TIDMEOT
RNS Number : 9094Q
European Opportunities Trust PLC
24 February 2023
European Opportunities Trust PLC (the 'Company')
Legal Entity Identifier: 549300XN7RXQWHN18849
Half Yearly Financial Report for the six months to 30 November
2022
Summary of returns for the six months to 30 November 2022
30 November 31 May
2022 2022 % change
--------------------------------------------------- ------------ ------- ------------
Net asset value per share (pence) 844.5 850.6 (0.7)
Net asset value total return (with dividends
added back) (*) (0.4)
Middle market share price (pence) 743.0 746.0 (0.4)
Share price total return (with dividends
added back)* (0.1)
MSCI Europe Total Return Index in GBP (Benchmark) 2.1
Discount to net asset value (%) (12.0) (12.3)
(*) A dividend of 2.5p was paid on 28 November 2022.
Long term track record
Annualised
return
since launch
Since %
launch
on 20.11.2000
%
3 years 5 years 10 years
To 30 November 2022 % % %
------------------------------------------ ---------- ---------- ----------- ---------------- --------------
Net asset value total return (with
dividends added back) 0.8 19.0 155.8 848.0 10.8
Share price total return (with dividends
added back) (8.6) 6.1 124.4 695.9 9.9
MSCI Europe Total Return Index in
GBP (Benchmark) 19.4 30.2 128.9 226.3 5.5
Source: MSCI & Devon Equity Management Limited. Past
performance is no guide to the future.
To note: Reduction in management fees.
Chairman's Statement
I am pleased to present these interim results to 30th November
2022 and my first statement as Chair since taking over at the last
AGM. I would like to take this opportunity to thank my predecessor,
Andrew Sutch, for his dedicated service to the Company and its
shareholders as a Director for eleven years, and Chair for
five.
Our Investment Manager's approach to investment
As your Company's Investment Manager, Alexander Darwall, along
with his colleagues at Devon, takes a consciously differentiated
approach to investment, one that has been consistently applied
since the launch of the Company. In his own words, he describes his
approach as thinking and acting as an owner and investor, not as a
speculator, and investing in a concentrated portfolio of 'special'
companies. Past experience suggests that the earnings of our
portfolio companies have tended to be resilient in adverse economic
conditions and their share prices have tended to recover strongly
in its aftermath. The Board supports the belief that the
consistency of this approach over the past twenty-two years has
been the key contributor to your Company's significant long-term
outperformance since launch relative to its Benchmark, the MSCI
Europe Total Return Index in GBP.
Having said that, the concentrated nature of the Company's
portfolio, and its high degree of differentiation from the Index
can lead to shorter-term periods of underperformance. This has
proved true of the six months under review. In particular, the
relative absence of exposure to the hydrocarbon energy and
financial sectors compared to the benchmark, the MSCI Europe Total
Return Index, has weighed on relative returns. While shorter-term
factors such as rising interest rates and disruption to energy
supplies due to the invasion of Ukraine have supported these
sectors, they do not meet the Manager's criteria for superior,
visible long-term growth.
On a longer-term basis, our Manager is confident that our
portfolio is well-positioned for growth as the world moves on from
the trials of recent years. More detailed comments on the portfolio
are set out in the Investment Manager's Review.
Investment performance
During the six months to 30 November 2022 the total return on
the NAV per share of the Company was -0.4% (with dividends added
back). This compares with a total return from the MSCI Europe Total
Return Index of 2.1% and a share price total return of -0.1% (with
dividends added back) over the same period.
Over the life of the Company (since launch on 20 November 2000
to 30 November 2022), the annualised total return on the NAV per
share has been 10.8% and the annualised total return on the share
price has been 9.9%. The annualised total return on the MSCI Europe
Index over the same period has been 5.5%.
As of the close of business on 21 February 2023, your Company
had total assets (with loans added back) of GBP975 million, the net
asset value (NAV) per share was 889p and the middle market price
per share on the London Stock Exchange was 766p, representing a
13.8% discount to NAV.
Discount Management
The Board considers that it is not in shareholders' interests
for the ordinary shares of the Company to trade at a significant
discount to the prevailing net asset value. The Board's policy is
to maintain the discount in single digits in normal market
conditions.
During the period under review, the discount level has generally
been outside the Board's desired parameters, reflecting in part the
somewhat abnormal market conditions. However, a total of 1,144,742
shares were repurchased for treasury during the period under review
pursuant to the Company's policy. On 16 November, the Board also
appointed Singer Capital Markets as broker to the Company, in
succession to Cenkos Securities PLC. Our new brokers are working
closely with our Investment Manager in marketing the Company and
thereby identifying new investors whose demand for shares would
also serve to improve the share price.
Continuation Vote
At every third Annual General Meeting ("AGM") an ordinary
continuation resolution is proposed. The next such resolution will
be proposed at the 2023 AGM (to be held in November).
Gearing
On 30 November 2022, the net gearing level on the Company's
investments was 8.7% (after offsetting cash deposits against the
GBP75 million drawn down on that date). Our Investment Manager
tends to increase gearing at times of perceived low valuations,
whilst reducing it as markets recover. This approach has added
sustained value over the course of your Company's history and we
continue to encourage the Investment Manager to consider the use of
gearing as a tactical tool to improve returns.
The Company renewed its revolving credit facility with The Bank
of Nova Scotia, London Branch on 9 September 2022 with a maximum
drawable amount of GBP100 million available until September 2023
and credit approval for an additional 'accordion' amount available
upon application for a further GBP50 million.
Our Investment Manager
In July 2022, our Investment Manager took on responsibility for
the regulatory role of Alternative Investment Fund Manager ("AIFM")
to the Company in place of Fundrock Partners Limited. This
transition followed a detailed review of the Investment Manager's
internal controls, compliance and risk environment by both the
Board and our depositary, JP Morgan. The Investment Manager
continues to build on the robust operational platform established
in 2019 and, in terms of the investment team working for your
Company, Alexander is now supported and challenged by three other
investment professionals in pursuit of our strategy.
Reduction in management fee
The Board continues to keep all costs under careful review and
remains focused upon delivering value to shareholders. As part of
this oversight, the Board and Devon have agreed a reduction in the
level of the investment management fee payable to our Investment
Manager. With effect from 1 June 2023, Devon will be entitled to
reduced aggregate management fees of 0.80% per annum on net assets
up to GBP1 billion; 0.70% per annum on any net assets over GBP1
billion up to GBP1.25 billion; and 0.60% per annum on net assets
above GBP1.25 billion.
Previously the Investment Manager was entitled to 0.90% per
annum on net assets up to GBP1 billion and 0.80% in respect of any
net assets above GBP1 billion.
Outlook
To quote the somewhat over-used proverb, these are certainly
"interesting times". It has become a cliché to describe current
conditions as unprecedented, but neither can a major war in Europe
and inflation in or near double figures be described as entirely
normal. 2022 will be remembered as a very difficult time for
investors, not just in equities but also in fixed income and a
range of other assets.
It is difficult to envisage a speedy resolution to the global
geo-political and macro-economic challenges, but as a Board we are
supportive of the Manager's focus on a relatively concentrated
portfolio of high return, strongly moated and globally oriented
businesses. This high conviction approach to investment has been
consistently applied to the portfolio since launch and has produced
exceptional long-term returns in the past; we believe that your
portfolio is well-placed to produce similar returns in the
future.
Matthew Dobbs
Chairman
24 February 2023
Investment Manager's Review
The total return on the net asset value of the Company's shares
was -0.4% during the six months to 30th November 2022. This
compares with an increase of 2.1% in our Benchmark, the MSCI Europe
Total Return Index in GBP.
Performance
Whilst our investee companies delivered satisfactory or, in some
cases, more than satisfactory results during the period under
review, their share prices did not respond as positively and
quickly as we had hoped. There were also stock mistakes, notably
Grifols and Mowi, which we discuss below. Moreover, the portfolio
has a low exposure to oil and gas companies which performed
strongly. Nevertheless, if share price performances did not
vindicate our investment style, we believe that, in the main,
company performances did.
On the back of worsening inflation, the COVID era of 'free'
money, or rather artificially low interest rates, has given way to
a period of rising interest rates. The ECB's Main Refinancing rate
has risen from 0% in November 2021 to 2% at the end of November
2022. The 3 months Euribor interest rate, which was a negative 0.6%
in November 2021, was a positive 2.0% a year later. Anticipating
further rises in interest rates, markets now price rates to rise to
around 3.1% in the summer of 2023. Indeed, the European Central
Bank raised interest rates by another 50 basis points in December,
taking the deposit rate to 2.5%. Inflation forecasts over the next
two years are for about 6.0% in 2023 and 3.4% in 2024. Europe's
inflation problems are probably worse than most other regions of
the world. The energy transition is being pursued more zealously in
Europe than elsewhere, this is proving costly. Moreover, in
addition to the headline interest rate increases, Quantitative
Easing (QE) giving way to Quantitative Tightening (QT) has the
effect of tightening financial conditions still further. Europe's
low economic growth is also compounding problems. The IMF forecasts
that the EU economy will expand by 0.7% in 2023, as compared with
2.7% for world economic growth. This is mirrored in corporate
earnings, with analysts' expectations for Eurozone companies'
earnings contracting by around 8-10% in 2023, before recovering in
2024.
This combination of rising interest rates and falling earnings,
presented a valuation 'challenge' to highly valued stocks which
were caught in a downdraught. However, as earnings resilience and
pricing discipline assert themselves, we expect the stock market to
reward 'true' growth companies with a rerating. We expect our
companies' earnings to benefit both from secular, as opposed to
cyclical, drivers and from their global reach. The evidence to
support our confidence in the earnings growth of our companies is
described below in 'Contribution'. Our 'value not volume' strategy
is, we think, well-placed.
Our positioning remained entirely consistent with your Company's
long term 'offer'. Our underweight exposure to the energy sector
should be seen in this context. We eschew commodity companies, just
as we generally avoid utilities (burdened by heavy regulations) and
mainstream banks (they have commodity characteristics). The reason
is that over time, 'special' companies, those which have strong
positions, enjoying good growth, and where supply constraints help
keep profitability elevated, should outperform commodity companies.
Supply of commodities will usually respond to good profitability
and erode that profitability in due course. This is not the case
with companies we consider to be 'special'. These, we believe, can
grow profits for longer without undue impact from new competitors
and without undue attention from regulators.
In selecting our investments, we have other important
considerations. Our companies typically have less debt than the
average company in our investment universe. We think this is
prudent. However, it is not clear that this stance helped
performance greatly in the period under review. Another facet of
the portfolio is its global exposure. There are many reasons why we
like this global exposure: a bigger addressable market, some risk
mitigation, success as a form of vindication. However, the turmoil
of the last year has not necessarily helped the fund. Lockdowns in
China and very high freight costs have probably been negative. On
the other hand, our companies' fortunes will have been improved by
exposure to markets like the US and Brazil where economic growth
was robust.
Contribution
The biggest single contributor to performance was, yet again,
Novo Nordisk. In part, of course, as our biggest holding any
success is magnified in terms of contribution to the fund's
performance. The company reported strong results and increased its
guidance. The simple idea remains the same: Novo Nordisk is a world
leader, together with one significant competitor, in addressing two
massive, global therapeutic areas, the treatment of diabetes and
obesity. The company will report progress on important clinical
trials in the course of 2023. There is still much to play for. The
next most important contributor was also our second biggest
holding, Experian. Its relatively good performance is due to
issuing strong results and guidance, reflecting both the good
conditions for their services in the US and Brazil, and also the
new opportunities to develop its consumer facing businesses. Much
the same can be said of Edenred, the French-listed 'specific
purpose' vouchers business. Here again, Brazil is an important and
growing market. Edenred, too, has many opportunities to develop
more consumer facing services. Deutsche Boerse, the German-listed
exchanges business, was another good contributor to performance.
Its revenues have grown faster than previously anticipated on the
back of rising interest rates and volatile energy markets. Neste,
listed in Finland, is a refiner of oil and producer of renewable
diesel products. It benefits from higher energy prices as,
typically, they price their renewables products at a premium to
conventional diesel. The company is expanding their production to
meet demand for Sustainable Aviation Fuel (SAF). We expect the
market for SAF to grow rapidly aided by government mandated targets
for renewables in the aviation industry. Finally, we highlight the
contribution from Infineon, the German-listed world leader in power
semiconductors. Infineon has delivered excellent results in 2023
and substantially raised its medium-term guidance. Electric
vehicles (EV) have a much higher content of power semiconductors
than conventional cars and the company should be a significant
beneficiary of the transition to EVs.
The biggest detractor from performance was, once again, Grifols.
As one of the world's leaders in the fractionation of blood plasma,
Grifols continues to suffer from higher donor costs. Covid concerns
kept many would-be donors away from collection centres in the US.
They have been slow to return, in part because generous welfare
payments had blunted the supply of donors. Moreover, as plasma
collections are labour intensive, staff shortages and higher
staffing costs have weighed on the company. Another perceived
threat to Grifols' business is a new class of drugs which threatens
to substitute Grifols' plasma fractionated products. However, we
believe that the root of Grifols' problems is poor senior
management rather than headwinds for the business itself. We note
the company's stated commitment to a deep-rooted
reorganisation.
Mowi shares also detracted from performance. Our holding in
Mowi, the world's leading salmon farming company, is a good
illustration of our policy to have investments in as broad a range
of activities as possible, whilst fitting our investment criteria.
This portfolio is not built narrowly on a few sectors or ideas,
rather it encompasses many diverse, uncorrelated growth
opportunities. Mowi's fundamentals are good. Demand for salmon
continues to increase; supply growth is constrained; and prices
have remained elevated. However, we were taken by surprise by the
Norwegian government's proposals to impose new, high taxes on the
sector, effectively a form of nationalisation without compensation.
We await the final, we hope modified, proposals before finalising
our decision.
Another underperformer was Bayer. Although it reported good
results and raised its profit forecasts, the shares are still held
back by its legal travails in the US. The principal driver of its
profits' growth is the Crop Science division, which benefits from
the buoyancy of the arable crop markets worldwide. We believe that
the legal liabilities for its glyphosate product (Roundup) are
adequately provisioned in the accounts and more than reflected in
the share price. Consequently, we continue to see this as a good
investment.
Our holding in Intermediate Capital Group (ICG) also reduced our
returns. Its position as a well-diversified private equity and
private debt manager means that it should benefit from the
structural growth of 'Alternatives'. However, concerns about the
indebtedness of the private equity sector in general weighed on its
shares. We like the high visibility of ICG's revenues. Investors'
money is locked up in funds run by ICG for many years. Critically,
we think that ICG have avoided the riskiest areas of private equity
and have the added protection of having less risky debt.
Finally, we note the underperformance of our holding in Dassault
Systèmes. The company is a world leader in computer aided design
and computer aided manufacturing technologies. It is constantly
innovating and exploring new opportunities; their ambitions are
impressive and well-founded. We remain confident that this is a
high-quality investment.
Activity and gearing
The main effect, and one of the aims, of our trading activity
was to reduce our borrowings by approximately GBP15 million to
GBP75 million. This has had the effect of reducing gearing from
9.4% at the end of the last financial year to 8.7% at the end of
the period under review. A feature of the portfolio is that our
investee companies have, in general, less debt and stronger balance
sheets than the average. This allows us a little leeway in gearing
the portfolio. Our confidence in our holdings explains the decision
to gear the fund. However, borrowing rates have increased,
currently about 2.64%. This is an important consideration in
determining the Company's borrowings and for this reason, all other
things being equal, we are more inclined to reduce the Company's
borrowings.
The biggest sale was that of our entire holding in the
Swiss-listed Barry Callebaut, the world's leading manufacturer of
high- quality chocolate and cocoa products. This is a fine company.
However, we concluded that there were better opportunities
elsewhere and sold. We trimmed holdings of Mowi (before the
Norwegian government's tax proposals), GTT, Worldline, Infineon,
bioMérieux and Pets At Home on valuation grounds. The bigger sales
of Novo Nordisk and RELX were prompted by strong performance,
reducing already significant weightings.
The only new purchase of significance was Genmab, a Danish
biotech company, focussed primarily on oncology, producing
monoclonal and bispecific antibodies. It has leadership in the most
complex aspects of antibodies production and an impressive
pipeline. We see opportunities for the company to develop in other
therapeutic areas. Their potential addressable market is huge. We
also took a very small position in Elkem, the Norwegian-listed
producer of silicones and silicon products, operating worldwide. We
believe that the company enjoys a sustainably favourable cost
position which will ensure that it remains a leader as demand
grows. Other purchases added to existing positions where we were
prompted by good results and news.
Outlook
The challenges faced by Europe are well-known: the energy
crisis, inflation, higher interest rates, weak demand in China for
Europe's exports, and dysfunctional labour markets. European
equities are out of fashion and international investors have been
substantial sellers of European equities. Where there is optimism,
it might be unfounded in that the energy crisis is likely to remain
a blight on Europe for years, and interest rates are likely to
remain high for years. Europe's energy transformation, exacerbated
by the conflict in Ukraine, massively increases Europe's energy
bill. By some estimates power and gas costs are increasing by
around EUR500bn between 2022 and 2024, something like 3% of the
EU's GDP. Consumer spending has remained remarkably robust, perhaps
indicating an expectation that the authorities will, once again,
come to the rescue with cheap or 'free' money. We think this is
unlikely. Inflation has set in, and the authorities will have to
keep interest rates high in an attempt to bring it down. Inflation
impairs the prospects for almost all asset classes including
equities. Moreover, the policy direction is Quantitative Tightening
("QT") not Quantitative Easing ("QE"), meaning that interest rates
are likely to remain high.
Against this sobering macro background, we remain confident
about our strategy. We identify significant value creating
opportunities with our investments which trump these macro
concerns. We would hope that proof of progress in capturing these
opportunities will come in 2023 with, variously, the results of
clinical trials and drug approvals, new customer wins, profits
growth and technology breakthroughs. Innovations which deliver
value for customers will continue to be rewarded. Our strategy is
based on identifying companies which serve their customers with
such value adding innovations. In most cases, our companies compete
and succeed on the world stage, hugely increasing their addressable
markets. Moreover, our selection of companies with 'measurable,
monetisable and collectable' business models is, we think, a less
risky strategy. Our companies, typically, have data to show the
superiority of their products or services; they can price for the
value delivered; and they are serving customers who can and will
pay. This approach contrasts with more consumer-facing and
fashion-orientated strategies, which we believe are vulnerable to a
further squeeze on consumers' disposable incomes. We look forward
with confidence.
Alexander Darwall
Devon Equity Management Limited
24 February 2023
Investment Portfolio
as at 30 November
2022
30 November 2022 31 May 2022
Market
Country of Value
Company Sector Listing GBP'000 % of Investments % of Investments
------------------------- ----------------------- --------------- -------- ---------------- ----------------
Novo Nordisk Health Care Denmark 113,842 12.3 11.2
Experian Industrials United Kingdom 91,950 9.9 9.1
RELX Industrials Netherlands 83,911 9.0 9.4
Dassault Systèmes Information Technology France 69,769 7.5 8.1
Deutsche Boerse Financials Germany 62,685 6.8 5.4
bioMérieux Health Care France 52,995 5.7 5.8
Edenred Information Technology France 50,017 5.4 4.1
Genus Health Care United Kingdom 48,203 5.2 4.5
Bayer Health Care Germany 46,349 5.0 5.2
SOITEC Information Technology France 37,206 4.0 4.3
Infineon Technologies Information Technology Germany 36,620 3.9 3.7
Intermediate Capital
Group Financials United Kingdom 27,350 3.0 3.8
Merck Health Care Germany 26,905 2.9 2.4
Gaztransport & Technigaz Energy France 26,303 2.8 3.3
Neste Energy Finland 25,854 2.8 2.1
Grifols Health Care Spain 24,010 2.6 4.8
Oxford Instruments Information Technology United Kingdom 16,062 1.7 1.4
Darktrace Information Technology United Kingdom 15,825 1.7 1.6
Mowi Consumer Staples Norway 12,284 1.3 2.5
Genmab Health Care Denmark 11,805 1.3 -
Borregaard Materials Norway 9,283 1.0 1.1
Wolters Kluwer Industrials Netherlands 9,096 1.0 0.8
Network International
Holdings Information Technology United Kingdom 7,569 0.8 0.5
Grenke Financials Germany 6,545 0.7 0.8
Pets at Home Group Consumer Discretionary United Kingdom 3,997 0.4 0.8
Worldline Information Technology France 3,886 0.4 0.6
Elkem Materials Norway 3,027 0.3 -
OHB Industrials Germany 2,979 0.3 0.3
Grifols Preference Health Care Spain 2,757 0.3 0.5
Total Investments 929,084 100.0
------------------------------------------------------------------- -------- ---------------- ----------------
Classification of Investments
as at 30 November 2022
% of Investments % of Investments
Country of Listing 30 November 2022 31 May 2022
-------------------------------- ------------------ -----------------
Denmark 13.6 11.2
Finland 2.8 2.1
France 25.8 26.2
Germany 19.6 17.8
Netherlands 10.0 10.2
Norway 2.6 3.6
Spain 2.9 5.3
Switzerland - 1.9
United Kingdom 22.7 21.7
-------------------------------- ------------------ -----------------
Total 100.0 100.0
-------------------------------- ------------------ -----------------
% of Investments % of Investments
Industry Sector 30 November 2022 31 May 2022
------------------------------- ------------------ -----------------
Consumer Discretionary 0.4 0.8
Consumer Staples 1.3 4.3
Energy 5.6 5.4
Financials 10.5 10.0
Health Care 35.3 34.5
Industrials 20.2 19.6
Information Technology 25.4 24.3
Materials 1.3 1.1
Total 100.0 100.0
-------------------------------- ------------------ -----------------
Contributors to Performance
The following tables detail which stock positions had the
greatest impact on performance during the six months to 30 November
2022 on an absolute basis, both positive and negative. The
Benchmark MSCI Europe Total Return Index in GBP increased by 2.1%
during the period under review:
Positive Contributors
6 month
contribution
Portfolio Benchmark 6 month to NAV
weight
weight at at 30.11.2022 price return
Stock 30.11.2022 % performance %
% %
------------------------ -------------- ----------------- --------------- --------------
Novo Nordisk 12.30 2.18 17.69 2.05
Experian 9.90 0.34 10.74 1.04
Endenred 5.40 0.15 18.61 0.82
Deutsche Boerse 6.80 0.37 14.47 0.82
Neste 2.80 0.23 18.79 0.40
Genus 5.20 - 6.19 0.37
Infineon Technologies 3.90 0.46 10.63 0.37
Network International
Holdings 0.80 - 55.02 0.30
RELX 9.00 0.57 2.86 0.30
Woulters Kluwer 1.00 0.31 16.84 0.14
------------------------ -------------- ----------------- --------------- --------------
Negative Contributors
6 month
contribution
Portfolio Benchmark 6 month to NAV
weight at weight at price return
30.11.2022
Stock 30.11.2022 % performance %
% %
------------------------ -------------- ----------------- --------------- --------------
Grifols 2.90 0.03 (47.27) (2.52)
Mowi 1.30 0.07 (36.22) (0.99)
Bayer 5.00 0.60 (15.42) (0.83)
Intermediate Capital
Group 3.00 - (21.14) (0.80)
Dassault Systèmes 7.50 0.26 (8.93) (0.75)
SOITEC 4.00 - (8.56) (0.42)
Borregaard 1.00 - (15.36) (0.41)
Grenke 0.70 - (21.31) (0.19)
Darktrace 1.70 - (7.31) (0.18)
Pets at Home - - (22.42) (0.17)
------------------------ -------------- ----------------- --------------- --------------
Contributors to Performance
The following tables detail which sectors had the greatest
impact on performance during the period on an absolute basis, both
positive and negative:
Positive Contributors
6 month
contribution
Portfolio Benchmark 6 month to NAV
weight at weight at 30.11.2022 price return
Sector 30.11.2022 % performance %
% %
------------------------ -------------- ------------------------ --------------- --------------
Industrials 20.20 14.42 7.17 1.48
Energy 5.60 6.85 9.00 0.43
Information Technology 25.40 7.28 1.07 0.21
Negative Contributors
6 month
contribution
Portfolio Benchmark 6 month to NAV
weight at weight at 30.11.2022 price return
Sector 30.11.2022 % performance %
% %
------------------------ -------------- ------------------------ --------------- --------------
Consumer Staples 1.30 13.13 (29.31) (0.95)
Health Care 35.30 15.75 (2.81) (0.74)
Materials 1.30 7.41 (16.65) (0.18)
Financials 10.50 16.32 (1.64) (0.16)
Consumer Discretionary 0.40 10.35 (22.42) (0.15)
------------------------ -------------- ------------------------ --------------- --------------
Statement of Directors' Responsibilities in Relation to the
Financial Statements
Going Concern
The Half Yearly Financial Report has been prepared on a going
concern basis. The Directors consider that this is the appropriate
basis as they have a reasonable expectation that the Company has
adequate resources to continue in operational existence and meet
its financial commitments as they fall due for a period of at least
twelve months from the date of approval of the unaudited financial
statements. In considering this, the Directors took into account
the Company's investment objective, risk management policies and
capital management policies, the diversified portfolio of readily
realisable securities which can be used to meet short-term funding
commitments and the ability of the Company to meet all of its
liabilities and ongoing expenses.
The Directors continue to pay particular attention to the
operational resilience and ongoing viability of the Investment
Manager and the Company's other key service providers. Following
review, the Directors are satisfied that Devon and the Company's
other key service providers, notably JP Morgan, have the necessary
contingency planning measures in place to ensure that operational
functionality continues to be maintained.
The Directors continue to adopt the going concern basis of
accounting in preparing the unaudited financial statements while
recognising that the Articles of Association of the Company require
a continuation vote at every third AGM, the next of which will take
place at this year's AGM in November .
Principal and emerging risks and uncertainties
The principal risks facing the Company are investment strategy
risk, market risk, operational risk and legal and regulatory risk.
Full details of these risks and how they are managed are set out on
pages 22 to 23 of the Company's Annual Report for the year ended 31
May 2022 which is available on the Company's website at
www.europeanopportunitiestrust.com. The principal risks have not
changed since those detailed in the Annual Report. The Board
continues to monitor the principal risks facing the Company.
In addition, the Board monitors emerging risks. No new emerging
risks were identified during the period under review. As part of
its assessment of the viability of the Company, the Board has
reviewed and considered the principal risks and uncertainties that
may affect the Company, including emerging risks and ongoing
matters relating to the COVID-19 pandemic, the economic turmoil
following the invasion of Ukraine, rises in energy prices,
inflation and higher taxes. The Board has also considered the
Company's business model including its investment objective and
investment policy, a forecast of the Company's projected income and
expenses and the liquidity of the Company's portfolio to ensure
that it will be able to meet its liabilities as they fall due.
Related Party Transactions
Devon is considered to be a related party of the Company under
the Listing Rules. As such, its appointment as the Company's AIFM
and its entry into a new investment management agreement (the
'Transaction') amounted to a small related party transaction under
Listing Rule 11.1.10 R. On 1 July 2022 Cenkos Securities PLC, the
Company's sponsor, provided written confirmation to the Company
that the Transaction was fair and reasonable as far as the
shareholders of the Company are concerned.
Directors' Responsibility Statement
We, the directors of European Opportunities Trust PLC, confirm
to the best of our knowledge that:
(a) the condensed set of financial statements have been prepared
in accordance with the Accounting Standards Board's statement 'Half
Yearly Financial Reports' and give a true and fair view of the
assets, liabilities, financial position and profit/(loss) of the
Company for the period ended 30 November 2022;
(b) the Half-Yearly Financial Report includes a fair review of
the information required by Disclosure Guidance and Transparency
Rule 4.2.7R; and
(c) the Half-Yearly Financial Report includes a fair review of
the information required by Disclosure Guidance and Transparency
Rule 4.2.8R on related party transactions.
The Half-Yearly Financial Report has not been audited or
reviewed by the Company's auditors.
By Order of the Board
Matthew Dobbs
Chairman
24 February 2023
Income Statement
for the six months ended 30 November 2022
Six months ended Six months ended
30 November 2022 30 November 2021
(unaudited) (unaudited)
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------------------- ------- --------- --------- ------- --------- ---------
(Loss)/gain on investments - (7,075) (7,075) - 110,070 110,070
Other exchange loss/(gain) - 609 609 - (23) (23)
Income from investments 6,455 - 6,455 6,219 - 6,219
Other income 6 - 6 - - -
---------------------------- ------- --------- --------- ------- --------- ---------
Total income/(loss) 6,461 (6,466) (5) 6,219 110,047 116,266
---------------------------- ------- --------- --------- ------- --------- ---------
Investment management
fee (3,745) - (3,745) (4,502) - (4,502)
Other expenses (489) - (489) (577) - (577)
---------------------------- ------- --------- --------- ------- --------- ---------
Total expenses (4,234) - (4,234) (5,079) - (5,079)
---------------------------- ------- --------- --------- ------- --------- ---------
Net return/(loss) before
finance costs and taxation 2,227 (6,466) (4,239) 1,140 110,047 111,187
Finance costs (1,036) - (1,036) (411) - (411)
---------------------------- ------- --------- --------- ------- --------- ---------
Return/(loss) before
taxation* 1,191 (6,466) (5,275) 729 110,047 110,776
Taxation (374) - (374) (413) - (413)
---------------------------- ------- --------- --------- ------- --------- ---------
Net return/(loss) after
taxation* 817 (6,466) (5,649) 316 110,047 110,363
---------------------------- ------- --------- --------- ------- --------- ---------
Return/(loss) per ordinary
share 0.80p (6.35)p (5.55)p 0.30p 104.12p 104.42p
---------------------------- ------- --------- --------- ------- --------- ---------
* There is no other comprehensive income and therefore the 'Net
return/(loss) after taxation' is the total comprehensive
income/(loss) for the financial period.
The total column of this statement is the income statement of
the Company, prepared in accordance with IFRS.
The supplementary revenue return and capital return columns are
both prepared under guidance produced by the Association of
Investment Companies (AIC). All items in the above statement derive
from continuing operations.
No operations were acquired or discontinued during the
period.
Statement of Financial Position
as at 30 November 2022
30 November 31 May
2022 2022
(unaudited) (audited)
GBP'000 GBP'000
-------------------------------------- ----------- ---------
Fixed assets
Investments 929,084 951,753
Current assets
Debtors 3,395 3,532
Cash and cash equivalents 2,016 5,973
-------------------------------------- ----------- ---------
5,411 9,505
Total assets 934,495 961,258
-------------------------------------- ----------- ---------
Current liabilities
Creditors - amounts falling due
within 1 year (77,890) (88,641)
-------------------------------------- ----------- ---------
Total assets less current liabilities 856,605 872,617
-------------------------------------- ----------- ---------
Capital and reserves
Called up share capital 1,129 1,129
Share premium 204,133 204,133
Special reserve 33,687 33,687
Capital redemption reserve 45 45
Reserves 617,611 633,623
-------------------------------------- ----------- ---------
Total shareholders' funds 856,605 872,617
-------------------------------------- ----------- ---------
Net asset value per ordinary share 844.45p 850.64p
-------------------------------------- ----------- ---------
Statement of Changes in Equity
for the six months to 30 November 2022
Capital
For the six months Share Share Special Redemption Retained
to Capital Premium Reserve Reserve Earnings Total
30 November 2022 (unaudited) GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------ --------- --------- --------- ------------ ---------- ----------
Balance at 1 June 2022 1,129 204,133 33,687 45 633,623 872,617
Net profit after taxation - - - - (5,649) (5,649)
Repurchase of ordinary
shares into treasury - - - - (7,827) (7,827)
Dividends declared
and paid - - - - (2,536) (2,536)
------------------------------ --------- --------- --------- ------------ ---------- ----------
Balance at 30 November
2022 1,129 204,133 33,687 45 617,611 856,605
------------------------------ --------- --------- --------- ------------ ---------- ----------
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 loss after taxation - - - - 110,363 110,363
Repurchase of ordinary
shares into treasury - - - - (18,187) (18,187)
Dividends declared
and paid - - - - (2,109) (2,109)
------------------------------ --------- --------- --------- ------------ ---------- ----------
Balance at 30 November
2021 1,129 204,133 33,687 45 730,062 969,056
------------------------------ --------- --------- --------- ------------ ---------- ----------
Cash Flow Statement
for the six months to 30 November 2022
Six months Six months
ended ended
30 November 30 November
2022 2021
(unaudited) (unaudited)
GBP'000 GBP'000
--------------------------------------------- ------------- -------------
Cash flows from operating activities
Investment income received (gross) 7,493 8,064
Deposit interest received 6 -
Investment management fee paid (3,846) (4,229)
Other cash expenses (500) (507)
--------------------------------------------- ------------- -------------
Net cash inflow from operating activities
before taxation and interest 3,153 3,328
--------------------------------------------- ------------- -------------
Interest paid (830) (357)
Taxation (578) (632)
--------------------------------------------- ------------- -------------
Net cash inflow from operating activities 1,745 2,339
--------------------------------------------- ------------- -------------
Cash flows from investing activities
Purchases of investments (49,883) (111,888)
Sales of investments 64,681 126,815
--------------------------------------------- ------------- -------------
Net cash inflow from investing activities 14,798 14,927
--------------------------------------------- ------------- -------------
Cash flows from financing activities
Repurchase of ordinary shares into treasury (8,573) (21,638)
Equity dividends paid (2,536) (2,109)
Repayment of loan (15,000) -
Drawdown of loan 5,000 10,000
--------------------------------------------- ------------- -------------
Net cash outflow from financing activities (13,747) (13,747)
--------------------------------------------- ------------- -------------
(Decrease)/increase in cash (4,566) 3,519
Cash and cash equivalents at start of
period 5,973 9,892
Realised gain/(loss) on foreign currency 609 (23)
--------------------------------------------- ------------- -------------
Cash and cash equivalents at end of
period 2,016 13,388
--------------------------------------------- ------------- -------------
Notes to the Financial Statements
1. Accounting Policies
The accounts comprise the unaudited financial results of the
Company for the period to 30 November 2022. The functional and
reporting currency of the Company is sterling because that is the
currency of the prime economic environment in which the Company
operates.
The accounts have been prepared in accordance with International
Financial Reporting Standards (IFRS), which comprise
standards and interpretations approved by the International
Accounting Standards Board (IASB) and International Accounting
Standards Committee (IASC), as adopted by the European Union (EU).
Where presentational guidance set out in the Statement of
Recommended Practice (SORP) for Investment Trusts issued by the
Association of Investment Companies (AIC) in November 2014 (as
amended in February 2018 and again in October 2019) is consistent
with the requirements of IFRS, the Directors have sought to prepare
the financial statements on a basis compliant with the
recommendations of the SORP. The accounts have also been prepared
in accordance with the Disclosure and Transparency Rules issued by
the Financial Conduct Authority (FCA). The accounting policies
applied are consistent with those of the audited annual financial
statements for the year ended 31 May 2022 and are described in
those financial statements. In this regard, comparative figures
from previous periods are prepared to the same standards as the
current period, unless otherwise stated.
The Board continues to adopt the going concern basis in the
preparation of the financial statements.
2. Return/(loss) per ordinary share
Six months to Six months to
30 November 2022 30 November 2021
GBP'000 GBP'000
---------------------------- ---------------- ----------------
Net revenue profit 817 316
Net capital (loss)/profit (6,466) 110,047
---------------------------- ---------------- ----------------
Net total (loss)/profit (5,649) 110,363
---------------------------- ---------------- ----------------
Weighted average number of
ordinary
shares in issue during the
period 101,840,177 105,691,960
Revenue return per ordinary
share (p) 0.80 0.30
Capital (loss) / return per
ordinary share (p) (6.35) 104.12
---------------------------- ---------------- ----------------
Total (loss) / return per
ordinary share (p) (5.55) 104.42
---------------------------- ---------------- ----------------
3. Retained earnings
The table below shows the movement in the retained earnings
analysed between revenue and capital items.
Revenue* Capital Total
GBP,000 GBP'000 GBP'000
------------------------------------------ -------------------- ------------------- -------------------
At 1 June 2022 10,942 622,681 633,623
Net return/(loss) for the
period 817 (6,466) (5,649)
Repurchase of ordinary shares
into treasury - (7,827) (7,827)
Dividends declared (2,536) - (2,536)
------------------------------------------ -------------------- ------------------- -------------------
At 30 November 2022 9,223 608,388 617,611
------------------------------------------ -------------------- ------------------- -------------------
* These reserves form the distributable reserves of the Company
and may be used to fund distribution of profits to investors via
dividend payments.
4. Net asset value per ordinary share
The NAV per ordinary share is based on the net assets
attributable to the ordinary shareholders of GBP856,605,000 (31 May
2022: GBP872,617,000) and on 101,439,098 (31 May 2022: 102,583,840)
ordinary shares, being the number of ordinary shares in issue at
the period end.
5. Comparative information
The financial information contained in this interim report does
not constitute statutory accounts as defined in section 434 of the
Companies Act 2006. The financial information for the six months to
30 November 2022 and 30 November 2021 has not been audited. The
information for the year ended 31 May 2022 has been extracted from
the latest published audited financial statements. The audited
financial statements for the year ended 31 May 2022 have been filed
with the Register of Companies. The report of the auditors on those
accounts contained no qualification or statement under section
498(2) of the Companies Act 2006.
6. Related parties
Devon Equity Management Limited ('Devon') has served as
Investment Manager to the Company since 15 November 2019 and became
AIFM on 1 July 2022.
With effect from 1 June 2020, Devon has been entitled to
aggregate management fees of 0.90% per annum of net assets (i.e.
excluding drawn down borrowings under the Company's loan
facilities) up to GBP1 billion and 0.80% per annum on any net
assets over this amount.
With effect from 1 June 2023, Devon will be entitled to reduced
aggregate management fees of 0.80% per annum of net assets up to
GBP1 billion; 0.70% per annum on any net assets over GBP1 billion
up to GBP1.25 billion; and 0.60% per annum on any net assets over
this amount. All other terms and conditions in the investment
management agreement remain unaltered. No performance fee is
payable to Devon.
Although Devon Equity Management Limited is named as our Company
Secretary at Companies House, J.P. Morgan Europe Limited provides
company secretarial services to the Company as part of its mandate
to provide fund administration services. In line with good
governance practice and fostered by the independence between key
suppliers, the Company has put safeguards in place to ensure
effective shareholder communication and direct shareholder
engagement for the Board.
J.P. Morgan Europe Limited has been appointed to provide
secretarial and fund administration services to the Company, albeit
that Devon is the Company's named company secretary at Companies
House. In line with good governance practice and fostered by the
independence between key suppliers, the Company has put safeguards
in place to ensure effective shareholder communication and
engagement.
7. Availability of Half Yearly Financial Report
The Half Yearly Financial Report will shortly be available for
download from the Company's website
www.europeanopportunitiestrust.com
A copy of the Half Yearly Financial Report will also be
submitted to the FCA's National Storage Mechanism and will soon be
available for inspection at
https://data.fca.org.uk/#/nsm/nationalstoragemechanism
For further information, please contact:
Devon Equity Management Limited
Company Secretaries to European Opportunities Trust PLC
Richard Pavry
020 3985 0445
enquiries@devonem.com
24 February 2023
[END]
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