TIDMESCT
RNS Number : 4751P
European Smaller Companies Tst PLC
10 October 2023
Legal Entity Identifier: 213800N1B1HCQG2W4V90
THE EUROPEAN SMALLER COMPANIES TRUST PLC
Financial results for the year ended 30 June 2023
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 2023
(including dividends reinvested and excluding transaction costs)
1 year 3 years 5 years 10 years
% % % %
------------------------- -------- -------- -------- ------------------
NAV(1,5) 16.4 50.3 43.4 259.9
Benchmark(2) 10.0 24.3 25.5 162.6
Average sector NAV(3) 11.2 26.0 31.0 190.3
Share price(4,5) 13.6 56.9 37.1 271.5
Average sector share
price(3,5) 10.1 27.5 25.8 192.6
------------------------- -------- -------- -------- ------------------
Financial highlights at 30 June 2023 at 30 June 2022
------------------------------------------- ------------------ --------------------
Shareholders' funds
Net assets (GBP'000) 738,642 652,464
NAV per ordinary share 184.26p 162.76p
Share price 154.00p 140.00p
------------------------------------------- ------------------ --------------------
Year ended Year ended
30 June 2023 30 June 2022
Profit for year
Net revenue profit (GBP'000) 20,927 20,703
Net capital profit/(loss) profit
(GBP'000) 83,454 (195,415)
------------ ------------
Profit/(loss) for the year 104,381 (174,712)
======= =======
Total return per ordinary share
Revenue 5.22p 5.16p
Capital 20.82p (48.75p)
------------- -------------
Total return per ordinary share 26.04p (43.59p)
======= =======
Ongoing charge excluding performance
fee(6) 0.65% 0.65%
Ongoing charge including performance
fee(6) 1.67% 1.37%
1. Net asset value (NAV) total return per ordinary share
2. Euromoney Smaller European Companies (ex UK) Index up to 30 June
2022, thereafter MSCI Europe ex UK Small Cap Index
3. The sector is the AIC European Smaller Companies sector
4. Share price total return including dividends reinvested and using
closing price
5. NAV per share, NAV total return, share price total return and ongoing
charge are regarded as Alternative Performance Measures. More information
on these can be found in the Annual Report 2023
6. Calculated using the methodology prescribed by the Association
of Investment Companies
Sources: Morningstar Direct, Janus Henderson Investors
Chairman's Statement
After a challenging year to June 2022 for European small caps where
the benchmark(1) fell 17.3% and the NAV of your Company by 21%, the
year ended June 2023 has been a welcome improvement, notwithstanding
that the challenges of 2022 such as surging inflation, rising interest
rates, disrupted energy markets and conflict in Ukraine having persisted.
The spectre of recession has hung over the global economy for much
of the last year, but it has been far more resilient than the bears
have suggested it would be. It seems increasingly probable that a
'soft landing' is achievable as supply chain bottlenecks have begun
to clear, relieving inflationary pressure, and the labour market has
proved to be robust enough for the consumer to be cushioned from the
burden of rising interest rates. Smaller companies are a good indicator
of the economic cycle improving and normally rally before the economic
data confirms the trend. The fund management team has always preached
their valuation discipline and we are optimistic that they will be
able to take advantage at this stage of the cycle.
Performance
Despite stock markets that have been extremely volatile and a bias
to smaller companies that have, in aggregate, underperformed midcap
companies, the net asset value ('NAV') total return performance of
the Company for the year ended 30 June 2023 was 16.4%, 6.4% ahead
of the benchmark return of 10.0%. The share price total return for
the period was 13.6%, ahead of the average of the AIC European Smaller
Companies sector, but showing a widening discount against the NAV.
Discount management
The Company's shares have traded at an average discount of 15.1% over
the twelve months to 30 June 2023. This is against the backdrop where
the investment trust sector as a whole averaged 13.1% for the same
period and widened to an average of 15.8% in the subsequent period
from July through September. Our discount reflects the fact that smaller
European companies remain out of favour with investors, but also suggests
that we have more work to do in terms of communicating our unique
proposition to investors.
The Board regularly monitors the discount level, though we are of
the view that it is not a variable fully in our control. Following
regular discussion at Board meetings, we have resolved to practice
share buybacks opportunistically when our Fund Manager thinks it will
be more accretive to the long-term value creation of the portfolio
than other investment opportunities.
Post the financial year-end and after temporarily widening, the discount
to NAV narrowed on the back of weakness in equity markets. Given the
significant price dislocation in the market reflected by the discount
of the investment trust sector as a whole, we have not as yet believed
it to be in the interests of all shareholders to repurchase our own
shares in such an environment.
Performance Fee
We will be paying a performance fee of GBP7.2m to the investment manager
for the returns achieved over the
three-year period to 30 June 2023. To put this into context the Company
has delivered an NAV total return outperformance of 26.0%2 relative
to the benchmark over this period. This is nearly double the return
of our nearest competitor in the AIC European Smaller Companies sector.
The Board regularly revisits the merit of having a very low base fee
alongside the performance fee as part of the
arrangements with the investment manager and considers that this approach
is bene cial to shareholders over time. This mechanism permits the
investment manager to earn a higher fee where excellent performance
has been achieved over a three-year period, but reduces significantly
should performance be poor.
Dividend
A final dividend of 3.25p (2022: 3.10p) per ordinary share will be
put to shareholders for approval at the annual general meeting to
be held on 27 November 2023. Together with the interim dividend of
1.45p (2021: 1.25p), this is an increase of 8.0%. The dividend will
be paid on 1 December 2023 to shareholders on the register at 3 November
2023. The shares will trade without the dividend on 2 November 2023.
We are confident that the Company will continue to be able to deliver
progressive dividend growth. We would like to emphasize to our shareholders
that the valuation aware investment style employed by the fund management
team has led them to certain high yielding stocks in recent years
and the extent of recent dividend growth may not be sustainable as
portfolio repositioning occurs. In line with the investment objective,
the fund management team's focus continues to be prioritising capital
growth.
Succession planning
In keeping with the Board's succession plan, Alexander Mettenheimer
retired at the annual general meeting in
November 2022. We continue to refresh the Board and engaged recruitment
consultants to help with the search to find my replacement. Following
successful conclusion of that process, we were pleased to announce
the appointment of James Williams on 9 October 2023. He will join
the Board with effect from 1 November 2023. He brings with him over
30 years' international business experience, including nearly 20 years
in the investment banking industry. He is very familiar with the investment
trust sector and financial markets, and has a strong suite of leadership
skills. James will offer himself for election by shareholders at the
annual general meeting later this year. It is my intention to retire
at the conclusion of the annual general meeting in 2024, following
a suitable hand-over period.
We have further agreed a timeline for the retirement of Simona Heidempergher,
who, at the time of the forthcoming annual general meeting, will have
been on the Board for nine years. We will report to you further on
this in due course.
Annual General Meeting
We are pleased to invite shareholders to attend the 33(rd) Annual
General Meeting which will be held at our registered office, 201 Bishopsgate,
London, EC2M 3AE on Monday 27 November 2023 at 12.30pm.
The event provides the opportunity for shareholders to meet the directors
and the Fund Manager, along with members of his team. The Fund Manager
will give his usual presentation on the year under review and will
discuss the outlook for the year ahead. The directors and fund management
team will also be available to answer questions.
If you are unable to attend in person, you will be able to watch the
meeting live via the internet by visiting www.janushenderson.com/trustslive.
Voting will be held on a poll so we encourage all shareholders to
submit their proxy form, or instruct their share dealing platform
how they wish their shares to be voted, ahead of the respective deadlines.
Voting on a poll means shareholders will have one vote for every share
they own and give a clear indication of shareholders' wishes. The
results of the poll will be published on the Company's website shortly
after the meeting.
Outlook
I have warned of the prospect of inflation since the Annual Report
2020, but the Board does not expect inflation to remain at the high
levels we have been experiencing recently. We are, however, of the
view that moderate inflation and elevated interest rates, compared
to the recent past, are likely to be a persistent feature of the global
economy going forward. The dislocations in the global economy between
the USA and China appear structural. Supply chain resilience is clearly
now a priority of the corporate sector and will alter the disinflationary
dynamic of the last twenty years, notwithstanding that China exiting
Zero-Covid should help ameliorate short term inflationary pressures.
The 'Green Transition' will require substantial capital expenditure
that will also be inflationary. Exciting technologies such as Artificial
Intelligence will no doubt create some disinflationary pressure, but
we doubt it will be as significant as the advent of the internet.
The valuation aware approach employed by the fund management team
should be able to flourish in a market that has some very exciting
companies trading at extremely low valuations. Whilst Europe doesn't
have the global tech titans which have dominated the market in recent
years, the plumbing of the new economy has been delivered by smaller
companies based in Europe and we are confident that the fund management
team can continue to deliver attractive returns for you.
Christopher Casey
Chairman
9 October 2023
1 Euromoney Smaller European Companies (ex UK) Index up to 30 June
2023, thereafter the MSCI Europe ex UK Small Cap Index
2 Calculated using the Euromoney Smaller European Companies (ex UK)
Index for the years ended 30 June 2021 and 2022, and the MSCI Europe
ex UK Small Cap Index for the year ended 30 June 2023
FUND MANAGER'S REPORT
Introduction
After a disappointing year ended June 2022, where the portfolio lagged
the benchmark(1) by 3.7%, the year to June 2023 proved more gratifying,
with a total return of 16.4% outperforming the benchmark by 6.4%.
Outperformance over the twelve months to 30 June 2023 was primarily
driven by bottom-up stock selection, with Dutch wealth manager Van
Lanschot Kempen and German pump manufacturer KSB adding handsomely
to returns. In addition to stock selection, the Company gained from
its overweight position in cheap financials in the first half of the
financial year where the normalisation of interest rates allowed banks
to earn a net interest margin for the first time since the global
financial crisis. Our view that valuation matters, especially in the
absence of 'free money', was positive for performance. In the first
part of 2023 the portfolio benefitted from its exposure to the industrial
sector as the highly publicised fear of energy shortages did not come
to pass. In the remainder of the financial year, the Company performed
reasonably well versus the index despite having a lower average market
capitalisation during the periods of small cap underperformance and
amid the return of growth outperformance on the back of the hype surrounding
Artificial Intelligence.
Since November, equity markets have been largely rangebound, with
ongoing fear that higher interest rates to combat the inevitable post-Covid
inflation would lead to a recession. Technically, the latter has occurred
in some counties like Germany. The good news is that even if recession
does come, it will be the most widely anticipated recession ever.
We take the view that inflation should drop in the second half of
the 2023 calendar year, but that positive inflation and positive interest
rates are likely to be part of the new normal.
The geopolitical environment continues to be volatile, with the Russian
invasion of Ukraine beginning to look like something of a stalemate,
giving investors an excuse to ignore Europe as a region to invest
in. However, valuations in Europe now look so cheap compared to the
US such that investors are being given considerable reward for running
that risk. Some commentators worry about China's ambitions for Taiwan,
which we struggle to assess as a risk. Should this occur, it would
certainly cause another huge disruption to the semiconductor supply
chain as well as adding another appalling conflict to the world. We
assume calm heads will prevail.
The portfolio
We invest across the entire corporate lifecycle, with a mix of early-stage
growth stocks, sensibly priced structural growth stocks, undervalued
cash generative mature names and self-help turnarounds.
We continue to think that many growth stocks in Europe remain far
too expensive, but have begun to add a few names that have fallen
to reasonable levels. For instance, we have added Dutch-listed food
processing equipment manufacturer Marel which was punished for being
slow to increase prices during the supply chain shock and is now playing
catch up. The business remains dominant in its field of meat processing,
and we think the margin rebuild will improve the return on capital
and lead to a re-rating of the shares. We also opened a position in
Danish-listed NTG Nordic Transport which is building a global freight
forwarding operation. The stock is not well known in the market and
suffered from recessionary concerns, allowing us to buy the shares
at a very attractive valuation. Despite some terrific performance
this year, the equity remains cheap and we think it has scope to deliver
far more.
In the year ended June 2022, we did not devote much capital to buying
the early-cycle growth names as we believed many lacked profitability
and started with expensive valuations. However, many of these names
sold off strongly as interest rates rose. We used this opportunity
to begin to buy stakes in companies that we believe look like winners
of the future. We opened a position in Swedish-listed podcast software
and service provider Acast. The company is the market leader in Europe
and a big challenger in the US; if you are an avid consumer of podcasts,
you will have seen its name littered over many of your favourites.
Advertising is massively underpenetrated in podcasts versus radio,
and we think this will change over the next couple of years. We also
added Italian-listed tool maker Eurogroup Laminations which is the
leading global supplier of high value-add components critical for
making electric motors for the automotive industry, an area that has
huge structural growth trends underpinning it.
Within the mature names in the portfolio, we have added German-listed
electric forklift truck and warehouse automation specialist Jungheinrich.
The company currently earns cost of capital returns, but its new management
team are focused on boosting this. We believe the structural tailwinds
in the company's end markets should help them to achieve this and
drive a re-rating of the shares. We invested in specialist high performance
material producer Alleima, which was recently divested from Sandvik.
Now that the business is free to emerge from the shadow of its parent,
we believe management can boost margins, returns and cash flow in
the quarters and years to come.
Among our turnaround names, we added Swedish-listed vertical access
solutions (or lifts as they are otherwise known!) Alimak for its purchase
of a near competitor which we believe could drive a big turnaround
in its Façade Access division. We invested in Portuguese bank
Banco Comercial Portugues as it is improving profitability and the
Portuguese economy is one of the best in Europe.
Performance attribution
The Company benefited from its exposure to the industrial and financial
sectors in the year to June 2023. Our biggest contributor was Dutch
wealth manager Van Lanschot Kempen, which is in a unique position
to consolidate the Low Countries wealth management industry. BFF Bank
in Italy was another noticeable contributor as the market has begun
to reward its strong return on equity and diligent capital return
strategy. In the industrial sector, we benefited from long-term Italian
holding SAES Getters after it disposed of its medical division at
an attractive premium and converted its Savings Shares to Ordinary
Shares. Elsewhere, Dutch-listed vision systems producer TKH made a
sizeable contribution with analysts being far too bearish on the company's
prospects in 2023.
Spanish online travel agent eDreams ODIGEO contributed to returns
after benefitting from a notable recovery in tourism following the
pandemic. Dutch-listed specialty metals producer AMG Critical Materials
gained as its capital expenditure began to bear fruit and the stock
market realised the value of its lithium assets. Dutch-listed outsourced
customer service company Majorel was bid for by competitor Teleperformance,
also adding to performance.
Detractors from performance included a combination of last year's
winners giving up some performance and certain stock specific mistakes.
US-listed Adtran (shares in which we received from the acquisition
of German tech hardware company ADVA Optical Networking) detracted
as the market reopening left too much inventory on its client's balance
sheets. Swedish-listed broadcaster of over-the-top media services
and owner of many sports rights, Viaplay, had a profit warning as
its Nordic market slowed sharply and management's growth assumptions
proved to be wildly optimistic. We subsequently sold the position.
Belgian-listed insulation manufacturer, Recticel, suffered weak demand
from the construction market and a brutal last-minute renegotiation
for the disposal of its Engineered Foams business that hurt the stock
significantly. Finally, Swedish-listed legal software and services
business Karnov mismanaged an equity placing and unnecessarily spooked
the market about its balance sheet hurting the shares.
Geographical and sector distribution
Our investment process is fundamentally a bottom-up stock picking
approach, and we don't allocate capital to specific sectors or geographies,
though we do monitor the overall structure of the portfolio to ensure
we are actively managing our risk profile. We do not invest with the
benchmark as a reference and are content to run the portfolio with
significant divergence from it. The largest geographic overweight
was France where we have found several very cash generative and lowly
valued companies. We are also heavily overweight to the Netherlands
where we added property developer CTP, which dominates the logistics
development market in South Eastern Europe and in Germany where we
added leading display advertiser Stroeer. We remain underweight the
relatively more expensive markets such as Sweden, Switzerland and
Norway.
At the sector level, we are overweight industrials and consumer discretionary,
though we have focused our latter overweight on more robust areas
such as travel related verticals with companies such as Irish-listed
hotel company Dalata, which has had robust trading. We have an overweight
in the information technology sector, primarily driven by technology
hardware with investments such as Finnish-listed Detection Technology
that produces scanning and imaging technology for the medical, industrial
and security markets.
We are underweight to the health care sector where we struggle to
find sensibly priced investments. We remain underweight to the real
estate sector, which has benefited the Company in the rising interest
rate environment, although we have reduced the underweight position
by adding selectively chosen positions such as Swedish-listed Castellum
that we took the opportunity to buy at an attractive valuation when
they raised money to repair their balance sheet. We remain underweight
in the consumer staples sector, where we struggle to find many exciting
investment opportunities.
Additions and disposals
Other notable additions to the portfolio include Italian truck manufacturer,
Iveco, which was recently spun out of CNH. The stock is extremely
cheap, has a meaningful opportunity to improve margins and has an
exciting line in electric buses. We re-initiated a position post a
de-rating in German-listed manufacturer of semiconductor equipment,
PVA TePla, that sells furnaces for producing silicon carbide crystals.
Increasingly silicon carbide wafers are replacing pure silicon in
end markets such as electric vehicles.
We disposed of our position in Irish-listed bank, AIB, after seeing
a considerable return as the market recognised the undervaluation
and boost of an improved net interest margin environment. We exited
our position in Italian bank, Finecobank, as we considered the market
to have too optimistic a view of their earnings. We disposed of German-listed
Commerzbank on the concern that the investment was too consensual.
This resulted in our meaningful overweight in the financial sector
becoming broadly neutral.
We sold our position in Norwegian marine services business Froy after
it was bid for, Greek renewable energy producer and refiner Motor
Oil, after earning considerable profit and Swedish-listed manufacturer,
Thule, as we thought forecasts had begun to look too optimistic. We
capitulated on our investment in Swedish-listed kitchen maker Nobia
as we became concerned by the balance sheet after some ill-timed major
capital expenditure. Finally, we exited our position in Belgian cinema
operator Kinepolis as our conviction that audiences would return to
the cinemas in the same numbers as pre-pandemic waned.
Currency
The Company is denominated in Sterling, while investing in largely
Euro-denominated assets. We do not hedge this currency exposure.
Outlook
Last year we warned that central banks could overreact to inflation
by pushing rates too high and into an energy shock. Today, we think
that may still be the case. Concerns of too-high-too-soon rates and
the resulting recession has created a fear factor that has dissuaded
many from investing in European smaller companies.
Our fundamental belief is that there is considerable value to be found
in European smaller companies currently, with valuation multiples
looking extremely attractive. Much of our investment universe is already
priced for a recession. The resilience of labour markets suggest that
there is a reasonable chance that the global economy has a 'soft landing'.
In such an environment, European smaller companies should be a good
area to invest: it is the area of the market that could deliver greater
growth and is currently trading at a discount to its more pedestrian
larger European counterparts. Throughout, we continue to believe that
remaining valuation-aware when seeking out the small cap winners of
tomorrow is a key discipline for delivering value for our shareholders.
Ollie Beckett, Rory Stokes and Julia Scheufler
9 October 2023
1 Euromoney Smaller European Companies (ex UK) Index for the year
ended 30 June 2022, the MSCI Europe ex UK Small Cap Index for the
year ended 30 June 2023.
Geographic exposure at 30 June 2023 (% of
portfolio excluding cash)
-----------------------------------------------
2023 2022
% %
----------------------- ---------- ----------
Germany 17.4 17.1
France 14.6 14.1
Netherlands 11.9 10.6
Italy 10.3 8.5
Sweden 10.0 8.8
Switzerland 8.1 6.6
Spain 5.4 6.0
Belgium 4.2 4.8
Greece 3.2 2.0
Finland 3.0 4.6
Denmark 2.8 2.4
Ireland 2.5 4.9
Norway 2.3 3.8
Austria 2.0 2.9
Portugal 1.3 1.9
Malta 1.0 1.0
100.0 100.0
---------- ----------
Sector exposure at 30 June 2023 (% of portfolio
excluding cash)
-----------------------------------------------------
2023 2022
% %
-------------------------------- --------- --------
Industrials 38.6 34.1
Consumer Discretionary 20.9 22.5
Financials 13.0 13.1
Technology 11.6 12.0
Basic Materials 3.2 2.1
Utilities 3.1 5.1
Health Care 3.1 2.1
Real Estate 2.3 1.2
Consumer Staples 2.0 4.1
Energy 1.7 2.0
Telecommunications 0.5 1.7
---------
100.00 100.0
--------- --------
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 management team must
operate.
The principal risks which have been identified and the steps we have
taken to mitigate these are set out below. We do not consider these
risks to have changed during the period.
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.
Investment mandate limits established by the Board are inappropriate
leading to out-of-scope investments which may negatively impact shareholder
value.
Poor investment performance over an extended period of time, driven
by either external (political uncertainty, financial shock, pandemic,
climate change, etc.) or internal factors (poor stock selection, poor
management of gearing, loss of key members of the fund management
team, etc.), 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. From time to time,
research may be undertaken by a third-party consultant to specifically
ascertain the views of retail investors.
The Board reviews compliance with the investment limits at each meeting.
The Board considers the Key Performance Indicators ('KPIs') at each
meeting and reviews the investment manager's approach to environmental,
social and governance matters. The fund management team incorporate
environmental, social and governance considerations in investment
selection and maintains a diversified portfolio with a view to spreading
risk. Consideration is given to the possible impact of climate change
on the value of the portfolio as part of the Company's overall risk
assessment.
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. This includes cyber security risks which
may compromise the integrity of data and the effective operation of
third-party service providers.
The Board engages reputable third-party service providers and formally
evaluates their performance, and terms of engagement, 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, quarterly internal control reports
from the investment manager and monthly reporting on compliance with
the investment limits 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 a 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 limits 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 horizon 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, including the
challenges posed by climate change, 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 size
of the bank overdraft facility; and
* 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.
As well as considering the principal risks and financial position
of the Company, the Board has made the following assumptions:
* investors will continue to wish to have exposure to
investing in European small cap companies;
* investors will continue to invest in closed-end
funds;
* the Company's performance will continue to be
satisfactory; and
* the Company will continue to have access to adequate
capital when required.
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. Forecasting over a longer period is imprecise
given the nature of the portfolio. 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.
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 in office at the date of this report confirm
that, to the best of their 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
9 October 2023
Statement of Comprehensive Income
Year ended 30 June Year ended 30 June 2022
2023
Revenue Capital Total Revenue Capital Total
return return return return return return
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------ ----------- ----------- ------------ ------------- ------------- -------------
Investment income 25,054 - 25,054 25,231 - 25,231
Other income 9 - 9 - - -
Gains/(losses) on investments
held at fair value through
profit or loss - 96,206 96,206 - (185,662) (185,662)
----------- ----------- ------------ ------------- ------------- -------------
Total income 25,063 96,206 121,269 25,231 (185,662) (160,431)
Expenses
Management and performance
fee (776) (10,284) (11,060) (844) (8,906) (9,750)
Other operating expenses (760) - (760) (830) - (830)
----------- ----------- ----------- ------------- ------------- -------------
Profit/(loss) before finance
costs and taxation 23,527 85,922 109,449 23,557 (194,568) (171,011)
Finance costs (595) (2,382) (2,977) (194) (775) (969)
----------- ----------- ----------- ------------- ------------- -------------
Profit/(loss) before taxation 22,932 83,540 106,472 23,363 (195,343) (171,980)
Taxation (2,005) (86) (2,091) (2,660) (72) (2,732)
----------- ----------- ----------- ------------- ------------- -------------
Profit/(loss) for the year
and total comprehensive
income 20,927 83,454 104,381 20,703 (195,415) (174,712)
====== ====== ====== ======= ======= =======
Return per ordinary share
- basic and diluted 5.22p 20.82p 26.04p 5.16p (48.75p) (43.59p)
====== ======== ======= ======= ======= =======
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.
Statement of Changes in Equity
Year ended 30 June 2023
------------------------- ----------------------------------------------------------------------------------
Called Share Capital Other
up share premium redemption capital Revenue
capital account reserve reserves reserve Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------- ------------ ------------ ------------ ------------ ------------ ------------
Total equity at 1
July 2022 6,264 120,364 13,964 481,409 30,463 652,464
Total comprehensive
income:
Profit for the year - - - 83,454 20,927 104,381
Costs relating to
sub-division of shares - - - 17 - 17
Ordinary dividends
paid - - - - (18,220) (18,220)
----------- ----------- ----------- ----------- ----------- -----------
Total equity at 30
June 2023 6,264 120,364 13,964 564,880 33,170 738,642
====== ====== ====== ====== ====== ======
Year ended 30 June 2022
---------------------------- ----------------------------------------------------------------------------------------
Called Share Capital Other
up share premium redemption capital Revenue
capital account reserve reserves reserve Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'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
======= ======= ======= ======= ======= =======
Balance Sheet
At 30 June At 30 June
2023 2022
GBP'000 GBP'000
------------------------------------ -------------- -------------
Non current assets
Investments held at fair value
through profit or loss 835,744 725,441
------------ -----------
Current assets
Receivables 7,323 6,986
Cash and cash equivalents 2 11
------------ ----------
7,325 6,997
------------ -----------
Total assets 843,069 732,438
------------- -----------
Current liabilities
Payables (10,411) (11,155)
Bank overdrafts (94,016) (68,819)
------------ ------------
(104,427) (79,974)
------------ ------------
Net assets 738,642 652,464
======= =======
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 564,880 481,409
Revenue reserve 33,170 30,463
------------ ------------
Total equity 738,642 652,464
======= =======
Net asset value per ordinary
share - basic and diluted 184.26p 162.76p
======= =======
Cash Flow Statement
Year ended
30 June Year ended
2023 30 June 2022
GBP'000 GBP'000
----------------------------------------------------- ------------ --------------
Operating activities
Profit/(loss) before taxation 106,472 (171,980)
Add back: interest payable 2,977 969
(Less)/add back: (Gains)/losses on investments
held at fair value through profit or loss (96,206) 185,662
Sales of investments held at fair value through
profit or loss 274,632 317,888
Purchases of investments held at fair value through
profit or loss (290,536) (295,427)
Withholding tax on dividends deducted at source (3,510) (3,691)
Increase in prepayments and accrued income (881) (320)
Decrease/(increase) in amounts due from brokers 1,215 (2,462)
(Decrease)/increase in accruals and deferred
income (451) 2,910
(Decrease)/increase in amounts due to brokers (636) 1,100
----------- ----------
Net cash (outflow)/inflow from operating activities
before interest and taxation (1) (6,924) 34,649
----------- ----------
Interest paid (2,618) (969)
Taxation recovered 749 167
----------- ----------
Net cash (outflow)/inflow from operating activities (8,793) 33,847
----------- ----------
Financing activities
Equity dividends paid (net of refund of unclaimed
dividends) (18,220) (13,429)
Costs relating to sub-division of shares - (62)
Net drawndown/(repayment) of bank overdraft 27,004 (20,345)
----------- -----------
Net cash raised/(used in) financing activities 8,784 (33,836)
----------- -----------
(Decrease)/increase in cash and cash equivalents (9) 11
Cash and cash equivalents at the start of the
year 11 -
----------- ----------
Cash and cash equivalents at the end of the
year 2 11
Comprising:
Cash at bank 2 11
----------- ----------
2 11
====== ======
1. In accordance with IAS7.31 cash inflow from dividends was GBP24,157,000
(2022: GBP24,892,000) and cash inflow from interest was GBP3,000 (2022:
GBPnil).
Notes to the Financial Statements
1. Accounting policies
Basis of preparation
The European Smaller Companies Trust PLC is a company incorporated in
England and Wales and subject to the provisions of the Companies Act
2006. The Company is domiciled in the United Kingdom. The Company financial
statements for the year ended 30 June 2023 have been prepared in accordance
with UK adopted International Accounting Standards. These comprise standards
and interpretations approved by the International Accounting 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
in the Annual Report 2023. Where presentational guidance set out in
the Statement of Recommended Practice ('SORP') for investment companies
issued by the Association of Investment Companies ('AIC') in July 2022,
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 financial position of the Company is described in the Annual Report
2023, which includes the Company'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.
In preparing these financial statements the directors have considered
the impact of climate change risk and concluded there was no impact
as the investments are valued based on market quoted prices.
2. Management and performance fees
2023 2022
Revenue Capital Total Revenue Capital Total
return return return return return return
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Management fee 776 3,104 3,880 844 3,375 4,219
Performance fee - 7,180 7,180 - 5,531 5,531
--------- --------- --------- -------- -------- --------
Total 776 10,284 11,060 844 8,906 9,750
===== ===== ===== ===== ===== =====
3. Return per ordinary share
The return per ordinary share figure is based on the net profit for
the year of GBP104,381,000 (2022 loss: GBP174,712,000) and on the weighted
average number of ordinary shares in issue during the year of 400,867,176
(2022: 400,867,176).
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.
2023 2022
GBP'000 GBP'000
---------------------------------------------------------------- ------------------ --------------------
Net revenue profit 20,927 20,703
Net capital (loss)/profit 83,454 (195,415)
------------ ------------
Net profit/(loss) 104,381 (174,712)
======= =======
Weighted average number of ordinary shares in
issue during the year 400,867,175 400,867,176
2023 2022
Pence Pence
---------------------------------------------------------------- ------------------ --------------------
Revenue return per ordinary share 5.22 5.16
Capital return per ordinary share 20.82 (48.75)
----------- -----------
Total return per ordinary share 26.04 (43.59)
====== ======
4. Net asset value per ordinary share
The NAV per ordinary share is based on the net assets attributable to
the ordinary shares of GBP738,642,000 (2022: GBP652,464,000) and on
the 400,867,176 ordinary shares in issue at 30 June 2023 (2022: 400,867,176).
The Company has no securities in issue that could dilute the NAV per
ordinary share (2022: same). The NAV per ordinary share at 30 June 2023
was 184.26p (2022: 162.76p).
The movements during the year in assets attributable to the ordinary
shares were as follows:
2023 2022
GBP'000 GBP'000
---------------------------------------------------------------- ------------------ --------------------
Net assets attributable to ordinary shares at
start of year 652,464 840,667
Profit/for the year 104,381 (174,712)
Dividends paid in the year (18,220) (13,429)
Costs relating to sub-division of shares 17 (62)
------------ ------------
Net assets at 30 June 738,642 652,464
======= =======
5. Dividends 2023 2022
GBP'000 GBP'000
------------------------------------------------ ---------- ----------
Amounts recognised as distributions to equity
holders in the year:
Final dividend of 3.10p for the year ended 30
June 2022 (2021: 2.10p) 12,427 8,418
Interim dividend of 1.45p per ordinary share
for the year ended 30 June 2023 (2022: 1.25p) 5,812 5,011
Unclaimed dividends from prior years (19) -
--------- ---------
18,220 13,429
===== =====
The final dividend of 3.10p per ordinary share in respect of the year
ended 30 June 2022 was paid on 2 December 2022 to shareholders on the
Register of Members at the close of business on 21 October 2022. The
total dividend paid amounted to GBP12,427,000.
Subject to approval at the annual general meeting in November 2023,
the proposed final dividend of 3.25p per ordinary share will be paid
on 1 December 2023 to shareholders on the Register of Members at the
close of business on 3 November 2023. The shares will be quoted ex-dividend
on 2 November 2023.
The proposed final dividend for the year ended 30 June 2023 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:
2023 2022
GBP'000 GBP'000
------------------------------------------------ ----------- -----------
Revenue available for distribution by way of
dividends for the year 20,927 20,703
Interim dividend of 1.45p per ordinary share
for the year ended 30 June 2023 (2022: 1.25p) (5,812) (5,011)
Proposed final dividend of 3.25p per ordinary
share for the year ended 30 June 2023 (2022:
3.10p) (based on 400,867,176 shares in issue
at 9 October 2023) (13,028) (12,427)
---------- ----------
Transfer to Revenue reserve 2,087 3,265
====== ======
The Company's undistributed revenue represents 8.3% (2022: 12.9%) of
total income.
6. Called up share capital 2023 2022
---------------------------------
number number
of shares GBP'000 of shares GBP'000
--------------------------------- ------------ --------- ------------- ---------
Allotted, issued and fully paid
ordinary shares of 1.5625p 400,867,176 6,264 400,867,176 6,264
During the year no ordinary shares were issued (2022: no shares issued)
for proceeds of GBPnil (2022: GBPnil). In the current year to date and
prior financial year, the Company has not repurchased any shares for
cancellation.
7. 2023 Financial information
The figures and financial information for the year ended 30 June 2023
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 2023 have been audited
but have not yet been delivered to the Registrar of Companies. The Independent
Auditors' Report on the 2023 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. 2022 Financial information
The figures and financial information for the year ended 30 June 2022
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 2023. A
video of the Fund Manager discussing the financial results will shortly
be available on the Company's website, www.europeansmallercompaniestrust.com
along with the annual report.
10. Annual General Meeting
The annual general meeting will be held on Monday 27 November 2023 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, and Simona
Heidempergher. On 9 October 2023, the Company announced the appointment
of James Williams as a director with effect from 1 November 2023. 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: 020 7818 4331/3997
Dan Howe Harriet Hall
Head of Investment Trusts PR Manager
Janus Henderson Investors Janus Henderson Investors
Telephone: 020 7818 4458 Telephone: 020 7818 2919
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.
This information is provided by RNS, the news service of the
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of this information may apply. For further information, please
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END
FR FSAFMUEDSELS
(END) Dow Jones Newswires
October 10, 2023 02:00 ET (06:00 GMT)
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