THE EUROPEAN INVESTMENT TRUST PLC
HALF-YEARLY REPORT
FOR THE HALF-YEAR ENDED 31 MARCH 2017
The Directors announce the unaudited Half-Yearly Report for the half-year
ended 31 March 2017 as follows:
Copies of the Half-Yearly Report can be obtained from the following websites:
www.theeuropeaninvestmenttrust.com and www.edinburghpartners.com.
FINANCIAL SUMMARY
31 March 2017
Shareholders'' funds - ?406.3m
Net asset value per ordinary share ("NAV") - 967.2p
Share price per ordinary share - 840.0p
Share price discount to NAV - 13.2%
Six months to 31 March 2017
Revenue return per ordinary share* - 8.9p
Capital return per ordinary share* - 146.3p
Total return per ordinary share* - 155.2p
Interim dividend per ordinary share - 8.0p
Special dividend per ordinary share - 1.5p
Total dividend per ordinary share - 9.5p
* Based on the weighted average number of shares in issue during the period.
CHAIRMAN''S STATEMENT
Results
The net asset value per ordinary share ("NAV") at 31 March 2017, the
Company''s half-year end, was 967.2p, an increase of 16.0% on the NAV at 30
September 2016 of 833.8p. After including the special and final dividends
totalling 22.0p per share which were paid in January 2017, the NAV total
return for the six-month period was 18.8%. This compares to the total return
from the FTSE All-World Europe ex UK Index in sterling of 12.8%. As prospects
for economic growth began to improve, the positioning of the portfolio in
economically sensitive stocks led to improved relative performance.
Share price and discount
During the six months to 31 March 2017, the Company''s share price increased
by 16.3% from 722.5p to 840.0p. The share price total return was 19.5%. The
share price discount to NAV narrowed from 13.4% to 13.2% during the period
under review.
Revenue
The net revenue return per share in the six-month period to 31 March 2017 was
8.9p, an increase on the 2.1p received in the six months to 31 March 2016. In
the period, the Company benefitted from the receipt of French withholding tax
suffered during the calendar years 2009 to 2012 and, including interest, this
contributed 3.2p of the net revenue return per share during the period. The
vast majority of the receipt from the reclaim, a total of 3.0p per share, was
included as part of the 22.0p per share dividend paid to shareholders in
January 2017. In the year to 30 September 2016, the net revenue return per
share was 19.0p.
Shareholders should be aware that the revenue return for the half-year is not
indicative of the full-year return, as many European companies pay their
dividends between April and September, while the expenses of running the
Company are incurred on a more even basis throughout the financial year.
Dividend
Previously the Company has only paid an annual dividend. Following a review
by the Directors, it has been decided that it would be beneficial for
shareholders to receive a dividend twice a year, an interim dividend in July
and, as previously, a final dividend in January.
As a consequence, the Board has decided to pay an interim dividend of 8.0p
per share. Following the receipt of a further French withholding tax reclaim,
a special dividend of 1.5p per share will also be paid, giving a total of
9.5p per share. These dividends will be paid on 31 July 2017 to shareholders
on the register at the close of business on 7 July 2017. The ex-dividend date
will be 6 July 2017.
Share buybacks
During the six months to 31 March 2017 the Company bought back 46,781 shares
for cancellation at a total cost of ?353,000.
Borrowing
In February 2016, the Company entered into a EUR30 million overdraft credit
facility agreement with The Northern Trust Company for the purpose of
pursuing its investment objective. The facility is available until further
notice. As at 31 March 2017, a total of EUR12.5 million, equivalent to ?10.7
million, and a borrowing level of 2.6% of the Company''s net assets, had been
drawn down under the facility.
The Board
Douglas McDougall retired from the Board at the conclusion of the Annual
General Meeting on 24 January 2017 and I succeeded him as Chairman of the
Company. Michael Woodward was appointed Chairman of the Audit Committee. The
management engagement responsibilities previously held by the Audit and
Management Engagement Committee have been transferred to the Board.
Auditor
At the Annual General Meeting of the Company held on 24 January 2017,
shareholders approved the appointment of BDO LLP as Auditors to the Company.
This followed the decision of PricewaterhouseCoopers LLP not to seek
re-appointment, as a consequence of the EU Audit Regulation and Directive
which placed restrictions on auditors providing non-audit services to the
Company.
Michael MacPhee
Chairman
23 May 2017
INVESTMENT MANAGER''S REVIEW
Economic and market overview
The UK vote to leave the European Union ("EU") and the election of President
Trump in the United States suggested that populist anger might threaten the
integrity of the EU. However, in both the recent Dutch and French elections,
the extremist parties did not achieve a breakthrough and there is increased
confidence that the EU will continue to adapt and survive. Economic data
across most of Europe continues to hold up and in some cases an improvement
is being seen.
The second half of 2016 saw a shift in market sentiment with a focus on the
improving prospects for economic growth and the anticipation of a transition
away from ultra-low interest rates. As the fear of deflation receded, the
premiums attached to stable growth businesses such as consumer staples began
to fall. The corollary was that the valuations of economically sensitive
stocks such as financials and industrials began to recover. We were
well-placed for this shift and as a consequence performance improved
significantly.
Portfolio strategy and activity
We have retained significant exposure to the financial sector, holding six
banking stocks, which totalled 16.8% of net assets at the period end. During
the period, we replaced Swedbank with Dutch-based ING which was trading on a
much lower valuation. Our exposure to the industrial sector reduced to 19.0%
of net assets, following the sale of cable manufacturer, Prysmian, and the
trimming of a number of our holdings such as ball bearings manufacturer, SKF,
and auto supplier, Leoni.
We increased our exposure to the healthcare sector during the period to 12.6%
of net assets with the purchase of Swiss-based biotech specialist BB Biotech.
We believe our healthcare holdings, including Novartis, Sanofi and Roche, are
set for a period of growth from new products which will drive earnings
growth.
The takeover of insurer, Delta Lloyd, was completed after the period end and
this contributed to performance. The Dutch postal operator, PostNL, rejected
the merger proposal from Belgian-based bpost and subsequently reinstated its
dividend. PostNL is the Company''s largest holding and the return to paying a
dividend should underpin a valuation which remains undemanding.
After the strong performance from the Company''s investments in late 2016, the
valuation of the portfolio has risen to a level which is closer to fair value
and hence warrants some caution. We retain a pro-cyclical bias within the
portfolio, but at current valuation levels would not look to increase the
overall cyclicality or to increase the use of the debt facility which we
successfully deployed in early 2016.
Outlook
As the economic recovery becomes firmer, Central Banks are able to start
withdrawing the monetary stimulus being applied through bond purchases and
ultralow interest rates. The US has led the way with incremental rises in
interest rates and it seems likely that Europe will follow suit in due
course. We believe this change in the interest rate environment, which
reflects an improving economic outlook, will continue to support a
normalisation of valuations across equity markets.
As ever, there remain political risks, both within Europe and from the rest
of the world. The Brexit negotiations and the implementation of President
Trump''s promise to put America first both have the potential to increase
protectionism, cause disruption and restrict economic growth. However, our
central case is that Europe will continue its economic recovery and that the
prospects for European equities remain solid.
Craig Armour
Edinburgh Partners Limited
23 May 2017
End CA:00301652 For:EUT Type:INTERIM Time:2017-05-25 08:30:45