Annual Financial Report

European Opportunities Trust PLC

22 September 2023

 

European Opportunities Trust plc (the 'Company')

Legal Entity Identifier: 549300XN7RXQWHN18849

Annual results for the year ended 31 May 2023

Financial Highlights

·      Net asset value total return of 3.3% and share price total return of 5.0% for the financial year, compared with a total return of 6.9% from the MSCI Europe index.

·      Net asset value total return per share of 881.8% since launch on 20 November 2000 (equivalent to 10.8% compound per year), outperforming the total return of the MSCI Europe index of 241.4% over the same period (equivalent to 5.6% compound per year).

·      Annual dividend increased by 40% to 3.5p per share compared to the prior year.

·      Reduction on management fees agreed with effect from 1 June 2023.

·      Continued buy back activity supporting a narrowing of the discount from 12.3% as at 31 May 2022 to 10.9% as at 31 May 2023.

	31 May 2023	31 May 2022	% change
Net asset value per share (pence)	876.46	850.64	3.0
Net asset value total return (with dividends added back)			3.3
Middle market share price (pence)	781.00	746.00	4.7
Share price total return (with dividends added back)			5.0
MSCI Europe index, total return in GBP (Benchmark)			6.9
Dividend per share (pence) in respect of financial year	3.5	2.5	40.0
Discount to net asset value at year end (%)	(10.9)	(12.3)
Ongoing charges ratio (%)	1.02	1.02

Matthew Dobbs, Chair of the Company commented:

"Despite the disappointing performance relative to our Benchmark over recent periods, the Board is entirely confident in our core investment case. The Investment Manager embraces a high conviction approach, selecting companies which they believe are differentiated and have the balance sheet strength, cash flows and exposure to enable them to flourish in a range of economic scenarios and provide superior returns to our investors over the medium term.

I would like to express my thanks to all of our shareholders and stakeholders for their continuing support."

Sell side call

There will be a presentation for sell side analysts at 11.00 a.m. today, 22 September 2023. Please contact Buchanan for details on [e-mail].

For further information, please contact:

Devon Equity Management Limited - AIFM Richard Pavry / Charles Bilger	[e-mail] [phone]
Singer Capital Markets - Corporate broker Robert Peel (Corporate Finance) Alan Geeves / James Waterlow / Sam Greatrex (Sales)	[phone]
Buchanan - Communications Henry Wilson Helen Tarbet George Beale	[phone] [phone] [phone]

Chair's Statement

I am pleased to present the Company's twenty third Annual Report and Accounts since launch, covering the twelve months ended 31 May 2023 and my first year as your Chair.

During the period under review the total return on the net asset value per share of the Company was 3.3% (with dividends added back). This compares with the total return of 6.9% from our Benchmark, the MSCI Europe index in GBP, and the total return on the middle market price of the Company's shares of 5.0% during the same period.

Since the year end the net asset value per share has increased by 2.0% to 894p (as at 31 August 2023), outperforming the Benchmark index which increased by 1.6% over that period. The market price of the Company's shares on 31 August was 800p, an increase of 2.4% since the financial year end.

Over the ten years to 31 August 2023 the total return on the net asset value per share was 130.5%, which compares with the total return on our Benchmark of 109.7%. The total return on the share price was 102.6%, reflecting, in part, the widening of the Company's discount in recent years.

The widening of the discount has partly reflected broader trends across the Investment trust sector but must also reflect the Company's underperformance of its Benchmark in recent years. Our Investment Manager's views on the contributors and detractors to recent performance are set out in the review below. While performance in recent years has been challenging, the Board recognises that the Investment Manager's approach to investing the Company's portfolio is clearly differentiated both from the Benchmark composition and from the approaches of many competing, actively managed, funds. This high conviction approach is likely to result in shorter-term variance from the Benchmark, both in positive and negative directions. However, the Board continues to believe that the Company represents a distinctive alternative choice for investors which we believe is well positioned to deliver outperformance again in the future.

Annual dividend

The Company's stated objective is to achieve shareholder returns primarily through capital growth and the Board does not impose a specific income objective on the Investment Manager in the management of our portfolio.

In order to qualify as an investment trust, the Company is not permitted to retain more than 15% of eligible investment income arising during any accounting period. Accordingly, the Board's policy is to propose a modest annual dividend and one at least sufficient to enable the Company to maintain its investment trust status.

Reflecting the substantial rise in net revenue for the year, augmented by a small drawdown on the Company's ample capital reserve, the Board is recommending a resolution to declare a final dividend of 3.5p per share (a 40% increase on the 2022 dividend of 2.5p) which will be proposed at the Annual General Meeting, payable on 27 November 2023 to shareholders on the Register of Members on 3 November 2023 (the Record Date). The ex-dividend date is 2 November 2023. The cost of this dividend exceeds the minimum that the Company is obliged to distribute under applicable law. A dividend reinvestment plan (DRIP) is available to shareholders who would prefer to re-invest their dividends in the shares of the Company.

The declaration of the dividend as a final dividend will provide shareholders with an opportunity to express their approval on the matter, in line with corporate governance guidelines. In the unlikely event that shareholders vote against the resolution to pay a final dividend at the Annual General Meeting, the Directors would pay an equivalent interim dividend, as otherwise the Company would be likely to lose investment trust status, with damaging tax consequences for many of its shareholders.

Our Investment Manager

In July 2022, our Investment Manager took on responsibility for the regulatory role of Alternative Investment Fund Manager (AIFM) to the Company in place of Fundrock Partners Limited. This transition followed a detailed review of the Investment Manager's internal controls, compliance and risk environment by both the Board and our depositary, JP Morgan. The Investment Manager continues to build on the robust operational platform established in 2019 and, in terms of the investment team working for your Company, our portfolio manager, Alexander Darwall, is now supported and challenged by four other investment professionals in pursuit of the Company's strategy.

Revised management Fee

The Board reviews the Company's management fee structure with the Manager each year to ensure that the terms of the fee are competitive and reasonable for shareholders. As part of this review, I am pleased to inform shareholders that the Board agreed a reduced management fee with the Investment Manager which was effective from 1 June 2023. Devon is now entitled to 0.80% per annum on 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 net assets above £1.25 billion. Previously Devon was entitled to 0.90% per annum on net assets up to £1 billion and 0.80% in respect of any net assets above £1 billion.

Our approach to gearing

The Board believes that borrowing will enhance returns to investors over the long term. The Board monitors the level of gearing carefully and has defined a risk control framework for this purpose which is reviewed at each Board meeting. It should be stressed that all gearing is subject to the Investment Manager's confidence in identifying attractive investment opportunities, and to them remaining attractive. 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 net gearing level on the Company's investments was 8.9% at the year end.

Subsequent to the financial year end the Company renewed its multi-currency revolving credit facility with The Bank of Nova Scotia, London Branch with a maximum drawable amount of £85 million available until September 2024 (2023: £100 million) and credit approval for an additional 'accordion' amount available upon application for a further £50 million (2023: £50 million). There was £75 million drawn down as at 31 May 2023, reduced to £55 million drawn down as at the reporting date.

Discount management

The Board has an active discount management policy, the primary purpose of which is to reduce discount volatility. It seeks 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.

Average discounts of investment trusts invested in European equities narrowed during the year under review, with the discount on the Company's shares being 10.9% at the year end (31 May 2022: 12.3%).

The Board believes that the most effective means of minimising any discount at which the ordinary shares may trade is for the Company to deliver strong, consistent, long-term performance from the investment portfolio (in both absolute and relative terms). However, wider market conditions and other considerations inevitably affect the rating of the ordinary shares from time to time.

In determining whether a share purchase would enhance shareholder value, the Board will take into account market conditions, the Company's performance, any known third-party investors or sellers, the impact on liquidity and total expense ratios and of course the level of discount to net asset value at which the shares are trading. Any purchases will only be made at prices below the prevailing net asset value and where the Board believes that such purchases will enhance shareholder value.

A total of 4,126,242 shares were repurchased into treasury during the period under review (with an aggregate value of £30.7 million) and a further 1,1,670,207 shares (with an aggregate value of £13.2 million) have been repurchased since the financial year end (as at 18 September 2023). This compares with 4,052,000 shares bought into treasury in the previous financial year. The repurchase of shares at a discount to NAV added a total of £4.9 million to the Company's NAV during the period under review and has added a further £1.7 million since the year end.

The Board is of the view that the Company should retain the power to buy back shares during the current financial year and is therefore seeking to renew the annual authority to repurchase up to 14.99% of the shares in issue at the forthcoming AGM.

The Company also has authority to issue new shares and to reissue any shares held in treasury for cash on a non-pre-emptive basis. Shares are issued/reissued only at a premium to NAV, thereby enhancing NAV for existing shareholders. The Directors are, once again, seeking 10% share issuance authority at the AGM. As with the buyback authority, this authority will expire at the conclusion of the AGM to be held in 2024, unless renewed earlier. No shares were issued or reissued during the period under review. 

Environmental, social & governance

Consideration of ESG factors by investors continues to be a rapidly developing field which is to be welcomed. As we have mentioned in previous communications it is still a relatively new area for investors and it can be an incredibly complex landscape with its own language and metrics and sometimes conflicting narratives. Your Board continues to engage with the Investment Manager about its approach and the part ESG factors play in research, portfolio construction and voting. The Company does not exclude sectors on sustainability grounds, however consideration of ESG risks is an inherent part of the investment process.

Board composition

As previously announced, Virginia Holmes intends to retire from the Board at the forthcoming Annual General Meeting. Ms Holmes has served on your Board since 2017 and as your Senior Independent Director since 2022. On behalf of the Board and our shareholders I would like to thank her for her invaluable contribution to the Company throughout her years of service. She takes with her our very best wishes for the future.

I am delighted that Lord Lamont has agreed to take over as Senior Independent Director with effect from the date of our AGM.

On 10 August 2023, the Board announced the appointment of Ms Manisha Shukla as a non-executive Director of the Company. Ms Shukla is a practicing solicitor with particular expertise in the financial services industry and we welcome her to the Board.

We continue to review Board composition and Directors' succession on a regular basis to ensure that we have a Board with a mix of tenures and one which provides diversity of perspective together with the range of appropriate skills and experience for your Company.

In accordance with the UK Corporate Governance Code, with the exception of Ms Holmes, all Directors who have held office throughout the financial year are offering themselves for re-election (or, in the case of Manisha Shukla, election) at the forthcoming Annual General Meeting. Between them, the Directors have a wide range of appropriate skills and experience to form a balanced Board for the Company.

I would like to thank my fellow Directors for their diligence and dedication on your behalf over the last year.

Continuation vote

Under our Articles of Association, the Company is required to put forward to shareholders a resolution every three years to approve the Company continuing in being as an investment trust. Accordingly, an ordinary resolution to that effect will be proposed at this year's Annual General Meeting.

During the ten months since my appointment as your Chair I have engaged directly and through both Devon and our brokers with a range of shareholders representing the majority of the Company's ordinary share register. These engagements have included both the Company's largest shareholders as well as some smaller holders. I have been encouraged by the support from shareholders during these discussions, noting that that the Company's underperformance over the past five years should be set in the context of the longer-term outperformance achieved for the Company's portfolio since the Company's launch in November 2000 and acknowledging the importance of the consistent application of the Company's discount management policy described above. The Board considers the continuation of the Company to be in the best interests of shareholders and recommends that shareholders vote in favour of the continuation resolution at the Annual General Meeting.

Annual General Meeting

The Company's Annual General Meeting will be held on 15 November 2023. Notice of the Annual General Meeting, containing full details of the business to be conducted at the meeting, is set out in the Annual Report and Accounts.

I would like to take the opportunity to remind shareholders that you have the right to vote on important matters that affect the Company. It is an important aspect of an investment trust that shareholders can and are encouraged to make their voices heard by voting on key business matters.

We continue to be pleased to see moves in the investment platform industry to democratise shareholder access for nominee holders with information being made more readily available by platforms to shareholders when companies have votes open and giving the ability for shareholders to participate in those votes. This past year in December, one of the largest platforms, Hargreaves Lansdown, joined Interactive Investor in offering an online voting service for its clients. Should you be a shareholder through a platform which offers the opportunity to vote then we encourage you to take advantage of those arrangements for casting your votes and thus having your say in the running of your Company.

In addition to the formal business, Alexander Darwall will provide a presentation to shareholders on the performance of the Company over the past year as well as an outlook for the future. The Board would welcome your attendance at the AGM as it provides shareholders with an opportunity to put questions to both the Board and of the Investment Manager.

Outlook

Despite the disappointing performance over recent years the Board is confident in our core investment case. We believe that our Investment Manager has the potential to provide superior returns over the medium term and we encourage all Shareholders to support the continuation of the Company for a further three years at the forthcoming AGM.

I would like to express my thanks to all of our shareholders and stakeholders for their continuing support.

Matthew Dobbs

Chair

21 September 2023

Investment Manager's Review

Despite slowing economic growth, stubbornly high inflation and higher interest rates, European equities advanced in the period under review.

Higher interest rates normally have the effect of depressing equity valuations and corporate earnings; and slower economic growth should also suppress earnings growth. Equity valuations were nevertheless sustained during the period despite the impact of higher rates. Corporate earnings, on the other hand, have come under pressure. After the surge in earnings in 2021 and 2022, consensus aggregate earnings for 2023 and 2024 are expected to be weak, with barely any growth in 2023 and only about 5% expected in 2024.

The main explanation for the rise in European equity markets lies in the lingering effects of the massive, expansionary 'quantitative easing' (QE) central bank policies which were started in 2009 in response to the Global Financial Crisis. Although policy makers have now moved from QE to 'quantitative tightening' (QT), the effects of the European Central Bank's (ECB's) Asset Purchase Programme (APP) and the Bank of England's bond buying programme will take time to reverse. Even though interest rates have now risen markedly, there is still a great deal of 'cheap' money in the economy. Whilst the stock of cheap money created by QE continues to sustain equity valuations, government initiatives such as furlough schemes during COVID created significant excess household savings, sustaining surprisingly high levels of consumer spending. This has been a crucial factor behind the resilience of the European economies and underlying corporate earnings. As household savings are used up, and as QT grinds on to reverse the expansionary effects of QE, in due course the present benign economic conditions will give way to a much tougher economic climate.

Another element explaining the good performance of European equities during the period is the easing of concerns over energy costs. Europe's energy dependency is well known. The Green transition is not significantly changing this dependency, at least not in the foreseeable future. Approximately 60% of Europe's energy needs are imported. The rupturing of supplies and, finally, prohibiting the import of gas from Russia has made Europe much more dependent on imports of liquefied natural gas (LNG). Indeed, LNG imports have surged, with the US the principal source. In addition, Europe's energy use by households and industry dropped by an estimated 15% last winter. The decarbonisation of the European economy has been accomplished through a loss of industrial competitiveness, with industry (and associated emissions) being moved offshore.

Europe's economy continues to underperform other regions. The IMF's most recent forecasts in April 2023 bear this out. The IMF expects the European Union to grow at 0.8% in 2023 and by 1.6% in 2024. The respective figures for world growth are 2.8% and 3%. Inflation has proved to be a more intractable problem in Europe than elsewhere. Accordingly, European central banks, notably the ECB changed course when in June 2022 the Governing Council of the ECB decided to discontinue net asset purchases under the APP as of 1 July 2022 and thereby signalled its intention to raise interest rates. At the time of writing, the ECB's main refinancing rate is 4% and the 3-month Euribor interest rate is 3.57%, compared with 0% and -0.34% respectively at the end of May 2022. This rapid rise in interest rates doubtless has the effect of slowing economic growth, although, for the reasons described above, the full impact is yet to be felt.

Positioning

We continue to invest in what we describe as 'special' companies, companies that, in our opinion, can flourish in a range of economic scenarios and which are well protected from competitive pressures. We believe that our portfolio is well positioned to navigate macro challenges. Our companies tend to be much more global in their activities than most European listed stocks, thereby achieving exposure to faster growing economic regions; our companies tend to have stronger balance sheets with less debt and higher cash flows than most European listed stocks and thereby less vulnerable to higher interest rates; our companies are relatively low users of energy and are therefore less concerned by higher energy costs. Moreover, our companies are generally relatively less exposed to consumer spending. Selling products and services with measurable added value to other corporates and governments is, we think, a more resilient business model as the economy slows down.

Even though we observe a retreat from globalisation, most obviously with the deterioration in China's relations with the West, we continue to maintain the 'global' character of our portfolio and believe that it is a crucial strategic advantage. The nature of our investee companies' exposure to China is, generally speaking, such that we do not consider 'value at risk' to be a major concern. In some cases, for instance semiconductors, there is a need to build more capacity in the US and Europe to counter the dependency on production in China and Taiwan. This duplication is, from a strictly economic view, disappointing. However, for individual companies it can be a boon.

The Company's high level geographical and sectoral exposures are a product of our stock picking approach to investment rather than an active asset allocation decision in their own right.

We believe the Company's portfolio is well diversified, despite the relatively small number of holdings. The portfolio has been managed in a consistent manner since the launch of the Company in November 2000.

The biggest changes in the Company's sectoral exposures over 7 years have been the reduction to Consumer Discretionary and Financials. The reduction in Basic Materials and Telecommunications is explained by the acquisition of the Company's former holding in Syngenta by ChemChina and the sale of Inmarsat, respectively. The key underweights have consistently been to mainstream Financials, Real Estate and Utilities. The Company's relatively large exposure to Healthcare is diversified by the activity, market cap and portfolio weighting of our underlying holdings.

Performance

The total return on the net asset value of the Company's ordinary shares was 3.3% during the twelve months to 31 May 2023. This compares with a total return of 6.9% from our Benchmark, the MSCI Europe index in GBP.

We under performed our Benchmark during the period under review. We had relatively low exposure to some of the better performing sectors in the Benchmark during the period, such as defence financials and luxury goods. Stock picking is the key to our strategy. We believe that our portfolio has been hampered in recent years by the widespread investor apathy towards European equities which has, we believe, caused an unmerited derating of some of our companies.

European funds are out of favour, as evidenced by the significant outflows from open-ended European equity funds this year. To a certain extent it is understandable that asset allocators have withdrawn funds from European equities: Europe is most heavily impacted by the energy crisis and does not appear to have effective policies to reverse its long record of economic underperformance. Recent manifestations of this malaise such as civil unrest in France harden the perception that Europe is a difficult area in which to invest. A reduced allocation to European equities disproportionately affects the mid and smaller stocks in which we are overweight. Investor indifference is only slightly mitigated by private equity interest in the region. Over the last year we have had private equity bids for three of our companies, Network International, OHB and SUSE. In all cases we consider the bids were too low but the signal lack of interest from public market investors meant that we had no choice but to accept. Even with occasional bids from private equity, we believe that many of our companies are currently materially under-valued.

Results from our companies were good, underscoring our optimism in the portfolio. We expect further positive developments as the year progresses. The top performing companies in the period under review, as shown in the full portfolio set out below have also been key contributors over the past three years.

Contributors

The biggest single contributor to our performance in the period under review was Novo Nordisk, the Danish pharmaceutical company, and our biggest investment. The company's results have confirmed that demand for their new diabetes and anti-obesity drugs is soaring. The anti-obesity part of their business is extraordinary: an almost completely new opportunity. Whereas existing therapies have failed to make much of a mark, Novo Nordisk's GLP-1 drugs have proved to be extraordinarily efficacious in causing weight loss. It is a huge, growing global market with only one serious competitor presently.

The scale of the opportunity is hard to envisage, though one way is by taking the World Health Organisation's definition of obesity, that being a Body Mass Index (BMI) of more than 30. By this definition, in 2016 there were over 650 million obese adults globally, a number surely higher now and certainly higher if children were included. Like all blockbuster opportunities, competition is working hard to enter the space. Likewise, the stunning success of the drugs has (rightly) brought commensurate scrutiny of the safety issues. On both counts we are optimistic.

As for competition, the market is obviously big enough for multiple players. Novo Nordisk can point to certain advantages (first mover, strong global reputation, and favourable cardiovascular effects of their drugs) which are likely to ensure a strong position in the market. As for safety concerns, the company's GLP-1 drugs have been in the market, and taken by millions of people, since 2014. There is therefore plenty of real-world evidence which, to date, does not concern us unduly. Nevertheless, we recognise that these factors - competition and safety concerns - are holding the shares back in the short term. The results of more clinical trials are expected which should further boost the company's prospects. Notwithstanding our great confidence in the company, for the reasons explained in 'Portfolio Activity', we reduced our weighting.

The next biggest contributor to our 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 gift cards, 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. Revenues are expected to grow at nearly 20% in the near term, 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.

Infineon, the German-listed, designer, manufacturer and marketer of power semiconductors, was another significant contributor to performance. Demand for power semiconductors has remained robust. Infineon's semiconductor systems and solutions help to feed regenerative energy into power grids, reduce energy consumption by computers and make cars more energy efficient. Power efficiency and savings are clearly of increasing importance and Infineon is well placed to benefit.

One of our long-standing investments, RELX, was another good performer. Opinion is split as to whether the company will be a winner or loser from Generative AI. The good price performance suggests that most investors think RELX is a winner from Generative AI. This is also our view. There are two areas of the company's business, Risk and Legal, where we think it will benefit. AI is not completely new: RELX has for many years developed algorithms which might now be described as AI. The necessary ingredients for success are control of data and domain knowledge. RELX has both of these and thereby is well protected from new entrants. In fact, we expect the company's use of AI to be one factor which will increase the growth rates of its Risk and Legal businesses.

In absolute terms Network International was the best performing stock in the portfolio following a takeover offer from a private equity consortium. Nevertheless, this was a disappointing outcome. The price at which the takeover was agreed, in our opinion, significantly under-valued Network International. Yet the directors were right to recommend the offer as public market investors had not shown much interest in the company. This episode is illustrative of public market investor apathy. Private equity has certain advantages, not least that their investors are, necessarily, more patient. It is regrettable that good companies such as Network International fail to attract the requisite investor support to keep it in the public markets.

The performance of Oxford Instruments in some respects bears out this point. In March 2022, Oxford Instruments was the subject of a conditional takeover offer. Fortunately, Oxford Instruments remained independent and has, since the takeover approach, produced a string of excellent results. Public market shareholders are now benefitting from the company's commercial success, a success built on its leading technologies. We expect the company to continue its impressive record, delivering ever-more efficient research and manufacturing tools including microscopy, scientific cameras and imaging which they supply to a wide range of life sciences and physical sciences enterprises.

Although it made only a small contribution to the portfolio's performance, as the second largest holding, Experian, the leading credit bureau, deserves comment. Credit origination in the US, one of the key drivers of Experian's business, remained solid. Experian has developed a consumer-facing business in North America which represents a successful diversification. Its business in Brazil, its second biggest market, is thriving in the wake of changes in the banking landscape in Brazil. The company has virtually no presence in China (no value at risk) but sees scope to develop its other assets in Asia. India, where Experian has been present with a credit bureau for many years, and which represents a significant medium term growth opportunity.

Another positive contributor to performance was Dassault Systèmes, the French-listed technology company. The company provides design and engineering software for manufacturers and product life cycle management software to pharmaceutical and healthcare companies. This long-standing investment continues to impress with its constant innovation and strong strategic steps. Its strategic vision and good execution mean that, in our opinion, Dassault Systèmes is likely to build on its excellent track record.

Deutsche Boerse also contributed to performance. Higher interest rates in the US and Europe boosted net interest income on cash balances. Turmoil in financial markets is good for the company, both directly with more index futures trading and indirectly as higher interest rates boosts their income from customer deposits. Returns from commodity derivatives was also boosted by high margin fees.

Finally, we note the strong showing of Grenke, the German small-ticket leasing company. The subject of unfounded allegations of illegality in 2020, the company has cleared its name and is now reporting good results. Higher interest rates are, surprisingly perhaps, relatively good news for its leasing business. Customers are quick to recognise higher borrowing costs from bank lending. The same is not true of leasing. Accordingly, Grenke is reporting better volumes and profits even as interest rates rise. We expect the company to continue to progress.

Detractors

The worst performing stock in the period under review was Grifols. Grifols, a Spanish company, is a world leader in the manufacture and marketing of blood plasma derivatives. Poor management lies at the root of the problem. The company has over-extended itself, taking on too much debt. Moreover, the management has not executed well, allowing its core US operations to drift. However, following a period of management turmoil, we are satisfied with the appointment of a new CEO. The announcement of a significant restructuring plan and other commitments to reduce debt has hardened our confidence. The company faces a potential existential threat to the business in the form of new competition from new anti-FcRn inhibitors which threaten to displace Grifols' IgG fractionated products. In our view, demand for fractionated blood plasma will remain strong notwithstanding the impact of FcRn inhibitors, and in due course collections will return to normal as harsher economic conditions incentivise blood plasma donors to return. The early signs of a turnaround in the company's fortunes are encouraging.

Shares in SOITEC, the French technology company, performed badly. SOITEC has unique technology. It designs and manufactures semiconductor materials. They produce substrates for miniaturising chips, improving their performance and reducing their energy usage. Management ructions explain the weak share price. This situation appears to have stabilised now and as investor attention has refocussed on their new innovative initiatives, confidence has started to return. We are optimistic that SOITEC will enjoy another boost to its growth rate as its technology is adopted in silicon carbide devices, itself a play on the growing electric vehicle market.

Bayer shares also retreated in the period under review. Bayer is a global enterprise with core competencies in life sciences, healthcare and technology for agriculture. Even the appointment of a new CEO could not shake the torpor that afflicts Bayer's shares. This German conglomerate has been plagued by lawsuits in the US over the alleged carcinogenic effects of Roundup, its systemic, glyphosate-based herbicide originally produced by Monsanto. To date, the company has set aside approximately $13 billion to settle with most plaintiffs. There is a risk of further costs. The Crop Science business of Bayer is world class. We expect its value will be properly recognised by investors in due course.

Mowi is the world's leading salmon farmer. The business has performed well, with demand for salmon continuing to improve, underlining our view that this is a good, resilient business. However, the Norwegian government introduced a new 'resources' tax to take most of the profits that Mowi generates from its Norwegian based business. This quasi nationalisation was unacceptable to us; it distorts normal capital allocation and represents a significant penalty for Mowi's success in building a strong business. Accordingly, we sold our shares.

The French company, Gaztransport & Technigaz (GTT) also slightly detracted from our performance. It provides engineering and design technologies for liquefied natural gas (LNG) carriers and engineering and design technologies for LNG propulsion systems for ships. Although the EU Parliament decided to approve the inclusion of gas and nuclear in the EU Taxonomy, lower gas prices has blunted investors' enthusiasm for GTT. The greater use of natural gas is clearly vital to GTT's success. One of the main attractions of natural gas is that it is a ''transition'' fuel, a fuel that can substitute oil and coal with lower carbon dioxide emissions. However, pressure is building to move directly to renewable sources of energy, bypassing the use of natural gas. The International Maritime Organisation, for instance, has recently adopted a net zero commitment for international shipping by 2050. In the absence of credible alternative fuels, we think this is an unrealistic ambition and continue to believe that LNG will form an important part of shipping's fuel mix. We are confident in GTT's prospects.

Shares in Genus, the world leader in porcine and bovine genetics, fell sharply. The core business, the development and supply of bovine and porcine genetics, remains very solid. It is a world leader. However, the Chinese market, an important market for Genus, has slumped as African Swine Fever has ravaged the Chinese pig herd. In due course we expect the Chinese market to recover and with that we would expect to see a recovery in the Genus share price. The company is at an advanced stage with studies which we expect will lead to it applying for regulatory approval of its gene editing technology for creating animals resistant to the Porcine Reproductive and Respiratory Syndrome virus (PRRSv). This is potentially a huge, transformational opportunity for Genus. We remain confident about the core business and see tremendous potential value in the company's gene editing technology.

Neste, the Finnish-listed company, had a small negative impact on our returns. Its principal business is the production and sale of renewable biodiesel including Sustainable Aviation Fuel (SAF). Results have been excellent. However, investors have concerns both about demand and supply for their products.

As regards demand, the new Swedish government's decision to cut the amount of biofuel that must be added to diesel and petrol has highlighted the vulnerability of a business which is largely dependent on government regulation. We do not expect a softening in mandates in Europe, which are forecast to drive demand. And whilst it is true that most demand depends on mandates in Europe and the US, the voluntary market is also important and growing. SAF is the most significant part of the voluntary market in which airlines have chosen to go beyond EU or government mandates committing to using increasing proportions of SAF with jet fuel. We are confident that demand for Neste's renewable products is growing strongly.

As regards supply, admittedly there are plenty of competitors with plans to build capacity. However, we think that Neste has a critical advantage in securing feedstock partly because Neste's proprietary processing technology allows it to use lower quality waste materials, giving it an advantage over its competitors and partly because it has built an impressive global collection platform. Without such an advantage, we think that competitors will struggle to secure sufficient resources thereby limiting its capacity to compete. We remain confident that the company's prospects are soundly based.

BioMérieux, the French listed in vitro diagnostics company, has emerged from Covid a bigger, more profitable business. Yet the shares have been derated. This we attribute to investor apathy rather than to a deterioration in the company's prospects. Indeed, with the launch of its new point-of-care syndromic testing kits, we believe that BioMérieux has opened a big new opportunity. The company's prospects are better than ever.

Since its listing in April 2021 Darktrace has produced a series of excellent results. The company warned that their growth rate has slowed to just under 30%, a figure that unsettled some investors. The bigger concern for Darktrace was the allegation of criminal misconduct, specifically in its accounting practices. The company announced in July that a forensic audit had found no evidence of wrongdoing. We have engaged extensively with management and the directors. Consequently, we are currently relatively optimistic for this holding.

Finally, Intermediate Capital Group (ICG) also detracted from our relative returns. ICG is a UK-listed private equity company investing in private credit and debt. Although its results have continued to impress, many investors are concerned that ICG will be adversely affected by rising interest rates. To some extent this is true, however there are other considerations which makes us, on balance, more optimistic. The first is that ICG has more exposure to private debt than it has to private equity. This implies that it possesses substantial safeguards, given the availability of funds to settle debts prior to benefiting shareholders. In this respect, the tighter debt situation is a positive for the company.

Activity

We raised approximately £153 million from sales during the year under review, representing about 17.8% of the portfolio. We reinvested approximately £118 million of the proceeds, representing 13.6% of the portfolio, using part of the balance to reduce bank borrowings. We remain confident in our investments but have been reducing net gearing over the last few months, largely in response to higher interest rates.

The biggest sale during the year was that of our entire holding in the Swiss-listed Barry Callebaut, the world's leading manufacturer of high-quality chocolate and cocoa products. As a consumer facing business we were concerned that higher chocolate prices would impact demand for Barry Callebaut's products. Indeed, since selling the position the company's results have shown that this is what happened.

We also sold our shares in Mowi for the reasons explained earlier in this report: a new punitive tax on the company's Norwegian operations convinced us that this will stunt the development of salmon farming in Norway.

We sold Pets At Home as we have concerns about how it will fare in a UK consumer recession.

We reduced weightings in Novo Nordisk, Infineon, Dassault Systèmes, Wolters Kluwer, RELX, GTT, Worldline, BioMérieux. The bigger sales of Novo Nordisk, Infineon, Dassault Systèmes and RELX were prompted by strong performance, reducing already significant weightings. The other sales were made on valuation grounds and when we considered there was better value to be found in other stocks. The over-arching consideration was to reduce the Company's borrowings.

In the course of the year we took new positions in Ryanair, Genmab, Bachem, Air Liquide, SUSE, Elkem, BFF, and Prysmian. Of these, Ryanair was the biggest new position. This is a company which we have held for long periods in the past. Although we have some concerns about investing in a business that is vulnerable to a consumer recession, the extent of the cost and network advantages that Ryanair has built in recent years is extraordinary. Ryanair has, because they planned for a strong recovery during the Covid pandemic, gained market share in the European short haul market. Its network of flight routes has expanded as competitors have retreated. Its cost advantage is such that we believe it can weather a recession well not least because it should gain more market share as passengers seek better value flights.

We also established a position in Genmab, a Danish biotech company, focussed primarily on oncology through the production of monoclonal and bispecific antibodies. It has leadership in the most complex aspects of antibodies production and an impressive pipeline. We see opportunities for the company to develop in other therapeutic areas. Their potential addressable market is huge although it will take time for this to develop.

Air Liquide was another important new purchase. It is a global leader in industrial and healthcare gases, producing and selling gases such as hydrogen, liquid nitrogen, oxygen and carbon dioxide. Industrial gases are vital to most industrial activities. The transition to 'green' industrial gases, notably hydrogen, represents a significant potential opportunity for Air Liquide. We like their low risk, higher reward strategy as regards the green transition. It is their customers, rather than Air Liquide itself, which take the initial, substantial capital risks where 'green' transition is concerned.

We initiated a position in Prysmian, an Italian company headquartered in Milan. Prysmian operates in the business of underground and submarine cable systems for power transmission and distribution, special cables for applications in various industrial sectors and medium and low voltage cables for infrastructure and construction needs. The Group also operates in the telecommunications sector by manufacturing cables and accessories for voice, video and data transmission, with a full range of optical fibre, optical and copper cables, and connectivity systems. North America accounts for over a third of group sales and is the region which will probably make the greatest contribution to profits growth in the medium term. There is a tremendous need to overhaul and modernise the electric grid in the US. Increasing electricity generation, driven by the substitution of fossil fuels for renewable energy sources, more data centres and 're-shoring', necessitates this upgrade. The same is true in Europe, which accounts for over 40% of group sales, though the grid is not as old as in the US.

Smaller new purchases included that of shares in Bachem, the Swiss listed company, which develops and produces peptide active pharmaceutical ingredients (API). Bachem has long-term expertise in chemistry manufacturing and controls development in industrial peptide manufacturing. The company is expanding into the adjacent activity of oligonucleotide manufacturing.

Bachem stands to benefit from the growth in the market for peptide-based therapies, most notably the GLP-1 class of drugs for diabetes and obesity, although the pipeline of broader peptide-based therapies is exceptionally strong. The success of existing and new peptide-based therapies can be expected to drive a continued inflow in R&D investment into peptide- based therapies, underpinning our confidence in the continued growth of the market, from which, as the clear market leader, Bachem stands to gain. The company's expansion into the adjacency of oligonucleotide manufacturing further contributes to the company's growth prospects.

SUSE is a German-based multinational open-source software company that develops and sells Linux computer operating systems to business customers. Subscribers receive support and access to custom packages which improve the operating system. As computing power and use rises, we expect the demand for operating system instances to increase in parallel. This is what Linux from SUSE, the world's second biggest provider of paid Linux, provides. Recent execution has disappointed. We believe that the newly appointed CEO can improve execution and boost the growth rate. We sold this holding after the period end following a recommended offer by a private equity company.

We also took a very small position in Elkem, the Norwegian-listed producer of silicones and silicon products, operating worldwide. We believe that the company enjoys a sustainably favourable cost position which will ensure that it remains a leader as demand grows.

A new position was established in BFF Banking Group, the largest independent specialty finance company in Italy and a leading player in Europe. It specialises in the management and non-recourse factoring of trade receivables due from the Public Administrations, securities services, banking and corporate payments. Experts at collecting payments from public authorities, BFF provides this factoring service to many suppliers to the same public authorities. Its roots are in collections for their pharmaceutical customers. The group operates in Italy, Croatia, Czech Republic, France, Greece, Poland, Portugal, Slovakia and Spain.

Largest net purchases and sales during the period

Largest net purchases	£'m	Largest net sales	£'m
Ryanair	15.6	Novo Nordisk	30.7
Genmab	14.7	RELX	22.8
Air Liquide	13.4	Barry Callebaut	17.6
Prysmian	12.2	Mowi	15.9
Edenred	5.1	Infineon Technologies	9.6

Gearing

Net gearing at 31 May 2023 was 8.9%. In setting the level of borrowings, we are mindful of the levels of debt in our underlying companies, as well as the macro situation and upside potential of our investments. It is not our intention in the foreseeable future to increase borrowings. Since the year end our net borrowings have reduced further to 5.6% as at 31 August 2023.

Outlook

Investor sentiment regarding Europe is not good. Europe has been a structurally lower growth region than North America and Asia. This pattern is unlikely to change soon. Indeed, Europe remains vulnerable to further energy shocks. The EU's target, as set out in its 'Fit for 55' is the reduction of EU emissions by at least 55% by 2030. The corollary is that renewable energy should reach 45% share of the total energy mix by 2030. Reaching these goals has an economic cost. Accordingly, we select companies that have a global reach, tapping into faster growing regions, and companies where energy costs are a lower component of the overall cost base.

The European economy has proved to be surprisingly resilient, buoyed by robust consumer spending. Driven by the joint impacts of monetary and fiscal stimulus, the post-pandemic period has been one characterised by abundant liquidity and a resilient consumer. However, as the ECB's asset purchases continue to unwind and consumers deplete their pool of excess savings, we see a different dynamic unfolding, a less resilient economy and more subdued consumer spending.

Our companies, typically, have lots of intellectual property (IP) and innovate extensively, meeting customers' needs. New technologies will continue to drive innovation and create new business opportunities. Most prominent of these emergent technologies is Artificial Intelligence (AI). In our view, the biggest beneficiaries of this development will be those companies that have proprietary, monetisable data, and those that provide infrastructure to accommodate significant computing applications, fitting exactly the profile of our investee companies. These same IP intensive, innovative businesses have pricing power and discipline, a crucial factor in softer economic conditions. We remain confident in our strategy and in the positioning of our portfolio. Our lower exposure to consumer spending and input cost dependency positions us well. Moreover, the strong balance sheet and profitability profiles of our companies positions them well not only to survive in more challenging conditions, but to thrive as competitors lack the cash flows to invest through the cycle and as new M&A opportunities emerge.

Our style has remained consistent throughout the 23 years since the Company's launch in November 2000. We invest in companies with exceptional, idiosyncratic growth prospects, that succeed through the cycle, owing to the value proposition their products represent to customers. Notwithstanding our concerns about widespread investor apathy, we continue to identify and invest in special companies which enjoy structural growth. This is the basis of our confidence in the medium-term prospects for the Company's portfolio.

Alexander Darwall

CIO, Devon Equity Management Limited

21 September 2023

Investment Portfolio as at 31 May 2023

Company	Sector	Country	Market Value   £'000	Portfolio weight/%	Benchmark weight/%	Price 12 months/%	Relative Contribution to Portfolio return/%
Novo Nordisk	Healthcare	Denmark	121,606	13.0	2.7	48.8	4.4
Experian	Industrials	UK	88,437	9.4	0.3	8.5	1.0
Dassault Systèmes	IT	France	77,777	8.3	0.3	6.7	0.7
RELX	Industrials	Netherlands	75,351	8.0	0.6	13.1	1.2
Edenred	IT	France	57,842	6.2	0.2	35.2	1.6
Deutsche Boerse	Financials	Germany	57,480	6.1	0.3	6.8	0.4
BioMérieux	Healthcare	France	52,255	5.6	0.0	(2.3)	0.1
Bayer	Healthcare	Germany	44,376	4.7	0.6	(17.4)	(0.8)
Genus	Healthcare	UK	42,579	4.6	-	(7.5)	(0.2)
Infineon Technologies	IT	Germany	32,672	3.5	0.5	22.1	0.8
Intermediate Capital Group	Financials	UK	31,694	3.4	-	(6.0)	(0.2)
SOITEC	IT	France	31,566	3.4	-	(22.4)	(1.0)
Grifols	Healthcare	Spain	25,523	2.7	0.0	(44.0)	(2.2)
Merck	Healthcare	Germany	22,433	2.4	0.2	(5.1)	(0.0)
Gaztransport & Technigaz	Energy	France	20,487	2.2	-	(20.1)	(0.6)
Oxford Instruments	IT	UK	19,337	2.0	-	25.7	0.5
Neste	Energy	Finland	19,013	2.0	0.2	(31.2)	(0.9)
Darktrace	IT	UK	15,522	1.7	-	(23.4)	(0.4)
Ryanair Holdings	Industrials	Ireland	15,419	1.6	-	(1.9)	(0.0)
Air Liquide	Materials	France	13,474	1.4	0.9	1.6	(0.1)
Genmab	Healthcare	Denmark	12,858	1.4	0.3	(15.1)	(0.3)
Prysmian	Industrials	Italy	11,929	1.3	0.1	(2.3)	(0.1)
Grenke	Financials	Germany	9,615	1.0	-	6.8	0.1
Network International Holdings	IT	UK	9,255	1.0	-	68.6	0.4
Bachem Holding	Healthcare	Switzerland	4,219	0.5	0.0	(21.6)	(0.1)
Grifols Preference	Healthcare	Spain	4,105	0.5	-	(35.7)	(0.2)
Hikma Pharmaceuticals	Healthcare	UK	3,583	0.4	0.0	6.8	0.0
Elkem	Materials	Norway	2,898	0.3	-	(20.6)	(0.1)
Borregaard	Materials	Norway	2,815	0.3	-	(12.6)	(0.2)
OHB	Industrials	Germany	2,707	0.3	-	(7.3)	(0.0)
Wolters Kluwer	Industrials	Netherlands	2,290	0.2	0.3	19.0	0.2
SUSE	IT	Luxembourg	1,795	0.2	-	(31.3)	(0.1)
Worldline	IT	France	1,754	0.2	0.1	(3.3)	0.1
BFF Bank	Financials	Italy	1,652	0.2	-	9.3	0.0
Total			936,318	100.0

* Price performance and relative contribution to portfolio returns have been calculated on a total return and transactions basis over the period from close on 31 May 2022 to 31 May 2023. These calculations include the impact of foreign currency rates and are based on Bloomberg securities and FX pricing sources and Bloomberg's estimation of the portfolio's total market value. Relative contribution to portfolio return is measured against the MSCI Europe total return index in GBP. Source: Devon, Bloomberg.

Strategic Report

The Strategic Report has been prepared in accordance with the Companies Act 2006 (Strategic Report and Directors' Report) Regulations 2013. The Strategic Report seeks to provide shareholders with the relevant information to enable them to assess the performance of the Directors and the Company during the financial year under review as per the requirements for Directors in the Companies Act 2006.

Business and Status

During the year, the Company carried on business as an investment trust with its principal activity being portfolio investment. The Company has been approved by HM Revenue & Customs as an investment trust subject to the Company continuing to meet the eligibility conditions of sections 1158 and 1159 of the Corporation Tax Act 2010 and the ongoing requirements for approved companies as detailed in Chapter 3 of Part 2 of the Investment Trust (Approved Company) (Tax) Regulations 2011. In the opinion of the Directors, the Company has conducted its affairs in the appropriate manner to retain its status as an investment trust.

The Company is an investment company within the meaning of section 833 of the Companies Act 2006. It is not a close company within the meaning of the provisions of the Corporation Tax Act 2010 and it has no employees. The Company is domiciled in the United Kingdom, was incorporated in England & Wales on 16 August 2000 and started trading on 20 November 2000, The Company is an Alternative Investment Fund (AIF) for the purposes of the UK Alternative Investment Fund Managers Regulations.

There has been no significant change in the activities of the Company during the year to 31 May 2023 and the Directors anticipate that the Company will continue to operate in the same manner during the current financial year.

Investment policy

The Company will, at all times, invest and manage its assets, with the objective of spreading risk and in accordance with the following Investment Restrictions:

·      no single holding shall constitute more than 10% of the Company's total assets (calculated at the time of investment). The Board will pay particular attention to holdings which grow to represent more than 10% of total assets;

·      the Company will not invest in unlisted securities;

·      the Company will not invest in derivative instruments, whether for efficient portfolio management, gearing or investment purposes;

·      the Company will not invest in other listed closed-ended investment funds;

·      the Company shall not take legal or management control over any investments in its portfolio; and

·      not more than 50% of the Company's investments may be in securities which are not qualifying securities or government securities for the purposes of the UK ISA Regulations.

The Board is responsible for promoting the long-term success of the Company for the benefit of all stakeholders and in particular its shareholders. Although the majority of the day-to-day activities of the Fund are delegated to the Investment Manager and third-party service providers, the responsibilities of the Board are set out in the schedule of matters reserved for the Board and the relevant terms of reference of its Committees, all of which are reviewed regularly by the Board.

To ensure that the Board is able to discharge this duty, both the Investment Manager and third-party service providers are required to provide the Board with regular updates. In addition the Directors, or the Board as a whole, have the authority to seek advice from professional advisers including the Company's service providers and independent external advisers as well as attend any relevant training seminars.

Any material change in the investment policy of the Company described above may only be made with the approval of shareholders by an ordinary resolution.

Investment Approach

The Investment Manager adopts a stock picking approach in the belief that a thorough analysis and understanding of a company is the best way to identify long-term superior growth prospects. This understanding begins with identifying those companies where the ownership structure and incumbent management are conducive to the realisation of the aim of achieving superior long-term earnings growth.

The Investment Manager seeks to identify companies which enjoy certain key business characteristics including some or all of the following:

·      a strong management record and team, and the confidence that the Investment Manager has in that management's ability to explain and account for its actions;

·      proprietary technology and other factors which indicate a sustainable competitive advantage;

·      a reasonable expectation that demand for their products or services will enjoy long-term growth; and

·      an understanding that structural changes are likely to benefit rather than negatively impact that company's prospects; and

·      the ESG criteria (described above).

In analysing potential investments, the Investment Manager employs differing valuation techniques depending on their relevance to the business characteristics of a particular company. However, the underlying feature will be the sustainability and growth of free cashflow in the long-term.

Portfolio risk

Portfolio risk is mitigated by investment in a diversified spread of investments. The Investment Manager is not constrained by Benchmark weightings, sector, geographical location within Europe or market capitalisation or size of investee companies.

Benchmark index

The Company's Benchmark is the total return on the MSCI Europe index in GBP.

Borrowing limits

The Board considers that long-term capital growth can be enhanced by the use of gearing through bank borrowings. The Board considers that the Company's level of gearing should be maintained at appropriate levels, with sufficient flexibility to enable the Company to adapt at short notice to changes in market conditions.

The Board oversees the level of gearing in the Company and reviews the position with the Investment Manager on a regular basis. In normal circumstances the Board does not expect the level of gearing to exceed 20% of the Company's total assets (calculated at the time of borrowing).

Future developments

It is the Board's ambition to grow the asset base of the Company through a combination of organic growth and new issuance of shares (where there is an opportunity to do so at a premium to NAV). The Investment Manager is encouraged to use the particular advantages of the Company's investment trust structure to enhance potential returns to shareholders, including the use of gearing and the freedom to hold high conviction positions through periods of market fluctuations.

Planned life of the Company

The Articles of Association of the Company provide that at every third Annual General Meeting an ordinary resolution shall be proposed that the Company shall continue in existence as an investment trust. If any such resolution is not passed at any of those meetings, the Directors shall, within 90 days of the date of the resolution, put forward to shareholders proposals (which may include proposals to wind up or reconstruct the Company) whereby shareholders are entitled to receive cash in respect of their shares equal as near as practicable to that to which they would be entitled on a liquidation of the Company at that time (and whether or not shareholders are offered other options under the proposals).

The next scheduled continuation vote will be at the 2023 Annual General Meeting. Shareholders should note that the valuation policies used to produce these Accounts on a going concern basis might not be appropriate if the Company were to be liquidated.

Dividend policy

The Company's objective is to achieve shareholder returns through capital growth rather than income. However, in order to qualify for approval as an investment trust, the Company is not permitted to retain more than 15% of eligible investment income arising during any accounting period. Accordingly, the Board's policy is to propose a modest annual dividend and one at least sufficient to enable the Company to maintain its investment trust status.

Management

The Company has no employees and most of its day-to-day responsibilities are delegated to the Investment Manager.

J.P. Morgan Europe Limited acts as the Company's depositary and the Company has entered into an outsourcing arrangement with J.P. Morgan Chase Bank N.A. for the provision of accounting and administration services.

Although Devon Equity Management Limited is named as the Company Secretary at Companies House, J.P. Morgan Europe Limited provides all company secretarial services to the Company as part of its formal mandate to provide broader fund administration services to the Company.

Risk management & internal controls

The Board has established an ongoing process for identifying, evaluating and managing significant risks faced by the Company. This is described in more detail below.

Viability statement

In accordance with the Code of Corporate Governance issued by the Association of Investment Companies ('AIC') in February 2019 (the 'AIC Code'), the Board has assessed the longer-term prospects for the Company beyond the twelve months required by the going concern basis of accounting. The period assessed is for five years to 31 May 2028.

The Directors' view of the Company's viability has not changed since last year. The Company, as an investment trust, is a collective investment vehicle rather than a commercial business venture and is designed and managed for long-term investment. The Company's investment objective is to achieve long-term capital growth and the Board regards the Company's shares as a long-term investment. 'Long-term' for this purpose is considered by the Directors to be at least five years, a timeframe in which the accuracy of estimates and assumptions is deemed to be reasonable. The Company's viability has thus been assessed over that period. Five years is considered a reasonable time frame for a forecast, however, the life of the Company is not intended to be limited to that or any other period.

There are no current plans to amend the investment strategy, which has delivered good investment performance with NAV total returns ahead of the Benchmark since launch and over the past ten years. The Directors believe that the Company should continue to perform despite more recent underperformance of the Benchmark over one, three and five years. The investment strategy and its associated risks are kept under constant review by the Board.

In assessing the viability of the Company under various scenarios, the Directors undertook a robust assessment of the principal risks and uncertainties to which it is exposed (including the issues arising from the COVID-19 pandemic, Russia's invasion of Ukraine and climate change). The risks of failure to meet the Company's investment objective, and contributory market and investment risks, were considered to be of particular importance. The Directors also took into account: the investment capabilities of Devon; the liquidity of the portfolio, with nearly all investments being listed and readily realisable; the Company's borrowings (the Company maintains a relatively low level of gearing and has at all times been comfortably compliant with its loan to value and other covenant obligations to its lender, The Bank of Nova Scotia, London Branch); the ability of the Company to meet its liabilities as they fall due; the Company's annual operating costs and that, as a closed ended investment trust, the Company is not affected by the liquidity issues of open-ended companies caused by large or unexpected redemptions.

In taking account of these factors and pursuant to the Board's review of the detailed internal controls and risk management processes, the Directors have undertaken a reverse stress test seeking to identify the financial circumstances that might result in the Company becoming unviable. This concluded that the viability of the Company might start to be challenged if the value of Total Shareholders' Funds were to fall permanently by approximately 80% from the level at the year end, a fall that the Board considers to be near implausible having noted that since the launch of the Company in November 2000, the largest fall in the Company's Benchmark, the total return on the MSCI Europe index, over any calendar year has been 34.4% and the largest fall over any rolling five year period has been 14.5% (each based on Benchmark calendar month end values).

As part of its assessment, the Board has noted that shareholders are required to vote on the continuation of the Company at three-year intervals, the next vote being at the forthcoming Annual General Meeting. The Board has sought and received feedback from shareholders and is confident that the continuation vote will be passed.

Based on the above, and assuming there is no adverse change to the regulatory environment and tax treatment of UK investment trusts to the extent that would challenge the viability of the UK investment trust industry as a whole, the Directors have a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the five year period of assessment.

The Directors' assessment of the Company's ability to operate in the foreseeable future is included in the Going Concern Statement in the Directors' Report in the Annual Report and Accounts.

Key Performance Indicators

At the quarterly Board meetings, the Directors consider a number of performance indicators to help assess the Company's success in achieving its objectives. The key performance indicators used to measure the performance of the Company over time are as follows:

Share price total return to 31 May 2023	1 year (%)		3 years (%)	5 years (%)	10 years (%)
The Company	5.0		4.8	4.0	100.9
MSCI Europe Index, total return in GBP (Benchmark)	6.9		36.4	34.6	104.4
AIC Europe peer group1	12.9		34.9	49.7	153.2
Net asset value total return to 31 May 2023	1 year (%)	3 years (%)		5 years (%)	10 years (%)
The Company	3.3	8.2		15.1	127.8
MSCI Europe Total Return Index in GBP (Benchmark)	6.9	36.4		34.6	104.4
AIC Europe peer group1	10.0	32.6		46.4	149.8
(Discount)/premium as at 31 May	2023 (%)			2022 (%)	2021 (%)
The Company	(10.9)			(12.3)	(9.0)
AIC Europe peer group1	(8.3)			(10.3)	(5.1)
Ongoing charges for the year ending 31 May	2023 (%)			2022 (%)	2021(%)
The Company	1.02			1.02	0.99
AIC Europe peer group1	0.88			0.85	0.85
1 The AIC Europe peer group data is available at www.theaic.co.uk.

There were 7 investment trusts in the AIC Europe sector as at 31 May 2023. The Board monitors the Company's performance in relation to both the investment trust market as a whole and the companies within the geographical sector which the Board considers to be its peer group.

Discount to net asset value

The Company's Discount Management Policy is set out in the Chair's Statement above.

Under the Listing Rules, the maximum price that may currently be paid by the Company on the repurchase of any ordinary shares is 105% of the average of the middle market quotations for the ordinary shares for the five business days immediately preceding the date of repurchase. The minimum price is the nominal value of the ordinary shares.

The Board is proposing that its authority to repurchase up to approximately 14.99% of its issued share capital should be renewed at the Annual General Meeting. The new authority to repurchase will last until the conclusion of the Annual General Meeting of the Company in 2023 (unless renewed earlier). Any repurchase made will be at the discretion of the Board considering prevailing market conditions and within guidelines set from time to time by the Board, the Companies Act, the Listing Rules and the Disclosure, Guidance and Transparency Rules of the FCA.

Treasury Shares

In accordance with the Companies (Acquisition of Own Shares) (Treasury Shares) Regulations 2003, any ordinary shares repurchased, pursuant to the above buy back authority, may be held in treasury. These ordinary shares may subsequently be cancelled or sold for cash. This gives the Company the ability to reissue shares quickly and cost effectively and provide the Company with additional flexibility in the management of its capital. The Company may hold in treasury any of its ordinary shares that it purchases pursuant to the share buyback authority granted by shareholders. During the financial year the Company repurchased 4,126,242 ordinary shares to be held in treasury at an average discount of 14.22% (2022: 4,052,000).

Ordinary shares held in treasury may only be reissued by the Company at prices representing a premium to the net asset value per ordinary share as at the date of re-issue.

Principal risks and uncertainties

In accordance with the AIC Code, the Board is responsible for establishing procedures to manage risk, oversee the internal control framework, and determine the nature and extent of principal risks the Company is willing to take in order to achieve its long-term strategic objectives. The Board has overall responsibility for the Company's systems of internal controls and for reviewing their effectiveness. The Board, with the support of the Audit & Risk Committee and the Investment Manager, has carried out a robust assessment of the principal and emerging risks which may impact the Company. The principal risk factors that may affect the Company and its business can be divided into the following areas:

Risk and Impact	How the risk is managed	Current assessment of risk
Investment Strategy Risk Pursuing an investment strategy to fulfil the Company's objective which the market perceives to be unattractive or inappropriate, or the ineffective implementation of an attractive or appropriate strategy, may lead to reduced returns for shareholders and, as a result, a decreased demand for the Company's shares. This may lead to the Company's shares trading at a widening discount to their net asset value.	To mitigate these risks the Board reviews the Company's investment objective and policies and the Investment Manager's investment approach in the context of past performance (relative to Benchmark), shareholder feedback and broader market and economic conditions. The Board sets mandate restrictions as necessary. The Board reviews the long-term succession plans prepared by the Investment Manager and takes into consideration the availability of suitably experienced personnel to manage the Company's portfolio in the short-term in the event of an emergency. The Board has established a discount management policy and regularly considers its ongoing appropriateness in light of market conditions. In addition to seeking annual shareholder approval to its share buy-back authority, the Board also puts a continuation vote to every third AGM of the Company (the next scheduled to take place at the forthcoming AGM.	Increasing: The Company's shares have traded at a wider average discount during the year than the Board would wish. The Board has engaged with Shareholders in anticipation of the Continuation vote at the forthcoming AGM.
Investment Risks The Company's assets consist of listed securities and its principal financial risks are therefore market related and include market risk (comprising currency risk, interest rate risk and other price risk), liquidity risk and credit risk.	To mitigate this risk the Board considers various portfolio metrics including individual stock performance, the composition and diversification of the portfolio by industry sector, purchases and sales of investments, the holding period of each investment and the top and bottom contributors to performance. The Manager provides rationale for stock selection decisions. The Board also considers the macro- economic and geopolitical risks and uncertainties that the Company is exposed to. The Company does not take active positions in currencies, nor does it invest in fixed income securities. The Investment Manager mitigates liquidity risk by investing in a diversified portfolio of highly liquid, exchange- traded equities and by adhering to the Board's concentration limits on individual holdings. The Board has set a policy that the Company will not invest in unlisted securities. The Investment Manager does not invest in countries which are subject to sanctions or exposed to significant political risk.	Stable: This risk is seen to be high, but stable since 2022 reflecting the continuing Russian invasion of Ukraine and inflation levels
Operational Risks Key risks and uncertainties include a cybercrime event or an IT systems failure which compromises the Company's data or the Investment Manager's ability to manage the Company's portfolio; inadequacy of disaster recovery planning to ensure continuity of the Investment Manager's operations; or the inadequacy of the oversight and controls undertaken by the Custodian, the AIFM or the Investment Manager in relation to the Company.	The Board relies on the cyber security and IT risk management tools implemented by the Investment Manager and the Custodian to prevent cyber-attacks. The Investment Manager uses a well established third-party IT system (Bloomberg) for all trading activity on behalf of the Company. The Board is reliant on the Investment Manager and its key third-party service providers to ensure that appropriate measures are in place in order that critical operations can be maintained at all times. The Investment Manager is aligned with the Operational Resilience requirements set out by the FCA and regularly tests its business continuity capabilities. The Board considers the internal controls of the Investment Manager and all key third-party service providers on at least an annual basis. System-enforced controls are in place in each case which alert staff in oversight and compliance roles of any breaches. Similarly, 'Four eye' checks are mandated for all manual controls to ensure there is sufficient oversight over actions taken.	Stable: All control procedures are working effectively. There have been no material operational issues that have impacted the Company during the year.
Legal and Regulatory Risks Key risks and uncertainties include: the risk of non-compliance with existing regulatory or legal requirements, including resultant negative PR implications; adverse implications of regulatory change; or changes to the Company's policies and reporting obligations in relation to sustainability and ESG risks.	The Board relies on the services of the Investment Manager, its broker and J.P. Morgan to report changes in and to ensure compliance with all applicable laws and regulations including the Companies Act 2006, the Listing Rules and the Alternative Investment Fund Managers Regulations. The Audit & Risk Committee reviews the performance of the external auditors and the effectiveness of the independent audit process on an annual basis. The experience of the auditors in financial accounting and auditing standards is reviewed to ensure that changes in audit standards are anticipated, understood and complied with. The Board is reliant on the Investment Manager to ensure that appropriate measures are in place to ensure that its approach to ESG investing is appropriately defined and adhered to. The Investment Manager has developed and implemented its stated ESG policy. Legal and regulatory changes are monitored at each Board meeting and compliance with the AIC Code is fully considered annually	Stable: All control procedures are working effectively. There have been no material legal or regulatory changes that have impacted the Company during the year.

Emerging Risks

Emerging risks that could impact the Company in the future are considered at each Board meeting, along with any potential mitigating actions. Artificial Intelligence, inflation, the impact of the ongoing war in Ukraine and climate each pose emerging risks to the Company beyond the principal risks described above. While these risks currently exist, their extent and long-term impact are yet to emerge but they are regularly assessed by the Investment Manager. The Board is kept informed through its advisers and the Investment Manager regarding any political, economic, legal or regulatory change that is anticipated may significantly affect the Company.

Effectiveness of internal controls

In accordance with the AIC Code, the Board has carried out a review of the effectiveness of the system of internal control as it has operated over the year and up to the date of approval of the Annual Report and Accounts. Further information on the principal risks the Company faces in its portfolio management activities is disclosed in Note 18 of the Accounts (which are available for download from www.devonem.com).

Directors

Biographical details of the Directors and the Board's policy on diversity can be found in the Annual Report and Accounts. The Board currently comprises three male Directors and three female Directors.

Modern Slavery statement

The Modern Slavery Act 2015 requires certain companies to prepare a slavery and human trafficking statement. The Company does not fall within the scope of the Modern Slavery Act and therefore no slavery and human trafficking statement is included in the Annual Report.

The Board nevertheless requires regular confirmation from each of its third-party suppliers, at least once a year, of their compliance with the UK Modern Slavery Act. The Board also requires each supplier to have sufficient measures in place to align with the requirements outlined in the Bribery Act 2010 and the Criminal Finances Act 2017. Specifically, the Company has obtained assurances from each of its primary suppliers that they adhere strictly to a zero-tolerance policy regarding the provision of services that would contravene The Modern Slavery Act, the Bribery Act or the Criminal Finances Act.

Publication of Devon's formal policy statements

Devon has implemented several policy statements that guide their management of the Company's investment portfolio. These policies are reviewed at least annually and include:

·      ESG Policy: This policy outlines Devon's approach to Environmental, Social and Governance factors in their investment process. It highlights the commitment to considering ESG issues and integrating them into their decision-making;

·      Sustainability Risk Policy: This policy addresses the identification, assessment and management of sustainability risks within Devon's investment activities. It ensures that sustainability risks are duly taken into account and monitored to safeguard long-term performance;

·      Remuneration Policy: This policy is designed to comply with the requirements of SFDR Level 1 and governs the remuneration practices within Devon. It aligns with sustainability considerations and aims to support Devon's overall objectives;

·      Engagement Policy: This policy outlines Devon's approach to engaging with investee companies and exercising their voting rights as shareholders. It also includes the annual disclosure of votes cast, demonstrating commitment to transparency;

·      SFDR: Devon complies with the reporting obligations set out in the EU Sustainable Finance Disclosure Regulations (SFDR), which require disclosures related to sustainability and environmental considerations.

In publishing these policies, Devon seeks to demonstrate its commitment to transparency, responsible investment practices and compliance with regulatory requirements. These policy statements, along with associated disclosures, can be downloaded from Devon's website at www.devonem.com.

Section 172 statement

Under section 172 of the Companies Act 2006, the Directors have a duty to act in the way they consider, in good faith, would be most likely to promote the long-term success of the Company for the benefit of its members as a whole, and in doing so have regard (amongst other matters) to:

•    the likely consequences of any decision in the long term;

•    the need to foster the Company's business relationships with our stakeholders which includes our shareholders, service providers such as the Investment Manager, AIFM and other relevant parties as listed below;

•    the need to act independently by exercising reasonable skill and judgement;

•    the impact of the Company's operations on the community and the environment;

•    the requirement to avoid a conflict of interests;

•    the desirability of the Company maintaining a reputation for high standards of business conduct;

•    the need to act fairly between members of the Company; and

•    the need to declare any interests in proposed transactions.

As an investment trust, the Company has no employees, customers or physical assets; our stakeholders include our shareholders and our service providers, including our Investment Manager, our former AIFM, Depositary, Custodian, Lender, Registrar, Auditors, Broker and Administrator, each as identified in the Annual Report and Accounts.

The Board considers that the interests of the Company's key stakeholders are aligned, in terms of wishing to see the Company deliver sustainable long-term capital growth, in line with the Company's stated objective and strategy, and meet the highest standards of legal, regulatory, and commercial conduct, with the differences between stakeholders being merely a matter of emphasis on those elements.

The Board believes that the optimum basis for meeting its duty to promote the success of the Company is by appointing and managing third-parties with the requisite performance records, resources, infrastructure, experience and control environments to deliver the services required to achieve the investment objective and successfully operate the Company. By developing strong and constructive working relationships with these parties, the Board seeks to ensure high standards of business conduct are adhered to at all times and service levels are enhanced whenever possible. This combined with the careful management of costs is for the benefit of all shareholders who are also key stakeholders.

Whilst the Company's operations are limited, as third party service providers conduct all substantive operations, the Board is aware of the need to consider the impact of the Company's investment strategy and policy on wider society and the environment. The Board considers that its oversight of environmental, social and governance (ESG) matters is an important part of its responsibility to all stakeholders and that proper consideration of ESG factors sits naturally with the Company's longstanding aim of providing a sustainable basis for adding value for shareholders. Further details on the Investment Managers' approach to stewardship and examples of engagement are provided above. The remaining sections of this Strategic Report titled 'Relations with the Investment Manager,' 'Engagement with shareholders' and 'Principal decisions taken during the year under review' form part of this Section 172 Statement.

Relations with the Investment Manager

Alexander Darwall, CIO of Devon, continues to be responsible for the portfolio management of the Company on behalf of Devon, supported by Luca Emo Capodilista, Charlie Southern, James Bird and Angus Denison-Smith within his investment team.

Devon was appointed as the Company's AIFM with effect from 1 July 2022. As AIFM, Devon now has responsibility for additional risk oversight in accordance with the requirements of applicable law. The Board regularly meets with Devon and pays particular attention to the control procedures and processes in place at Devon, to ensure that its duties for the Company continue to be handled with the appropriate level of resource and professionalism.

The portfolio activities undertaken by the Investment Manager and the impact of decisions taken are set out in the Investment Manager's Review above.

Further information on the annual evaluation of the Investment Manager, to ensure that its continued appointment remains in the best interests of shareholders, is set out in the Annual Report and Accounts.

Engagement with shareholders

The Directors place great importance on engagement with shareholders. The Company reports to shareholders twice a year by way of the Half-Yearly Financial Report and the Annual Report and Accounts. In addition, net asset values are published daily and newsletters are published monthly on the Company's website, www.europeanopportunitiestrust.com. Key decisions are announced to the London Stock Exchange through the Regulatory News Service.

The Company holds an Annual General Meeting. In normal circumstances all shareholders are invited to attend, and this provides an open forum for them to discuss issues and matters of concern with the Board and representatives of the Investment Manager and the Company's advisors.

In accordance with the UK Code, in the event that votes of 20% or more are cast against a resolution at a General Meeting the Company will announce the actions it intends to take to consult with Shareholders to understand the reasons behind the result. A further update will be published within six months. No such votes were received during the year ended 31 May 2023.

The Board seeks to ensure that shareholder views are taken into consideration as part of any decisions taken by the Board. The Chair actively seeks to engage directly with shareholders and has attended a number of meetings with investors during the year. Committee chairs also seek direct engagement with shareholders on specific matters relating to their area of responsibility. The Investment Manager and the Company's brokers also engage with the Company's shareholders and the outcome of these discussions are reported to the Board.

Shareholders are invited to communicate with the Board through the Chair, any Committee Chair or the Company Secretary, as appropriate. Alternatively, issues can be discussed with the Company's Senior Independent Director, who can be contacted at the Company's registered office address.

The Board ensures that the Directors are able to discharge their duties by, amongst other things, providing them with relevant information and training on their duties. At all times, the Directors can access as a Board, or individually, advice from its professional advisers including their lawyers and Auditors.

Whilst certain responsibilities are delegated, the Board has established terms of reference for its Committees which are reviewed regularly by the Board. The Board has set the parameters within which the Investment Manager operates and these are set out under the terms of agreements with Devon and within the minutes of corresponding Board meetings.

Principal decisions taken during the year under review

The Directors take into account section 172 considerations in all material decisions of the Company.

Examples of how the Company's stakeholders were considered in relation to the principal decisions taken by the Board during the year under review (and post year end) include:

·      Management fee: During the reporting year the Board engaged with Devon to negotiate a reduction in management fee. Devon is now entitled to receive 0.80% per annum on 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 net assets above £1.25 billion. This reduction was effective from 1 June 2023. Previously Devon was entitled to 0.90% per annum on net assets up to £1 billion and 0.80% in respect of any net assets above £1 billion.

·      Succession planning: The Board, acting on recommendations from the Nomination Committee and an independent search agent, appointed a new independent non-executive Director, Manisha Shukla with effect from 1 September 2023. The Board agreed that Matthew Dobbs would succeed Andrew Sutch as Chair with effect from the close of the 2022 Annual General Meeting. Virginia Holmes was appointed Senior Independent Director and Jeroen Huysinga was appointed chair of the Management Engagement Committee in June 2022. Lord Lamont will take over as Senior Independent Director with effect from Virginia Holmes' retirement at the forthcoming AGM.

·      Gearing: On 8 September 2023 the Board entered into a new £85 million loan facility with The Bank of Nova Scotia, London Branch. In order to manage the cost of borrowing the new loan facility includes a floating charge in favour of The Bank of Nova Scotia in relation to amounts drawn down. The previous facility was made on an unsecured basis. The loan facility will enable the Investment Manager to implement the Company's stated gearing policy, as further described in the section entitled 'Borrowing limits' of the Annual Report and Accounts. It is hoped that through the careful use of gearing, the Investment Manager can enhance shareholder returns.

·     Discount management: During the year under review the Board has continued to engage with Shareholders and the Company's broker in relation to the Company's share price discount to NAV. When prudent, the Company has bought back shares from the market in order to narrow the discount.

The structure of the Board and its Committees and the decisions it makes are underpinned by the duties of the Directors under the Companies Act, 2006 and the provisions of the AIC Code.

Employees, Human Rights and Community Issues

The Board recognises the requirement to provide information about employees, human rights and community issues. As the Company has no employees, all its Directors are non-executive and all its functions are outsourced, there are no disclosures to be made in respect of employees, human rights and community issues.

Gender Representation

At the date of this Annual Report, the Board comprised six Directors, three male and three female.

Future developments of the Company

The outlook for the Company for the next 12 months is set out in the Chair's Statement and the Managers' Report.

For and on behalf of the Board

Matthew Dobbs

Chair

21 September 2023

Income Statement for the year ended 31 May 2023

				Year ended 31 May 2023			Year ended 31 May 2022
			Notes	Revenue £'000	Capital £'000	Total £'000	Revenue £'000	Capital £'000	Total £'000
Gain on investments				-	20,058	20,058	-	25,056	25,056
Currency exchange gain/(loss)				-	360	360	-	(270)	(270)
Income from investments			2	16,244	-	16,244	14,370	-	14,370
Other income			2	33	-	33	-	-	-
Total income				16,277	20,418	36,695	14,370	24,786	39,156
Investment management fee				(7,733)	-	(7,733)	(8,404)	-	(8,404)
Other expenses			3	(951)	-	(951)	(1,035)	-	(1,035)
Total expenses				(8,684)	-	(8,684)	(9,439)	-	(9,439)
Net return before finance costs and taxation				7,593	20,418	28,011	4,931	24,786	29,717
Finance costs			4	(2,863)	-	(2,863)	(961)	-	(961)
Return on ordinary activities before taxation				4,730	20,418	25,148	3,970	24,786	28,756
Taxation				(1,345)	-	(1,345)	(1,233)	-	(1,233)
Net return after taxation*				3,385	20,418	23,803	2,737	24,786	27,523
Earnings per ordinary share (basic and diluted)			5	3.34p	20.15p	23.49p	2.62p	23.69p	26.31p

* There is no other comprehensive income and therefore the 'Net return after taxation' is the total comprehensive income for the financial year.

The total column of this statement is the income statement of the Company, prepared in accordance with UK adopted International Accounting Standards.

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 year.

Statement of Financial Position as at 31 May 2023

		2023 £'000	2022 £'000
Fixed Assets
Investments		936,318	951,753
Current assets
Debtors		3,445	3,4532
Cash and cash equivalents		6,951	5,973
		10,396	9,505
Total assets		946,714	961,258
Current liabilities
Creditors - amounts falling due within 1 year		(83,776)	(88,641)
Total assets less current liabilities		862,938	872,617
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		623,944	633,623
		862,938	872,617
Net asset value per ordinary share		876.46p	850.64p

Statement of changes in equity for the year ended 31 May 2023

For the year ended 31 May 2023	Notes	Share capital £'000	Share premium £'000	Special reserve £'000	Capital redemption reserve £'000	Reserves £'000	Total £'000
Balance as at 1 June 2022		1,129	204,133	33,687	45	633,623	872,617
Net return after taxation		-	-	-	-	23,803	23,803
Repurchase of ordinary shares into treasury		-	-	-	-	(30,946)	(30,946)
Dividends declared and paid*	6	-	-	-	-	(2,536)	(2,536)
Balance at 31 May 2023		1,129	204,133	33,687	45	623,944	862,938

For the year ended 31 May 2022	Notes	Share capital £'000	Share premium £'000	Special reserve £'000	Capital redemption reserve £'000	Reserves £'000	Total £'000
Balance as at 1 June 2021		1,129	204,133	33,687	45	639,995	878,989
Net return after taxation		-	-	-	-	27,523	27,523
Repurchase of ordinary shares into treasury		-	-	-	-	(31,786)	(31,786)
Dividends declared and paid*	6	-	-	-	-	(2,109)	(2,109)
Balance at 31 May 2022		1,129	204,133	33,687	45	633,623	872,617

* Dividends paid during the financial year were paid out of revenue reserves.

Cash flow statement for the year ended 31 May 2023

	2023 £'000	2022 £'000
Cash flows from operating activities
Investment income received (gross)	16,366	15,136
Deposit interest received	33	-
Investment management fee paid	(7,756)	(8,323)
Other cash expenses	(900)	(984)
Net cash inflow from operating activities before taxation and interest	7,743	5,829
Interest paid	(2,302)	(834)
Overseas tax incurred	(1,372)	(1,594)
Net cash inflow from operating activities	4,069	3,401
Cash flows from investing activities
Purchases of investments	(117,350)	(204,307)
Sales of investments	153,085	215,054
Net cash inflow from investing activities	35,735	10,747
Cash flows from financing activities
Repurchase of ordinary shares into treasury	(26,650)	(35,688)
Equity dividends paid	(2,536)	(2,109)
Repayment of loan	(20,000)	-
Drawdown of loan	10,000	20,000
Net cash outflow from financing activities	(39,186)	(17,797)
Increase/(decrease) in cash	618	(3,649)
Cash and cash equivalents at start of year	5,973	9,892
Realised (loss)/gain on foreign currency	360	(270)
Cash and cash equivalents at end of year	6,951	5,973

Notes to the Accounts

1.   Accounting Policies

The Accounts comprise the financial results of the Company for the year to 31 May 2023. The functional and reporting currency of the Company is pounds sterling because that is the currency of the prime economic environment in which the Company operates. The Accounts were authorised for issue in accordance with a resolution of the Directors on 21 September 2023. All values are rounded to the nearest thousand pounds (£'000) except where indicated.

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 Accounts have been prepared under the historic cost modified by revaluation of financial assets and financial liabilities held at fair value through profit and loss. The accounting policies have been consistently applied throughout the year ended 31 May 2023 and in the prior year other than where new policies have been adopted.

The Board continues to adopt the going concern basis in the preparation of the financial statements.

(a)  Segmental reporting

The Company is engaged in a single segment business and, therefore, no segmental reporting is provided.

(b)   Income recognition

Ordinary dividends from investments are recognised when the investment is quoted ex-dividend on or before the date of the Statement of Financial Position. All overseas dividend income is disclosed net of withholding tax.

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.

(c)  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. In accordance with the Company's Articles of Association, net capital returns may not be distributed by way of dividend.

An analysis of reserves broken down into revenue (distributable) items, and capital items (non-distributable) is given in Note 14 to the Accounts (available for download form www.devonem.com).

All other operational costs are charged to revenue.

(d)   Basis of valuation of investments

Investments are recognised and derecognised on a trade date where a purchase or sale of an investment is under contract whose terms require delivery of the investment within the timeframe established by the market concerned. Investments are included initially at fair value which is taken to be their cost, excluding expenses incidental to purchase which are written off to capital at the time of acquisition.

All investments are classified as held at fair value through profit or loss. 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 investment.

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.

(e)  Cash and cash equivalents

Cash comprises cash in hand and demand deposits. Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and that are subject to insignificant risks of changes in value.

(f)  Foreign currencies

Transactions in currencies other than pounds sterling are recorded at the rates of exchange prevailing on the dates of the transactions. At the reporting date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing on that date. Non-monetary assets and liabilities carried at fair value that are denominated in foreign currencies are translated at the rates prevailing at the date when the fair value was determined. Gains and losses arising on retranslation are included in the Income Statement with the revenue or capital column depending on the nature of the underlying item.

(g)  Borrowing and finance costs

Interest bearing bank loans and overdrafts are recorded at the proceeds received, net of direct issue costs and subsequently measured at amortised cost.

Interest on the loan facility is accrued at the rate specified by the lender on renewal date.

Bank interest is recognised in the Income Statement in the period in which it is incurred.

All finance costs are directly charged to the revenue column of the Income Statement.

(h)   Expenses

Expenses are accounted for on an accruals basis. Management fees, administration and other expenses are charged fully to the revenue column of the Income Statement. Expenses which are incidental to the purchase or sale of an investment are charged to capital, along with any foreign exchange gains and losses.

In accordance with the AIC SORP, the Board has allocated all expenses, other than expenses incidental to purchase or sale of investments and issue costs, to revenue. The Board will continue periodically to monitor this decision.

(i) Taxation

The tax expense represents the sum of the tax currently payable and deferred tax.

The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the Income Statement because it excludes items of income or expense that are taxable or deductible in other periods and it further excludes items that are never taxable or deductible. The Company's liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the date of the Statement of Financial Position.

Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the Accounts and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profit will be available against which deductible temporary differences can be utilised.

Investment trusts which have approval under Section 1158 of the Corporation Tax Act 2010 are not liable for taxation of capital gains.

Irrecoverable VAT is included in the expense on which it has been suffered. Recoverable VAT is calculated using the partial exemption method based on the proportion of zero-rated supplies to total supplies.

(j) Future accounting developments

At the date of authorisation of the financial statements, the following amendments to the UK adopted International Accounting Standards (IAS) and interpretations are considered to be relevant to the Company:

IAS 1 - Classification of Liabilities as Current or Noncurrent - Amendments to UK adopted International Accounting Standards 1. Effective for annual periods beginning on or after 1 January 2023. No impact for the Company.

IAS 8 - Definition of Accounting Estimates - Amendments to UK adopted International Accounting Standards IAS 8. Effective for annual reporting periods beginning on or after 1 January 2024.

IAS 1 and IFRS Practice Statement - Disclosure of Accounting Policies. Effective for annual reporting periods beginning on or after 1 January 2024.

IAS 12 - Deferred Tax related to Assets and Liabilities arising from a Single Transaction. Effective for annual reporting periods beginning on or after 1 January 2024.

The Directors expect that the adoption of the standards listed above will have either no impact or that any impact will not be material on the financial statements of the Company in future periods.

(k) Significant accounting judgements, estimates and assumptions

Management have not applied any significant accounting judgements, estimates and assumptions which would have a significant impact on this set of Accounts or those of the prior financial year.

2.  Income

	Year ended 31 May 2023 £'000	Year ended 31 May 2022 £'000
Income from investments
Dividends from United Kingdom companies	4,627	4,459
Dividends from overseas companies	11,617	9,385
Deposit interest	33	-
Scrip dividends	-	526
	16,277	14,370

3.  Other expenses*

	Year ended 31 May 2023 £'000	Year ended 31 May 2022 £'000
Directors' remuneration	180	182
Auditors' remuneration	54	49
Administration fees	178	191
Safe custody charges	91	86
Legal and professional fees	22	34
Registrar's fee	55	86
Brokerage fees	70	36
Other professional fees	55	50
Depository's fee	150	164
FCA fees	29	28
Printing & publication of reports to shareholders	20	18
Other administrative expenses	47	111
	951	1,035

* each including VAT where applicable. There were no non-audit fees payable in the years to 31 May 2023 and 31 May 2022. The audit fee in the year ended 31 May 2022 includes an under accrual from the year ended 31 May 2021.

4.  Finance costs

	Year ended 31 May 2023 £'000	Year ended 31 May 2022 £'000
Interest on short-term loan	2,776	858
Commitment fees	67	40
Bank charges	20	63
	2,863	961

All finance costs are charged to revenue.

5.  Returns per ordinary share

The return per share figure can be analysed between revenue and capital, as below:

	Year ended 31 May 2023 £'000	Year ended 31 May 2022 £'000
Net revenue return	3,385	2,737
Net capital return	20,418	24,786
Net total return	23,803	27,523
Weighted average number of shares in issue during the year	101,303,712	104,612,102
Revenue return per share	3.34p	2.62p
Capital return per share	20.15p	23.69p
Return per share	23.49p	26.31p

6.  Dividends

Amounts recognised as distributions to equity holders in the year:

	Year ended 31 May 2023 £'000	Year ended 31 May 2022 £'000
2022 final dividend 2.50p paid on 101,439,098 shares (2021: 2.00p paid on 105,473,840 shares)	2,536	2,109

Set out below is the total dividend payable in respect of the financial year under review, which is the basis on which the requirements of Section 1158 of the Corporation Tax Act 2010 are considered:

	2023 £'000	2022 £'000
2023 final dividend of 3.5p (2022: 2.5p)	3,387*	2,540**

* Based on the number of shares in issue as at 18 September 2023, the latest practicable date prior to the publication of the Annual Report and Accounts. Subject to shareholder approval at the 2023 Annual General Meeting, a final dividend of 3.5p per share will be paid on 27 November 2023 to those shareholders on the register of shareholders as at 3 November 2023 (the Record Date).

** A final dividend of 2.5p per share was paid on 28 November 2022 to those shareholders on the register of shareholders as at 4 November 2022.

Forward looking statements

This announcement may include 'forward-looking statements'. Forward-looking statements are subject to risks and uncertainties and, accordingly, the Company's actual future financial results and operational performance may differ materially from the results and performance expressed in, or implied by, the statements.

Annual Report and Accounts

The figures and financial information for the Company's financial years ended 31 May 2023 and 31 May 2022 included in this announcement are extracted from the Company's Annual Report and Accounts and do not constitute statutory financial statements. The Company's Annual Report and Accounts includes the Independent Auditor's Report which is unqualified and does not contain a statement under either Section 498(2) or Section 498(3) of the Companies Act 2006.

The Annual Report and Accounts will be posted to those shareholders who have elected to receive hard copies. An electronic version of the Annual Report and Accounts will also shortly be available on the Company's website at: www.europeanopportunities.com and on the National Storage Mechanism at: https://data.fca.org.uk/#/nsm/nationalstoragemechanism. The Accounts will be filed with the UK Registrar of Companies in due course.

A glossary of terms and alternative performance measures referred to in this announcement can be found in the Annual Report.

Annual General Meeting

The Annual General Meeting will be held on Wednesday 15 November 2023 at 11.:00am at the offices of Devon Equity Management Limited, 123 Victoria Street, London SW1E 6DE. The Notice of the Annual General Meeting will be posted to shareholders with the Annual Report and will be available on the Company's website.

Website

Details of the Company's share price and net asset value, together with general information about the Company (including past monthly newsletters, factsheets and portfolio holdings data) can be found at www.europeanopportunities.com. Shareholders may subscribe to receive monthly newsletters by emailing [e-mail].

Neither the content of the Company's website, nor the content on any website accessible from hyperlinks on its website for any other website, is incorporated into, or forms part of, this announcement nor, unless previously published by means of a regulatory information service, should any such content be relied upon in reaching a decision as to whether or not to acquire, continue to hold, or dispose of, shares in the Company.

[END]

 

END