Final Results and Change of I

RNS Number : 9485D

Foreign & Colonial Eurotrust PLC

10 December 2009

 



Date:           10 December 2009

Contacts:     Mike Woodward                    Douglas McDougall                           Dr. Sandy Nairn

                    F&C Management Limited     Foreign & Colonial Eurotrust PLC       Edinburgh Partners Limited

                    020 7628 8000                      0131 558 9434                                 0131 270 3800

Foreign & Colonial Eurotrust PLC

Audited Statement of Results

for the year ended 30 September 2009

and Change of Investment Manager

Key Highlights

• In the year to 30 September 2009 the net asset value ("NAV") per share rose 5.8% from 599.4p to 634.2p compared with a gain of 11.8% in the FTSE World Europe Index, excluding the UK and adjusted to sterling. The Company's share price rose by 6.9% from 518.0p to 554.0p. The discount narrowed from 13.6% to 12.6%. 

• Following a review of the Company's short and long-term investment record and the performance of F&C Management Limited ("F&C"), the Board has appointed Edinburgh Partners Limited as the investment manager of the Company's assets, with effect from 1 February 2010. There will be no change to the Company's investment objective.

• Edinburgh Partners Limited is an independent fund manager with approximately £6bn currently under management, of which £202m is in the Edinburgh Partners European Opportunities Fund, a fund with a similar investment mandate to that of the Company and an excellent record of performance since its launch in 2004. Edinburgh Partners is the manager of two other investment trusts, EP Global Opportunities Trust plc and Anglo & Overseas plc.  Edinburgh Partners' investment team is led by Dr Sandy Nairn, and Dale Robertson will be the Company's portfolio manager.

• It is expected that the Company's name will change to The European Investment Trust plc with effect from 1 February 2010.

Summary of results

Attributable to shareholders	30 September 2009	30 September 2008	% Change
Net assets	£290.16m	£292.38m	(0.8)
Net asset value per share	634.18p	599.36p	5.8
Share price	554.00p	518.00p	6.9
Revenue return per share	13.24p	14.30p	(7.4)
Total return per share	38.77p	(289.63)p	-
Dividends per share	13.60p	14.90p	(8.7)

Chairman's Statement

Capital performance 

In the year to 30 September 2009 the net asset value ("NAV") per share rose 5.8% from 599.4p to 634.2p compared with a gain of 11.8% in the FTSE World Europe Index, excluding the UK and adjusted to sterling. The Company's share price rose by 6.9% from 518.0p to 554.0p. The discount narrowed from 13.6% to 12.6%. 

Revenue 

Dividend income for the year fell by £3.3m, reflecting the prevailing poor economic conditions. This fall was in part mitigated by a £1.1m credit in respect of VAT recoverable on management fees paid in the past and a one-off interest receipt of £1.1m relating to that recovery. Expenses have decreased with the management fee having fallen in line with the decreased value of the portfolio and finance costs have decreased as a consequence of low gearing levels during the year. Overall, the net revenue return attributable to shareholders decreased by 7.4% from 14.3p to 13.2p. 

VAT 

Last year the Company recognised £2m of VAT recoverable in relation to VAT paid on management fees in prior years. At that time I explained that there were uncertainties in respect of further recoveries, but those have now been resolved and the Company has recovered a total of £3.1m of VAT (including the £2m of VAT previously recognised) in full settlement of VAT paid in the periods 1990 to 1996 and 2001 to 2007. In addition, interest of £1.1m was received, calculated on a simple basis. VAT paid on management fees in the intervening period (1997 to 2001) could not be reclaimed under the Claverhouse ruling.  

Dividend 

The Board is declaring a special dividend of 3.4p per share to distribute the net amount, after deducting attributable corporation tax, of the recoverable VAT and interest recognised in the year. The Board is recommending a final dividend of 10.2p per share. This gives a combined dividend of 13.6p compared with last year's combined dividend of 14.9p. 

Share buybacks

The Company bought back and cancelled 3,028,893 shares during the financial year, representing 6.2% of the share capital at the beginning of the year. The Board will again propose to the annual general meeting ("AGM") that the Company be granted powers to make further purchases as appropriate. We continue to monitor the level of discount to NAV at which your shares trade and believe that share buybacks are an important factor in addressing supply/demand imbalances.

Management

Following a disappointing investment performance in recent years, the Board conducted a review of the Company's investment management arrangements and invited a wide range of prospective investment managers, in addition to F&C Management Limited, to submit proposals for the future management of the Company's assets. After this review, the Board has appointed Edinburgh Partners Limited as the new manager with effect from 1 February 2010.  

Edinburgh Partners Limited is an independent fund manager with approximately £6bn currently under management, of which £202m is in the Edinburgh Partners European Opportunities Fund, a fund with a similar investment mandate to that of the Company and an excellent record of performance since its launch in 2004. Edinburgh Partners is the manager of two other investment trusts, EP Global Opportunities Trust plc and Anglo & Overseas plc. Edinburgh Partners' investment team is led by Dr Sandy Nairn, and Dale Robertson will be the Company's portfolio manager. Subject to the approval by shareholders at the AGM of new articles of association, the name of the Company will change to The European Investment Trust plc with effect from 1 February 2010.

The investment objective of the Company is to achieve long-term capital growth through a diversified portfolio of Continental European securities. The appointment of Edinburgh Partners will not result in any change to this objective.

Edinburgh Partners' appointment shall be for an initial fixed period of 12 months from 1 February 2010 and shall continue after that subject to termination on three months' notice. Edinburgh Partners will be entitled to an annual management fee of 0.55% of the Company's market capitalisation. No performance fee will be paid. Edinburgh Partners has agreed to waive its management fee for a period of three months as a contribution to the costs borne by the Company for the change of management arrangements (including compensation to F&C for the unexpired period of notice under its management agreement).

Annual general meeting 

We hope that as many shareholders as possible will attend the AGM which will be held at 3.30 p.m. on Wednesday 20 January 2010 at Stationers' Hall, Ave Maria Lane, London EC4M 7DD. We look forward to meeting all of you who can come. 

Douglas McDougall
Chairman
10 December 2009

  Income Statement

for the year ended 30 September	2009			2008
	Revenue	Capital	Total	Revenue	Capital	Total
	£'000s	£'000s	£'000s	£'000s	£'000s	£'000s
Gains/(losses) on investments	-	11,105	11,105	-	(153,461)	(153,461)
Foreign exchange gains/(losses)	22	1,029	1,051	11	(941)	(930)
Income	9,261	-	9,261	11,607	-	11,607
Management fee	(1,151)	-	(1,151)	(1,863)	-	(1,863)
Recoverable VAT	1,103	-	1,103	2,000	-	2,000
Other expenses	(693)	(19)	(712)	(662)	(24)	(686)
Net return before finance costs and taxation	8,542	12,115	20,657	11,093	(154,426)	(143,333)
Finance costs	(68)	-	(68)	(895)	-	(895)
Net return on ordinary activities before taxation	8,474	12,115	20,589	10,198	(154,426)	(144,228)
Taxation on ordinary activities	(2,190)	-	(2,190)	(2,934)	-	(2,934)
Net return attributable to shareholders	6,284	12,115	18,399	7,264	(154,426)	(147,162)
Return per share - pence	13.24	25.53	38.77	14.30	(303.93)	(289.63)

The total column of this statement is the profit and loss account of the Company. The revenue return and capital return columns are supplementary to this and are prepared under guidance published by the Association of Investment Companies. 

All revenue and capital items in the above statement derive from continuing operations.

A statement of total recognised gains and losses is not required as all gains and losses of the Company have been reflected in the above statement.

  Reconciliation of Movements in Shareholders' Funds

for the year ended 30 September 2009
	Called	Share	Capital			Total
	up share	premium	redemption	Capital	Revenue	shareholders'
	capital	account	reserve	reserves	reserve	funds
	£'000s	£'000s	£'000s	£'000s	£'000s	£'000s
Balance at 30 September 2008	12,195	123,749	6,616	138,618	11,200	292,378
Movements during the year ended     30 September 2009
Dividends paid	-	-	-	-	(7,219)	(7,219)
Shares purchased and cancelled	(757)	-	757	(13,403)	-	(13,403)
Net return attributable to shareholders	-	-	-	12,115	6,284	18,399
Balance at 30 September 2009	11,438	123,749	7,373	137,330	10,265	290,155

for the year ended 30 September 2008
Balance at 30 September 2007	12,942	123,749	5,869	313,755	8,205	464,520
Movements during the year ended     30 September 2008
Dividends paid	-	-	-	-	(4,269)	(4,269)
Shares purchased and cancelled	(747)	-	747	(20,711)	-	(20,711)
Net return attributable to shareholders	-	-	-	(154,426)	7,264	(147,162)
Balance at 30 September 2008	12,195	123,749	6,616	138,618	11,200	292,378

  Balance Sheet

at 30 September	2009	2008
	£'000s	£'000s
Fixed assets
Listed investments	290,067	286,025
Current assets
Debtors	1,276	20,109
Cash at bank	2,200	877
	3,476	20,986
Creditors: amounts falling due within one year
Foreign currency loans	-	(11,820)
Other	(3,388)	(2,813)
	(3,388)	(14,633)
Net current assets	88	6,353
Net assets	290,155	292,378
Capital and reserves
Called up share capital	11,438	12,195
Share premium account	123,749	123,749
Capital redemption reserve	7,373	6,616
Capital reserves	137,330	138,618
Revenue reserve	10,265	11,200
Total shareholders' funds	290,155	292,378
Net asset value per share - pence	634.18	599.36

  Cash Flow Statement

for the year ended 30 September	2009	2008
	£'000s	£'000s
Operating activities
Investment income received	8,046	12,167
Interest received	120	274
Stock lending fees received	-	96
Underwriting commission received	52	-
Fees paid to the management company	(1,276)	(2,082)
Directors' fees paid	(78)	(90)
VAT recovered (including interest thereon)	4,166	-
Other payments	(593)	(675)
Net cash inflow from operating activities	10,437	9,690
Servicing of finance
Interest paid	(87)	(941)
Cash outflow from servicing of finance	(87)	(941)
Taxation
UK tax paid	(2,019)	(882)
Overseas tax paid	(1,022)	(1,382)
Overseas tax recovered	257	249
Total taxation	(2,784)	(2,015)
Financial investment
Purchases of investments	(257,803)	(550,636)
Sales of investments	282,172	598,973
Other capital charges and credits	(21)	(30)
Net cash inflow from financial investment	24,348	48,307
Equity dividends paid	(7,219)	(4,269)
Net cash inflow before use of liquid resources and financing	24,695	50,772
Financing
Loans redeemed	(11,912)	(20,362)
Shares purchases and cancelled	(12,576)	(20,708)
Net cash outflow from financing	(24,488)	(41,070)
Increase in cash	207	9,702

  Notes

1    Return per ordinary share

Revenue return

The revenue return per share is based on the revenue return attributable to shareholders of £6,284,000 profit (2008: £7,264,000 profit).

Capital return

The capital return per share is based on the capital return attributable to shareholders of £12,115,000 profit (2008: £154,426,000 loss).

Total return

The total return per share is based on the total return attributable to shareholders of £18,399,000 profit (2008: £147,162,000 loss).

Weighted average ordinary shares in issue

The revenue, capital and total returns per share are based on a weighted average of 47,455,798 ordinary shares in issue during the year (2008: 50,810,529).

2    Dividends

The Directors recommend a final dividend in respect of the year ended 30 September 2009 of 10.2p and have declared a special dividend of 3.4p, both payable on 25 January 2010 to all shareholders on the register at close of business on 29 December 2009. The recommended final dividend is subject to approval by shareholders at the annual general meeting.

3    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 842 of the Income and Corporation Taxes Act 1988. 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 capital growth through a diversified portfolio of predominantly Continental European securities. 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 F&C Management Limited ("the Manager"), is responsible for the Company's risk management. The Directors' policies and processes for managing the financial risks are set out in (a), (b) and (c) below. 

The accounting policies which govern the reported Balance Sheet carrying values of the underlying financial assets and liabilities, as well as the related income and expenditure, are in compliance with UK accounting standards and best practice. The Company does not make use of hedge accounting rules. 

(a) Market risks 

The fair value of equity and other financial securities held in the Company's portfolio fluctuates with changes in market prices. Prices are themselves affected by movements in currencies and interest rates and by other financial issues, including the market perception of future risks. The Board sets policies for managing these risks within the Company's objective and meets regularly to review full, timely and relevant information on investment performance and financial results. The Manager assesses exposure to market risks when making each investment decision and monitors ongoing market risk within the portfolio.

The Company's other assets and liabilities may be denominated in currencies other than sterling and may also be exposed to interest rate risks. The Manager and the Board regularly monitor these risks. The Company does not normally hold significant cash balances. Borrowings are limited to amounts and currencies commensurate with the portfolio's exposure to those currencies, thereby limiting the Company's exposure to future changes in foreign exchange rates. Gearing may be short or long-term in foreign currencies and enables the Company to take a long-term view of the countries and markets in which it is invested without having to be concerned about short-term volatility.

Income earned in foreign currencies is converted to sterling on receipt. The Board regularly monitors the effects on net revenue of interest earned on deposits and paid on gearing.

(b) Liquidity risk 

The Company is required to raise funds to meet commitments associated with financial instruments and share buybacks. These funds may be raised either through the realisation of assets or through increased borrowing. The risk of the Company not having sufficient liquidity at any time is not considered by the Board to be significant, given: the number of quoted investments held in the Company's portfolio (56 at 30 September 2009); the liquid nature of the portfolio of investments; and the industrial and geographical diversity of the portfolio. Cash balances are held with approved banks, usually on overnight deposit. The Company does not normally invest in derivative products. The Manager reviews liquidity at the time of making each investment decision. The Board reviews liquidity exposure at each meeting.

(c) Credit risk and counterparty exposure 

The Company is exposed to potential failure by counterparties to deliver securities for which the Company has paid, or to pay for securities which the Company has delivered. Such transactions must be settled on the basis of delivery against payment (except where local market conditions do not permit). 

Responsibility for the approval, limit setting and monitoring of counterparties is delegated to the Manager and a list of approved counterparties is periodically reviewed by the Board. Counterparties are selected based on a combination of criteria, including credit rating, balance sheet strength and membership of a relevant regulatory body. The rate of default in the past has been negligible.  Cash and deposits are held with approved banks. 

The Company has an ongoing contract with its custodian for the provision of custody services. The contract is reviewed regularly. Details of securities held in custody on behalf of the Company are received and reconciled monthly. 

To the extent that the Manager carries out management and administrative duties (or causes similar duties to be carried out by third parties) on the Company's behalf, the Company is exposed to counterparty risk. The Board assesses this risk through regular meetings with the management of the Manager (including the fund manager) and with the Manager's internal audit function. In reaching its conclusions, the Board also reviews the Manager's parent group's annual audit and assurance faculty report. 

The Company had no credit-rated bonds or similar securities or derivatives in its portfolio at the year end (2008: none) and does not normally invest in them. None of the Company's financial liabilities are past their due date or impaired. 

4    Annual general meeting

The annual general meeting will be held at Stationers' Hall, Ave Maria Lane, London EC4M 7DD on Wednesday 20 January 2010 at 3.30 p.m. 

5    Report and accounts

The report and accounts for the year ended 30 September 2009 will be posted to shareholders and made available on the website www.foreignandcolonialeurotrust.com in mid-December 2009. Copies may also be obtained from the Company's registered office, Exchange House, Primrose Street, London EC2A 2NY (telephone: [phone]).

By order of the Board

F&C Management Limited, Secretary

Exchange House, Primrose Street, London EC2A 2NY

10 December 2009

Principal risks

The specific key risks faced by the Company include the following: 

• Market - the Company's investments consist of quoted equity securities and it is therefore exposed to movements in the price of individual securities and the market generally. The large number of investments held and the geographic and sector diversity of the portfolio enable the Company to spread its risks with regard to individual companies and sectors, but a significant fall in European equity markets would have an adverse impact on the value of the Company's investment portfolio. 

• Investment strategy - inappropriate investment strategy or ineffective implementation of this strategy could result in poor returns for shareholders and a widening of the discount of the share price to the NAV per share. The Board periodically reviews the investment strategy and regularly monitors the Company's investment portfolio and the investment selection, performance and operations of the Manager. 

• Currency - the Company's investments are denominated in European currencies, principally the euro, but are valued in sterling in accordance with the Company's accounting policies. Any weakening of the euro against sterling will adversely affect performance of those assets when measured in sterling. Although the Board has the authority to hedge currency risk it does not routinely do so. 

• Gearing - borrowing money for investment ("gearing") increases the negative impact on the Company's asset value if the value of those investments subsequently falls. The Board's policy is that the level of gearing of the Company should not exceed 20% in normal market conditions. Within that overall policy the Board agrees with the Manager an operational limit on gearing from time to time and reviews this at each Board meeting. 

• Investment management resources - the quality of the management team is a crucial factor in delivering good performance and loss of key staff could adversely affect investment returns. 

• Regulatory - failure to comply with regulations could result in the Company losing its listing and/or being subject to corporation tax on its capital gains. The Board reviews regular reports from the Manager on the controls in place to ensure compliance by the Company with rules and regulations. The Board also receives regular investment listings and income forecasts as part of its monitoring of compliance with the provisions of section 842 of the Income and Corporation Taxes Act 1988. 

• Internal controls - inadequate financial controls could result in misappropriation of assets, loss of income and debtor receipts and mis-reporting of NAVs. The Board regularly reviews the Manager's statements on its internal controls and procedures and subjects the books and records of the Company to an annual audit. 

• Counterparties - the Company is exposed to potential failures by counterparties to deliver securities for which it has paid or to pay for securities which it has delivered. Further details are included in note 3 (c). 

Statement of Directors' Responsibilities in Respect of the Financial Statements

In accordance with Chapter 4 of the Disclosure and Transparency Rules the Directors confirm, in respect of the annual report for the year ended 30 September 2009 of which this statement of results is an extract, that to the best of their knowledge: 

• the financial statements have been prepared in accordance with applicable UK accounting standards, on a going concern basis, and give a true and fair view of the assets, liabilities, financial position and return of the Company; 

• the annual report includes a fair review of the important events that have occurred during the financial year; the principal risks and uncertainties and their impact on the financial statements; the development and performance of the business and the position of the Company; and details on related party transactions. 

On behalf of the Board

Douglas McDougall

Chairman

10 December 2009

 

END

 

 

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