Half Yearly Financial Report to 30 November 2021

RNS Number : 9123C

European Opportunities Trust PLC

25 February 2022

 

European Opportunities Trust PLC (the 'Company')

Legal Entity Identifier: 549300XN7RXQWHN18849

Half Yearly Financial Report for the six months to 30 November 2021

Financial Highlights for the six months to 30 November 2021

	30 November 2021	31 May 2021	% change
Net asset value per share (pence)	928.1	824.3	12.6
Net asset value total return (with dividends added back) 1,2			12.8
Middle market share price (pence)	822.0	750.0	9.6
Share price total return (with dividends added back)1,2			9.9
MSCI Europe Total Return Index in GBP (Benchmark)			3.8
Discount to net asset value (%)1	(11.4)	(9.0)

¹ Alternative Performance Measure.

² A dividend of 2.0p was paid on 26 November 2021.

Chairman's Statement

I am pleased to present your Company's interim report for the six months to 30 November 2021. As at 23 February 2022 your Company had total assets (with loans added back) of £892 million, the net asset value (NAV) per share was 787.6p and the middle market price per share on the London Stock Exchange was 686.0p, representing a 12.9% discount to NAV.

Investment Performance

During the six months to 30 November 2021 the total return on the NAV per share of the Company was 12.8% (with dividends added back). This compares with a total return from the Company's benchmark index, the MSCI Europe Total Return Index in sterling ('MSCI Europe Index'), of 3.8% and a total return on the middle market price of the Company's shares of 9.9% during the same period.

Although this performance represents a significant recovery from the Company's performance during the financial year to 31 May 2021, there has been a substantial correction in markets during the current period and the share price is now below that as at 31 May 2021.

Over the twenty one year life of the Company from launch on 20 November 2000 to 30 November 2021 the annualised total return on the NAV per share has been 11.9% and the annualised total return on the share price has been 11.0%. (with dividends added back). The annualised total return on the MSCI Europe Index over the same period has been just 5.8%.

Our AIFM

In response to the publicised concerns of the Financial Conduct Authority ('FCA') around outsourcing of regulated functions in investment management, our Investment Manager, Devon, has sought and obtained FCA authorisation to undertake the role of Alternative Investment Fund Manager ('AIFM') for its clients. The Board and our depositary for regulatory purposes, JP Morgan, have agreed to implement a period of parallel running with both our incumbent AIFM, FundRock Partners Limited, and Devon undertaking the AIFM's reporting obligations, with a view (subject to appropriate due diligence) to transitioning responsibility to Devon in that role with effect from the beginning of the new financial year on 1 June 2022. There would be no change in the terms of engagement of the AIFM nor in the fees payable to Devon and shareholder consent would not be required for this transition.

Discount Management

The Board considers that it is not in shareholders' interests for the ordinary shares of the Company to trade at a significant discount to the prevailing net asset value. The Board's policy is to maintain the discount in single digits, in normal market conditions. As at 30 November 2021 the discount was 11.4%.

A total of 2,217,000 shares were repurchased for treasury during the period under review pursuant to the Company's discount management policy. We review the trading activity and discount of the shares on a regular basis and are committed to maintaining the discount in line with Board policy.

Gearing

At the end of the period under review, the net gearing level on the Company's investments was 6.8% (after offsetting cash deposits against the £75 million drawn down on that date). The Investment Manager tends to increase gearing at times of perceived low valuations, while reducing it as markets recover. This approach has added sustained value over the course of your Company's history and we continue to encourage the Investment Manager to consider the use of gearing as a tactical tool to improve returns. The Company's loan facility is currently drawable to a maximum amount of £100 million.

The Company renewed its revolving credit facility with The Bank of Nova Scotia, London Branch on 10 September 2021 with a maximum drawable amount of £100 million available until September 2022 and credit approval for an additional 'accordion' amount available upon application for a further £50 million.

Outlook

Gross Domestic Product ('GDP') growth in Europe in 2022 is forecast to be lower than that of the US and a number of other developed markets; and Europe's stockmarkets have underperformed many others in 2021. Current events in Eastern Europe, the presence of rising inflation and the prospect of interest rate rises will threaten Europe's recovery as much as other economies.

However, Alexander Darwall continues to focus on what he considers to be the best individual companies, rather than investing on the basis of political or macro-economic considerations. We are committed, as a Board, to the concentrated, high conviction approach to investment which has been consistently applied to the portfolio since the Company was launched in November 2000. This consistent investment process has produced very good long-term returns in the past and we believe that our portfolio is well-placed to produce similar returns in the future.

Andrew Sutch

Chairman

25 February 2022

Investment Manager's Review

The total return on the net asset value of the Company's shares was 12.8% during the six months to 30 November 2021. This compares with an increase of 3.8% in our benchmark, the MSCI Europe Index.

Your Company's relatively good performance is explained by our focus on companies whose business models are not especially vulnerable to rising inflation and higher interest rates. It is true that quantitative easing ('QE') policies continue to push equity markets higher. However, cost inflation is weighing down corporate earnings. Our companies, in the main, are less affected by higher input costs, being higher value-added business models. The threat of inflation is clear: in the US inflation hit 6.8% in November 2021; Eurozone inflation is currently estimated at 4.9%. In response, the US authorities have signalled the need to reduce QE support and increase interest rates and are expected to accelerate the tapering of monthly bond purchases, a pre-cursor to raising interest rates. Europe is slower to recognise the danger of inflation. The European Central Bank's ('ECB') main refinancing rate remains at 0% as it has been for the last six years; and 3-month Euribor was (0.57)% at the end of November 2021, as low as it has ever been.

Europe's stock market performance compares poorly with the total returns (in Sterling) on the MSCI World index of 12.6%.  The S&P500 index was up 17.1%; and the Nasdaq Composite Index was up 21.4%, an indication that technology stocks were a main driver of markets around the world continuing the pattern of the last two years.

The main reason that European markets have not performed as well as other markets is that the macroeconomic recovery is expected to be weaker than the world average. Indeed, throughout the course of 2021, the International Monetary Fund ('IMF') has barely increased its forecasts for the European Union's GDP (of 5.1% and 4.4% for 2021 and 2022 respectively), whereas the IMF estimates world GDP growth of 5.9% and 4.9% for 2021 and 2022 respectively.

Europe's slightly lower growth rate is due, in part, to the fact that it is more vulnerable to higher raw material and rising energy costs. The sterling price of oil rose by 6.8% over the period under review. Soft commodity price increases have dented the earnings of many food and ingredients companies; higher metals prices are impacting profits across a broad range of industries. This cost inflation will become more apparent in 2022 as hedging benefits expire. These factors are reflected in 2022 corporate earnings forecasts. Goldman Sachs, the investment bank, for instance, expects only 6.0% growth.

Performance

Your Company's performance in the period under review marked a reversal of performance from the previous reporting period. We always explain our performance in terms of stock selection. It is possible to see that our style has prevailed during the period under review as cost inflation has started to bite and as the threat of rising interest rates poses a risk to heavily indebted companies.

The portfolio has a minimal exposure to the most ambitious 'green' stocks. Notwithstanding the political will and public enthusiasm, many of these companies are struggling with technology challenges and poor economics. The tremendous practical difficulties of the energy transition were partially reflected in weaker stock values. Although the US administration is presently unable to pass the 'Build Back Better Act' ("The Reconciliation Bill"), a USD 3.5 trillion stimulus package, European countries are pressing ahead with a range of packages including 'Fit for 55' and the European 'Green Deal'. Europe can rightfully claim to be the world leader in the green transition. However, returns from the renewables sector have weakened over the last year and it is not clear that public money can improve returns sufficiently. Renewables' returns are low. That the shift to renewables might also be, as BP puts it, 'low regret' is small comfort to investors.

Contribution

The biggest single contributor to performance was Novo Nordisk. Patience has been rewarded. Indeed, we believe that more rewards will follow from retaining our position in the company. The essential driver of Novo Nordisk's share price is its dominant global position (along with a US peer) in the relatively new class of drug, GLP-1. This drug not only treats diabetes, but it also has strong therapeutic indications for co-morbidities such as cardiovascular diseases and obesity. It is this latter indication that fired the share price in 2021 as prescribers and patients in the US, through their healthcare plans, drove spectacular demand for the drug following its launch. The incidence of diabetes continues to rise across the world. Novo Nordisk is exceptionally well placed to address this global pandemic.

Dassault Systèmes made a significant contribution to performance. Its leadership in 3D CAD/CAM (computer aided design and manufacture), was enhanced by its acquisition of a US company, Medidata, shortly before Covid struck. The timing of this acquisition turned out to be fortuitous as its activity was boosted by Covid-related business.

Our second largest holding, Experian, was also a significant positive contributor to performance. As the largest credit bureau in the world, Experian is singularly well placed to help borrowers in their main markets, the US, Brazil and the UK. Their strategy of 'financial inclusion' chimes with policy makers' aims. New fintech companies are not disruptive to their business model; on the contrary, they represent new growth opportunities.

RELX , too, is another of our biggest holdings and contributed markedly. Although a part of their business, 'Exhibitions', continues to be badly affected by Covid restrictions, the shares performed well because its 'Risk' business is flourishing. This is the fastest growing part of RELX, a play on cyber security where their unique data sets ensure a strong and sustainable market position. We remain committed to this position as we envisage new options for growth emerging.

BioMérieux 's share price responded well to strong results, driven in part by Covid testing revenues. The future success of BioMérieux is about much more than Covid. It fulfils many other diagnostic needs including the detection of flu. We are firmly of the view that there is a structural increase in the need for diagnostics partly because pathogens abound and partly to reduce antibiotic use.

Finally, our semiconductor-related stocks - Infineon Technologies, SOITEC, and ASML performed well. These three companies occupy leading, even quasi-monopoly, positions in their respective niches. This gives them strong protection when, as is inevitable at some stage, there is a cyclical downturn in semiconductors. For the time being, demand momentum in semiconductors is strong, driven by the proliferation of new applications including inter alia, 'The Internet of Things', 5G and electric vehicles.

Of our detractors to performance, Grifols, one of the world's leading blood plasma fractionation companies, is, again, top of the list. Two factors explain this. First, plasma collection in the US has been seriously hampered by Covid concerns resulting in less volume being collected and higher costs of collection. The second, a longer-term existential threat, is the emergence of new therapies, FcRn inhibitors, which have the potential to replace fractionated blood plasma products. As regards the difficulty of plasma collection, we believe collections will improve in due course. New anti FcRn drugs pose a threat, but we expect these to complement, not substitute Grifols' therapies. Although the company's chronic underperformance is of concern, the favourable industry structure and robust demand growth underpin our confidence in this investment.

Ubisoft Entertainment shares were another significant drag on performance. As a leading video games publisher, the Covid era has proved a mixed blessing. On the one hand, lockdowns were very good for demand. On the other hand, organising personnel ('talent' as it is called in the games industry), has become more difficult and expensive. New releases have been delayed and retaining 'talent' has become harder and more expensive. One of the significant growth options, China, appears to have been dented as the Chinese authorities described gaming for children as ''spiritual opium''. The position is under review.

Although Edenred shares disappointed, the company continues to deliver good results. We have great confidence in the business model and management and have retained the holding.

Neste shares, too, underperformed. Neste is the world's biggest producer of renewable diesel. It is also positioned to become a major producer of sustainable aviation fuels, again, from renewable sources. The shortage and higher costs of feedstocks explains the shares' underperformance. We decided to retain the position as we believe the company's technology is sufficiently differentiated to give it a sustainable competitive advantage.

Bayer 's shares continued their under-performance. Their US legal travails continue to weigh on the company's share price. These have overshadowed a proper appreciation of the value of Bayer's businesses. In particular, the Crop Science division boasts some world leading technologies which will prove to be important as agriculture evolves. We have retained, indeed, increased the holding.

Finally, we highlight the poor performance of Genus, which is a world-leading animal genetics company, breeding better pigs and cattle. Its gene editing programmes aim to create significant value, the most important and immediate opportunity being to suppress a fatal respiratory disease in pigs. These considerations outweigh the short term, transitory concerns which have caused the share price to weaken, namely the oversupply of pigs in China. We expect that market to improve in due course. We have retained the position.

Stock weightings as at 30 November 2021

The following tables detail which stock positions had the greatest impact on performance during the period on an absolute basis, both positive and negative.  The Benchmark MSCI Europe Total Return Index in GBP increased by 3.8% during the period under review:

Outperformers
Stock	Portfolio Weight at 30.11.2021  %	Benchmark Weight at 30.11.2021 %	6 month Price Performance %
Novo Nordisk 'B'	10.90	1.69	45.36
Dassault Systèmes	9.90	0.37	39.54
Experian	10.70	0.39	26.08
RELX	8.90	0.56	27.15
BioMérieux	5.90	0.05	31.73
SOITEC	4.30	-	38.85
InfineonTechnologies	4.40	0.55	19.05
ASML	2.90	3.11	25.76
Darktrace	1.60	-	33.64
Merck KGaA	1.80	0.30	16.38
Underperformers
Stock	Portfolio Weight at 30.11.2021  %	Benchmark Weight at 30.11.2021 %	6 month Price Performance %
Grifols	3.50	0.05	(30.24)
UbisoftEntertainment	2.00	0.04	(25.09)
Edenred	3.10	0.10	(13.43)
Neste	1.10	0.19	(24.54)
Bayer	2.60	0.46	(15.60)
Worldline	0.40	0.12	(35.20)
Genus	6.90	-	(3.86)
Grenke	0.80	-	(21.41)
Mowi	1.20	0.09	(5.56)
adidas	-	0.52	(6.50)

Sector weightings as at 30 November 2021

The following tables detail which sectors had the greatest impact on performance during the period on an absolute basis, both positive and negative:

Outperformers
Sector	Portfolio Weight at 30.11.2021  %	Benchmark Weight at 30.11.2021 %	6 month Price Performance %
InformationTechnology	27.90	8.78	21.78
Industrials	20.70	14.77	25.92
Health Care	31.80	14.57	12.57
Financials	9.40	15.73	(2.48)
Materials	1.20	7.89	7.72
Underperformers
Sector	Portfolio Weight at 30.11.2021  %	Benchmark Weight at 30.11.2021 %	6 month Price Performance %
Communications Services	2.00	3.66	(25.09)
Energy	3.00	4.56	(4.85)
Consumer Discretionary	0.90	11.71	(1.32)

Activity

Portfolio turnover (being sales as a percentage of average assets over the twelve months to 30 November 2021) of 19% was lower than in recent reporting periods. This figure was swollen by the disposal of shares in Arrow Global which we sold following the successful bid for the company. This was effectively a forced sale, albeit a satisfying one that crystallised a successful investment.

Of the 'voluntary' activity, the most significant sale was the halving of our holding in Intermediate CapitalGroup ('ICG'), retaining a 4.2% holding at the period end. The reason for reducing the position was partly because we identified more compelling opportunities and partly because we have concerns about the high levels of debt in the private equity world.

All the other sales were relatively small: we also sold all shares in adidas, a 1% position, where recent results highlighted problems, including the Chinese market, logistics costs and that they appear to be slipping further behind their principal competitor, Nike. Other smaller disposals included that of Network International Holdings, the Dubai based payments company, whose business depends greatly on tourism and has accordingly suffered from Covid-related travel restrictions. Notwithstanding our confidence in Novo Nordisk's business, we slightly reduced the holding at the point at which it represented 11.3% of the portfolio for risk management reasons.

We established two new positions, Neste and MerckKGaA ('Merck'). The first, is the world's largest producer of renewable diesel and sustainable aviation fuels refined from waste and residues, introducing renewable solutions also to the polymers and chemicals industries. We believe that the company enjoys sustainable competitive advantages and, crucially, we think that demand for their products will grow despite the obvious concerns about the cost of 'green' solutions.

Merck is a German based conglomerate of life sciences, healthcare and electronics. There are multiple growth drivers; we highlight two. In its life sciences division, Merck produces lipids, a key component of mRNA-based vaccines and therapeutics. Demand here is strong due to Covid vaccines. The acquisitions of Millipore (2010) and Sigma-Aldrich (2015) transformed the Life Sciences business of Merck, giving them a leading position in the biologics manufacturing chain in both consumables and equipment (notably bioreactors, purification, filtration). These acquisitions were well-timed to coincide with the surge in research and demand for biologics, and the shift in manufacturing techniques away from large steel fermenters to single use technology. We believe the business remains exceptionally well positioned to capitalise on continued growth in biologics and the imminent commercialisation of mRNA and gene therapy across a broad array of indications. Another important driver is in the field of semiconductors where the company supplies a range of materials and solutions used in the production of semiconductors, indubitably a growth area.

We also bought more shares in Bayer as the share price weakened. Likewise, as shares in Darktrace declined, we took the opportunity to buy more. The company occupies a strong position in a particular niche of the cyber security market and, whilst competition is increasing, Darktrace has the advantage of years of collected data which should stand them in good stead.

We also purchased more shares in Oxford Instruments, a leading provider of high technology products and services to the world's leading industrial companies and scientific research organisations. The company continues to benefit from a variety of growing areas including quantum computing, 5G telecoms, semiconductors and nanomaterials.

Finally, we bought back a small position in Worldline, the French based payments processing company. Its exposure to in-store, physical payments means that it misses out on the fastest growing areas of payments, e-commerce and mobile. However, it enjoys respectable growth prospects and its leading position in Europe is important for what is a 'scale' business.

Gearing

Net borrowings have changed little since the last reporting period. As at 30 November net borrowings were almost £64m, representing net gearing of 6.8% (after deduction of cash on deposit). Some of the money from borrowings was used to fund share buybacks, a value enhancing operation for shareholders when the Company's shares trade at a significant discount to their net asset value. Average borrowing costs were 1.04%, lower than last year.

Outlook

Since the outbreak of Covid two years ago, markets have been carried by two forces: cheap money and money printing (QE); and optimism around political slogans such as 'Build Back Better'. These two factors, in our opinion, will continue to dominate the investment backdrop. However, they are likely to dampen prospects as on both counts there will be a reckoning, the catalyst for which is inflation.

There is strong evidence that inflation, currently around 5% in Europe, is not a transitory phenomenon (as the politicians and central bankers hope). Rather, with a transition to the 'green economy', inflation is likely to be persistent and damaging. Policies such as the European Union's 'European Green Deal' and 'Fit for 55' green transition have been greeted with tremendous enthusiasm by the leading financial institutions, notably the big investment banks, and some investors. Yet the reality is much more problematic. 'Green' energy is, and is likely to remain, much more costly than conventional energy sources. We recognise that much political capital has been invested in this project. Accordingly, even though it is highly unlikely to realise their ambitions in full, some part of this transition either has been, or will be adopted. We consider both the cost challenges and the investment opportunities of this transition. With the prospect of higher energy costs we continue to avoid businesses which are unduly dependent on energy. On the other hand, we see opportunities for businesses which can realistically benefit from the transition: Neste, the Finnish producer of sustainable aviation fuels is one. Their fuels are proven, high quality and, critically, can be adopted to a modest extent by their customers, the airlines, with only a minimal impact on the profitability of the airlines.

Although central bankers have signalled their intention to reduce money printing and raise interest rates to bring inflation down to their typical target of 2%, it is unlikely that they will succeed. Indeed, there will be political pressure to keep interest rates lower and allow inflation to remain higher partly because inflation performs a useful function for politicians by reducing the 'real' value of outstanding government debt. It should be conceded that, at low levels, inflation is good for equities. Nevertheless, there are other considerations which impair market prospects and are likely to lead to lower growth rates in Europe: the partial reversal of globalisation (for example, trade disputes with China); the change in working practices particularly in the West; and the increasing size of governments. These factors are all likely to increase costs and reduce efficiency.

Whilst the investment backdrop is likely to be more challenging, we are confident that our strategy will prevail. Our focus is on identifying business models which can flourish in different economic scenarios. Our companies, we hope, are structural winners, not just bull market plays. We select companies with common characteristics from a broad range of sectors, from pharmaceutical to fish farming, agriculture to algorithms, semiconductors to sustainable aviation fuels. The prized characteristics are high value-added activities, sustainable differentiation and pricing power, with relatively low fixed costs, enjoying secular demand despite weaker economic activity. Having companies that compete globally mitigates, to some extent, the risk of weaker European economic growth. Moreover, global success is a convincing validation of products and services. The favourable investment conditions of the last two years have lifted valuations markedly, including those with dubious business models.

We anticipate tougher conditions which will cause a sharper division of winners and losers. We believe that we are well placed for this eventuality.

Alexander Darwall

Devon Equity Management Limited

25 February 2022

Investment Portfolio as at 30 November 2021
			30 November 2021		31 May 2021
Company	Sector	Country of Listing	Market Value £'000	% of Investments	% of Investments
Novo Nordisk 'B'	Healthcare	Denmark	112,380	10.9	9.8
Experian	Industrials	United Kingdom	110,027	10.7	9.4
DassaultSystèmes	InformationTechnology	France	102,218	9.9	7.8
RELX	Industrials	United Kingdom	91,735	8.9	8.7
Genus	Healthcare	United Kingdom	70,951	6.9	7.7
BioMérieux	Healthcare	France	61,027	5.9	4.9
Deutsche Boerse	Financials	Germany	45,547	4.4	5.6
InfineonTechnologies	InformationTechnology	Germany	45,223	4.4	3.3
SOITEC	InformationTechnology	France	44,595	4.3	3.4
Intermediate Capital Group	Financials	United Kingdom	43,382	4.2	7.9
Grifols	Healthcare	Spain	36,175	3.5	5.6
Edenred	InformationTechnology	France	32,144	3.1	3.4
ASML	InformationTechnology	Netherlands	29,761	2.9	2.5
Bayer	Healthcare	Germany	26,698	2.6	1.0
UbisoftEntertainment	Communication Services	France	21,084	2.0	3.0
GaztransportEtTechnigaz	Energy	France	19,663	1.9	2.0
Barry Callebaut	Consumer Staples	Switzerland	18,456	1.8	1.8
Merck KGaA	Healthcare	Germany	18,428	1.8	-
Darktrace	InformationTechnology	United Kingdom	16,931	1.6	1.0
Oxford Instruments	InformationTechnology	United Kingdom	13,291	1.3	0.5
Mowi	Consumer Staples	Norway	12,823	1.2	0.9
Neste	Energy	Finland	11,608	1.1	-
Borregaard	Materials	Norway	11,065	1.1	0.5
PetsatHomeGroup	Consumer Discretionary	United Kingdom	9,807	0.9	0.5
Wolters Kluwer	Industrials	Netherlands	8,445	0.8	0.7
Grenke	Financials	Germany	7,975	0.8	1.1
Worldline	InformationTechnology	France	3,945	0.4	0.9
OHB	Industrials	Germany	2,897	0.3	0.4
Grifols Preference	Healthcare	Spain	2,484	0.2	-
KWS Saat	Consumer Staples	Germany	1,233	0.1	0.1
Elkem	Materials	Norway	1,060	0.1	0.1
Total Investments			1,033,058	100.0

Classification of Investments
as at 30 November 2021
		% of Investments		% of Investments
Country of Listing		30 November 2021		31 May 2021
Denmark		10.9		9.8
Finland		1.1		-
France		27.5		25.4
Germany		14.4		12.6
Netherlands		3.7		3.2
Norway		2.4		1.5
Spain		3.7		5.6
Switzerland		1.8		1.8
United Kingdom		34.5		40.1
Total		100.0		100.0
Industry Sector		% of Investments 30 November 2021		% of Investments 31 May 2021
Communication Services		2.0		3.0
Consumer Discretionary		0.9		1.6
Consumer Staples		3.1		2.8
Energy		3.0		2.0
Financials		9.4		18.6
Healthcare		31.8		29.0
Industrials		20.7		19.2
InformationTechnology		27.9		23.2
Materials		1.2		0.6
Total		100.0		100.0

Statement of Directors' Responsibilities in Relation to the Financial Statements

Going Concern

The Half Yearly Financial Report has been prepared on a going concern basis. The Directors consider that this is the appropriate basis as they have a reasonable expectation that the Company has adequate resources to continue in operational existence and meet its financial commitments as they fall due for a period of at least twelve months from the date of approval of the unaudited financial statements. In considering this, the Directors took into account the Company's investment objective, risk management policies and capital management policies, the diversified portfolio of readily realisable securities which can be used to meet short-term funding commitments and the ability of the Company to meet all of its liabilities and ongoing expenses.

As a result of the ongoing Covid pandemic, the Directors continue to pay particular attention to the operational resilience and ongoing viability of the Investment Manager and the Company's other key service providers. Following review, the Directors are satisfied that Devon and the Company's other key service providers, notably JP Morgan, have the necessary contingency planning measures in place to ensure that operational functionality continues to be maintained.

The Directors continue to adopt the going concern basis of accounting in preparing the unaudited financial statements while recognising that the Articles of Association of the Company require a continuation vote at every third AGM, the next of which will take place in 2023 .

Principal and Emerging Risks and Uncertainties

The principal risks facing the Company are investment strategy risk, market risk, operational risk, and legal and regulatory risk. Full details of these risks and how they are managed are set out on pages 21 to 22 of the Company's Annual Report for the year ended 31 May 2021 which is available on the Company's website at www.europeanopportunitiestrust.com. The principal risks have not changed since those detailed in the Annual Report. The Board continues to monitor the principal risks facing the Company.

In addition, the Board monitors emerging risks. No new emerging risks were identified during the period under review. The ongoing Covid pandemic poses additional risks to the Company beyond the risks described above. They include liquidity risks to markets, a potential reduction in income receipts and business continuity risks for the Investment Manager and the Company's other key service providers.

Related Party Transactions

During the first six months of the current financial year, no transactions with related parties have taken place which have materially affected the financial position or performance of the Company.

Directors' Responsibility Statement

We, the directors of European Opportunities Trust PLC, confirm to the best of our knowledge that:

(a)  The condensed set of financial statements have been prepared in accordance with the Accounting Standards Board's statement 'Half Yearly Financial Reports' and give a true and fair view of the assets, liabilities, financial position and profit/(loss) of the Company for the period ended 30 November 2021;

(b)  The Half-Yearly Financial Report includes a fair review of the information required by Disclosure Guidance and Transparency Rule 4.2.7R; and

(c)  The Half-Yearly Financial Report includes a fair review of the information required by Disclosure Guidance and Transparency Rule 4.2.8R on related party transactions.

The Half-Yearly Financial Report has not been audited or reviewed by the Company's auditors.

By Order of the Board

Andrew Sutch

Chairman

25 February 2022

Income Statement

for the six months ended 30 November 2021

	Six months ended 30 November 2021 (unaudited)			Six months ended 30 November 2020 (unaudited)
	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Gain/(loss) on investments	-	110,070	110,070	-	(43,438)	(43,438)
Other exchange loss/(gain)	-	(23)	(23)	-	191	191
Income from investments	6,219	-	6,219	5,653	-	5,653
Other income	-	-	-	1	-	1
Total income/(loss)	6,219	110,047	116,266	5,654	(43,247)	(37,593)
Investment management fee	(4,502)	-	(4,502)	(3,871)	-	(3,871)
Other expenses	(577)	-	(577)	(463)	-	(463)
Total expenses	(5,079)	-	(5,079)	(4,334)	-	(4,334)
Net return/(loss) before finance costs and taxation	1,140	110,047	111,187	1,320	(43,247)	(41,927)
Finance costs	(411)	-	(411)	(162)	-	(162)
Return/(loss) before taxation*	729	110,047	110,776	1,158	(43,247)	(42,089)
Taxation	(413)	-	(413)	(120)	-	(120)
Net return/(loss) after taxation*	316	110,047	110,363	1,038	(43,247)	(42,209)
Return/(loss) per ordinary share	0.30p	104.12p	104.42p	0.93p	(38.57)p	(37.64)p

* There is no other comprehensive income and therefore the 'Net return/(loss) after taxation' is the total comprehensive income/(loss) for the financial period.

The total column of this statement is the income statement of the Company, prepared in accordance with IFRS.

The supplementary revenue return and capital return columns are both prepared under guidance produced by the Association of Investment Companies (AIC). All items in the above statement derive from continuing operations.

No operations were acquired or discontinued during the period.

Balance Sheet

as at 30 November 2021

	30 November	31 May
	2021	2021
	(unaudited)	(audited)
	£'000	£'000
Fixed assets
Investments	1,033,058	936,972
Current assets
Debtors	2,301	3,942
Cash and cash equivalents	13,388	9,892
	15,689	13,834
Total assets	1,048,747	950,806
Current liabilities
Creditors - amounts falling due within 1 year	(79,691)	(71,817)
Total assets less current liabilities	969,056	878,989
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	730,062	639,995
Total shareholders' funds	969,056	878,989
Net asset value per ordinary share	928.05p	824.29p

Statement of Changes in Equity

for the six months to 30 November 2021

For the six months to 30 November 2021 (unaudited)	Share Capital £'000	Share Premium £'000	Special Reserve £'000	Capital Redemption Reserve £'000	Retained Earnings £'000	Total £'000
Balance at 1 June 2021	1,129	204,133	33,687	45	639,995	878,989
Net profit after taxation	-	-	-	-	110,363	110,363
Repurchase of ordinary  shares into treasury	-	-	-	-	(18,187)	(18,187)
Dividends declared	-	-	-	-	(2,109)	(2,109)
Balance at 30 November 2021	1,129	204,133	33,687	45	730,062	969,056
For the six months to 30 November 2020 (unaudited)	Share Capital £'000	Share Premium £'000	Special Reserve £'000	Capital Redemption Reserve £'000	Retained Earnings £'000	Total £'000
Balance at 1 June 2020	1,129	204,133	33,687	45	683,923	922,917
Net loss after taxation	-	-	-	-	(42,209)	(42,209)
Repurchase of ordinary shares into treasury	-	-	-	-	(20,799)	(20,799)
Dividends declared	-	-	-	-	(3,890)	(3,890)
Balance at 30 November 2020	1,129	204,133	33,687	45	617,025	856,019

Cash Flow Statement

for the six months to 30 November 2021

	Six months ended 30 November 2021 (unaudited) £'000	Six months ended 30 November 2020 (unaudited) £'000
Cash flows from operating activities
Investment income received (gross)	8,064	6,121
Deposit interest received	-	1
Investment management fee paid	(4,229)	(3,952)
Other cash expenses	(507)	(333)
Net cash inflow from operating activities before taxation and interest	3,328	1,837
Interest paid	(357)	(171)
Taxation	(632)	(62)
Net cash inflow from operating activities	2,339	1,604
Cash flows from investing activities
Purchases of investments	(111,888)	(143,294)
Sales of investments	126,815	139,275
Net cash inflow/(outflow) from investing activities	14,927	(4,019)
Cash flows from financing activities
Repurchase of ordinary shares into treasury	(21,638)	(18,386)
Equity dividends paid	(2,109)	(3,980)
Repayment of loan	-	(30,000)
Drawdown of loan	10,000	40,000
Net cash outflow from financing activities	(13,747)	(12,276)
Increase/(decrease) in cash	3,519	(14,691)
Cash and cash equivalents at start of period	9,892	25,503
Realised (loss)/gain on foreign currency	(23)	191
Cash and cash equivalents at end of period	13,388	11,003

Notes to the Financial Statements

1.  Accounting Policies

The accounts comprise the unaudited financial results of the Company for the period to 30 November 2021. The functional and reporting currency of the Company is sterling because that is the currency of the prime economic environment in which the Company operates.

The accounts have been prepared in accordance with International Financial Reporting Standards (IFRS), which comprise

standards and interpretations approved by the International Accounting Standards Board (IASB) and International Accounting Standards Committee (IASC), as adopted by the European Union (EU). Where presentational guidance set out in the Statement of Recommended Practice (SORP) for Investment Trusts issued by the Association of Investment Companies (AIC) in November 2014 (as amended in February 2018 and again in October 2019) is consistent with the requirements of IFRS, the Directors have sought to prepare the financial statements on a basis compliant with the recommendations of the SORP. The accounts have also been prepared in accordance with the Disclosure and Transparency Rules issued by the Financial Conduct Authority (FCA). The accounting policies applied are consistent with those of the audited annual financial statements for the year ended 31 May 2021 and are described in those financial statements. In this regard, comparative figures from previous periods are prepared to the same standards as the current period, unless otherwise stated.

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

2.  Return/(loss) per ordinary share

	Six months to	Six months to
	30 November 2021	30 November 2020
	£'000	£'000
Net revenue profit	316	1,038
Net capital profit/(loss)	110,047	(43,247)
Net total profit/(loss)	110,363	(42,209)
Weighted average number of ordinary
shares in issue during the period	105,691,960	112,123,108
Revenue return per ordinary share (p)	0.30	0.93
Capital return/(loss) per ordinary share (p)	104.12	(38.57)
Total return/(loss) per ordinary share (p)	104.42	(37.64)

3.  Retained earnings

The table below shows the movement in the retained earnings analysed between revenue and capital items.

	Revenue*	Capital	Total
	£,000	£'000	£'000
At 1 June 2021	10,314	629,681	639,995
Net return for the period	316	110,047	110,363
Repurchase of ordinary shares into treasury		(18,187)	(18,187)
Dividends declared	(2,109)	-	(2,109)
At 30 November 2021	8,521	721,541	730,062

* These reserves form the distributable reserves of the Company and may be used to fund distribution of profits to investors via dividend payments.

4. Net asset value per ordinary share

The NAV per ordinary share is based on the net assets attributable to the ordinary shareholders of £969,056,000 (31 May 2021: £878,989,000) and on 104,418,840 (31 May 2021:106,635,840) ordinary shares, being the number of ordinary shares in issue at the period end.

5.  Comparative information

The financial information contained in this interim report does not constitute statutory accounts as defined in section 434 of the Companies Act 2006. The financial information for the six months to 30 November 2021 and 30 November 2020 has not been audited. The information for the year ended 31 May 2021 has been extracted from the latest published audited financial statements. The audited financial statements for the year ended 31 May 2021 have been filed with the Register of Companies. The report of the auditors on those accounts contained no qualification or statement under section 498(2) of the Companies Act 2006.

6.  Related parties

FundRock Partners Limited is the Company's Alternative Investment Fund Manager ('AIFM') and Devon Equity Management Limited ('Devon') has been the delegated Investment Manager for the Company by the AIFM since 15 November 2019.

Devon and the AIFM are paid aggregate management fees of 0.90% per annum of net assets (i.e. excluding drawn down borrowings under the Company's loan facilities) up to £1 billion and 0.80% per annum on any net assets over this amount (with the AIFM's fee being deducted from the fee payable to Devon). No performance fee is payable to either Devon or the AIFM. It is anticipated that Devon may be appointed in place of FundRock Partners Limited to act as the Company's AIFM with effect from the beginning of the next financial year on 1 June 2022.

J.P. Morgan Europe Limited has been appointed to provide secretarial and fund administration services to the Company, albeit that Devon is the Company's named company secretary at Companies House. In line with good governance practice and fostered by the independence between key suppliers, the Company has put safeguards in place to ensure effective shareholder communication and engagement.

7.  Availability of Half Yearly Financial Report

The Half Yearly Financial Report will shortly be available for download from the Company's website www.europeanopportunitiestrust.com

A copy of the Half Yearly Financial Report will also be submitted to the FCA's National Storage Mechanism and will soon be available for inspection at https://data.fca.org.uk/#/nsm/nationalstoragemechanism

For further information, please contact:

Devon Equity Management Limited

Company Secretaries to European Opportunities Trust PLC

Richard Pavry

020 3985 0445

[e-mail]  

25 February 2022 

[END]

 

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