EUROPEAN ASSETS TRUST
PLC
Audited Statement of Results for the year ended 31 December
2023
LEI:
213800N61H8P3Z4I8726
20 March 2024
European Assets Trust PLC
("EAT" / "the Company")
today announces its results for the year ended 31 December
2023.
Financial Highlights
· The
Sterling Net Asset Value per share total return was 8.2% for the
year ended 31 December 2023. This compares to 9.8% for the
benchmark.
· The
Sterling Share Price total return was 4.5% for the year ended 31
December 2023.
· A
dividend of 5.90 pence per share has been declared for 2024 (2023:
5.80 pence per share). This is equivalent to 6% of the
closing Net Asset Value per share on 31 December 2023. The
2024 dividend will be paid in four equal instalments. The
first interim dividend of 1.475 pence per share was paid in January
2024 with further dividends payable in April, July, and October. A
dividend of 1.475 pence per share will be paid on 30 April 2024 to
Shareholders on the register on 5 April 2024 with an ex-dividend
date of 4 April 2024.
"We continue to have a positive
outlook for the European Small and Mid-cap sector. Following
two years of smaller company underperformance versus larger
companies, valuations look attractive."
Jack Perry
CBE
Chairman
Chairman's Statement
Fellow Shareholders
European Assets Trust PLC ("the
Company") recorded a Sterling Net Asset Value ("NAV") total return
for the year ended 31 December 2023 of 8.2% (2022: -28.2%). This
compares to the total return of its Benchmark, which rose 9.8%
(2022: -17.7%) during the same period. With the discount widening
from 5.1% as at 31 December 2022 to 8.8% at the year-end, the
Sterling share price total return for the year was 4.5% (2022:
-28.4%).
Market Backdrop
Markets produced a far more
supportive backdrop for 2023, although the tension between tighter
Central Bank policy and economic growth remained high. With
investor focus on the latest pronouncements from the US Federal
Reserve, whose policy decisions have been the predominant influence
over market sentiment, there was significant intra-year volatility.
We can be reassured though that the rate of inflation across the
developed world has more than halved and economic activity has
remained relatively resilient in the face of the significant
monetary tightening of the last couple of years. The softening
inflation data and some weakness in the US jobs market has led to
expectations for interest rate cuts in 2024, driving a strong
finish to the year. Within this backdrop, the portfolio performance
for the year was on one hand satisfactory, in that it compared well
with the peer group and allowed us to announce an increase in
dividend, but also disappointing in that it lagged the
Benchmark.
2023 was another year where European
market leadership came from value stocks, providing a headwind for
our growth biased portfolio. Smaller companies also struggled, for
the second consecutive year, when compared with larger companies,
partly due to two of the most significant investment themes of the
year, generative artificial intelligence (AI) and weight-loss
drugs, that significantly boosted some of the world's largest
listed businesses. We have benefited from some exposure to these
themes in our portfolio through holdings in semiconductor equipment
companies, which will provide the means of production for AI
powered microchips, and pharmaceutical packaging companies, which
will provide the delivery mechanisms for these medicines. Health
and wellness and digital transformation are two of our most
significant themes, alongside sustainability and emerging growth,
which we believe will drive asset value growth over the long term.
This should hold true, particularly when smaller companies come
back into favour to deliver the sort of performance that, for very
good fundamental reasons, they have in the past. If we look at what
held us back last year, in addition to the portfolio's style tilt,
our consumer staples holdings were the main disappointment. This
was principally due to our holdings in drinks companies Remy
Cointreau and Royal Unibrew which both delivered worse earnings
than expected in a more challenging consumer
environment.
Review of Investment Performance
Following the Company's
disappointing performance in 2022, the Board initiated a review of
the investment strategy, philosophy and process adopted by the
investment manager, with particular focus given to the strengths
and weaknesses of its performance over the past ten years. This
work was carried out by the investment managers supported by the
wider resources within Columbia Threadneedle
Investments.
Following this review, a number of
changes were made to the composition of the Company's investment
portfolio including an increase in the number of stocks held,
reflecting access to broader research capabilities within Columbia
Threadneedle Investments. The implementation of these changes was
coincident with the decision to take advantage of market
opportunities to increase gearing.
While it is early days since these
changes were implemented, the initial results in the final quarter
of 2023 and the early part of 2024 are encouraging.
A further discussion of these
changes, together with details of performance drivers is made in
the Investment Manager's report. The Board will continue to closely
monitor the effectiveness of these and future changes.
Dividend
The level of dividend paid each year
is determined in accordance with the Company's distribution policy.
The Company has stated that, barring unforeseen circumstances, it
will pay an annual dividend equivalent to six per cent of its NAV
at the end of the preceding year. As the net asset value per share
of the Company has increased since 31 December 2022, the dividend
has also increased from 5.8 pence per share in 2023 to 5.9 pence
per share in 2024.
This 2024 dividend of 5.9 pence per
share is payable in four equal instalments of 1.475 pence on 31
January, 30 April, 31 July and 31 October 2024.
A dividend of 1.475 pence per share
will be paid on 30 April 2024 to Shareholders on the register on 5
April 2024 with an ex-dividend date of 4 April 2024.
Directorate Change
European Assets Trust PLC ("EAT
PLC") was incorporated on 12 November 2018. It should though be
remembered that EAT PLC is the UK domiciled successor of the
Company's Dutch predecessor, European Assets Trust NV ("EAT NV")
which was dissolved on 16 March 2019. All of the directors of the
Supervisory Board of EAT NV were appointed to the Board of EAT PLC
on the date of its incorporation. Although EAT PLC and EAT NV were
separate legal entities, for governance purposes, the Board regards
the date of first appointment to the Supervisory Board of EAT NV as
the date of appointment to the continuing business.
As part of the Board's succession
plan and following thorough selection processes which included the
services of a search company, Kevin Troup and Kate Cornish-Bowden
were appointed to the Board with effect from 19 May 2023 and 2
January 2024 respectively.
Kevin is a qualified Chartered
Accountant who has worked in the fund management industry since
1995 with senior investment roles at Scottish Life, Martin Currie
and Standard Life Investments. He is now a non-executive director
at Baring Fund Managers Limited. He is also a non-executive
director and Chair of the Audit Committee at Baillie Gifford Shin
Nippon PLC. His other appointments include Chair of the Risk, Audit
and Compliance Committee at the BT Pension Scheme Management
Limited and he is a Director of Kintail Trustees Limited, the
corporate trustee of The Robertson Trust charity where he is chair
of the Investment Committee.
Kate is the chair of International
Biotechnology Trust plc, and a non-executive director of Finsbury
Growth & Income Trust plc and CC Japan Income & Growth
Trust plc, where she is also chair of the audit committee. Until
recently Kate was the senior independent non-executive director of
Schroder Oriental Income Fund Limited. Previously Kate worked for
twelve years as a fund manager for Morgan Stanley Investment
Management, where she was managing director and head of the global
equity team.
As a further part of this succession
plan Julia Bond retired from the Board on 31 January 2024. Julia
was appointed as a Director of the Supervisory Board of the
Company's Dutch predecessor, European Assets Trust NV, in April
2014 and upon retirement had served nine years between both
entities. On behalf of the Board and Shareholders of the Company I
thank Julia for her diligence and wise counsel throughout her
period of appointment.
Following the retirement of Julia
Bond, Kate Cornish-Bowden has been appointed the Company's Senior
Independent Director.
I was also appointed to the
Supervisory Board of the Company's predecessor in April 2014 and
became its Chairman with effect from April 2015. As previously
announced, I will retire from the Board at the conclusion of the
Company's 2024 Annual General Meeting and Stuart Paterson, who was
appointed to the Board in July 2019 will become Chairman. Following
my retirement and Stuart Paterson's assumption of the Chairmanship,
Kevin Troup will be appointed Chairman of the Company's Audit and
Risk Committee.
My tenure has coincided with a
period of continuous change. The Company has experienced, amongst
other events, the Eurozone Crisis, the withdrawal of the United
Kingdom from the European Union, the COVID-19 pandemic and, more
recently, Russian military action in Ukraine. Many of these events
still impact upon the social, macro-economic and political
environments in which this Company operates and I wish to express
my sincere thanks to my fellow Directors and the Company's advisers
for their support in successfully navigating these
challenges.
Annual General Meeting
The Annual General Meeting ("AGM")
will be held at 3.00 pm on 17 May 2024 at the offices of Columbia
Threadneedle Investments, Cannon Place, 78 Cannon Street, London
EC4N 6AG. This will be followed by a presentation by the Investment
Manager on the Company and its investment portfolio.
For Shareholders who are unable to
attend the meeting, any questions they may have regarding the
resolutions proposed at the AGM or the performance of the Company
can be directed to a dedicated email account,
eatagm@columbiathreadneedle.com, by 9.00am on Thursday 16 May 2024.
The Board will endeavour to ensure that questions received by such
date will be addressed at the meeting. The meeting will be recorded
and will be available to view on the Company's website,
www.europeanassets.co.uk shortly thereafter.
In addition, for the first time this
year, the AGM and Investment Manager presentation will be broadcast
live on the Investor Meet Company platform. This broadcast is open
to all existing and potential Shareholders to view. Questions can
be submitted pre-event via the Investor Meet Company dashboard up
until 9.00am on Thursday 16 May 2024. Investors can sign up to
Investor Meet Company for free and add to meet European Assets
Trust plc via:
www.investormeetcompany.com/european-assets-trust-plc/registerinvestor.
Investors who already follow European Assets Trust plc on the
Investor Meet Company platform will automatically be
invited.
All Shareholders that cannot attend
in person, including those viewing the live broadcast on the
Investor Meet Company platform are encouraged to complete and
submit their Form of Proxy or Form of Direction in advance of the
meeting to ensure that their votes will count.
Outlook
It was probably inevitable that
after such a strong finish to the year we would enter 2024 with
some volatility. The market had begun to look forward to the
attractive combination of lower inflation leading to Central Bank
easing, resilient economic growth and good corporate profitability.
This is potentially optimistic given that achieving this balance is
not without risks and has not often been achieved historically.
Nonetheless when we look at our area of the market, European Small
and Mid-cap companies, we think a positive outlook is not being
reflected. Following two years of smaller company underperformance
versus larger companies, valuations look attractive. History would
suggest that these are good opportunities to buy into the long-term
favourable characteristics of smaller growth companies.
The investment managers are now
fully integrated within the large Columbia Threadneedle Investment
team and are benefitting from a deep pool of research. Idea
generation is therefore felt to be more productive and is reflected
in the higher portfolio turnover figures seen in this report as
these new holdings are incorporated. This also helped provide the
investment managers with the confidence to gear the portfolio
following the October market sell-off. We would expect them to
continue to do so as they find attractive opportunities using the
research talent at their disposal and given the strong long-term
outlook that our asset class has.
Jack Perry CBE
Chairman
19 March 2024
Investment Manager's Review
Market Backdrop
While geopolitical events continued
to cast a shadow over 2023, macroeconomic factors were the
predominant influence driving market direction for better and for
worse. A surge of investor optimism ultimately pushed equities
higher in the fourth quarter delivering a good year for markets
overall. In this context, European smaller companies achieved an
attractive return, however, it was the second year that they have
lagged their larger counterparts, something we would not expect to
be an ongoing trend. Indeed we believe this is an excellent
opportunity for long term investors with valuations looking
particularly appealing.
Inflation and its influence on
Central Bank policy decisions were the focus of investor attention
as policy makers sought to balance controlling rising prices with
maintaining economic activity. In aggregate the evidence so far
suggests that they appear to have managed this though Europe's
economy was weaker than the US whose robust labour markets caused
some concern that the Federal Reserve would have to keep interest
rates 'higher for longer'. This caused an aggressive sell off in
equities and bonds in September and October. Sentiment changed
completely in November as better inflation data emerged alongside
the first sign of some softening of the US jobs markets, leading to
expectations that both the US Federal Reserve and the European
Central Bank would start cutting rates in 2024. This tension
between inflation, monetary policy and economic activity is likely
to
continue to play a big role in
driving market direction but we hope that with inflation appearing
more benign, markets may be more driven by stock specific factors
rather than macroeconomics.
Performance
While our performance compared well
with our peer group and we delivered an increase in dividend, our
total return lagged the Benchmark. This was partly because our
growth biased portfolio faced the headwind of another year of the
value style outperforming. We detail some of the stock specifics
below.
As discussed above macroeconomic
factors featured strongly in stock returns, however, the advent of
Generative Artificial Intelligence (AI) and a new class of weight
loss drugs (GLP-1 agonists) provided a strong thematic background
for specific sectors and boosted some of our holdings. For example,
two of our best performing positions were Dutch listed ASMI and BE
Semiconductor Industries, both market leaders in equipment used in
the semiconductor manufacturing process. Generative AI requires
significant computing power which means both a greater demand for
semiconductor chips but also an acceleration of the miniaturisation
trend of those chips. The prospects for both ASMI and BE
Semiconductor Industries whose equipment is integral in the
production process of these products have therefore improved at the
same time as there appears to be improvements in the more cyclical
areas of demand.
Originally developed for diabetes,
the new class of GLP-1 drugs are a huge breakthrough in inducing
significant weight loss, with mostly manageable side-effects. This
is potentially a seismic development given the huge problem that
obesity is for the Western World. Whilst we do not own shares in
the companies responsible for these medicines, because they are
amongst the biggest companies regionally, we have exposure to the
theme through Gerresheimer the German pharmaceutical packaging
company. The shares performed strongly prior to the GLP-1
announcements and expectation of contract wins related to these
obesity drugs propelled their performance further. Siegfried, the
contract development and manufacturing organisation that produces
small molecules and drug products for pharmaceutical companies also
had a strong year. Whilst many in the sector struggled due to
weaker demand caused by excess inventories at customers following
the COVID-19 related healthcare boom, Siegfried executed strongly
with the shares getting an additional boost from hope that they
would also receive contracts related to weight loss
drugs.
Automation and re-shoring of supply
chains is another theme within the portfolio that worked well for
us in 2023. Recent years that have been dominated by the COVID-19
pandemic and volatile geopolitics have increased the risk of
extended supply chains causing corporates to look closer to home
for key components and materials. With tight labour markets, the
need for greater automation is accelerating. One of our best
performers, Kardex, the Swiss listed leader in intra-logistics
solutions provides efficient storage solutions at a relatively low
cost but a higher return on investment. Kardex has benefitted from
the need of corporates to manage their operations more efficiently.
Other stocks that help improve their customers' efficiency in the
face of rising costs and labour shortages are Engcon, the Swedish
listed global leading producer of tiltrotators, and Rational, the
global leading manufacturer of combi-steamer ovens. Both stocks had
a good year.
Other strong performers of note were
our Irish holdings Cairn Homes, Dalata Hotel Group, and Glanbia.
Ireland is suffering from a severe shortage of housing and as the
largest, and only, volume producer of note, Cairn Homes is
benefitting from its large landbank to deliver affordable homes in
an attractive demand environment. Dalata Hotel Group, a modern
hotel operator, is enjoying the recovery in the hospitality sector
in a market where supply is constrained, and competition is
underwhelming. Glanbia, the nutritional business, simply executed
well, leveraging their strong global brand presence.
Conversely, our area of biggest
disappointment as a sector was consumer staples that did not
provide the steady performance we would normally expect.
Particularly disappointing were our beverage stocks Royal Unibrew
and Remy Cointreau. Royal Unibrew is a Danish brewer that manages
strong local brands that are both alcoholic and non-alcoholic
drinks. They also operate as a bottler for Pepsi-Cola in the
region. Poor weather hampered sales in the key summer months, and
they downgraded their expected contribution from their recent Dutch
acquisition. These led to cuts to earnings that were compounded by
concerns around downtrading in a more challenging economic
environment.
The French cognac producer, Remy
Cointreau, faced a perfect storm last year. We initiated a holding
early in the year in the knowledge that one of their key growth
engines, the US, was spluttering. We believed however that China,
the other growth engine, would pick up the slack and the valuation
was also attractive. Unfortunately, the US deterioration was worse
than expected, and China growth failed to materialise. While hugely
disappointing thus far, we believe that the valuation is now at
such a low level that investors are paying little more than the
realisable inventory value. Although the outlook is uncertain over
the short term, we believe there is a great deal of value here in
what is a unique asset.
I have highlighted some good returns
from our healthcare holdings. We did however suffer from poor
performance from our diagnostics equipment stocks, Swiss listed
Tecan and German listed Stratec. Tecan, which provides automated
liquid handling solutions to the life sciences and diagnostics
markets, performed operationally well but saw a substantial
de-rating through the year. The share could not withstand the
multiple profit warnings amongst its peers which all struggled with
tough comparisons with the strong COVID-19 period, and a weakening
environment in the biotechnology space (which is itself suffering
from funding issues) as well as more tentative buying habits in
China. Tecan ended the year cheaper than it started and with no
deterioration in franchise, so we continue to hold the stock.
Stratec, on the other hand, struggled operationally. They produce
machines for diagnostics equipment companies who suffered from the
industry issues mentioned above. Additionally, they incurred higher
costs from customer specification changes. We felt that this
represented a deterioration of their market position and a loss in
confidence with the management team, so we sold the
position.
Other poor performers of note
include Coor, the Swedish listed integrated facilities manager hit
by two large contract losses and a margin squeeze as they struggled
to pass on higher costs. With some significant client negotiations
on the horizon, we decided to exit the position. In contrast to our
other semiconductor related companies, Nordic Semiconductor had a
poor year. The low power Bluetooth provider's principal end market
is consumer electronics. With high stock levels of Bluetooth chips
at customers that were only slowly being reduced because of
deteriorating consumer demand, Nordic Semiconductor recorded a
significant sales and profit decline. We are of the view that this,
while painful, is temporary so continue to hold the stock.
Similarly, MIPs, the Swedish producer of helmet safety technology
struggled as weak bicycle markets were compounded by high
inventories. We do not believe the long-term growth rate or market
position is permanently impaired so also continue to hold the
stock.
Review of Investment Performance
Following mixed performance in
recent years, and at the Board's request, the investment team in
conjunction with the Manager's investment risk and oversight
function undertook a review of the Company's investment strategy,
philosophy and process. While no wholesale changes were
recommended, we are evolving our investment process and taking
steps towards improvement in its execution. This is supported by
the significant resources available, both in terms of research but
also risk analysis, at Columbia Threadneedle
Investments.
With the aim of reducing the
volatility of returns, the portfolio will increase its number of
holdings and balance 'style' exposures. We will continue to invest
in high quality growth companies, but individual holdings will be
more systematically analysed on their risk and style contribution
in order to ensure that when we pay a premium to the market that
this valuation is supported by superior growth and profitability
characteristics. A portfolio that is more diversified will also,
where warranted by market opportunity, be supported with increased
gearing. These recommendations which were implemented towards the
end of the year, provide a strong basis on which to look
forward.
Portfolio Activity
We are now embedded in the
investment teams at Columbia Threadneedle, and have a significantly
larger pool of resources at our disposal. The research capacity and
the reach that we have to engage with potential investee companies
is by far the largest since we have managed the Company. This is
manifesting itself in more frequent and productive idea generation.
When combined with a volatile market at the end of the third
quarter, this led to higher portfolio turnover and more holdings,
in line with the evolution of our process. We also took the
opportunity provided by the market falls of September and October
2023 to deploy gearing. In terms of sales, in addition to those
mentioned above, we exited positions in Alten, the French R&D
outsourcer, and Sparebank, the Norwegian regional bank, having
reached our fair values, thus taking profits. We also exited
Sligro, the Dutch food distributor and HelloFresh, the German
listed meal kit business, following operating disappointments
sufficient to derail the investment cases.
In terms of new additions, we
diversified our large positions in semiconductors by adding
Melexis, which produces sensors for the automotive market, and
Inficon, which has leading positions in the production of vacuum
technology for both industrial and technology markets. Within
industrials, we added Elis, the European leader in textile rental,
Stabilus, the auto-supplier which is transforming to a broader
industrial automation exposed business, and Accelleron.
Accelleron is relatively new to the
listed market having been spun out of the large Swedish industrial
ABB, so not necessarily broadly known. They are the global market
leader in turbochargers primarily for marine and energy
applications. These turbochargers provide substantial cost
efficiencies and reduce emissions, so offer good return on
investments for their clients. With 75% of revenues accounted for
by services and spare parts, they have predictable sales and high
profit margins, which demonstrate a high-quality business that is
not priced as such by the market.
Other new additions include KPN, the
Dutch telecommunication company whose cash generation is improving
as they finalise their fibre network roll-out, and Smurfit Kappa,
the value-added packaging company, which operates in an oligopoly
that should benefit from a recovery in the end markets.
Outlook
The outlook for inflation and its
influence on interest rates are likely to continue to dictate
market direction, however, the debate has shifted from when will
rates stop rising, to how quickly will they fall. This should
provide a positive backdrop to investing, though we are aware that
the impact of the rapidly tightening liquidity environment of the
last few years has yet to fully impact the economy which may lead
to a risk of wider recession for this year. Nonetheless, the low
valuation of European smaller and mid-cap companies suggest much of
this is priced in. Following two years of underperformance for
smaller companies against the larger market, we think this is an
excellent opportunity for the creation of long-term returns. We
expect to use any further volatility to take advantage of this
opportunity and gear the portfolio further.
Sam Cosh
Lead Investment Manager
19 March 2024
Principal Risks and Future Prospects
The principal risks together with
their mitigations are set out below. The Board's processes for
monitoring them and identifying emerging risks are set out on pages
32 to 33 and in note 22 of the Report & Accounts.
Most of the Company's principal
risks are market-related and no different to those of other
investment trusts investing in listed markets.
The global economy continues to
suffer considerable disruption due to the effects of the war in
Ukraine, recent events in the Middle East and inflationary
pressures. The Directors have reviewed the risk register for the
Company which identifies the risks that the Company is exposed to,
the controls in place and the actions being taken to mitigate them.
The principal ongoing risks and uncertainties currently faced by
the Company, and the controls and actions to mitigate those risks,
are described below.
In addition a detailed review of the
risks of the Company's investment portfolio including market,
credit, foreign currency and liquidity is provided in note 22 of
the Report & Accounts beginning on page 76. Details of actions
taken to reduce the potential impact of these risks is also
provided.
· Risk
description: Poor absolute and/or relative
performance
Inappropriate stock selection, asset
allocation and gearing levels result in poor NAV and share price
performance against Benchmark and/or peer group. Poor performance
results in reduced demand for the Company's shares and a widening
share price discount.
Ø Increase in overall risk in
year.
Mitigation: At each Board meeting the Directors monitor performance
against benchmark and peer group. The Manager attends each regular
board meeting and will discuss the reasons for any over or
underperformance.
The Company's broker, Panmure
Gordon, will provide market intelligence at each meeting noting
underlying demand for the Company's shares.
The Company has received the
necessary authority from Shareholders to regulate the premium or
discount that the Company's shares may trade at by purchasing or
issuing shares.
· Risk
description: Relevance/attractiveness of the investment
strategy and policy
An unattractive investment strategy,
loss of cost competitiveness and/or a changing investment product
environment, including ESG, leads to a fall in demand for the
Company's shares resulting in an increasing share price
discount.
Ø No change in overall risk in
year.
Mitigation: Investment policy
and performance are reviewed by the Board at each meeting. Rigorous
individual stock reviews are regularly performed by the Manager and
action taken to either hold, accumulate or sell. Cash, borrowing
and gearing limits are set and monitored regularly.
· Risk description: The
Manager
Failure of the Manager or loss of
senior staff could cause reputational damage and/or place the
business in jeopardy. Execution risk arising from the
post-acquisition integration of BMO GAM EMEA with Columbia
Threadneedle Investments.
Ø No change in overall risk in
year.
Mitigation: The Board meets
regularly with the management of Columbia Threadneedle Investments
and receives an annual Audit Assurance Faculty Report on its
procedures. The Manager's appointment can be terminated at six
months' notice. Key man risk is limited by the team approach
adopted by the Global Smaller team at Columbia Threadneedle
Investments.
· Risk
description: Regulatory and compliance
(including ESG reporting)
To maintain its investment trust
status, the Company is required to comply with Section 1158 of the
UK Corporation Taxes Act. The Company is also required to comply
with UK company law, is subject to the requirements of the AIFMD
and the relevant regulations of the London Stock Exchange and the
Financial Conduct Authority.
Ø No change in overall risk in
year.
Mitigation: At each Board
meeting the Company receives an update from the Secretary on legal,
regulatory and accounting developments. The Company is a member of
the Association of Investment Companies which provides guidance on
regulatory developments. The Company has appointed EY LLP as its
tax advisor and Shepherd and Wedderburn as its legal counsel. The
Manager has a long established and highly regarded Responsible
Investment team which presents to the Board annually.
· Risk description: Service
provider failure
Errors, fraud or control failures at
service providers or loss of data through increasing cyber threats
or business continuity failure could damage reputation or
investors' interests or result in losses.
Ø No change in overall risk in
year.
Mitigation: The Board receives
regular control reports from the Manager covering risk and
compliance including oversight of third-party service providers.
The Board has access to the Manager's Risk Manager and requires any
significant issues directly relevant to the Company to be reported
immediately. The Depositary is specifically liable for loss of any
of the Company's securities and cash held in custody.
· Risk
description: Dividend
Policy
The Company's high distribution
policy becomes unsustainable.
Ø No change in overall risk in
year.
Mitigation: The annual dividend
is calculated as six per cent of the closing net asset value of the
Company as at 31 December of the preceding year.
As at 31 December 2023 the
Distributable reserves of the Company was £281.6 million in
comparison to a 2023 dividend cost of £20.9 million.
· Risk description:
Geopolitical issues and their impact
Geopolitical issues including
the impact of the war in Ukraine and conflict in the Middle
East.
Ø Increase in overall risk in
year.
Mitigation: The Company has a
clearly defined and approved strategy. The Board can hold
additional board meetings at short notice to discuss the impact of
significant changes in the macroeconomic and geopolitical
environment. The Company maintains a portfolio of diversified
stocks.
Forward looking stress tests ranging
from moderate to extreme scenarios are provided by the Manager to
the Board to support the Viability and Going Concern
Statements.
Five
Year Horizon
The UK Corporate Governance Code
requires a board to assess the future prospects for a company, and
report on the assessment within the annual report.
Through a series of connected stress
tests ranging from moderate to extreme scenarios and based on
historical information, but forward looking over the five
years commencing 1 January 2024, the Board assessed the risks
of:
· the
liquidity of the Company's portfolio;
· the
existence of a borrowing facility;
· the
effects of any significant future falls in investment values and
income receipts on the ability to repay and re-negotiate
borrowings;
· the
maintenance of dividend payments and the retention of
investors;
· the
potential need for more share issuance capacity in the event of
unexpected market demand; and
· minimising the discount between the Company's share price and
net asset value.
Based on their assessment, and in the
context of the Company's business model, strategy and operational
arrangements set out above, the Board has a reasonable expectation
that the Company will be able to continue in operation and meet its
liabilities as they fall due over the five year period to March
2029. For this reason, the Board also considers it appropriate to
continue adopting the going concern basis in preparing the Report
and Accounts.
Statement of Directors'
Responsibilities in Respect of the Financial Statement
Each of the Directors, whose names
and functions are listed on pages 34 and 35 of the Report &
Accounts, confirm that, to the best of their knowledge:
· the
Company financial statements, have been prepared in accordance with
UK-adopted International Accounting Standards, give a true and fair
view of the assets, liabilities, financial position and profit of
the Company;
· 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; and
· the
annual report and financial statements, taken as a whole, are fair,
balanced and understandable and provide the information necessary
for Shareholders to assess the Company's position and performance,
business model and strategy.
On
behalf of the Board
Jack Perry
Chairman
19
March 2024
Statement of Comprehensive Income
|
For the year
ended
31 December
2023
|
For the
year ended
31
December 2022
|
|
Revenue
|
Capital
|
Total
|
Revenue
|
Capital
|
Total
|
|
£'000s
|
£'000s
|
£'000s
|
£'000s
|
£'000s
|
£'000s
|
|
|
|
|
|
|
|
Gains/(losses) on investments held
at fair value through profit or loss
|
-
|
32,185
|
32,185
|
-
|
(177,223)
|
(177,223)
|
Foreign exchange
gains/(losses)
|
2
|
(17)
|
(15)
|
(25)
|
(86)
|
(111)
|
Income
|
7,874
|
-
|
7,874
|
8,527
|
-
|
8,527
|
Management fee
|
(550)
|
(2,200)
|
(2,750)
|
(610)
|
(2,438)
|
(3,048)
|
Other expenses
|
(969)
|
(60)
|
(1,029)
|
(958)
|
(37)
|
(995)
|
Profit/(loss) before finance costs and
taxation
|
6,357
|
29,908
|
36,265
|
6,934
|
(179,784)
|
(172,850)
|
Finance costs
|
(141)
|
(564)
|
(705)
|
(51)
|
(206)
|
(257)
|
Profit/(loss) before taxation
|
6,216
|
29,344
|
35,560
|
6,883
|
(179,990)
|
(173,107)
|
Taxation
|
(672)
|
-
|
(672)
|
(944)
|
-
|
(944)
|
Profit/(loss) for the year and total comprehensive
income/(expense)
|
5,544
|
29,344
|
34,888
|
5,939
|
(179,990)
|
(174,051)
|
|
|
|
|
|
|
|
Earnings per share basic and diluted - pence
|
1.54
|
8.15
|
9.69
|
1.65
|
(49.99)
|
(48.34)
|
The total column of this statement
represents the Company's Statement of Comprehensive Income,
prepared in accordance with UK-adopted International Accounting
Standards. The supplementary revenue return and capital return
columns are both prepared under guidance published by the
Association of Investment Companies.
All revenue and capital items in the
above statement derive from continuing operations.
Statement of Changes in Equity
for
the year ended
31
December 2023
|
|
|
|
|
|
|
|
|
|
Share
|
Distributable
|
Capital
|
Revenue
|
Cumulative
translation
|
Total
Shareholders'
|
|
|
capital
|
reserve
|
Reserves
|
reserve
|
reserve
|
funds
|
|
|
£'000s
|
£'000s
|
£'000s
|
£'000s
|
£'000s
|
£'000s
|
|
|
|
|
|
|
|
|
Balance as at 31 December
2022
|
|
37,506
|
296,945
|
8,671
|
-
|
4,505
|
347,627
|
Movements during the year ended
31
December 2023
|
|
|
|
|
|
|
|
Interim dividends
distributed
|
|
-
|
(15,340)
|
-
|
(5,544)
|
-
|
(20,884)
|
Total comprehensive
income
|
|
-
|
-
|
29,344
|
5,544
|
-
|
34,888
|
Cumulative translation
adjustment
|
|
-
|
-
|
-
|
-
|
(7,635)
|
(7,635)
|
Balance as at 31 December 2023
|
|
37,506
|
281,605
|
38,015
|
-
|
(3,130)
|
353,996
|
for
the year ended
31
December 2022
|
|
|
|
|
|
|
|
|
|
Share
|
Distributable
|
Capital
|
Revenue
|
Cumulative
translation
|
Total
Shareholders'
|
|
|
capital
|
reserve
|
Reserves
|
reserve
|
reserve
|
Funds
|
|
|
£'000s
|
£'000s
|
£'000s
|
£'000s
|
£'000s
|
£'000s
|
|
|
|
|
|
|
|
|
Balance as at 31 December
2021
|
|
37,506
|
322,694
|
188,661
|
-
|
(23,426)
|
525,435
|
Movements during the year ended
31
December 2022
|
|
|
|
|
|
|
|
Interim dividends
distributed
|
|
-
|
(25,749)
|
-
|
(5,939)
|
-
|
(31,688)
|
Total comprehensive
income
|
|
-
|
-
|
(179,990)
|
5,939
|
-
|
(174,051)
|
Cumulative translation
adjustment
|
|
-
|
-
|
-
|
-
|
27,931
|
27,931
|
Balance as at 31 December 2022
|
|
37,506
|
296,945
|
8,671
|
-
|
4,505
|
347,627
|
Statement of Financial Position
at
31 December
|
2023
|
2022
|
|
£'000s
|
£'000s
|
Non-current assets
|
|
|
Investments at fair value through
profit or loss
|
375,066
|
340,717
|
Current assets
|
|
|
Other receivables
|
3,063
|
3,247
|
Cash and cash equivalents
|
2,089
|
13,317
|
Total current assets
|
5,152
|
16,564
|
Current liabilities
|
|
|
Other payables
|
(226)
|
(782)
|
Bank Loan
|
(25,996)
|
(8,872)
|
Total current liabilities
|
(26,222)
|
(9,654)
|
Net
current (liabilities)/assets
|
(21,070)
|
6,910
|
Net
assets
|
353,996
|
347,627
|
|
|
|
Capital and reserves
|
|
|
Share capital
|
37,506
|
37,506
|
Distributable reserve
|
281,605
|
296,945
|
Capital reserve
|
38,015
|
8,671
|
Revenue reserve
|
-
|
-
|
Cumulative translation
reserve
|
(3,130)
|
4,505
|
Total Shareholders' funds
|
353,996
|
347,627
|
|
|
|
Net
asset value per ordinary share - pence
|
98.31
|
96.54
|
Statement of Cash Flows
for the year ended 31
December
|
2023
|
2022
|
|
£'000s
|
£'000s
|
Cash flows from operating activities before interest and
dividends received and interest paid
|
(4,328)
|
(3,353)
|
Dividends received
|
7,388
|
6,990
|
Interest received
|
321
|
34
|
Interest paid
|
(654)
|
(257)
|
Cash flows from operating activities
|
2,727
|
3,414
|
Investing activities
|
|
|
Purchase of investments
|
(138,453)
|
(107,060)
|
Sale of investments
|
128,176
|
156,430
|
Other capital charges
|
(60)
|
(37)
|
Cash flows from investing activities
|
(10,337)
|
49,333
|
Cash flows before financing activities
|
(7,610)
|
52,747
|
Financing activities
|
|
|
Equity dividends
distributed
|
(20,884)
|
(31,688)
|
Drawdown of bank loan
|
26,293
|
-
|
Repayment of bank loan
|
(8,589)
|
(17,173)
|
Cash flows from financing activities
|
(3,180)
|
(48,861)
|
Net
movement in cash and cash equivalents
|
(10,790)
|
3,886
|
Cash and cash equivalents at the
beginning of the year
|
13,317
|
8,342
|
Effect of movement in foreign
exchange
|
(15)
|
(111)
|
Translation adjustment
|
(423)
|
1,200
|
Cash and cash equivalents at the end of the
year
|
2,089
|
13,317
|
|
|
|
Represented by:
|
|
|
Cash at bank
|
18
|
9
|
Short term deposits
|
2,071
|
13,308
|
|
2,089
|
13,317
|
|
|
|
|
|
|
Notes
1 Basis of preparation
The functional currency of the
Company is the euro and presentational currency is pound sterling
as the Board believe this will provide clarity of the Company's
financial statements for its Shareholders, the overwhelming
majority of whom are located in the United Kingdom.
2 Earnings per ordinary
share
Revenue return
The revenue return per share of 1.54p
(2022: 1.65p) is based on the revenue return attributable to
Shareholders of £5,544,000 profit (2022: £5,939,000
profit).
Capital return
The capital return per share of 8.15p
(2022: -49.99p) is based on the capital return attributable to
Shareholders of £29,344,000 profit (2022: £179,990,000
loss).
Total return
The total return per share of 9.69p
(2022: -48.34p) is based on the total return attributable to
Shareholders of £34,888,000 profit (2022: £174,051,000
loss).
Weighted average ordinary shares in issue
The returns per share are based on a
weighted average of 360,069,279 (2021: 360,069,279) ordinary shares
in issue during the year.
3 Dividends
The Board has declared a total
dividend for 2024 of 5.90 (2023: 5.80) pence per share in
accordance with its aim of paying at a rate of six per cent of the
closing Net Asset Value of the preceding year.
4 Financial risk
management
The Company is an investment company,
listed on the London Stock Exchange, and conducts its affairs so as
to qualify in the United Kingdom ("UK") as an investment trust
under the provisions of section 1158 of the CTA. In so qualifying,
the Company is exempted in the UK from corporation tax on capital
gains on its portfolio of investments.
The Company's investment objective is
to achieve long-term growth of capital through investment in quoted
small and medium sized companies in Europe, excluding the United
Kingdom. In pursuing this objective, the Company is exposed to
financial risks which could result in a reduction of either or both
of the value of the net assets and the profits available for
distribution by way of dividend. These financial risks are
principally related to the market (currency movements, interest
rate changes and security price movements), liquidity and credit.
The Board, together with the Manager, is responsible for the
Company's risk management. The full details of financial risks are
contained in note 22 of the Report and Accounts.
5 Annual general
meeting
The 2024 AGM will be held on 17 May
2024 at 3.00pm at Cannon Place, 78 Cannon Street, London EC4N 6AG.
The Notice of the AGM is set out on pages 83 to 86 of the annual
report.
6 Report and
accounts
The report and accounts for the year
ended 31 December 2023 will be posted to Shareholders and made
available on the website www.europeanassets.co.uk
shortly. Copies may also be obtained by mailing
the Company's registered office, Cannon Place, 78 Cannon Street,
London EC4N 6AG.
By
order of the Board
Columbia Threadneedle Investment Business Limited,
Secretary
19
March 2024