
for the instrument concerned; financial modelling based on other observable
market data; independent broker research; or the published accounts relating
to the issuer of the investment concerned.
2. (Loss)/return per ordinary share
Six months to Six months to
30 November 2023 30 November 2022
£'000 £'000
Net revenue (loss)/profit (150) 817
Net capital profit/(loss) 34,814 (6,466)
Net total profit/(loss) 34,664 (5,649)
Weighted average number of ordinary 97,105,597 101,840,177
shares in issue during the period
Revenue (loss)/return per ordinary share (p) (0.15) 0.80
Capital return/(loss) per ordinary share (p) 35.85 (6.35)
Total return/(loss) per ordinary share (p) 35.70 (5.55)
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 2023 11,791 612,153 623,944
Net (loss)/return for the period (150) 34,814 34,664
Repurchase of ordinary shares into treasury - (17,153) (17,153)
Dividends declared (3,375) - (3,375)
At 30 November 2023 8,266 629,814 638,080
* 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 £877,074,000 (31 May 2023: £862,938,000) and on
96,296,322 (31 May 2023: 98,457,598) 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 2023 and 30 November
2022 has not been audited. The information for the year ended 31 May 2023 has
been extracted from the latest published audited financial statements. The
audited financial statements for the year ended 31 May 2023 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. Fair value of investments
IFRS 13 Fair Value Measurement requires an entity to classify fair value
measurements using a fair value hierarchy that reflects the significance of
the inputs used in making the measurements. The fair value hierarchy shall
have the following levels:
Level 1 reflects financial instruments quoted in an active market.
Level 2 reflects financial instruments whose fair value is evidenced by
comparison with other observable current market transactions in the same
instrument or based on a valuation technique whose variables includes only
data from observable markets.
Level 3 reflects financial instruments whose fair value is determined in whole
or in part using a valuation technique based on assumptions that are not
supported by prices from observable market transactions in the same instrument
and not based on available observable market data.
The fair value hierarchy for investments held at fair value at the period end
is as follows:
30 November 2023 31 May 2023
Level 1 £'000 Level 2 £'000 Level 3 £'000 Total £'000 Level 1 £'000 Level 2 £'000 Level 3 £'000 Total £'000
Investments 886,175 - - 886,175 936,318 - - 936,318
7. 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 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.
8. Post balance sheet events
On 6 November 2023 the Board announced a tender offer for up to 25 per cent of
the issued share capital. The tender offer was set at a 2% discount to the
prevailing net asset value per share as the Calculation Date (after costs of
implementation of the proposals). The number of shares acquired under the
tender offer was 24,074,030 Shares, representing 25% of the shares in issue
(excluding shares held in treasury) as at the date of publication of the
proposals. Shareholders approved the tender offer at a General Meeting held on
21 December 2023. The tender offer opened to Shareholders on the register at
6.00 p.m. on 29 January 2024 and was completed on 31 January 2024.
Implementation resulted in a reduction in the Company's net assets to £696
million as at 31 January 2024.
9. 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)
29 February 2024
END
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