European Opportunities Trust PLC (the 'Company')

Legal Entity Identifier: 549300XN7RXQWHN18849

Half Yearly Financial Report for the six months to 30 November 2024

Financial Highlights

·     Net asset value total return (with dividends reinvested) of (8.4)% and share price total return of (10.6)% for the period, compared with a total return of (3.3)% for the Company's Benchmark, the MSCI Europe Total Return Index in GBP.

·    Net asset value total return (with dividends reinvested) of 988.5% since launch on 20 November 2000 (equivalent to 10.5% compound per year), outperforming the total return of the Benchmark of 287.3% over the same period (equivalent to 5.8% compound per year).

·    Continued buy back activity during the period, with a total of 2.9 million shares repurchased at a cost of £24.5 million since the beginning of the financial year (as at 31 January). 

·     The Company's discount to NAV was 12.3% at the period end. The Board proposes to make an additional tender offer for up to 25% of the issued share capital of the Company, which is expected to take place in Q2 2025.

Summary of returns for the six months to 30 November 2024

* A dividend of 2.0p was paid on 2 November 2024.

Source: MSCI & Devon Equity Management Limited. Past performance is no guide to the future.

Long term track record

Source: MSCI & Devon Equity Management Limited. Past performance is no guide to the future.

Chair's Statement

I present the Company's interim results covering the six months ended 30 November 2024.

Performance overview

During the period under review the total return on the net asset value was -8.4% (with the annual dividend reinvested), which compares with a total return of -3.3% from our Benchmark, the MSCI Europe Total Return Index in GBP. The total return on the market price of the Company's shares was -10.6% (again, with the annual dividend reinvested).

Since launch, the Company has generated an annualised NAV total return of 10.5% and an annualised share price total return of 9.6% as at 30 November 2024, compared with 5.8% annualised for the Benchmark over the same period. However the results and our returns in recent years are clearly disappointing.

Our Investment Manager pursues a differentiated, high conviction approach to investment and we, as a Board, along with the team at Devon are fully committed to returning the Company to its former ranking at the head of its peer group.

Discount Management

The discount to NAV on the Company's shares was 12.3% on 30 November 2024, widening from 10.2% on 31 May 2024, the Company's financial year end. This compares with the 10.7% weighted-average discount on 30 November 2024 for the Company's peers in the AIC Europe sector.

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 through an active share buy back programme. Reflecting this, a total of 2.9 million shares have been repurchased into treasury at a cost of £24.5 million since the beginning of the financial year (as at 31 January 2025).

This has followed on from the implementation in January 2024 of a tender offer at close to NAV for up to 25% of the shares in issue, which was fully subscribed. The Board also announced at that time proposals for a further performance-related tender offer for up to 25% of the shares in issue in the event that the Company's net asset value total return does not equal or exceed the Benchmark total return over the three-year period ending on 31 May 2026. The Company is also committed to putting a continuation vote to shareholders at the 2026 AGM in accordance with its three-yearly continuation vote cycle.

Proposal for Additional Tender Offer

While the Board continues to place confidence in the people, process and philosophy of our Investment Manager, we are mindful of the persistence of the double-digit discount and the recently disappointing performance of the Company's portfolio. Accordingly, to supplement the Board's continuing use of share buy backs and to its existing commitments described above, the Board proposes to make an additional tender offer in 2025 for up to 25% of the issued share capital of the Company (the 'Tender Offer').

The Tender Offer, expected to take place in Q2 2025, will be priced at a two per cent. discount to the prevailing net asset value at the time of repurchase, less the costs of implementing the Tender Offer. The Tender Offer will be subject to shareholder approval. A circular setting out the full details of the Tender Offer and convening the necessary general meeting will be sent to shareholders in due course.

Gearing

As of 30 November 2024, the net gearing level on our portfolio was 11.5%, a notable increase from 1.3% on 30 November 2023. We believe that strategic borrowing can play an important role in enhancing long-term returns and the current level of gearing reflects our Investment Manager's confidence in the outlook for our portfolio. The Company has a £85 million secured multi-currency revolving credit facility with The Bank of Nova Scotia, London Branch.

Shareholder engagement

Engagement with our shareholders is a top priority. Over the past year we have interacted with a majority of our share register, gaining valuable insights and feedback. We remain committed to maintaining an open dialogue with all shareholders.

Outlook

Despite the current challenges, we and our Investment Manager continue to note the superior characteristics and earnings growth of our portfolio and we believe the Company is well-positioned to deliver attractive returns for our shareholders.

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

Matthew Dobbs

Chair

6 February 2025

Investment Manager's Review

Our positioning of the portfolio during the period under review recognises the broad spectrum of challenges in Europe: slow growth, high costs and political turmoil and is well positioned for a range of economic eventualities. It also recognises the tremendous growth opportunities available to be exploited by the best companies. Our investee companies are typically high margin, intellectual property and technology based (as distinct from energy or capital-intensive) service businesses that have significant revenues in the US and elsewhere in the world,

There are identifiable themes in our portfolio: Artificial Intelligence (AI) winners, technology leaders, electrification and disruptive business models.

As regards AI, we deem RELX, Experian and Deutsche Boerse to be beneficiaries, irrespective of which AI technologies prevail. In all cases, owning the data and flow of business is key. These companies enhance the quality of existing services with the use of AI in a way that competitors which lack the data and flows cannot. Our technology leaders span healthcare, with companies like Camurus, payments companies like Edenred, and information technology companies like Dassault Systèmes. As for electrification, we invest in Prysmian, which is the world's leading cable company and an obvious beneficiary of the electrification trend, and GTT which is a prime winner from the increasing use of liquified natural gas, which is needed to satisfy growing electricity demand, itself driven by demand from energy intensive data centres and AI. Ryanair, Wise, and Genus are also strong examples of disruptive business models in their respective sectors. Novo Nordisk, our biggest holding, is also a disruptor, expanding into the prediabetic space, and blazing a trail with new therapies to tackle obesity.

Performance

Notwithstanding our strategy to avoid the challenges of Europe and tap into the faster growing global opportunities, our portfolio's performance fell behind the Benchmark during the period under review. We discuss the key contributors and detractors to this result below.

The following tables detail which stock positions in the Company's portfolio had the greatest impact on performance during the six months under review, both positive and negative. The impact is the result of price performance of each stock over the period, calculated on a transaction basis and including the impact of foreign currency:

Positive Contributors

^*Sold during the period under review.

Negative Contributors

The biggest positive contributor to our performance in the period under review was Deutsche Boerse. The combination of leading technology capabilities, the increase in exchange traded financial instruments and volatile energy and interest rates, has driven the strong performance.

The next biggest contributors to our performance were RELX and Experian. Both companies have strong proprietary data assets and have improved their offers with the use of AI. RELX's legal information business is a clear beneficiary in this respect. Indeed, the company raised its growth expectations on the back of AI. Experian's core credit and analytics businesses have, too, leveraged AI to buoy their offer. Whereas AI can be a disruption, we believe that our companies, where relevant, gain from the use of this technology both in improving their internal operations and in improving the quality of their offerings.

GTT also performed well. It provides services to Liquified Natural Gas (LNG) carriers. As a 'transition' fuel, LNG is an important element in the move to more renewables in the energy mix.

Detractors

Whereas we believe the direction of politics in America is generally favourable for our companies, this is not necessarily the case for a couple of our holdings, notably Novo Nordisk, our biggest holding, and Genus. Both detracted from our performance in the period under review. The nomination of Robert F Kennedy Jr to be the next US health secretary has alarmed investors. The nominee is deemed to have eccentric views which could disturb current practices in healthcare and, in the case of Genus, animal husbandry.

The share price of Edenred, which offers specific-purpose payment solutions, fell sharply. Notwithstanding the record of excellent results, investors worried that politicians in France and Italy will seek to restrict returns through new regulations. We recognise these regulatory threats. However, we believe that Edenred can operate successfully even as regulations change.

Another detractor was Dassault Systèmes. The company has an excellent long-term record. However, the shares performed badly over the last six months as the rate of growth slowed. The main explanation is that European car manufacturers are grappling with high costs, especially the costs of producing electrical vehicles, and weak demand for those same electric vehicles. Their competitive position versus the Asian players has deteriorated. Nevertheless, we remain confident that Dassault Systèmes is an excellent company which will again capitalise on its strong technology platforms.

Even if individual stocks explain much, we also acknowledge the impact of our 'style bias'. The best performing sector in the index was Financials, notably the mainstream banks, a sector to which we have never had significant exposure. Our rationale is that we find better long-term value from innovative, world-leading companies in other sectors. However, in recent times the European-based banks have delivered better returns thanks to high-interest rate spreads, low loan losses and regulatory protection which keeps out new entrants. Central banks' money printing policies ('quantitative easing') has had the effect of extending the normal business cycle, supporting the banks' asset quality. In due course, we are confident that the cycle will turn down, vindicating our strategy.

Our strategy has also suffered from outflows from European equities. Private sector savings have been squeezed by higher taxes, levied to help straitened public finances. In addition, global asset allocators have avoided Europe, disproportionately hurting big (as distinct from mega-sized) and mid-sized stocks, parts of the market to which our portfolio has a greater than average exposure.

Portfolio activity

Portfolio turnover in the six months was 22.7% annualised (defined as purchases as a percentage of net assets). Sales in the period totalled £76.5m, almost half of which was the sale of Darktrace, following an agreed offer for the company by a private equity firm. The next biggest sale was that of Soitec, as better opportunities were found elsewhere. The silicon carbide 'story' Soitec has stalled in line with the slowing growth in sales of Electric Vehicles (EVs). We also exited the position in Grenke. Having started selling on the back of good results earlier in the year as asset quality deteriorated, we accelerated selling. The lightening of holdings in Novo Nordisk and RELX was because of the size of the weightings, rather than any concern about the quality of the respective businesses.

Significant new investments included Universal Music Group (UMG), the world's leading music company. It is the owner of a huge catalogue of recorded music. Digital technology allows UMG to develop new services, platforms and business models and thereby better monetise their catalogue. We also established positions in BE Semiconductor Industries (Besi) and Yubico. Besi is a Dutch technology company, a world leader in packaging processes and hybrid bonding for the semi- conductor industry. Swedish-listed Yubico, is a world leader in multi-factor authentication, a hardware solution widely regarded as being the best way to foil cyber-attacks. Other smaller purchases included the French company, Exosens, which is the world leader in the manufacture of image intensifier tubes, the key component of night vision goggles. Finally, we bought shares in Wise, a London based global payments technology company.

Outlook

We believe that our portfolio is better value than at any time since 2017. Our earnings forecasts for the portfolio companies are markedly higher than those projected for the wider market. Yet the valuation premium on our portfolio is modest. We project that our portfolio will grow earnings at 9.9% and 20.7% in 2025 and 2026 respectively (as at 31 January 2025). The current year valuation premium for this earnings growth is low by historic standards. Moreover, we expect earnings momentum for our companies to continue in 2027.

It is worth noting that the reduction in the valuation premium of the portfolio relative to the Benchmark since 2022 has been achieved without compromising our investment approach. Typically, our companies also have less debt than most European listed companies, which we regard as prudent. The portfolio also has higher returns on invested capital than the Benchmark.

At a macro level, slower economic growth in Europe will stymie the banks' earnings. Our strategy is to identify 'winners through the cycle', a strategy that has been thwarted somewhat by the huge money printing programmes of the COVID era. The extended business cycle will turn down at which point our companies' earnings resilience will be clear. Typically, our investee companies have high recurrent revenues and benefit from exposure to faster growing economies like the US.

Despite the direction of fund flows and Europe's intractable problems, within this portfolio we do see numerous potential catalysts from our companies this year which would drive share prices. Although December 2024 saw disappointing phase three trial results for Novo Nordisk's next generation drug Cagrisema, the company has a bright future as a global leader in treating diabetes and obesity. Our healthcare, technology and payments companies should all make good progress. We remain confident that our strategy of picking companies that compete and succeed on the world stage will be vindicated.

Alexander Darwall

CIO, Devon Equity Management Limited

6 February 2025

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.

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 at the AGM in 2026.

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 24 to 26 of the Company's Annual Report for the year ended 31 May 2024, which is available on the Company's website at www.europeanopportunities.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. As part of its assessment of the viability of the Company, the Board has reviewed and considered the principal risks and uncertainties that may affect the Company, including emerging risks and ongoing matters relating to the ongoing global conflicts, rises in interest rates and inflation across Europe and worldwide. The Board has also considered the Company's business model including its investment objective and investment policy, a forecast of the Company's projected income and expenses and the liquidity of the Company's portfolio to ensure that it will be able to meet its liabilities as they fall due.

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 2024;

(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

Matthew Dobbs

Chair

6 February 2025

Income Statement

for the six months ended 30 November 2024

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

Statement of Financial Position

as at 30 November 2024

Statement of Changes in Equity

for the six months to 30 November 2024

* Dividends paid during the period were paid out of revenue reserves.

Cash Flow Statement

for the six months to 30 November 2024

Notes to the Financial Statements

1.   Material accounting Policies

The Accounts comprise the unaudited financial results of the Company for the period to 30 November 2024. 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. All value 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 accounting policies applied are consistent with those of the audited annual financial statements for the year ended 31 May 2024 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.

(a) 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.

(b) 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 retained earnings broken down into revenue (distributable) items and capital (non-distributable) items is given in Note 3. All other operational costs including administration expenses and finance costs are charged to revenue.

(c) Basis of valuation of investments

Investments are recognised and derecognised on a trade date where a purchase and 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 investments.

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.

2.   Return per share

The table below shows the return per share analysed between revenue and capital.

3.   Retained earnings

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

* 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 share

The net asset value per share is based on the net assets attributable to shareholders of £579,781,000 (31 May 2024: £656,438,000) and on 62,905,995 (31 May 2024: 65,091,784) shares, being the number of 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 2024 and 30 November 2023 has not been audited. The information for the year ended 31 May 2024 has been extracted from the latest published audited financial statements. The audited financial statements for the year ended 31 May 2024 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.   Fair value of investments

IFRS 13 Fair Value Measurement requires an entity to classify fair value measurements using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy shall have the following levels:

Level 1 reflects financial instruments quoted in an active market.

Level 2 reflects financial instruments whose fair value is evidenced by comparison with other observable current market transactions in the same instrument or based on a valuation technique whose variables includes only data from observable markets.

Level 3 reflects financial instruments whose fair value is determined in whole or in part using a valuation technique based on assumptions that are not supported by prices from observable market transactions in the same instrument and not based on available observable market data.

The fair value hierarchy for investments held at fair value at the period end is as follows:

7.   Related parties

Devon Equity Management Limited ('Devon') has served as Investment Manager to the Company since 15 November 2019 and became AIFM on 1 July 2022.

Devon is entitled to aggregate management fees of 0.80% per annum of 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 any net assets over this amount.

8.   Availability of Half Yearly Financial Report

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

[email protected]       

6 February 2025

Neither the contents of the Company's website nor the contents of any website accessible from hyperlinks on the Company's website (or any other website) are incorporated into, or form part of, this announcement.

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