Final Results

RNS Number : 5431H

Foreign & Colonial Eurotrust PLC

05 November 2008

 



Date:           5 November 2008

Contact:    Peter Jarvis    

                    F&C Management Limited    

                    020 7628 8000    

Foreign & Colonial Eurotrust PLC

Audited Statement of Results

for the year ended 30 September 2008

Summary of results

Attributable to equity shareholders	30 September 2008	30 September 2007	% Change
Net assets	£292.38m	£464.52m	(37.1)
Net asset value per share	599.36p	897.31p	(33.2)
Share price	518.00p	812.50p	(36.2)
Revenue return per share	14.30p	8.04p	77.9
Dividends per share	14.90p	8.30p	79.5

  Chairman's Statement

Capital performance

The year to 30 September 2008 was a disappointing one for the Company. The net asset value ('NAV') per share fell by 33.2% from 897.3p to 599.4p compared with a decrease of 19.7% in the FTSE World Europe Index, excluding the UK and adjusted to sterling. The Company's share price fell by 36.2% from 812.5p to 518.0p. The discount widened from 9.5% to 13.6%. 

Revenue

The gross income for the year increased, reflecting the strengthening of the euro against sterling. Expenses have decreased with the management fee having fallen in line with the decreased value of the portfolio. Finance costs have decreased due to there being no gearing for much of the year. There is also a £2m credit in respect of VAT recoverable on management fees paid in the past. The net revenue return attributable to shareholders increased by 68.1% from £4.3m to £7.3m.

VAT

Since last year progress in legal proceedings has been made in relation to the issue of VAT on investment management fees previously paid by the Company. At this stage, while uncertainties remain over the precise amount and the timing of recovery of previously paid VAT, the Board believes that it is appropriate to recognise £2m as recoverable in the accounts. It is possible that further amounts could be recovered in due course, but prudence dictates that we wait for further developments. 

Dividend

The Board is declaring a special dividend of 2.9p per share to distribute the net amount, after deducting attributable corporation tax, of the £2m recoverable VAT. The Board is recommending an increased final dividend of 12.0p per share reflecting a decrease in the level of expenses and the increased yield offered by European equities. This substantial increase in the final dividend being recommended reflects the Board's revised policy whereby the final dividend will fluctuate according to normal net income streams. Special dividends will now only be paid to distribute exceptional profits. This gives a combined dividend of 14.9p compared with last year's combined dividend of 8.3p. The combined dividend appears higher than earnings per share as it is based on the number of shares in issue today rather than the average in issue during the year, which is the case for earnings per share. The total amount to be distributed is slightly less than the Company's net earnings for the year.

Gearing

At 30 September 2008 the Company's borrowings were more than offset by cash, adjusted for investment settlements, giving net liquidity of 2.0%. 

Share buybacks and demand for shares

The Company bought back and cancelled 2,986,263 shares during the financial year, representing 5.8% of the share capital at the beginning of the year. The Board will again propose to the annual general meeting ('AGM') that the Company be granted powers to make further purchases as appropriate. We continue to monitor the level of discount to NAV at which your shares trade and believe that share buybacks are an important factor in addressing supply/demand imbalances while at the same time increasing the NAV per share.

At the end of September, there were over 2,400 individuals participating in the private investor plan on a regular monthly basis. It is a cost-effective way for the private investor to buy shares. The Company now has over 19,000 shareholders and the percentage of the share capital owned by private individuals is 73%. This continues to be one of the highest levels of individual ownership in the investment trust sector.

Annual general meeting

We hope that as many shareholders as possible will attend the AGM which will be held at 11 a.m. on Wednesday 17 December at the offices of F&C Management Limited at Exchange House, Primrose Street, London EC2A 2NY. We look forward to meeting all of you who can come.

Electronic communications

A resolution is to be put to the AGM to amend the Company's articles of association. Part of these changes will allow the Company to communicate with shareholders both in electronic form and via a website in future. We expect these new communication arrangements to begin in 2009 and will write to all shareholders in due course to allow you to elect to continue to receive hard copy documents.

Douglas McDougall
Chairman
5 November 2008

  Income Statement

for the year ended 30 September	2008			2007
	Revenue	Capital	Total	Revenue	Capital	Total
	£'000s	£'000s	£'000s	£'000s	£'000s	£'000s
(Losses)/gains on investments	-	(153,461)	(153,461)	-	89,699	89,699
Foreign exchange gains/(losses)	11	(941)	(930)	30	(913)	(883)
Income	11,607	-	11,607	11,252	-	11,252
Management fee	(1,863)	-	(1,863)	(2,782)	-	(2,782)
Recoverable VAT	2,000	-	2,000	-	-	-
Other expenses	(662)	(24)	(686)	(680)	(52)	(732)
Net return before finance costs and taxation	11,093	(154,426)	(143,333)	7,820	88,734	96,554
Finance costs	(895)	-	(895)	(1,596)	-	(1,596)
Net return on ordinary activities before taxation	10,198	(154,426)	(144,228)	6,224	88,734	94,958
Taxation on ordinary activities	(2,934)	-	(2,934)	(1,903)	(140)	(2,043)
Net return attributable to equity shareholders	7,264	(154,426)	(147,162)	4,321	88,594	92,915
Return per share - pence	14.30	(303.93)	(289.63)	8.04	164.78	172.82

The total column of this statement is the profit and loss account of the Company. The revenue return and capital return columns are supplementary to this and are prepared under guidance published by the Association of Investment Companies. 

All revenue and capital items in the above statement derive from continuing operations.

A statement of total recognised gains and losses is not required as all gains and losses of the Company have been reflected in the above statement.

  Reconciliation of Movements in Shareholders' Funds

for the year ended 30 September 2008
	Called	Share	Capital			Total equity
	up share	premium	redemption	Capital	Revenue	shareholders'
	capital	account	reserve	reserves	reserve	funds
	£'000s	£'000s	£'000s	£'000s	£'000s	£'000s
Balance at 30 September 2007	12,942	123,749	5,869	313,755	8,205	464,520
Movements during the year ended     30 September 2008
Dividends paid	-	-	-	-	(4,269)	(4,269)
Shares purchased and cancelled	(747)	-	747	(20,711)	-	(20,711)
Net return attributable to equity shareholders	-	-	-	(154,426)	7,264	(147,162)
Balance at 30 September 2008	12,195	123,749	6,616	138,618	11,200	292,378

for the year ended 30 September 2007
Balance at 30 September 2006	13,905	123,749	4,906	255,269	8,861	406,690
Movements during the year ended     30 September 2007
Dividends paid	-	-	-	-	(4,977)	(4,977)
Shares purchased and cancelled	(963)	-	963	(30,108)	-	(30,108)
Net return attributable to equity shareholders	-	-	-	88,594	4,321	92,915
Balance at 30 September 2007	12,942	123,749	5,869	313,755	8,205	464,520

  Balance Sheet

at 30 September	2008	2007
	£'000s	£'000s
Fixed assets
Listed investments	286,025	502,397
Current assets
Debtors	20,109	3,820
Cash at bank	877	-
	20,986	3,820
Creditors: amounts falling due within one year
Foreign currency loans	(11,820)	(31,411)
Other	(2,813)	(10,286)
	(14,633)	(41,697)
Net current assets/(liabilities)	6,353	(37,877)
Net assets	292,378	464,520
Capital and reserves
Called up share capital	12,195	12,942
Share premium account	123,749	123,749
Capital redemption reserve	6,616	5,869
Capital reserves	138,618	313,755
Revenue reserve	11,200	8,205
Total shareholders' funds - equity	292,378	464,520
Net asset value per share - pence	599.36	897.31

  Cash Flow Statement

for the year ended 30 September	2008	2007
	£'000s	£'000s
Operating activities
Investment income received	12,167	9,994
Interest received	274	103
Stock lending fees received	96	265
Fees paid to the management company	(2,082)	(2,709)
Directors' fees paid	(90)	(87)
Other payments	(675)	(597)
Net cash inflow from operating activities	9,690	6,969
Servicing of finance
Interest paid	(941)	(1,537)
Cash outflow from servicing of finance	(941)	(1,537)
Tax paid
UK tax paid	(882)	(735)
Overseas tax paid	(1,382)	(1,631)
Overseas tax received	249	373
Total tax paid	(2,015)	(1,993)
Financial investment
Purchases of investments	(550,636)	(526,194)
Sales of investments	598,973	545,186
Other capital charges and credits	(30)	(47)
Net cash inflow from financial investment	48,307	18,945
Equity dividends paid	(4,269)	(4,977)
Net cash inflow before use of liquid resources and financing	50,772	17,407
Financing
Net loans redeemed	(20,362)	-
Shares purchases and cancelled	(20,708)	(30,108)
Net cash outflow from financing	(41,070)	(30,108)
Increase/(decrease) in cash	9,702	(12,701)

  Notes

1    Return per ordinary share

Revenue return

The revenue return per share is based on the revenue return attributable to equity shareholders of £7,264,000 profit (2007: £4,321,000 profit).

Capital return

The capital return per share is based on the capital return attributable to equity shareholders of £154,426,000 loss (2007: £88,594,000 profit).

Weighted average ordinary shares in issue

Both the revenue and capital returns per share are based on a weighted average of 50,810,529 ordinary shares in issue during the year (2007: 53,764,678).

2    Dividends

The Directors recommend a final dividend in respect of the year ended 30 September 2008 of 12.0p (2007 - 1.7p) and have declared a special dividend of 2.9p (2007 - 6.6p), both payable on 22 December 2008 to all shareholders on the register at close of business on 14 November 2008. The recommended final dividend is subject to approval by shareholders at the annual general meeting.

3    Financial risk management

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 Section 842 of the Income and Corporation Taxes Act 1988. In so qualifying, the Company is exempted in the UK from corporation tax on capital gains on its portfolio of investments. 

The Company's investment objective is to achieve long-term capital growth through a diversified portfolio of Continental European securities. In pursuing this objective, the Company is exposed to financial 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. These financial risks are principally related to the market (currency movements, interest rate changes and security price movements), liquidity and credit. The Board, together with F&C Management Limited ('the Manager'), is responsible for the Company's risk management. The Directors' policies and processes for managing the financial risks are set out in (a), (b) and (c) below. 

The accounting policies which govern the reported balance sheet carrying values of the underlying financial assets and liabilities, as well as the related income and expenditure, are in compliance with UK Accounting Standards and best practice, and include the valuation of financial assets and liabilities at fair value. The Company does not make use of hedge accounting rules. 

(a) Market risks 

The fair value of equity and other financial securities held in the Company's portfolio fluctuates with changes in market prices. Prices are themselves affected by movements in currencies and interest rates and by other financial issues, including the market perception of future risks. The Board sets policies for managing these risks within the Company's objective and meets regularly to review full, timely and relevant information on investment performance and financial results. The Manager assesses exposure to market risks when making each investment decision and monitors ongoing market risk within the portfolio.

The Company's other assets and liabilities may be denominated in currencies other than sterling and may also be exposed to interest rate risks. The Manager and the Board regularly monitor these risks. The Company does not normally hold significant cash balances. Borrowings are limited to amounts and currencies commensurate with the portfolio's exposure to those currencies, thereby limiting the Company's exposure to future changes in foreign exchange rates. Gearing may be short or long-term in foreign currencies, and enables the Company to take a long-term view of the countries and markets in which it is invested without having to be concerned about short-term volatility.

Income earned in foreign currencies is converted to sterling on receipt. The Board regularly monitors the effects on net revenue of interest earned on deposits and paid on gearing.

(b) Liquidity risk exposure 

The Company is required to raise funds to meet commitments associated with financial instruments and share buybacks. These funds may be raised either through the realisation of assets or through increased borrowing. The risk of the Company not having sufficient liquidity at any time is not considered by the Board to be significant, given: the number of quoted investments held in the Company's portfolio (69 at 30 September 2008); the liquid nature of the portfolio of investments; the industrial and geographical diversity of the portfolio; and the existence of an ongoing loan facility agreement. Cash balances are held with approved banks, usually on overnight deposit. The Company does not normally invest in derivative products. The Manager reviews liquidity at the time of making each investment decision. The Board reviews liquidity exposure at each meeting.

The Company has a loan facility with The Royal Bank of Scotland plc of £30m renewable in September 2009.

(c) Credit risk and counterparty exposure 

The Company is exposed to potential failure by counterparties to deliver securities for which the Company has paid, or to pay for securities which the Company has delivered. The Board approves all counterparties used in such transactions, which must be settled on the basis of delivery against payment (except where local market conditions do not permit). 

A list of pre-approved counterparties is maintained and regularly reviewed by the Manager and the Board. Broker and stock lending counterparties are selected based on a combination of criteria, including credit rating, balance sheet strength and membership of a relevant regulatory body. The rate of default in the past has been negligible. Collateral on securities loaned to third parties exceeded the value of securities throughout the duration of the loans. Cash and deposits are held with approved banks. 

The Company has an ongoing contract with its custodian for the provision of custody services. The contract is reviewed regularly. Details of securities held in custody on behalf of the Company are received and reconciled monthly. To the extent that the Manager carries out management and administrative duties (or causes similar duties to be carried out by third parties) on the Company's behalf, the Company is exposed to counterparty risk. The Board assesses this risk continuously through regular meetings with the management of the Manager (including the fund manager) and with the Manager's internal audit function. In reaching its conclusions, the Board also reviews the Manager's parent group's annual audit and assurance faculty report, group accounts and other public information indicative of its financial position and performance. 

The Company had no credit-rated bonds or similar securities or derivatives in its portfolio at the year end (2007: none) and does not normally invest in them. None of the Company's financial liabilities are past their due date or impaired. 

4    Annual general meeting

The annual general meeting will be held at the registered office of the Company, Exchange House, Primrose Street, London EC2A 2NY on Wednesday 17 December 2008 at 11.00 a.m. 

5    Report and accounts

The report and accounts for the year ended 30 September 2008 will be posted to shareholders and made available on the website www.foreignandcolonialeurotrust.com in mid November 2008. Copies may also be obtained from the Company's registered office, Exchange House, Primrose Street, London EC2A 2NY.

By order of the Board

F&C Management Limited, Secretary

Exchange House, Primrose Street, London EC2A 2NY

5 November 2008

  Principal risks

The specific key risks faced by the Company, together with our mitigation approach, include the following: 

• Market - the Company's assets consist of quoted equity securities and it is therefore exposed to movements in the price of individual securities and the market generally. The large number of investments held and the geographic and sector diversity of the portfolio enable the Company to spread its risks with regard to individual companies and sectors, but a significant fall in European equity markets would have an adverse impact on the value of the Company's investment portfolio. 

• Investment strategy - inappropriate investment strategy or ineffective implementation of this strategy could result in poor returns for shareholders and a widening of the discount of the share price to the NAV per share. The Board periodically reviews the investment strategy and regularly monitors the Company's investment portfolio and the investment selection, performance and operations of the Manager. 

• Currency - the Company's assets are denominated in European currencies, principally the euro, but are valued in sterling in accordance with the Company's accounting policies. Any weakening of the euro against sterling will adversely affect performance of those assets when measured in sterling. Although the Board has the authority to hedge this currency risk it does not routinely do so. 

• Gearing - Borrowing money for investment ('gearing') increases the negative impact on the Company's asset value if the value of those investments subsequently falls. The Board's policy is that the level of gearing of the Company should not exceed 20% in normal market conditions. Within that overall policy the Board agrees with the Manager an operational limit on gearing from time to time and reviews this at each Board meeting. 

• Investment management resources - the quality of the management team employed by the Manager is a crucial factor in delivering good performance and loss of key staff could adversely affect investment returns. The Manager has training and development programmes in place for its employees and develops its recruitment and remuneration packages in order to retain key staff. 

• Regulatory - failure to comply with regulations could result in the Company losing its listing and/or being subject to corporation tax on its capital gains. The Board reviews regular reports from the Manager on the controls in place to ensure compliance by the Company with rules and regulations. The Board also receives regular investment listings and income forecasts as part of its monitoring of compliance with the provisions of Section 842. 

• Internal controls - inadequate financial controls could result in misappropriation of assets, loss of income and debtor receipts and mis-reporting of NAVs. The Board regularly reviews the Manager's statements on its internal controls and procedures and subjects the books and records of the Company to an annual audit. 

• Counterparties - the Company is exposed to potential failures by counterparties; more details are included in note 3 (c). 

Statement of Directors' Responsibilities in Respect of the Financial Statements

In accordance with Chapter 4 of the Disclosure and Transparency Rules we confirm, in respect of the annual report for the year ended 30 September 2008 of which this statement of results is an extract, that to the best of our knowledge: 

• the financial statements have been prepared in accordance with applicable UK Accounting Standards, on a going concern basis, and give a true and fair view of the assets, liabilities, financial position and return of the Company; 

• the annual report includes a fair review of the important events that have occurred during the financial year and of the principal risks and uncertainties and their impact on the financial statements; and 

• the annual report includes details on related party transactions. 

On behalf of the Board

Douglas McDougall

Chairman

5 November 2008

 

END

 

 

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