Interim Results

RNS Number : 3506U

Foreign & Colonial Eurotrust PLC

13 May 2008

Date: 13 May 2008

Contact: Peter Jarvis

F&C Management Limited

020 7628 8000

Foreign & Colonial Eurotrust PLC

Unaudited Statement of Results

for the half-year ended 31 March 2008

Summary of Unaudited Results

Attributable to equity shareholders	31 March 2008	30 September 2007	% Change

Net assets	£407.14m	£464.52m	(12.4)

Net asset value per share	800.62p	897.31p	(10.8)

Share price	731.00p	812.50p	(10.0)

	Half-year ended 31 March 2008	Half-year ended 31 March 2007

Revenue return per share	0.93p	0.05p

Managers' Review

Capital performance

Over the half-year ended 31 March 2008, your Company's net asset value per share fell by 10.8% from 897.3p to 800.6p compared with a fall of 5.2% in the FTSE World Europe Index, excluding the UK and adjusted to sterling. The Company's share price fell by 10.0% from 812.5p to 731.0p. The discount narrowed from 9.5% to 8.7%.

Revenue

The net revenue return attributable to shareholders is higher than at the interim stage last year. Although income has fallen, management fees and finance costs have reduced by a greater amount. Management fees are no longer subject to VAT and were based on lower average assets under management. The decrease in finance costs reflects the decision to repay the loan during the current period. The figures are not indicative of the full year results because European companies tend to pay their dividends between April and September whereas expenses are incurred throughout the year.

Gearing

The effective gearing of the Company was 0.9% at 31 March 2008. It is the policy of the Board that the level of gearing should not exceed 20%.

German listing

The Company has applied for the cancellation of its listing on the Frankfurt Stock Exchange. The Directors believe that the time and resources of maintaining that listing are not justified in view of the fact that there had been no share trading on that exchange. The delisting is expected to become effective in July 2008.

Review of markets

Equities in Continental Europe suffered in the recent environment, impacted by the continuing global credit market turmoil and fears of an economic recession in the US. In particular, the banking sector was once again impacted by further write-downs and the rescue of Bear Stearns in the US. In its latest Global Financial Stability Report (April 2008), the International Monetary Fund estimated potential losses of the financial crisis at US$945bn. The disappointing performance of our financial holdings, combined with a bias towards small and mid-cap stocks, predominantly accounted for the divergence in performance from the benchmark in the first half of the year.

The European Central Bank (ECB) left rates unchanged at 4.0%. At its most recent press conference, Jean-Claude Trichet crushed all hopes of imminent interest rate cuts, arguing that there is still inflationary pressure in the short-term. The ECB considers that fundamentals in the euro zone are still sound for economic activity. It believes both domestic and overseas demand should underpin growth in 2008. This view has been backed by recent data which indicated that fundamentals are holding up in the face of the main challenges of the strong Euro and lack of monetary easing. We expect the region's diversified export base to provide some protection from the US slowdown. Structurally Europe is also shielded, to some extent, by consumers that are less indebted and housing markets that for the most part are less stretched than their US and UK counterparts.

At a corporate level, the results from the upcoming Q1 earnings season will be important in accessing the impact of the recent financial turmoil on the wider market.

Merger and acquisition activity continued, driven by the strength of corporate balance sheets. Notable deals included the staffing company Randstadt's buying its Dutch listed competitor Vedior.

Portfolio strategy

We are adding to positions in companies that can withstand the global headwinds, exhibit pricing power to offset rising input costs and generate cash earnings irrespective of the economic cycle. Conversely, we are trimming exposure to more cyclical companies that would suffer most in a more protracted economic downturn.

Within the financial sector, UBS announced a second wave of write-downs and we expect further announcements from other institutions. However, we believe markets have now priced in the majority of this bad news and, with this in mind, we added to our holding in the German listed Hypo Real Estate. The latter finances large volume and complex real estate projects, advises on disposing of real estate portfolios and structures investments in real estate based instruments.

We have maintained our focus on seeking out companies with robust earnings and future potential. With this in mind we continue to favour investments geared into Asian domestic strength like Folli Follie, a Greek mid-range jewellery manufacturer.

Towards the end of the period the Company established a new holding in Digital Multimedia Technologies (DMT). Listed in Italy, DMT owns and operates the major independent tower infrastructure for TV, radio, mobile and other wireless communication services.

We continued to add to our position in the attractively valued Vivendi, a leader in entertainment including music, cinema and the internet. We are positive on its recent tie-up with Electronic Arts, believing the deal will help them crystallise value in their gaming business. At the beginning of the period under review a position was established in Speedel, which focuses on the development of drugs to treat cardiovascular and metabolic diseases and has three products in Phase II-III clinical trials. The most advanced drug, Tekturna, is the first in a new class of renin inhibitors for cardiovascular disease and is partnered with Novartis.

Outlook

Although risks to financial markets have undoubtedly increased, we take comfort from the aggressive and proactive measures taken by the US Federal Reserve to alleviate the strains in the financial system and stimulate growth. This, combined with valuations that look increasingly compelling, should provide some support to equity markets.

The Euro's current strength against Sterling and the Dollar is a risk to earnings, and we believe consensus forecasts may be underestimating the negative impact. Nevertheless, we believe the long-term case for investment in selected European equities remains robust. While we expect corporate earnings to deteriorate and market volatility to restrict gains, current conditions provide opportunities to add exposure to companies we favour and initiate new positions, based on price weakness, where we see value.

Peter Jarvis
May 2008

Twenty Largest Equity Holdings at 31 March 2008

31 Mar 2008	30 Sep 2007	Company	Sector (Country)	Value £'000	% of total investments
1 2	2 1	Nokia Total	Technology hardware & equipment (Finland) Oil & gas producers (France)	13,159 10,664	3.2 2.6
3	-	Grupo Ferrovial	Construction & materials (Spain)	10,579	2.6
4	-	ABB	Electronic & electrical equipment (Switzerland)	8,809	2.1
5	-	CNP Assurances	Life insurance (France)	8,721	2.1
6	15	Unilever	Food producers (Netherlands)	8,543	2.1
7	6	ENI	Oil & gas producers (Italy)	8,534	2.1
8	4	Roche	Pharmaceuticals & biotechnology (Switzerland)	8,367	2.0
9	31	Ipsen	Pharmaceuticals & biotechnology (France)	7,862	1.9
10	-	Bank of Ireland	Banks (Ireland)	7,510	1.8
11	-	Suez	Gas, water & multi-utilities (France)	7,508	1.8
12	-	Hypo Real Estate	General financial (Germany)	7,323	1.8
13	16	FLSmidth	Construction & materials (Denmark)	7,273	1.8
14	35	Konecranes	Industrial engineering (Finland)	7,251	1.8
15	51	Actelion	Pharmaceuticals & biotechnology (Switzerland)	6,880	1.7
16	33	United Internet	Software & computer services (Germany)	6,826	1.6
17	5	Société Générale	Banks (France)	6,527	1.6
18	40	CRH	Construction & materials (Ireland)	6,513	1.6
19	17	Koninklijke Philips	Leisure goods (Netherlands)	6,456	1.6
20	12	Intralot	Travel & leisure (Greece)	6,329	1.5

The value of the twenty largest equity holdings represents 39.3% of the Company's total investments (30 September 2007: 36.9%).
The country is the country of incorporation.

Unaudited Income Statement

Half-year ended 31 March 2008				Half-year ended 31 March 2007
	Revenue	Capital	Total	Revenue	Capital	Total
	£'000s	£'000s	£'000s	£'000s	£'000s	£'000s

(Losses)/gains on investments	-	(46,021)	(46,021)	-	64,369	64,369
Exchange gains/(losses)	36	(393)	(357)	(6)	(124)	(130)
Income	2,301	-	2,301	2,567	-	2,567
Management fee	(987)	-	(987)	(1,366)	-	(1,366)
Other expenses	(347)	(21)	(368)	(348)	(22)	(370)
Net return before finance costs and taxation	1,003	(46,435)	(45,432)	847	64,223	65,070
Finance costs	(460)	-	(460)	(781)	-	(781)
Net return on ordinary activities before taxation	543	(46,435)	(45,892)	66	64,223	64,289
Taxation on ordinary activities	(64)	-	(64)	(39)	-	(39)
Net return attributable to equity shareholders	479	(46,435)	(45,956)	27	64,223	64,250

Return per share - pence	0.93	(90.58)	(89.65)	0.05	116.89	116.94

The total column of this statement is the profit and loss account of the Company.

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.

Unaudited Reconciliation of Movements in Shareholders' Funds

Half-year ended 31 March 2008		Share	Capital			Total
	Share	premium	redemption	Capital	Revenue	shareholders'
	capital	account	reserve	reserves	reserve	funds
	£'000s	£'000s	£'000s	£'000s	£'000s	£'000s

Balance at 30 September 2007	12,942	123,749	5,869	313,755	8,205	464,520
Movements during the half-year ended 31 March 2008
Dividends paid	-	-	-	-	(4,269)	(4,269)
Shares purchased by the Company	(229)	-	229	(7,154)	-	(7,154)
Net return attributable to equity shareholders	-	-	-	(46,435)	479	(45,956)
Balance at 31 March 2008	12,713	123,749	6,098	260,166	4,415	407,141

Half-year ended 31 March 2007		Share	Capital			Total
	Share	Premium	redemption	Capital	Revenue	shareholders'
	capital	Account	reserve	reserves	reserve	funds
	£'000s	£'000s	£'000s	£'000s	£'000s	£'000s

Balance at 30 September 2006	13,905	123,749	4,906	255,269	8,861	406,690
Movements during the half-year ended 31 March 2007
Dividends paid	-	-	-	-	(4,977)	(4,977)
Shares purchased by the Company	(498)	-	498	(14,552)	-	(14,552)
Net return attributable to equity shareholders	-	-	-	64,223	27	64,250
Balance at 31 March 2007	13,407	123,749	5,404	304,940	3,911	451,411

Year ended 30 September 2007		Share	Capital			Total
	Share	premium	redemption	Capital	Revenue	shareholders'
	capital	account	reserve	reserves	reserve	funds
	£'000s	£'000s	£'000s	£'000s	£'000s	£'000s

Balance at 30 September 2006	13,905	123,749	4,906	255,269	8,861	406,690
Movements during the year ended 30 September 2007
Dividends paid	-	-	-	-	(4,977)	(4,977)
Shares purchased by the Company	(963)	-	963	(30,108)	-	(30,108)
Net return attributable to equity shareholders	-	-	-	88,594	4,321	92,915
Balance at 30 September 2007	12,942	123,749	5,869	313,755	8,205	464,520

Unaudited Balance Sheet

	31 March 2008	31 March 2007	30 September 2007
	£'000s	£'000s	£'000s
Fixed assets
Listed investments	410,828	482,326	502,397
Current assets
Debtors	4,863	2,519	3,571
Taxation recoverable	245	582	249
Cash at bank	-	5,540	-
	5,108	8,641	3,820

Creditors: amounts falling due within one year
Foreign currency loans	-	(30,541)	(31,411)
Other	(8,795)	(9,015)	(10,286)
	(8,795)	(39,556)	(41,697)
Net current liabilities	(3,687)	(30,915)	(37,877)
Net assets	407,141	451,411	464,520
Capital and reserves
Share capital	12,713	13,407	12,942
Share premium account	123,749	123,749	123,749
Capital redemption reserve	6,098	5,404	5,869
Capital reserves	260,166	304,940	313,755
Revenue reserve	4,415	3,911	8,205
Total shareholders' funds - equity	407,141	451,411	464,520

Net asset value per share - pence	800.62	841.76	897.31

Unaudited Summary Cash Flow Statement

	Half-year ended	Half-year ended
	31 March 2008	31 March 2007
	£'000s	£'000s
Net cash inflow from operating activities	1,131	844
Cash outflow from servicing of finance	(513)	(763)
Total tax paid	(291)	(756)
Net cash inflow from financial investment	43,783	21,928
Equity dividends paid	(4,269)	(4,977)
Net cash inflow before use of liquid resources and financing	39,841	16,276
Net cash outflow from financing	(39,749)	(14,668)
Increase in cash	92	1,608

Reconciliation of net cash flow to movement in net debt
Increase in cash	92	1,608
Decrease in short-term loans	32,595	116
Movement in net debt resulting from cash flows	32,687	1,724
Exchange movement	(419)	(131)
Movement in net debt	32,268	1,593
Net debt brought forward	(40,208)	(26,594)
Net debt carried forward	(7,940)	(25,001)

Represented by:
Cash at bank	-	5,540
Bank overdraft	(7,940)	-
	(7,940)	5,540
Short-term loans	-	(30,541)
	(7,940)	(25,001)

Notes

1 Significant accounting policies

These financial statements have been prepared on the basis of the accounting policies set out in the Company's financial statements at 30 September 2007. These accounting policies are expected to be followed throughout the year ending 30 September 2008.

2 Income

	Half-year ended	Half-year ended
	31 March 2008	31 March 2007
	£'000s	£'000s
Income from investments
Overseas dividends	2,103	2,477
Other income
Bank interest	152	37
Stock lending fees	46	53
	198	90
Total income	2,301	2,567

3 Return per share

	Half-year ended	Half-year ended
	31 March 2008	31 March 2007
Revenue return per share - pence	0.93	0.05
Net revenue return attributable to equity shareholders - £'000s	479	27
Capital return per share - pence	(90.58)	116.89
Net capital return attributable to equity shareholders - £'000s	(46,435)	64,223
Weighted average number of shares in issue during the period	51,262,887	54,937,829

4 Dividends

Dividends on ordinary shares

Payment date

Half-year ended

31 March 2008

£'000s

Half-year ended

31 March 2007

£'000s

Final for the year ended

30 September 2007 of 1.7p

16 November 2007

20 December 2007

874

Special for the year ended

30 September 2007 of 6.6p

16 November 2007

20 December 2007

3,395

Final for the year ended

30 September 2006 of 1.7p

17 November 2006

21 December 2006

940

Special for the year ended

30 September 2006 of 7.3p

17 November 2006

21 December 2006

4,037

4,269

4,977

The Directors have not declared an interim dividend.

5 Creditors: amounts falling due within one year

	31 March 2008	31 March 2007	30 September 2007
	£'000s	£'000s	£'000s

Foreign currency loans	-	30,541	31,411

Comprise	€'000s	€'000s	€'000s
Euro denominated	-	45,000	45,000

6 Share capital

Equity share capital Ordinary shares of 25p each	Number	Authorised £'000s	Number	Issued and fully paid £'000s
Balance at 30 September 2007	100,000,000	25,000	51,767,904	12,942
Transfer to capital redemption reserve	-	-	(914,698)	(229)
Balance at 31 March 2008	100,000,000	25,000	50,853,206	12,713

During the half-year ended 31 March 2008 914,698 ordinary shares were purchased for cancellation at a cost of £7,154,000.

7 Net asset value per share

	31 March 2008	31 March 2007	30 September 2007
Net asset value per share - pence	800.62	841.76	897.31
Net assets attributable at the period end - £'000s	407,141	451,411	464,520
Number of shares in issue at the period end	50,853,206	53,626,807	51,769,904

8 Reconciliation of return before finance costs and taxation to net cash inflow from operating activities

	Half-year ended	Half-year ended
	31 March 2008	31 March 2007
	£'000s	£'000s
Net return before finance costs and taxation	(45,432)	65,070
Adjust for returns from non-operating activities
Losses/(gains) on investments	46,021	(64,369)
Exchange losses of a capital nature	393	124
Non-operating expenses of a capital nature	21	22
Return from operating activities	1,003	847
Adjust for non-cash flow items
Exchange losses of a revenue nature	(36)	6
Decrease/(increase) in prepayments and accrued income	408	(84)
(Decrease)/increase in accruals and other creditors	(244)	75
	1,131	844

9 Contingent asset

As detailed in the Company's report and accounts for the year ended 30 September 2007, the European Court of Justice has ruled that Investment Trusts are exempted from paying VAT on management fees. A separate UK House of Lords decision in January 2008 ruled that the three year capping imposed by HM Revenue and Customs (HMRC) in relation to VAT claims submitted prior to January 1997 was invalid. The two rulings enable the Company's Manager, F&C Management Limited, to enter into negotiations with HMRC to reclaim a proportion of VAT paid on behalf of the Company in the periods between April 1990 and December 1996 and further periods since April 2001.

Although recovery of a proportion of VAT suffered remains highly probable, the quantum and timing of any recoveries is dependent upon the outcome of the Manager's separate negotiations with HMRC, as well as upon the negotiations between the Company and the Manager. As a consequence of this on-going uncertainty, no amount relating to VAT recoverable has been recognised as an asset within these accounts.

10 Results

The results for the half-year ended 31 March 2008 and 31 March 2007, which are unaudited, constitute non-statutory accounts within the meaning of Section 434 of the Companies Act 2006. The latest published accounts which have been delivered to the Registrar of Companies are for the year ended 30 September 2007; the report of the auditors thereon was unqualified and did not contain a statement under Section 498 of the Companies Act 2006. The abridged financial statements shown above for the year ended 30 September 2007 are an extract from those accounts.

11 Report and accounts

The report and accounts for the half-year ended 31 March 2008 will be posted to shareholders and made available on the internet at www.foreignandcolonialeurotrust.com, in late May 2008. Copies may be obtained from the Company's registered office, Exchange House, Primrose Street, London EC2A 2NY.

By order of the Board

F&C Management Limited, Secretary

Exchange House, Primrose Street, London EC2A 2NY

13 May 2008

Director' Statement of Principal Risks and Uncertainties

The Company's assets consist of quoted equity securities and its principal risks are therefore market related. Other key risks faced by the Company include investment strategy, currency and gearing, management resources, regulatory and financial controls. These risks, and the way in which they are managed, are described in more detail under the heading 'Principal risks and risk management' within the business review in the Company's annual report for the year ended 30 September 2007. The Company's principal risks and uncertainties have not changed materially since the date of that report.

Directors' Statement of Responsibilities

We confirm that to the best of our knowledge:

the condensed set of financial statements has been prepared in accordance with the statement 'Half-yearly financial reports' issued by the UK Accounting Standards Board and give a true and fair view of the assets, liabilities, financial position and net return of the Company as required by the Disclosure and Transparency rules ('DTR') 4.2.4R;
the Manager's Review (constituting the interim management report) includes a fair review of the information required by DTR 4.2.7R, being an indication of important events that have occurred during the first six months of the financial year and their impact on the financial statements;