Final Results - NAV Up 27.1%
Foreign & Colonial Eurotrust PLC
15 November 1999
Contact: Stephen White
Foreign & Colonial Management 0171 628 8000
Claire Barry
Financial Dynamics 0171 831 3113
FOREIGN & COLONIAL EUROTRUST PLC
Unaudited Preliminary Statement
for the year ended 30 September 1999
Highlights
- Net asset value outperformance:
Net asset value per share rose by 27.1% compared with a rise of 20.7% in
the FT/S&P AWI-Europe Index, excluding the UK, and adjusted to sterling;
- Ordinary dividend:
Recommends increase of 6.3% to 1.70p
- During the past year the company's portfolio has outperformed its
benchmark by a satisfactory margin, helped by gearing in the first quarter
of the financial year, and followed by positive sector allocation and
stock selection in the latter part of the year;
- The fundamentals for Europe are more favourable today than they were at
the beginning of the year. Once bond markets stabilise and investors' recent
enthusiasm for other parts of the world has run its course, we believe
attention will focus again on Europe and the equity markets should respond
accordingly.
- Eurotrust supports the AITC's current TV advertising campaign 'its', as
the aim is to broaden the knowledge of investment trusts to a wider public
and to promote their powerful attractions as savings vehicles. We believe
that the campaign will result in additional demand for investment
trusts and a narrowing of discounts.
SUMMARY OF RESULTS
30 Sept 30 Sept %
1999 1998 Change
Attributable to equity
shareholders
Net assets £390.02m £306.86m +27.1
Net assets per share 518.32p 407.81p +27.1
Earnings per share 2.07p 3.30p* -37.3
Annual dividend (per
share) 1.70p 1.60p +6.3
Post merger dividend (per
share) - 0.40p N/A
Share price 495.00p 379.00p +30.6
* Includes 1.07p relating to a special dividend from Daimler.
Chairman's Statement
Over the year to 30 September 1999, the continental European markets performed
strongly, and I am pleased to report that Eurotrust shareholders participated
fully in this development as the net asset value per share of the Company rose
from 407.8p to 518.3p, a gain of 27.1%. This compares with a rise, over the
same period, of 20.7% in the FT/S&P AWI-Europe Index, excluding the UK, and
adjusted to sterling.
Investment Review
As mentioned above, the European markets performed well in the period under
review. However, most of the gains occurred in the first three months of our
financial year as world markets generally recovered from the sharp correction
seen last autumn. Sentiment was encouraged by the decisive action of the US
Federal Reserve Board to loosen monetary policy, the recovery of the yen and
major initiatives such as the IMF assistance package for Brazil and the fiscal
stimulus in Japan. While Wall Street was a key influence, investors in Europe,
nonetheless, could also draw comfort at home from cuts in domestic interest
rates, continuing major corporate activity and increasing cross-border
investment with the arrival of the Euro. During this period, the leaders
within the markets tended to be the interest-sensitive companies, such as the
insurance companies, telecom utilities and growth stocks in general. The main
laggards were the oils and cyclical stocks.
The performance of the continental markets since the beginning of 1999, by
contrast, was much less exciting, both in absolute and in relative terms. This
was not due to any change in the fundamental situation for Europe, as the
background continued to brighten. Economic activity gained momentum as export
orders and investment spending joined consumer demand as the motors of growth.
Corporate results reflected the improving economic environment at home, as
well as the favourable implications of the weaker Euro. As results were
accompanied by generally upbeat statements analysts were prompted to revise
steadily upwards their earnings forecasts. At the same time, merger and
acquisition activity remained buoyant.
What held the markets back, however, were two factors. First, with more
buoyant economic conditions in Europe, signs of recovery in both the Far East
and Japan and a firming in many commodity prices, in particular oil, long bond
yields worldwide moved higher as investors gradually came to realise that the
next moves in short term rates, both in the US and Europe, would be upwards.
Secondly, the technical situation was unfavourable. Many international
investors seemed to prefer to allocate money to areas such as Japan and the
emerging markets where after a long period of underperformance there were
signs of recovery. At the same time, there was no shortage of new issues and
secondary placings. During this latter period, the best performers within the
European markets were the oils and many of the cyclicals, while the utilities,
insurance companies and many growth stocks suffered from the weakness in the
bond markets
Portfolio Strategy
With the arrival of the Euro, our investment approach has moved from a
country-based allocation towards a sector-based allocation. We see this as a
trend that will be adopted increasingly elsewhere as investors come to see
Europe as a single entity from a stock market point of view given the monetary,
currency and economic convergence which has taken place.
Viewed from our sector approach, we made only a few changes to the portfolio
over the past year. The most important of these was to add to the oil stocks
as the outlook for the price of crude improved and to emphasise further
companies set to benefit most from the upswing in economic activity. We
financed these through taking profits in some of the telecoms, which had done
particularly well, and certain financials which we felt were most vulnerable
to difficult bond markets. We also sold some of our smaller company holdings
given investors' continuing preference for larger capitalisation stocks. Over
the past year, the portfolio outperformed the benchmark by a satisfactory
margin. Although the gearing helped in the first three months of our financial
year, more important for our relative performance overall was our positive
sector allocation and positive stock selection in the latter part of the year.
Revenue
The income on our statement of total return shows only a small increase on the
year before. Although many of our companies increased their dividends, the
previous year's revenue had been boosted by Daimler's payment of a special
one-off distribution of reserves. Total expenses were higher than the year
before,the main reason being the rise in the management fee, which follows
from the increase in the value of the portfolio. Interest expenses were
slightly lower as the Company benefited from low interest rates, particularly
on its Swiss franc borrowings. In view of all the above, net revenue
attributable to shareholders fell from £2,192m to £1,558m.
Dividend
The prior year was an exception in that we paid both an interim and a one-off
post merger dividend. The interim dividend of 1.6p per share, equivalent to
the full ordinary dividend of the year before, was paid to shareholders of
Eurotrust shortly before the merger with Foreign & Colonial German Investment
Trust (German) in order to protect their revenue entitlement. However, owing
to the receipt of higher than expected dividend income thereafter and in order
to maintain our investment trust status a further final dividend of 0.4p per
share was paid to all shareholders. For the financial year just finished, your
Board has decided to recommend an increase of 6.3% in the ordinary annual
dividend from 1.6p to 1.7p. This is made possible by the underlying healthier
state of the revenue account, and your Board is mindful of the fact that there
was no increase in the dividend in the previous three years.
Management Fee
As part of their regular review, your Board asked the Audit Committee to
consider the management fee paid to Foreign & Colonial Management. It was felt
an appropriate moment to do this given the increase in the Company's assets
following the merger with German. The proposal put forward by the Audit
Committee was endorsed by the Board and agreed subsequently with Foreign &
Colonial Management. Under the new terms, the fee payable on funds under
management will be at the rate of 0.75% per annum up to £ 400m and at 0.50%
thereafter. The new fee was implemented as from the quarter ended 30 September
1999. Your Board believes that the new fee is fair to shareholders, takes full
account of all the investment management, administration and marketing
services provided by the Manager and is in keeping with industry practice.
Corporate Governance
We comply with the recommendations for best practice in corporate governance
published by the Cadbury Committee and the Association of Investment Trust
Companies.
Private Investor Plan
At the end of September, there were over two thousand individuals
participating in the private investor plan on a regular monthly basis. I
believe it justifies fully its cost to the Company. We now have nearly 22,000
shareholders and the percentage of the Company's share capital owned by
private individuals is 72%. This is one of the highest levels of individual
ownership in the investment trust sector, and a feature of the Company we are
keen to see continue.
'Its' Campaign
We support the current advertising campaign underway by the AITC. All
advertisements, posters and television commercials brandish the 'Its' logo for
Investment Trusts. The aim of the campaign is to broaden knowledge of
investment trusts to a wider public and to promote their powerful attractions
over other forms of investment and savings vehicles. Should this lead to a new
wave of demand for investment trusts and with it a narrowing in discounts, the
money will have been well spent.
AGM
We hope that as many shareholders as possible will attend the Annual General
Meeting. This will be held at 12.15 p.m. on Tuesday, 14 December at Foreign &
Colonial's offices at Exchange House.
Prospects
Europe has lagged this year for the reasons mentioned earlier. It has not
been due to any deterioration in the fundamentals for Europe as the outlook
there appears more favourable today than it was at the beginning of the year.
Business activity on the continent continues to accelerate and this has led to
further upward revisions for economic growth this year and next. Consumer
spending, which had been the initial motor for growth, is now being
accompanied by rising export demand following the recovery in the Far East and
the favourable currency situation with the weak Euro. As a result, corporate
profits are likely to continue to surprise on the upside. At the same time,
investor interest in the markets will be maintained by the wave of corporate
merger and acquisition activity. Once bond markets stabilise, and it may well
require a rise in short term rates for this to happen, and the recent
enthusiasm for other parts of the world has run its course, we believe
investors will focus again on the positive fundamentals for Europe.
Directors and Staff
As you know, I succeeded Tim Abell on his retirement as chairman of your Board
in May this year. He had been chairman of Eurotrust since 1989, and over those
ten years the net assets of the Company rose more than sixfold. On behalf of
shareholders, I should like to thank him for all his contribution to the
success of the Company and to wish him well in his retirement.
Finally, may I thank the staff of Foreign & Colonial Management once again for
the excellent service they have given your Company over the past year.
Douglas McDougall
November 1999
ASSETS
Attributable to equity shareholders
at 30 at 30
Sept Sept
1999 1998
£'000s £'000s
Total assets less current liabilities 438,554 349,366
(excluding loans)
Foreign currency loans:
due within one year (48,538) (42,508)
Total assets attributable to ordinary 390,016 306,858
shareholders
Net asset value per share 518.32p 407.81p
Geographical distribution of investments:
France 29.1%
Germany 16.2%
Netherlands 12.7%
Switzerland 7.6%
Italy 8.3%
Sweden 5.6%
Finland 5.4%
Spain 3.9%
Portugal 3.6%
United Kingdom 3.1%
Denmark 2.0%
Belgium 1.1%
Norway 1.0%
Austria 0.4%
Statement of Total Return (incorporating the Revenue Account *)
for the year ended 30 September
1999 1998
Revenue Capital Total Revenue Capital Total
£'000s £'000s £'000s £'000s £'000s £'000s
Gains/(losses)
on investments - 81,418 81,418 - (15,680) (15,680)
Exchange gains
and losses on
currency (59) 1,476 1,417 32 67 99
balances
Income 8,044 - 8,044 7,830 - 7,830
Management fee (3,691) - (3,691) (3,027) - (3,027)
Other expenses (626) (15) (641) (494) (23) (517)
Net return
before finance
costs and 3.668 82,879 86.547 4,341 (15,636) (11,295)
taxation
Interest
payable and (1,057) - (1,057) (1,185) - (1,185)
similar charges
Return on
ordinary
activities 2,611 82,879 85,490 3,156 (15,636) (12,480)
before taxation
Taxation on
ordinary (1,053) - (1,053) (964) - (964)
activities
Return
attributable to
equity
shareholders 1,558 82,879 84,437 2,192 (15,636) (13,444)
Dividends on
ordinary shares
(equity)
Interim
(foreign income
dividend)
of NIL (1998 -
1.60p)
- - - (997) - (997)
Proposed final
dividend of
1.70p (1998-
0.40p) (1,279) - (1,279) (301) - (301)
Amount
transferred
to/(from)
reserves 279 82,879 83,158 894 (15,636) (14,742)
Return per
ordinary share
- pence 2.07p 110.14p 112.21p 3.30p (23.51)p (20.21)p
* The revenue column of this statement is the profit and loss account of the
Company.
Both the revenue and capital returns are based on 75,245,568 ordinary shares
in issue during the year.
The Directors propose a final dividend of 1.70 per share, payable on 20
December 1999 to shareholders registered on 26 November 1999.
The Annual General Meeting will be held at 12.15pm on Tuesday, 14 December
1999 at Exchange House, Primrose Street, London EC2A 2NY.
The Report and Accounts will be posted to shareholders on 20 November 1999.
Copies may be obtained during normal business hours from the Company's
Registered Office, Exchange House, Primrose Street, London EC2A 2NY.
By order of the Board
Foreign & Colonial Management Limited - Secretary
12 November 1999
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