Half Yearly Report

RNS Number : 4003K

European Assets Trust NV

30 July 2013

 



To:                    RNS

From:                European Assets Trust NV

Date:                 30 July 2013

UNAUDITED INTERIM RESULTS - SIX MONTHS TO 30 JUNE 2013

·      Total return* performance for the six months to 30 June 2013

   Euro                 Sterling

Net asset value per share                                                                    13.6%              19.9%

HSBC Smaller Europe (ex UK) Index                                                     9.4%              15.6%

·      Total return* performance for the three years to 30 June 2013     

   Euro                 Sterling

Net asset value per share                                                                     71.9%             79.7%

HSBC Smaller Europe (ex UK) Index                                                     25.8%             31.4%

·      Annual dividend of 6% of opening net asset value per share (2013: Euro 0.5757)

  Euro                 Sterling

January and May dividends paid per share                                            €0.3797              £0.319

(further dividend of €0.196 payable on 30 August 2013)

*Capital performance with dividends reinvested

Investment Manager's Review

Our NAV grew +19.9% in Sterling terms and +13.6% in Euro terms, significantly outperforming our index by +4.3% and the majority of global indices.

Attractive valuations and bountiful liquidity have driven superb performance from the Eurozone financial markets since the beginning of last summer, and that trend continued in the first half of the year. The first quarter was particularly strong, led by the US as evidence of a recovery of their domestic, credit-constrained activities, became more sustained and hope of a recovery in the global profit cycle became more substantial. The markets even managed to absorb the latest round of the Euro crisis with the Italian elections and Cypriot crisis being the latest hiccups. The Cyprus crisis was particularly worrying as it again made the European policymakers look short-sighted and incompetent. Nevertheless European equities continued their march upwards through the beginning of the second quarter.

June was however notable for a broad sell-off in financial markets following Ben Bernanke's comments on the Fed's monetary policy and the tapering of quantitative easing. While these comments were partially based on a more optimistic interpretation of the US economy, surely a good thing, the reaction indicated a more troubling prognosis. The rise in bond yields and the potential economic impact caused most concern. However, we would argue that this is a normalisation of prices rather than anything more sinister, reflecting the reality of a financial recovery we have seen since last summer. This should help remind allocators where the value in risky assets lies currently, namely equities, with Europe looking particularly attractive.

Ultimately our index delivered a total return of +15.6% in Sterling terms in the first half of 2013, ahead of the corresponding large cap index, world indices, and emerging markets. The US markets, however, continued to lead, with Japan also putting in an impressive performance following the intervention by the central bank.

Performance - strong outperformance driven by stock picking in the financial sector and consumer goods.

Our philosophy and process encourages our investment team to search for quality in areas that are ignored by investors. The Euro crisis had driven the shares of the financial sector to extremely cheap levels, often fairly so. However, experience tells us that opportunities can present themselves in these situations. Azimut, Italy's leading independent asset manager, is an excellent example of this. While the Italian banking industry is struggling with loan losses and capital ratios, they are struggling to maintain competitive offerings in asset management, yet they still make up the majority share of the industry. Azimut is taking share through offering better products and better customers' service and relationships. The shares rose +41.1% over the first half and they have just announced total net inflows of €1.5 billion, accomplishing their full year target in just six months.

We are pleased to see that as a whole our stock picks in financials delivered the best performance year to date, with our bank holdings Ringkjoebing Landbobank, EFG International, and  Aareal Bank increasing +33.4%, +35.5% and +20.4% respectively. We continue to believe the sector offers, on a selective basis, an attractive combination of quality and value.

Our holdings in consumer goods also had a strong first half. Of note was one of our new purchases Plastic Omnium, rising +45.1%. The company provides body modules and fuel systems for the car industry. They are the leaders in their product segments and their sales should grow above the industry as they benefit from the structural trend of fuel efficiency; their products help reduce car weight and hence fuel consumption.

The other notable strong performer in consumer goods was Continental Farmers Group, the Polish and Ukrainian farming operation. The stock rose +52.7% following a bid from a Saudi Arabian farming conglomerate. We have accepted the bid.

Other strong performers came from the more value orientated areas of the portfolio. SAF Holland the market leader in components for truck trailers, performed well on the back of improving expectations for the truck market, and rose +48.1%. Aer Lingus rose +49.0%, as they continued to demonstrate good operational performance and cashflow generation, with the result that we should see greater returns to shareholders through higher dividends. Mediaset Espana, the Spanish free to air TV operator, also had a strong half rising +38.9% following a marginally improving outlook for advertising spend.

In terms of poor performers, two stocks stood out. Lanxess the chemicals company fell -24.9% following deterioration in operating performance. Lanxess has been trying to transition from a diversified and somewhat commodity business to a more focused, specialist operation. While 2012 was a fantastic performance for the shares, the weakness in the automotive and tyre market has seen expectations fall dramatically. We are conducting a full review on the investment currently and will report back to shareholders if our positive view on the company changes.

The other poor performer was Andritz, the Austrian industrial business, which fell -12.2%. The company operates in global oligopolies where the end markets are driven by structural changes. The company's track record on project execution has been impeccable, but in the first quarter they issued a profit warning following cost overruns on one of their largest projects. While we are not complacent about this, and would like the company to rebuild their exceptional track record quickly, we still believe that the stock is a sound investment for European Assets Trust.

Portfolio activity remains at low levels and annualised portfolio turnover was 24% for the first half of the year.

We made two new investments in the first half of the year, Plastic Omnium, discussed above, and NORMA Group, another supplier of components principally to the automotive industry. The company is the clear leader, in a fragmented market, for the production of clamps and connectors for pipes and fluid systems. The products look innocuous, but have the twin appeal of being mission critical and a low cost input in production. NORMA's scale gives them cost and R&D advantages over their much smaller competitors. Additionally, sales should grow above the industrial average, as engineering complexity increases due to tighter emission regulations. This means that engines need to be more sophisticated requiring more connecting systems. The stock has performed well since we made the investment rising +23.0%.

We have only sold three stocks out of the portfolio, Rubis, Wincor Nixdorf and Continental Farmers Group. Rubis is an energy infrastructure company that stores bulk chemicals and distributes LPG. The shares had performed well, and we judged that there was no further upside to our conservative assessment of intrinsic value. Wincor Nixdorf manufactures banking machines and cash registers such as ATMs and Automated Teller Safes. We had been increasingly worried that the market is becoming more commoditised, meaning the moat around the business was not as strong as we initially thought, and that Wincor would ultimately struggle to compete with emerging market players. Continental Farmers Group was sold following the bid from the Saudi Arabian farming conglomerate.

Outlook

Fund positioning was largely unchanged in the first half. As has been the case for some time we have decent positions in the financials sector where we continue to focus on well capitalised and funded banks focused either on retail banking or wealth management where we believe they can take share from the many other banks under pressure. Likewise we retain holdings in the insurance sector where the exposure to life insurance is now delivering performance as bond yields begin to rise.

Ultimately, our strategy remains to focus the fund on high quality companies who can allocate capital to drive increasing returns and higher growth in preference to companies that operate in regulation heavy, challenging environments and who have offered little evidence that they can generate superior returns. We continue to like businesses that are innovative, that are proven allocators of capital and businesses that have sustainable competitive advantages which can deliver enduring returns above the cost of capital.

The asset class in which we operate remains attractive. Allocations to European small and mid caps remain low, although are slowly improving, and valuations are appealing. While we do not rely on an improving economic situation in Europe, there are encouraging signs that the region may be emerging from recession while at the same time, in contrast to the US, because of ECB support, there should be no up side risk attached to money market rates for some time. We can therefore look forward to what should be a supportive environment for small and mid cap stocks.

Sam Cosh

Lead Investment Manager

F&C Investment Business Limited

Dividend Information

2013

Dividends of €0.1834 and €0.1963 per share have been paid in January and May 2013 respectively. 

A further gross dividend of €0.196 (net rate - €0.1834) per share will be paid on 30 August 2013 to shareholders on the register on 9 August 2013, having an ex-dividend date of 7 August 2013.  This will result in total gross dividends paid for the year of €0.5757 (net dividends - €0.5502) per share.

The increase in the May and August dividends is to offset the element of Dutch withholding tax applicable and provide a full 6 per cent annual payment to shareholders.  The Board works with its advisers to seek to minimise Dutch tax.

Shareholders may elect to receive dividends by way of further shares in the Company rather than cash; the shares will be issued at the net asset value of the Company; the shares may trade in the market at a discount or premium to net asset value.  Elections for scrip dividends can be made by shareholders using the form available from the Registrar on request.  Subject to personal circumstances, UK resident individual shareholders who receive a scrip dividend should not be liable to UK income tax but UK capital gains tax rules should apply.  Elections for scrip dividends must be received by the Company's Registrar, Computershare Investor Services PLC, by the record date in order to apply to this payment.

Revenue Account - for the six months ended		30 June	30 June
		2013	2012
	Notes	€000	€000
Income from investments
Securities		2,701	2,398
Movements on investments - realised		3,253	3,126
Movements on investments - unrealised		14,588	8,261
		17,841	11,387
Total income		20,542	13,785
Expenses and interest	3
Administration expenses		(532)	(551)
Investment management fee		(623)	(508)
Interest		(87)	(107)
Net income	1	19,300	12,619
Distributed by dividends	2	5,680	4,469
Earnings per share		€1.24	€0.85
Dividends per share	2	€0.38	€0.31

Balance Sheet		30 June	31 December
		2013	2012
	Notes	€000	€000
Investments
Securities	4	169,363	143,798
Net current liabilities	5	(9,800)	(8,512)
Total assets less current liabilities		159,563	135,286
Equity shareholders' funds		159,563	135,286
Net asset value per share - basic		€10.02	€9.17
Expressed in sterling		£8.59	£7.43
The number of €0.46 shares in issue at 30 June 2013 was 15,923,041 (31 December 2012 - 14,760,874).

Summary of changes in shareholders' funds for the six months to

		30 June	30 June
		2013	2012
	Notes	€000	€000
Total as at 1 January		135,286	109,524
Sale/(repurchase) of own shares	6	10,657	(914)
Profit for the period		19,300	12,619
Dividends distributed		(5,680)	(4,469)
Total as at 30 June		159,563	116,760

Statement of Cash Flows - for the six months ended

	30 June	30 June
	2013	2012
	€000	€000
Cash flows from investment activities
Dividend income	2,622	2,383
Purchases of securities	(20,425)	(11,241)
Sales of securities	14,778	20,350
Administrative expenses, investment management fees and interest charges	(1,220)	(1,186)
	(4,245)	10,306
Cash flows from financial activities
Dividends paid	(5,680)	(4,469)
Sale/(repurchase) of own shares	10,657	(914)
Loan facility	(732)	(4,923)
	4,245	(10,306)
Cash at bank
Net movement for the period	-	-
Balance as at 31 December	-	-
Balance as at 30 June	-	-

Representation concerning financial statements and Investment Manager's Review

The Management Board confirms that, to the best of its knowledge, the condensed financial statements, together with comparative figures, have been prepared in accordance with applicable Dutch generally accepted accounting principles for interim reporting. These condensed financial statements give a true and fair view of the state of affairs of the Company at 30 June 2013 and of the net result for the period then ended.

The Investment Manager's Review in the Interim Report gives a true and fair view of the situation on the balance sheet date and of developments during the six month period, together with a description of the principal opportunities and risks associated with the expected development of the Company for the remaining months of the financial year.

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. Risk management is described in the Notes to the Accounts for the year ended 31 December 2012 and the principal risks have not changed materially since the date of that report.

Notes
1.     Income for the six month period should not be taken as an indication of the income for the full year.
2.     Two dividends totalling €0.3797 per share have been paid in January and May 2013.  A further dividend of €0.196 per share will be paid on 30 August 2013.
3.     The ongoing charges figure, based on average shareholders' funds for the first half of the year, amounted to 1.51 per cent annualised (first half year 2012, 1.79 per cent annualised).
4.    Securities comprise only listed investments.  Listed investments are valued at the bid price on the valuation date on the relevant stock markets.
5.    During the six month period ended 30 June 2013, the Company had a banking facility available of €18,500,000.  The Company had €7,753,061 drawn down at 30 June 2013 (31 December 2012: €8,485,185).
6.     During the six month period ended 30 June 2013 the Company sold 1,150,000 shares from treasury. In addition, 12,167 shares were issued during the period via the scrip dividend option.
7.     The accounting policies applied in preparing the half-year figures at 30 June 2013 are consistent with those underlying the 2012 annual accounts.
8.     Copies of the interim report will be mailed to shareholders and will be available from the registered office of the Company and the website www.europeanassets.eu.

For further information, please contact:

Sam Cosh

F&C Investment Business Limited, Investment Managers              0207 628 8000

Scott McEllen

F&C Investment Business Limited, Company Secretary                0207 628 8000

Wilbert van Twuijver, Managing Director

FCA Management BV, Rotterdam                                               [phone]

 

END

 

 

IR DMGZNKLMGFZM