Annual Financial Report

THE EUROPEAN INVESTMENT TRUST PLC Annual Financial Report for the year ended 30 September 2013 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 on 0131 270 3800. HIGHLIGHTS Net asset value total return for the year 28.9%, compared with FTSE All-World Europe ex UK Index total return 27.1%. Share price discount to net asset value per share narrows from 16.8% to 10.9%. Share price total return 38.6%. Proposed final dividend of 14.0p and special dividend of 4.0p, a total of 18.0p, an increase of 12.5%. The rally in European equities has narrowed valuation opportunities. Two current areas of undervaluation are the geographical periphery of Europe (28.4% exposure) and the telecoms sector (9.9% exposure). COMPANY SUMMARY Investment objective To achieve longâ€“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 Strategic Report below. Shareholders' funds Â£323,222,000 at 30 September 2013. Market capitalisation Â£287,965,000 at 30 September 2013. Capital structure As at 30 September 2013 and at the date of this report, the Company had 42,069,371 ordinary shares of 25p each in issue. Investing in the Company The Company's ordinary shares are traded on the London Stock Exchange and the New Zealand Stock Exchange and can be bought or sold through a stockbroker or financial adviser. The ordinary shares are eligible for inclusion in ISAs, Junior ISAs and SIPPs. These are available through Alliance Trust Savings, who also offer the opportunity to invest in the Company through a Dealing Account. The Company's shares are also available on other share trading platforms. AIC The Company is a member of the Association of Investment Companies ("AIC"). Investment Manager Edinburgh Partners Limited ("Edinburgh Partners"). Investment management fee 0.55% per annum of the Company's market capitalisation payable quarterly in arrears. Ten Year Record Performance (rebased to 100 at 30 September 2003) 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 NAV per share 100.0 111.7 144.1 168.6 206.9 138.2 146.2 150.0 129.1 140.7 177.2 Share price 100.0 119.3 160.2 190.1 232.5 148.2 158.5 155.9 132.3 145.4 195.9 Earnings per share 100.0 78.1 106.6 133.5 122.9 218.7 202.4 210.9 259.5 235.2 275.5 Dividends per share 100.0 83.1 115.4 138.5 127.7 229.2 209.2 215.4 246.2 246.2 276.9 Retail price index 100.0 103.1 105.8 109.6 114.0 119.7 118.0 123.5 130.4 133.8 138.0 FINANCIAL SUMMARY Results for year 30 September 2013 30 September 2012 Change Shareholders' funds Â£323.22m Â£256.72m 25.9% Net asset value per ordinary share ("NAV") 768.31p 610.24p 25.9% Share price per ordinary share 684.50p 508.00p 34.7% Share price discount to NAV 10.9% 16.8% Year to Year to 30 September 2013 30 September 2012 Revenue return per ordinary share* 18.02p 15.38p Capital return per ordinary share* 156.05p 50.62p Total return per ordinary share* 174.07p 66.00p Final dividend per ordinary share** 14.00p 12.00p Special dividend per ordinary share** 4.00p 4.00p Total dividend per ordinary share** 18.00p 16.00p * Based on the weighted average number of shares in issue during the year. ** Proposed dividend for the year. Year to Year to Year's high/low 30 September 2013 30 September 2012 NAV - high 784.91p 637.42p - low 604.41p 536.09p Share price - high 700.00p 552.00p - low 500.00p 446.00p Share price discount to NAV - low 9.7% 11.8% - high 18.6% 18.5% Year to Year to Performance 30 September 2013 30 September 2012 NAV Total Return 28.9% 12.1% FTSE All-World Europe ex UK Index Total Return* 27.1% 12.5% *In sterling. The NAV Total Returns are sourced from Edinburgh Partners and include dividends reinvested. The index performance figures are sourced from Thomson Reuters Datastream. Past performance is not a guide to future performance. Year to Year to Cost of running the Company 30 September 2013 30 September 2012 Ongoing charges* 0.59% 0.62% *Based on total expenses, excluding finance costs and certain non-recurring items, for the year and average monthly net asset value. PORTFOLIO OF INVESTMENTS as at 30 September 2013 % of % of Net Net Rank Rank Company Sector Country Valuation Assets Assets 2013 2012 Â£'000 2013 2012 1 19 Mediaset EspaÃ±a Consumer services Spain 10,566 3.3 2.6 2 - Orange Telecommunications France 10,259 3.2 - 3 3 Gerresheimer Health Care Germany 9,804 3.0 3.2 4 15 ENI Oil & Gas Italy 9,391 2.9 2.7 5 - Ziggo Telecommunications Netherlands 9,152 2.8 - 6 - Indra Sistemas Technology Spain 9,099 2.8 - 7 - PostNL Industrials Netherlands 9,012 2.8 - 8 - Nutreco Consumer Goods Netherlands 8,806 2.7 - 9 - Danske Bank Financials Denmark 8,655 2.7 - 10 4 Belgacom Telecommunications Belgium 8,570 2.7 3.1 11 9 CAF Industrials Spain 8,454 2.6 2.8 12 35 Piaggio Consumer Goods Italy 8,397 2.6 1.9 13 5 Vivendi Consumer Services France 8,355 2.6 3.0 14 24 Prysmian Industrials Italy 8,262 2.6 2.4 15 - Aryzta Consumer Goods Switzerland 8,164 2.5 - 16 26 Ahold Consumer Services Netherlands 8,162 2.5 2.3 17 18 Michelin Consumer Goods France 8,161 2.5 2.6 18 1 Ryanair Consumer Services Ireland 8,136 2.5 3.5 19 31 BBVA Financials Spain 8,133 2.5 2.2 20 36 A.P. Moller-Maersk Industrials Denmark 8,113 2.5 1.9 21 33 Metro Consumer Services Germany 8,061 2.5 2.0 22 - Banco Espirito Santo Financials Portugal 7,877 2.4 - 23 - BNP Paribas Financials France 7,854 2.4 - 24 11 Swatch Consumer Goods Switzerland 7,848 2.4 2.8 25 13 GEA Industrials Germany 7,773 2.4 2.8 26 - Valeo Consumer Goods France 7,533 2.3 - 27 - Volkswagen* Consumer Goods Germany 7,428 2.3 - 28 16 Gazprom** Oil & Gas Russia 7,419 2.3 2.7 29 - Azimut Financials Italy 7,288 2.3 - 30 23 ABB Industrials Switzerland 7,286 2.3 2.4 31 28 Ipsos Consumer Services France 7,281 2.3 2.2 32 22 Total Oil & Gas France 6,689 2.1 2.4 33 6 Swedbank Financials Sweden 6,678 2.1 2.9 34 - Fresenius Medical Care Health Care Germany 6,641 2.1 - 35 32 Heineken Consumer Goods Netherlands 6,237 1.9 2.0 36 17 Intesa Sanpaolo Financials Italy 6,229 1.9 2.6 37 14 Kabel Deutschland Consumer Services Germany 6,108 1.9 2.7 38 7 DCC Industrials UK 5,711 1.8 2.9 39 8 D'leteren Consumer Services Belgium 5,559 1.7 2.9 40 12 SAP Technology Germany 5,273 1.6 2.8 41 - Feintool International Industrials Switzerland 4,281 1.3 - 42 - TDC Telecommunications Denmark 3,896 1.2 - Prior year investments sold during the year 25.1 Total equity investments 322,601 99.8 95.4 Cash and other net assets 621 0.2 4.6 Net assets 323,222 100.0 100.0 *The investment is in non-voting preference shares. **The investment is in American Depository Receipts. Of the ten largest portfolio investments as at 30 September 2013, the valuations at the previous year end, 30 September 2012, were Mediaset EspaÃ±a Â£ 6,583,000; Gerresheimer Â£8,092,000; ENI Â£7,001,000 and Belgacom Â£7,906,000. Orange, Ziggo, Indra Sistemas, PostNL, Nutreco and Danske Bank were all new purchases made during the year ended 30 September 2013. Distribution of Investments as at 30 September 2013 (% of net assets) Sector distribution Sector % Consumer Services 19.3 Consumer Goods 19.2 Industrials 18.3 Financials 16.3 Telecommunications 9.9 Oil & Gas 7.3 Health Care 5.1 Technology 4.4 Cash and other net assets 0.2 100.0 Geographical distribution Country % France 17.4 Germany 15.8 Netherlands 12.7 Italy 12.3 Spain 11.2 Switzerland 8.5 Denmark 6.4 Belgium 4.4 Ireland 2.5 Portugal 2.4 Russia 2.3 Sweden 2.1 United Kingdom 1.8 Cash and other net assets 0.2 100.0 DIRECTORS All of the Directors are non-executive and independent of the Investment Manager. Douglas C P McDougall OBE (Chairman) William D Eason Michael B Moule (Senior Independent Director) Dr Michael T Woodward STRATEGIC REPORT The Strategic Report has been prepared in accordance with Section 414A of the Companies Act 2006 (the "Act"). Its purpose is to inform members of the Company and help them assess how the Directors have performed their legal duty under Section 172 of the Act to promote the success of the Company. CHAIRMAN'S STATEMENT Results In the year to 30 September 2013, the net asset value per share of your Company increased by 25.9% from 610.24p to 768.31p. After taking account of dividends paid in the year of 16.0p, the net asset value total return was 28.9%. This compares with the total return of 27.1% from the FTSE All-World Europe ex UK Index, adjusted to sterling. During the year, the Company's share price increased by 34.7% from 508.0p to 684.5p. As a consequence of the share price increase being above the net asset value per share increase, the share price discount to net asset value narrowed from 16.8% to 10.9%. The share price total return, taking account of the 16.0p dividend paid in the year, was 38.6%. From the appointment of Edinburgh Partners Limited as Investment Manager on 1 February 2010, the net asset value total return to 30 September 2013 was 37.4%. This was an outperformance when compared with the total return of 32.3% from the FTSE All-World Europe ex UK Index, adjusted to sterling. Revenue As a consequence of strong revenue generation from the Company's portfolio of investments and the strength of the Euro, there was an increase in revenue per share in the year to 30 September 2013 of 17.2%, from 15.38p to 18.02p. The Company continues to have a low ongoing charges ratio. For the year to 30 September 2013, the ratio reduced from 0.62% in 2012 to 0.59%. Dividend The Board is pleased to recommend a final dividend of 14.0p per share and a special dividend of 4.0p per share, a total of 18.0p per share, with the dividends fully covered by earnings generated in the year. The proposed total dividend of 18.0p compares with the prior year total dividend of 16.0p and represents an increase of 12.5%. Subject to the approval of shareholders at the forthcoming Annual General Meeting, these dividends will be paid on 31 January 2014 to shareholders on the register at the close of business on 10 January 2014. The ex-dividend date will be 8 January 2014. Share buybacks The Board continually monitors the discount or premium at which the shares trade relative to net asset value. As detailed above in the Results section, it was pleasing to note that there was a material reduction in the share price discount to net asset value during the year under review. No share buybacks were made during the year. The Directors will propose at the forthcoming Annual General Meeting that the Company's powers to make purchases of up to 14.99% of its shares in issue be renewed. Portfolio activity A consistent theme of the Company's activity over the past 18 months has been the strategy of increasing the Company's exposure to the periphery of Europe, where the Investment Manager believes that valuations of a number of companies understate their future prospects. In the current financial year, this strategy has resulted in, for example, an investment in the shares of Banco Espirito Santo, Portugal's largest corporate bank, which at 30 September 2013 represented 2.4% of the portfolio. There was also an increased exposure to Italy (from 9.6% to 12.3%) and Spain (from 9.5% to 11.2%). The country which saw the most significant increase in exposure, for stock specific reasons, was Denmark, where there was an increase from 1.9% to 6.4%. Danske Bank and TDC were purchased and these investments added to the Company's existing investment in A.P. Moller-Maersk. There was a further reduction in the exposure to Switzerland from 10.2% to 8.5% and the Norwegian industrial stock, Orkla, was sold, resulting in zero exposure to that country at the year end. As the Investment Manager's confidence in the economic outlook has improved, the Company's position in more cyclical sectors has increased. This is evidenced in the financials sector (from 8.2% to 16.3%) and consumer goods sector (from 11.1% to 19.2%). Reductions were seen in the health care sector (from 8.6% to 5.1%) and the consumer services sector (from 21.2% to 19.3%), as some stocks within these sectors became expensive following a long period of rerating. There was a substantial increase in the Company's exposure to the telecoms sector (from 3.1% to 9.9%) as it is believed that regulatory and corporate developments in this sector continue to underpin what the Investment Manager considers to be a very strong investment case. Subsequent to the year end, the exposure to the telecoms sector increased further with the purchase of Portugal Telecom and KPN, based in the Netherlands. Although the industrials sector weighting has decreased (28.1% to 18.3%), this should not be interpreted as a negative view on the improving economic outlook. Stocks sold over the past year in this sector include Safran, Amadeus, Wirecard and Randstad, all companies where valuation targets were achieved. As a consequence of the more positive outlook, cash and other net assets were reduced from 4.6% to 0.2%. There was a marginal increase in the number of investments held, from 39 to 42. Gearing The Company has a Euro 30 million secured multiâ€“currency revolving loan facility agreement with Scotiabank Europe PLC. If fully utilised, this would result in a gearing level of approximately 8% of net assets. No amount has been drawn under the facility. Board Changes There have been two changes to your Board over the year. Having served as a non-executive Director of the Company since 1997, Ralph Kanza retired from the Board on 30 July 2013. Ralph Kanza brought valuable commercial experience and insight to the Board from his investment management career and his knowledge of European investment markets. We thank him for his contribution and wish him every success in the future. I am pleased to welcome Dr Michael Woodward to the Board. Dr Woodward was appointed as an independent non-executive Director of the Company on 1 August 2013. He has worked in the investment trust industry for 30 years, both as a European portfolio manager with Ivory & Sime and as the individual with responsibility for the management of the investment trust business at both Martin Currie and F&C Asset Management. Changes to the Annual Report You will note that there have been some changes to your Company's Annual Report this year. These are the result of new narrative reporting requirements that have now come into effect. There is now a Strategic Report, which contains many of the disclosures previously contained within the Business Review section of the Directors' Report, and a new Directors' Remuneration Report. In relation to the latter, shareholders will be asked to vote on both the Directors' Remuneration Policy and the Directors' Remuneration Report at the forthcoming Annual General Meeting. Alternative Investment Fund Managers' Directive ("AIFMD") AIFMD was conceived to address a perceived regulatory gap to protect investors and is intended to provide a harmonised regulatory and supervisory framework throughout the European Union for regulating Alternative Investment Funds. Although it was principally aimed at private equity and hedge funds, investment trusts are also required to comply. AIFMD was implemented by the UK on 22 July 2013, with existing investment companies, such as your Company, having until 22 July 2014 to comply fully with the requirements. The Company is in the process of making the necessary arrangements to comply with this legislation. This will include the requirement to appoint a depositary, in addition to having a custodian, to provide additional security over the Company's assets. We will keep shareholders informed of developments. 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, 14 January 2014 at Brewers' Hall, Aldermanbury Square, London EC2V 7HR. We look forward to meeting all shareholders who are able to attend. Outlook The worst fears for the European economies appear to have receded, as a consequence of which the valuation premium attached to companies with higher earnings predictability has begun to erode. The gap in valuation between companies with 'predictable' earnings streams and the remainder of the market was created by the fear of global economic collapse. As this fear recedes, the valuation gap has started to narrow. Following the strong rise in equity markets, future returns from European equities will probably be lower than recent returns. However, we remain positive on the longâ€“term prospects for investment in European equities. Douglas McDougall Chairman 25 November 2013 INVESTMENT MANAGER'S REPORT Economic and Investment Overview The risks faced by Europe at the start of the Company's financial year included a number of familiar themes: Italian politics, contagion from Greece, the German federal election and the ongoing impact of deep austerity programmes. During the year, potential contagion from the crisis in the Cyprus banking system and the intervention of the Portuguese constitutional court in the country's European Union bailout both gave cause for concern. Although all these risks appear to have been navigated for now, there are still concerns. The forthcoming opinion of the German constitutional court on the strategy of the European Central Bank's willingness to do 'whatever it takes' to save the Euro is a potentially serious risk which is also worth monitoring. However, it is our opinion that the likelihood of the court causing an upset is low. A further concern is the lack of serious structural reforms in both France and Italy. We view this as disappointing and an opportunity missed. Europe is still not a fully cohesive political and economic region and it may never be so. There are many hurdles to be overcome, both cyclically and structurally. However, progress has been made and these hurdles should not stop a reasonable level of economic growth being achieved, which should be beneficial for corporate earnings and equity investment. Portfolio Strategy The view we have maintained for some time is that stock markets have been too focused on the risks inherent in Europe, and this has allowed a valuation anomaly to build up in recent years. Sectors of the stock market which were perceived to deliver security or predictability of profits were awarded very high and, in our view, unsustainable valuations. As a consequence, we believed the most attractive investment opportunities were in companies who, despite their less predictable profit streams, had been given very low valuation multiples on what, in many cases, were bottom of the economic cycle profitability levels. The translation of this strategy into a portfolio context was to buy the shares of companies in the periphery of Europe (Ireland, Italy, Portugal and Spain) and in sectors depressed by the poorest trading conditions of recent years, such as the telecoms, automotive and shipping sectors. We started purchasing these types of stocks over two years ago. As a result of the above strategy, as at 30 September 2013, 28.4% of the portfolio was invested in the peripheral countries of Europe, an increase of 5.8% on the 22.6% exposure held at the previous year end. We still continue to hold the majority of stocks which were held at the previous year end. However, during the year, we reduced exposure to the Irish stock, Ryanair. Subsequent to the year end, we have reduced exposure to the Italian banking sector, with the complete disposal of Intesa Sanpaolo, and we have also made a partial disposal of our best performing stock in the year under review, Mediaset EspaÃ±a. For the first time in our period of managing the Company's investments, we have also made two investments in Portugal, Banco Espirito Santo and, subsequent to the year end, Portugal Telecom. In our opinion, the Portuguese economy is lagging behind the Spanish economic recovery in terms of timing, and valuations reflect what we perceive as a good medium-term investment opportunity with these two sector-leading companies. Although investment performance, when compared to the index, improved as the year progressed, there was a significant loss on two positions early in the year. Both Saipem in the oil services sector and Imtech in the engineering/ consulting sector had major profit downgrades which surprised us in terms of their magnitude. After a relatively short period of reflection, we sold both shares. Our investment style, which in many cases leads us to buying out-of-favour companies, does mean that our patience and resolve can be tested. Normally we ride out troubling short-term developments, but when the issues prove to be structural in nature, we attempt to acknowledge as quickly as possible that our initial investment case may need to be revised and we take necessary action. The subsequent troubles for both companies confirm our disposals in these instances to have been the appropriate course of action. We continue to be positive on the outlook for the telecoms sector. We increased exposure from 3.1% to 9.9% during the year and this has increased further subsequent to the year end, and it is good to be able to report a number of positive developments. The basic investment case remains that Europe is a major technological laggard behind the US and Asia, largely due to draconian regulation. This is changing and should allow for a far better operating environment in the future for Europe's telecom operators. An important part of our investment case is the potential for consolidation in the sector. There are four major telecom groups in the US and three in China, but over one hundred in Europe. We expect this anomaly to gradually reduce. Since the year end, Kabel Deutschland, which provided us with a strong contribution to performance, was taken over by Vodafone. Ziggo, the Dutch cable operator, which we purchased during the year, was the object of a rejected bid. We further increased our sector exposure through TDC, the Danish operator and, subsequent to the year end, Portugal Telecom. The Edinburgh Partners' investment approach focuses on rigorous company analysis. Two further examples of purchases made during the year are Volkswagen and PostNL. Volkswagen is Europe's largest volume car manufacturer. Its brands include the mid-market Volkswagen brand, but also Seat and Skoda at the low end of the market through to Audi, Porsche and Bentley at the high end. European car volumes are currently 25% below peak levels. With the return of economic growth, volumes and hence profits in the European automotive sector could rebound quite sharply. Volkswagen is also the number one auto manufacturer in China, with approximately 20% market share. It is our opinion that the Chinese consumer will provide a significant growth driver for Volkswagen in the long term. The company is currently trading on a price earnings multiple of only eight times earnings, which appears not to take account of its expected growth. PostNL is the former stateâ€“owned mail delivery company in the Netherlands. All companies in this sector face a structural decline in delivered mail volumes. The corporate response has been to restructure, persuade regulators to allow stamp price increases and diversify into faster growing parcel delivery which benefits from trends in e-commerce. Due to the low level of interest rates in recent years, PostNL has been burdened by a significant pension deficit. We expect this situation to reverse over time. The balance sheet position is made more comfortable through the 30% stake the company has retained in TNT Express, which could be sold if required. In our view, the improvements we expect leave the shares trading on an attractive longâ€“term price earnings multiple of a very low four to five times. Outlook During the course of the year under review, we have seen a significant change of view by stock market investors: from Europe having been viewed as high risk and uninvestable by many, the current consensus is that Europe is now seeing an economic recovery and is once again an attractive area of investment. Accordingly, valuation gaps which we had identified and had invested in 18 to 24 months ago are now diminishing and becoming less obvious. In the next phase of the stock market cycle, a high level of vigilance will be required on valuations and identifying investment opportunities. Despite allowing for the potential corporate earnings recovery in Europe, the recent rise in equity markets has left valuations looking less attractive. Whilst pockets of undervaluation remain, in our view these are less deep and harder to identify. Dale Robertson Edinburgh Partners 25 November 2013 Other Statutory Information Objective The objective of the Company is to achieve longâ€“term capital growth through a diversified portfolio of Continental European securities. Strategy and business model 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 wellâ€“suited to investors seeking longerâ€“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 than 15% of their total assets in other listed investment companies, in which case the limit is 15%. The Investment 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 longâ€“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 longâ€“term value involves detailed analysis of a company's earning prospects over a five-year time horizon. The portfolio will normally consist of 40 to 50 investments. Business and status of the Company The principal activity of the Company is to carry on business as an investment trust. The Company is registered as a public limited company and is an investment company within the terms of Section 833 of the Act. The Company has received approval from HM Revenue & Customs ("HMRC") as an investment trust under Sections 1158 and 1159 of the Corporation Tax Act 2010 ("CTA") for the year ended 30 September 2012.This approval is subject to there being no subsequent enquiry under corporation tax self-assessment. The Company has been approved as an investment trust for all previous years. New regulations for obtaining and retaining investment trust status apply to the Company with effect from 1 October 2012. An application for approval as an investment trust under the new regime has been made and accepted by HMRC. Accordingly, the Company will be treated as an investment trust company for the year ended 30 September 2013 and for each subsequent accounting period, subject to there being no subsequent serious breaches of the regulations. 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. The Company's shares have a premium listing on the Official List of the UK Listing Authority and are traded on the main market of the London Stock Exchange. The Company has a secondary listing on the New Zealand Stock Exchange. The Company is a member of the AIC, a trade body which promotes investment companies and also develops best practice for all its members. Portfolio analysis A detailed review of how the Company's assets have been invested is contained in the Investment Manager's Report above. 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 42 investments, excluding cash and other net assets, as at 30 September 2013, with the largest representing 3.3% of net assets, thus ensuring that the Company has a suitable spread of investment risk. A sector and geographical distribution of investments above. Results and dividends The results for the year are set out in the Income Statement and the Reconciliation of Movements in Shareholders' Funds below. For the year ended 30 September 2013, the net revenue return attributable to shareholders was Â£7.6 million (2012: Â£6.5 million) and the net capital return was Â£65.6 million (2012: Â£21.3 million). Total shareholders' funds increased by 25.9% to Â£323.2 million (2012: Â£256.7 million). Details of the dividends recommended by the Board are set out above. 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: Net asset value In the year to 30 September 2013, the net asset value per share increased by 25.9% from 610.24p to 768.31p. After taking account of dividends paid in the year of 16.0p, the net asset value total return was 28.9%. This compares with the total return of 27.1% from the FTSE All-World Europe ex UK Index, adjusted to sterling. The net asset value total return since the appointment of Edinburgh Partners Limited as Investment Manager on 1 February 2010 to 30 September 2013 was 37.4%. This was an outperformance when compared with the total return of 32.3% from the FTSE All-World Europe ex UK Index, adjusted to sterling. Share price In the year to September 2013, the Company's share price increased by 34.7% from 508.0p to 684.5p. The share price total return, taking account of the 16.0p dividend paid in the year, was 38.6%. Share price premium/discount to net asset value per share The share price discount to net asset value per share narrowed from 16.8% to 10.9% in the year to 30 September 2013. Revenue return per ordinary share There was an increase in the revenue per share in the year to 30 September 2013 of 17.2% from 15.38p to 18.02p. Dividends per ordinary share The Directors are recommending a final dividend of 14.0p per ordinary share and a special dividend of 4.0p per ordinary share, making a total dividend of 18.0p per ordinary share, representing a 12.5% increase on the prior year dividend of 16.0p. Ongoing charges The Company continues to have low expenses. The ongoing charges ratio was 0.59% (2012: 0.62%) in the year to 30 September 2013. The longerâ€“term records of the key performance indicators are shown in the Ten Year Record in the full Annual Report and Financial Statements. The Board also takes into consideration how the Company performs compared to other investment trusts investing in Europe. Investment Management Agreement The Company's investments are managed by Edinburgh Partners Limited 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 may be terminated by either party giving three months' written 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. In addition to the investment management fee, the Company paid Edinburgh Partners a fee for marketing related services. The costs of the Company's share savings scheme are initially invoiced by the scheme's administrator to the Investment Manager and are subsequently reimbursed by the Company. Further details relating to the Investment Management Agreement are detailed in note 3 of the Financial Statements below. 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 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, that the approach of the Investment Manager is convincing 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. Principal risks and uncertainties The Board considers that the following are the principal financial risks associated with investing in the Company: investment and strategy risk, discount volatility risk, market risk (comprising interest rate risk, currency risk and 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 of the Financial Statements below. In addition, the Board also considers the following as principal risks: Regulatory risk Relevant legislation and regulations which apply to the Company include the Act, the CTA, the Listing Rules of the Financial Conduct Authority ("FCA") and the AIFMD. A breach of the CTA could result in the Company losing its status as an investment trust and becoming subject to capital gains tax, whilst a breach of the Listing Rules of the FCA might result in censure by the FCA and suspension of the listing of the Company's shares on the London Stock Exchange. 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 year 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 functions. The main risk is that the third parties may fail to ensure that statutory requirements, such as compliance with the Act and the Listing Rules of the FCA, are met. The Board regularly receives and reviews management information from third parties which the Company Secretary compiles. In addition, each of the third parties provides a copy of its report on internal controls (ISAE 3402, SSAE 16 or equivalent) to the Board each year. Other financial risk It is possible that 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 and Management Engagement Committee meets with the independent auditors at least once a year to discuss annual audit issues, including appropriate accounting policies. The Board undertakes an annual assessment and review of all the risks stated above and in note 18 of the Financial Statements below, 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. Main trends and future development 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 above and the Investment Manager's Report above. The Board's main focus is on the investment return and approach, with attention paid to the integrity and success of the investment approach and on factors which may have an impact on this approach. Forward looking statements This Strategic Report 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: Global economic conditions and equity market performance and prices, particularly those in Europe Changes in Government policies and monetary and interest rate policies worldwide, particularly those in Europe Changes to regulations and taxes worldwide, particularly in Europe Currency exchange rates 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 out 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. Employees, human rights and community issues The Board recognises the requirement under Section 414C of the Act to detail information about employees, human rights and community issues, including information about any policies it has in relation to these matters and the effectiveness of these policies. These requirements do not apply to the Company as it has no employees, all the Directors are nonâ€“executive and it has outsourced all its functions to third party service providers; the Company has therefore not reported further in respect of these provisions. Gender diversity The Board of Directors of the Company comprised of four male Directors, during, and at the end of, the year to 30 September 2013. The appointment of any new Director is made on the basis of merit. Social, environmental and ethical policy The Company 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 longâ€“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. 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. To this end, voting decisions take into account corporate governance, including disclosure and transparency, board composition and independence, control structures, remuneration, social and environmental issues. The day-to-day management of the Company's business has been delegated to the Company's Investment Manager, Edinburgh Partners, which has an Environmental, SRI and Corporate Governance ("ESG") policy in place, which can be found on its website at www.edinburghpartners.com. The assessment of the quality of investee companies in relation to environmental considerations, socially responsible investment and corporate governance is embedded in the Investment Manager's stock selection process. Douglas McDougall Chairman 25 November 2013 EXTRACTS FROM THE DIRECTORS' REPORT Share capital The Company made no share issues during the year ended 30 September 2013. As at 30 September 2013, and as at the date of this report, the Company had 42,069,371 ordinary shares of 25p each in issue. At general meetings of the Company, on a poll, one vote is attached to each ordinary share in issue. Going concern The Company's business activities, together with the factors likely to affect its future development, performance and position, are set out in the Strategic Report above. In addition, notes 18 and 19 of the Financial Statements below include the Company's objectives, policies and processes for managing its capital; its financial risk management objectives; details of its financial instruments; and its risk exposure. The Company's principal risks are detailed in the Strategic Report above. The Company's assets consist principally of a diversified portfolio of listed European equity shares, which in most circumstances are realisable within a short period of time and exceed its liabilities to creditors by a significant amount. The Directors have concluded that the Company has adequate resources to continue in operational existence for the foreseeable future. For this reason, they have adopted the going concern basis in preparing the Financial Statements. The full Annual Report contains the following statements regarding responsibility for the Annual Report and Financial Statements. 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 FCA'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 detailed in the Strategic Report above, including the Chairman's Statement and the Investment Manager's Report. Therefore no separate management report has been included. Statement of Directors' responsibilities The Directors are responsible for preparing the Annual Report, the Directors' Remuneration Report and the Financial Statements in accordance with applicable law and regulations. Company law requires the Directors to prepare Financial Statements for each financial year. Under that law the Directors have prepared the Financial Statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law) ("UK GAAP"). Under company law, the Directors must not approve the Financial Statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period. In preparing these Financial Statements, the Directors are required to: select suitable accounting policies and then apply them consistently; make judgements and accounting estimates that are reasonable and prudent; state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the Financial Statements respectively; and prepare the Financial Statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business. The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the Financial Statements and the Directors' Remuneration Report comply with the Act. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. Each of the Directors, whose names are set out above, confirms that, to the best of his knowledge: the Financial Statements, which have been prepared in accordance with UK GAAP, give a true and fair view of the assets, liabilities, financial position and net return of the Company; the Strategic Report 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; and the Annual Report and Financial Statements, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Company's performance, business model and strategy. 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 25 November 2013 NON-STATUTORY ACCOUNTS The financial information set out below does not constitute the Company's statutory Financial Statements for the year ended 30 September 2013 but is derived from those Financial Statements. Statutory Financial Statements for the year ended 30 September 2013 will be delivered to the Registrar of Companies in due course. The Auditors have reported on those Financial Statements; their report was (i) unqualified, (ii) did not include a reference to any matters to which the Auditors drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under Section 498 (2) or (3) of the Companies Act 2006. The text of the Auditors' report can be found in the Company's full Annual Report and Financial Statements on the Company's website at www.theeuropeaninvestmenttrust.com and on the Edinburgh Partners' website at www.edinburghpartners.com. INCOME STATEMENT for the year ended 30 September 2013 2013 2012 Revenue Capital Total Revenue Capital Total Note Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Gains on investments at fair value 9 - 65,516 65,516 - 21,758 21,758 Foreign exchange gains/ (losses) 12 132 144 (67) (410) (477) Income 2 10,413 - 10,413 9,045 - 9,045 Investment management fee 3 (1,387) - (1,387) (1,157) - (1,157) Other expenses 4 (429) - (429) (396) - (396) Net return before finance costs and taxation 8,609 65,648 74,257 7,425 21,348 28,773 Finance costs 5 (127) - (127) (124) - (124) Net return before taxation 8,482 65,648 74,130 7,301 21,348 28,649 Tax on ordinary activities 6 (901) - (901) (814) - (814) Net return attributable to shareholders 7,581 65,648 73,229 6,487 21,348 27,835 pence pence pence pence pence pence Return per ordinary 8 18.02 156.05 174.07 15.38 50.62 66.00 share* *Based on the weighted average number of shares in issue during the year. The return per ordinary share is both the basic and diluted return per ordinary share. 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 columns are prepared under guidance published by the 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. The notes form part of these Financial Statements. BALANCE SHEET as at 30 September 2013 2013 2012 Note Â£'000 Â£'000 Fixed assets investments: Investments at fair value through profit or loss 9 322,601 244,923 Current assets: Debtors 11 972 665 Cash at bank and short-term deposits 2,545 12,651 3,517 13,316 Creditors: amounts falling due within one year 12 2,896 1,515 Net current assets 621 11,801 Net assets 323,222 256,724 Capital and reserves: Called up share capital 13 10,517 10,517 Share premium account 123,749 123,749 Capital redemption reserve 8,294 8,294 Capital reserve 168,745 103,097 Revenue reserve 11,917 11,067 Total equity shareholders' funds 323,222 256,724 pence pence Net asset value per ordinary share* 14 768.31 610.24 *The net asset value per ordinary share is both the basic and diluted net asset value per ordinary share. The Financial Statements were approved and authorised for issue by the Board of Directors of The European Investment Trust plc on 25 November 2013 and were signed on its behalf by: Douglas McDougall Chairman Registered in England and Wales No. 1055384 The notes form part of these Financial Statements. RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS for the year ended 30 September 2013 Called-up 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 2013 At 1 October 2012 10,517 123,749 8,294 103,097 11,067 256,724 Net return after taxation for the year - - - 65,648 7,581 73,229 Dividends paid 7 - - - - (6,731) (6,731) At 30 September 2013 10,517 123,749 8,294 168,745 11,917 323,222 Year ended 30 September 2012 At 1 October 2011 10,600 123,749 8,211 83,426 11,364 237,350 Net return after taxation for the year - - - 21,348 6,487 27,835 Dividends paid 7 - - - - (6,784) (6,784) Shares purchased 13 and camcelled (83) - 83 (1,677) - (1,677) At 30 September 10,517 123,749 8,294 103,097 11,067 256,724 2012 The notes form part of these Financial Statements. CASH FLOW STATEMENT for the year ended 30 September 2013 2013 2012 Note Â£'000 Â£'000 Operating activities: Investment income received 10,426 8,979 Investment management fees paid (1,283) (1,166) Other cash payments (476) (422) Net cash inflow from operating activities 15 8,667 7,391 Servicing of finance: Interest paid (127) (124) Taxation: Irrecoverable overseas tax paid (901) (814) Recoverable overseas tax paid (154) (68) Total taxation paid (1,055) (882) Capital expenditure and financial investment: Purchases of investments (130,066) (93,093) Sales of investments 119,074 102,936 Exchange losses on settlement (48) (225) Net cash (outflow)/inflow from capital and financial investment (11,040) 9,618 Equity dividends paid 7 (6,731) (6,784) Net cash (outflow)/inflow before financing (10,286) 9,219 Financing: Payment for own shares purchased and cancelled - (1,677) (Decrease)/increase in cash 16 (10,286) 7,542 The notes form part of these Financial Statements. NOTES TO THE FINANCIAL STATEMENTS at 30 September 2013 1. Accounting policies Basis of accounting The Financial Statements are prepared on a going concern basis, under the historical cost convention (modified to include fixed asset investments at fair value), in accordance with the Act, UK GAAP and with the AIC SORP relating to the Financial Statements of Investment Trust Companies and Venture Capital Trusts. The Financial Statements have been prepared in accordance with the applicable accounting standards. The principal accounting policies detailed below have been applied consistently throughout the period. 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 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 including finance costs and investment management fees 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. 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. Cash at bank and short-term deposits Cash at bank and short-term deposits comprises cash in hand and demand deposits. The carrying value of cash at bank and short-term deposits is equal to its fair value. Foreign currency The functional and presentation 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 years. 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 The following are accounted for in this reserve: gains and losses on the realisation of investments; increases and decreases in the valuation of investments held at the year end; realised foreign exchange differences of a capital nature; unrealised 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. 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 year in which they have been approved by shareholders in a general meeting. 2. Income 2013 2012 Â£'000 Â£'000 Income from investments: Overseas dividends 10,413 9,045 Total income 10,413 9,045 3. Investment management fee 2013 2012 Â£'000 Â£'000 Investment management fee 1,387 1,157 Edinburgh Partners 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 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. During the year ended 30 September 2013, the investment management fees payable to Edinburgh Partners totalled Â£1,387,000 (2012: Â£1,157,000). At 30 September 2013, there was Â£396,000 outstanding payable to Edinburgh Partners (2012: Â£292,000) in relation to investment management fees. In addition to the investment management fee, in the year ended 30 September 2013 the Company paid Edinburgh Partners Â£6,000 (2012: Â£19,000) for marketingâ€“ related services. At 30 September 2013 there was Â£nil outstanding to Edinburgh Partners (2012: Â£6000) in relation to marketingâ€“related services. This cost is included in other expenses as detailed in note 4 of these Financial Statements. 4. Other expenses 2013 2012 Â£'000 Â£'000 Auditors' remuneration for: Audit services 19 18 Directors' remuneration* 86 87 Other 324 291 429 396 *See the Directors' Remuneration Report in the full Annual Report and Financial Statements. 5. Finance costs 2013 2011 Â£'000 Â£'000 Loan non-utilisation fee 127 124 On 19 September 2011, the Company entered into a Euro 30,000,000 secured multiâ€“ currency revolving loan facility agreement with Scotiabank Europe PLC for the purpose of pursuing its investment objective. The facility is available for three years and interest will be payable on amounts drawn down at the rate of 1.55% above the British Bankers' Association Interest Settlement Rate. As at 30 September 2013, this facility had not been utilised. A non-utilisation fee of 0.5% per annum is payable. 6. Tax on ordinary activities a) Analysis of charge for the year 2013 2012 Revenue Capital Total Revenue Capital Total Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Current tax: UK corporation tax - - - - - - Overseas tax suffered 901 - 901 814 - 814 Total tax charge for the year 901 - 901 814 - 814 b) The standard rate of corporation tax in the UK ("corporation tax rate") was 24% in the year to 31 March 2013 and 23% in the year to 31 March 2014. Accordingly, the Company's profits for the ended 30 September 2013 are taxed at an effective rate of 23.5% (2012: 25%). The corporation tax rate is expected to be reduced to 21% from 1 April 2014 and as a consequence, the effective rate of corporation tax for the Company for the year ending 30 September 2014 would be 22%. The corporation tax rate is expected to be reduced to 20% from 1 April 2015. The taxation charge for the Company for the year ended 30 September 2013 is lower than the effective rate of 23.5% (2012: 25%). The differences are explained below: 2013 2012 Revenue Capital Total Revenue Capital Total Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Net return before taxation 8,482 65,648 74,130 7,301 21,348 28,649 Theoretical tax at UK corporation tax rate of 23.5% (2012: 25%) 1,993 15,427 17,420 1,825 5,337 7,162 Effects of: - Foreign dividends that are not taxable (2,025) - (2,025) (1,902) - (1,902) - Non-taxable investment gains - (15,427) (15,427) - (5,337) (5,337) - Disallowed expenses 1 - 1 6 - 6 - Unrelieved management expenses 31 - 31 71 - 71 - Overseas tax suffered 901 - 901 814 - 814 901 - 901 814 - 814 c) Factors that may affect future tax charges At 30 September 2013, the Company had unrelieved management expenses of Â£ 968,000 (2012: Â£836,000). 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 2013 2012 Declared and paid Payment date Â£'000 Â£'000 Final dividend for the year ended 30 September 2012 31 January 5,048 - of 12.0p 2013 Special dividend for the year ended 30 September 31 January 1,683 - 2012 of 4.0p 2013 Final dividend for the year ended 30 September 2011 31 January - 5,088 of 12.0p 2012 Special dividend for the year ended 30 September 31 January - 1,696 2011 of 4.0p 2012 6,731 6,784 The Directors recommend a final dividend in respect of the year ended 30 September 2013 of 14.0p and a special dividend of 4.0p payable on 31 January 2014 to all shareholders on the register at close of business on 10 January 2014, a total of 18.0p (2012: 16.0p). The ex-dividend date will be 8 January 2014. The recommended final dividend and special dividend are subject to approval by shareholders at the Annual General Meeting to be held on 14 January 2014. Based on 42,069,371 ordinary shares in issue at the date of this report, the total dividend payment will amount to Â£7,572,000 as detailed below. 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. The recommended final dividend and special dividend have therefore not been included as a liability in these Financial Statements. 2013 2012 Â£'000 Â£'000 Proposed 2013 final dividend of 14.0p (2012: 12.0p) per ordinary share* 5,889 5,048 2013 special dividend of 4.0p (2012: 4.0p) per ordinary share* 1,683 1,683 7,572 6,731 *Based on 42,069,371 shares in issue at 25 November 2013. 8. Return per ordinary share 2013 2012 Net Ordinary Per Net Ordinary Per return shares* share return shares* share Â£'000 pence Â£'000 pence Net revenue return after taxation 7,581 42,069,371 18.02 6,487 42,172,762 15.38 Net capital return after taxation 65,648 42,069,371 156.05 21,348 42,172,762 50.62 Total return 73,229 42,069,371 174.07 27,835 42,172,762 66.00 * Weighted average number of ordinary shares in issue during the year. 9. Listed investments 2013 2012 Â£'000 Â£'000 Analysis of investment portfolio movements Opening book cost 244,487 268,775 Opening investment holding gains/(losses) 436 (32,095) Opening valuation 244,923 236,680 Movements in the year: Purchases at cost 131,382 88,563 Sales - proceeds (119,220) (102,078) Sales - realised gains/(losses) on sales 20,945 (10,773) Investment holding gains 44,571 32,531 Closing valuation 322,601 244,923 Closing book cost 277,594 244,487 Closing investment holding gains 45,007 436 322,601 244,923 2013 2012 Â£'000 Â£'000 Analysis of capital gains and losses Gains/(losses) on sales 20,945 (10,773) Investment holding gains 44,571 32,531 Gains on investments 65,516 21,758 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 of these Financial Statements above. All of the Company's financial instruments fall into Level 1, being valued at quoted prices in active markets. Transaction costs During the year ended 30 September 2013, the Company incurred transaction costs of Â£231,000 (2012: Â£153,000) and Â£168,000 (2012: Â£143,000) on purchases and sales of investments respectively. These amounts are included in gains on investments at fair value, as disclosed in the Income Statement above. 10. Significant holdings The Company had no holdings of 3% or more of the share capital of any portfolio companies. 11. Debtors 2013 2012 Â£'000 Â£'000 Due from brokers 217 71 Taxation recoverable 723 569 Prepayments and accrued income 32 25 972 665 12. Creditors: amounts falling due within one year 2013 2012 Â£'000 Â£'000 Due to brokers 2,349 1,033 Other creditors and accruals 151 190 Management fee accrued 396 292 2,896 1,515 13. Calledâ€“up share capital 2013 2012 Â£'000 Â£'000 Allotted, called-up and fully paid: 42,069,371 (2012: 42,069,371) ordinary shares of 25p each 10,517 10,517 During the year to 30 September 2013, no ordinary shares were purchased and cancelled (2012: 331,377 ordinary shares were purchased and cancelled at a cost of Â£1,677,000). Duration of the Company The Company neither has a termination date nor the requirement for any periodic continuation votes. 14. Net asset value per share 2013 2012 Net asset value per ordinary share 768.31p 610.24p The net asset value per ordinary share is based on net assets of Â£323,222,000 (2012: Â£256,724,000) and on 42,069,371 (2012: 42,069,371) 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 2013 2012 Â£'000 Â£'000 Net return before finance costs and taxation 74,257 28,773 Adjust for returns from non-operating activities: - Gains on investments (65,516) (21,758) - Foreign exchange (gains)/losses of a capital nature (132) 410 Return from operating activities 8,609 7,425 Adjustment for non-cash flow items: - Increase in debtors and accrued income (7) (1) - Increase/(decrease) in creditors and accruals 65 (33) Net cash inflow from operating activities 8,667 7,391 16. Reconciliation of net cash flows to movement in net cash 2013 2012 Â£'000 Â£'000 Movement in net cash resulting from cash flows (10,286) 7,542 Foreign exchange movements 180 (185) Movement in net cash (10,106) 7,357 Net cash brought forward 12,651 5,294 Net cash carried forward 2,545 12,651 Analysis of net cash Foreign At Cash exchange At 1 October flows movement 30 September 2012 2013 Â£'000 Â£'000 Â£'000 Â£'000 Cash at bank 12,651 (10,286) (180) 2,545 Foreign At Cash exchange At 1 October flows movement 30 September 2011 2012 Â£'000 Â£'000 Â£'000 Â£'000 Cash at bank 5,294 7,542 (185) 12,651 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: 2013 2012 Cash Cash No flow No flow interest interest interest interest rate rate risk rate rate risk Total exposure exposure Total exposure exposure Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Equity shares Euro 254,550 254,550 - 193,115 193,115 - Swiss franc 27,579 27,579 - 25,944 25,944 - Danish kroner 20,664 20,664 - 4,828 4,828 - US dollar 7,419 7,419 - 6,973 6,973 - Swedish krona 6,678 6,678 - 7,572 7,572 - Sterling 5,711 5,711 - - - - Norwegian krone - - - 6,491 6,491 - Cash at bank and short-term deposits Euro 2,499 - 2,499 12,568 - 12,568 Sterling 46 - 46 83 - 83 Debtors Euro 776 776 - 373 373 - Swiss franc 67 67 - 217 217 - Sterling 24 24 - 18 18 - Norwegian krone 97 97 - 50 50 - NZ dollar 8 8 - 7 7 - Creditors: amounts falling due within one year Euro (1,708) (1,708) - - - - Danish kroner (641) (641) - (1,033) (1,033) - Sterling (547) (547) - (482) (482) - 323,222 320,677 2,545 256,724 244,073 12,651 Exchange rates vs sterling 2013 2012 Euro 1.1963 1.2552 Swiss franc 1.4644 1.5176 Danish kroner 8.922 9.3571 US dollar 1.6194 1.6148 Swedish krona 10.4016 10.5876 Norwegian krone 9.7395 9.2444 NZ dollar 1.9443 1.9439 18. Risk analysis The Company is an investment company, whose shares are admitted to trading on the London Stock Exchange and are listed on the New Zealand stock Exchange. It conducts its affairs so as to qualify in the 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 longâ€“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 the Strategic Report above. The principal risks the Company faces are: â€¢ Investment and strategy risk â€¢ Discount volatility risk â€¢ Market risk (comprising: interest rate risk, currency risk and 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 Strategic Report above. 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 regular 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 Strategic Report above. Discount volatility risk The Board recognises that it is in the longâ€“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 consider 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 the Directors being satisfied that any offer to allot or to purchase shares is in the best interests of shareholders of the Company as a whole. Market Risk 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 2013 are disclosed in note 17 of these Financial Statements. The majority of the Company's assets were non-interest bearing as at 30 September 2013. There was no exposure to interest bearing liabilities during the year ended 30 September 2013. If interest rates had reduced by 0.25% (2012: 0.25%) from those obtained as at 30 September 2013 it would have the effect, with all other variables held constant, of reducing the net revenue return before taxation and therefore reducing net assets on an annualised basis by Â£6,000 (2012: Â£32,000). If there had been an increase in interest rates of 0.25% (2012: 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 2013 and these may not be representative of the year as a whole. This level of change is considered to be reasonable based on observation of current market conditions. 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 2013 are disclosed in note 17 of these Financial Statements. If sterling had strengthened by 10% against all other currencies on 30 September 2013, with all other variables held constant, it would have had the effect of reducing the net capital return before taxation by Â£31,799,000 (2012:Â£25,711,000) the net revenue return before taxation by Â£1,029,000 (2012: Â£892,000) and therefore would reduce net assets by Â£32,828,000 (2012: Â£26,603,000.) If sterling had weakened by 10% against all other currencies there would have been an equal and opposite effect on the net capital return and net revenue return before taxation. This level of change is considered to be reasonable based on observation of current market conditions. 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 at www.theeuropeaninvestmenttrust.com and on the website of Edinburgh Partners at www.edinburghpartners.com. Fixed asset investments are valued at their fair value. Details of the Company's investment portfolio as at 30 September 2013 are disclosed above. In addition, an analysis of the investment portfolio by sector and geographical distribution is detailed above. The maximum exposure to price risk at 30 September 2013 is the fair value of investments of Â£322,601,000 (2012: Â£244,923,000). If the investment portfolio valuation fell by 20% from the amount detailed in the Financial Statements as at 30 September 2013, it would have the effect, with all other variables held constant, of reducing the net capital return before taxation and therefore reducing net assets by Â£64,520,000 (2012: Â£ 48,985,000). 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 price risk at 30 September 2013 and may not be representative of the year as a whole. This level of change is considered to be reasonable based on observation of current market conditions. 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 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 2013. 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. There are no financial assets which are either past due or impaired. 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 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 2013 was Â£326,118,000 (2012: Â£258,239,000). The calculation is based on the Company's credit risk exposure as at 30 September 2013 and this may not be representative of the year as a whole. Gearing risk The aim of gearing is to enhance longâ€“term returns to shareholders by investing borrowed funds in equities and other assets. The Company is permitted to employ gearing should the Board consider 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. On 19 September 2011, the Company entered into a three-year Euro 30,000,000 secured multiâ€“currency revolving loan facility with Scotiabank Europe PLC. As at 30 September 2013, none of this facility had been utilised and the Company therefore had no gearing at 30 September 2013 (2012: Â£nil). The principal covenants are (a) that the adjusted asset coverage ratio must be not less than 4.00 to 1.00, and (b) that the net asset value of the Company must be not less than Â£120,000,000 at any time. The Board undertakes an annual assessment and review of all the risks stated above and in the Strategic Report 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. 19. Capital management policies The objective of the Company is to achieve longâ€“term capital growth through a diversified portfolio of Continental European securities. In pursuing this long â€“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 buy back 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. The Company is subject to externally imposed capital requirements, which have been met throughout the year: as a public company, the Company has a minimum share capital of Â£50,000; in order to be able to pay dividends out of profits available for distribution, the Company has to be able to meet one of the two capital restrictions tests imposed on investment companies by company law. Changes to ordinary share capital are set out in note 13 of these Financial Statements. Dividend payments are set out in note 7 of these Financial Statements. The Company's capital comprises: 2013 2012 Â£'000 Â£'000 Called-up share capital 10,517 10,517 Share premium account 123,749 123,749 Capital redemption reserve 8,294 8,294 Capital reserve 168,745 103,097 Revenue reserve 11,917 11,067 Total equity shareholders' funds 323,222 256,724 The capital reserve consists of realised capital reserves of Â£123,728,000 and unrealised capital gains of Â£45,017,000 (2012: realised capital reserves of Â£ 102,662,000 and unrealised capital gains of Â£435,000). The unrealised capital gains consist of unrealised investment holding gains of Â£45,007,000 (2012: unrealised investment holding gains of Â£436,000) and unrealised foreign exchange gains of Â£10,000 (2012: unrealised foreign exchange losses of Â£1,000). 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 Strategic Report above. Annual General Meeting The Company's forty-first Annual General Meeting will be held on Tuesday, 14 January 2014 at 11.00 am at Brewers' Hall, Aldermanbury Square, London EC2V 7HR. 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.morningstar.co.uk/uk/NSM. A copy of the Annual Report and Financial Statements and Notice of Annual General Meeting will be delivered to shareholders shortly and can also be found on the Company's website at www.theeuropeaninvestmenttrust.com and on the Edinburgh Partners' website at www.edinburghpartners.com. Enquiries: Dale Robertson Kenneth J Greig Edinburgh Partners Limited Telephone: 0131 270 3800 The Company's registered office address is: Beaufort House 51 New North Road Exeter EX4 4EP 25 November 2013 Neither the contents of the Company's website and the Edinburgh Partners' website nor the contents of any website accessible from hyperlinks on this announcement (or any other website) is incorporated into, or forms part of this announcement.

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