Annual Financial Report

The European Investment Trust plc Annual Report and Financial Statements for the year ended 30 September 2010 The full Annual Report and Financial Statements can be accessed via the Company's website at www.theeuropeaninvestmenttrust.com or by contacting the Company Secretary by telephone 0131 270 3800. HIGHLIGHTS - Net asset value total return for the year 4.8% compared to FTSE All-World Europe ex UK Index total return 2.3% - Proposed ordinary dividend of 11.0p and special dividend of 3.0p, a total of 14.0p, an increase of 2.9% on the prior year. - Change of investment manager from F&C Management Limited to Edinburgh Partners Limited on 1 February 2010 and change of the Company name. - Significant portfolio restructuring with focus on building a well diversified portfolio with high and defensible yields and strong balance sheets - Continuing to remain relatively fully invested Company Summary Investment objective To achieve long-term capital growth through a diversified portfolio of Continental European securities. A detailed description of the Company's investment policy is set out in the Directors' Report. Shareholders' funds Â£277,847,000 at 30 September 2010. Market capitalisation Â£232,719,000 at 30 September 2010. Capital structure At 30 September 2010, the Company had 42,700,748 ordinary shares of 25p each in issue. As at the date of this report, the Company had 42,400,748 ordinary shares in issue. Savings plans The Company's ordinary shares are eligible for inclusion in ISAs and SIPPs. Savings Plans and ISAs are available through the BNP Paribas - Edinburgh Partners Savings Scheme and ISA, both for lump sum investments and regular contributions. Details may be obtained from Edinburgh Partners, or through the Company's website www.theeuropeaninvestmenttrust.com. AIC The Company is a member of the Association of Investment Companies. Investment Manager Edinburgh Partners Limited Investment management fee 0.55% per annum of the Company's market capitalisation payable quarterly in arrears. Financial Summary 30 September 2010 30 September Change 2009 Results for year Shareholders' funds Â£277.85m Â£290.16m (4.2)% Net asset value per ordinary share 650.69p 634.18p 2.6% ("NAV") Share price per ordinary share 545.00p 554.00p (1.6)% Share price discount to NAV 16.2% 12.6% Year to Year to 30 September 2010 30 September 2009 Revenue return per ordinary share* 13.79p 13.24p Capital return per ordinary share* 7.60p 25.53p Total return per ordinary share* 21.39p 38.77p Final dividend per ordinary share** 11.00p 10.20p Special dividend per ordinary share 3.00p 3.40p ** Total dividend per ordinary share** 14.00p 13.60p * Based on the weighted average number of shares in issue during the year. ** Proposed dividend for the year. Year to Year to 30 September 2010 30 September 2009 Year's high/low NAV - high 673.28p 640.49p - low 559.84p 391.53p Share price - high 576.00p 554.00p - low 465.50p 317.50p Share price discount to NAV - low 11.3% 6.3% - high 18.4% 20.7% Year to 30 September 2010 Performance NAV Total Return +4.8% FTSE All-World Europe ex UK Index Total +2.3% Return* * In sterling The NAV Total Return is sourced from Edinburgh Partners and includes dividends reinvested. Prior to 1 February 2010, the investment manager was F&C Management Limited ("F&C") and NAV returns were sourced from F&C. The index performance figure is sourced from Thomson Reuters Datastream. Past performance is not a guide to future performance. Year to Year to 30 September 2010 30 September 2009 Cost of running the Company Total expense ratio* 0.64% 0.75% * Based on total expenses for the year and average net asset value. Chairman's Statement Results In what has been a significant period of change for your Company, in the year to 30 September 2010 the net asset value ("NAV") per share rose 2.6% from 634.2p to 650.7p. After taking account of dividends paid in the year the total return was 4.8%. This compares positively with the total return of 2.3% from the FTSE All-World Europe Index, excluding the UK and adjusted to sterling. It was encouraging to note this positive return given the significant portfolio restructuring that occurred during the year following the change of Manager from F&C Management Limited ("F&C") to Edinburgh Partners Limited. The Company's share price fell by 1.6% from 554.0p to 545.0p as the discount widened from 12.6% to 16.2%. Revenue The revenue return per share increased by 4.2% from 13.2p to 13.8p in the year to 30 September 2010. This increase was achieved despite last year's revenue benefiting from a Â£2.2m credit in respect of VAT, and interest thereon, recovered on investment management fees paid in the past. There were two principal reasons for this uplift. The first was the rise in dividend income which occurred partially as a result of a portfolio shift to higher yielding stocks, as detailed in the Manager's Report, as well as the benefit of a significant dividend from Ryanair, one of the new portfolio investments made during the year. The second reason was the reduction in the Company's tax charge, with the effective rate reducing from 26% to 11%. Changes to the taxation of overseas dividends, which resulted in the majority of overseas dividends being exempt from corporation tax, became effective on 1 July 2009. This benefited the revenue account for the whole of the current financial year, compared to only the final three months of the prior year. Dividend The Board is recommending a final dividend of 11.0p per share and a special dividend of 3.0p per share, a total of 14.0p per share, an increase of 2.9%. The special dividend is being proposed as a result of the high revenue return for the year. This compares with dividends in 2009 of 13.6p per share, consisting of a final dividend of 10.2p per share and a special dividend of 3.4p per share relating to the recovery of VAT and related interest on investment management fees. Subject to the approval of shareholders at the Annual General Meeting on 18 January 2011, the final dividend and special dividend will be paid on 31 January 2011 to shareholders on the register as at the close of business on 7 January 2011. The ex-dividend date will be 5 January 2011. Share buybacks The Company bought back and cancelled 3,052,000 shares during the financial year, a period which covered the change of investment manager and the notice of withdrawal of the Company from the F&C savings plans. This was a marginally higher amount than last year, representing 6.7% of the share capital in issue at the beginning of the financial year. Since the year end, the Company has bought back and cancelled 300,000 shares. The Directors will propose at the Annual General Meeting that the Company's powers to make further purchases of its shares be renewed. Management As was intimated in last year's annual report, following disappointing investment performance in recent years, the Board conducted a review of the Company's investment management arrangements. A wide range of prospective investment managers were asked to submit proposals. Following careful consideration, the Board decided to appoint Edinburgh Partners as the Company's new Manager with effect from 1 February 2010. Edinburgh Partners is an independent fund manager and is the manager of two other investment trusts, EP Global Opportunities Trust plc and Anglo & Overseas Plc. Edinburgh Partners' investment team is led by Dr Sandy Nairn, and Dale Robertson is the Company's portfolio manager. Edinburgh Partners' appointment is for an initial fixed period of 12 months from 1 February 2010 and shall continue after that subject to termination on three months' notice. Edinburgh Partners is entitled to an annual management fee of 0.55% of the Company's market capitalisation. No performance fee will be paid. Edinburgh Partners agreed to waive its management fee for a period of three months from 1 February 2010 to 30 April 2010 as a contribution to the costs borne by the Company for the change of management arrangements, which included compensation to F&C for the unexpired period of notice under its management agreement. Change of Name The name of the Company was changed from Foreign & Colonial Eurotrust PLC to The European Investment Trust plc on 1 February 2010. There has been no change in the investment objective of the Company, which is to achieve long-term capital growth through a diversified portfolio of Continental European securities. For shareholders on the main register who hold their shares in certificated form, your existing share certificates in the name of Foreign & Colonial Eurotrust PLC remain valid and you did not receive a new certificate as a result of the change of name. A new certificate will only be issued to shareholders as a result of a change of address or as a replacement for a lost certificate, when the new certificate will show the new name. Savings Scheme The previous manager, F&C, operated a number of savings plans. Upon the change of management to Edinburgh Partners a significant number of investors decided to keep their investment in F&C funds and therefore sold their shares in The European Investment Trust plc. This resulted in a number of share buy backs, which are included in the total mentioned above. Shares in the Company can now be bought or held in an ISA or Share Plan through the BNP Paribas - Edinburgh Partners Savings Scheme and ISA. Portfolio Restructuring Following the change of manager Edinburgh Partners undertook a significant portfolio restructuring in the first week of February 2010 and of the 46 holdings inherited, 20 investments were initially retained and 26 disposed of. A total of 20 new investments were made. The restructuring went seamlessly at a minimal cost to shareholders, with the most noteworthy change being in the financial sector, where exposure to investment banking and insurance was reduced, and in the food and drinks sector where three Irish-based companies were disposed of. Developments in the Investment Trust Sector As detailed above, your Company has benefited from legislative changes, including the refund of VAT on investment management fees and the change in taxation of overseas dividends, both of which have had a positive financial impact on the Company. Both these changes were initiatives undertaken by the Association of Investment Companies, of which your Company is a member. We continue to support their initiatives, including those on the Alternative Investment Fund Managers ("AIFM") Directive and the proposed investment trust tax reforms. Annual General Meeting We hope that as many shareholders as possible will attend the Annual General Meeting which will be held at 11.00 am on Tuesday, 18 January 2011 at Brewers' Hall, Aldermanbury Square, London EC2V 7HR. We look forward to meeting all of you who can attend. Outlook Investors remain concerned over the slow pace of economic growth in heavily indebted developed markets. In the Eurozone, fears of a financial crisis remain but better than expected growth in company profits and German exports has supported share prices. With the uncertain economic outlook, the principal portfolio focus has been on building a well diversified portfolio, with companies which either have high and defensible dividend yields or strong balance sheets. Portfolio valuations are consistent with the expectation of reasonable long-term returns, especially when compared to other asset classes, and we continue to remain relatively fully invested. Douglas McDougall Chairman 7 December 2010 Manager's Report and Portfolio Analysis Introduction I am delighted to be writing our first Annual Report as the Manager of your Company's assets. In the Half-Yearly Financial Report published in May 2010, I outlined some background on both Edinburgh Partners and our investment style. I would refer you to that source for more detail but also reiterate that the philosophical underpinning of our approach relates to time horizon. Put simply, we believe time horizon is the key imperfection in financial markets. Most investors have become shorter and shorter term in their outlook and this can create significant opportunities for an investor with a long-term perspective. Accordingly, we have structured our business and investment approach around having a five year, fundamental, patient approach. Portfolio Structure Your portfolio was repositioned swiftly after our stewardship started on 1 February 2010. In this report I would like to expand upon two of the principal themes reflected in your portfolio as it now stands, firstly the importance of dividends and secondly, the opportunities which balance sheet strength can bring. Historical studies into equity market returns stretching back to the 19th Century show clearly that dividends form a significant part of an investor's total return. We are currently in a period of low economic growth with equity valuations slightly higher than historical averages. In this environment, dividends will form a significant part of total returns. In our analysis of companies we spend a lot of time looking at dividend growth prospects and what might cause a company to cut its dividend payout. Of the 39 holdings in the portfolio, 23 are forecast to pay a dividend that will allow them to yield more than 3%. Included in this are 9 companies that have a forecast yield of more than 6%, mostly in the telecommunications and oil & gas sectors. Of the companies with a forecast yield below 3%, most have the ability to rapidly increase dividend payouts over the coming years. One example is Adidas which currently yields less than 1% with a payout ratio of 20%. Its two largest profit centres are in China and Russia, its earnings are rapidly increasing and it should be able to pay out a greater proportion of its earnings. Some companies, such as Ryanair, operate in a cyclical industry and choose to pay special dividends rather than make regular payments. In September 2010, Ryanair paid around 10% of its share price in a dividend to shareholders, something they could replicate in the years to come depending on the strategic choices they make. Linked to dividend capacity is balance sheet strength. Outside of the financial sector, overall corporate balance sheets came through the financial crisis and related recession in very good condition. How companies use this strength and ongoing cashflow plays an important part in our investment decisions. With interest rates as low as they are, many companies can use their financial strength to enhance their earnings by funding research and development, capital expenditure, or the acquisition of other companies. It is our view that owning companies who will be acquirers over the coming years may be very rewarding for investors. The portfolio includes 21 companies which we have identified have both strong financial positions and opportunities to deploy capital into value enhancing acquisitions. Examples include: â€¢ Solvay - a Belgian chemical company which has half of its market capitalisation in net cash awaiting the right opportunity. â€¢ Ahold - a food retailer with leading market positions in the Netherlands and north east United States. With a market value of â‚¬12bn the company has â‚¬4bn of cash it can use to make investments which will enhance its growth or fund payments to shareholders. â€¢ United Internet - a German telecommunication and internet service provider. It currently has net debt which amounts to less than one year's cash flow. It has a range of interesting investment opportunities open to it, both organically and through acquisition, in the fields of consumer and business internet applications which could be very attractive to shareholders. The above are all companies where stated ambitions and recent management actions make us confident that they will spend their cash in a way that will enhance shareholder value. Economic Overview Across the globe many developed economies have suffered from weak fiscal positions in the aftermath of the financial crisis. European countries have been no exception; certain peripheral European countries have also been hit by a loss of competitiveness and, through membership of the euro, loss of the scope to devalue their currencies. Governments and the European Central Bank have responded by lowering interest rates, supplying liquidity to the markets and taking action to restore confidence in the bank sector. Many companies we invest in have a strong international dimension to their profits or growth profile. It is clear, though, that the economic imbalances present will not unwind overnight and that the "margin of safety" factors of dividends and balance sheet strength will play a significant part in investment selection in the years to come. Outlook Low interest rates, weaker currencies and a recovering bank sector have all helped to improve the economic prospects for Europe and it is likely that 2009 marked a trough in economic activity for the region. Many European companies are directly or indirectly exposed to emerging markets and will benefit from the high growth rates we expect from these markets. Fiscal imbalances and shortfalls in competitiveness still present headwinds and equity valuations are close to historical averages. These valuations suggest that your portfolio should continue to be fully invested and that a patient and disciplined investment approach will be rewarded. Dale Robertson Edinburgh Partners Limited 7 December 2010 Portfolio of Investments as at 30 September 2010 20 largest investments % of Company Sector Country Valuation Net Assets Â£'000 Nokia Technology Finland 8,751 3.2 Ahold Consumer Services Netherlands 8,640 3.1 Vivendi Consumer Services France 8,433 3.0 Amadeus Industrials Spain 8,312 3.0 Reed Elsevier Consumer Services Netherlands 8,124 2.9 Adidas Consumer Goods Germany 8,080 2.9 Deutsche Post Industrials Germany 7,995 2.9 United Internet Technology Germany 7,812 2.8 Ryanair Consumer Services Ireland 7,796 2.8 Bureau Veritas Industrials France 7,699 2.8 Teleperformance Consumer Services France 7,541 2.7 ENI Oil & Gas Italy 7,512 2.7 Royal Dutch Shell Oil & Gas Netherlands 7,478 2.7 Solvay Basic Materials Belgium 7,332 2.6 Belgacom Telecommunications Belgium 7,270 2.6 Sanofi-aventis Health Care France 7,253 2.6 Gazprom Oil & Gas Russia 7,065 2.6 Heineken Consumer Goods Netherlands 7,039 2.5 Gerresheimer Health Care Germany 7,019 2.5 Intesa Sanpaolo Financials Italy 6,928 2.5 Total - 20 largest investments 154,079 55.4 Other investments SAP Technology Germany 6,884 2.5 Banque Cantonale Financials Switzerland 6,774 2.4 Vaudoise BNP Paribas Financials France 6,752 2.4 Banco Bilbao Vizcaya Financials Spain 6,730 2.4 Argentaria Total Oil & Gas France 6,687 2.4 Syngenta Basic Materials Switzerland 6,655 2.4 DCC Industrials Ireland 6,585 2.4 AXA Financials France 6,433 2.3 France Telecom Telecommunications France 6,383 2.3 Nutreco Consumer Goods Netherlands 6,209 2.2 UBS Financials Switzerland 6,043 2.2 Andritz Industrials Austria 5,964 2.2 E.On Utilities Germany 5,914 2.1 Novartis Health Care Switzerland 5,781 2.1 Swedbank Financials Sweden 5,651 2.0 Prysmian Industrials Italy 5,575 2.0 Grifols Health Care Spain 5,214 1.9 Actelion Health Care Switzerland 4,903 1.8 CRH Industrials Ireland 3,728 1.4 Total - 39 Investments 268,944 96.8 Cash and other net 8,903 3.2 assets Net assets 277,847 100.0 The geographic distribution is based on each investment's principal stock exchange listing, except in instances where this would not give a proper indication of where its activities predominate. Of the ten largest portfolio investments as at 30 September 2010 the valuations at the previous year end, 30 September 2009, were: Nokia Â£9,709,000; Reed Elsevier Â£5,523,000; Adidas Â£7,323,000 and Deutsche Post Â£6,075,000. The remaining six investments, Ahold, Vivendi, Amadeus, United Internet, Ryanair and Bureau Veritas, were new purchases made during the year ended 30 September 2010. Distribution of Investments As at 30 September 2010 (% of net assets) Sector distribution as at 30 September 2010 Sector Percentage Industrials 16.7 Financials 16.2 Consumer Services 14.5 Health Care 10.9 Oil & Gas 10.4 Technology 8.5 Consumer Goods 7.6 Basic Materials 5.0 Telecommunications 4.9 Utilities 2.1 Cash and other net 3.2 assets* 100.0 Geographical distribution as at 30 September 2010 Geographical Percentage France 20.5 Germany 15.7 Netherlands 13.4 Switzerland 10.9 Spain 7.3 Italy 7.2 Ireland 6.6 Belgium 5.2 Finland 3.2 Russia 2.6 Austria 2.2 Sweden 2.0 Cash and other net 3.2 assets* 100.0 * Cash and other net assets includes foreign currency balances of Â£9,716,000 (3.5%). The geographic distribution is based on each investment's principal stock exchange listing, except in instances where this would not give a proper indication of where its activities predominate. Extracts from the Directors' Report The Directors present their Annual Report and Financial Statements for the year to 30 September 2010. Business review Financial reporting requirements direct that the Company is required to provide a business review within the Directors' Report. The business review must contain a review of the Company's business, the principal risks and uncertainties it faces, an analysis of its performance during the financial period, the position at the period end and the future business plans of the Company. It must also provide information about the Company's environmental, social and ethical policy and about persons with whom the Company has contractual or other arrangements essential to the business of the Company. To aid understanding of these areas the Board is required to include analysis using appropriate Key Performance Indicators. Forward looking statements This business review contains "forward looking statements" with respect to the Company's plans and its current goals and expectations relating to its future financial condition, performance and results. By their nature, all forward looking statements involve risk and uncertainty because they relate to future events that are beyond the Company's control. Factors that could cause actual results to differ materially from those estimated by the forward looking statements include, but are not limited to: â€¢ Continental European economic conditions and equity market performance and prices. â€¢ Changes in Continental European Government policies and monetary and interest rate policies. â€¢ Changes to regulations and taxes, both in the UK and Continental Europe. â€¢ Changes to consumer spending or saving habits and the impact of inflation and deflation. â€¢ European currency exchange rates. â€¢ The Company's success in managing its assets and business to manage the above factors and use of gearing. As a result, the Company's actual future condition, performance and results may differ materially from the plans set forth in the Company's forward looking statements. The Company undertakes no obligation to update the forward looking statements contained within this review or any other forward looking statements it makes. Business and status of the Company The Company is registered as a public limited company and is an investment company within the terms of Section 833 of the Companies Act 2006. The Company has received approval from HM Revenue & Customs as an authorised investment trust under Section 842 of the Income and Corporation Taxes Act 1988 for the period from inception to 30 September 2008 and for the year to 30 September 2009 under Sections 1158 and 1159 of the Corporation Tax Act 2010 ("CTA"). This approval is subject to there being no subsequent enquiry under corporation tax self-assessment. In the opinion of the Directors, the Company has subsequently directed its affairs so as to enable it to continue to qualify for such approval and the Company will continue to seek approval each year. The Company's shares are listed on the Official List of the UK Listing Authority and traded on the main market of the London Stock Exchange. The Company has a secondary listing on the New Zealand Stock Exchange. A review of the Company's activities during the year is given in the Chairman's Statement and in the Manager's Report and Portfolio Analysis. Objective The objective of The European Investment Trust plc is to achieve long-term capital growth through a diversified portfolio of Continental European securities. Investment policy The Board believes that investment in the diverse and increasingly accessible markets of this region provides opportunities for capital growth over the long-term. At the same time it considers the structure of the Company as a UK listed investment trust, with fixed capital and an independent Board of Directors, to be well suited to investors seeking longer-term returns. The Board recognises that investment in some European countries can be riskier than in others. Investment risks are diversified through holding a wide range of securities in different countries and industrial sectors. No more than 10% of the value of the portfolio in aggregate may be held in securities in those countries which are not included in the FTSE All-World European indices. The Board has the authority to hedge the Company's exposure to movements in the rate of exchange of currencies, principally the euro, in which the Company's investments are denominated, against sterling, its reporting currency. However, it is not generally the Board's practice to do this and the portfolio is not currently hedged. No investments in unquoted stocks can be made without the prior approval of the Board. The level of gearing within the portfolio is agreed by the Board and should not exceed 20% in normal market conditions. No more than 10% of the total assets of the Company may be invested in other listed investment companies (including investment trusts) except in such other investment companies which themselves have stated that they will invest no more then 15% of their total assets in other listed investment companies, in which case the limit is 15%. The Manager's compliance with the limits set out in the investment policy is monitored by the Board. Investment strategy Investments are selected for the portfolio only after extensive research which the Investment Manager believes to be key. The whole process through which an equity must pass in order to be included in the portfolio is very rigorous. Only a security where the Investment Manager believes that the price will be significantly higher in the future will pass the selection process. The Company's Investment Manager believes the key to successful stock selection is to identify the long-term value of a company's shares and to have the patience to hold the shares until that value is appreciated by other investors. Identifying long-term value involves detailed analysis of company's earning prospects over a five-year time horizon. The portfolio will normally consist of 40 to 50 investments. Portfolio analysis The Company has observed and intends to observe the investment restrictions necessary to achieve and maintain approved investment trust status in the United Kingdom and to comply with the Listing Rules of the Financial Services Authority ("FSA"). No single investment will represent more than 15% of the Company's gross assets at the time of its acquisition. A detailed review of how the Company's assets have been invested is contained in the Manager's Report and Portfolio Analysis. A detailed list of all the Company's investments is contained in the Portfolio of Investments above. The Portfolio of Investments details that the Company held 39 investments, excluding cash and other net assets, as at 30 September 2010, with the largest representing 3.2% of net assets, thus ensuring that the Company has a suitable spread of investment risk. A sector and geographical distribution of investments is shown above. Principal risks and uncertainties The Board considers that the following are the principal risks associated with investing in the Company: investment and strategy, discount volatility risk, market risk (comprising interest rate risk, currency risk and other price risk), liquidity risk, credit risk and gearing risk. An explanation of these risks and how they are managed and the policy and practice with regard to financial instruments are contained in note 18. In addition, the Board also considers the following as principal risks: Regulatory risk Relevant legislation and regulations which apply to the Company include the Companies Act 2006, the Corporation Tax Act 2010 ("CTA") and the FSA Listing Rules. A breach of the CTA could result in the Company losing its status as an investment company and becoming subject to capital gains tax, whilst a breach of the Listing Rules might result in censure by the FSA. The Company has noted the recommendations of the Combined Code on Corporate Governance, the AIC Code of Corporate Governance ("AIC Code") and the relevant AIC Corporate Governance Guide for Investment Companies. Its statement of compliance appears in the Annual Report and Financial Statements for the year ended 30 September 2010. At each Board meeting the status of the Company is considered and discussed, so as to ensure that all regulations are being adhered to by the Company and its service providers. The Board is not aware of any breaches of laws or regulations during the period under review and up to the date of this report. Operational risk In common with most other investment companies the Company has no employees; the Company therefore relies upon the services provided by third parties. There are a number of operational risks associated with the fact that third parties undertake the Company's administration and custody. The main risk is that the third parties may fail to ensure that statutory requirements, such as compliance with the Companies Act and FSA Listing Rules, are met. The Board regularly receives and reviews management information from third parties which the Secretary compiles. In addition, each of the third parties provides a copy of its report on internal controls (SAS 70, AAF or equivalent) to the Board each year. Financial risk Inappropriate accounting policies or failure to comply with current or new accounting standards may lead to a breach of regulations. The Investment Manager employs independent administrators to prepare all Financial Statements and the Audit Committee meets with the independent Auditor at least once a year to discuss all financial matters including appropriate accounting policies. The Company is a member of the AIC, a trade body intended to promote investment trusts which also develops best practice for all its members. The Board undertakes an annual assessment and review of all the risks stated above and in note 18, together with a review of any new risks which may have arisen during the year. These risks are formalised within the Company's risk assessment matrix. Performance Net asset value The net asset value per ordinary share ("NAV") at 30 September 2010 was 650.69p (2009: 634.18p). Results The results for the year are set out in the Income Statement and the Reconciliation of Movements in Shareholders' Funds below. Dividends The Directors recommend a final dividend of 11.0p per ordinary share and a special dividend of 3.0p per ordinary share (2009: final dividend of 10.2p and special dividend of 3.4p), a total of 14.0p per ordinary share (2009: 13.6p). If approved by shareholders, these dividends will be payable on 31 January 2011 to shareholders on the register at the close of business on 7 January 2011. The ex-dividend date will be 5 January 2011. Key performance indicators At each Board meeting, the Directors consider a number of performance measures to assess the Company's success in achieving its objective. The key performance indicators used to measure progress and performance of the Company over time are established industry measures and are as follows: â€¢ Net asset value per ordinary share total return compared to the FTSE All-World Europe ex UK Total Return Index. â€¢ Share price premium/discount to net asset value per share. â€¢ Total expense ratio. The records of the key performance indicators are shown in the Financial Summary above and the Ten Year Record shown in the Annual Report and Financial Statements. The Board also takes into consideration how the Company performs compared to other investment trusts investing in Europe. Share capital During the year ended 30 September 2010 the Company purchased 3,052,000 ordinary shares (with a nominal value of Â£763,000) for cancellation, representing 6.67% of the issued share capital at 30 September 2009, for an aggregate amount of Â£15,476,000. Subsequent to the year end and up to the date of this report, a further 300,000 ordinary shares (with a nominal value of Â£75,000) have been purchased for cancellation representing 0.66% of the issued share capital at 30 September 2009, for an aggregate amount of Â£1,736,000. The Company made no share issues during the year ended 30 September 2010. At general meetings of the Company, one vote is attached to each ordinary share in issue. Current and future developments A review of the main features of the year and the outlook for the coming year is to be found in the Chairman's Statement and the Manager's Report and Portfolio Analysis above. The Board's main focus is on the investment return and approach. Attention is paid to the integrity and success of the investment approach and on factors which may have an impact on this approach. Due regard is paid to the promotion of the Company including communication with shareholders and other external parties. The Board is regularly updated on wider investment trust industry issues. Detailed papers are presented to the Board which lead to extensive discussion on development and strategy. Social, environmental and ethical policy The European Investment Trust plc seeks to invest in companies that are well managed, with high standards of corporate governance as the Directors believe this creates the proper conditions to enhance long-term value for shareholders. The Company adopts a positive approach to corporate governance and engagement with companies. In pursuit of the above objective, the Directors believe that proxy voting is an important part of the corporate governance process and considers seriously its obligation to manage the voting rights of companies in which it is invested, for which it has delegated responsibility to its Investment Manager. It is the policy of the Company to vote, as far as is practicable, at all shareholder meetings of investee companies. The Company follows the relevant applicable regulatory and legislative requirements in the UK, with the guiding principles being to make proxy voting decisions which favour proposals that will lead to maximising shareholder value while avoiding any conflicts of interest. Voting decisions are based on an agreed policy framework, with the key issues on which the Investment Manager focuses being corporate governance, including disclosure and transparency, board composition and independence, control structures, remuneration and social and environmental issues. The Company itself has no employees and all the Directors are non-executive. The day-to-day management of the Company's business has been delegated to the Company's Investment Manager, Edinburgh Partners, who have an Environmental, SRI and Corporate Governance ("ESG") policy in place, which can be found on their website www.edinburghpartners.com. Investment Management Agreement The Company's investments are managed by Edinburgh Partners under an Investment Management Agreement dated 29 January 2010. The Investment Manager receives a management fee of 0.55% per annum of the Company's market capitalisation, payable quarterly in arrears. The Investment Management Agreement is initially for a fixed period of twelve months from 1 February 2010 and shall continue after that subject to termination on three months' notice. No additional compensation is payable to Edinburgh Partners on the termination of this agreement other than the fees payable during the notice period. No performance fee is payable. Further details relating to the Investment Management Agreement are detailed in Note 3. Appointment of the Investment Manager The Board keeps the performance of the Investment Manager under review through the Audit and Management Engagement Committee. The Company terminated its management agreement with F&C Management Limited and appointed Edinburgh Partners as Investment Manager with effect from 1 February 2010. It is the opinion of the Directors that the continuing appointment of Edinburgh Partners on the terms agreed is in the interests of shareholders as a whole. The reasons for this view are that the investment performance is satisfactory relative to that of the markets in which the Company invests and because the remuneration of the Investment Manager is reasonable both in absolute terms and compared to that of managers of comparable investment companies. The Directors believe that by paying the investment management fee calculated on a market capitalisation basis, rather than a percentage of assets basis, the interests of the Investment Manager are more closely aligned with those of shareholders. Management Report and Statement of Directors' Responsibilities in Relation to the Annual Report and the Financial Statements Management report Listed companies are required by the FSA's Disclosure and Transparency Rules (the "Rules") to include a management report within their Annual Report and Financial Statements. The information required to be included in the management report for the purpose of these Rules is included in the Chairman's Statement, the Manager's Report and Portfolio Analysis and the Business Review contained in the Directors' Report. Therefore no separate management report has been included. Statement of Directors' responsibilities in relation to the Annual Report and Financial Statements The Directors are responsible for preparing the Annual Report and the Financial Statements in accordance with applicable law and regulations. Company law requires the Directors to prepare Financial Statements for each financial period. Under that law they have elected to prepare the Financial Statements in accordance with UK Accounting Standards. The Financial Statements are required by law to give a true and fair view of the state of affairs of the Company and of the net return of the Company for that period. In preparing these Financial Statements, the Directors are required to; â€¢ select suitable accounting policies and then apply them consistently; â€¢ make judgements and estimates that are reasonable and prudent; â€¢ state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the Financial Statements; and â€¢ prepare the Financial Statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business. The Directors, to the best of their knowledge, state that: â€¢ the Financial Statements, prepared in accordance with UK Accounting Standards, give a true and fair view of the assets, liabilities, financial position and net return of the Company; and â€¢ the Chairman's Statement, the Manager's Report and Portfolio Analysis and the Directors' Report include a fair review of the development and performance of the business and the position of the Company together with a description of the principal risks and uncertainties that it faces. The Directors confirm that, so far as they are each aware, there is no relevant audit information of which the Company's Auditors are unaware; and each Director has taken all the steps that ought to have been taken as a Director to make himself aware of any relevant audit information and to establish that the Company's Auditors are aware of that information. The Directors are responsible for keeping proper accounting records that disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that its Financial Statements comply with the Companies Act 2006 and include the information required by the Listing Rules of the FSA. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Company and to prevent and detect fraud and other irregularities. Under applicable law and regulations, the Directors are also responsible for preparing a Directors' Report, Directors' Remuneration Report and Corporate Governance Statement that comply with that law and those regulations. The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. The work carried out by the Auditors does not include consideration of these matters and, accordingly, the Auditors accept no responsibility for any changes that may have occurred to the Financial Statements since they were initially presented on the website. Legislation in the UK governing the preparation and dissemination of Financial Statements may differ from legislation in other jurisdictions. On behalf of the Board Douglas McDougall Chairman 7 December 2010 Independent Auditors' Report to the Members of The European Investment Trust plc for the year ended 30 September 2010 The Company's financial statements for the year ended 30 September 2010 have been audited by PricewaterhouseCoopers LLP. The text of the Auditor's report can be found in the Company's Annual Report and Financial Statements at www.edinburghpartners.com. Income Statement for the year ended 30 September 2010 2010 2009 Revenue Capital Total Revenue Capital Total Note Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Gains on investments at 9 - 3,616 3,616 - 11,105 11,105 fair value Foreign exchange (10) (287) (297) 22 1,029 1,051 (losses)/gains Income 2 8,554 - 8,554 9,261 - 9,261 Investment management 3 (1,199) - (1,199) (1,151) - (1,151) fee Refund of VAT paid on 4 - - - 1,103 - 1,103 investment management fees Other expenses 5 (531) 2 (529) (693) (19) (712) Net return before 6,814 3,331 10,145 8,542 12,115 20,657 finance costs and taxation Finance costs Interest payable and - - - (68) - (68) similar charges Net return before 6,814 3,331 10,145 8,474 12,115 20,589 taxation Taxation 6 (772) - (772) (2,190) - (2,190) Net return after 6,042 3,331 9,373 6,284 12,115 18,399 taxation pence pence pence pence pence pence Return per ordinary 8 13.79 7.60 21.39 13.24 25.53 38.77 share* * Based on weighted average number of shares in issue during the year. All revenue and capital items in the above statement derive from continuing operations. The total column of this statement is the Profit and Loss Account of the Company. The revenue and capital return columns are prepared under guidance published by the Association of Investment Companies ("AIC"). A separate Statement of Total Recognised Gains and Losses has not been prepared as all such gains and losses are included in the Income Statement. Dividend information A final dividend for the year ended 30 September 2010 of 11.0p per ordinary share and a special dividend of 3.0p per ordinary share, total 14.0p (2009: final dividend of 10.2p and special dividend of 3.4p, total 13.6p) has been proposed, subject to the approval of shareholders at the Annual General Meeting. These dividends will be payable on 31 January 2011 to shareholders on the register at the close of business on 7 January 2011. The ex-dividend date will be 5 January 2011. Based on 42,400,748 ordinary shares in issue at the date of this report, the total dividend payment will amount to Â£5,936,000. In accordance with Financial Reporting Standard 21: "Events after the Balance Sheet date", final dividends and special dividends are accounted for in the period in which they are approved by shareholders. Further information on dividend distributions can be found in note 7. The notes form part of these Financial Statements. Balance Sheet as at 30 September 2010 2010 2009 Note Â£'000 Â£'000 Fixed asset investments: Investments at fair value through profit 9 268,944 290,067 or loss Current assets: Debtors 11 4,474 1,276 Cash at bank and short-term deposits 9,789 2,200 14,263 3,476 Creditors: amounts falling due within one 12 5,360 3,388 year Net current assets 8,903 88 Net assets 277,847 290,155 Capital and reserves: Called-up share capital 13 10,675 11,438 Share premium account 123,749 123,749 Capital redemption reserve 8,136 7,373 Capital reserve 125,185 137,330 Revenue reserve 10,102 10,265 Total shareholders' funds 277,847 290,155 pence pence Net asset value per ordinary share 14 650.69 634.18 These Financial Statements were approved and authorised for issue by the Board of Directors on 7 December 2010 and were signed on its behalf by: Douglas McDougall Chairman The notes form part of these Financial Statements. Reconciliation of Movements in Shareholders' Funds for the year ended 30 September 2010 Share Capital Share premium redemption Capital Revenue capital account reserve reserve reserve Total Note Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Year ended 30 September 2010 At 30 September 2009 11,438 123,749 7,373 137,330 10,265 290,155 Net return after - - - 3,331 6,042 9,373 taxation for the year Dividends paid 7 - - - - (6,205) (6,205) Shares purchased and 13 (763) - 763 (15,476) - (15,476) cancelled At 30 September 2010 10,675 123,749 8,136 125,185 10,102 277,847 Year ended 30 September 2009 At 30 September 2008 12,195 123,749 6,616 138,618 11,200 292,378 Net return after - - - 12,115 6,284 18,399 taxation for the year Dividends paid 7 - - - - (7,219) (7,219) Shares purchased and (757) - 757 (13,403) - (13,403) cancelled At 30 September 2009 11,438 123,749 7,373 137,330 10,265 290,155 The notes form part of these Financial Statements. Cash Flow Statement for the year ended 30 September 2010 2010 2009 Note Â£'000 Â£'000 Operating activities: Investment income received 7,855 8,046 Interest received 10 120 Other income - 52 Refund of VAT, including interest , on - 4,166 investment management fees Investment management fees paid (1,164) (1,276) Other cash payments (493) (671) Net cash inflow from operating activities 15 6,208 10,437 Serving of finance: Interest paid (21) (87) Taxation: UK tax paid (863) (2,019) Overseas tax paid (801) (1,022) Overseas tax recovered 39 257 Total taxation (1,625) (2,784) Capital expenditure and financial investment: Purchases of investments (225,428) (257,803) Sales of investments 251,252 282,172 Exchange gains/(losses) on settlement 406 (136) Other capital charges - (21) Net cash inflow from capital and financial 26,230 24,212 investment Equity dividends paid 7 (6,205) (7,219) Net cash inflow before financing 24,587 24,559 Financing: Loans redeemed - (11,912) Own shares purchased and cancelled (16,306) (12,576) Net cash outflow from financing (16,306) (24,488) Increase in cash 16 8,281 71 The notes form part of these Financial Statements. Notes to the Financial Statements at 30 September 2010 Basis of accounting The Financial Statements are prepared on a going concern basis, under the historical cost convention (modified to include fixed assets investments at fair value), in accordance with the Companies Act 2006, UK Generally Accepted Accounting Practice ("UK GAAP") and with the AIC Statement of Recommended Practice issued in January 2009 relating to the Financial Statements of Investment Trust Companies and Venture Capital Trusts. All the Company's activities are continuing. Income recognition Dividend and other investment income is included as revenue (except where in the opinion of the Directors, its nature indicates it should be recognised as capital) on the ex-dividend date or, where no ex-dividend date is quoted, when the Company's right to receive payment is established. Income arising on holdings of fixed income securities is recognised on a time apportionment basis so as to reflect the effective interest rate on that security. Deposit interest and underwriting commission receivable is included on an accruals basis. Dividends are accounted for in accordance with Financial Reporting Standard 16: "Current Taxation" on the basis of income actually receivable, without adjustment for the tax credit attaching to the dividends. Dividends from overseas companies are shown gross of withholding tax. Where the Company has elected to receive its dividends in the form of additional shares rather than in cash (scrip dividends), the amount of the cash dividend foregone is recognised as income. Any excess in the value of the shares received over the amount of the cash dividend foregone is recognised in the capital reserve. Borrowings Loans and overdrafts are recorded at the proceeds received, net of issue costs, irrespective of the duration of the instrument. Finance costs, including interest, are accrued using the effective interest rate method. See below for allocation of finance costs within the Income Statement. Expenses and finance costs All expenses are accounted for on an accruals basis. All operating expenses are charged through revenue in the Income Statement except costs that are incidental to the acquisition or disposal of investments, which are charged to capital in the Income Statement. Transaction costs are included within the gains and losses on investment sales, as disclosed in the Income Statement. No performance fees are charged by the Investment Manager. Investments All investments held by the Company are classified as `fair value through profit or loss'. Investments are initially recognised at cost, being the fair value of the consideration given. Interest accrued on fixed interest rate securities at the date of purchase or sale is accounted for separately as accrued income, so that the value or purchase price or sale proceeds is shown net of such items. After initial recognition, investments are measured at fair value, with changes in the fair value of investments and impairment of investments recognised in the Income Statement and allocated to capital. Realised gains and losses on investments sold are calculated as the difference between sales proceeds and cost. For investments actively traded in organised financial markets, fair value is generally determined by reference to Stock Exchange quoted market bid prices at the close of business on the Balance Sheet date, without adjustment for transaction costs necessary to realise the asset. Investments which are not quoted or which are not frequently traded are stated at Directors' best estimate of fair value, using the guidelines on valuation published by the International Private Equity and Venture Capital Association. This represents the Directors' view of the amount for which an asset could be exchanged between knowledgeable willing parties in an arm's length transaction. This does not assume that the underlying business is saleable at the reporting date or that its current shareholders have any intention to sell their holding in the near future. Where no reliable fair value can be estimated, investment may be carried at cost less any provision for impairment. Foreign currency The functional and reporting currency of the Company is sterling because that is the currency of the primary economic environment in which the Company operates. Transactions denominated in foreign currencies are converted to sterling at the actual exchange rate as at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the year end are reported at the rate of exchange to sterling at the Balance Sheet date. Any gain or loss arising from a change in exchange rate subsequent to the date of the transaction is included as an exchange gain or loss in the capital reserve or in revenue depending on whether the gain or loss is of a capital or revenue nature. Taxation The charge for taxation is based on the net return for the year and takes into account taxation deferred or accelerated because of timing differences between the treatment of certain items for accounting and taxation purposes. Full provision for deferred taxation is made under the liability method, without discounting, on all timing differences that have arisen but not been reversed by the Balance Sheet date, unless such provision is not permitted by Financial Reporting Standard 19: "Deferred Tax". This is subject to deferred tax assets only being recognised if it is considered more likely than not that there will be suitable profits from which the future reversal of the underlying timing differences can be deducted. Timing differences are differences arising between the Company's taxable profits and its results as stated in the Financial Statements which are capable of reversal in one or more subsequent periods. Capital redemption reserve The nominal value of ordinary share capital purchased and cancelled is transferred out of called-up share capital and into the capital redemption reserve on the relevant trade date. Capital reserve Capital reserve - arising on investments sold The following are accounted for in this reserve: - gains and losses on the realisation of investments; - realised foreign exchange differences of a capital nature; - costs of professional advice (including related irrecoverable VAT) relating to the capital structure of the Company; - other capital charges and credits charged or credited to this account in accordance with the above policies; and - costs of purchasing ordinary share capital. Capital reserve - arising on investments held The following are accounted for in this reserve: - increases and decreases in the valuation of investments held at the year end; and - unrealised foreign exchange differences of a capital nature. Dividends payable to shareholders Under Financial Reporting Standard 21: "Events after the Balance Sheet Date", final and special dividends are recognised as a liability in the period in which they have been approved by shareholders in a general meeting. 2. Income 2010 2009 Â£'000 Â£'000 Income from investments: Overseas dividends 8,527 7,795 UK net dividend income 17 231 8,544 8,026 Other income: Bank interest 10 120 Underwriting commission - 52 Interest on VAT refund on investment management fees - 1,063 10 1,235 Total income 8,554 9,261 3. Investment management fee 2010 2009 Total Total Â£'000 Â£'000 Investment management fee 1,199 1,151 Edinburgh Partners Limited was appointed to provide investment management, marketing and general administrative services to the Company with effect from 1 February 2010. Under the agreement Edinburgh Partners Limited is entitled to a fee paid quarterly in arrears, at the rate of 0.55% per annum of the market capitalisation of the Company. No performance fee will be paid. Until 31 January 2010, F&C Management Limited provided investment management, marketing and general administrative services to the Company for a management fee payable in arrears of 0.125% per quarter on the funds under management at the quarter end. In addition, F&C Management Limited was entitled to a performance related management fee payable at the rate of 0.05% per 1% of annual outperformance by the net asset value ("NAV") per share (inclusive of revenue return attributable to shareholders) of target performance. Target performance was defined as a margin of 1.5% over the FTSE All-World Europe ex UK Index (total return, sterling adjusted). The combined management fee and performance related management fee could not be greater than 0.1875% per quarter of the first Â£400m of funds under management and 0.125% per quarter of funds under management in excess of Â£400m at each quarter end. No performance fee is payable for the year ended 30 September 2010 (2009: Â£nil). Notice to terminate the management agreement with F&C Management Limited was given by the Company on 10 December 2009, to take place on 31 January 2010. Compensation was paid by the Company to F&C Management Limited for the unexpired period of two months' notice under the management agreement. Edinburgh Partners Limited agreed to waive its investment management fee for a period of three months as a contribution to the costs borne by the Company for the change of management arrangements, including compensation to F&C Management Limited for the unexpired period of notice under its management agreement. During the year ended 30 September 2010 the investment management fees payable to Edinburgh Partners Limited totalled Â£497,000 (2009: Â£nil) and F&C Management Limited Â£702,000 (2009: Â£1,151,000). At 30 September 2010 there was Â£307,000 outstanding payable to Edinburgh Partners Limited (2009: Â£272,000 payable to F&C Management Limited). 4. Recoverable VAT 2010 2009 Â£'000 Â£'000 Refund of VAT paid on investment management fees - 1,103 No VAT has been charged on investment management fees since 2007. The Company has now recovered Â£3,103,000 from HMRC in relation to VAT paid on such fees in the periods 1990 to 1996 and 2001 to 2007 which was recognised in the Income Statement in the years ended 30 September 2008 and 30 September 2009. In addition, interest of Â£1,063,000 relating to the VAT recovered has been received and was recognised in the Income Statement in the year ended 30 September 2009. Amounts relating to VAT paid on investment management fees during the period 1997 to 2000 have not been accrued or recognised as a contingent asset as their recovery remains uncertain under law. 5. Other expenses 2010 2009 Â£'000 Â£'000 Auditors' remuneration for: Audit services 28 28 Other services* 35 2 Directors' remuneration** 78 78 Other 390 585 531 693 * Consultancy services relating to VAT recovery claims. ** See the Directors' Remuneration Report in the Annual Report and Financial Statements for the year ended 30 September 2010. 6. Taxation a) Analysis of charge for 2010 2009 the year Revenue Capital Total Revenue Capital Total Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Current tax: UK Corporation Tax - - - 2,246 - 2,246 Overseas tax suffered 801 - 801 688 - 688 Double taxation relief - - - (701) - (701) Additional tax credits (29) - (29) (32) - (32) Current tax charge for the 772 - 772 2,201 - 2,201 year Deferred tax: Timing differences - - - (11) - (11) Total tax charge for the 772 - 772 2,190 - 2,190 year b) The current taxation charge for the year ended 30 September 2010 is lower than the standard rate of Corporation Tax in the UK of 28% (2009: 28%). The differences are explained below: 2010 2009 Revenue Capital Total Revenue Capital Total Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Net return before taxation 6,814 3,331 10,145 8,474 12,115 20,589 Theoretical tax at UK 1,908 933 2,841 2,373 3,392 5,765 Corporation Tax rate of 28% Effects of: - UK dividends that are (5) - (5) (65) - (65) not taxable - Foreign dividends that (2,030) - (2,030) (126) - (126) are not taxable - Accrued income taxable - - - 21 - 21 on receipt - Non-taxable investment - (933) (933) - (3,392) (3,392) gains - Disallowed expenses 15 - 15 34 - 34 - Unrelieved excess 133 - 133 - - - expenses - Overseas tax suffered 801 - 801 688 - 688 - Additional tax credits (29) - (29) (23) - (23) - Double taxation relief (21) - (21) (701) - (701) 772 - 772 2,201 - 2,201 c) Provision for deferred taxation 2010 2009 Revenue Capital Total Revenue Capital Total Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Balance brought forward - - - 11 - 11 Credit for the year (note - - - (11) - (11) 6a) Balance carried forward - - - - - - d) Factors that may affect future tax charges At 30 September 2010 the Company had unrelieved management expenses of Â£476,000 (30 September 2009: Â£nil). It is unlikely that the Company will generate sufficient taxable income in the future to use these expenses to reduce future tax charges and therefore no deferred tax asset has been recognised. In addition due to the Company's status as an investment trust and the intention to continue meeting the conditions required to obtain approval in the foreseeable future, the Company has not provided deferred tax on any capital gains and losses arising on the revaluation or disposal of investments. 7. Dividends 2010 2009 Declared and paid Payment date Â£'000 Â£'000 Final dividend for the year ended 30 September 25 January 2010 4,654 - 2009 of 10.2p Special dividend for the year ended 30 25 January 2010 1,551 - September 2009 of 3.4p Final dividend for the year ended 30 September 22 December 2008 - 5,814 2008 of 12.0p Special dividend for the year ended 30 22 December 2008 - 1,405 September 2008 of 2.9p 6,205 7,219 The Directors recommend a final dividend in respect of the year ended 30 September 2010 of 11.0p and a special dividend of 3.0p payable on 31 January 2011 to all shareholders on the register at close of business on 7 January 2011, a total of 14.0p (2009: 13.6p). The ex-dividend date will be 5 January 2011. The recommended final dividend and special dividend are subject to approval by shareholders at the Annual General Meeting to be held on 18 January 2011. The recommended final dividend and special dividend have not been included as a liability in these Financial Statements. 2010 2009 Proposed Â£'000 Â£'000 2010 final dividend of 11.0p (2009: 10.2p) per ordinary share* 4,664 4,654 2010 special dividend of 3.0p (2009: 3.4p) per ordinary share* 1,272 1,551 5,936 6,205 * Based on 42,400,748 shares in issue at 7 December 2010. 8. Return per ordinary share 2009 Net Ordinary Per Net Ordinary Per return shares* share return Shares* share Â£'000 pence Â£'000 pence Revenue return after 6,042 43,818,474 13.79 6,284 47,455,798 13.24 taxation Capital return after 3,331 43,818,474 7.60 12,115 47,455,798 25.53 taxation Total return 9,373 43,818,474 21.39 18,399 47,455,798 38.77 * Weighted average number of ordinary shares in issue during the year. 9. Listed investments 2010 2009 Â£'000 Â£'000 Analysis of investment portfolio movements Opening book cost 247,335 385,391 Opening investment holding gains/ 42,732 (99,366) (losses) Opening valuation 290,067 286,025 Movements in the year: Purchases at cost 229,071 258,169 Sales - proceeds (253,810) (265,232) Sales - realised gains/(losses) on sales 27,628 (130,993) Decrease in investment holding (gains)/ (24,012) 142,098 losses Closing valuation 268,944 290,067 Closing book cost 250,224 247,335 Closing investment holding gains 18,720 42,732 268,944 290,067 2010 2009 Â£'000 Â£'000 Analysis of capital gains and losses Realised gains/(losses) on sales 27,628 (130,993) Investment holding (losses)/gains (24,012) 142,098 Gains on investments 3,616 11,105 The Capital Reserve includes investment holding gains of Â£18,720,000 (2009: gains of Â£42,732,000) and unrealised foreign exchange losses of Â£8,000 (2009: Â£ nil). Fair value hierarchy In accordance with Financial Reporting Standard 29: "Financial Instruments: Disclosures", the Company must disclose the fair value hierarchy that classifies financial instruments measured at fair value at one of three levels according to the relative reliability of the inputs used to estimate the fair values. Classification Input Level 1 Valued using quoted prices in active markets for identical assets Level 2 Valued by reference to valuation techniques using observable inputs other than quoted prices included within Level 1 Level 3 Valued by reference to valuation techniques using inputs that are not based on observable market data Categorisation within the hierarchy has been determined on the basis of the lowest level input that is significant to the fair value measurement of the relevant asset. The valuation techniques used by the Company are explained in note 1. All of the Company's financial instruments fall into Level 1, being valued at quoted prices in active markets. During the year ended 30 September 2010 the investment in Remedial (Cyprus) was written off through realised gains and losses on sales and the total cost of Â£ 1,206,000 has been recognised as a loss in the realised capital reserve. Transaction costs During the year ended 30 September 2010 the Company incurred transaction costs of Â£384,000 (2009: Â£532,000) and Â£255,000 (2009: Â£494,000) on purchases and sales of investments respectively. These amounts are included in gains on investments at fair value, as disclosed in the Income Statement. 10 Significant holdings The Company had no holdings of 3% or more of the share capital of any portfolio companies. 11. Debtors 2010 2009 Â£'000 Â£'000 Due from brokers 3,268 711 Dividends receivable 796 117 Prepayments and accrued income 23 23 Taxation recoverable 387 425 4,474 1,276 12. Creditors: amounts falling due within one year 2010 2009 Â£'000 Â£'000 Due to brokers 4,872 1,229 Own shares purchased and cancelled - 830 Other creditors and accruals 181 165 Management fee accrued 307 272 Corporation Tax - 892 5,360 3,388 13. Share capital 2010 2009 Â£'000 Â£'000 Allotted called - up and fully paid: 42,700,748 (2009: 45,752,748) ordinary shares of 25p 10,675 11,438 each During the year to 30 September 2010 3,052,000 ordinary shares were purchased and cancelled at a cost of Â£15,476,000. Since the year end a further 300,000 shares have been purchased and cancelled at a cost of Â£1,736,000. Duration of the Company The Company does not have a termination date or the requirement for any periodic continuation votes. 14. Net asset value per ordinary share 30 September 30 September 2010 2009 Net asset value per ordinary share 650.69p 634.18p The net asset value per ordinary share is based on net assets of Â£277,847,000 (2009: Â£290,155,000) and on 42,700,748 (2009: 45,752,748) ordinary shares, being the number of ordinary shares in issue at the year end. 15. Reconciliation of net return before finance costs and taxation to net cash inflow from operating activities 2010 2009 Â£'000 Â£'000 Net return before finance costs and taxation 10,145 20,657 Adjust for returns from non-operating activities: - Gains on investments (3,616) (11,105) - Foreign exchange losses/(gains) of a capital nature 287 (1,029) - Non-operating expenses of a capital nature (2) 19 Return from operating activities 6,814 8,542 Adjustment for non-cash flow items: - Foreign exchange gains of a revenue nature - (22) - Decrease in recoverable VAT debtor - 2,000 - (Increase)/decrease in debtors and accrued income (679) 20 - Increase/(decrease) in creditors and accruals 73 (103) Net cash inflow from operating activities 6,208 10,437 16. Reconciliation of net cash flow to movement in net cash 2010 2009 Â£'000 Â£'000 Increase in cash for the period 8,281 71 Decrease in short-term loans - 11,912 Movement in net cash resulting from cash flows 8,281 11,983 Foreign exchange movement (692) 1,160 Movement in net cash 7,589 13,143 Net cash/(debt) brought forward 2,200 (10,943) Net cash carried forward 9,789 2,200 Foreign At Cash exchange At 1 October flows movement 30 September 2009 2010 Â£'000 Â£'000 Â£'000 Â£'000 Cash at bank 2,200 8,281 (692) 9,789 2,200 8,281 (692) 9,789 Foreign At Cash exchange At 1 October flows movement 30 September 2008 2009 Â£'000 Â£'000 Â£'000 Â£'000 Cash at bank 877 71 1,252 2,200 Short-term loans (11,820) 11,912 (92) - (10,943) 11,983 1,160 2,200 17. Analysis of financial assets and liabilities Interest rate and currency profile The interest rate and currency profile of the Company's financial assets and liabilities were: 2010 2009 Cash Cash No flow No flow interest interest interest interest rate rate rate rate risk risk Total exposure exposure Total exposure exposure Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Equity shares Euro 226,073 226,073 - 188,455 188,455 - Swiss franc 30,155 30,155 - 58,132 58,132 - Norwegian krone - - - 3,866 3,866 - US dollar 7,065 7,065 - - - - Swedish krona 5,651 5,651 - 31,653 31,653 - Sterling - - - 7,961 7,961 - Cash at bank and short-term deposits Euro 9,716 - 9,716 1,420 - 1,420 Sterling 73 - 73 780 - 780 Debtors Euro 978 978 - 816 816 - Swiss franc 133 133 - 205 205 - US dollar 72 72 - - - - Swedish krona 3,268 3,268 - 169 169 - Sterling 19 19 - 86 86 - NZ dollar 4 4 - - - - Short-term creditors Euro (4,276) (4,276) - (1,229) (1,229) - US dollar (596) (596) - - - - Sterling (488) (488) - (2,159) (2,159) - 277,847 268,058 9,789 290,155 287,955 2,200 18. Risk analysis The Company is an investment company, listed on the London Stock Exchange, and conducts its affairs so as to qualify in the United Kingdom ("UK") as an investment trust under the provisions of Sections 1158 and 1159 of the Corporation Tax Act 2010. In so qualifying, the Company is exempted in the UK from corporation tax on capital gains on its portfolio of investments. As an Investment Trust, the Company invests in equities and makes other investments so as to achieve its investment objective of long-term capital growth through a diversified portfolio of Continental European securities. In pursuing its investment objective, the Company is exposed to risks which could result in a reduction of either or both of the value of the net assets and the profits available for distribution by way of dividend. The Board, together with the Investment Manager, is responsible for the Company's risk management, as set out in detail in the Directors' Report and Business Review. The principal risks the Company faces are: â€¢ Investment and strategy â€¢ Discount volatility â€¢ Market risk (including; interest rate risk, currency risk and other price risk) â€¢ Liquidity risk â€¢ Credit risk â€¢ Gearing risk The Investment Manager monitors the risks affecting the Company on an ongoing basis within the policies and guidelines determined by the Board. The Directors receive financial information, which is used to identify and monitor risk, quarterly. The Company may enter into derivative contracts to manage risk but has not done so to date. A description of the principal risks the Company faces is detailed below and in the Business Review. Investment and strategy risk There can be no guarantee that the objective of the Company will be achieved due to poor stock selection or as a result of being geared in a falling market or ungeared in a rising market. The Investment Manager meets regularly with the Board to discuss the portfolio performance and strategy. The Board receives bi-monthly reports from the Investment Manager detailing all portfolio transactions and any other significant changes in the market or stock outlooks. Details of the investment policy are given in the Directors' Report. Discount volatility risk The Board recognises that it is in the long-term interests of shareholders to reduce discount volatility and believes that the prime driver of discounts over the longer term is investment performance. The Company is permitted to employ gearing, a process whereby funds are borrowed principally for the purpose of purchasing securities should the Board feel that it is appropriate to do so. The use of gearing can magnify discount volatility. The Board actively monitors the discount at which the Company's shares trade but it does not intend to issue a precise discount target at which shares will be bought back as it believes that the announcement of specific targets is likely to hinder rather than help the successful execution of a buy-back policy. Equally, the Company will issue shares in order to meet demand as it arises. The Board's commitment to allot or repurchase ordinary shares is subject to them being satisfied that any offer to allot or to purchase shares is in the best interests of shareholders of the Company as a whole. Interest rate risk The Company's assets and liabilities, excluding short-term debtors and creditors, may comprise financial instruments which include investments in fixed interest securities. Details of the Company's interest rate exposure as at 30 September 2010 are disclosed in note 17 of these Financial Statements. The majority of the Company's assets were non-interest bearing as at 30 September 2010. There was limited exposure to interest bearing liabilities during the year ended 30 September 2010. If interest rates had reduced by 0.25% (2009: 0.25%) from those obtained as at 30 September 2010 it would have the effect, with all other variables held constant, of reducing the net revenue return before taxation on an annualised basis by Â£24,000 (2009: Â£6,000). If there had been an increase in interest rates of 0.25% (2009: 0.25%) there would have been an equal and opposite effect in the net revenue return before taxation. The calculations are based on cash at bank and short-term deposits as at 30 September 2010 and these may not be representative of the year as a whole. Currency risk The base currency of the Company is sterling. The international nature of the Company's investment activities gives rise to a currency risk which is inherent in the performance of its overseas investments. The Company's overseas income is also subject to currency fluctuations. It is not the Company's policy to hedge this risk on a continuing basis. Details of the Company's foreign currency risk exposure as at 30 September 2010 are disclosed in note 17 of these Financial Statements. If sterling had strengthened by 1% against all other currencies on 30 September 2010, with all other variables held constant, it would have the effect of reducing the net capital return before taxation by Â£93,000 (2009: Â£14,000). If sterling had weakened by 1% against all other currencies there would have been an equal and opposite effect on the net capital return before taxation. Other price risk The Company is exposed to market risk due to fluctuations in the market prices of its investments. Market price risk arises mainly from uncertainty about future prices of financial instruments used in the Company's business. It represents the potential loss the Company might suffer through holding market positions in the face of price movements. The Investment Manager monitors the prices of financial instruments held by the Company on an ongoing basis. The Investment Manager actively monitors market and economic data and reports to the Board, which considers investment policy on a regular basis. The net asset value per share of the Company is issued daily to the London Stock Exchange and the New Zealand Stock Exchange and is also available on the Company's website www.theeuropeaninvestmenttrust.com or the Edinburgh Partner's www.edinburghpartners.com. Fixed asset investments are valued at their fair value. Details of the Company's investment portfolio as at 30 September 2010 are disclosed in these Financial Statements. In addition an analysis of the investment portfolio by sector and geographical distribution is detailed in these Financial Statements. The maximum exposure to other price risk at 30 September 2010 is the fair value of investments of Â£268,944,000 (2009: Â£290,067,000). If the investment portfolio valuation fell by 20% from the amount detailed in the Financial Statements as at 30 September 2010 it would have the effect, with all other variables held constant, of reducing the net capital return before taxation by Â£53,789,000 (2009: Â£58,013,000). An increase of 20% in the investment portfolio valuation would have an equal and opposite effect on the net capital return before taxation. The calculations are based on the Company's other price risk at 30 September 2010 and may not be representative of the year as a whole. Liquidity risk Liquidity risk is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities. The Company's policy with regard to liquidity is to ensure continuity of funding. Short-term flexibility is achieved through cash management and increased borrowing including the use of overdraft facilities. Liquidity risk is not considered significant as the Company's assets comprise mainly of readily realisable securities which are industrially and geographically diverse and which can be sold freely to meet funding requirements if necessary. Securities listed on a recognised stock exchange have been valued at bid prices and exchange rates ruling at the close of business on 30 September 2010. In certain circumstances, the market prices at which investments are valued may not represent the realisable value of those investments, taking into account both the size of the Company's holding and the frequency with which such investments are traded. The Company does not normally invest in derivative products. The Investment Manager reviews liquidity at the time of making each investment decision. The Board reviews liquidity exposure at each meeting. Credit risk Credit risk is the risk of financial loss to the Company if the contractual party to a financial instrument fails to meet its contractual obligations. The carrying amounts of financial assets best represent the maximum credit risk exposure at the Balance Sheet date. The Company's listed investments are held on its behalf by JPMorgan Chase Bank, NA acting as the Company's custodian. Bankruptcy or insolvency of the custodian may cause the Company's rights with respect to securities held by the custodian to be delayed. The Board monitors the Company's risk by reviewing the custodian's internal controls reports. Investment transactions are carried out with a large number of brokers whose creditworthiness is reviewed by the Investment Manager. Transactions are ordinarily undertaken on a delivery versus payment basis whereby the Company's custodian bank ensures that the counterparty to any transaction entered into by the Company has delivered in its obligations before any transfer of cash or securities away from the Company is completed. Cash is only held at banks that have been identified by the Board as reputable and of high credit quality. The maximum exposure to credit risk as at 30 September 2010 was Â£283,207,000 (2009: Â£293,543,000). The calculation is based on the Company's credit risk exposure as at 30 September 2010 and this may not be representative of the year as a whole. Gearing risk The aim of gearing is to enhance long-term returns to shareholders by investing borrowed funds in equities and other assets. The Company is permitted to employ gearing should the Board feel it appropriate to do so. The Board's policy is that the level of gearing should not exceed 20% in normal market conditions. The use of gearing can cause both gains and losses in the asset value of the Company to be magnified. The Company did not have any gearing as at 30 September 2010 (2009: Â£nil). The Board undertakes an annual assessment and review of all the risks stated above and in the Directors' Report together with a review of any new risks which may have arisen during the year. This risk is formalised within the Company's risk assessment matrix. 19 Capital management policies The objective of the Company is to achieve long-term capital growth through a diversified portfolio of Continental European securities. In pursuing this long-term objective, the Board has a responsibility for ensuring the Company's ability to continue as a going concern. It must therefore maintain an optimal capital structure through varying market conditions. This involves the ability to: issue and buyback share capital within limits set by the shareholders in general meeting; borrow monies in the short and long-term and pay dividends to shareholders out of current year revenue earnings as well as out of brought forward revenue reserves. Changes to ordinary share capital are set out in note 13. Dividend payments are set out in note 7. The Company's capital comprises: 2010 2009 Â£'000 Â£'000 Called-up share capital 10,675 11,438 Share premium account 123,749 123,749 Capital redemption reserve 8,136 7,373 Capital reserve 125,185 137,330 Revenue reserve 10,102 10,265 Total shareholders' funds 277,847 290,155 The Company's objectives for managing capital are the same as the previous year and have been complied with throughout the year. 20. Transactions with the Investment Manager Information with respect to transactions with the Investment Manager is provided in note 3 of these Financial Statements and in the Directors' Report. National Storage Mechanism A copy of the Annual Report and Financial Statements will be submitted shortly to the National Storage Mechanism ("NSM") and will be available for inspection at the NSM, which is situated at: www.hemscott.com/nsm.do. A copy of the Annual Report and Accounts and Notice of Annual General Meeting will be delivered to shareholders shortly and can also be found at www.theeuropeaninvestmenttrust.com and www.edinburghpartners.com. Annual General Meeting The Company's Annual General Meeting will be held on 18 January 2011 at 11.00am at Brewers' Hall, Aldermanbury Square, London EC2V 7HR. Enquiries: Dale Robertson Kenneth Greig Edinburgh Partners Telephone: 0131 270 3800

Companies

Baillie Gifford European Growth Trust (BGEU)

Thursday, 21st November 2024

COMPANIES COVERED:

HLMA JD. ITH

JD Sports tanks after management tighten profit guidance towards the lower end of expectations, Halma finds support from strong earnings and capital return commitment cheers shareholders in Ithica Energy.

Full Archive

UK 100

Latest directors dealings

30 minutes ago XPS Pensions Group
39 minutes ago Eneraqua Technologies
41 minutes ago Mountview Estates
50 minutes ago Thungela Resources Limited NPV (DI)
2 hours ago Johnson Matthey

All directors dealings today