TIDMTRG
RNS Number : 0145P
TR European Growth Trust PLC
14 October 2021
Legal Entity Identifier: 213800N1B1HCQG2W4V90
TR EUROPEAN GROWTH TRUST PLC
Financial results for the year ended 30 June 2021
This announcement contains regulated information
Investment Objective
The Company seeks capital growth by investing in smaller and medium
sized companies which are quoted, domiciled, listed or have operations
in Europe (ex UK).
Highlights
* Net asset value total return(1) per ordinary share of
63.5% compared to a total return from the
benchmark(2) of 36.5%
* Share price total return(3) per ordinary share of
79.5%
* Total dividend(4) of 25.00p for the year, an increase
of 13.6%
Total return performance to 30 June 2021
(including dividends reinvested and excluding transaction costs)
1 year 3 years 5 years 10 years
% % % %
------------------------------ --------- --------- --------- ----------
NAV(1) 63.5 56.1 143.8 279.1
Benchmark(2) 36.5 37.9 100.0 182.0
Average sector(5) NAV 46.7 52.3 125.3 248.1
Share price(3) 79.5 56.8 166.2 320.5
Average sector(5) share
price 55.0 52.9 146.0 290.9
------------------------------ --------- --------- --------- ----------
Financial highlights
At 30 June 2021 At 30 June 2020
-------------------------------------- ---------------- ----------------
Shareholders' funds
Net assets (GBP'000) 840,667 523,374
NAV per ordinary share 1,677.70p 1,044.48p
Share price 1,485.00p 844.00p
Year ended Year ended
30 June 2021 30 June 2020
Profit for year
Net revenue profit (GBP'000) 10,390 6,954
Net capital profit/(loss) (GBP'000) 6,571
318,127
------------ ------------
Profit/(loss) for the year 328,517 13,525
======= =======
Total return per ordinary share
Revenue 20.74p 13.88p
Capital 634.88p 13.11p
------------- -------------
Total return per ordinary share 655.62p 26.99p
======= =======
Ongoing charge (6) 0.71% 0.73%
-------------------------------------- ---------------- ----------------
1. Net asset value total return per ordinary share with income reinvested
2. Euromoney Smaller European Companies (ex UK) Index expressed in Sterling
3. Share price total return including dividends reinvested and using mid-market price
4. Includes the interim dividend paid on 23 April 2021 and final
dividend recommended to shareholders for approval
5. The sector is the AIC European Smaller Companies sector
6. Calculated using the methodology prescribed by the Association of Investment Companies
Sources: Morningstar Direct, Janus Henderson, Refinitiv
Datastream
Chairman's Statement
Performance
Our Company has had a good year. The NAV total return per ordinary
share was 63.5%, an outperformance against the benchmark of 27.0%,
with a share price total return per ordinary share of 79.5%.
Our Fund Manager's long-held approach of finding high quality and
growing businesses in which to invest, but also being valuation aware,
was a key driver of performance over the year. The consistency of
this approach throughout the market volatility that was caused by
the Covid-19 pandemic, laid sound foundations for excellent performance
through the recovery.
The revenue generated by the portfolio rose from GBP9.1m for the year
ended 30 June 2020 to GBP13.5m for the year ended 30 June 2021, despite
the European Central Bank continuing to restrict dividend payments
from financial services companies. This restriction was lifted in
October 2020, but investee companies must continue to seek consent
from their respective central banks prior to making dividend payments.
Dividend
Following this performance, the Board is proposing a final dividend
of 16.80p to shareholders at the annual general meeting later this
year. Together with the interim dividend of 8.20p this brings the
total dividend for the year to 25.00p, being an increase of 13.6%
on the prior year total dividend.
If approved, the dividend will be paid on 3 December 2021, to shareholders
on the register on 22 October 2021.
Strategic review
The Board has devoted considerable time this year to carrying out
a strategic review of the Company's investment objective, operations
and positioning in the market. Without any doubt, the review concluded
that the investment objective and policy continued to meet investors'
demands and the Fund Manager's approach to investing was well suited
to the objective and the long-term nature of the Company.
However, the review did highlight that more could be done to improve
the Company's positioning in relation to the retail investor market.
To that end, the Board has decided to make a number of changes which
we gauge will assist our marketing teams in bringing the Company's
investment proposition to the attention of this growing section of
the market. The first of these changes is to rename the Company The
European Smaller Companies Trust PLC. The purpose of doing so is to
make the Company's investment proposition immediately clear to potential
investors. The second change, is to implement an 8:1 share split which
will improve the liquidity of the Company's shares and enhance the
ability of investors to make more efficient regular monthly investments
on share dealing platforms. The third change, reduces the management
fee from 0.6% of net assets up to GBP500m and 0.5% thereafter, to
0.55% of net assets up to GBP800m and 0.45% thereafter.
With this combination of changes, we aim to increase demand for the
Company's shares which will, in turn, narrow the discount achieving
a better alignment of the share price and NAV, and therefore be of
benefit to all shareholders.
As a matter of operational efficiency, we will also replace the benchmark,
currently the Euromoney Smaller European Companies (ex UK) Index with
the MSCI Europe ex UK Small Cap Index. Our risk assessment of the
two indices has indicated that the change is immaterial and the Fund
Manager has confirmed it will have no impact on his investment approach.
The change will, though, better align the Company with its peers and
improve the quality of the data available to the fund management team
on a day-to-day basis. This change will only become effective from
1 July 2022 and will not be retrospectively applied to any fee calculations.
The Company's Investment Policy will update in line with the change
in benchmark from this date.
Succession planning
When I last provided an update to you on our succession planning,
I explained that the Board had asked Andrew Martin Smith to remain
as a director for a further year as the Covid-19 pandemic continued
to wreak havoc on global economies. We wished to retain his knowledge
and experience of the closed end sector as governments and companies
navigated their way out of the crisis.
We took stock of the prevailing market conditions when we recently
reviewed our succession planning and I can now report that Andrew
will be retiring from the Board at the conclusion of the upcoming
annual general meeting. I would like to thank Andrew sincerely for
his guidance and wisdom. Throughout his time serving our Company,
he has made a very significant contribution to important discussions
on the Company's performance and the options available. His diligence
and thoughtful challenge to the approach taken by the Fund Manager,
and Janus Henderson Investors in their wider delivery of services
to the Company, has been extremely valuable.
Looking further forward, I can also let you know that Alexander Mettenheimer
has indicated his intention to retire from the Board at the annual
general meeting due to be held in 2022. We will, of course, review
these plans next year and report in more detail to you in due course.
Senior Independent Director
We were pleased to announce the appointment of Simona Heidempergher
as the Company's senior independent director with effect from 26 July
2021.
She has a great wealth of asset management experience and is very
familiar with the Company's portfolio. In addition, she brings, as
do all of our European-based directors, insight into the prevailing
sentiment in European markets.
Annual General Meeting
The Company's 31st Annual General Meeting is due to be held on Monday,
29 November 2021 and, Covid-19 restrictions permitting, we look forward
to being able to report to our shareholders in person. The meeting
will be held at the offices of our investment manager, Janus Henderson
Investors, at 201 Bishopsgate, London, EC2M 3AE with proceedings commencing
at 12.30 pm. As is our usual practice, voting will take place on a
show of hands for those physically present at the meeting.
A copy of the Company's Notice of Meeting has been included with this
annual report. We are proposing a number of additional resolutions
for shareholder consideration this year which include the share split
which I have already mentioned, and the adoption of new articles of
association to facilitate the share split, as well as afford us the
opportunity to bring them in line with current best practice.
For any shareholders unable to attend, we will be offering you the
opportunity to join using the video conferencing software, Zoom. Due
to technological restrictions, we are unable to offer voting to those
attending via Zoom and therefore encourage all shareholders, particularly
those who will not be present in person, to submit their votes by
proxy ahead of the deadline to ensure their vote is taken into account.
Outlook
Equity markets and the Company more specifically have had an excellent
year as economies bounced back from the darkest days of the Covid-19
pandemic. Our Fund Manager's investment approach - which emphasises
the importance of valuation discipline in addition to seeking future
growth - has been very beneficial, particularly when the vaccine roll
out seemed to have delivered some semblance of normality. Over the
summer, concern over Covid-19 variants and a belief that inflation
is merely transitory, led to a fall in bond yields. This resulted
in high multiple growth stocks providing market leadership again,
leading to disappointing performance by the Company.
A global backdrop of increasing GDP and a pick-up in corporate earnings
is supportive for European smaller companies. The Fund Manager and
I would caution that, as growth inevitably slows post the Covid-19
recovery and the Central Bank liquidity fuelled re-rating wanes, it
would be reasonable to expect more modest returns in the medium term.
With the backdrop outlined above and, we think, the heightened risk
of inflation in the coming years, we believe the days of stocks trading
on ever-higher valuation multiples, justified by no inflation and
low bond yields, are coming to an end. Therefore, we remain supportive
of our Fund Manager's valuation approach.
The fund management team believes that the growth opportunities offered
in the European smaller company space - in areas such as energy transition,
companies like Nexans and Friedrich Vorwerk - means that the asset
class remains a very attractive investment area with the opportunity
to uncover good investments in the years ahead.
Christopher Casey
Chairman
13 October 2021
FUND MANAGER'S REPORT
Introduction
The financial year ending 30 June 2021 was a period of strong performance
for the Company, which generated a total return of 63.5% compared
to the benchmark of 36.5%. During this time, a number of very effective
vaccines to protect against Covid-19 were produced and, after some
initial missteps, efficiently distributed throughout much of the developed
world. This offered a pathway out of the pandemic and prompted considerable
market optimism. Meanwhile, unprecedented global monetary and fiscal
stimulus in response to the pandemic globally, raised concerns around
inflation and rising interest rates for the first time since the global
financial crisis of 2009. As a result, the market was subjected to
a substantial rotation away from growth and into value stocks. Our
strategy's strong valuation discipline proved to be an important protection
during this period.
Over the period, we noted a change in sentiment towards Europe from
an investment perspective. In the US, the election of President Biden
incited drama as the result was contested by the outgoing Trump administration.
Despite this, the change in regime seems to have ushered in a slightly
calmer style of government and the former President's Twitter account
no longer serves as a source of market volatility in Europe. The development
of mRNA vaccines for Covid-19, highlighted ingenuity in the European
technology sector. Important steps were taken to create a fiscal capacity
for the European Union and a more coherent banking sector and significant
heat was taken out of the soap opera that was the Brexit saga. All
this combined to alter the widespread prejudice that Europe was a
region that could be ignored by investors.
The more constructive attitude to Europe was combined with an enormous
amount of capital market activity. With the huge number of initial
public offerings ('IPOs') taking place over the course of the year,
we were able to add some solid businesses to the portfolio as a result
of the IPO wave. We saw an increase in mergers and acquisitions activity,
with many companies being acquired by private equity. It is interesting
to note that the companies being acquired by private equity are cash
generating and the companies being sold are often high growth and
cash consumptive.
The Portfolio
The strategy is to blend a mix of early stage growth stocks with sensibly
priced high return structural growth stocks, undervalued cash generative
mature names and self-help turnaround stocks. We care intensely about
the price that we pay for the cash generated by a company, and while
we do not manage a 'value fund', we are acutely valuation aware. Valuation
discipline has not been in vogue for most of the last decade, but
proved its worth in the last financial year. Our inclusion of early
stage high growth names helped the Company in the previous year as
many of those stocks found their growth to be turbocharged by Covid-19.
This year, the inclusion of self-help turnaround stories and more
cyclical value names benefited the performance of the portfolio.
Notable turnaround additions to the portfolio over the period include
Swiss-listed specialist manufacturer of highly engineered aerospace
parts, Montana Aerospace. The company listed in May 2021 to repair
its balance sheet and finance acquisitive growth. It has a strong
skillset in creating lightweight parts to improve the environmental
impact of air travel and we believe it will benefit as global travel
begins to re-open. We opened a position in French mail related conglomerate
Quadient. The core of the business is a letter franking machine business
that is in decline, but which offers customer relationships that have
been leveraged into digital communication software and a parcel locker
business. The company has been through a big transformation that the
stock market has not yet fully appreciated and we hope for a substantial
rerating in due course.
Additions to the early stage growth names include German listed electronic
systems and solutions designer, Katek. The company operates with blue
chip customers; one example is designing a mobile charging solution
for the electric Porsche Taycan. Another early stage German business
is Apontis Pharma, whose business is to combine multiple off-patent
pharmaceuticals to create 'single pills' which have far superior compliance
outcomes from patients who require multiple medicines.
In the sensibly priced high return structural growth area, we added
names such as Irish-listed Uniphar, a provider of pharmaceutical and
medtech services. We invested in German energy infrastructure engineer,
Friedrich Vorwerk, a company that is at the forefront of the green
energy transition. We added mature businesses such as German communication
equipment manufacturer Adva Optical Networking, and Swedish-listed
aluminium manufacturer Granges, which has exciting exposures to structural
growth trends such as electric vehicles and heating, ventilation and
air conditioning.
Performance attribution
There were dramatic price moves in some stocks over the course of
the financial year ending June 2021, and the Company benefited from
owning a handful of stocks that exhibited substantial price increases
in that time. German online retailer of furniture and decorative items,
Westwing, increased by 535.7% over the course of the year, contributing
a helpful sum to performance. Similarly, French commerce and marketing
technology company Criteo increased 297.5% over the course of the
year as the extremely cheap valuation unwound with the advent of a
new CEO and the urgent need for businesses to get online during the
pandemic. Dutch bank and wealth manager Van Lanschot increased 66.0%
in the period.
Detractors from performance included German pharmaceutical distributor,
Medios, which struggled to obtain sufficient drug supply due to the
pandemic. We felt that valuation was stretched and decided to exit
the position. Norwegian electricity distributor, Fjordkraft, suffered
as rising spot electricity prices squeezed the profitability of their
semi-fixed price electricity contracts. Finally, Norwegian harvester
and producer of krill oil, Aker Biomarine, delivered lacklustre performance
due to a poor krill harvest and weak sales of oil in South Korea.
Geographical and sector distribution
The investment process is fundamentally one of bottom-up stock picking
rather than allocating capital to specific sectors or geographies,
although we carefully monitor the overall structure of the portfolio
to avoid risky concentrations. We do not use the benchmark as a guide
to structure and are content to run the portfolio with substantial
divergence from the benchmark.
At a geographical level, the Company is substantially overweight to
Germany where we continue to find a good mix of sensibly valued companies
and strong growth prospects. In Germany we have added names such as
online bicycle and accessories retailer, Bike24, and windfarm developer
EnergieKontor. Other overweight countries include France, the Netherlands
and Ireland. We have added global financial advisory specialist, Rothschild
& Co as well as omnichannel electronics retailer FNAC Darty in France.
Meanwhile, the Company is underweight in Switzerland, Austria and
Sweden where we perceive the markets to be populated with relatively
expensive shares.
At a sector level we are overweight in the industrials, financials
and consumer goods sectors, and underweight in the real estate and
health care sectors. In the industrials space, we have added German
supplier of laser-based processing tools LPKF Laser & Electronics,
as we believe the company's technology in thin film solar modules
will increase in uptake. In financials we have added Irish bank, AIB,
where we believe a combination of cost cutting plans and a far more
consolidated market will benefit the company. Finally, we added Danish
housebuilder, HusCompagniet, within the consumer goods sector.
Other purchases
We added Swedish listed Media and Games Invest that publishes video
games and provides marketing services to the wider industry. We see
both legs of the business having strong synergy benefits from consolidating
their respective areas of focus. We added Grenergy Renovables, a Spanish
listed renewable energy developer that operates in Western Europe
and South America. The energy transition is driving a huge demand
for renewable energy, which presents a structural growth tailwind
for this company.
Other disposals
We exited French semiconductor material producer SOITEC having originally
invested as a turnaround idea. The company makes silicon-on-insulator,
a very power-efficient semiconductor material that is included in
a range of 5G applications. The shares had seen a dramatic rerating,
but we had concerns that the company may need to invest substantial
capital expenditure and that the increasing capitalised development
cost was flattening profitability.
We exited our position in Swiss-listed online pharmacy Zur Rose, whose
shares had performed very strongly after the pandemic boosted online
business models, before becoming quite fully valued. We had reservations
that the balance sheet looked stretched given the business is loss-making
and that the history of substantial mergers and acquisitions might
create some digestion issues. We exited our holding in German manufacturer
of patent free pharmaceuticals and medical devices, Dermapharm, which
has been a very profitable investment for the Company. After the company
became involved in manufacturing the BioNtech-Pfizer vaccine the shares
attained an expensive multiple and we decided to take profit.
Currency
The Company is denominated in Sterling, while investing in largely
Euro-denominated assets. We do not hedge this currency exposure.
Outlook
It has become apparent that Covid-19 is unlikely to be entirely eradicated
and that society will need to cope with yet another endemic virus
forevermore. The advent of multiple vaccines with such high levels
of efficacy is a tribute to European science and technology. This
offers a route towards something that will seem a lot like normality.
The advent of the incredibly transmissible Delta variant seems to
suggest that those who don't get vaccinated will acquire immunity
through infection. This may well cause problems in the final few months
of 2021 as health care systems in the US and some European countries
may be stretched. The reappearance of Covid-19 in China may cause
further disruption with new lockdowns.
We believe that the policy environment in the US and Europe remains
constructive. Monetary policy is relatively loose and fiscal policy,
especially in the US, is expansionary. There are notes of caution
to be had from the Chinese clamp down on technology companies and
efforts to suppress inflation given European smaller companies are
largely driven by global growth.
Political leadership in Europe has changed with the retirement of
Angela Merkel. A French Presidential election will no doubt be presented
as the usual drama in certain parts of the media while cultural tensions
between the European Commission and Eastern states such as Poland
and Hungary will likely persist. However, the direction of travel
on many of the structural issues within the European Union and the
Eurozone are moving in the right direction, specifically around fiscal
powers and banking union.
Europe is one of the principal drivers of the environmental agenda
and we are fortunate in our area of investment focus to be naturally
bestowed with companies with strong environmental, social and governance
('ESG') characteristics. However, smaller companies are often less
focused on presenting what they do in these areas, and more focused
on the operations of their business. This leaves our market laden
with hidden ESG. We have considerable exposure to companies that can
easily benefit from the premium attached to ESG companies once they
improve the presentation of their activities. The energy transition
is going to be a big factor in the investment world for some time
to come, with a shift away from fossil fuels and the internal combustion
engine. Significant capital expenditure and research and development
will be required and disruptive smaller companies are well placed
to take advantage of this shift.
Over the summer the consensual view was that the inflation in the
global system was transitory. This led to falling bond yields and
a period of disappointing performance for the Company, as high multiple
growth stocks outperformed. However, we remain of the view that the
prospect of inflation is not adequately reflected in market prices.
The rising oil price and the recent surge in the gas price may be
a harbinger of this. The expansionary policy environment, bottlenecks
in global supply chains and the constraints imposed by Covid-19 are
creating inflationary pressures that may be with us longer than many
assume. Shortages in the shipping market are coupled with uncertainty
as to what the environmental fuel standards mean for investment decisions.
Freight costs are unlikely to reduce much in such an environment.
Near-shoring in Europe and the US appears to be an increasing theme
as a result. All of this abates some of the disinflationary pressure
we have seen in recent decades.
After the strong economic recovery following the nadir of the Covid-19
crisis, it is hard to argue that the markets look cheap. There is
a very noticeable bifurcation of the market into a subset of incredibly
expensive growth stocks and a long tail of more reasonably priced
companies. As managers, we have been trying to recycle capital from
the expensive into the attractively priced, aiming to find the next
stock that will be perceived as a market darling. While the market
in general is skewed by the tail of expensive stocks, we feel that
the multiples paid on the broader portfolio remain attractive. There
continues to be a large number of neglected opportunities for us to
pursue and we believe we can continue to deliver value for our shareholders.
Ollie Beckett, Rory Stokes and Julia Scheufler
13 October 2021
Geographic exposure at 30 June 2021 (% of
portfolio excluding cash)
-----------------------------------------------
2021 2020
% %
----------------------- ---------- ----------
Austria 0.9 0.7
Belgium 4.9 4.3
Denmark 2.5 2.3
Finland 3.7 5.0
France 12.1 13.6
Germany 24.3 22.4
Greece 1.5 0.6
Ireland 4.4 1.5
Italy 8.1 10.6
Malta 1.5 -
Netherlands 7.6 9.1
Norway 3.8 3.5
Portugal 1.5 1.6
Spain 4.2 2.6
Sweden 11.9 12.0
Switzerland 7.1 10.2
---------- ----------
100.0 100.0
Sector exposure at 30 June 2021 (% of portfolio
excluding cash)
-----------------------------------------------------
2021 2020
% %
--------------------------------- -------- --------
Industrial 33.3 32.4
Consumer Discretionary 25.1 18.7
Financials 12.5 13.5
Technology 11.4 13.9
Utilities 4.4 2.6
Consumer Staples 4.0 4.8
Health Care 3.4 7.1
Energy 2.4 2.3
Telecommunications 1.3 0.8
Basic materials 1.1 2.5
Real Estate 1.1 1.4
100.0 100.0
-------- --------
MANAGING risks
Investing, by its nature, carries inherent risk. The Board, with the
assistance of the Manager, carries out a robust assessment of the
principal and emerging risks and uncertainties facing the Company
which could threaten the business model and future performance, solvency
and liquidity of the portfolio. A matrix of these risks, along with
the steps taken to mitigate them, is maintained and is kept under
regular review. The mitigating measures include a schedule of investment
limits and restrictions within which the Manager must operate.
Our assessment includes consideration of the possibility of severe
market disruption, which this year, focused on the ongoing impact
of the Covid-19 pandemic and Europe's ability to continue economic
activity. The principal risks which have been identified and the steps
we have taken to mitigate these are set out in the below. We do not
consider these risks to have changed during the period.
* Investment strategy and objective
The investment objective or policy is not appropriate in the prevailing
market or sought by investors, leading to a wide discount and hostile
shareholders.
Poor investment performance over an extended period of time, driven
by either external (political, financial shock, pandemic) or internal
factors (poor stock selection), leading to shareholders voting to
wind up the Company.
The Manager periodically reviews the Investment Objective and Policy
in line with best practice and taking account of investor appetites.
The Board receives regular updates on professional and retail investor
activity from the Manager, and reports from the corporate broker,
to inform themselves of investor sentiment and how the Company is
perceived in the market.
The Board reviews the Key Performance Indicators ('KPIs') at each
meeting and the Fund Manager maintains a diversified portfolio with
a view to spreading risk.
* Operational
Failure of, disruption to or inadequate service levels provided by
principal third-party service providers leading to a loss of shareholder
value or reputational damage.
The Board engages reputable third-party service providers and formally
evaluates their performance, and terms of appointment, at least annually.
The Audit Committee assesses the effectiveness of internal controls
in place at the Company's key third-party services providers through
review of their ISAE 3402 reports, quarterly internal control reports
from the Manager and monthly reporting on compliance with the investment
limits and restrictions established by the Board.
* Legal and regulatory
Loss of investment trust status, breach of the Companies Act 2006,
Listing Rules, Prospectus and/or Disclosure Guidance and Transparency
Rules or the Alternative Fund Managers Directive and/or legal action
brought against the Company and/or directors and/or the investment
manager leading to decrease in shareholder value and reputational
damage.
The Board engages reputable third-party service providers and formally
evaluates their performance, and terms of appointment, at least annually.
The Audit Committee assesses the effectiveness of internal controls
in place at the Company's key third-party service providers through
review of their ISAE 3402 reports and, in respect of the Manager's
investment trust operations, reporting from the Manager's internal
audit function. The Manager's Compliance function has reporting obligations
under AIFMD, with any non-compliance being captured in the Manager's
quarterly internal control reporting to the Board.
* Financial
Market, liquidity and/or credit risk, inappropriate valuation of assets
or poor capital management leading to a loss of shareholder value.
The Board determines the investment parameters and monitors compliance
with these at each meeting. The directors review the portfolio liquidity
at each meeting and periodically consider the appropriateness of hedging
the portfolio against currency risk.
The Board reviews the portfolio valuation at each meeting.
Investment transactions are carried out by a large number of approved
brokers whose credit standard is periodically reviewed and limits
are set on the amount that may be due from any one broker, cash is
only held with the depositary/custodian or reputable banks.
The Board monitors the broad structure of the Company's capital including
the need to buy back or allot ordinary shares and the extent to which
revenue in excess of that which is required to be distributed, should
be retained.
Assessing our viability
In keeping with provisions of the Code of Corporate Governance issued
by the Association of Investment Companies (the 'AIC Code'), the Board
has assessed the prospects of the Company over a period longer than
the 12 months required by the going concern provision.
We consider the Company's viability over a three-year period as we
believe this is a reasonable timeframe reflecting the longer-term
investment horizion for the portfolio, but acknowledges the inherent
shorter term uncertainties in equity markets.
As part of the assessment, we have considered the Company's financial
position, as well as its ability to liquidate the portfolio and meet
expenses as they fall due. The following aspects formed part of our
assessment:
* the purpose of the Company continued to be focussed
on long-term returns;
* a robust assessment of the principal risks and
uncertainties facing the Company had been undertaken
and no materially adverse issues had been identified;
* the nature of the portfolio remained diverse and
comprised a wide range of stocks which are traded on
major international exchanges meaning that, in normal
market conditions, three quarters of the portfolio
could be liquidated in ten days;
* the closed end nature of the Company which does not
need to account for redemptions;
* the level of the Company's revenue reserves and
banking facility;
* the expenses incurred by the Company, which are
predictable and modest in comparison with the assets
and the fact that there are no capital commitments
currently foreseen which would alter that position;
and
* the next continuation vote for the Company which will
take place at the annual general meeting in 2022 and
its performance against objectives leading up to
this.
As a matter of routine business, shareholders have the opportunity
to wind up the Company every three years. In the past, this resolution
has readily been passed with the support of the majority of shareholders.
The Board supports the continuation of the Company as it offers investors
a unique exposure to small and medium sized European companies and
has a reasonable expectation that similar resolutions will attract
shareholder support in future. However, if such a resolution was not
passed, the directors would follow the provisions in the Company's
articles relating to the winding up of the assets.
Based on the results of the viability assessment, we have a reasonable
expectation that the Company will be able to continue its operations
and meet its expenses and liabilities as they fall due for our assessment
period of three years. We will revisit this assessment annually and
provide shareholders with an update on our view in the annual report.
Related party transactions
The Company's transactions with related parties in the year were with
the directors and the Manager, Janus Henderson.
There have been no material transactions between the Company and its
directors during the year. The only amounts paid to them were in respect
of expenses and remuneration for which there were no outstanding amounts
payable at the year end.
As a matter of operational efficiency, the Company will replace its
current benchmark, the Euromoney Smaller European Companies (ex UK)
Index with the MSCI Europe ex UK Small Cap Index. The change will
improve the quality of the benchmark data available to the fund management
team on a day-to-day basis and aligns the benchmark with a number
of the Company's peers. The change will become effective from 1 July
2022, the start of the next financial year. This change in the benchmark
index will have an indirect impact on the Company's investment policy,
which is managed by reference to the benchmark, and performance fees
payable by the Company to the Manager, as such fees are determined
based on performance relative to the benchmark.
The Company and the Manager have entered into an agreement to reflect
the change in the benchmark in connection with the calculation of
the performance fee with effect from 1 July 2022. The performance
relative to the benchmark for years prior to 1 July 2022 for the purposes
of the calculation of any performance fees (which is calculated on
a three-year rolling basis), shall remain unchanged and will continue
to be calculated relative to the Euromoney Smaller European (ex UK)
Index.
The agreement is considered a smaller related party transaction for
the purposes of Listing Rule 11.1.10R.
In relation to the provision of services by the Manager, other than
fees payable by the Company in the ordinary course of business and
the provision of marketing activities, there have been no material
transactions affecting the financial position of the Company during
the year under review. More details on transactions with the Manager,
including amounts outstanding at the year end, are given in note 21
on page 70 of the annual report.
Directors' responsibility STATEMENTS
Each of the directors confirms that, to the best of his or her knowledge:
* the financial statements prepared in accordance with
International Accounting Standards in conformity with
the requirements of the Companies Act 2006 give a
true and fair view of the assets, liabilities,
financial position and profit and loss of the issuer
and the undertakings included in the consolidation
taken as a whole; and
* the Strategic Report includes a fair review of the
development and performance of the business and the
position of the Company, together with a description
of the principal risks and uncertainties that it
faces.
For and on behalf of the Board
Daniel Burgess
Director
13 October 2021
Statement of Comprehensive Income
Year ended 30 June 2021 Year ended 30 June 2020
Revenue Capital Total Revenue Capital Total
return return return return return return
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------ --------- ---------- ----------- --------- ---------- -----------
Investment income 13,475 - 13,475 9,123 - 9,123
Other income - - - 1 - 1
Gains on investments held
at fair value through profit
or loss - 326,600 326,600 - 9,464 9,464
--------- ---------- ----------- --------- ---------- -----------
Total income 13,475 326,600 340,075 9,124 9,464 18,588
Expenses
Management and performance
fee (826) (7,853) (8,679) (582) (2,329) (2,911)
Other operating expenses (720) - (720) (716) - (716)
--------- ---------- ---------- --------- ---------- ----------
Profit before finance costs
and taxation 11,929 318,747 330,676 7,826 7,135 14,961
Finance costs (155) (620) (775) (141) (564) (705)
--------- -------- --------- --------- -------- ---------
Profit before taxation 11,774 318,127 329,901 7,685 6,571 14,256
Taxation (1,384) - (1,384) (731) - (731)
--------- --------- ---------- --------- --------- ----------
Profit for the year and
total comprehensive income 10,390 318,127 328,517 6,954 6,571 13,525
====== ======= ======= ====== ======= =======
Return per ordinary share
- basic and diluted 20.73p 634.88p 655.61p 13.88p 13.11p 26.99p
====== ======== ======= ====== ======== =======
The total column of this statement represents the Statement of Comprehensive
Income, prepared in accordance with International Accounting Standards
in conformity with the requirements of the Companies Act 2006.
The revenue return and capital return columns are supplementary to
this and are prepared under guidance published by the Association
of Investment Companies.
All income is attributable to the equity holders of the Company.
Statement of Changes in Equity
Consolidated year ended 30 June 2021
------------------------ ---------------------------------------------------------------------------
Called Share Capital Other
up share premium redemption capital Revenue
capital account reserve reserves reserve Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Total equity at 1 July
2020 6,264 120,364 13,964 358,759 24,023 523,374
Total comprehensive
income:
Profit for the year - - - 318,127 10,390 328,517
Ordinary dividends
paid - - - - (11,224) (11,224)
--------- ---------- --------- ---------- --------- ----------
Total equity at 30
June 2021 6,264 120,364 13,964 676,886 23,189 840,667
===== ====== ===== ====== ===== ======
Consolidated year ended 30 June 2020
------------------------ ---------------------------------------------------------------------------
Called Share Capital Other
up share premium redemption capital Revenue
capital account reserve reserves reserve Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Total equity at 1 July
2019 6,264 120,364 13,964 352,188 28,243 521,023
Total comprehensive
income:
Profit for the year - - - 6,571 6,954 13,525
Ordinary dividends
paid - - - - (11,174) (11,174)
--------- ---------- --------- ---------- --------- ----------
Total equity at 30
June 2020 6,264 120,364 13,964 358,759 24,023 523,374
===== ====== ===== ====== ===== ======
Balance Sheet
At 30 June At 30 June
2021 2020
GBP'000 GBP'000
------------------------------------------------- ------------- -------------
Non current assets
Investments held at fair value through
profit or loss 933,499 573,086
----------- -----------
Current assets
Receivables 3,412 4,453
Cash and cash equivalents - 57
---------- ----------
3,412 4,510
----------- -----------
Total assets 936,911 577,596
----------- -----------
Current liabilities
Payables (7,154) (5,941)
Bank overdrafts (89,099) (48,281)
------------ ------------
(96,244) (54,222)
------------ ------------
Net assets 840,667 523,374
======= =======
Equity attributable to equity shareholders
Called up share capital 6,264 6,264
Share premium account 120,364 120,364
Capital redemption reserve 13,964 13,964
Retained earnings:
Other capital reserves 676,886 358,759
Revenue reserve 23,189 24,023
------------ ------------
Total equity 840,667 523,374
======= =======
Net asset value per ordinary share - basic
and diluted 1,677.70p 1,044.48p
======== ========
Cash Flow Statement
Year ended
Year ended 30 June
30 June 2021 2020
GBP'000 GBP'000
-------------------------------------------------- -------------- -----------
Operating activities
Profit before taxation 329,901 14,256
Add back: interest payable 775 705
Less: gains on investments held at fair
value through profit or loss (326,600) (10,433)
Sales of investments held at fair value
through profit or loss 458,813 341,928
Purchases of investments held at fair
value through profit or loss (495,971) (324,358)
Withholding tax on dividends deducted
at source (2,116) (1,354)
Decrease/(increase) in prepayments and
accrued income 295 (35)
Decrease in amounts due from brokers 1,287 559
Increase in accruals and deferred income 5,415 687
Increase in amounts due to brokers (4,211) (1,464)
---------- ----------
Net cash (outflow)/inflow operating activities
before interest and taxation(1) (32,412) 20,491
---------- ----------
Interest paid (775) (705)
Taxation recovered 144 271
---------- ----------
Net cash (outflow)/inflow from operating
activities (33,043) 20,057
---------- ----------
Financing activities
Equity dividends paid (net of refund of
unclaimed dividends - see note 8) (11,224) (11,174)
Net drawdown/(repayment) of bank overdraft 44,210 (8,826)
Net cash raised/(used) in financing 32,986 (20,000)
(Decrease)/increase in cash and cash equivalents (57) 57
Cash and cash equivalents at the start
of the year - -
Cash and cash equivalents at the end of
the year 57 57
Comprising:
Cash at bank - 57
---------- ----------
- 57
====== ======
1. In accordance with IAS7.31 cash inflow from dividends was
GBP11,699,000 (2020: GBP7,280,000) and cash inflow from interest
was GBPnil (2020: GBP1,000).
Notes to the Financial Statements
1. Accounting policies
Basis of preparation
TR European Growth Trust PLC is a company registered in England and
Wales with number 02520734. The Company is listed on the London Stock
Exchange and subject to the provisions of the Companies Act 2006 as
set out in English law. The financial statements of the Company for
the year ended 30 June 2021 have been prepared in accordance with International
Accounting Standards in conformity with the requirements of the Companies
Act 2006 (the 'Act'). These comprise standards and interpretations
approved by International Accounting Standards Board ('ISAB'), together
with interpretations of the International Accounting Standards and
Standing Interpretations Committee approved by the IFRS Interpretations
Committee ('IFRS IC') that remain in effect. The accounting policies
have been consistently applied in the current and previous year.
The financial statements have been prepared on a going concern basis.
They have also been prepared on the historical cost basis, except for
the revaluation of certain financial instruments at fair value through
profit and loss. The principal accounting policies adopted are set
out below. Where presentational guidance set out in the Statement of
Recommended Practice ('SORP') for investment trusts issued by the Association
of Investment Companies ('AIC') in October 2019 is consistent with
the requirements of IFRSs, the directors have sought to prepare the
financial statements on a basis consistent with the recommendations
of the SORP.
Going concern
The Company's shareholders are asked every three years to vote for
the continuation of the Company. An ordinary resolution to this effect
was put to the annual general meeting held on 25 November 2019 and
passed by the substantial majority of the shareholders. The next such
resolution will be put to the shareholders at the annual general meeting
in 2022.
The directors have considered the impact of Covid-19, including cash
flow forecasting, a review of covenant compliance including the headroom
above the most restrictive covenants and an assessment of the liquidity
of the portfolio. They have concluded that they are able to meet their
financial obligations, including the repayment of the bank overdraft,
as they fall due for a period of at least twelve months from the date
of approval of these financial statements. Having assessed these factors,
the principal risks and other matters discussed in connection with
the viability statement, the Board has determined that it is appropriate
for the financial statements to be prepared on a going concern basis.
2. Management and performance fees
2021 2020
Revenue Capital Total Revenue Capital Total
return return return return return return
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Management fee 826 3,304 4,130 582 2,329 2,911
Performance fee - 4,549 4,549 - - -
----- -------- -------- ----- -------- --------
Total 826 7,853 8,679 582 2,329 2,911
=== ===== ===== === ===== =====
3. Return per ordinary share
The return per ordinary share figure is based on the net gain for the
year of GBP328,517,000 (2020 gain: GBP13,525,000) and on the weighted
average number of ordinary shares in issue during the year of 50,108,397
(2020: 50,108,397).
The return per ordinary share figure detailed above can be further
analysed between revenue and capital, as below. The Company has no
securities in issue that could dilute the return per ordinary share.
Therefore the basic and diluted return per ordinary share are the same.
2021 2020
GBP'000 GBP'000
------------------------------------------------------ ------------------- ------------------
Net revenue profit 10,390 6,954
Net capital profit 318,127 6,571
------------ ------------
Net profit 328,127 13,525
======= =======
Weighted average number of ordinary
shares in issue during the year 50,108,397 50,108,397
2021 2020
Pence Pence
------------------------------------------------------ ------------------- ------------------
Revenue return per ordinary share 20.74 13.88
Capital return per ordinary share 634.88 13.11
----------- -----------
Total return per ordinary share 655.62 26.99
====== ======
4. Net asset value per ordinary share
The NAV per ordinary share is based on the net assets attributable
to the ordinary shares of GBP840,667,000 (2020: GBP523,374,000) and
on the 50,108,397 ordinary shares in issue at 30 June 2021 (2020: 50,108,397).
The Company has no securities in issue that could dilute the NAV per
ordinary share (2020: same). The NAV per ordinary share at 30 June
2021 was 1,677.70p (2020: 1,044.48p).
The movements during the year in assets attributable to the ordinary
shares were as follows:
2021 2020
GBP'000 GBP'000
------------------------------------------------------ ------------------- ------------------
Net assets attributable to ordinary
shares at start of year 523,374 521,023
Profit for the year 328,517 13,525
Dividends paid in the year (11,224) (11,174)
------------ ------------
Net assets at 30 June 840,667 523,374
======= =======
5. Dividends 2021 2020
GBP'000 GBP'000
------------------------------------------------ ---------- ----------
Amounts recognised as distributions to equity
holders in the year:
Final dividend of 14.20p for the year ended
30 June 2020 (2019: 14.50p) 7,115 7,266
Interim dividend of 8.20p per ordinary share
for the year ended 30 June 2021 (2019: 7.80p) 4,109 3,908
--------- ---------
11,224 11,174
===== =====
The final dividend of 14.20p per ordinary share in respect of the year
ended 30 June 2020 was paid on 27 November 2020 to shareholders on
the Register of Members at the close of business on 23 October 2020.
The total dividend paid amounted to GBP7,115,000.
Subject to approval at the annual general meeting in November 2021,
the proposed final dividend of 16.80p per ordinary share will be paid
on 3 December 2021 to shareholders on the Register of Members at the
close of business on 22 October 2021. The shares will be quoted ex-dividend
on 21 October 2021.
The proposed final dividend for the year ended 30 June 2021 has not
been included as a liability in these financial statements. Under IFRS,
these dividends are not recognised until approved by shareholders.
The total dividends payable in respect of the financial year which
form the basis of the test under s.1158 are set out below:
2021 2020
GBP'000 GBP'000
------------------------------------------------ ----------- -----------
Revenue available for distribution by way of
dividends for the year 10,390 6,954
Interim dividend of 8.20p per ordinary share
for the year ended 30 June 2021 (2020: 7.80p) (4,109) (3,908)
Proposed total dividend for the year ended
30 June 2021 - 16.80p (2020: 14.20p) (based
on 50,108,397 shares in issue at 11 October
2021) (8,418) (7,115)
---------- ----------
Transfer from revenue reserve (2,137) (4,069)
====== ======
For s.1158 purposes there is no undistributed revenue (2020: same)
of total income.
6. Called up share capital
2021 2020
---------------------------------
number number
of shares GBP'000 of shares GBP'000
--------------------------------- ------------ --------- ------------ ---------
Allotted, issued and fully paid
Ordinary shares of 12.5p 50,108,397 6,264 50,108,397 6,264
During the year no ordinary shares were issued (2020: same) for proceeds
of GBPnil (2020: same). In the current year to date and prior financial
year, the Company has not repurchased any shares for cancellation.
7. 2021 Financial information
The figures and financial information for the year ended 30 June 2021
are extracted from the Company's annual financial statements for that
period and do not constitute statutory accounts. The Company's annual
financial statements for the year to 30 June 2021 have been audited
but have not yet been delivered to the Registrar of Companies. The
Independent Auditors' Report on the 2021 annual financial statements
was unqualified, did not include a reference to any matter to which
the auditors drew attention without qualifying the report, and did
not contain any statements under Sections 498(2) or 498(3) of the Companies
Act 2006 .
8. 2020 Financial information
The figures and financial information for the year ended 30 June 2020
are compiled from an extract of the published financial statements
for that year and do not constitute statutory accounts. Those financial
statements have been delivered to the Registrar of Companies and included
the report of the auditors which was unqualified, did not include a
reference to any matter to which the auditors drew attention without
qualifying the report, and did not contain any statements under Sections
498(2) or 498(3) of the Companies Act 2006.
9. Annual Report
The annual report will be posted to shareholders in late October 2021
and will be available on the Company's website ( www.treuropeangrowthtrust.com
).
10. Annual General Meeting
The annual general meeting will be held on Monday 29 November 2021
at 12.30 pm at 201 Bishopsgate, London, EC2M 3AE. The Notice of Meeting
will be sent to shareholders with the annual report.
11. General information
Company Status
TR European Growth Trust PLC is registered in England and Wales, No.
2520734, has its registered office at 201 Bishopsgate, London EC2M
3AE and is listed on the London Stock Exchange.
SEDOL/ISIN: 0906692/GB0009066928
London Stock Exchange (TIDM) code: TRG
Global Intermediary Identification Number (GIIN): JX9KYH.99999.SL.826
Legal Entity Identifier (LEI): 213800N1B1HCQG2W4V90
Directors and Secretary
The directors of the Company are Christopher Casey (Chairman), Daniel
(Dan) Burgess (Chairman of the Audit Committee), Ann Grevelius, Simona
Heidempergher, Andrew Martin Smith and Alexander Mettenheimer. The
Corporate Secretary is Henderson Secretarial Services Limited.
Website
Details of the Company's share price and net asset value, together
with general information about the Company, monthly factsheets and
data, copies of announcements, reports and details of general meetings
can be found at www.treuropeangrowthtrust.com
For further information please
contact:
Ollie Beckett
Fund Manager
TR European Growth Trust PLC
Telephone: 020 7818 4331/3997
James de Sausmarez Laura Thomas
Director and Head of Investment Investment Trust PR Manager
Trusts Janus Henderson Investors
Janus Henderson Investors Telephone: 020 7818 2636
Telephone: 020 7818 3349
Neither the contents of the Company's website nor the contents
of any website accessible from hyperlinks on the Company's website
(or any other website) is incorporated into, or forms part of, this
announcement.
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END
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