10 Oct 2016 17:37
TR EUROPEAN GROWTH TRUST PLC
Annual Financial Report for the year ended 30 June 2016
This announcement contains regulated information
Investment objective
To achieve capital growth by investing predominantly in smaller and medium sized companies in Europe (excluding the UK).
Performance highlights
• The net asset value ("NAV") total return1 (including dividends reinvested) was 13.6% compared to a total return from the benchmark index2 of 14.2%.
• The share price3 total return (including dividends reinvested) was 1.0%.
• Increased proposed annual dividend: final and special dividends of 9.00p and 2.50p per ordinary share respectively (2015: 7.00p and 2.50p respectively).
• The discount4 increased from 7.6% to 18.0%.
Total return performance for the year to 30 June 2016 (including dividends reinvested and excluding transaction costs) | |||||
| 1 year % | 3 years % | 5 years % | 10 years % | Since launch5 % |
NAV1 | 13.6 | 60.7 | 55.1 | 102.1 | 1,933.8 |
Benchmark index2 | 14.2 | 44.2 | 41.0 | 103.4 | 1,528.6 |
Average sector6 NAV | 16.0 | 50.3 | 57.0 | 125.4 | 1,917.3 |
Share price3 | 1.0 | 59.3 | 57.5 | 93.6 | 1,689.6 |
Average sector share price7 | 3.2 | 45.4 | 57.9 | 121.6 | 1,713.4 |
Financial highlights
| At 30 June 2016 | At 30 June 2015 |
Shareholders' funds |
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Net assets (£'000) | 377,683 | 337,645 |
NAV | 755.73p | 675.62p |
Share price | 620.00p | 624.00p |
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Year ended 30 June 2016 | Year ended 30 June 2015 | |
Total return to equity shareholders |
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Net revenue profit (£'000) Net capital profit (£'000) | 6,739 38,043 | 5,669 10,896 |
| ----------- | ----------- |
| 44,782 | 16,565 |
| ====== | ====== |
Total return per ordinary share |
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Revenue | 13.48p | 11.34p |
Capital | 76.12p | 21.80p |
| ----------- | ----------- |
| 89.60p | 33.14p |
| ====== | ====== |
Ongoing charge8 | 0.79% | 0.78% |
1 Net asset value per share total return (including dividends reinvested). This is based on preliminary estimates made by the AIC, which is the industry recognised source for performance data, and does not reflect any subsequent change in the year end NAVs reflected in this report
2 Euromoney European Smaller Companies Index (ex UK) expressed in sterling
3 Share price total return using mid-market closing price
4 Calculated using published daily NAVs including current year revenue
5 Calculated from the end of September 1990 (the Company commenced business on 6 September 1990)
6 The sector is the AIC European Smaller Companies sector
7 Average share price for the AIC European Smaller Companies Sector
8 The ongoing charge excludes the performance fee. The charge including the performance fee would have been 1.20% (2015: 1.34%)
Sources: Henderson, Morningstar for the AIC, Datastream
Chairman's Statement
Performance
Over the year to 30 June 2016 our net asset value per share total return was 13.6% compared to a total return for our benchmark of 14.2%. The share price total return for the period was 1%. This is a credible return in what has been a turbulent year for European markets.
Over the three year qualifying period for the performance fee, the Company has delivered a net asset value per share total return of 60.7% against a benchmark of 44.2%, and share price total return of 59.3%. As a consequence of the outperformance over the three year qualifying period we will be paying a performance fee to Henderson for the year of £1,389,000 (2015: £1,759,000). This is equal to 0.4% of net assets as at 30 June 2016 (2015: 0.5%).
Revenue and dividends
Revenue return per share was 13.48p (2015: 11.34p), a rise of 18.9%.
The Board aims to make progressive and steady increases in annual dividend payments. Shareholders must, however, recognise that such increases can never be guaranteed, and that circumstances may arise when it is necessary to reduce a dividend payment. Equally, there may be instances when the level of payment must be increased in order to comply with Section 1158 of the Corporation Tax Act in respect of the retention of distributable income. Where such instances would result in a payment going beyond the Board's aim, one-off "special dividend" payments are declared.
We are proposing, subject to shareholder approval at our annual general meeting, a final dividend per ordinary share of 9.00p, an increase of 28.6% over last year's final dividend of 7.00p. We are also proposing a special dividend of 2.50p per ordinary share, making a total dividend of 11.50p. This represents an overall increase of 21% in the dividends paid last year.
Annual general meeting ("AGM")
Shareholders are encouraged to attend the AGM on Monday 21 November 2016 at 201 Bishopsgate, London, EC2M 3AE. The meeting will start at 12.30pm, will include a presentation by Ollie Beckett and will be followed by an opportunity for shareholders to meet the Board and management team. The Notice of the Meeting and full details of the resolutions to be proposed are included in a separate document which will be posted to shareholders with the Annual Report. The Directors recommend that shareholders vote in favour of all of the proposed resolutions as they intend to do in respect of their own beneficial holdings.
The Company's AGM will be broadcast live on the internet. If you are unable to attend in person you can watch the meeting as it happens by visiting www.henderson.com/trustslive.
Continuation vote
In keeping with the Company's provisions in the Articles of Association regarding the duration of the Company, the continuation vote will, as a matter of course, be put to shareholders at the upcoming AGM. This was last considered in 2013 and, as we did on the last occasion, the Board recommends that shareholders vote in favour of the resolution.
The Company continues to deliver returns over the medium to long term as demonstrated by the performance record over the three year period mentioned earlier and the growth in the dividend over the five year period of 9.2% compared with the sector average of 5.3%. Given the unpredictability of the markets in recent years, we consider this a solid performance and one justifying shareholders' support for continuing the operations of the Company.
Outlook
Another year of crisis, another reasonable year for European equity markets. Not least in the smaller company arena. Despite the headlines the global economy remains robust and this economic environment should be beneficial to our Company, which continues to be exposed to companies with a relatively small market capitalisation that are generally the beneficiaries of a benign global economic backdrop.
Clarity around the UK relationship with Europe would be a help, but no doubt there will continue to be politically driven areas of concern that the market will focus on. However, the suggestion of more expansionary fiscal policy in much of the world should be helpful and should drive global growth. Our fund managers will continue to focus on finding under valued stocks, with one eye on the macro economic development. We are optimistic there continues to be substantial investment opportunity in Europe for them to take advantage of in order to deliver good returns to shareholders.
Audley Twiston-Davies
Chairman
10 October 2016
Fund Managers' report
Introduction
The year to June 2016 has been another event filled period of time, which started with fears of a Greek exit from the EU and culminated in an unexpected British vote to exit. In the intervening period the oil price halved and then doubled, the Federal Reserve raised interest rates for the first time since the global financial crisis, worries about the Chinese economy resurfaced then subsided, Europe experienced a migration crisis exacerbated by Russian intervention in Syria, France suffered horrific terrorism and the political fringes saw a surge in support across much of Europe. With that backdrop it is perhaps surprising that the Company's NAV should increase 13.6% in the year, slightly lagging the benchmark up 14.2%.
The Company suffered over 2% relative to the benchmark from the day after the UK referendum to the end of the financial year as a result of being incorrectly positioned.
Despite the long list of things to worry about, the European economy continues to grow, as loose monetary policy combines with resilience in the global economy to help the recovery endure. As long as the US and Chinese economies stay solid then this should persist, though European politics, instability in the Middle East and conceivably further rate rises in the US all might provoke bouts of volatility in markets.
In a world where interest rates in countries such as Germany and Switzerland are negative, the value in the equity market continues to appeal, especially in European smaller companies which is where the value and the growth reside.
The Portfolio
Portfolio positioning
We have focused on looking for stock specific ideas with valuation discrepancies where companies can either deliver substantial growth or can help improve the profitability of the business through self-help. For instance we have bought a position in a Dutch wealth manager, Van Lanschot, that has had a stock overhang removed and stands to benefit from tackling an inflated cost base that will allow for an improvement in return on equity and hopefully a rerating of a very cheap stock. We have also added to our holding in Criteo, the French technology company that dominates the market in retargeting display advertising on the internet. The company grew sales by 33% in 2015 and is set to do the same again in 2016. As the company grows the topline faster than costs the margins should expand and the earnings grow even faster than sales.
Performance attribution
The Company's performance suffered in the wake of the UK referendum result for leaving the European Union as a consequence of being geared and a number of stocks being perceived to be "Brexit stocks" such as Irish hotel company Dalata, Irish agronomy services provider Origin Enterprises, Danish listed English Channel ferry company DFDS and Nobia owner of UK kitchen retailer Magnet. All these companies either have substantial UK revenues or have a dependency upon British customers.
Overall the performance of the Company over the course of the year was characterised by a handful of successful investments being offset by a handful of poorly performing ones and the failure to own a group of strongly performing momentum stocks. The Company benefited from strong performance in: Finnish online retailer Verkkokauppa.com, Finland's answer to Amazon; Danish ferry company DFDS that saw off Eurotunnel's ferry business and then delivered a series of earnings upgrades; and Carl Zeiss Meditec, the German maker of ophthalmology equipment on new product releases and earnings forecast upgrades. The Company also benefited from a number of bids for companies it was invested in, for example French rail equipment company Faiveley, Swiss travel and visa processing business Kuoni, Swiss airline catering business Gategroup, French mobile gaming company Gameloft and French retailer Darty.
However, performance was burdened by investments in stocks such as Italian eyewear manufacturer, Safilo, where it has proved far harder to turn the business around than we expected following the loss of the Gucci license. Another noticeably poor performer was car hire business Europcar which has suffered a derating as the US listed car hire businesses such as Hertz and Avis have underperformed due to overcapacity, despite this not being an issue in Europe and despite a very different business model. Terrorism attacks in France have also weighed on sentiment. Finnish mining equipment and service company, Outotec, also hurt performance as
cuts to capex budgets in the mining industry were more severe than we anticipated.
The Company also saw performance relative to the benchmark challenged by not owning certain stocks that performed very strongly in the year to June 2016. The market was characterised by a focus on momentum rather than valuation and certain stocks such as commercial steam over manufacturer Rational, Danish pharmaceutical H Lundbeck or Irish bookmaker Paddy Power Betfair had valuations that were too steep for us, but performed well despite this due to earnings and price momentum. We also were not invested in video game company Ubisoft that has had bid speculation surround it.
Whilst we don't dismiss the importance of earnings momentum, we manage the Company with a keen eye on valuation - both of cash flow and of growth - and this will continue to be the case.
Geographical and Sector Distribution
We remain dedicated to making stock selection on a bottom-up basis, rather than allocating capital to specific countries or sectors. We don't use the benchmark as a guide to portfolio structure and are happy running country and sector weightings that are substantially different from the benchmark, though we pay careful attention to the shape of the portfolio and any concentrated risks that might build up. The portfolio continues to be heavily overweight in Germany as we still find terrific companies, earning good returns with good growth or appealing valuations there. For instance, we have built a position in SLM Solutions a leading company in the manufacturing of 3D printers, machines that can build complex parts for industries such as aerospace or medical implants. The company grew sales 97% in 2015 and has considerable growth to come. The Netherlands has become our second largest overweight geographic exposure largely from stock specific opportunities we have found such as the investments in Van Lanschot or electromagnetic component manufacturer Kendrion. We also participated in IPOs of Dutch insurer ASR and offshore wind turbine foundation manufacturer SIF. Ireland also remains a noticeable geographic overweight, though we are keeping a close eye on this in the light of the uncertainty associated with the UK referendum result.
The substantial overweight position in Switzerland has been reducing for a couple of years and is now broadly representative of the benchmark as we exited positions such as Burckhardt Compression, maker of compressors for the oil & gas industry, poorly performing private bank EFG and accepted bids for Kuoni and Gategroup.
The portfolio is underweight Sweden and Spain where we struggle to find many stocks with alluring valuations.
The sector exposure of the portfolio continues to be heavily overweight industrials and information technology. The industrial exposure does leave the portfolio with a pro-cyclical bias, but the aim of the stock selection is to find companies that are growing in a secular fashion or are improving the quality of the business through self-help. For instance we added a position in VAT Group, a Swiss company that is the dominant supplier of valves for vacuum pumps globally, which are crucial in the production of semiconductors, a sector that whilst cyclical is a source of growth in a low growth world. Conversely, we added a position in Swiss ventilation system and radiator business Zehnder as management have attacked the cost base after a number of years of complacency about recovery being the solution to the margin compression in the business. If cyclical recovery comes it will be a bonus on the self-help being delivered. Information technology is likely to persist as an overweight for the foreseeable future as it is a growth sector. We built a position in German IT business S&T which provides smart meters, security software and IT services, all areas that are showing good growth.
Other Purchases
Substantial purchases in the year include buying back into Valmet, the Finnish provider of technology, automation and services to the pulp, paper, energy and process industries. Management have done a super job improving margins and return on capital, and we believe there is still much more to be done. We also built a position in sporting good company Puma, as the turnaround of this underperforming brand has begun to take shape. Swedish global leader in bike racks and cargo carriers, Thule, is also a position we have built up as the company earns good returns and is benefiting from the ongoing trend to outdoor pursuits. We also built positions in French floor covering company Tarkett and Austrian manufacturer of non-woven fabric machines Lenzing.
Other Disposals
We fully exited our positions in German media company Ströer after valuation became very stretched, though we have recently bought back into the stock after a substantial derating. We also took profits in Spanish pulp producer Ence and Portuguese cable company NOS.
Brexit
The Company does not normally invest directly in UK listed businesses, however a number of stocks within the portfolio do have substantial sales in the UK. The swift reorganisation of British politics following the result is helpful, but we anticipate that the uncertainty caused by the UK referendum will persist for some time to come and may result in a slowdown in the UK and continental Europe that affects some of the portfolio holdings. We will monitor the situation actively.
Gearing
Gearing levels varied between 4.2% and 15.6% and was at 9.5% at the end of the financial year. It should be noted that 4.1% of the portfolio is in unquoted investments. We used the debt facility to maintain flexibility and freedom of action over the year as opportunities arose, rather than raising cash by selling assets quickly at bad prices. The gearing also offers the potential to enhance returns.
Market capitalisation range
We have continued to focus the portfolio towards small and medium sized companies, with a weighted average market capitalisation of £861m as of 30 June 2016. The largest company in the portfolio was Imerys at £3.8bn and the smallest was Robit at £77m.
Unquoted investments
The Company continues to have three legacy unquoted investments. Brainlab is a global leader in software for high precision radiotherapy and image-guided surgery. This is a good asset for which we continue to seek fair value. We continue to maintain an extensive dialogue with management and have encouraged interest in the company from certain investment banks. We are also invested in a French private equity fund 21 Centrale Partners III. This is now in payback mode and will gradually decline in importance for the Company. The small holding in Doughty Hanson & Co. Fund III has been retained.
The unquoted holdings as at 30 June 2016 were:
| Value £'000 | % of Portfolio |
Brainlab | 13,134 | 3.2 |
21 Centrale Partners III | 2,487 | 0.6 |
Doughty Hanson & Co. Fund III LP9 | 1,388 | 0.3 |
| 17,009 | 4.1 |
These are good quality assets; however, going forward we will not be seeking unquoted opportunities.
Outlook
As stated, we have lurched from one "crisis" to another in the last financial year. It began with the Chinese yuan currency devaluation, then moved on to concerns about junk debt in the energy sector, January's global growth scare, June's UK referendum and now fears of Italian banking non-performing loans (NPLs). So far, all these predicted catastrophes for the global stock markets have fallen short. In a world of competing 24-hour news channels we all need to learn to live with the never-ending drama of "breaking news".
A backdrop of uncertainty and muted global economic growth has meant investors have sought the comfort blanket of so-called "high quality reliable growth" companies. Investors have paid ever-higher prices for consumer staples and medical technology companies, despite limited growth. We will continue to seek investments where we believe the companies are undervalued and where we think the market is not reflecting their potential. We will not assume ever-lower discount rates (the minimum interest rate set by the ECB in Europe), predicated on the hope that inflation never returns. We will be "valuation aware".
Our portfolio does however contain a lot of high structural growth, where we think the valuations are attractive. We are very enthusiastic about the growth prospects of Criteo, the online advertising optimisation company, online retailer Yoox, Net-A-Porter in luxury and Showroomprive in flash sales, as well as the hugely exciting SLM Solutions, with its additive manufacturing machines. We will continue to add companies that we think can be the large capitalisation companies of the future. Since our year end, we have added Ion Beam Applications, the Belgian company that is leading the way in proton therapy for the treatment of cancer.
The most recent crisis has been the UK referendum, where the majority chose to leave the European Union. It is far too early to tell what the impact of that historic event will have on our area of investment, Continental Europe. The UK Prime Minister says "Brexit means Brexit" but we do not yet know what this means. The UK economy is slowing, but how prolonged and deep will that slowdown be? We continue to hold companies like Nobia (kitchen specialist), Dalata (Irish hotels) and BAM (Anglo-Dutch construction). These are firms with UK exposure, where we believe an overly pessimistic scenario has been factored in. We will continue to have a watching brief on the UK and its impact on the European economy.
We will also have to see what the political impact of Brexit will be on the European Union. We do not think it will lead to the collapse of the European Union, as many suggested leading up to the vote on 23 June. It may lead to even closer ties amongst many European nations. Certainly the status quo does not seem viable, particularly once some of the key political figures leave the stage. A new European Union will emerge in the coming years.
A key question with very serious investment implications is - are we nearing the end of the era of quantative easing? Arguably, it saved the day in the dark days post the financial crisis. Yet it has not really delivered sustained economic growth. It has led to corporate underinvestment and investors scavenging for yield with ever-increasing desperation. This is unlikely to unwind quickly and we will continue to own companies like Nexity (French housebuilder) that can grow and deliver healthy income. However, again, we will not overpay for yield. It is a very crowded trade, (with a lot of interest from other investors). This Company is primarily about providing capital growth.
It is looking increasingly likely that governments around the world will turn to fiscal policy with higher government spending and lower taxes to try and deliver that elusive sustained economic growth. Europe is unlikely to lead the way, but there are European companies that can benefit from this transition, such as cabling manufacturer Nexans.
Despite the global news flow the two economic superpowers, the United States and China, are showing improving economic data. If this continues, then global GDP will grow. Ultimately, the European smaller companies investment space has historically been a leveraged play on that global growth. If the strong Chinese economy persists then the German Mittelstand will benefit. There is a risk that the US economy slows into the Presidential election in early November, as the electorate becomes fixated by the strange reality show before them. That aside, we do not think the global economic outlook is as gloomy as many portend.
Numerous investors seem to have given up on European equities, having been ground down by political news flow and terrorist attacks. Now is not the time to run away. We see a lot of interesting value opportunities outside the crowded trades of "quality growth" and "yield". We are confident we can seek out many of those opportunities to deliver healthy returns for our investors in the year ahead.
Ollie Beckett and Rory Stokes
Henderson Investment Funds Limited
10 October 2016
Sector exposure (% of portfolio excluding cash)
| 30 June 2016 | 30 June 2015 |
Industrial goods | 20.6 | 24.8 |
Technology | 17.0 | 15.9 |
Business Providers | 15.1 | 12.9 |
Financial | 14.4 | 14.6 |
Basic Materials | 12.8 | 13.5 |
Consumer Goods | 12.5 | 10.6 |
Retail Providers | 7.1 | 7.2 |
Natural Resources | 0.5 | 0.5 |
Geographic exposure (% of portfolio excluding cash)
| 30 June 2016 | 30 June 2015 |
Germany | 22.9 | 22.3 |
France | 15.2 | 15.6 |
Switzerland | 10.9 | 11.3 |
Netherlands | 9.2 | 8.1 |
Italy | 8.7 | 12.0 |
Sweden | 6.8 | 4.8 |
Finland | 5.6 | 5.5 |
Belgium | 4.7 | 3.8 |
Denmark | 3.5 | 2.5 |
Norway | 3.2 | 2.3 |
Ireland | 2.8 | 3.9 |
Spain | 2.7 | 4.2 |
Austria | 2.1 | 1.4 |
Greece | 1.4 | 0.8 |
Portugal | - | 1.4 |
Other | 0.3 | 0.1 |
Principal risks and uncertainties
The Board, with the assistance of Henderson, has carried out a robust assessment of the principal risks facing the Company including those that would threaten its business model, future performance, solvency or liquidity. In carrying out this assessment, the Board has considered the market uncertainty arising from the result of the UK referendum to leave the European Union. The Board has drawn up a matrix of risks facing the Company and has put in place a schedule of investment limits and restrictions, appropriate to the Company's investment objective and policy, in order to mitigate these risks as far as practicable. The principal risks which have been identified, and the steps taken by the Board to mitigate these as far as possible, and whether the Board considers the impact of such risks has changed over the past year, are as follows:
● Investment activity and performance risks
An inappropriate investment strategy (for example, in terms of asset allocation or the level of gearing) may result in underperformance against the Company's benchmark index and the companies in its peer group. The Board monitors investment performance at each Board meeting and regularly reviews the extent of its borrowings.
● Portfolio and market price risks
Although the Company invests almost entirely in securities that are listed on recognised markets, share prices may move rapidly. The companies in which investments are made may operate unsuccessfully, or fail entirely. Investments in European stock markets may be impacted by political events. A fall in the market value of the Company's portfolio would have an adverse effect on shareholders' funds. The Fund Manager seeks to maintain a diversified portfolio to mitigate against this risk. The Board regularly reviews the portfolio, activities and performance.
● Tax and regulatory risks
A breach of Section 1158 could lead to a loss of investment trust status, resulting in capital gains realised within the portfolio being subject to corporation tax. A breach of the Listing Rules could result in suspension of the Company's shares, while a breach of the Act could lead to criminal proceedings, or financial or reputational damage. Henderson provides investment, company secretarial, administration and accounting services through qualified professionals. The Board receives internal control reports produced by Henderson on a quarterly basis, which confirm regulatory compliance.
● Operational risks
Disruption to, or failure of, Henderson's accounting, dealing or payment systems or the custodian's records could prevent the accurate reporting and monitoring of the Company's financial position. The Company is also exposed to the operational risk that one or more of its service providers may not provide the required level of service. The Board monitors the services provided by Henderson and its other service providers and receives reports on the key elements in place to provide effective internal control.
Viability Statement
The Company is a long term investor; the Board believe it is appropriate to assess the Company's viability over a three year period in recognition of the Company's long term horizon and what the Board believe to be investors' horizons, taking account of the Company's current position and the potential impact of the principal risks and uncertainties as documented in the Strategic Report.
The assessment has considered the impact of the likelihood of the principal risks and uncertainties facing the Company, in particular the investment strategy and performance against benchmark, whether from asset allocation or the level of gearing, and market risk, in severe but plausible scenarios, and the effectiveness of any mitigating controls in place.
The Board took into account the liquidity of the portfolio and the borrowings in place when considering the viability of the Company over the next three years and its ability to meet liabilities as they fall due. This included consideration of the duration of the Company's borrowing facilities and how a breach of any covenants could impact on the Company's net asset value and share price.
The Board do not expect there to be any significant change in the current principal risks and adequacy of the mitigating controls in place. Also the Directors do not envisage any change in strategy or objectives or any events that would prevent the Company from continuing to operate over that period as the Company's assets are liquid, its commitments are limited and the Company intends to continue to operate as an investment trust. Only a substantial financial crisis affecting the global economy could have an impact on this assessment. Whilst there is currently uncertainty in the markets following the UK referendum result to leave the European Union, the Board does not believe that this will have a long term impact on the viability of the Company and its ability to continue in operation.
The Board recognise that there is a continuation vote that is due to take place at the 2016 Annual General Meeting. The Directors support the continuation of the Company and expect that the Company will continue to exist for the foreseeable future, at least for the period of assessment. However, if such a vote were not passed, the Directors would follow the necessary provisions relating to the winding up of the Company and the realisation of its assets. Based on this assessment, the Board have a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the next three year period.
Related party transactions
The Company's transactions with related parties in the year were with the Directors, the subsidiary and Henderson. There have been no material transactions between the Company and its Directors during the year and the only amounts paid to them were in respect of expenses and remuneration for which there were no outstanding amounts payable at the year end. The Company has paid expenses on behalf of the subsidary.
In relation to the provision of services by Henderson, other than fees payable by the Company in the ordinary course of business and the provision of sales and marketing services there have been no material transactions with Henderson affecting the financial position of the Company during the year under review.
Statement of Directors' responsibilities under DTR 4.1.12
Each of the Directors confirms that, to the best of his or her knowledge:
● the Group financial statements, which have been prepared in accordance with IFRSs as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and profit of the Group; and
● the Strategic Report includes a fair review of the development and performance of the business and the position of the Group and Parent Company, together with a description of the principal risks and uncertainties that it faces.
For and on behalf of the Board
Christopher Casey
Director
10 October 2016
Consolidated Statement of Comprehensive Income
| Year ended 30 June 2016 | Year ended 30 June 2015 | ||||
| Revenue return £'000 | Capital return £'000 | Total return £'000 | Revenue return £'000 | Capital return £'000 | Total return £'000 |
Investment income | 8,215 | - | 8,215 | 7,318 | - | 7,318 |
Other income | 43 | - | 43 | 1 | - | 1 |
Gains on investments held at fair value through profit or loss | - | 41,583 | 41,583 | - | 14,552 | 14,552 |
| --------- | ---------- | ----------- | --------- | ---------- | ----------- |
Total income | 8,258 | 41,583 | 49,841 | 7,319 | 14,552 | 21,871 |
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Expenses |
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Management and performance fee (note 2) | (427) | (3,099) | (3,526) | (382) | (3,287) | (3,669) |
Other operating expenses | (591) | - | (591) | (566) | - | (566) |
| --------- | ---------- | ---------- | --------- | ---------- | ---------- |
Profit before finance costs and taxation | 7,240 | 38,484 | 45,724 | 6,371 | 11,265 | 17,636 |
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Finance costs | (110) | (441) | (551) | (92) | (369) | (461) |
| --------- | -------- | --------- | --------- | -------- | --------- |
Profit before taxation | 7,130 | 38,043 | 45,173 | 6,279 | 10,896 | 17,175 |
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Taxation | (391) | - | (391) | (610) | - | (610) |
| --------- | --------- | ---------- | --------- | --------- | ---------- |
Profit for the year and total comprehensive income | 6,739 | 38,043 | 44,782 | 5,669 | 10,896 | 16,565 |
| ===== | ====== | ====== | ===== | ====== | ====== |
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Return per ordinary share - basic and diluted (note 3) | 13.48p | 76.12p | 89.60p | 11.34p | 21.80p | 33.14p |
| ====== | ====== | ====== | ====== | ====== | ====== |
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The total column of this statement represents the Consolidated Statement of Comprehensive Income, prepared in accordance with IFRSs, as adopted by the European Union.
The revenue return and capital return columns are supplementary to this and are prepared under guidance published by the Association of Investment Companies.
All income is attributable to the equity holders of TR European Growth Trust PLC, the Parent Company.
The net profit of the Parent Company for the year was £44,782,000 (2015: £16,565,000).
Consolidated Statement of Changes in Equity
| Year ended 30 June 2016 | |||||
| Called up share capital £'000 | Share premium account £'000 | Capital redemption reserve £'000 | Other capital reserves £'000 | Revenue reserve1 £'000 | Total £'000 |
Total equity at 1 July 2015 | 6,247 | 115,451 | 13,931 | 180,075 | 21,941 | 337,645 |
Total comprehensive income: |
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Profit for the year | - | - | - | 38,043 | 6,739 | 44,782 |
Transactions with owners, recorded directly to equity: |
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Ordinary dividends paid | - | - | - | - | (4,748) | (4,748) |
Refund of unclaimed dividends over 12 years old | - | - | - | - | 4 | 4 |
| ---------- | ---------- | --------- | ---------- | --------- | ---------- |
Total equity at 30 June 2016 | 6,247 | 115,451 | 13,931 | 218,118 | 23,936 | 377,683 |
| ====== | ====== | ===== | ====== | ===== | ====== |
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| Year ended 30 June 2015 | |||||
| Called up share capital £'000 | Share premium account £'000 | Capital redemption reserve £'000 | Other capital reserves £'000 | Revenue reserve1 £'000 | Total £'000 |
Total equity at 1 July 2014 | 6,247 | 115,451 | 13,931 | 169,179 | 20,868 | 325,676 |
Total comprehensive income: |
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Profit for the year | - | - | - | 10,896 | 5,669 | 16,565 |
Transactions with owners, recorded directly to equity: |
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Ordinary dividends paid | - | - | - | - | (4,598) | (4,598) |
Refund of unclaimed dividends over 12 years old | - | - | - | - | 2 | 2 |
| ---------- | ---------- | --------- | ---------- | --------- | ---------- |
Total equity at 30 June 2015 | 6,247 | 115,451 | 13,931 | 180,075 | 21,941 | 337,645 |
| ====== | ====== | ===== | ====== | ===== | ====== |
|
| |||||
1 The revenue reserve represents the amount of reserves distributable by way of dividendParent Company Statement of Changes in Equity
| Year ended 30 June 2016 | |||||
| Called up share capital £'000 | Share premium account £'000 | Capital redemption reserve £'000 | Other capital reserves £'000 | Revenue reserve1 £'000 | Total £'000 |
Total equity at 1 July 2015 | 6,247 | 115,451 | 13,931 | 181,120 | 20,896 | 337,645 |
Total comprehensive income: |
|
|
|
|
|
|
Profit for the year | - | - | - | 38,041 | 6,741 | 44,782 |
Transactions with owners, recorded directly to equity: |
|
|
|
|
|
|
Ordinary dividends paid | - | - | - | - | (4,748) | (4,748) |
Refund of unclaimed dividends over 12 years old | - | - | - | - | 4 | 4 |
| ---------- | ---------- | --------- | ---------- | --------- | ---------- |
Total equity at 30 June 2016 | 6,247 | 115,451 | 13,931 | 219,161 | 22,893 | 377,683 |
| ====== | ====== | ===== | ====== | ===== | ====== |
|
|
|
|
|
|
|
| Year ended 30 June 2015 | |||||
| Called up share capital £'000 | Share premium account £'000 | Capital redemption reserve £'000 | Other capital reserves £'000 | Revenue reserve1 £'000 | Total £'000 |
Total equity at 1 July 2014 | 6,247 | 115,451 | 13,931 | 170,227 | 19,820 | 325,676 |
Total comprehensive income: |
|
|
|
|
|
|
Profit for the year | - | - | - | 10,893 | 5,672 | 16,565 |
Transactions with owners, recorded directly to equity: |
|
|
|
|
|
|
Ordinary dividends paid | - | - | - | - | (4,598) | (4,598) |
Refund of unclaimed dividends over 12 years old | - | - | - | - | 2 | 2 |
| ---------- | ---------- | --------- | ---------- | --------- | ---------- |
Total equity at 30 June 2015 | 6,247 | 115,451 | 13,931 | 181,120 | 20,896 | 337,645 |
| ====== | ====== | ===== | ====== | ===== | ====== |
|
| |||||
1 The revenue reserve represents the amount of reserves distributable by way of dividend Consolidated and Parent Company Balance Sheets
| At 30 June 2016 Consolidated £'000 | At 30 June 2015 Consolidated £'000 | At 30 June 2016 Company £'000 | At 30 June 2015 Company £'000 |
Non current assets |
|
|
|
|
Investments held at fair value through profit or loss | 413,379 | 379,683 | 414,353 | 380,659 |
| ----------- | ----------- | ----------- | ----------- |
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|
|
|
Current assets |
|
|
|
|
Receivables | 1,442 | 2,411 | 1,442 | 2,411 |
Cash and cash equivalents | 73 | 107 | 70 | 104 |
| ---------- | ---------- | ---------- | ---------- |
| 1,515 | 2,518 | 1,512 | 2,515 |
| ---------- | ---------- | ---------- | ---------- |
Total assets | 414,894 | 382,201 | 415,865 | 383,174 |
| ---------- | ---------- | ---------- | ---------- |
|
|
|
|
|
Current liabilities |
|
|
|
|
Payables | (3,686) | (4,124) | (4,657) | (5,097) |
Bank overdrafts | (33,525) | (40,432) | (33,525) | (40,432) |
| ---------- | ---------- | ---------- | ---------- |
| (37,211) | (44,556) | (38,182) | (45,529) |
| ---------- | ---------- | ---------- | ---------- |
Net assets | 377,683 | 337,645 | 377,683 | 337,645 |
====== | ====== | ====== | ====== | |
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|
|
| |
Equity attributable to equity shareholders of the parent company |
|
|
|
|
Called up share capital | 6,247 | 6,247 | 6,247 | 6,247 |
Share premium account | 115,451 | 115,451 | 115,451 | 115,451 |
Capital redemption reserve | 13,931 | 13,931 | 13,931 | 13,931 |
Retained earnings: |
|
|
|
|
Other capital reserves | 218,118 | 180,075 | 219,161 | 181,120 |
Revenue reserve | 23,936 | 21,941 | 22,893 | 20,896 |
| ---------- | ---------- | ----------- | ----------- |
Total equity (note 4) | 377,683 | 337,645 | 377,683 | 337,645 |
| ====== | ====== | ====== | ====== |
|
|
|
|
|
Net asset value per ordinary share - basic and diluted (note 4) | 755.73p | 675.62p | 755.73p | 675.62p |
| ====== | ====== | ====== | ====== |
Consolidated and Parent Company Cash Flow Statements
| Year ended 30 June 2016 | Year ended 30 June 2015 | ||
| Consolidated £'000 | Company £'000 | Consolidated £'000 | Company £'000 |
Operating activities |
|
|
|
|
Profit before taxation | 45,173 | 45,173 | 17,175 | 17,175 |
Add back: interest payable | 551 | 551 | 461 | 461 |
Less: gains on investments held at fair value through profit or loss | (41,583) | (41,580) | (14,552) | (14,549) |
Sales of investments held at fair value through profit or loss | 246,136 | 246,136 | 189,701 | 189,701 |
Purchases of investments held at fair value through profit or loss | (232,013) | (232,013) | (187,072) | (187,072) |
Withholding tax on dividends deducted at source | (990) | (990) | (912) | (912) |
(Increase)/decrease in prepayments and accrued Income | (89) | (89) | 153 | 153 |
Decrease/(increase) in amounts due from brokers | 1,181 | 1,181 | (1,041) | (1,041) |
(Decrease)/increase in accruals and deferred income | (291) | (294) | 681 | 678 |
Decrease in amounts due to brokers | (153) | (153) | (2,697) | (2,697) |
| ---------- | ---------- | ---------- | ---------- |
Net cash inflow from operating activities before interest and taxation | 17,922 | 17,922 | 1,897 | 1,897 |
|
|
|
|
|
Interest paid | (551) | (551) | (461) | (461) |
Taxation recovered | 482 | 482 | 202 | 202 |
| ---------- | ---------- | ---------- | ---------- |
Net cash inflow from operating activities | 17,853 | 17,853 | 1,638 | 1,638 |
| ---------- | ---------- | ---------- | ---------- |
Financing activities |
|
|
|
|
Equity dividends paid (net of refund of unclaimed dividends) (note 5) | (4,744) | (4,744) | (4,596) | (4,596) |
| ---------- | ---------- | ---------- | ---------- |
Net cash used in financing | (4,744) | (4,744) | (4,596) | (4,596) |
| ---------- | ---------- | ---------- | ---------- |
Increase/(decrease) in cash and cash equivalents | 13,109 | 13,109 | (2,958) | (2,958) |
Cash and cash equivalents at the start of year | (40,325) | (40,328) | (41,816) | (41,819) |
Exchange movements | (6,236) | (6,236) | 4,449 | 4,449 |
| ---------- | ---------- | ---------- | ---------- |
Cash and cash equivalents at the end of year | (33,452) | (33,455) | (40,325) | (40,328) |
| ====== | ====== | ====== | ====== |
Comprising: |
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|
|
|
Cash at bank | 73 | 70 | 107 | 104 |
Bank overdrafts | (33,525) | (33,525) | (40,432) | (40,432) |
| ---------- | ---------- | ---------- | ---------- |
| (33,452) | (33,455) | (40,325) | (40,328) |
| ====== | ====== | ====== | ====== |
Notes to the Financial Statements
1. | Accounting policies The consolidated and Parent Company financial statements for the year ended 30 June 2016 have been prepared in accordance with International Financial Reporting Standards ("IFRSs") as adopted by the European Union and with those parts of the Companies Act 2006 (the "Act") applicable to companies reporting under IFRSs. IFRSs comprise standards and interpretations approved by the International Accounting Standards Board ("IASB"), together with interpretations of the IFRS interpretations committee that remain in effect to the extent that IFRSs have been adopted by the European Union. The accounting policies have been consistently applied in the current and previous year.
The preparation of financial statements in conformity with IFRSs requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the Company's accounting policies. The areas involving a higher degree of judgment or complexity, or areas which assumptions and estimates are significant to the financial statements are disclosed in notes 10, 11 and 15.5.
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 trusts issued by the Association of Investment Companies ("AIC") in November 2014 is consistent with the requirements of IFRSs, the Directors have sought to prepare the financial statements on a basis consistent with the recommendations of the SORP.
The financial position of the Group is described in the Strategic Report on pages 2 to 18. Note 15 to the financial statements includes the Group's policies and process for managing its capital; its financial risk management objectives; and details of financial instruments and exposure to credit risk and liquidity risk. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Going concern The Group's shareholders are asked every three years to vote for the continuation of the Company. An ordinary resolution to this effect was put to the Annual General Meeting ("AGM") held on 11 November 2013 and passed by a substantial majority of the shareholders. The next such resolution will be put to the shareholders at the AGM in 2016. The assets of the Group consist mainly entirely of securities that are listed and readily realisable and, accordingly, the Directors believe that the Group 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 Board has decided that it is appropriate for the financial statements to be prepared on a going concern basis. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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2. | Management and performance fee | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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3. | Return per ordinary share The return per ordinary share figure is based on the net profit for the year of £44,782,000 (2015: £16,565,000) and on the weighted average number of ordinary shares in issue during the year of 49,975,897 (2015: 49,975,897). | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 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. |
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| 2016 £'000 | 2015 £'000 |
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| Net revenue profit | 6,739 | 5,669 |
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| Net capital profit | 38,043 | 10,896 |
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| ---------- | ---------- |
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| Net profit | 44,782 | 16,565 |
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| ===== | ===== |
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| Weighted average number of ordinary shares in issue during the year | 49,975,897 | 49,975,897 |
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| 2016 Pence | 2015 Pence |
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| Revenue return per ordinary share | 13.48 | 11.34 |
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| Capital return per ordinary share | 76.12 | 21.80 |
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| ------- | ------- |
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| Total return per ordinary share | 89.60 | 33.14 |
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4. | Net asset value per ordinary share The NAV per ordinary share is based on the net assets attributable to the ordinary shares of £377,683,000 (2015: £337,645,000) and on the 49,975,897 ordinary shares in issue at 30 June 2016 (2015: 49,975,897). The Company has no securities in issue that could dilute the NAV per ordinary share (2015: same). The NAV per ordinary share at 30 June 2016 was 755.73p (2015: 675.62p). |
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| The movements during the year in assets attributable to the ordinary shares were as follows: |
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| 2016 £'000 | 2015 £'000 |
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| Net assets attributable to ordinary shares at 1 July | 337,645 | 325,676 |
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| Profit for the year | 44,782 | 16,565 |
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| Dividends paid in the year | (4,748) | (4,598) |
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| Refund of unclaimed dividends over 12 years old | 4 | 2 |
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| ----------- | ----------- |
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| Net assets at 30 June | 377,683 | 337,645 |
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| ====== | ====== |
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5. | Dividends Subject to approval at the AGM in November 2016, the proposed final dividend of 9.00p and a special dividend of 2.50p per ordinary share will be paid on 5 December 2016 to shareholders on the register of members at the close of business on 4 November 2016. The shares will be quoted ex-dividend on 3 November 2016.
The proposed final and special dividends for the year ended 30 June 2016 have not been included as a liability in these financial statements. Under IFRSs, these dividends are not recognised until approved by shareholders.
During the year the Company received a refund of £4,000 of unclaimed dividends over 12 years old (2015: £2,000).
The total dividends payable in respect of the financial year which form the basis of Section 1158 of the Corporation Tax Act 2010 are set out below:
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6. | Share capital At 30 June 2016 there were 49,975,897 ordinary shares in issue (2015: 49,975,897). During the year no ordinary shares (2015: no ordinary shares) were bought back for cancellation. In the current financial year to date, the Company has repurchased 69,500 shares for cancellation. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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7. 2016 financial information
The figures and financial information for 2016 are extracted from the Annual Report for the year ended 30 June 2016 and do not constitute the statutory accounts for the year. The Annual Report includes the Report of the Independent Auditors which is unqualified and does not contain a statement under either Section 498(2) or Section 498(3) of the Companies Act 2006. The Annual Report has not yet been delivered to the Registrar of Companies.
8. 2015 financial information
The figures and financial information for 2015 are extracted from the Annual Report for the year ended 30 June 2015 and do not constitute the statutory accounts for the year. The Annual Report includes the Report of the Independent Auditors which is unqualified and does not contain a statement under either Section 498(2) or Section 498(3) of the Companies Act 2006. The Annual Report has been delivered to the Registrar of Companies.
9. Annual report
The Annual Report will be posted to shareholders in mid-October 2016 and will be available on the Company's website (www.treuropeangrowthtrust.com) or in paper copy format from the Company's registered office, 201 Bishopsgate, London EC2M 3AE thereafter.
10. Annual general meeting
The annual general meeting will be held on Monday 21 November 2016 at 12.30 pm at the registered office address.
For further information please contact:
Ollie Beckett Fund Manager TR European Growth Trust PLC Telephone: 020 7818 4331 |
Sarah Gibbons-Cook Investor Relations and PR Manager Henderson Global Investors Telephone: 020 7818 3198
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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.