Final Results

RNS Number : 1996S

European Assets Trust NV

16 March 2016

 

To:                    RNS

From:                European Assets Trust NV

Date:                16 March 2016

Statement of Results for the year ended 31 December 2015

·      Total return* performance for 2015

Euro                 Sterling

Net asset value per share                                                                 26.9%                   20.5%

Euromoney Smaller European Companies (ex UK) Index                     23.4%                   17.2%

·      The annual dividend for 2016 is €0.912 per share (2015 €0.7581, netǂ), equivalent to 6% of the opening net asset value per share

Euro                 Sterling

January 2016 dividend paid per share                                  €0.304               £0.23353

(further dividends payable in May and August)

* Capital performance with dividends reinvested

ǂ Net of Dutch withholding tax

Chairman's Statement

Fellow shareholders,

Performance

I am pleased to report that European Assets Trust ('the Company') recorded a Sterling net asset value ('NAV') total return for the year of +20.5% (2014: +7.7%), a Sterling share price return of +20.4% (2014: +8.8%), and a Euro dividend increase of +20.3% (2014: 8.5%).   This performance was not only very strong in absolute terms but on a relative basis was ahead of our benchmark, and most other global indices.

The slow recovery that took hold in Europe in 2015 was in contrast to signs of deterioration in the US and a marked slowdown in emerging markets. This encouraged flows into Europe with smaller companies benefitting disproportionately compared to their larger counterparts. The particular attractions of smaller companies in the present market cycle is that they are more focused on domestic Europe, which had a more favourable outlook relative to the US or emerging markets, and in these circumstances tend to generate higher growth.

The Fund Manager's Review discusses the Company's performance in more detail.

Distribution

The level of dividend paid by the Company each year is determined by the Board in accordance with the Company's distribution policy.  The Board has stated that, barring unforeseen circumstances, it will pay an annual dividend equivalent to 6 per cent of the net asset value of the Company at the end of the preceding year.  The dividend is funded from a combination of current year net profits and other reserves.

The Board has already announced that in applying the above distribution policy, a total dividend for 2016 of Euro 0.912 per share (2015: Euro 0.7581 per share, net) will be paid.  This represents a 20.3% increase in the 2016 dividend compared with the previous year. The 2016 dividend will be paid in three equal instalments of Euro 0.304 per share on 29 January, 31 May and 31 August.  The January dividend of Euro 0.304 per share was paid to shareholders on 29 January 2016 and amounted to £0.234 per share in Sterling terms.

Shareholders may elect to receive dividends by way of further shares in the Company rather than cash.  Where shareholders so elect, they will receive shares based on the net asset value of the Company; the shares may trade in the market at a discount or premium to net asset value.  Subject to personal circumstances and shareholders taking their own tax advice, UK resident individual shareholders who receive such a scrip dividend should not be liable to UK income tax on such dividend.  Instead, UK capital gains tax rules should apply.

Gearing

The Company has a banking facility to allow the Manager to gear the portfolio within the 20 per cent of assets level permitted under the Articles.  To reflect the larger size of the Company the facility was increased during the year from Euro 25.0 million to Euro 45.0 million.  The facility is Euro-denominated and flexible, allowing the Manager to draw down amounts for such periods as required and the Manager made use of the facility during the year where investment opportunities arose.

Liquidity enhancement policy

During 2015 the Company issued the remaining 3,319,736 of its own shares held in treasury.  3,312,057 of these shares were sold through its liquidity enhancement policy raising £34.8 million. The sale of these treasury shares occurred at an average premium of 0.3% to the estimated net asset value at time of issue.  The remaining 7,679 treasury shares were issued as scrip dividend.

In addition, in April 2015 the Company received approval from the London Stock Exchange to issue up to 2,491,234 new shares, representing 9.99% of the issued share capital at that date and to meet continuing demand, a significant corporate task undertaken during the year was the publication, in July 2015, of a prospectus.  Approved by the Dutch financial regulator, the Autoriteit Financiele Markten, this allows for the issuance of up to nine million new shares within 12 months of the date of publication.    

During the year 6,885,000 new shares have been issued at a price of at least net asset value and a premium to cover the commissions of issuance. 15,180 shares were issued as scrip.  

Since the year end until 3 March 2016 the Company has sold a further 750,000 new shares raising £7.96 million.  9,178 shares were issued as scrip.  As at 3 March 2016, the Company had the ability to issue a further 3,831,876 new shares arising from the authority granted by the prospectus.  The Board will monitor demand closely and will seek regulatory approval for a further increase in issued share capital should circumstances warrant it.

Ongoing charges

The Company's increased capital base together with a continuous focus on controlling costs has led to a reduction in the Company's ongoing charges rate to 1.1%.  This rate has improved by 35% since 2012 when it stood at 1.7%.

Change in Directorate

My appointment as Chairman of the Company in April 2015 was part of a process of succession planning undertaken by the Supervisory Board which has resulted, progressively, in a number of changes to its membership. 

In October, my predecessor as Chairman of the Company Sir John Ward CBE retired from the Supervisory Board.  Sir John had served as Chairman from June 1995 and his contribution to the long term success of the Company throughout his tenure has been invaluable.  On behalf of all shareholders I extend our thanks to him for such outstanding leadership.

In addition, during December, Neville Cook retired from the Supervisory Board.  Neville had served as a Supervisory Director since his appointment in 1982 and his knowledge and insight of the investment business helped guide the Company through several economic cycles.

In preparation for the retirement of Neville Cook a search company was commissioned to find a new director.  Following a rigorous selection process, it is therefore proposed that shareholders appoint Martin Breuer to the Supervisory Board at the forthcoming General Meeting.

Martin Breuer, a German national, has a depth of experience gained in European businesses similar to those in which European Assets Trust invests.  He is presently Chief Financial Officer and CEO of Asia Pacific of Italian cosmetic manufacturer Intercos Group.  The directors consider that Mr Breuer will make a valuable contribution to the work of the Supervisory Board.

Outlook

Equity indices around the world have declined since the start of the year as concerns build over weakening global growth. While European leading indicators are still pointing in the right direction, we must not be complacent about this as economic activity is notoriously difficult to predict. The European equity markets do not look either obviously expensive or obviously cheap and we would expect development of corporate profits to be the most important indicator of stock performance from here.

There is plenty of potential within Europe and the smaller companies sector in particular. However, it is during these periods of volatility that we must maintain our discipline in following our philosophy of selecting quality assets, run by good managers and invest in these at attractive prices. We believe this is the best way to grow our asset value. We have a very large universe of potential opportunities and we trust our process to select the right stocks for our shareholders.

Shareholder meetings

The Company's General Meeting will be held at 10.00am on 10 May 2016 at the Company's Office, Weena 210-212, Rotterdam, the Netherlands.  In addition, the Company holds a Shareholders' and Investors' Briefing in London each year. 

The London Briefing this year will take place on 11 May 2016 at 11.30am at Pewterers' Hall, Oat Lane, London EC2V 7DE and will include a presentation from the Investment Manager on the Company and its investment portfolio.  A light buffet will be served at the end of the briefing.  The Supervisory Board look forward to welcoming as many shareholders as are able to attend. 

Jack Perry CBE

Chairman

 

Manager's review

A strong year for investors in European smaller companies which delivered some of the best returns globally.  In Sterling terms they outperformed not only their larger company counterparts, but also the US, the UK and emerging markets.

Market Review 

2015 was a strong year for investors in European smaller companies which delivered some of the best returns globally. In Sterling terms they outperformed not only their larger company counterparts, but also the US, the UK and emerging markets, which again provided the most disappointing performance for equity investors.

The year was characterised by the shift in market leadership away from the theme of global growth to the benefit of domestic recovery in Europe. Though this has as much to do with recovery in Europe as it has to do with disappointment elsewhere. Certainly Europe's economic recovery that looked so encouraging in the early months of 2015 failed to accelerate much after a promising start. Nevertheless, a slow, anaemic recovery was enough for investors who had very little options elsewhere. China's transition from a global producer to a consumer is proving painful, and the US is challenged with cost pressure from a lack of available productive capacity following a strong period of economic growth. This is compounded by the withdrawal of monetary stimulus. Europe in contrast has the benefit of an accommodative central bank, a more competitive currency and slowly improving growth with a lower cost base in the form of cheaper energy prices.

European smaller companies did so well, in comparison to their larger counterparts because they are naturally more orientated to domestic Europe whereas the larger companies in Europe are more likely to be exporting to the US and China. Smaller companies also tend to lead profit growth when economies are recovering. Having said this, improving profit expectations have been in short supply this year. While leading indicators are still pointing in the right direction, it is difficult to anticipate further market increases without better earnings growth.

Performance Review

Quality assets led the way last year as investors sought exposure to Europe. Scepticism over a strong economic recovery led to a preference towards certainty of profit delivery at the expense of valuation. Given our quality bias, we benefitted from this theme, though the decision to balance the portfolio with some exposure to cheaper areas of the market, or as we believe unrecognised quality, probably held us back somewhat. Nonetheless it is satisfying to deliver another strong return for our shareholders in terms of both capital and income.

Our biggest contributor to performance was one of our largest holdings, Irish Continental Group, the ferry operator, which rose +62.3%. 2015 was another year of excellent operational performance as they took advantage of a rapidly improving Irish economy and lower fuel costs. In combination with very little capital expenditure requirements this delivers excellent levels of cash generation. We continue to hold a good position in the company.

Our gambling stocks Paddy Power and Betsson both performed well, rising +71.9% and +72.5% respectively, having the twin benefits of high structural growth in the online betting space and corporate activity. Paddy Power reacted well to the news that it was merging with Betfair to create potentially the strongest operator in the sector. Betsson on the other hand is using their strong cashflow to buy smaller operators and improve their market position. The outlook for both companies is still good.

Another one of our largest holdings Amer Sports had a particularly strong year rising +63.1%. We have held stock in this company since a new management team arrived with the remit to achieve the sort of growth and levels of profitability the brands deserve. They own the skiing brands Atomic and Salomon, the latter also being a strong player in outdoor activities such as trail running, Wilson tennis, Mavic cycling, and mountaineering brand Arc'teryx. These brands should achieve good levels of profits, and 2015 saw further evidence that they were moving closer to this.

A particularly pleasing contributor to performance was Gerresheimer, the German listed pharmaceutical packaging business. This is a long standing holding that we added to during unwarranted weakness during the previous year. At that point the valuation reflected nothing more than short term concerns over profit margins, while our detailed analysis suggested that this was a well-positioned business, run by a proven management team that should prosper over the long run. 2015 demonstrated this as they showed operational improvements whilst selling a poorer quality division and re-invest the proceeds in a value creative acquisition. This was rewarded with a return of +54.8% over the year.

If we look at the poorer performers, Origin Enterprises, another one of our largest positions, was the largest negative contributor, falling -12.6%. The company faced two main problems last year, firstly their end markets started going through a difficult period. Origin advises farmers on how to utilise their land efficiently in the UK and Eastern Europe. Because of record corn and wheat crops globally, prices are under pressure, reducing farmers' incomes and restricting their ability to invest. Secondly, the majority owner Aryzta, reduced their 70% stake entirely to shore up their balance sheet following an acquisition. So the market had to absorb a lot of stock while the operational environment deteriorated. The shares are however trading at exceptionally attractive levels and have much better liquidity following the placement. We will continue to hold a decent position as the long term potential is excellent, though we do not anticipate the first half of 2016 to be much better for them operationally.

Within financials two of our bank holdings had poor years; Sparebank the regional Norwegian bank fell -30.5% and Aareal the German property lender fell -14.1%. Both stocks appear to us very attractively valued, though Sparebank's perceived exposure to a falling oil price, and concern over Aareal's competitive position meant that this value was not appreciated. Part of our portfolio strategy has been to identify areas of the market that had quality characteristics which were not well understood by the market which meant an attractive combination of quality and value. This is why we continue to hold these financials. We are however now scrutinising all our holdings in the sector.

In percentage terms, our worst performer was the German supplier to the car industry SHW which fell -38.6%. Our original thesis was that because car companies need to reduce their emissions they need to buy more of SHW's products, which help them in this regard. The company would therefore benefit from above market growth, disproportional profit expansion and cash generation. While they produced better than expected revenues this translated into worse levels of profits due to a historic lack of investment in manufacturing which hindered them in delivering against this demand. This rendered the initial investment case invalid and we sold the position. 

Investment Outlook

It has clearly been a difficult start to 2016 with a dramatic fall in the oil and commodity prices representative of a decline in global trade that is symptomatic of emerging market economic deterioration and a significant fall in the valuation of financial sector stocks. This has put pressure on global economic growth, which in turn has put stress on equities across the globe. Europe has not been immune from this, with investors questioning whether the European economy can continue its slow recovery in the face of this. The currency has however fared well relatively and the strength of the Euro against Sterling so far this year has helped soften some of the weakness in the portfolio.

We do not believe it makes much sense to make any economic predictions in the knowledge that they will almost certainly be wrong, but focus on stocks. We aim to buy quality assets, run by proven managers, at attractive prices. Towards the end of 2015, while our stock research managed to identify a number of businesses that met our quality hurdles, because of high valuations we were not able to find enough of a margin of safety to invest. Indeed the market was highly polarised in terms of valuation between obvious quality assets and everything else. This sell-off at the start of the year has, however, given us the opportunity to invest in some of these businesses, which are now more attractively valued. During this time of uncertainty, we are also scrutinising our existing positions to ensure that they meet the quality characteristics we look for in our investments.

Sam Cosh

Lead Investment Manager

F&C Investment Business Limited

 

 

 

 

AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2015

PROFIT AND LOSS ACCOUNT
For the year ended	Note	31 December 2015		31 December 2014
		€		€
Income from investments
Dividends from securities		7,573,538		5,099,147
Irrecoverable source taxes		(6,270)		(7,026)
		7,567,268		5,092,121
Movements on investments - realised		20,922,144		16,706,124
Movements on investments - unrealised		56,129,603		16,483,480
		77,051,747		33,189,604
Total investment gain		84,619,015		38,281,725
Investment management fee Depositary and custody fees Share issuance and prospectus costs		(2,983,273) (190,619) (593,246)		(2,003,329) (107,993) -
Other expenses		(1,166,173)		(1,110,662)
Interest charges		(159,776)		(268,973)
Total operating expenses		(5,093,087)		(3,490,957)
Net profit		79,525,928		34,790,768
Earnings per share		€2.94		€1.72
Dividends per share	4	€0.7743		€0.7221

 

		As at	As at
BALANCE SHEET		31 December 2015	31 December 2014
	Note	€	€
Investments
Securities	1	473,801,288	290,695,109
Receivables
Other receivables Other assets Cash and cash equivalents		805,038 9,332,512	168,518 -
Total current assets		10,137,550	168,518
Current liabilities (due within one year)
Banking facility		-	(17,485,254)
Accrued liabilities		(84,807)	(251,607)
Total current liabilities		(84,807)	(17,736,861)
Total of receivables and other assets less current liabilities		10,052,743	(17,568,343)
Total assets less current liabilities		483,854,031	273,126,766
Capital and reserves
Issued share capital		14,645,232	9,944,070
Share premium account		235,176,727	89,360,641
Other reserves		234,032,072	173,822,055
		483,854,031	273,126,766
Net asset value per ordinary share	2	€15.20	€12.63
Expressed in sterling  - basic		£11.20	£9.80
- treasury	3	£11.20	£9.80

STATEMENT OF CASH FLOWS

For the year ended	31 December	31 December
	2015	2014
	€	€
Cash flow from investment activities
Dividends	7,235,707	4,995,001
Purchase of securities	(158,377,831)	(74,378,548)
Sales of securities	52,256,804	39,905,816
Share issuance and prospectus costs	(593,246)	-
Depositary fees, custody fees and other expenses	(1,363,329)	(1,215,134)
Investment management fee	(2,983,273)	(2,003,329)
Interest charges	(204,943)	(271,870)
	(104,030,111)	(32,968,064)
Cash flows from financing activities
Credit facility	(17,485,254)	3,660,140
Dividends	(19,315,911)	(14,027,654)
Sale of own shares	150,163,788	43,335,578
	113,362,623	32,968,064
Cash and cash equivalents
Net movement for the year	9,332,512	-
Balance as at 1 January	-	-
Balance as at 31 December	9,332,512	-

ACCOUNTING POLICIES

The Company is a closed-end investment company with variable capital incorporated in the Netherlands. The annual accounts have been drawn up in accordance with the provisions of Title 9, Book 2, of the Dutch Civil Code and the Dutch Accounting Standards as published by the Dutch Accounting Standards Board ("Raad voor de Jaarverslaggeving").

Notes

1.         Listed investments are valued at the closing bid price on the valuation date on the relevant stock markets.

2.         Based on 31,837,460 shares in issue (2014: 21,617,544). During the year the Company issued 22,859 shares through its scrip dividend option, sold 3,312,057 of its own shares held in treasury and sold 6,885,000 newly issued shares.

3.         The Company's treasury net asset value is in accordance with the AIC calculation method where shares are held in treasury; subject to the Company's resale policy, including limiting dilution to 0.5 per cent of net asset value per annum. Based on shares held in treasury since the liquidity enhancement policy was put in place in 2005.  As at 31 December 2015 the Company had issued all shares previously held in treasury.

4.         Dividends per share are stated gross of applicable Dutch withholding tax.  A dividend of €0.304 was announced on 7 January 2016 and paid on 29 January 2016. This dividend was paid from other reserves. During 2016, a total distribution of €0.912 per share is payable in equal instalments in January, May and August.

5.         Financial instruments

In the normal course of its business, the Company holds a portfolio of equities, and manages investment activities with on-balance sheet risk.  Equities are valued at fair value, as described above.  These financial instruments are subject to the risks described below.

·      Market risk

Market risk is the risk that the value of a financial instrument will fluctuate as a result of changes in market prices, caused by factors that exclusively apply to the individual instrument or its issuer or by factors that affect all instruments traded in the market.  Interest rate risk is the risk that the value of a financial instrument will fluctuate as a result of changes in interest rates.

The Company minimises the risks by making a balanced selection of companies with regard to distribution across European countries, sectors and individual stocks.

Any changes in market conditions will directly affect the profit or loss reported through the Revenue Account.  A 25 per cent increase, for example, in the value of the securities portfolio as at 31 December 2015 would have increased net assets and net profit for the year by €118.5 million (2014: €72.7 million).  A decrease of 25 per cent would have had an equal but opposite effect. The calculations above are based on investment valuations at the respective balance sheet dates and are not representative of the year as a whole, nor reflective of future market conditions.

·      Credit risk

Credit risk is the risk that the counterparty of a financial instrument will no longer meet its obligations, as a result of which the Company will suffer a financial loss.  To reduce exposure to credit risk relating to financial instruments, the creditworthiness of the counterparties and the transaction size and maturity are assessed by service providers to the Company.  Wherever it is customary in the market, collateral will be demanded and obtained.  The Company and its service providers monitor and control its risks to exposures frequently and, accordingly, Management believes that it has in place effective procedures for evaluating and limiting the credit risks to which it is subject.

·      Foreign currency risk

Currency risk is the risk that the value of a financial instrument will fluctuate as a result of changes in exchange rates. The Company reports its results and financial position in Euros. The Company will have exposure to European currencies other than the Euro.  The Company does not employ any derivatives to hedge its exposure to other currencies.

·      Liquidity risk

Liquidity risk is the risk that the Company is not able to obtain the financial means required to meet its obligations.  The Company minimises this risk by mainly investing in equities that are traded on a regular basis.  The Company may use borrowings to seek to enhance returns for shareholders.  This may include the use of financial instruments; such financial instruments are valued at fair value.  Cash balances may be held from time to time and these will be held with reputable banks.  Liquidity risk of the Company is mitigated by the fact that the Company is a closed-end investment company.

·      Insight into actual risks

The Report of the Management Board Director, the overview of the Investment Portfolio, which includes the geographic distribution of the investments, and the Notes to the Annual Accounts give an insight into the actual risks at the balance sheet date.

·      Risk management of financial instruments

Managing risk is a part of the investment process as a whole and, with the help of systems, the risks outlined above are limited, measured and monitored on the basis of fixed risk measures.

·      Policy regarding the use of financial instruments

Investing implies that positions are taken.  As it is possible to use various instruments, including derivative instruments, to construct an identical position, the selection of derivatives is subordinate to the positioning of a portfolio.  The Company does not employ any derivatives to take positions.

The Company presently has banking facilities to gear the portfolio within the 20 per cent of assets level as permitted under the Articles and under the Company's tax status as a Fiscal Investment Institution.

6.         These are not the full accounts. The full accounts for the year to 31 December 2015 will be sent to shareholders and will be available for inspection at the Company's registered office Weena 210-212, NL-3012 NJ Rotterdam and from the investment managers at F&C Investment Business, 80 George Street, Edinburgh, EH2 3BU. The Company's website address is www.europeanassets.eu where the accounts can also be found once available.

7.         A General Meeting to adopt the 2015 Report & Accounts and other resolutions will be held at 10.00am on 10 May 2016 at the Company's offices in Rotterdam and a Shareholders' and Investors' Briefing will be held at 11.30am on 11 May 2016 at Pewterers' Hall, Oat Lane, London.

For further information, please contact:

Sam Cosh

F&C Investment Business Ltd, Fund Manager                                                  0207 628 8000

Scott McEllen,

F&C Investment Business Ltd, Company Secretary                                         0207 628 8000

Wilbert van Twuijver, Managing Director

FCA Management BV, Rotterdam                                                                    [phone]

 

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