TIDMEOT
RNS Number : 9123C
European Opportunities Trust PLC
25 February 2022
European Opportunities Trust PLC (the 'Company')
Legal Entity Identifier: 549300XN7RXQWHN18849
Half Yearly Financial Report for the six months to 30 November
2021
Financial Highlights for the six months to 30 November 2021
30 November 31 May
2021 2021 % change
---------------------------------------------- ------------ ------- ------------
Net asset value per share (pence) 928.1 824.3 12.6
Net asset value total return (with dividends
added back) (1,2) 12.8
Middle market share price (pence) 822.0 750.0 9.6
Share price total return (with dividends
added back)(1,2) 9.9
MSCI Europe Total Return Index in GBP
(Benchmark) 3.8
Discount to net asset value (%)(1) (11.4) (9.0)
(1) Alternative Performance Measure.
(2) A dividend of 2.0p was paid on 26 November 2021.
Chairman's Statement
I am pleased to present your Company's interim report for the
six months to 30 November 2021. As at 23 February 2022 your Company
had total assets (with loans added back) of GBP892 million, the net
asset value (NAV) per share was 787.6p and the middle market price
per share on the London Stock Exchange was 686.0p, representing a
12.9% discount to NAV.
Investment Performance
During the six months to 30 November 2021 the total return on
the NAV per share of the Company was 12.8% (with dividends added
back). This compares with a total return from the Company's
benchmark index, the MSCI Europe Total Return Index in sterling
('MSCI Europe Index'), of 3.8% and a total return on the middle
market price of the Company's shares of 9.9% during the same
period.
Although this performance represents a significant recovery from
the Company's performance during the financial year to 31 May 2021,
there has been a substantial correction in markets during the
current period and the share price is now below that as at 31 May
2021.
Over the twenty one year life of the Company from launch on 20
November 2000 to 30 November 2021 the annualised total return on
the NAV per share has been 11.9% and the annualised total return on
the share price has been 11.0%. (with dividends added back). The
annualised total return on the MSCI Europe Index over the same
period has been just 5.8%.
Our AIFM
In response to the publicised concerns of the Financial Conduct
Authority ('FCA') around outsourcing of regulated functions in
investment management, our Investment Manager, Devon, has sought
and obtained FCA authorisation to undertake the role of Alternative
Investment Fund Manager ('AIFM') for its clients. The Board and our
depositary for regulatory purposes, JP Morgan, have agreed to
implement a period of parallel running with both our incumbent
AIFM, FundRock Partners Limited, and Devon undertaking the AIFM's
reporting obligations, with a view (subject to appropriate due
diligence) to transitioning responsibility to Devon in that role
with effect from the beginning of the new financial year on 1 June
2022. There would be no change in the terms of engagement of the
AIFM nor in the fees payable to Devon and shareholder consent would
not be required for this transition.
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. As at 30 November 2021 the discount was 11.4%.
A total of 2,217,000 shares were repurchased for treasury during
the period under review pursuant to the Company's discount
management policy. We review the trading activity and discount of
the shares on a regular basis and are committed to maintaining the
discount in line with Board policy.
Gearing
At the end of the period under review, the net gearing level on
the Company's investments was 6.8% (after offsetting cash deposits
against the GBP75 million drawn down on that date). The Investment
Manager tends to increase gearing at times of perceived low
valuations, while 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's
loan facility is currently drawable to a maximum amount of GBP100
million.
The Company renewed its revolving credit facility with The Bank
of Nova Scotia, London Branch on 10 September 2021 with a maximum
drawable amount of GBP100 million available until September 2022
and credit approval for an additional 'accordion' amount available
upon application for a further GBP50 million.
Outlook
Gross Domestic Product ('GDP') growth in Europe in 2022 is
forecast to be lower than that of the US and a number of other
developed markets; and Europe's stockmarkets have underperformed
many others in 2021. Current events in Eastern Europe, the presence
of rising inflation and the prospect of interest rate rises will
threaten Europe's recovery as much as other economies.
However, Alexander Darwall continues to focus on what he
considers to be the best individual companies, rather than
investing on the basis of political or macro-economic
considerations. We are committed, as a Board, to the concentrated,
high conviction approach to investment which has been consistently
applied to the portfolio since the Company was launched in November
2000. This consistent investment process has produced very good
long-term returns in the past and we believe that our portfolio is
well-placed to produce similar returns in the future.
Andrew Sutch
Chairman
25 February 2022
Investment Manager's Review
The total return on the net asset value of the Company's shares
was 12.8% during the six months to 30 November 2021. This compares
with an increase of 3.8% in our benchmark, the MSCI Europe
Index.
Your Company's relatively good performance is explained by our
focus on companies whose business models are not especially
vulnerable to rising inflation and higher interest rates. It is
true that quantitative easing ('QE') policies continue to push
equity markets higher. However, cost inflation is weighing down
corporate earnings. Our companies, in the main, are less affected
by higher input costs, being higher value-added business models.
The threat of inflation is clear: in the US inflation hit 6.8% in
November 2021; Eurozone inflation is currently estimated at 4.9%.
In response, the US authorities have signalled the need to reduce
QE support and increase interest rates and are expected to
accelerate the tapering of monthly bond purchases, a pre-cursor to
raising interest rates. Europe is slower to recognise the danger of
inflation. The European Central Bank's ('ECB') main refinancing
rate remains at 0% as it has been for the last six years; and
3-month Euribor was (0.57)% at the end of November 2021, as low as
it has ever been.
Europe's stock market performance compares poorly with the total
returns (in Sterling) on the MSCI World index of 12.6%. The
S&P500 index was up 17.1%; and the Nasdaq Composite Index was
up 21.4%, an indication that technology stocks were a main driver
of markets around the world continuing the pattern of the last two
years.
The main reason that European markets have not performed as well
as other markets is that the macroeconomic recovery is expected to
be weaker than the world average. Indeed, throughout the course of
2021, the International Monetary Fund ('IMF') has barely increased
its forecasts for the European Union's GDP (of 5.1% and 4.4% for
2021 and 2022 respectively), whereas the IMF estimates world GDP
growth of 5.9% and 4.9% for 2021 and 2022 respectively.
Europe's slightly lower growth rate is due, in part, to the fact
that it is more vulnerable to higher raw material and rising energy
costs. The sterling price of oil rose by 6.8% over the period under
review. Soft commodity price increases have dented the earnings of
many food and ingredients companies; higher metals prices are
impacting profits across a broad range of industries. This cost
inflation will become more apparent in 2022 as hedging benefits
expire. These factors are reflected in 2022 corporate earnings
forecasts. Goldman Sachs, the investment bank, for instance,
expects only 6.0% growth.
Performance
Your Company's performance in the period under review marked a
reversal of performance from the previous reporting period. We
always explain our performance in terms of stock selection. It is
possible to see that our style has prevailed during the period
under review as cost inflation has started to bite and as the
threat of rising interest rates poses a risk to heavily indebted
companies.
The portfolio has a minimal exposure to the most ambitious
'green' stocks. Notwithstanding the political will and public
enthusiasm, many of these companies are struggling with technology
challenges and poor economics. The tremendous practical
difficulties of the energy transition were partially reflected in
weaker stock values. Although the US administration is presently
unable to pass the 'Build Back Better Act' ("The Reconciliation
Bill"), a USD 3.5 trillion stimulus package, European countries are
pressing ahead with a range of packages including 'Fit for 55' and
the European 'Green Deal'. Europe can rightfully claim to be the
world leader in the green transition. However, returns from the
renewables sector have weakened over the last year and it is not
clear that public money can improve returns sufficiently.
Renewables' returns are low. That the shift to renewables might
also be, as BP puts it, 'low regret' is small comfort to
investors.
Contribution
The biggest single contributor to performance was Novo Nordisk.
Patience has been rewarded. Indeed, we believe that more rewards
will follow from retaining our position in the company. The
essential driver of Novo Nordisk's share price is its dominant
global position (along with a US peer) in the relatively new class
of drug, GLP-1. This drug not only treats diabetes, but it also has
strong therapeutic indications for co-morbidities such as
cardiovascular diseases and obesity. It is this latter indication
that fired the share price in 2021 as prescribers and patients in
the US, through their healthcare plans, drove spectacular demand
for the drug following its launch. The incidence of diabetes
continues to rise across the world. Novo Nordisk is exceptionally
well placed to address this global pandemic.
Dassault Systèmes made a significant contribution to
performance. Its leadership in 3D CAD/CAM (computer aided design
and manufacture), was enhanced by its acquisition of a US company,
Medidata, shortly before Covid struck. The timing of this
acquisition turned out to be fortuitous as its activity was boosted
by Covid-related business.
Our second largest holding, Experian, was also a significant
positive contributor to performance. As the largest credit bureau
in the world, Experian is singularly well placed to help borrowers
in their main markets, the US, Brazil and the UK. Their strategy of
'financial inclusion' chimes with policy makers' aims. New fintech
companies are not disruptive to their business model; on the
contrary, they represent new growth opportunities.
RELX , too, is another of our biggest holdings and contributed
markedly. Although a part of their business, 'Exhibitions',
continues to be badly affected by Covid restrictions, the shares
performed well because its 'Risk' business is flourishing. This is
the fastest growing part of RELX, a play on cyber security where
their unique data sets ensure a strong and sustainable market
position. We remain committed to this position as we envisage new
options for growth emerging.
BioMérieux 's share price responded well to strong results,
driven in part by Covid testing revenues. The future success of
BioMérieux is about much more than Covid. It fulfils many other
diagnostic needs including the detection of flu. We are firmly of
the view that there is a structural increase in the need for
diagnostics partly because pathogens abound and partly to reduce
antibiotic use.
Finally, our semiconductor-related stocks - Infineon
Technologies, SOITEC, and ASML performed well. These three
companies occupy leading, even quasi-monopoly, positions in their
respective niches. This gives them strong protection when, as is
inevitable at some stage, there is a cyclical downturn in
semiconductors. For the time being, demand momentum in
semiconductors is strong, driven by the proliferation of new
applications including inter alia, 'The Internet of Things', 5G and
electric vehicles.
Of our detractors to performance, Grifols, one of the world's
leading blood plasma fractionation companies, is, again, top of the
list. Two factors explain this. First, plasma collection in the US
has been seriously hampered by Covid concerns resulting in less
volume being collected and higher costs of collection. The second,
a longer-term existential threat, is the emergence of new
therapies, FcRn inhibitors, which have the potential to replace
fractionated blood plasma products. As regards the difficulty of
plasma collection, we believe collections will improve in due
course. New anti FcRn drugs pose a threat, but we expect these to
complement, not substitute Grifols' therapies. Although the
company's chronic underperformance is of concern, the favourable
industry structure and robust demand growth underpin our confidence
in this investment.
Ubisoft Entertainment shares were another significant drag on
performance. As a leading video games publisher, the Covid era has
proved a mixed blessing. On the one hand, lockdowns were very good
for demand. On the other hand, organising personnel ('talent' as it
is called in the games industry), has become more difficult and
expensive. New releases have been delayed and retaining 'talent'
has become harder and more expensive. One of the significant growth
options, China, appears to have been dented as the Chinese
authorities described gaming for children as "spiritual opium". The
position is under review.
Although Edenred shares disappointed, the company continues to
deliver good results. We have great confidence in the business
model and management and have retained the holding.
Neste shares, too, underperformed. Neste is the world's biggest
producer of renewable diesel. It is also positioned to become a
major producer of sustainable aviation fuels, again, from renewable
sources. The shortage and higher costs of feedstocks explains the
shares' underperformance. We decided to retain the position as we
believe the company's technology is sufficiently differentiated to
give it a sustainable competitive advantage.
Bayer 's shares continued their under-performance. Their US
legal travails continue to weigh on the company's share price.
These have overshadowed a proper appreciation of the value of
Bayer's businesses. In particular, the Crop Science division boasts
some world leading technologies which will prove to be important as
agriculture evolves. We have retained, indeed, increased the
holding.
Finally, we highlight the poor performance of Genus, which is a
world-leading animal genetics company, breeding better pigs and
cattle. Its gene editing programmes aim to create significant
value, the most important and immediate opportunity being to
suppress a fatal respiratory disease in pigs. These considerations
outweigh the short term, transitory concerns which have caused the
share price to weaken, namely the oversupply of pigs in China. We
expect that market to improve in due course. We have retained the
position.
Stock weightings as at 30 November 2021
The following tables detail which stock positions had the
greatest impact on performance during the period on an absolute
basis, both positive and negative. The Benchmark MSCI Europe Total
Return Index in GBP increased by 3.8% during the period under
review:
Outperformers
Portfolio Benchmark 6 month
Weight Weight
at 30.11.2021 at 30.11.2021 Price Performance
% % %
Stock
------------------------ --------------- --------------- -------------------
Novo Nordisk 'B' 10.90 1.69 45.36
Dassault Systèmes 9.90 0.37 39.54
Experian 10.70 0.39 26.08
RELX 8.90 0.56 27.15
BioMérieux 5.90 0.05 31.73
SOITEC 4.30 - 38.85
Infineon Technologies 4.40 0.55 19.05
ASML 2.90 3.11 25.76
Darktrace 1.60 - 33.64
Merck KGaA 1.80 0.30 16.38
------------------------ --------------- --------------- -------------------
Underperformers
Portfolio Benchmark 6 month
Weight Weight
at 30.11.2021 at 30.11.2021 Price Performance
% % %
Stock
------------------------ --------------- --------------- -------------------
Grifols 3.50 0.05 (30.24)
Ubisoft Entertainment 2.00 0.04 (25.09)
Edenred 3.10 0.10 (13.43)
Neste 1.10 0.19 (24.54)
Bayer 2.60 0.46 (15.60)
Worldline 0.40 0.12 (35.20)
Genus 6.90 - (3.86)
Grenke 0.80 - (21.41)
Mowi 1.20 0.09 (5.56)
adidas - 0.52 (6.50)
------------------------ --------------- --------------- -------------------
Sector weightings as at 30 November 2021
The following tables detail which sectors had the greatest
impact on performance during the period on an absolute basis, both
positive and negative:
Outperformers
Portfolio Benchmark 6 month
Weight Weight
at 30.11.2021 at 30.11.2021 Price Performance
% % %
Sector
------------------------ --------------- --------------- -------------------
Information Technology 27.90 8.78 21.78
Industrials 20.70 14.77 25.92
Health Care 31.80 14.57 12.57
Financials 9.40 15.73 (2.48)
Materials 1.20 7.89 7.72
------------------------ --------------- --------------- -------------------
Underperformers
Portfolio Benchmark 6 month
Weight Weight
at 30.11.2021 at 30.11.2021 Price Performance
% % %
Sector
------------------------ --------------- --------------- -------------------
Communications
Services 2.00 3.66 (25.09)
Energy 3.00 4.56 (4.85)
Consumer Discretionary 0.90 11.71 (1.32)
------------------------ --------------- --------------- -------------------
Activity
Portfolio turnover (being sales as a percentage of average
assets over the twelve months to 30 November 2021) of 19% was lower
than in recent reporting periods. This figure was swollen by the
disposal of shares in Arrow Global which we sold following the
successful bid for the company. This was effectively a forced sale,
albeit a satisfying one that crystallised a successful
investment.
Of the 'voluntary' activity, the most significant sale was the
halving of our holding in Intermediate Capital Group ('ICG'),
retaining a 4.2% holding at the period end. The reason for reducing
the position was partly because we identified more compelling
opportunities and partly because we have concerns about the high
levels of debt in the private equity world.
All the other sales were relatively small: we also sold all
shares in adidas, a 1% position, where recent results highlighted
problems, including the Chinese market, logistics costs and that
they appear to be slipping further behind their principal
competitor, Nike. Other smaller disposals included that of Network
International Holdings, the Dubai based payments company, whose
business depends greatly on tourism and has accordingly suffered
from Covid-related travel restrictions. Notwithstanding our
confidence in Novo Nordisk's business, we slightly reduced the
holding at the point at which it represented 11.3% of the portfolio
for risk management reasons.
We established two new positions, Neste and Merck KGaA
('Merck'). The first, is the world's largest producer of renewable
diesel and sustainable aviation fuels refined from waste and
residues, introducing renewable solutions also to the polymers and
chemicals industries. We believe that the company enjoys
sustainable competitive advantages and, crucially, we think that
demand for their products will grow despite the obvious concerns
about the cost of 'green' solutions.
Merck is a German based conglomerate of life sciences,
healthcare and electronics. There are multiple growth drivers; we
highlight two. In its life sciences division, Merck produces
lipids, a key component of mRNA-based vaccines and therapeutics.
Demand here is strong due to Covid vaccines. The acquisitions of
Millipore (2010) and Sigma-Aldrich (2015) transformed the Life
Sciences business of Merck, giving them a leading position in the
biologics manufacturing chain in both consumables and equipment
(notably bioreactors, purification, filtration). These acquisitions
were well-timed to coincide with the surge in research and demand
for biologics, and the shift in manufacturing techniques away from
large steel fermenters to single use technology. We believe the
business remains exceptionally well positioned to capitalise on
continued growth in biologics and the imminent commercialisation of
mRNA and gene therapy across a broad array of indications. Another
important driver is in the field of semiconductors where the
company supplies a range of materials and solutions used in the
production of semiconductors, indubitably a growth area.
We also bought more shares in Bayer as the share price weakened.
Likewise, as shares in Darktrace declined, we took the opportunity
to buy more. The company occupies a strong position in a particular
niche of the cyber security market and, whilst competition is
increasing, Darktrace has the advantage of years of collected data
which should stand them in good stead.
We also purchased more shares in Oxford Instruments, a leading
provider of high technology products and services to the world's
leading industrial companies and scientific research organisations.
The company continues to benefit from a variety of growing areas
including quantum computing, 5G telecoms, semiconductors and
nanomaterials.
Finally, we bought back a small position in Worldline, the
French based payments processing company. Its exposure to in-store,
physical payments means that it misses out on the fastest growing
areas of payments, e-commerce and mobile. However, it enjoys
respectable growth prospects and its leading position in Europe is
important for what is a 'scale' business.
Gearing
Net borrowings have changed little since the last reporting
period. As at 30 November net borrowings were almost GBP64m,
representing net gearing of 6.8% (after deduction of cash on
deposit). Some of the money from borrowings was used to fund share
buybacks, a value enhancing operation for shareholders when the
Company's shares trade at a significant discount to their net asset
value. Average borrowing costs were 1.04%, lower than last
year.
Outlook
Since the outbreak of Covid two years ago, markets have been
carried by two forces: cheap money and money printing (QE); and
optimism around political slogans such as 'Build Back Better'.
These two factors, in our opinion, will continue to dominate the
investment backdrop. However, they are likely to dampen prospects
as on both counts there will be a reckoning, the catalyst for which
is inflation.
There is strong evidence that inflation, currently around 5% in
Europe, is not a transitory phenomenon (as the politicians and
central bankers hope). Rather, with a transition to the 'green
economy', inflation is likely to be persistent and damaging.
Policies such as the European Union's 'European Green Deal' and
'Fit for 55' green transition have been greeted with tremendous
enthusiasm by the leading financial institutions, notably the big
investment banks, and some investors. Yet the reality is much more
problematic. 'Green' energy is, and is likely to remain, much more
costly than conventional energy sources. We recognise that much
political capital has been invested in this project. Accordingly,
even though it is highly unlikely to realise their ambitions in
full, some part of this transition either has been, or will be
adopted. We consider both the cost challenges and the investment
opportunities of this transition. With the prospect of higher
energy costs we continue to avoid businesses which are unduly
dependent on energy. On the other hand, we see opportunities for
businesses which can realistically benefit from the transition:
Neste, the Finnish producer of sustainable aviation fuels is one.
Their fuels are proven, high quality and, critically, can be
adopted to a modest extent by their customers, the airlines, with
only a minimal impact on the profitability of the airlines.
Although central bankers have signalled their intention to
reduce money printing and raise interest rates to bring inflation
down to their typical target of 2%, it is unlikely that they will
succeed. Indeed, there will be political pressure to keep interest
rates lower and allow inflation to remain higher partly because
inflation performs a useful function for politicians by reducing
the 'real' value of outstanding government debt. It should be
conceded that, at low levels, inflation is good for equities.
Nevertheless, there are other considerations which impair market
prospects and are likely to lead to lower growth rates in Europe:
the partial reversal of globalisation (for example, trade disputes
with China); the change in working practices particularly in the
West; and the increasing size of governments. These factors are all
likely to increase costs and reduce efficiency.
Whilst the investment backdrop is likely to be more challenging,
we are confident that our strategy will prevail. Our focus is on
identifying business models which can flourish in different
economic scenarios. Our companies, we hope, are structural winners,
not just bull market plays. We select companies with common
characteristics from a broad range of sectors, from pharmaceutical
to fish farming, agriculture to algorithms, semiconductors to
sustainable aviation fuels. The prized characteristics are high
value-added activities, sustainable differentiation and pricing
power, with relatively low fixed costs, enjoying secular demand
despite weaker economic activity. Having companies that compete
globally mitigates, to some extent, the risk of weaker European
economic growth. Moreover, global success is a convincing
validation of products and services. The favourable investment
conditions of the last two years have lifted valuations markedly,
including those with dubious business models.
We anticipate tougher conditions which will cause a sharper
division of winners and losers. We believe that we are well placed
for this eventuality.
Alexander Darwall
Devon Equity Management Limited
25 February 2022
Investment Portfolio
as at 30 November
2021
30 November 2021 31 May 2021
Market
Country of Value
Company Sector Listing GBP'000 % of Investments % of Investments
-------------------------- ----------------------- --------------- --------- ---------------- ----------------
Novo Nordisk 'B' Healthcare Denmark 112,380 10.9 9.8
Experian Industrials United Kingdom 110,027 10.7 9.4
Dassault Systèmes Information Technology France 102,218 9.9 7.8
RELX Industrials United Kingdom 91,735 8.9 8.7
Genus Healthcare United Kingdom 70,951 6.9 7.7
BioMérieux Healthcare France 61,027 5.9 4.9
Deutsche Boerse Financials Germany 45,547 4.4 5.6
Infineon Technologies Information Technology Germany 45,223 4.4 3.3
SOITEC Information Technology France 44,595 4.3 3.4
Intermediate Capital
Group Financials United Kingdom 43,382 4.2 7.9
Grifols Healthcare Spain 36,175 3.5 5.6
Edenred Information Technology France 32,144 3.1 3.4
ASML Information Technology Netherlands 29,761 2.9 2.5
Bayer Healthcare Germany 26,698 2.6 1.0
Ubisoft Entertainment Communication Services France 21,084 2.0 3.0
Gaztransport Et Technigaz Energy France 19,663 1.9 2.0
Barry Callebaut Consumer Staples Switzerland 18,456 1.8 1.8
Merck KGaA Healthcare Germany 18,428 1.8 -
Darktrace Information Technology United Kingdom 16,931 1.6 1.0
Oxford Instruments Information Technology United Kingdom 13,291 1.3 0.5
Mowi Consumer Staples Norway 12,823 1.2 0.9
Neste Energy Finland 11,608 1.1 -
Borregaard Materials Norway 11,065 1.1 0.5
Pets at Home Group Consumer Discretionary United Kingdom 9,807 0.9 0.5
Wolters Kluwer Industrials Netherlands 8,445 0.8 0.7
Grenke Financials Germany 7,975 0.8 1.1
Worldline Information Technology France 3,945 0.4 0.9
OHB Industrials Germany 2,897 0.3 0.4
Grifols Preference Healthcare Spain 2,484 0.2 -
KWS Saat Consumer Staples Germany 1,233 0.1 0.1
Elkem Materials Norway 1,060 0.1 0.1
-------------------------- ----------------------- --------------- --------- ---------------- ----------------
Total Investments 1,033,058 100.0
-------------------------------------------------------------------- --------- ---------------- ----------------
Classification of Investments
as at 30 November 2021
% of Investments % of Investments
Country of Listing 30 November 2021 31 May 2021
-------------------------------- ------------------ -----------------
Denmark 10.9 9.8
Finland 1.1 -
France 27.5 25.4
Germany 14.4 12.6
Netherlands 3.7 3.2
Norway 2.4 1.5
Spain 3.7 5.6
Switzerland 1.8 1.8
United Kingdom 34.5 40.1
-------------------------------- ------------------ -----------------
Total 100.0 100.0
-------------------------------- ------------------ -----------------
% of Investments % of Investments
Industry Sector 30 November 2021 31 May 2021
------------------------------- ------------------ -----------------
Communication Services 2.0 3.0
Consumer Discretionary 0.9 1.6
Consumer Staples 3.1 2.8
Energy 3.0 2.0
Financials 9.4 18.6
Healthcare 31.8 29.0
Industrials 20.7 19.2
Information Technology 27.9 23.2
Materials 1.2 0.6
-------------------------------- ------------------ -----------------
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.
As a result of the ongoing Covid pandemic, 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 in 2023 .
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 21 to 22 of the Company's Annual Report for the year ended 31
May 2021 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. The ongoing
Covid pandemic poses additional risks to the Company beyond the
risks described above. They include liquidity risks to markets, a
potential reduction in income receipts and business continuity
risks for the Investment Manager and the Company's other key
service providers.
Related Party Transactions
During the first six months of the current financial year, no
transactions with related parties have taken place which have
materially affected the financial position or performance of the
Company.
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 2021;
(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
Andrew Sutch
Chairman
25 February 2022
Income Statement
for the six months ended 30 November 2021
Six months ended Six months ended
30 November 2021 30 November 2020
(unaudited) (unaudited)
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------- ------- ------- ------- ------- -------- --------
Gain/(loss) on investments - 110,070 110,070 - (43,438) (43,438)
Other exchange loss/(gain) - (23) (23) - 191 191
Income from investments 6,219 - 6,219 5,653 - 5,653
Other income - - - 1 - 1
------------------------------- ------- ------- ------- ------- -------- --------
Total income/(loss) 6,219 110,047 116,266 5,654 (43,247) (37,593)
------------------------------- ------- ------- ------- ------- -------- --------
Investment management
fee (4,502) - (4,502) (3,871) - (3,871)
Other expenses (577) - (577) (463) - (463)
------------------------------- ------- ------- ------- ------- -------- --------
Total expenses (5,079) - (5,079) (4,334) - (4,334)
------------------------------- ------- ------- ------- ------- -------- --------
Net return/(loss) before
finance costs and taxation 1,140 110,047 111,187 1,320 (43,247) (41,927)
Finance costs (411) - (411) (162) - (162)
------------------------------- ------- ------- ------- ------- -------- --------
Return/(loss) before taxation* 729 110,047 110,776 1,158 (43,247) (42,089)
Taxation (413) - (413) (120) - (120)
------------------------------- ------- ------- ------- ------- -------- --------
Net return/(loss) after
taxation* 316 110,047 110,363 1,038 (43,247) (42,209)
------------------------------- ------- ------- ------- ------- -------- --------
Return/(loss) per ordinary
share 0.30p 104.12p 104.42p 0.93p (38.57)p (37.64)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.
Balance Sheet
as at 30 November 2021
30 November 31 May
2021 2021
(unaudited) (audited)
GBP'000 GBP'000
-------------------------------------- ---------------------- ---------
Fixed assets
Investments 1,033,058 936,972
Current assets
Debtors 2,301 3,942
Cash and cash equivalents 13,388 9,892
-------------------------------------- ---------------------- ---------
15,689 13,834
Total assets 1,048,747 950,806
-------------------------------------- ---------------------- ---------
Current liabilities
Creditors - amounts falling due
within 1 year (79,691) (71,817)
-------------------------------------- ---------------------- ---------
Total assets less current liabilities 969,056 878,989
-------------------------------------- ---------------------- ---------
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 730,062 639,995
-------------------------------------- ---------------------- ---------
Total shareholders' funds 969,056 878,989
-------------------------------------- ---------------------- ---------
Net asset value per ordinary share 928.05p 824.29p
-------------------------------------- ---------------------- ---------
Statement of Changes in Equity
for the six months to 30 November 2021
Capital
For the six months Share Share Special Redemption Retained
to Capital Premium Reserve Reserve Earnings Total
30 November 2021 (unaudited) GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------ --------- --------- --------- ------------ ---------- ---------
Balance at 1 June 2021 1,129 204,133 33,687 45 639,995 878,989
Net profit after taxation - - - - 110,363 110,363
Repurchase of ordinary
shares into treasury - - - - (18,187) (18,187)
Dividends declared - - - - (2,109) (2,109)
------------------------------ --------- --------- --------- ------------ ---------- ---------
Balance at 30 November
2021 1,129 204,133 33,687 45 730,062 969,056
------------------------------ --------- --------- --------- ------------ ---------- ---------
Capital
For the six months Share Share Special Redemption Retained
to Capital Premium Reserve Reserve Earnings Total
30 November 2020 (unaudited) GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------ --------- --------- --------- ------------ ---------- ---------
Balance at 1 June 2020 1,129 204,133 33,687 45 683,923 922,917
Net loss after taxation - - - - (42,209) (42,209)
Repurchase of ordinary
shares into treasury - - - - (20,799) (20,799)
Dividends declared - - - - (3,890) (3,890)
------------------------------ --------- --------- --------- ------------ ---------- ---------
Balance at 30 November
2020 1,129 204,133 33,687 45 617,025 856,019
------------------------------ --------- --------- --------- ------------ ---------- ---------
Cash Flow Statement
for the six months to 30 November 2021
Six months Six months
ended ended
30 November 30 November
2021 2020
(unaudited) (unaudited)
GBP'000 GBP'000
--------------------------------------------- ------------- -------------
Cash flows from operating activities
Investment income received (gross) 8,064 6,121
Deposit interest received - 1
Investment management fee paid (4,229) (3,952)
Other cash expenses (507) (333)
--------------------------------------------- ------------- -------------
Net cash inflow from operating activities
before taxation and interest 3,328 1,837
--------------------------------------------- ------------- -------------
Interest paid (357) (171)
Taxation (632) (62)
--------------------------------------------- ------------- -------------
Net cash inflow from operating activities 2,339 1,604
--------------------------------------------- ------------- -------------
Cash flows from investing activities
Purchases of investments (111,888) (143,294)
Sales of investments 126,815 139,275
--------------------------------------------- ------------- -------------
Net cash inflow/(outflow) from investing
activities 14,927 (4,019)
--------------------------------------------- ------------- -------------
Cash flows from financing activities
Repurchase of ordinary shares into treasury (21,638) (18,386)
Equity dividends paid (2,109) (3,980)
Repayment of loan - (30,000)
Drawdown of loan 10,000 40,000
--------------------------------------------- ------------- -------------
Net cash outflow from financing activities (13,747) (12,276)
--------------------------------------------- ------------- -------------
Increase/(decrease) in cash 3,519 (14,691)
Cash and cash equivalents at start of
period 9,892 25,503
Realised (loss)/gain on foreign currency (23) 191
--------------------------------------------- ------------- -------------
Cash and cash equivalents at end of period 13,388 11,003
--------------------------------------------- ------------- -------------
Notes to the Financial Statements
1. Accounting Policies
The accounts comprise the unaudited financial results of the
Company for the period to 30 November 2021. 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 2021 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 2021 30 November 2020
GBP'000 GBP'000
--------------------------------- ---------------- ----------------
Net revenue profit 316 1,038
Net capital profit/(loss) 110,047 (43,247)
--------------------------------- ---------------- ----------------
Net total profit/(loss) 110,363 (42,209)
--------------------------------- ---------------- ----------------
Weighted average number of
ordinary
shares in issue during the
period 105,691,960 112,123,108
Revenue return per ordinary
share (p) 0.30 0.93
Capital return/(loss) per
ordinary share (p) 104.12 (38.57)
--------------------------------- ---------------- ----------------
Total return/(loss) per ordinary
share (p) 104.42 (37.64)
--------------------------------- ---------------- ----------------
3. Retained earnings
The table below shows the movement in the retained earnings
analysed between revenue and capital items.
Revenue* Capital Total
GBP,000 GBP'000 GBP'000
------------------------------------------ -------------------- -------------------- --------------------
At 1 June 2021 10,314 629,681 639,995
Net return for the period 316 110,047 110,363
Repurchase of ordinary shares
into treasury (18,187) (18,187)
Dividends declared (2,109) - (2,109)
------------------------------------------ -------------------- -------------------- --------------------
At 30 November 2021 8,521 721,541 730,062
------------------------------------------ -------------------- -------------------- --------------------
* 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 GBP969,056,000 (31 May
2021: GBP878,989,000) and on 104,418,840 (31 May 2021:106,635,840)
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 2021 and 30 November 2020 has not been audited. The
information for the year ended 31 May 2021 has been extracted from
the latest published audited financial statements. The audited
financial statements for the year ended 31 May 2021 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
FundRock Partners Limited is the Company's Alternative
Investment Fund Manager ('AIFM') and Devon Equity Management
Limited ('Devon') has been the delegated Investment Manager for the
Company by the AIFM since 15 November 2019.
Devon and the AIFM are paid 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 GBP1 billion and 0.80% per
annum on any net assets over this amount (with the AIFM's fee being
deducted from the fee payable to Devon). No performance fee is
payable to either Devon or the AIFM. It is anticipated that Devon
may be appointed in place of FundRock Partners Limited to act as
the Company's AIFM with effect from the beginning of the next
financial year on 1 June 2022.
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
25 February 2022
[END]
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February 25, 2022 10:12 ET (15:12 GMT)
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