Final Results

RNS Number : 7857B

European Smaller Companies Tst PLC

05 October 2022

 

Legal Entity Identifier: 213800N1B1HCQG2W4V90 THE EUROPEAN SMALLER COMPANIES TRUST PLC Financial results for the year ended 30 June 2022 This announcement contains regulated information Investment Objective The Company seeks capital growth by investing in smaller and medium sized companies which are quoted, domiciled, listed or have operations in Europe (ex UK).

Total return performance to 30 June 2022 (including dividends reinvested and excluding transaction costs)
	1 year %	3 years %	5 years %	10 years %
NAV1	-21.0	32.9	25.4	317.7
Benchmark2	-17.3	13.3	21.9	216.5
Average sector3 NAV	-23.0	16.5	27.5	245.9
Share price4	-23.1	34.6	16.8	381.5
Average sector3 share price	-25.5	13.8	19.8	277.5

Financial highlights
	At 30 June 2022	At 30 June 2021
Shareholders' funds
Net assets (£'000)	652,464	840,667
NAV per ordinary share	162.76p	209.71p5
Share price	140.00p	185.63p5
Year ended 30 June 2022			Year ended 30 June 2021
Profit for year
Net revenue profit (£'000) Net capital (loss)/profit (£'000)	20,703	10,390 318,127
	(195,415)
	------------	------------
(Loss)/profit for the year	(174,712)	328,517
	=======	=======
Total return per ordinary share
Revenue	5.16p	2.59p5
Capital	(48.75p)	79.36p5
	-------------	-------------
Total return per ordinary share	(43.59p)	81.95p5
	=======	=======
Ongoing charge excluding performance fee 6	0.65%	0.71%
Ongoing charge including performance fee 6	1.37%	1.37%
1.  Net asset value total return per ordinary share with income reinvested 2.  Euromoney Smaller European Companies (ex UK) Index expressed in Sterling (MSCI Europe Small Cap ex UK Index with effect from 1 July 2022) 3.  The sector is the AIC European Smaller Companies sector 4.  Share price total return including dividends reinvested and using mid-market price 5.  Comparative figures have been restated due to the sub-division of each ordinary share of 12.5p into 8 ordinary shares of 1.5625p on 13 December 2021. 6.  Calculated using the methodology prescribed by the Association of Investment Companies Sources: Morningstar Direct, Janus Henderson, Refinitiv Datastream

Chairman's Statement European equity markets have faced several rapidly evolving challenges this year including the resurgence of inflation to multi-decade highs that has driven a tightening monetary policy after the fiscal and monetary excess experienced over the course of the pandemic. The Russian invasion of Ukraine, which has resulted in dislocated energy supplies, has greatly compounded an underlying trend of upward pressure on prices.  While the disruption caused by Covid-19 may seem to have abated in Europe, the 'Zero Covid' policy in China has continued to disrupt global supply chains and cause shortages of key components. Performance NAV total return performance for the year to 30 June 2022 has been disappointing at negative 21.0%, lagging the benchmark performance of negative 17.3%.  Share price total return for the year was negative 23.1%. The Company's performance suffered in the first half of the financial year as 'growth at any price' stocks saw a huge multiple expansion that unwound in the latter half of the financial year, a period during which your Company benefited from owning a balanced portfolio.  This, combined with maintaining valuation discipline, has enabled the Company to deliver an impressive NAV total return performance over the ten year period to 30 June 2022 of 317.7%, compared with the benchmark of 216.5% and a share price total return of 381.5%. Dividend A final dividend of 3.10p per ordinary share will be put to shareholders at the annual general meeting to be held on 28 November 2022.  Together with the interim dividend of 1.25p per ordinary share, this brings the total dividend for the year ended 30 June 2022 to 4.35p per ordinary share.  This is an increase of 39% compared to last year. If approved by shareholders, the dividend will be paid on 2 December 2022 to shareholders on the register at 21 October 2022. Performance fee A performance fee of £5.5m has been earned by the investment manager for the year ended 30 June 2022.  While the Company has not outperformed the benchmark this year, I would highlight that the performance fee is based on a three year rolling period and so includes the strong performances from the 2020 and 2021 financial years. The Board regularly revisits the merit of having a lower base fee alongside the performance fee as part of the arrangements with the investment manager and considers that this approach is beneficial to shareholders over time.  This mechanism permits the investment manager to earn a higher fee where excellent performance has been achieved over periods longer than one year, but reduces when performance is poor keeping costs low for shareholders. Succession planning The Board has continued with the implementation of its succession planning.  Alexander Mettenheimer will be retiring as a director at the conclusion of the annual general meeting to be held later this year.  I would like to take the opportunity to thank Alexander for his many years of service and wise counsel regarding the Company's affairs. Early next year, we will formally review the Board's composition, taking account of the recommendations on diversity and ethnicity, and agree a plan for future appointments to the Board. Annual General Meeting The Company's 32nd Annual General Meeting is due to be held at 12.30pm on Monday, 28 November 2022 at the offices of our investment manager at 201 Bishopsgate, London, EC2M 3AE.  As is our usual practice, voting will take place on a show of hands for those physically present at the meeting.  A copy of the Notice of Meeting has been posted to shareholders with this annual report. Shareholders will have the opportunity to vote on the continuation of the Company at the forthcoming meeting.  The Board believes the Company continues to offer shareholders unique exposure to European smaller companies and fully supports the continuation of the Company. Outlook We warned of the risk of revived inflation in last year's annual report and the Fund Manager was rightly sceptical of the market consensus that any inflation would be 'transitory'.  Markets failed to anticipate the return of war in Europe which has acted as a catalyst to inflationary pressure and badly dented markets. The global energy crisis is a reminder that an enormous capital expenditure cycle is required, both for the creation of a renewable energy green future, but also for the construction of nuclear power stations and improved gas provision that is not dependent upon authoritarian regimes. Much of the inflationary dynamic is due to bottlenecks in supply chains that often look brittle due to their concentrated exposure to China and its 'Zero Covid' policies. It seems likely that European companies will aim to diversify their supply chain risk by investing in Eastern Europe and North Africa to build resilience into their system. All of this should be good for the European smaller companies market which is heavily exposed to the capex required to deliver these agendas. The environment appears ripe for bottom-up fundamental stock picking, with the spread between the most expensive and the cheapest stocks remaining wide. As rising interest rates drive an increase in the cost of capital, the fund management team anticipate the positive attributes of cash generative businesses will be better recognised by the market. We are confident that your Fund Manager's core valuation disciplines will bear fruit in such an environment. Christopher Casey Chairman 4 October 2022

FUND MANAGER'S REPORT Introduction After a strong year to June 2021, the financial year ending June 2022 was relatively disappointing for the Company. The portfolio generated an NAV total return of negative 21.0% compared to the benchmark with negative 17.3% offering a relative underperformance of 3.7%. Rising inflation caused by the enormous monetary and fiscal stimulus throughout the pandemic was exacerbated by supply chain shortages and the energy shock caused by the Russian invasion of Ukraine. The portfolio's cyclical exposure negatively impacted performance as markets became increasingly concerned about a decline in economic growth post-invasion. The second half of the 2021 calendar year saw the market enter a period of extreme multiple expansion, where already very expensive stocks became extraordinarily expensive. Given the 'valuation aware' nature of our investment approach - blending sensibly priced structural growth stocks, undervalued cash generative mature names and self-help turnaround stocks - we struggled to maintain pace with the market. However, our valuation discipline supported performance relative to peers when the market rotated into more value stocks once the prospect of interest rate hikes appeared at the start of 2022. The benefits of the successful vaccine campaign have been partially undermined by the emergence of new variants of Covid, with China's pursuit of 'Zero Covid' causing significant disruption to global supply chains. There is some hope that a policy shift might occur after President Xi Jinping secures a third term later this year. However, Europe's dependency upon Chinese production has uncovered its fragile supply chains which will likely result in a near-shoring drive by European companies. Elsewhere, the Russian invasion of Ukraine exposed the flaws in European energy dependence upon Russian oil and gas. Energy prices have soared since the invasion and there is considerable anxiety about security of supply over the winter. Higher energy prices drive inflation, squeeze margins, and are a direct drag on the consumer - none of which are typically good for stock markets. This has resulted in the sharp underperformance of European markets versus the US and Europe now trades at a significant discount to the US compared to historical levels. We warned last year that the prospect of inflation was not adequately reflected in market prices, though we had not anticipated a war of aggression in Eastern Europe to exacerbate these matters. It is clear now that rates in Europe need to go up, but the market is worried that this may well cause a recession. The portfolio The portfolio strategy is to blend a mix of early-stage growth stocks, with sensibly priced high return structural growth stocks, undervalued cash generative mature names and self-help turnaround stocks. We are careful to explicitly state that we are not a 'value fund' but instead are valuation aware.  As a result of this discipline and our expectation that interest rates needed to rise, we have not added much in the way of early-stage growth names in the period. An exception was made for French-listed NHOA, a fast-growing business in energy storage which is using its positive cash flow profile to expand in e-mobility / electric vehicle charging including a joint venture with Stellantis for the roll out of electric vehicle charging in Italy.  We opened a position in Swiss-listed solar panel manufacturer Meyer Burger which we believe shows strong promise of being the European champion in providing the equipment for solar energy to bring about the European green energy transition and reduce the dependency on Chinese suppliers. We added some sensibly priced high return structural growth stories including the Italian initial public offering of Technoprobe, German-listed Dermapharm and French-listed Ipsos. Technoprobe is the global leader in making probe cards that are used to test the integrity of semiconductors. The ever-decreasing size and ever-increasing complexities of semiconductors makes this a very well positioned company. Dermapharm is a name that we owned in the past but sold on anxieties around valuation when the stocks valuation multiples became very full after the company supplied a key molecule lipid coating to Pfizer/BioNtech for the Covid vaccine. However, the stock has seen a big derating as the market has sold off 'Covid winners' and the shares are back to attractive levels. Ipsos is a global leader in market research and has struggled with perceptions of poor governance in the past, but has a new CEO and appears to be on a pathway to addressing these issues and unlocking the significant valuation discount that it trades on. Within the mature names in the portfolio, we added Swiss-listed ams OSRAM which manufactures sensors and light solutions for the consumer, automotive, healthcare, and industrial sectors. It is a contrarian value play. Momentum in 2022 has been predictably poor due to consumer electronics and automotive exposure. The company is divesting non-core assets and continues to invest in new capacity for future growth drivers such as micro-LED.  We invested in Austrian industrial conglomerate Andritz, where we are seeing a good recovery in its hydro business from turbine sales and a strong increase in after sales from its paper and pulp processing business. We reinvested in German-listed automotive parts and fluid handling product business Norma where we see good potential for automotive recovery and greater need for storm water management and irrigation systems in a heating world. Turnaround names included Belgian-listed cinema operator Kinepolis. The company has had a tough couple of years during the pandemic, but unlike many of its competitors, it is well invested and has a strong slate of films to show in the next 18 months.  We also invested in Swiss-listed manufacturer of packaging machines, BOBST, which is benefiting from the shift away from plastic packaging , and opened a position in Swiss listed u-blox that manufactures 'Internet of Things' wireless communication modules for the automotive, industrial and consumer markets.  Their modules go into a wide variety of connected merchandise from autonomous vehicles to sports trackers for professional footballers. Performance attribution The portfolio is well positioned for the green energy transition and has benefited from exposure to both renewable energy and Liquified Natural Gas (LNG), which we have long viewed as the only sensible way to balance the European electricity grid without being caught in the jaws of the Russian Bear. Our biggest contributing name in the period was LNG carrier vessel owner-operator FLEX LNG. The company's share price rose dramatically after the Russian invasion of Ukraine caused a surge in demand for its ships. We further benefited from our position in French-listed Gaztransport et Technigaz, a company which holds a dominant position in licensing the membranes for the LNG container vessels. Elsewhere, German-listed wind farm developer Energiekontor performed well as did Dutch-listed Fugro, a company that performs seismic surveys of the seabed for laying offshore wind turbine foundations and for the search for oil and gas. The portfolio benefited from its holdings in financials with German lender Aareal Bank being bid for and Irish lender AIB Group performing well. Detractors from performance include German online interior goods and furniture retailer Westwing that has suffered post-Covid when there was a degree of overspend on home furnishings. Danish-listed channel ferry operator DFDS suffered on the back of higher fuel costs and concerns of UK-EU relations, the entry of Irish Continental into the channel ferry market and the consumer's willingness to travel. Subsequently, these concerns have proven to be largely unfounded. Meanwhile, Swiss-listed Montana Aerospace suffered as it faced a profitability squeeze caused by higher energy costs which the company had failed to hedge. Other 'Covid winners' that have hurt the portfolio as they have fallen out of favour this year include meal kit supplier HelloFresh, Swedish mobile gaming company Stillfront and German bike and bike accessory retailer Bike24. Geographical and sector distribution The investment process is fundamentally one of bottom-up stock picking, rather than allocating capital to specific sectors or geographies, although we carefully monitor the overall structure of the portfolio to ensure we avoid risky concentrations. We do not use the benchmark as a guide to structure and are content to run the portfolio with substantial divergence from the benchmark. At a geographical level we remain overweight in Germany, and whilst it is our biggest relative geographic overweight it is now far less extreme than a year ago. This is partly due to reigning in risk surrounding energy costs, but also due to the position in Aareal being largely sold down into the bid. We are also overweight in the Netherlands, where we have added to the portfolio's position in customer experience management firm Majorel (which is still listed in Amsterdam). This is a growing area and we believe the company is well placed to benefit from a structural growth tailwind for many years. We are overweight in Ireland where we have added nutritional product manufacturer Glanbia to the portfolio. We believe the company has a strong ingredients business that is not recognised in its valuation and should benefit from the repricing of whey protein powder that is now underway.  The portfolio remains notably underweight in Switzerland and Sweden where we have struggled to find sensibly price shares in recent years. We are underweight in Norway where the market got rather frothy in 2021. At a sector level, we are overweight in the industrials, financials and consumer discretionary sectors. We are underweight in the health care, real estate and utilities sectors. The consumer discretionary overweight includes housebuilders that partially offset the real estate underweight. The industrials overweight reflects our belief that the supply chain shortages seen in the world over the last two years reflect a chronic lack of investment. This is coupled with a need for a huge investment required to meet the decarbonisation agenda and energy security requirements in Europe in the coming years and decades. It is a sector that we believe is significantly undervalued. Disposals We exited our position in Swiss bottle maker Vetropack as we had growing concerns about whether the business was run as a public company or for the family. Subsequently it became apparent that there were big efforts to focus upon being a proper public company, however the significant earnings contributions of their Ukrainian plant swamped that effect. We exited our position in Irish-listed pharmaceutical, me-tech distributor Uniphar and Swiss-listed online trading platform Swissquote on valuation grounds. Currency The Company is denominated in Sterling, while investing in largely Euro-denominated assets. We do not hedge this currency exposure. Outlook Interest rates have been at extreme lows for a while and we believe that removing negative rates in Europe will be beneficial to the health of the banking sector and credit creation. However, we are anxious that central banks, having lost control of inflation, may overreact by pushing rates too fast into an energy shock. Much of the inflation we are experiencing now is likely to lapse on its own. We do not believe that moderate inflation will remain for the foreseeable future. Therefore, we believe in the coming years that it will remain important to be valuation aware when seeking and evaluating the small cap winners of tomorrow. Ollie Beckett, Rory Stokes and Julia Scheufler 4 October 2022

Geographic exposure at 30 June 2022 (% of portfolio excluding cash)
	2022 %	2021 %
Austria	2.9	0.9
Belgium	4.8	4.9
Denmark	2.4	2.5
Finland	4.6	3.7
France	14.1	12.1
Germany	17.1	24.3
Greece	2.0	1.5
Ireland	4.9	4.4
Italy	8.5	8.1
Malta	1.0	1.5
Netherlands	10.6	7.6
Norway	3.8	3.8
Portugal	1.9	1.5
Spain	6.0	4.2
Sweden	8.8	11.9
Switzerland	6.6	7.1
	100.0	100.0

Sector exposure at 30 June 2022 (% of portfolio excluding cash)
	2022 %	2021 %
Industrials	34.1	33.3
Consumer Discretionary	22.5	25.1
Financials	13.1	12.5
Technology	12.0	11.4
Utilities	5.1	4.4
Consumer Staples	4.1	4.0
Basic Materials	2.1	1.1
Health Care	2.1	3.4
Energy	2.0	2.4
Telecommunications	1.7	1.3
Real Estate	1.2	1.1
	100.0	100.0

MANAGING risks Principal risks Investing, by its nature, carries inherent risk. The Board, with the assistance of the investment manager, carries out a robust assessment of the principal and emerging risks and uncertainties facing the Company which could threaten the business model and future performance, solvency and liquidity of the portfolio. A matrix of these risks, along with the steps taken to mitigate them, is maintained and is kept under regular review. The mitigating measures include a schedule of investment limits and restrictions within which the Fund Manager must operate. Our assessment includes consideration of the possibility of severe market disruption, which this year, focused on the war in Ukraine, following Russia's invasion in February 2022, and the likely impact on global grain and energy supplies, as well as the rate of inflation in Europe, which is at its highest rate since 1983/4. The principal risks which have been identified and the steps we have taken to mitigate these are set out in the table below. We do not consider these risks to have changed during the period, although the underlying causes driving external factors having an influence on the portfolio have moved on since the height of the Covid-19 pandemic. · Investment strategy and objective The investment objective or policy is not appropriate in the prevailing market or sought by investors, leading to a wide discount and hostile shareholders. Poor investment performance over an extended period of time, driven by either external (political, financial shock, pandemic, climate change) or internal factors (poor stock selection), leading to shareholders voting to wind up the Company. The investment manager periodically reviews the Investment Objective and Policy in line with best practice and taking account of investor appetites. The Board receives regular updates on professional and retail investor activity from the investment manager, and reports from the corporate broker, to inform themselves of investor sentiment and how the Company is perceived in the market. The Board considers the Key Performance Indicators ('KPIs') at each meeting and reviews the investment manager's approach to environmental, social and governance matters, as well as its annual impact report.  The Fund Manager incorporates environmental, social and governance considerations in investment selection and maintains a diversified portfolio with a view to spreading risk. · Operational Failure of, disruption to or inadequate service levels provided by principal third-party service providers leading to a loss of shareholder value or reputational damage. The Board engages reputable third-party service providers and formally evaluates their performance, and terms of appointment, at least annually. The Audit Committee assesses the effectiveness of internal controls in place at the Company's key third-party services providers through review of their ISAE 3402 reports, quarterly internal control reports from the investment manager and monthly reporting on compliance with the investment limits and restrictions established by the Board. · Legal and regulatory Loss of investment trust status, breach of the Companies Act 2006, Listing Rules, Prospectus and/or Disclosure Guidance and Transparency Rules or the Alternative Fund Managers Directive and/or legal action brought against the Company and/or directors and/or the investment manager leading to decrease in shareholder value and reputational damage. The Board engages reputable third-party service providers and formally evaluates their performance, and terms of appointment, at least annually. The Audit Committee assesses the effectiveness of internal controls in place at the Company's key third-party service providers through review of their ISAE 3402 reports and, in respect of the investment manager's investment trust operations, reporting from the investment manager's internal audit function. The investment manager's Compliance function has reporting obligations under AIFMD, with any non-compliance being captured in the investment manager's quarterly internal control reporting to the Board. · Financial Market, liquidity and/or credit risk, inappropriate valuation of assets or poor capital management leading to a loss of shareholder value. The Board determines the investment parameters and monitors compliance with these at each meeting. The directors review the portfolio liquidity at each meeting and periodically consider the appropriateness of hedging the portfolio against currency risk. The Board reviews the portfolio valuation at each meeting. Investment transactions are carried out by a large number of approved brokers whose credit standard is periodically reviewed and limits are set on the amount that may be due from any one broker, cash is only held with the depositary/custodian or reputable banks. The Board monitors the broad structure of the Company's capital including the need to buy back or allot ordinary shares and the extent to which revenue in excess of that which is required to be distributed, should be retained. Assessing our viability In keeping with provisions of the Code of Corporate Governance issued by the Association of Investment Companies (the 'AIC Code'), the Board has assessed the prospects of the Company over a period longer than the 12 months required by the going concern provision. We consider the Company's viability over a three-year period as we believe this is a reasonable timeframe reflecting the longer-term investment horizion for the portfolio, but acknowledges the inherent shorter term uncertainties in equity markets. As part of the assessment, we have considered the Company's financial position, as well as its ability to liquidate the portfolio and meet expenses as they fall due. The following aspects formed part of our assessment: · the closed end nature of the Company which continued to be focused on long-term returns and does not need to account for redemptions; · a robust assessment of the principal risks and uncertainties facing the Company which concluded that no materially adverse issues had been identified; · the nature of the portfolio remained diverse and comprised a wide range of stocks which are traded on major international exchanges meaning that, in normal market conditions, three quarters of the portfolio could be liquidated in ten days; · the level of the Company's revenue reserves and banking facility; · the expenses incurred by the Company, which are predictable and modest in comparison with the assets and the fact that there are no capital commitments currently foreseen which would alter that position; and · the next continuation vote for the Company which will take place at the annual general meeting in 2022 and its performance against objectives leading up to this. As a matter of routine business, shareholders have the opportunity to wind up the Company every three years. A resolution to this effect will be put to shareholders at the forthcoming annual general meeting. In the past, this resolution has readily passed with the support of the majority of shareholders. The Board supports the continuation of the Company as it offers investors a unique exposure to small and medium sized European companies and has a reasonable expectation that similar resolutions will attract shareholder support in future. However, if such a resolution was not passed, the directors would follow the provisions in the Company's articles relating to the winding up of the assets. Based on the results of the viability assessment, we have a reasonable expectation that the Company will be able to continue its operations and meet its expenses and liabilities as they fall due for our assessment period of three years. We will revisit this assessment annually and provide shareholders with an update on our view in the annual report. Related party transactions The Company's transactions with related parties in the year were with the directors and the investment manager. There have been no material transactions between the Company and its directors during the year. The only amounts paid to them were in respect of remuneration and expenses for which there were no outstanding amounts payable at the year end. As a matter of operational efficiency, the Company has replaced its benchmark, the Euromoney Smaller European Companies (ex UK) Index with the MSCI Europe Small Cap ex UK Index. The change become effective on 1 July 2022. This change in the benchmark index will have an indirect impact on the Company's investment policy, which is managed by reference to the benchmark, and performance fees payable by the Company to the investment manager, as such fees are determined based on performance relative to the benchmark. The Company and the investment manager have entered into an agreement to reflect the change in the benchmark in connection with the calculation of the performance fee with effect from 1 July 2022. The performance relative to the benchmark for years prior to 1 July 2022 for the purposes of the calculation of any performance fees (which is calculated on a three-year rolling basis), remains unchanged and will continue to be calculated relative to the Euromoney Smaller European Companies (ex UK) Index. In relation to the provision of services by the investment manager, other than fees payable by the Company in the ordinary course of business and the provision of marketing activities, there have been no material transactions affecting the financial position of the Company during the year under review. Directors' responsibility STATEMENTS Each of the directors confirms that, to the best of his or her knowledge: · the financial statements prepared in accordance with UK Adopted International Accounting Standards give a true and fair view of the assets, liabilities, financial position and profit and loss of the issuer and the undertakings included in the financial statements as a whole; and · the Strategic Report includes 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. For and on behalf of the Board Daniel Burgess Chairman of the Audit Committee 4 October 2022

Statement of Comprehensive Income

	Year ended 30 June 2022			Year ended 30 June 2021
	Revenue return £'000	Capital return  £'000	Total return £'000	Revenue return £'000	Capital return  '000	Total return £'000
Investment income	25,231	-	25,231	13,475	-	13,475
(Loss)/gains on investments held at fair value through profit or loss	-	(185,662)	(185,662)	-	326,600	326,600
	---------	----------	-----------	---------	----------	-----------
Total income	25,231	(185,662)	(160,431)	13,475	326,600	340,075
Expenses
Management and performance fee	(844)	(8,906)	(9,750)	(826)	(7,853)	(8,679)
Other operating expenses	(830)	-	(830)	(720)	-	(720)
	---------	----------	----------	---------	----------	----------
Profit/(loss) before finance costs and taxation	23,557	(194,568)	(171,011)	11,929	318,747	330,676
Finance costs	(194)	(775)	(969)	(155)	(620)	(775)
	---------	--------	---------	---------	--------	---------
Profit/(loss) before taxation	23,363	(195,343)	(171,980)	11,774	318,127	329,901
Taxation	(2,660)	(72)	(2,732)	(1,384)	-	(1,384)
	---------	---------	----------	---------	---------	----------
Profit/(loss) for the year and total comprehensive income	20,703	(195,415)	(174,712)	10,390	318,127	328,517
	======	=======	=======	======	=======	=======
Return per ordinary share - basic and diluted1	5.16p	(48.75p)	(43.59p)	2.59p	79.36p	81.95p
	======	========	=======	======	========	=======
The total column of this statement represents the Statement of Comprehensive Income, prepared in accordance with UK adopted International Accounting Standards. 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 this statement derive from continuing operations. The accompanying notes are an integral part of the Financial Statements. 1 Comparative figures for the year ended 30 June 2021 have been restated due to the sub division of each ordinary share of 12.5p into 8 ordinary shares of 1.5625p each on 13 December 2021

Statement of Changes in Equity

	Year ended 30 June 2022
	Called up share capital £'000	Share premium account £'000	Capital redemption reserve £'000	Other capital reserves £'000	Revenue reserve £'000	Total £'000
Total equity at 1 July 2021	6,264	120,364	13,964	676,886	23,189	840,667
Total comprehensive income:
(Loss)/Profit for the year	-	-	-	(195,415)	20,703	(174,712)
Costs relating to sub-division of shares	-	-	-	(62)	-	(62)
Ordinary dividends paid	-	-	-	-	(13,429)	(13,429)
	---------	----------	---------	----------	---------	----------
Total equity at 30 June 2022	6,264	120,364	13,964	481,409	30,463	652,464
	=====	======	=====	======	=====	======

	Year ended 30 June 2021
	Called up share capital £'000	Share premium account £'000	Capital redemption reserve £'000	Other capital reserves £'000	Revenue reserve £'000	Total £'000
Total equity at 1 July 2020	6,264	120,364	13,964	358,759	24,023	523,374
Total comprehensive income:
Profit for the year	-	-	-	318,127	10,390	328,517
Ordinary dividends paid	-	-	-	-	(11,224)	(11,224)
	---------	----------	---------	----------	---------	----------
Total equity at 30 June 2021	6,264	120,364	13,964	676,886	23,189	840,667
	=====	======	=====	======	=====	======

Balance Sheet

	At 30 June 2022  £'000	At 30 June 2021  £'000
Non current assets
Investments held at fair value through profit or loss	725,441	933,499
	-----------	-----------
Current assets
Receivables	6,986	3,412
Cash and cash equivalents	11	-
	----------	----------
	6,997	3,412
	-----------	-----------
Total assets	732,438	936,911
	-----------	-----------
Current liabilities
Payables	(11,155)	(7,154)
Bank overdrafts	(68,819)	(89,099)
	------------	------------
	(79,974)	(96,244)
	------------	------------
Net assets	652,464	840,667
	=======	=======
Equity attributable to equity shareholders
Called up share capital	6,264	6,264
Share premium account	120,364	120,364
Capital redemption reserve	13,964	13,964
Retained earnings:
Other capital reserves	481,409	676,886
Revenue reserve	30,463	23,189
	------------	------------
Total equity	652,464	840,667
	=======	=======
Net asset value per ordinary share - basic and diluted 1	162.76p	209.71p
	========	========
1 Comparative figures for the year ended 30 June 2021 have been restated due to the sub division of each ordinary share of 12.5p into 8 ordinary shares of 1.5625p each on 13 December 2021

Cash Flow Statement

	Year ended 30 June 2022  '000	Year ended 30 June 2021  '000
Operating activities
(Loss)/profit before taxation	(171,980)	329,901
Add back: interest payable	969	775
Add back/(less): Losses/(gains) on investments held at fair value through profit or loss	185,662	(326,600)
Sales of investments held at fair value through profit or loss	317,888	458,813
Purchases of investments held at fair value through profit or loss	(295,427)	(495,971)
Withholding tax on dividends deducted at source	(3,691)	(2,116)
Costs relating to sub-division of shares	(62)
(Increase)/decrease in prepayments and accrued income	(320)	295
(Increase)/decrease in amounts due from brokers	(2,426)	1,287
Increase in accruals and deferred income	2,910	5,415
Increase/(decrease) in amounts due to brokers	1,100	(4,211)
	----------	----------
Net cash inflow/(outflow) operating activities before interest and taxation1	(34,649)	(32,412)
	----------	----------
Interest paid	(969)	(775)
Taxation recovered	167	144
	----------	----------
Net cash inflow/(outflow) from operating activities	33,847	(33,043)
	----------	----------
Financing activities
Equity dividends paid (net of refund of unclaimed dividends - see note 8)	(13,429)	(11,224)
Costs relating to sub-division of shares	(62)	-
Net (repayment)/drawdown of bank overdraft	(20,345)	44,210
	-----------	----------
Net cash (used in)/raised from financing activities	(33,836)	32,939
	-----------	----------
Increase/(decrease) in cash and cash equivalents	11	(57)
Cash and cash equivalents at the start of the year	-	57
	-----------	----------
Cash and cash equivalents at the end of the year	11	-
Comprising:
Cash at bank	11	-
	----------	----------
	11	-
	======	======
1.  In accordance with IAS7.31 cash inflow from dividends was £24,892,000 (2021: £7,280,000) and cash inflow from interest was £nil (2021: £nil).

Notes to the Financial Statements 

1.  Accounting policies Basis of preparation The European Smaller Companies Trust PLC is a Company incorporated and domiciled in the United Kingdom under the Companies Act 2006. The Company undertook an 8:1 share split which became effective on 13 December 2021 and changed its name from TR European Growth Trust PLC on 17 January 2022. The Company financial statements for the year ended 30 June 2022 have been prepared in accordance with UK adopted International Accounting Standards. These comprise standards and interpretations approved by the International Accounting Standards Board ('IASB'), together with interpretations of the International Accounting Standards and Standing Interpretations Committee approved by the IFRS Interpretations Committee ('IFRS IC') that remain in effect, to the extent that IFRSs have been adopted by the UK Endorsement Board. The financial statements have been prepared on a going concern basis. They have also been prepared on the historical cost basis, except for the revaluation of certain financial instruments at fair value through profit and loss. The principal accounting policies adopted are set out below. Where presentational guidance set out in the Statement of Recommended Practice ('SORP') for investment companies issued by the Association of Investment Companies ('AIC') in April 2021, is consistent with the requirements of UK adopted International Accounting Standards, the directors have sought to prepare the financial statements on a basis consistent with the recommendations of the SORP. The assets of the Company consist mainly of securities that are listed and readily realisable and, accordingly, the Directors believe that the Company has adequate financial resources to continue in operational existence for at least twelve months from the date of approval of the financial statements. Having assessed these factors, the principal risks and other matters discussed in connection with the viability statement, the directors have decided that it is appropriate for the financial statements to be prepared on a going concern basis.
2.  Management and performance fees
2022 2021 Revenue  return  '000 Capital  return  '000 Total  return  '000 Revenue  return  '000 Capital  return  '000 Total  return  '000 Management fee 844 3,375 4,219 826 3,304 4,130 Performance fee - 5,531 5,531 - 4,549 4,549 ----- -------- -------- ----- -------- -------- Total 844 8,906 9,750 826 7,853 8,679 === ===== ===== === ===== =====
3.  Return per ordinary share The return per ordinary share figure is based on the net loss for the year of £174,712,000 (2021 gain: £328,517,000) and on the weighted average number of ordinary shares in issue during the year of 400,867,176 (2021: 400,867,1761). The return per ordinary share figure detailed above can be further analysed between revenue and capital, as below. The Company has no securities in issue that could dilute the return per ordinary share. Therefore the basic and diluted return per ordinary share are the same.
	2022 £'000	2021 £'000
Net revenue profit	20,703	10,390
Net capital (loss)/profit	(195,415)	318,127
	------------	------------
Net (loss)/profit	(174,712)	328,517
	=======	=======
Weighted average number of ordinary shares in issue during the year	400,867,176	400,867,1761
	2022 Pence	2021 Pence
Revenue return per ordinary share	5.16	2.591
Capital return per ordinary share	(48.75)	79.361
	-----------	-----------
Total return per ordinary share	(43.59)	81.951
	======	======
1 Comparative figures for the year ended 30 June 2021 have been restated due to the sub-division of each ordinary share of 12.5p into 8 ordinary shares of 1.5625p each on 13 December 2021
4.  Net asset value per ordinary share The NAV per ordinary share is based on the net assets attributable to the ordinary shares of £652,464,000 (2021: £840,667,000) and on the 400,867,176 ordinary shares in issue at 30 June 2022 (2021: 400,867,1761). The Company has no securities in issue that could dilute the NAV per ordinary share (2021: same). The NAV per ordinary share at 30 June 2022 was 162.76p (2021: 209.71p1).
The movements during the year in assets attributable to the ordinary shares were as follows:
	2022 £'000		2021 £'000
Net assets attributable to ordinary shares at start of year	840,667		523,374
(Loss)/profit for the year	(174,712)		328,517
Dividends paid in the year	(13,429)		(11,224)
Costs relating to sub-division of shares	(62)		-
	------------		------------
Net assets at 30 June	652,464		840,667
	=======		=======
5.  Dividends 2022 £'000 2021 £'000 Amounts recognised as distributions to equity holders in the year: Final dividend of 2.10p1 for the year ended 30 June 2021 (2020: 1.78p1) 8,418 7,115 Interim dividend of 1.25p per ordinary share for the year ended 30 June 2022 (2021: 1.03p1) 5,011 4,109 --------- --------- 13,429 11,224 ===== ===== The final dividend of 2.10p1 per ordinary share in respect of the year ended 30 June 2021 was paid on 3 December 2021 to shareholders on the Register of Members at the close of business on 22 October 2021. The total dividend paid amounted to £7,115,000. Subject to approval at the annual general meeting in November 2022, the proposed final dividend of 3.10p per ordinary share will be paid on 2 December 2022 to shareholders on the Register of Members at the close of business on 21 October 2022. The shares will be quoted ex-dividend on 20 October 2022. The proposed final dividend for the year ended 30 June 2022 has not been included as a liability in these financial statements. Under UK adopted International Accounting Standards, these dividends are not recognised until approved by shareholders. The total dividends payable in respect of the financial year which form the basis of the test under s.1158 are set out below:
2022 £'000 2021 £'000 Revenue available for distribution by way of dividends for the year 20,703 10,390 Interim dividend of 1.25p per ordinary share for the year ended 30 June 2022 (2021: 1.03p1) (5,011) (4,109) Proposed final dividend for the year ended 30 June 2022 - 3.10p (2021: 2.10p1) (based on 400,867,176 shares in issue at 4 October 2022) (12,427) (8,418) ---------- ---------- Revenue surplus   3,265 (2,137) ====== ======
The Company's undistributed revenue represents 12.9% (2021: no undistributed income) of total income. 1 Comparative figures for the years ended 30 June 2021 have been restated due to the sub-division of each ordinary share of 12.5p into 8 ordinary shares of 1.5625p each on 13 December 2021
6.  Called up share capital 2022 2021 number of shares £'000 number of shares £'000 Allotted, issued and fully paid Ordinary shares of 1.5615p 400,867,176 6,264 400,867,176 6,264 During the year no ordinary shares were issued (2021: no share issues) for proceeds of £nil (2021: nil). In the current year to date and prior financial year, the Company has not repurchased any shares for cancellation. The Company completed an 8 for 1 share split to enable the Company to attract retail shareholders to the register.  The 2021 amounts have been restated.
7.  2022 Financial information The figures and financial information for the year ended 30 June 2022 are extracted from the Company's annual financial statements for that period and do not constitute statutory accounts. The Company's annual financial statements for the year to 30 June 2022 have been audited but have not yet been delivered to the Registrar of Companies. The Independent Auditors' Report on the 2022 annual financial statements was unqualified, did not include a reference to any matter to which the auditors drew attention without qualifying the report, and did not contain any statements under Sections 498(2) or 498(3) of the Companies Act 2006 . 8. 2021 Financial information The figures and financial information for the year ended 30 June 2021 are compiled from an extract of the published financial statements for that year and do not constitute statutory accounts. Those financial statements have been delivered to the Registrar of Companies and included the Independent Auditor's Report which was unqualified, did not include a reference to any matter to which the auditors drew attention without qualifying the report, and did not contain any statements under Sections 498(2) or 498(3) of the Companies Act 2006
9. Annual Report The annual report will be posted to shareholders in October 2022 and will be available on the Company's website ( www.europeansmallercompaniestrust.com ).
10. Annual General Meeting The annual general meeting will be held on Monday 28 November 2022 at 12.30pm at 201 Bishopsgate, London, EC2M 3AE. The Notice of Meeting will be sent to shareholders with the annual report.
11. General information Company Status The European Smaller Companies Trust PLC is registered in England and Wales, No. 2520734, has its registered office at 201 Bishopsgate, London EC2M 3AE and is listed on the London Stock Exchange.  SEDOL/ISIN:  BMCF868/GB00BMCF8689 London Stock Exchange (TIDM) code:  ESCT Global Intermediary Identification Number (GIIN):  JX9KYH.99999.SL.826 Legal Entity Identifier (LEI):  213800N1B1HCQG2W4V90 Directors and Secretary The directors of the Company are Christopher Casey (Chairman), Daniel Burgess (Chairman of the Audit Committee), Ann Grevelius, Simona Heidempergher and Alexander Mettenheimer.  The Corporate Secretary is Janus Henderson Secretarial Services UK Limited. Website Details of the Company's share price and net asset value, together with general information about the Company, monthly factsheets and data, copies of announcements, reports and details of general meetings can be found at www.europeansmallercompaniestrust.com .

For further information please contact:
Ollie Beckett Fund Manager The European Smaller Companies Trust PLC Telephone: [phone]
Dan Howe Head of Investment Trusts Janus Henderson Investors Telephone: [phone]	Harriet Hall PR Manager Janus Henderson Investors Telephone: [phone]

Neither the contents of the Company's website nor the contents of any website accessible from hyperlinks on the Company's website (or any other website) is incorporated into, or forms part of, this announcement.

 

END

 

 

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