Annual Financial Report

RNS Number : 6109I

European Assets Trust NV

16 March 2010

 



To:                   RNS

From:              European Assets Trust NV

Date:               16 March 2009

Statement of Results for the year ended 31 December 2009

·     Total return* performance over 2009

Euro                Sterling

Net asset value per share                                                             42.5%              31.0%

HSBC Smaller Europe (ex UK) Index                                           55.2%              42.5%

·    The annual dividend for 2010 is Euro 0.432 per share (2009: Euro 0.3248, net), equivalent to 6% of the opening net asset value per share

Euro                Sterling

January 2010 dividend paid per share                                          €0.144             £0.125

(further dividends payable in May and August).

* capital performance with dividends added back

The Chairman's Statement follows:

2009 review

2009 witnessed determined action by the authorities to combat the economic dislocation which had emerged in the wake of the credit crisis in developed markets.  In Europe, faced with a sharp loss in economic output, governments responded by allowing budget deficits to expand significantly while the European Central Bank maintained interest rates at an historic low level and supplied additional liquidity to cash-strapped enterprises.  The effect was scarcely noticeable in the early months of the year but, slowly, business and investor confidence began to improve.  Before long, economic data reflected this improvement with gross domestic product in the European Union countries returning to growth in the third quarter of the year.  The buoyant mood waned slightly towards the end of the year as businesses and investors began to question the strength and sustainability of the economic recovery and of the measures put in place to engineer that recovery. 

The HSBC Smaller Europe (ex UK) Index rose by 55.2 per cent in Euro total return terms* (42.5 per cent in Sterling) in 2009 having initially fallen by 17 per cent (23 per cent in Sterling) between December 2008 and early March 2009.  The disparity between the Euro and Sterling total returns reflects rising pressure on the Euro during the year as the durability of the economic revival particularly in southern European countries was called into question.  Debt-laden cyclical stocks which had fallen sharply in the first two months of the year reversed their losses to record the strongest gains for the year as a whole.  The net asset value of European Assets Trust increased by 42.5 per cent in Euro total return terms* (31.0 per cent in Sterling) in 2009.  This result, while gratifying in absolute terms, nevertheless fell shy of the index gains despite having been ahead of the index at the half year ending 30 June 2009.  The reasons for this, as explained in more detail in the Manager's Review section of the Annual Report, were the portfolio bias towards companies with a more defensive profile and robust financial strength and the Manager's holding of a cash balance in a still uncertain market environment.

Distribution

The level of dividend paid by the Company each year is determined by the Board in accordance with the Company's distribution policy.  The Board has stated that, barring unforeseen circumstances, it will pay an annual dividend equivalent to 6 per cent of the net asset value of the Company at the end of the preceding year.  The dividend is funded mainly from accumulated capital gains.

The Board has already announced that the 6 per cent of net asset value has been maintained for 2010 which results in a total dividend of Euro 0.432 per share (2009: Euro 0.3248 per share, net).  The 2010 dividend will be paid in three equal instalments of Euro 0.144 per share at the end of January, May and August.  The January dividend of Euro 0.144 per share was paid to shareholders on 29 January 2010 and amounted to 12.5p per share in Sterling terms.

Shareholders may elect to receive dividends by way of further shares in the Company rather than cash.  Where shareholders so elect, they will receive shares based on the net asset value of the Company; the shares may trade in the market at a discount or premium to net asset value.  Subject to personal circumstances, UK resident individual shareholders who receive a scrip dividend should not be liable to UK income tax on such dividend.  Instead, UK capital gains tax rules should apply.

Gearing

The Company possesses a banking facility to allow the Manager to gear the portfolio within the 20 per cent of assets level permitted under the Articles.  The facility was successfully renewed in 2009 with a line of credit from KAS Bank.  The total advance available of Euro 18.5 million is Euro denominated and flexible, allowing the Manager to draw down amounts for such periods as required.  The Manager made no use of gearing during 2009 as a result of a lack of conviction in the rally in markets which was driven by higher risk cyclical stocks and of a paucity of new stock purchase opportunities due to elevated valuations.  Reflecting the Manager's concern at the initial speed and composition of the revival in stock prices, cash balances of over 10 per cent of assets were maintained during the first half of the year but were invested early in the second half of the year, ending at 2 per cent at 31 December 2009.

Liquidity enhancement policy

The Company's share price discount to net asset value was 8.9 per cent as at 31 December 2009 compared with 7.4 per cent at the previous year end.  The discount fluctuated significantly during the year reflecting the underlying volatility of the asset class.  On average over the year the discount to net asset value stood at 8.8 per cent, a level which compared favourably with European smaller company peer funds.  During 2009 the Company bought back 1,160,000 of its own shares at an average discount of 12.7 per cent (2008: 846,000 shares at an average discount of 8.1 per cent), thereby enhancing net asset value per share for continuing shareholders.  These shares are held in treasury and are available for release back to the market.

No shares were sold from treasury during 2009 (2008: nil).

Outlook

The indebtedness of states, private enterprises and households militates against a rapid recovery in European economies.  Recent economic data releases have emphasised the sputtering nature of the revival.  The concern about sovereign debt risk in countries on the periphery of the Eurozone merely adds to the uncertainty.  The Investment Manager believes that current profit forecasts and valuations for many continental European smaller companies are running ahead of the pace of the likely recovery in corporate financial results, particularly for cyclical stocks with weak balance sheets.  The Company's portfolio remains focused firmly on sectors of a more defensive nature and, within those sectors, on stocks which by dint of their strong business franchise and appropriate financial structure possess the ability to generate organic growth in turnover and profitability on a sustained basis.  The below average performance of such stocks last year, and their consequent reasonable valuation levels, offer potential for decent returns even should the European back-drop prove to be less than favourable this year.

Shareholder meetings

The Company's Annual General Meeting will be held on 28 April 2010 at the Hotel de l'Europe in Amsterdam, Netherlands.  In addition, the Company holds a Shareholders' and Investors' Briefing in London each year.  The London Briefing this year will take place on 19 May 2010 at 11.30am at Pewterers' Hall, Oat Lane, London EC2V 7DE and will include a presentation from the Investment Manager on the Company and its investment portfolio.  A light buffet will be served at the end of the briefing.  The Board is always delighted to see such a good turnout for this annual event and looks forward to welcoming as many shareholders as are able to attend this year. 

Sir John Ward CBE

Chairman

 

AUDITED STATEMENT OF RESULTS FOR THE YEAR ENDED 31 DECEMBER 2009

		As at	As at
BALANCE SHEET		31 December 2009	31 December 2008
	Note	€	€
Investments
Securities	1	108,277,196	81,053,605
Receivables
Prepayments and accrued income		188,811	141,946
Other assets
Cash and cash equivalents		1,867,216	7,610,608
Total current assets		2,056,027	7,752,554
Current liabilities (due within one year)
Arising from repurchase of own shares		(79,024)	(312,485)
Accrued liabilities		(193,140)	(454,164)
		(272,164)	(766,649)
Total of receivables and other assets less current liabilities		1,783,863	6,985,905
Total assets less current liabilities		110,061,059	88,039,510
Capital and reserves
Issued share capital		7,005,230	7,530,296
Share premium account		20,002,354	25,168,244
Other reserves		83,053,475	55,340,970
		110,061,059	88,039,510
Net asset value per ordinary share	2	€7.23	€5.38
Expressed in sterling - basic		£6.42	£5.20
- treasury	3	£6.39	£5.17

REVENUE ACCOUNT
For the year ended		31 December 2009		31 December 2008
		€		€
Income from investments
Dividends from securities		2,348,843		4,359,938
Withholding taxes		121,563		(121,563)
		2,470,406		4,238,375
Movements on investments - realised		(40,052,475)		(24,452,929)
Movements on investments - unrealised		71,431,469		(95,113,604)
		31,378,994		(119,566,533)
Interest received		24,770		158,181
Income from securities lending	4	-		90,951
		24,770		249,132
Total investment gain/(loss)		33,874,170		(115,079,026)
Withholding tax benefit	5	1,088,329		-
Investment management fee		(746,659)		(1,586,584)
Administrative expenses		(954,649)		(1,279,288)
Interest charges		(87,847)		(995,237)
Total operating expenses		(1,789,155)		(3,861,109)
Net profit/(loss)		33,173,344		(118,940,135)
Earnings per share		€2.13		(€7.18)
Dividends per share	5	€0.3551		€0.8535

STATEMENT OF CASH FLOWS

For the year ended	31 December	31 December
	2009	2008
	€	€
Cash flow from investment activities
Dividends	2,383,304	4,267,923
Purchases of securities	(56,392,879)	(60,194,141)
Sales of securities	60,522,190	92,705,289
Administrative expenses	(1,189,577)	(1,324,806)
Investment management fee	(746,659)	(1,586,584)
Withholding tax benefit (note 5)	1,088,329	-
Interest received	65,003	180,331
Interest charges	(87,847)	(935,481)
Income from securities lending	-	115,778
	5,641,864	33,228,309
Cash flows from financing activities
Dividends	(5,460,839)	(13,939,060)
Stamp duty paid	-	(79,697)
Repurchase of own shares	(5,924,417)	(11,131,938)
	(11,385,256)	(25,150,695)
Cash and cash equivalents
Net (decrease)/increase for the year	(5,743,392)	8,077,614
Balance as at 1 January	7,610,608	(467,006)
Balance as at 31 December	1,867,216	7,610,608

PRINCIPAL RISKS

The Company's assets consist mainly of listed equity shares and its principal risks are therefore market-related. The Company holds a portfolio of shares which have a diversified geographic spread. The Company is subject to a number of risks including: market, credit, currency and liquidity risks (see Note 7). The Board seeks to mitigate these risks in a number of ways including through review of the investment environment and the Company's investment portfolio, policy setting and reliance upon contractual obligations.

ACCOUNTING POLICIES

The Company is a closed-end investment company with variable capital incorporated in the Netherlands. The financial statements have been prepared in accordance with the Dutch Financial Supervision Act and have also been prepared in accordance with accounting principles generally accepted in the Netherlands.

Notes.

1.         Listed investments are valued at the bid price on the valuation date on the relevant stock markets.

2.         Based on 15,228,760 shares in issue (2008 - 16,370,208). During the year the Company issued 18,552 shares through its scrip dividend option and purchased 1,160,000 of its own shares to be held in treasury. 

3.         The Company's treasury net asset value is in accordance with the AIC calculation method where shares are held in treasury; subject to the Company's resale policy, including limiting dilution to 0.5 per cent of net asset value per annum. Based on shares held in treasury since the liquidity enhancement policy was put in place in 2005.

4.         On 1 July 2008 the Company terminated its stock lending agreement with KAS BANK

5.         During the financial year, the Company received an amount of €1,088,329 in respect of foreign withholding tax for the fiscal years 2002 up to and including 2007, for which the Company had filed a request for reimbursement with the Dutch tax authorities.  Previously, the Dutch tax authorities had taken the position that such reimbursement is only granted to the extent the shareholders of the Company are Dutch residents. According to a verdict by the European Court of Justice in May 2008 regarding a reimbursement procedure of foreign withholding tax for Dutch Fiscal Investment Institutions, such restriction is not in accordance with European rules.  Following this verdict, the Company had again filed a request for a full reimbursement of foreign withholding taxes 2002-2007 and this was granted and paid by the Dutch tax authorities in 2009.

6.         A dividend of €0.144 was announced on 7 January 2010 and paid on 29 January 2010. This dividend was paid from other reserves. During 2010, a total distribution of €0.432 per share is payable in equal instalments in January, May and August.

7.         Financial instruments and risk management

General

In the normal course of its business, the Company holds a portfolio of equities and other securities, and manages investment activities with on-balance sheet risk.  Equities and other securities are valued at fair value.  The Company being subject to the risks described below.

·     Market risk

Market risk is the risk that the value of a financial instrument will fluctuate as a result of changes in market prices, caused by factors that exclusively apply to the individual instrument or its issuer or by factors that affect all instruments traded in the market.  Interest rate risk is the risk that the value of a financial instrument will fluctuate as a result of changes in interest rates.

The Company minimises the risks by making a balanced selection of companies with regard to distribution across European countries, sectors and individual stocks.

Any changes in market conditions will directly affect the profit or loss reported through the Revenue Account.  A 25 per cent increase, for example, in the value of the securities portfolio as at 31 December 2009 would have increased net assets and income for the year by €27.1 million (2008: €20.3 million).  A decrease of 25 per cent would have had an equal but opposite effect. The calculations above are based on investment valuations at the respective balance sheet dates and are not representative of the year as a whole, nor reflective of future market conditions.

·     Credit risk

Credit risk is the risk that the counterparty of a financial instrument will no longer meet its obligations, as a result of which the Company will suffer a financial loss.  To reduce exposure to credit risk relating to financial instruments, the creditworthiness of the counterparties and the transactions' size and maturity are assessed by service providers to the Company.  Wherever it is customary in the market, collateral will be demanded and obtained.  The Company and its service providers monitor and control its risks to exposures frequently and, accordingly, Management believes that it has in place effective procedures for evaluating and limiting the credit and market risks to which it is subject.

·     Foreign currency risk management

Currency risk is the risk that the value of a financial instrument will fluctuate as a result of changes in exchange rates. The Company reports its results and financial position in Euros. The Company's main activity is to invest in small and medium-sized companies in Continental Europe whereby a majority of the Company's investments concern companies with listings and activities in the European Monetary Union.  The Company will have exposure to (Continental) European currencies other than the Euro.

·     Liquidity risk

Liquidity risk is the risk that the Company is not able to obtain the financial means required to meet its obligations.  The Company minimises this risk by mainly investing in equities that are traded on a regular basis.  The Company may use borrowings to seek to enhance returns for shareholders.  This may include the use of financial instruments; such financial instruments are valued at fair value.  Cash balances will be held from time to time and these will be held with reputable bank(s).

·     Insight into actual risks

The Report of the Management Board Director, the overview of the Investment Portfolio, which includes the geographic distribution of the investments, and the Notes to the Accounts give an insight into the actual risks at the balance sheet date.

·     Risk management

Managing risk is a part of the investment process as a whole and, with the help of systems, the risks outlined above are limited, measured and monitored on the basis of fixed risk measures.

·     Policy regarding the use of financial instruments

Investing implies that positions are taken.  As it is possible to use various instruments, including derivative instruments, to construct an identical position, the selection of derivatives is subordinate to the positioning of the portfolio.  The Company does not employ any derivatives to take positions.

The Company presently has banking facilities to gear the portfolio within the 20 per cent of total assets level as permitted under the Articles and under the Company's tax status as a Fiscal Investment Institution.

8.         These are not the full accounts. The full accounts for the year to 31 December 2009 will be sent to shareholders and will be available for inspection at the Company's registered office Weena 210-212, NL-3012 NJ Rotterdam and from the investment managers at F&C Investment Business, 80 George Street, Edinburgh, EH2 3BU. The Company's website address is www.europeanassets.co.uk where the accounts can also be found.

9.         A General Meeting to adopt the 2009 Report & Accounts will be held on 28 April 2010 in Amsterdam and a Shareholders' and Investors' Briefing will be held on 19 May 2010 at Pewterers' Hall, Oat Lane, London.

For further information, please contact:

Crispin Longden,

F&C Investment Business Ltd, Fund Manager                                              0207 628 8000

Michael Campbell, F&C Investment Business Ltd, Company Secretary      0207 628 8000

 

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