European Opportunities Trust PLC (the
'Company')
Legal Entity Identifier:
549300XN7RXQWHN18849
Half
Yearly Financial Report for the six months to 30 November
2023
Financial Highlights
· Net asset
value total return of 4.3% and share price total return of 7.7% for
the period, compared with a total return of 3.5% for the Company's
Benchmark, the MSCI Europe Index.
·
Net asset value total return per share of 921.8% since launch
on 20 November 2000 (equivalent to 10.6% compound per year),
outperforming the total return of the Benchmark of 253.5% over the
same period (equivalent to 5.6% compound per year).
·
Continued buy back activity
during the period with a total of 2.2 million shares repurchased at
a cost of £17.2 million.
·
A 25% tender offer was
initiated following the passing of the Continuation Vote at the
Company's AGM on 15 November 2023. This was implemented post-period
end in January 2024.
· At the
period end, the Company's discount to NAV had narrowed to
8%.
·
Reduced management fees took
effect from 1 June 2023, as disclosed in the annual
report.
Matthew Dobbs, Chair of the Company
commented:
"The six months under review saw the
Company modestly outperform its Benchmark, initiate a 25% tender
offer that was completed in January and continue to buy back shares
in accordance with the Board's discount management policy. The
portfolio's outperformance can be attributed to stock selection.
Looking ahead, our Investment Manager anticipates that the earnings
growth of the portfolio in 2024 will be superior to that of the
Benchmark, providing a solid foundation for continued relative
outperformance."
Sell
side call
There will be a presentation for sell
side analysts at 11.00 a.m. today, 29 February 2024. Please contact
Buchanan for details on EOT@buchanancomms.co.uk.
Summary of returns for the six months to 30 November
2023
|
30 November
2023
|
31 May
2023
|
% change
|
Net asset value per share
(pence)
|
910.8
|
876.5
|
3.9
|
Net asset value total return (with
dividends added back)*
|
|
|
4.3
|
Middle market share price
(pence)
|
838.0
|
781.0
|
7.3
|
Share price total return (with
dividends added back)*
|
|
|
7.7
|
MSCI Europe Total Return Index in
GBP (Benchmark)
|
|
|
3.5
|
Discount to net asset value
(%)
|
(8.0)
|
(10.9)
|
|
*A dividend of 3.5p was paid on 27 November 2023.
Long
term track record
To
30 November 2023
|
3 years
%
|
5 years
%
|
10 years
%
|
Since launch on
20.11.2000
%
|
Annualised return since
launch
%
|
Net asset value total return (with
dividends added back)
|
17.9
|
24.7
|
128.4
|
921.8
|
10.6
|
Share price total return (with
dividends added back)
|
16.4
|
16.4
|
107.5
|
794.4
|
10.0
|
MSCI Europe Total Return Index in
GBP (Benchmark)
|
27.0
|
45.8
|
100.3
|
253.5
|
5.6
|
Source: MSCI & Devon Equity
Management Limited. Past performance is no guide to the
future.
Chair's Statement
I am pleased to present the
Company's interim results covering the six months ended 30 November
2023.
During the period under review the
total return on the net asset value per share of the Company was
4.3% (with the annual dividend added back), which compares with a
total return of 3.5% from our Benchmark, the MSCI Europe index in
Sterling. The total return on the middle market price of the
Company's shares was 7.7%. A more detailed analysis of performance
is set out in the Investment Manager's Review below.
Since the period end the net asset
value per share has increased by 7.5% to 979.0p (as at 23 February
2024), outperforming the Benchmark index, which increased by 6.9%
over that period. The market price of the Company's shares
increased by 4.7%, resulting in in a modest widening of the
discount to net asset value to 10.4% on that date.
Tender Offer
On 6 November 2023, we announced
that the Company would undertake a tender offer for up to 25% of
our issued share capital. The tender offer, which was subsequently
approved by Shareholders at a General Meeting held on 21 December,
was concluded at a tender price equal to a 2% discount to the
prevailing net asset value per share (less the costs) at the end of
January. The effect of the tender offer, which was fully taken up,
was to reduce the Company's net assets under management by 25% to
£696 million as at the end of January.
The Board had previously announced,
on 12 October 2023, proposals for a further performance related
tender offer to be made as soon as is practicable after the Annual
General Meeting in 2026 if the Company's net asset value total
return does not equal or exceed the Benchmark total return over the
three-year period beginning 1 June 2023 and ending on 31 May 2026.
I am pleased to report that the Company's performance since 1 June
2023 is currently ahead of its Benchmark total return, as indicated
above.
Discount Management
The Board has an active discount
management policy, the primary purpose of which is to reduce
discount volatility and to maintain the discount in single digits
in normal market conditions. Buying shares at a discount also
results in an enhancement to the NAV per share.
The Board believes that the most
effective means of minimising any discount at which the shares may
trade is for the Company to deliver strong, consistent, long-term
performance from the investment portfolio (in both absolute and
relative terms) supported by an active marketing strategy aimed at
prospective and existing investors. Nevertheless, wider market
conditions and other considerations inevitably affect the rating of
the shares from time to time.
Although the discount was within the
Board's guidelines at 8.0% at the end of the period, it ranged
between 13.5% and 7.3% during the period. Consequently, the Board
actively pursued share buybacks with a total of 2.2 million
repurchased into treasury at a cost of £17.2 million. In addition
to the tender offer referenced above, the regular repurchase policy
has been continued since the end of November with a further 3.5
million shares taken into treasury at an aggregate cost of £30.0
million (as at 23 February 2024).
Gearing
The Board believes that borrowing
will enhance returns to investors over the long term. The Board
monitors the level of gearing carefully within a defined risk
control framework for this purpose which is reviewed at each Board
meeting. All gearing is subject to the Investment Manager's
confidence in identifying attractive investment opportunities.
Acting within parameters determined by the Board, the Investment
Manager tends to increase gearing at times of perceived low
valuations, while reducing it as markets recover.
The Company has a secured
multi-currency revolving credit facility with The Bank of Nova
Scotia, London Branch with a maximum drawable amount of £85 million
and credit approval for an additional 'accordion' amount available
upon application for a further £50 million. There was £10 million
drawn down as at 30 November 2023, increased to £40 million as at
the date of this statement (representing gearing of 6%).
Board Composition
On 12 December 2023 we were
delighted to announce the appointment of Neeta Patel, CBE as a
non-executive Director of the Company with effect from 1 January
this year.
Neeta is a highly experienced
executive with over 35 years of strategy and operational leadership
in technology, media, insurance and education sectors, as well as
in start-ups and scaling companies. Her experience includes senior
leadership roles at Legal & General plc, ft.com (the Financial
Times' website) and the British Council, the government's
international education and cultural agency. More recently she was
the founding CEO of the Centre for Entrepreneurs, a board adviser
at Tech London Advocates, a member of the advisory board at City
University Ventures and an entrepreneur mentor-in-residence at
London Business School. We welcome her to the Board.
Lord Lamont, who has served on the
Board since June 2015 and as your Senior Independent Director since
the 2023 AGM in November, has indicated that he intends to retire
from the Board at the forthcoming Annual General Meeting. He has
made an exceptional contribution to the Company throughout his
tenure.
We continue to review Board
composition and Directors' succession on a regular basis to ensure
that we have a Board which provides diversity of perspective
together with the range of appropriate skills and experience for
the Company.
Outlook
Your Board and I appreciate the
shareholder support that we have received during the period under
review and the time that many of you have taken to meet with me and
colleagues to express your views, in some cases with refreshing
candour. Supported by the superior characteristics and earnings
growth of the underlying portfolio, we believe that the Company is
well positioned to offer an attractive investment proposition to
existing and new investors alike.
I would like to express my thanks to
all of our shareholders and stakeholders for their continuing
support.
Matthew Dobbs
Chair
29 February 2024
Investment Manager's Review
The Company's modest outperformance
during the period under review was, as always, due to stock
selection. Although some of our investee companies have not yet
reported their 2023 results, we expect them to have delivered
significantly better earnings growth in 2023 compared with our
Benchmark. JP Morgan estimates that earnings for the MSCI Europe
index contracted by 2% in 2023. We estimate that our portfolio will
report approximately 10% earnings growth in 2023. The same pattern
is expected again in 2024, with our portfolio expected to deliver
14% earnings growth vs 6% for the Benchmark. We expect our
companies' earnings to benefit both from secular, as opposed to
cyclical, drivers, and from their global reach. Positive news flow,
not simply results, from our companies was another factor helping
performance and providing some confidence for the future. Of
course, there were also stock mistakes, notably Bayer, which we
discuss below.
Positioning
Given the perils of macro economic
forecasting, our portfolio is not built on the expectation of a
particular economic outcome. Rather we aim to construct a portfolio
that can flourish in a range of economic scenarios. More
specifically we focus on identifying "special" companies whose
fortunes depend largely on their own efforts, not macro
developments. We believe this represents better quality
risk.
We consider 'special' companies to
be those that can prosper in a range of economic conditions and
which are well protected from competitive pressures. Typically,
these are companies with strong proprietary characteristics, strong
intellectual property (IP), serving customers for whom their
products are non-discretionary and often with a global
presence.
We have continued our policy of
avoiding commodity companies and, for this reason, have minimal
exposure to energy, metals and mining companies. We also avoid
companies whose prospects depend unduly on a favourable macro
environment and, hence, have a minimal exposure to banks, real
estate or other mainstream financial companies.
Our investee companies enjoy
relatively recurrent and growing demand trends, as their products
are non-discretionary. As a corollary, we have a lower-than-average
exposure to discretionary consumer demand. Typically, our investee
companies' products and services are sold to other corporates or to
government buyers. For example, Novo Nordisk, our largest
investment, manufactures and sells insulin, an essential hormone
for your body to function properly. For type 2 diabetics, whose
bodies can't produce enough insulin naturally, the need for insulin
is 'non-discretionary'.
Nor is the portfolio built narrowly
on few sectors or ideas; rather it encompasses many diverse,
uncorrelated growth opportunities. While 35% of the fund is
invested in Health Care, there is plenty of diversification within
this segment of the portfolio, which covers everything from animal
genetics (Genus) to treatment of opioid addiction (Camurus) and the
collection of blood plasma (Grifols). These companies also generate
revenues across a diverse geographic footprint.
Contributors
The following table details the five
stock positions which had the greatest positive impact on
performance during the six months to 30 November 2023 on an
absolute basis:
Security
|
Portfolio weight
at
30.11.2023
%
|
Benchmark weight at 30.11.2023
%
|
6
month price
performance
%
|
6
month contribution
to
portfolio return
%
|
Novo Nordisk
|
12.7
|
3.3
|
25.1
|
2.7
|
RELX
|
8.2
|
0.7
|
21.9
|
1.7
|
SOITEC
|
3.5
|
-
|
27.0
|
1.0
|
Gaztransport &
Technigaz
|
2.6
|
-
|
34.6
|
0.8
|
Intermediate Capital
Group
|
4.1
|
-
|
16.5
|
0.6
|
The contribution to portfolio return
is the result of the price performance of each stock over the
period, calculated on a transaction basis and including the impact
of foreign currency rates.
The biggest contributor to
performance and biggest holding at period end, was Novo Nordisk. The company is the world
leader in the treatment of diabetes and obesity. The main driver of
its performance, was the company's success in treating diabetes and
obesity with its drugs, Wegovy and Ozempic. These drugs are from a
new class of drugs, GLP-1 agonists. Creating a new therapeutic
area, the treatment of obesity, with this new class of drugs is an
extraordinary development. There are associated benefits, treating
co-morbidities such as cardiovascular and kidney diseases. Novo
Nordisk is, with one significant competitor, leading the way in
addressing these two massive and growing therapeutic areas. For all
the success so far, the market for the treatment of obesity is
still in its infancy. There are many factors that will determine
the size of the opportunity and Novo Nordisk's share of that
market. One of the reasons that we maintain a heavy weighting in
the shares is that there are some reasons to think that Novo
Nordisk's GLP-1 molecule, semaglutide, is superior to other GLP-1
molecules; for example, it might be that some of the cardiovascular
benefits are specific to semaglutide, not solely a class effect. At
present, only Novo Nordisk's drug, Ozempic, has approval from the
U.S. Food and Drug Administration (FDA) to claim that it can reduce
the risk of major adverse cardiovascular events (MACE) such as
heart attack, stroke, or death in adults with type 2 diabetes and
known heart disease. In 2024, we expect results from ongoing
clinical trials demonstrating further benefits from semaglutide
including cardiovascular, NASH (liver disease), chronic kidney
disease (CKD), sleep apnoea, peripheral artery disease,
hypertension and Alzheimer's.
In 2024, we expect to get a better
understanding of the differences between GLP-1 receptor agonists.
Further, there will also be data available for several new
treatments, such as the first of many clinical results of Novo
Nordisk's next generation CagriSema treatment. The company is also
developing an oral version of Wegovy.
The next most important contributor
was RELX. The shares were
rerated on the back of upgrades to long-term growth expectations of
the company -. RELX is seen as a winner from artificial
intelligence (AI). This is most obvious in their 'Risk' division,
the biggest division in the company and the fastest growing. Risk
provides customers with information-based analytics and decision
tools, utilising public and industry-specific content in
proprietary algorithms, assisting customers in evaluating,
predicting, and pricing risk. It also helps to detect and prevent
online fraud and money laundering, and delivers insights to
customers such as insurance companies. Rising data usage from the
'connected car' telematics, used to improve insurance quotes, is
one example of rising demand from new technology. Growing demand
from corporates and governments, together with improving
algorithms, has lifted the growth rate of this division. We think
this higher growth rate is sustainable. Another division, 'Law', is
growing faster in recent years in part, again, due to AI but also
reflecting significant investments made over the years. Across the
group, more data is driving RELX's analytics and solutions for
customers.
Shares in SOITEC, the French technology company,
performed well. SOITEC has unique technology in thedesign and
manufacture of semiconductor materials. They produce substrates for
miniaturizing chips, improving their performance and reducing their
energy usage. The new potential growth area is the adoption of
SOITEC's technology in the production of silicon carbide devices,
itself a play on the growing electric vehicle market. The news flow
here is encouraging. STMicroelectronics (STM), the largest European
semiconductor manufacturing and design company, and SOITEC
announced a cooperation agreement to qualify SOITEC's Silicon
Carbide (SiC) substrates. The adoption by STM of SOITEC's SmartSiC
technology for its 200mm substrate manufacturing is likely to be
followed by others.
The French company, Gaztransport & Technigaz (GTT),
also improved our returns. It provides engineering and design
technologies for the transport of liquid fuels. Liquefied natural
gas ('LNG') carriers and the engineering and design technologies
for LNG propulsion systems for ships has been and still is their
core business. It is diversifying both into containment solutions
for onshore, offshore and multi-gas transport applications and into
new areas: digital smart shipping solutions and in the design and
assembly of electrolysers for producing green hydrogen. In the
medium term, we expect demand for natural gas will remain strong.
It is a vital ''transition'' fuel, that can substitute oil and coal
with lower carbon dioxide emissions. US LNG production is rising;
new capacity is being developed in Australia and Qatar; and demand
from Asia and Europe is growing. The US has become the largest LNG
exporter in the world and accounted for 40% of EU imports in 2023.
Against this background, GTT enjoys very good prospects.
Intermediate Capital Group (ICG), too, added to our returns. ICG is a UK-listed company,
investing across private asset classes. It has more exposure to
private debt than to private equity, which should, all other things
being equal, mean that the assets are more secure. It should
continue to benefit from the structural growth in demand from asset
managers for 'alternative' assets. Results continue to impress. Its
'direct lending' strategy is growing as corporates seek to
refinance their debt and asset gathering continues apace. This
direct lending strategy disintermediates the banks which are
constrained in their efforts to compete by capital requirements and
other regulatory standards effective with Basel III.
Detractors
The following table details the five
stock positions which had the greatest negative impact on
performance during the six months to 30 November 2023 on an
absolute basis:
Security
|
Portfolio weight
at
30.11.2023
%
|
Benchmark weight at 30.11.2023
%
|
6
month price
performance
%
|
6
month contribution
to
portfolio return
%
|
Bayer
|
2.0
|
0.3
|
(39.4)
|
(1.9)
|
Edenred
|
5.6
|
0.1
|
(15.2)
|
(1.1)
|
Genus
|
4.2
|
-
|
(21.0)
|
(1.0)
|
Worldline
|
0.8
|
0.0
|
(62.4)
|
(0.6)
|
Oxford Instruments
|
2.0
|
-
|
(23.2)
|
(0.6)
|
The most disappointing stock in the
period under review was Bayer. Bayer is a German conglomerate
operating globally with core competencies in life sciences,
healthcare and technology for agriculture. Legal difficulties in
the US, principally, but not only, relating to the use of
glyphosate (roundup) in the retail channel in the US account for
much of investors' concern. It also faces legal action over the
marketing in the 1970s of polychlorinated biphenyls (PCBs) by
Monsanto, the US company that Bayer bought in 2018. The US legal
system appears to be hostile to Bayer. To date, the company has set
aside approximately $13 billion to settle with most plaintiffs.
There is a risk of further costs. The company also has too much
debt, the result of poor financial discipline. We have sold the
position since the period end.
The next biggest detractor from
performance was Edenred,
the French provider of specific-purpose payment solutions for
companies, employees and merchants. Edenred is the inventor of
Ticket Restaurant, and now processes and promotes payment solutions
for food (such as meal benefits), incentives (such as employee
engagement platforms), mobility (such as multi-energy, maintenance,
toll, parking and commuter solutions) and corporate payments (such
as virtual cards). It operates schemes for governments and
corporates which want to give benefits to employees for specific
purposes. There has been no slowdown in its revenue growth and
profits with guidance upgraded during 2023, driven by new
government initiatives, digitalisation, and a dynamic Brazilian
market. Management, in our opinion, is exceptionally good; we have
great confidence in their strategy. However, the company's
prospects are troubled by the threat of new regulations in France
and Brazil which might clip returns. We do not believe the
proposals are likely to be implemented and have decided to maintain
our holding.
Shares in Genus, the world leader in the
development and supply of porcine and bovine genetics, fell
sharply. Trading is slightly weaker as the livestock industry shows
some cyclicality. Meat consumption worldwide is still rising even
as consumption in Europe eases. The Chinese market, an important
one for Genus, has weakened partly because of the ravages of
African Swine Fever and partly because Covid-related lockdowns have
dampened demand for pork. The company has filed its application for
regulatory approval of its gene editing technology for Porcine
Reproductive and Respiratory Syndrome virus (PRRSv)-resistant
animals in the US. We think this is a huge, transformational
opportunity for Genus. We expect regulatory approval in the US in
the 2025 fiscal year, although it would take a number of years for
the full commercial benefit to be seen as the supply of gene edited
pigs would need to be ramped up. In due course, the company hopes
to gain approval for this gene editing technology in China, another
massive opportunity. We remain confident about the core business
and see tremendous potential value in the company's gene editing
technology. Accordingly, we retained our holding.
Shares in the French-listed
Worldline also fell. The
company is a leading payment services provider, offering both
acquiring and issuing solutions for mainly off-line services to
consumer-facing retailers and hospitality businesses. It is a
'scale' player, being a consolidator with a strategy of being the
lowest cost provider in Europe. The share price fall was due partly
to the concern about weaker consumer demand in Europe as interest
rates rose, but mainly because Worldline is closing some highly
profitable accounts. This move was prompted by the German
regulator, BaFin, which changed its approval criteria for online
merchant accounts, believing some of them to be related to illegal
activity. There are no implications for Worldline, having followed
BaFin's guidance, other than closing these accounts.
Oxford Instruments shares also
retreated despite the business performing well. There are some
problems with obtaining export licenses to China for certain
products, but this is a not a material concern. The appointment of
a new CEO may have unsettled investors, though we are happy with
the transition and have engaged with the new CEO. We retain the
holding as we believe Oxford Instruments to be an impressive
company, well focused, and capable of building on its good track
record.
Portfolio activity
During the period under review, we
raised approximately £97 million net, representing about 11% of the
portfolio. We sold about £238 million of stocks (27% of the
portfolio) and reinvested around £141 million (16% of the
portfolio). The number of holdings in the portfolio reduced from 33
to 29. There were three new investments and seven complete
sales.
Largest net purchases
|
£'m
|
Largest net sales
|
£'m
|
Camurus
|
12.8
|
Novo Nordisk
|
32.9
|
Worldline
|
10.7
|
Experian
|
18.1
|
Thales
|
6.2
|
RELX
|
16.7
|
Genus
|
4.0
|
Bayer
|
9.8
|
BAE Systems
|
3.6
|
Network International
|
9.7
|
The biggest sale was that of shares
in Novo Nordisk, a partial
disposal as we retain a significant weighting. We reduced the
holding to keep the weighting at what we regarded as a prudent
level. We remain wholly confident in Novo Nordisk's outlook. We
also reduced our holding of shares in Experian, for the same
reason.
We also reduced positions in
Bayer, disappointed with
the company's litigation problems and the poor performance of its
pharmaceutical division. The position has been completely sold
since the period end. The main outright sales during the period
under review, Network
International, OHB
and SUSE, were all subject
to successful bids from private equity. Whilst this represents a
small, positive boost to the fund, it is concerning that some
smaller companies become almost completely ignored by the public
markets, leaving them vulnerable to bids from private equity,
which, in our opinion, undervalues these companies.
We also sold two Norwegian holdings,
Borregaard and Elkem. This follows our sale in a
previous reporting period of Mowi. The Norwegian government imposed
new taxes on activities undertaken by these three companies and
prompted us to sell. The Norwegians are not the only ones
looking to raise new taxes which they justify as necessary to
combat climate change. France, which does not enjoy strong public
finances, has also imposed new taxes on airports, and it is looking
for other areas to tax, all in the cause, they say, of fighting
climate change. We will avoid as far as possible those activities
which we believe may become subject to new taxes.
We made a new investment in
Camurus because we believe
that its proprietary extended-release technology for therapeutic
drugs can be widely adopted. It is particularly effective in the
prevention of withdrawal symptoms caused by stopping the use of
opioids for pain management therapy. We believe that the
opportunity is huge.
We also established a new position
in Thales, the French
multinational company that designs, develops and manufactures
systems, devices and equipment for the aerospace, defence and
security sectors. It is a leader in cyber security and
data
protection. Increasing demand for
their products and services is evident. A further new investment
for the portfolio was BAE
Systems, the UK-listed defence and aerospace company. The
company is gaining business in the US and also looks well placed to
grow in Asia where there is clearly increasing long term demand for
defence solutions. Both Thales and BAE Systems endeavour to offer
services in land, sea, air, space and cyber. Competence across all
these areas is thought to improve the value proposition of each
offering.
We decided to add to the holding of
Worldline, the payment
services provider, as we believe that sentiment, as reflected in
the share price, is unduly negative. We also judged that the weak
share price of Genus
presented a good buying opportunity.
Since the period-end we have raised
approximately £220m in cash in order to meet the cost of the tender
offer at the end of January. Portfolio weightings in the continuing
portfolio remain similar to those prior to the corporate action.
During the month of January we held cash raised against the cost of
the tender offer in two ETFs linked to the total return on our
Benchmark, the MSCI Europe index, in order to minimise the impact
of 'cash drag' on the portfolio during the interim.
Gearing
At the period end we had reduced
drawn down borrowings to £10 million (increasing to £40 million or
6% of net assets as at the date of this report). In a period of
higher interest rates we are not inclined to gear the portfolio
significantly further at this time. Nevertheless, the Company's
flexible borrowing facility is important, a key feature of the
investment trust structure, allowing us to take strategic advantage
of market opportunities.
Outlook
The outlook for the portfolio is
shaped against a more difficult economic backdrop. Whilst interest
rates are expected to decline over the next eighteen months, this
is only one factor to consider. Buoyancy of European consumer
spending is likely to be tested in 2024. The market has been
sustained by the resilience of the European economies but as
household savings are used up, and as quantitative tightening
grinds on to reverse the expansionary effects of quantitative
easing, in due course, the present benign economic conditions will
give way to a much tougher economic climate.
There are signs of weaker consumer
spending. Energy costs are at present lower than might be expected
with various conflicts around the world causing disruption to
energy trading. Yet the risk of higher energy costs remains a
significant consideration not least because Europe's rapid energy
transition risks putting European manufacturers at a relative
disadvantage. the combination of weak public finances and the need
for increased defence spending, is likely to squeeze discretionary
consumer spending. This provides a further incentive to invest in
companies that have strong extra-European businesses.
Trade conflicts are an increasing
concern. Globalisation has been a salient feature of economic
growth in recent years and the growing threats to efficient global
trade flows are clearly damaging. We are careful to try and
identify companies whose overseas trading falls below the radar of
political interest.
The outlook for the portfolio is, we
think, improving. Our portfolio is less exposed to weaker consumer
demand and the risk of higher input costs. The extent to which the
portfolio delivers is much less macro related, and more driven by
individual companies crystalising their transformational
opportunities. Concluding successful clinical trials, continued
innovation, resiliency of business models, and geographic expansion
are some of the outcomes that we anticipate from our investee
companies this year. These companies have the necessary ingredients
for success: we expect them to deliver.
Alexander Darwall
CIO, Devon Equity Management
Limited
29 February 2024
Investment Portfolio
as at 30 November 2023
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|
|
30 November
2023
|
31 May 2023
|
|
|
|
|
|
Company
|
Sector
|
Country of Listing
|
Market
Value
£'000
|
% of
Investments
|
% of
Investments
|
Novo Nordisk
|
Health Care
|
Denmark
|
112,312
|
12.7
|
13.0
|
Dassault Systèmes
|
Information Technology
|
France
|
74,019
|
8.4
|
8.3
|
RELX
|
Industrials
|
Netherlands
|
72,957
|
8.2
|
8.0
|
Experian
|
Industrials
|
United Kingdom
|
72,575
|
8.2
|
9.4
|
Deutsche Boerse
|
Financials
|
Germany
|
57,537
|
6.5
|
6.1
|
BioMérieux
|
Health Care
|
France
|
53,957
|
6.1
|
5.6
|
Edenred
|
Information Technology
|
France
|
49,343
|
5.6
|
6.2
|
Genus
|
Health Care
|
United Kingdom
|
37,044
|
4.2
|
4.6
|
Intermediate Capital
Group
|
Financials
|
United Kingdom
|
36,001
|
4.1
|
3.4
|
SOITEC
|
Information Technology
|
France
|
31,274
|
3.5
|
3.4
|
Infineon Technologies
|
Information Technology
|
Germany
|
30,726
|
3.5
|
3.5
|
Grifols
|
Health Care
|
Spain
|
30,549
|
3.4
|
2.7
|
Gaztransport &
Technigaz
|
Energy
|
France
|
23,436
|
2.6
|
2.2
|
Darktrace
|
Information Technology
|
United Kingdom
|
20,127
|
2.3
|
1.7
|
Ryanair Holdings
|
Industrials
|
Ireland
|
19,609
|
2.2
|
1.6
|
Merck
|
Health Care
|
Germany
|
19,282
|
2.2
|
2.4
|
Neste
|
Energy
|
Finland
|
18,813
|
2.1
|
2.0
|
Bayer
|
Health Care
|
Germany
|
17,563
|
2.0
|
4.7
|
Oxford Instruments
|
Information Technology
|
United Kingdom
|
17,502
|
2.0
|
2.0
|
Camurus
|
Health Care
|
Sweden
|
16,104
|
1.8
|
-
|
Prysmian
|
Industrials
|
Italy
|
13,695
|
1.5
|
1.3
|
AirLiquide
|
Materials
|
France
|
13,479
|
1.5
|
1.4
|
Genmab
|
Health Care
|
Denmark
|
11,597
|
1.3
|
1.4
|
Grenke
|
Financials
|
Germany
|
8,937
|
1.0
|
1.0
|
Worldline
|
Information Technology
|
France
|
7,245
|
0.8
|
0.2
|
Thales
|
Industrials
|
France
|
5,902
|
0.7
|
-
|
Grifols Preference
|
Health Care
|
Spain
|
4,790
|
0.5
|
0.5
|
Bachem Holding
|
Health Care
|
Switzerland
|
4,317
|
0.5
|
0.5
|
BAE Systems
|
Industrials
|
United Kingdom
|
3,673
|
0.4
|
-
|
BFF Bank
|
Financials
|
Italy
|
1,810
|
0.2
|
0.2
|
Total Investments
|
|
|
886,175
|
100.0
|
|
Classification of Investments
|
|
|
|
as at 30 November 2023
|
|
|
|
|
% of
Investments
|
|
% of
Investments
|
Country of Listing
|
30 November
2023
|
|
31 May 2023
|
Denmark
|
|
14.0
|
|
14.4
|
Finland
|
|
2.1
|
|
2.0
|
France
|
|
29.2
|
|
27.3
|
Germany
|
|
15.2
|
|
18.0
|
Ireland
|
|
2.2
|
|
1.6
|
Italy
|
|
1.7
|
|
1.5
|
Luxembourg
|
|
-
|
|
0.2
|
Netherlands
|
|
8.2
|
|
8.2
|
Norway
|
|
-
|
|
0.6
|
Spain
|
|
3.9
|
|
3.2
|
Sweden
|
|
1.8
|
|
-
|
Switzerland
|
|
0.5
|
|
0.5
|
United Kingdom
|
|
21.2
|
|
22.5
|
Total
|
|
100.0
|
|
100.0
|
|
|
|
|
|
Industry Sector
|
|
% of
Investments
30 November
2023
|
|
% of
Investments
31 May 2023
|
Energy
|
|
4.7
|
|
4.2
|
Financials
|
|
11.8
|
|
10.7
|
Health Care
|
|
34.7
|
|
35.8
|
Industrials
|
|
21.2
|
|
20.8
|
Information Technology
|
|
26.1
|
|
26.5
|
Materials
|
|
1.5
|
|
2.0
|
Total
|
|
100.0
|
|
100.0
|
Statement of Directors' Responsibilities in Relation to the
Financial Statements
Going Concern
The Half Yearly Financial Report has
been prepared on a going concern basis. The Directors consider that
this is the appropriate basis as they have a reasonable expectation
that the Company has adequate resources to continue in operational
existence and meet its financial commitments as they fall due for a
period of at least twelve months from the date of approval of the
unaudited financial statements. In considering this, the Directors
took into account the Company's investment objective, risk
management policies and capital management policies, the
diversified portfolio of readily realisable securities which can be
used to meet short-term funding commitments and the ability of the
Company to meet all of its liabilities and ongoing
expenses.
The Directors continue to pay
particular attention to the operational resilience and ongoing
viability of the Investment Manager and the Company's other key
service providers. Following review, the Directors are satisfied
that Devon and the Company's other key service providers, notably
JP Morgan, have the necessary contingency planning measures in
place to ensure that operational functionality continues to be
maintained.
The Directors continue to adopt the
going concern basis of accounting in preparing the unaudited
financial statements while recognising that the Articles of
Association of the Company require a continuation vote at every
third AGM, the next of which will take place at the AGM in November
2026.
Principal and emerging risks and
uncertainties
The principal risks facing the
Company are investment strategy risk, market risk, operational risk
and legal and regulatory risk. Full details of these risks and how
they are managed are set out on pages 31 to 34 of the Company's
Annual Report for the year ended 31 May 2023 which is available on
the Company's website at www.europeanopportunitiestrust.com. The
principal risks have not changed since those detailed in the Annual
Report. The Board continues to monitor the principal risks facing
the Company.
In addition, the Board monitors
emerging risks. No new emerging risks were identified during the
period under review. As part of its assessment of the viability of
the Company, the Board has reviewed and considered the principal
risks and uncertainties that may affect the Company, including
emerging risks and ongoing matters relating to the economic turmoil
following the invasion of Ukraine, the war in the Middle East,
rises in interest rates and inflation across Europe and worldwide.
The Board has also considered the Company's business model
including its investment objective and investment policy, a
forecast of the Company's projected income and expenses and the
liquidity of the Company's portfolio to ensure that it will be able
to meet its liabilities as they fall due.
Directors' Responsibility Statement
We, the directors of European
Opportunities Trust PLC, confirm to the best of our knowledge
that:
(a) the condensed set of
financial statements have been prepared in accordance with the
Accounting Standards Board's statement 'Half Yearly Financial
Reports' and give a true and fair view of the assets, liabilities,
financial position and profit/(loss) of the Company for the period
ended 30 November 2023;
(b) the Half-Yearly Financial
Report includes a fair review of the information required by
Disclosure Guidance and Transparency Rule 4.2.7R; and
(c) the Half-Yearly Financial
Report includes a fair review of the information required by
Disclosure Guidance and Transparency Rule 4.2.8R on related party
transactions.
The Half-Yearly Financial Report has
not been audited or reviewed by the Company's auditors.
Matthew Dobbs
Chair
29 February 2024
Income Statement
for the six months ended 30 November
2023
|
|
Six months
ended
30 November
2023
(unaudited)
|
Six months
ended
30 November
2022
(unaudited)
|
|
|
Revenue
|
Capital
|
Total
|
Revenue
|
Capital
|
Total
|
|
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
Gains/(losses) on
investments
|
|
-
|
34,914
|
34,914
|
-
|
(7,075)
|
(7,075)
|
Other exchange
(losses)/gains
|
|
-
|
(100)
|
(100)
|
-
|
609
|
609
|
Income from investments
|
|
5,985
|
-
|
5,985
|
6,455
|
-
|
6,455
|
Other Income
|
|
38
|
-
|
38
|
6
|
-
|
6
|
Total income/(loss)
|
|
6,023
|
34,814
|
40,837
|
6,461
|
(6,466)
|
(5)
|
Investment management fee
|
|
(3,425)
|
-
|
(3,425)
|
(3,745)
|
-
|
(3,745)
|
Other expenses
|
|
(627)
|
-
|
(627)
|
(489)
|
-
|
(489)
|
Total expenses
|
|
(4,052)
|
-
|
(4,052)
|
(4,234)
|
-
|
(4,234)
|
Net
return/(loss) before finance costs and taxation
|
|
1,971
|
34,814
|
36,785
|
2,227
|
(6,466)
|
(4,239)
|
Finance costs
|
|
(1,780)
|
-
|
(1,780)
|
(1,036)
|
-
|
(1,036)
|
Return/(loss) before taxation
|
|
191
|
34,814
|
35,005
|
1,191
|
(6,466)
|
(5,275)
|
Taxation
|
|
(341)
|
-
|
(341)
|
(374)
|
-
|
(374)
|
Net
(loss)/return after taxation*
|
|
(150)
|
34,814
|
34,664
|
817
|
(6,466)
|
(5,649)
|
(Loss)/return per ordinary share
|
|
(0.15)p
|
35.85p
|
35.70p
|
0.80p
|
(6.35)p
|
(5.55)p
|
* There is no other comprehensive
income and therefore the 'Net return/(loss) after taxation' is the
total comprehensive income/(loss) for the financial
period.
The total column of this statement
is the income statement of the Company, prepared in accordance with
IFRS.
The supplementary revenue return and
capital return columns are both prepared under guidance produced by
the Association of Investment Companies (AIC). All items in the
above statement derive from continuing operations.
No operations were acquired or
discontinued during the period.
Statement of Financial Position
as at 30 November 2023
|
|
30 November
|
31 May
|
|
|
2023
|
2023
|
|
|
(unaudited)
|
(audited)
|
|
|
£'000
|
£'000
|
Fixed assets
|
|
|
|
Investments
|
|
886,175
|
936,318
|
Current assets
|
|
|
|
Debtors
|
|
3,600
|
3,445
|
Cash and cash equivalents
|
|
3,055
|
6,951
|
|
|
6,655
|
10,396
|
Total assets
|
|
892,830
|
946,714
|
Current liabilities
|
|
|
|
Creditors - amounts falling due
within 1 year
|
|
(15,756)
|
(83,776)
|
Total assets less current liabilities
|
|
877,074
|
862,938
|
Capital and reserves
|
|
|
|
Called up share capital
|
|
1,129
|
1,129
|
Share premium
|
|
204,133
|
204,133
|
Special reserve
|
|
33,687
|
33,687
|
Capital redemption
reserve
|
|
45
|
45
|
Reserves
|
|
638,080
|
623,944
|
Total shareholders' funds
|
|
877,074
|
862,938
|
Net
asset value per ordinary share
|
|
910.81p
|
876.46p
|
Statement of Changes in Equity
for the six months to 30 November
2023
For
the six months to
30
November 2023 (unaudited)
|
Share
Capital
£'000
|
Share Premium
£'000
|
Special Reserve
£'000
|
Capital
Redemption
Reserve
£'000
|
Retained
Earnings
£'000
|
Total
£'000
|
Balance at 1 June 2023
|
1,129
|
204,133
|
33,687
|
45
|
623,944
|
862,938
|
Net profit after taxation
|
-
|
-
|
-
|
-
|
34,664
|
34,664
|
Repurchase of ordinary shares into
treasury
|
-
|
-
|
-
|
-
|
(17,153)
|
(17,153)
|
Dividends declared and
paid
|
-
|
-
|
-
|
-
|
(3,375)
|
(3,375)
|
Balance at 30 November 2023
|
1,129
|
204,133
|
33,687
|
45
|
638,080
|
877,074
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the six months to
30
November 2022 (unaudited)
|
Share
Capital
£'000
|
Share
Premium
£'000
|
Special
Reserve
£'000
|
Capital
Redemption
Reserve
£'000
|
Retained
Earnings
£'000
|
Total
£'000
|
Balance at 1 June 2022
|
1,129
|
204,133
|
33,687
|
45
|
633,623
|
872,617
|
Net loss after taxation
|
-
|
-
|
-
|
-
|
(5,649)
|
(5,649)
|
Repurchase of ordinary shares into
treasury
|
-
|
-
|
-
|
-
|
(7,827)
|
(7,827)
|
Dividends declared and
paid
|
-
|
-
|
-
|
-
|
(2,536)
|
(2,536)
|
Balance at 30 November 2022
|
1,129
|
204,133
|
33,687
|
45
|
617,611
|
856,605
|
Cash
Flow Statement
for the six months to 30 November
2023
|
Six months
ended
30 November
2023
(unaudited)
£'000
|
Six months
ended
30 November
2022
(unaudited)
£'000
|
Cash
flows from operating activities
|
|
|
Investment income received
(gross)
|
6,812
|
7,493
|
Deposit interest received
|
38
|
6
|
Investment management fee
paid
|
(3,674)
|
(3,846)
|
Other cash expenses
|
(659)
|
(500)
|
Net
cash inflow from operating activities before taxation and
interest
|
2,517
|
3,153
|
Interest paid
|
(2,412)
|
(830)
|
Taxation
|
(332)
|
(578)
|
Net
cash (outflow)/inflow from operating activities
|
(227)
|
1,745
|
Cash
flows from investing activities
|
|
|
Purchases of investments
|
(70,849)
|
(49,883)
|
Sales of investments
|
157,850
|
64,681
|
Net
cash inflow from investing activities
|
87,001
|
14,798
|
Cash
flows from financing activities
|
|
|
Repurchase of ordinary shares into
treasury
|
(22,195)
|
(8,573)
|
Equity dividends paid
|
(3,375)
|
(2,536)
|
Repayment of loan
|
(65,000)
|
(15,000)
|
Drawdown of loan
|
-
|
5,000
|
Net
cash outflow from financing activities
|
(90,570)
|
(21,109)
|
Decrease in cash
|
(3,796)
|
(4,566)
|
Cash and cash equivalents at start of
period
|
6,951
|
5,973
|
Realised (loss)/gain on foreign
currency
|
(100)
|
609
|
Cash
and cash equivalents at end of period
|
3,055
|
2,016
|
Notes to the Financial Statements
1. Accounting Policies
The accounts comprise the unaudited
financial results of the Company for the period to 30 November
2023. The functional and reporting currency of the Company is
sterling because that is the currency of the prime economic
environment in which the Company operates.
The accounts have been prepared in
accordance with UK-adopted International Accounting Standards and
the requirements of the Companies Act 2006.
Where presentational guidance set
out in the Statement of Recommended Practice for Investment Trusts
issued by the Association of Investment Companies in April 2021
(the 'AIC SORP') is consistent with the requirements of UK-adopted
International Accounting Standards in conformity with the Companies
Act 2006, the Directors have sought to prepare the financial
statements on a basis compliant with the recommendations of the AIC
SORP. The Accounts have also been prepared in accordance with the
Disclosure and Transparency Rules issued by the Financial Conduct
Authority. The accounting policies applied are consistent with
those of the audited annual financial statements for the year ended
31 May 2023 and are described in those financial statements. In
this regard, comparative figures from previous periods are prepared
to the same standards as the current period, unless otherwise
stated.
The Board continues to adopt the
going concern basis in the preparation of the financial
statements.
(a)
Income
Ordinary dividends from investments
are recognised when the investment is quoted ex-dividend on or
before the date of the Statement of Financial Position.
Ordinary dividends receivable from
equity shares are taken to the revenue return column of the Income
Statement. Deposit and other interest receivable are accounted for
on an accruals basis. These are classified within operating
activities in the cash flow statement. Special dividends are
reviewed on a case by case basis to determine if the dividend is to
be treated as revenue or capital.
(b)
Presentation of Income Statement
In order to better reflect the
activities of an investment trust company and in accordance with
guidance issued by the Association of Investment Companies (AIC),
supplementary information which analyses the Income Statement
between items of a revenue and capital nature has been presented
alongside the statement. In accordance with the Company's Articles
of Association, net capital returns may not be distributed by way
of dividend. An analysis of retained earnings broken down into
revenue (distributable) items and capital (non-distributable) items
is given in Note 3. All other operational costs including
administration expenses and finance costs are charged to
revenue.
(c)
Basis of valuation of investments
Investments are recognised and
derecognised on a trade date where a purchase and sale of an
investment is under contract whose terms require delivery of the
investment within the timeframe established by the market
concerned, and are initially measured at cost, being the
consideration given.
The investments are designated as
fair value through profit or loss on initial recognition as this is
consistent with the Company's documented investment
strategy.
All investments are measured at fair
value with changes in their fair value recognised in the Income
Statement in the period in which they arise. The fair value of
listed investments is based on their quoted bid price at the
reporting date without any deduction for estimated future selling
costs.
Foreign exchange gains and losses on
fair value through profit or loss investments are included within
the changes in the fair value of the investments.
For investments that are not
actively traded and/or where active stock exchange quoted bid
prices are not available, fair value is determined by reference to
a variety of valuation techniques. These techniques may draw,
without limitation, on one or more of: the latest arm's length
traded prices for the instrument concerned; financial modelling
based on other observable market data; independent broker research;
or the published accounts relating to the issuer of the investment
concerned.
2. (Loss)/return per ordinary
share
|
Six months
to
|
Six months
to
|
|
30 November
2023
|
30 November
2022
|
|
£'000
|
£'000
|
Net revenue (loss)/profit
|
(150)
|
817
|
Net capital profit/(loss)
|
34,814
|
(6,466)
|
Net
total profit/(loss)
|
34,664
|
(5,649)
|
Weighted average number of
ordinary
|
97,105,597
|
101,840,177
|
shares in issue during the
period
|
|
|
Revenue (loss)/return per ordinary
share (p)
|
(0.15)
|
0.80
|
Capital return/(loss) per ordinary
share (p)
|
35.85
|
(6.35)
|
Total return/(loss) per ordinary share (p)
|
35.70
|
(5.55)
|
3. Retained earnings
The table below shows the movement
in the retained earnings analysed between revenue and capital
items.
|
Revenue*
|
Capital
|
Total
|
|
£'000
|
£'000
|
£'000
|
At 1 June 2023
|
11,791
|
612,153
|
623,944
|
Net (loss)/return for the
period
|
(150)
|
34,814
|
34,664
|
Repurchase of ordinary shares into
treasury
|
-
|
(17,153)
|
(17,153)
|
Dividends declared
|
(3,375)
|
-
|
(3,375)
|
At
30 November 2023
|
8,266
|
629,814
|
638,080
|
* These reserves form the
distributable reserves of the Company and may be used to fund
distribution of profits to investors via dividend
payments.
4. Net asset value per ordinary
share
The NAV per ordinary share is based
on the net assets attributable to the ordinary shareholders of
£877,074,000 (31 May 2023: £862,938,000) and on 96,296,322 (31 May
2023: 98,457,598) ordinary shares, being the number of ordinary
shares in issue at the period end.
5. Comparative information
The financial information contained
in this interim report does not constitute statutory accounts as
defined in section 434 of the Companies Act 2006. The financial
information for the six months to 30 November 2023 and 30 November
2022 has not been audited. The information for the year ended 31
May 2023 has been extracted from the latest published audited
financial statements. The audited financial statements for the year
ended 31 May 2023 have been filed with the Register of Companies.
The report of the auditors on those accounts contained no
qualification or statement under section 498(2) of the Companies
Act 2006.
6. Fair value of investments
IFRS 13 Fair Value Measurement
requires an entity to classify fair value measurements using a fair
value hierarchy that reflects the significance of the inputs used
in making the measurements. The fair value hierarchy shall have the
following levels:
Level 1 reflects financial
instruments quoted in an active market.
Level 2 reflects financial
instruments whose fair value is evidenced by comparison with other
observable current market transactions in the same instrument or
based on a valuation technique whose variables includes only data
from observable markets.
Level 3 reflects financial
instruments whose fair value is determined in whole or in part
using a valuation technique based on assumptions that are not
supported by prices from observable market transactions in the same
instrument and not based on available observable market
data.
The fair value hierarchy for
investments held at fair value at the period end is as
follows:
30 November
2023
|
31 May 2023
|
Level 1 £'000
|
Level 2 £'000
|
Level 3 £'000
|
Total £'000
|
Level 1 £'000
|
Level 2 £'000
|
Level 3 £'000
|
Total £'000
|
Investments
|
886,175
|
-
|
-
|
886,175
|
936,318
|
-
|
-
|
936,318
|
|
|
|
|
|
|
|
| |
7. Related parties
Devon Equity Management Limited
('Devon') has served as Investment Manager to the Company since 15
November 2019 and became AIFM on 1 July 2022.
With effect from 1 June 2023, Devon
will be entitled to reduced aggregate management fees of 0.80% per
annum of net assets up to £1 billion; 0.70% per annum on any net
assets over £1 billion up to £1.25 billion; and 0.60% per annum on
any net assets over this amount. All other terms and conditions in
the investment management agreement remain unaltered. No
performance fee is payable to Devon.
Although Devon Equity Management
Limited is named as our Company Secretary at Companies House, J.P.
Morgan Europe Limited provides company secretarial services to the
Company as part of its mandate to provide fund administration
services. In line with good governance practice and fostered by the
independence between key suppliers, the Company has put safeguards
in place to ensure effective shareholder communication and direct
shareholder engagement for the Board.
8. Post balance sheet events
On 6 November 2023 the Board
announced a tender offer for up to 25 per cent of the issued share
capital. The tender offer was set at a 2% discount to the
prevailing net asset value per share as the Calculation Date (after
costs of implementation of the proposals). The number of shares
acquired under the tender offer was 24,074,030 Shares, representing
25% of the shares in issue (excluding shares held in treasury) as
at the date of publication of the proposals. Shareholders approved
the tender offer at a General Meeting held on 21 December 2023. The
tender offer opened to Shareholders on the register at 6.00 p.m. on
29 January 2024 and was completed on 31 January 2024.
Implementation resulted in a reduction in the Company's net assets
to £696 million as at 31 January 2024.
9. Availability of Half Yearly Financial
Report
The Half Yearly Financial Report
will shortly be available for download from the Company's website
www.europeanopportunitiestrust.com
A copy of the Half Yearly Financial
Report will also be submitted to the FCA's National Storage
Mechanism and will soon be available for inspection at
https://data.fca.org.uk/#/nsm/nationalstoragemechanism
For
further information, please contact:
Devon Equity Management
Limited
Company Secretaries to European
Opportunities Trust PLC
Richard Pavry
020 3985 0445
enquiries@devonem.com
29 February
2024
[END]