TIDMCPE
RNS Number : 0525B
Charter European Trust plc
10 February 2011
For immediate release 10th February 2011
CHARTER EUROPEAN TRUST PLC
RESULTS FOR THE YEAR ENDED 30th NOVEMBER 2010
The following comprises extracts from the Company's Annual
Financial Report for the year ended 30th November 2010. The full
Annual Financial Report is available to be viewed on or downloaded
from the company's website at www.chartereuropean.co.uk. Copies
will be mailed to shareholders shortly.
Chairman's Statement
Unusually, our net asset value per share barely changed during
the financial year, (and was up by just 0.1p), compared to our
benchmark, the FTSE World Europe (ex UK) Index, which fell by 3.4%,
in sterling terms. This result reflects another good performance
against the Index by your Fund.
Earnings per share increased 10.9% to 4.37p. Given the
concentrated nature of the portfolio and the Manager's investment
approach, which emphasises total return rather than income, our
earnings will be determined by the dividends received from a
relatively small number of stocks, and any changes to these
holdings will have a greater impact on our revenue than in a more
broadly diversified portfolio. In view of the forecast of likely
income from our current portfolio in 2011, the Board has decided to
maintain rather than increase the total payout for 2010 and it is
possible that revenue reserves will be used to maintain the
dividend in 2011.
The Board is thus recommending a final ordinary dividend of
2.65p per Ordinary Share payable on 4th April 2011 to shareholders
on the Register at 25th February 2011, making a total dividend for
the year to 30th November 2010 of 4.05p per Ordinary Share. The
Board has not instructed the Manager to target any particular level
of dividend income, as the Manager's bottom up stock-picking
approach has served the Company very well in recent years. It is
worth emphasising, however, that the revenue deriving from the
portfolio is a result of decisions taken primarily to maximise
relative total return.
During the year, Mark Lovett resigned from RCM, and I would like
to record the Board's thanks to Mark for the excellent performance
record enjoyed by Charter since he became portfolio manager in
2004.
I am delighted that Neil Dwane, who manages a number of similar
focused funds, has been appointed as the new portfolio manager.
Neil is a very experienced fund manager with a strong performance
record in European equities, and is also European Chief Investment
Officer at RCM. We have been extremely fortunate to have had very
talented portfolio managers at RCM over the last decade and we look
forward to working with Neil in the future.
During the course of the year, the Company's facility with The
Bank of Ireland expired, and I am pleased to say we have now
negotiated a new 10 million euro credit facility with Scotiabank.
At the time of writing, the Manager has not drawn down on this
facility, but we intend to deploy gearing again should a suitable
opportunity arise during the year.
This year the Company has bought back 712,000 shares for
cancellation and 385,000 shares for Treasury and, since the year
end has purchased a further 219,000 shares for cancellation. The
Board continues to believe that a buyback policy is helpful in
reducing the volatility of the discount to asset value, as well as
modestly enhancing the net assets as a consequence of the
buyback.
All the Directors are standing for annual re-election and their
biographies are set out on page 13.
Although there remain considerable uncertainties about the
future direction of a number of European economies, and indeed the
ability of their governments to repay their outstanding
liabilities, much of the recent economic data from Germany has been
encouraging. If this encouraging trend in Germany can be sustained
and even spread to other countries-and we believe, on balance, that
it will- European markets should make further progress in 2011.
However, it is also clear that many of the problems in some of the
smaller countries in the Euro bloc, and indeed the Euro itself,
have not yet conclusively been resolved and we will, no doubt, see
further nervousness on this front during the course of the
year.
Giles Weaver
10th February 2011
Manager's Review
Market Background
Net assets per share ended the period broadly unchanged, whilst
the benchmark fell 3.42% in sterling terms. Volatility, although
lower than in 2009, was still very high compared to historic
levels. Although a semblance of normality has returned to the
world's major financial institutions, there remain countries on the
periphery of Europe where the banks are under enormous pressure and
are unable to finance themselves satisfactorily in the interbank
market. This year we were again reminded of the interdependence of
the world's financial system and how the problems in one area can
create systemic risks elsewhere. We will therefore remain vigilant
to developments in these struggling countries both for
opportunities and threats.
In the US, where fiscal and monetary easing is being pursued
most aggressively, the economy is now looking relatively healthy.
In Europe, however, the idea of quantitative easing is anathema to
the Bundesbank. Should growth stall, it may be necessary to resort
to more aggressive policy options.
A positive surprise from the period was the ability of many
companies to navigate their way through the crisis by protecting
margins and squeezing out efficiencies. This will make future
earnings higher and underpin their valuations. In Europe valuations
remain very attractive relative to history and other asset classes.
Balance sheets are now generally very strong as managers have
learnt the lessons of excessive leverage. Corporate cash balances
are particularly high and this is likely to lead to a heightened
level of Mergers and Acquisitions activity. It should also lead to
increased investment once capacity utilisation picks up and the
economic outlook stabilises further.
Emerging markets remained the primary growth driver throughout
the period, and many European stocks have significant exposure to
these growth areas. This remains a theme in the portfolio,
especially as the valuation of these European listed stocks is
often more attractive than their locally listed alternatives. China
is a recent good example of the benefits of economic stimulus,
although it now faces potential overheating and we have seen
various moves to 'dab the brakes' as inflation accelerates. Most
recently the reserve requirement for the banks was increased to
reduce money supply. Trying to moderate inflation and increase
domestic consumption will be no easy feat, and we will actively
monitor the situation.
Portfolio Review
Turnover during the period reflected in part transactions
prompted by the change in portfolio manager, but the decision to
keep a number of promising mid cap names such as Barco and EVS
Broadcast Equipment has served the portfolio well. A new position
was initiated in Pandora. This is a recently listed global company,
with headquarters in Denmark, which sells jewellery, including
charm bracelets. The brand is building a very strong following and
recent results have backed up the investment thesis. Strong cash
flow will also speed up the roll out of the product in emerging
markets, which should prove very profitable. We are in the process
of conducting proprietary market research to confirm that the sales
trends remain intact.
CSM was another new introduction to the Trust. This is the
world's largest supplier of bakery products, and we are
particularly interested in its Purac subsidiary with its
innovations in the field of lactic acid bioplastics (Poly Lactic
Acid). The stock trades at an attractive valuation on the basis of
the bakery division alone, and the current price makes very little
allowance for the promising bioplastics angle. The company learned
the hard way in 2008 that input costs can rise rapidly and require
hedging and monitoring; so, despite the outlook for further
increases in soft commodities and food price inflation, we believe
this stock can continue to perform in the future.
During the past year the strong performance of the Trust against
the Index has been driven by stock selection rather than sector
allocation which, given our fundamental bottom up investment
process, is encouraging. Barco was the single biggest positive
contributor and performance was driven by earnings upgrades as the
performance of its medical imaging and cinema projector products
grew strongly. This company is under researched by the investment
banks and through our management meetings we have been able to gain
a good understanding of its principal businesses. Following a
recent meeting we remain committed to the holding, as the other
later cycle business areas such as events and conference displays
are picking up and should ensure positive momentum is
maintained.
Yara International was another strong performer, based on our
long term views that we are facing structural food price inflation
driven by a variety of factors such as increased protein
requirements in developing economies and population growth. Yara
International specialises in nitrates, and the pricing and demand
for these has steadily improved. Higher soft commodity prices have
helped agricultural profitability and increased demand for the
yield enhancing nitrates.
During the year exposure to financial stocks was reduced
significantly. Given the strong performance of many financial
companies since the March 2009 lows it was increasingly hard to see
much further upside. We remain wary of financials at a general
level given the opaque nature of their accounting. Many European
banks have high exposure to troubled peripheral European regions as
well as major refinancing requirements in the future. More
specialist names such as Intermediate Capital and International
Personal Finance were sold as they had appreciated to a point where
the risk/reward was unattractive. The recent steepening of the
yield curve in Europe has drawn our attention back to the sector
but in most cases valuations still look full.
Outlook
Looking at 2011, currencies are likely to remain a major theme.
Most indebted countries are keen to see weaker currencies in order
to stimulate their exports. For countries such as China this has
been achieved by refusing to allow their currency to appreciate,
much to the annoyance of other nations competing with them. The
"one size fits all" euro is currently under much debate, and we
foresee this continuing throughout 2011. On balance, we believe
that that the political will exists to preserve the current
composition of the Euroland bloc, and that mechanisms will be found
to prevent a major systemic crisis. However, in our view some form
of debt restructuring is likely in Greece.
Inflation will continue to be a focus for the markets given that
it is rising despite the early and fragile stage of the economic
recovery. It will be of particular concern to companies which
cannot pass on increased costs. We will be regularly reviewing our
investments to ensure that they are well placed to weather this
threat. However, inflation may be the solution the world economy
needs to erode real debt levels.
We will become more confident in the recovery when we see
employment levels picking up, as many governments are still running
extremely large deficits and a jobless recovery is not a
particularly reliable or desirable phenomenon. This is especially
the case when so much of the recovery has been reliant on the
resurgent growth in countries such as China, which are currently
facing pressures of their own.
European equities remain attractively valued despite the strong
performance since the market lows of March 2009. This is especially
true when compared to the US and emerging equity markets. Given
that many European stocks derive a large proportion of their
earnings from these high growth regions, we believe many European
shares are underappreciated and will in due course attract more
buyers. Intra-sector correlations remain at a high level, so that
stocks tend to rise and fall together rather than the best
companies outperforming. This year will hopefully see this feature
of the markets subside, allowing greater scope for outperformance
from stock picking.
Neil Dwane
10th February 2011
Principal Risks and Uncertainties
With the assistance of the Manager, the Board has drawn up a
risk matrix which identifies the key risks to the Company. These
key risks fall broadly under the following categories:
Investment and Strategy: An inappropriate investment strategy,
for example asset allocation or the level of gearing, may lead to
under-performance against the Company's benchmark index and peer
companies. The Board manages these risks by diversification of
investments through its investment restrictions and guidelines
which are monitored and reported on. RCM (UK) Limited ("RCM")
provides the Directors with timely and accurate management
information, including performance data and attribution analyses,
revenue estimates, liquidity reports and shareholder analyses. The
Board monitors the implementation and results of the investment
process with the Investment Manager, who attends all Board
Meetings, and reviews data which show statistical measures of the
Company's risk profile. The Investment Manager employs the
Company's gearing tactically, within a strategic range set by the
Board. Currently, gearing must not exceed 20% of net assets at the
time of drawdown.
Market: Market risk arises from volatility in the prices of the
Company's investments. It represents the potential loss the Company
might suffer through holding investments in the face of negative
market movements. The Board reviews stock selection and levels of
gearing on a regular basis and has set investment restrictions and
guidelines which are monitored and reported on by RCM. The Board
monitors the implementation and results of the investment process
with the Investment Manager. Further disclosure on market and other
financial risks faced by the Company are disclosed in Note 16 on
pages 43 to 45.
Concentration Risk: The Company has a focused portfolio of
around 30 holdings, which may be more volatile than a more
diversified portfolio.
Accounting, Legal and Regulatory: In order to qualify as an
investment trust, the Company must comply with Section 1158 of the
Corporation Tax Act 2010 (formerly Section 842 of the Income and
Corporation Taxes Act 1988) ("Section 1158"). Details of the
Company's approval are given under "Business of the Company" on
page 15. Should the Company breach Section 1158, it may lose
investment trust status and as a consequence realised capital gains
within the Company's portfolio would be subject to Corporation Tax.
The Section 1158 qualification criteria are monitored by RCM and
results reported to the Board at each Board Meeting. The Company
must also comply with the provisions of the Companies Act 2006 and,
as its shares are listed on the London Stock Exchange, the UKLA
Listing Rules. A breach of the Companies Act could result in the
Company and/or the Directors being fined or the subject of criminal
proceedings. A breach of the UKLA Listing Rules may result in the
Company's shares being suspended from listing, which in turn would
breach Section 1158. The Board relies on its Company Secretary and
its professional advisers to ensure compliance with the Companies
Act 2006 and the UKLA Listing Rules.
Corporate Governance and Shareholder Relations: Details of the
Company's compliance with Corporate Governance best practice,
including information on relations with shareholders, are set out
in the Corporate Governance Report on pages 23 to 26.
Operational: Disruption to, or failure of, RCM's accounting,
dealing or payments systems or the custodian's records may prevent
accurate reporting and monitoring of the Company's financial
position. RCM has transferred operational functions, principally
relating to trade processing and investment administration, to BNY
Mellon Asset Servicing - London Branch. Details of how the Board
monitors the services provided by RCM and other suppliers and the
key elements designed to provide effective internal control are
included within the Internal Control section of the Corporate
Governance Report on pages 23 to 26.
Related Parties' Transactions
During the financial year, no transactions with related parties
have taken place, which have materially affected the financial
position or the performance of the Company during the period.
Directors' Responsibilities
The Directors each confirm to the best of their knowledge
that:
a) the financial statements, prepared in accordance with
applicable accounting standards, give a true and fair view of the
financial position and profit or loss of the Company; and
b) the Annual Financial Report, to be published shortly,
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.
155 Bishopsgate For and on behalf of the Board
London EC2M 3AD C G H Weaver
10th February 2011 Chairman
INCOME STATEMENT
for the year ended 30th November 2010
Revenue Capital Total Return
GBP GBP GBP
Net gains on investments at
fair value - 161,257 161,257
Gains on foreign currencies - 220,018 220,018
Income 1,699,385 - 1,699,385
Investment management fee (124,505) (668,697) (793,202)
Administration expenses (370,865) (8,331) (379,196)
Net return before finance costs
and taxation 1,204,015 (295,753) 908,262
Finance costs: interest payable
and similar charges (5,330) (14,376) (19,706)
---------- ---------- -------------
Net return on ordinary activities
before taxation 1,198,685 (310,129) 888,556
Taxation (185,880) - (185,880)
Net return attributable to Ordinary
Shareholders 1,012,805 (310,129) 702,676
---------- ---------- -------------
Return per Ordinary Share (Note 4.37p (1.34)p 3.03p
B)
(basic and diluted)
BALANCE SHEET
as at 30th November 2010
2010
GBP
Investments held at fair value through
profit or loss 53,708,489
Net Current Assets 1,725,832
-----------
Total Net Assets 55,434,321
Called up Share Capital 250,789
Capital Redemption Reserve 284,880
Special Reserve 32,406,589
Capital Reserve 20,543,102
Revenue Reserve 1,948,961
Shareholders' Funds (all equity interests) 55,434,321
-----------
Net asset value per Ordinary Share 245.3p
The net asset value is based on 22,598,917 Ordinary Shares in
issue at the year end.
INCOME STATEMENT
for the year ended 30th November 2009
Revenue Capital Total Return
GBP GBP GBP
Net gains on investments at
fair value - 16,596,268 16,596,268
Losses on foreign currencies - (38,036) (38,036)
Income 1,575,116 - 1,575,116
Investment management fee (112,466) (558,400) (670,866)
Investment management fee VAT
refund 11,551 34,653 46,204
Administration expenses (269,357) (8,433) (277,790)
Net return before finance costs
and taxation 1,204,844 16,026,052 17,230,896
Finance costs: interest payable
and similar charges (1,234) (1,271) (2,505)
---------- ----------- -------------
Net return on ordinary activities
before taxation 1,203,610 16,024,781 17,228,391
Taxation (259,961) 79,412 (180,549)
Net return attributable to Ordinary
Shareholders 943,649 16,104,193 17,047,842
---------- ----------- -------------
Return per Ordinary Share (Note 3.94p 67.32p 71.26p
B)
(basic and diluted)
BALANCE SHEET
as at 30th November 2009
2009
GBP
Investments held at fair value through
profit or loss 59,808,860
Net Current Liabilities (1,715,671)
------------
Total Net Assets 58,093,189
Called up Share Capital 257,909
Capital Redemption Reserve 277,760
Special Reserve 34,821,631
Capital Reserve 20,853,231
Revenue Reserve 1,882,658
Shareholders' Funds (all equity interests) 58,093,189
------------
Net asset value per Ordinary Share 245.2p
The net asset value is based on 23,695,917 Ordinary Shares in
issue at the year end.
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
for the years ended 30th November 2010 and 30th November
2009
Called
up Capital
Share Redemption Special Capital Revenue
Capital Reserve Reserve Reserve Reserve Total
GBP GBP GBP GBP GBP GBP
------------- -------- ----------- ------------ ----------- ------------ ------------
Net Assets
at 30th
November
2008 261,666 274,003 35,939,140 4,749,038 1,969,772 43,193,619
Revenue
Return - - - - 943,649 943,649
Shares
repurchased
during the
year (3,757) 3,757 (1,117,509) - - (1,117,509)
Dividends on
Ordinary
Shares - - - - (1,030,763) (1,030,763)
Capital
Return - - - 16,104,193 - 16,104,193
-------- ----------- ------------ ----------- ------------ ------------
Net Assets
at 30th
November
2009 257,909 277,760 34,821,631 20,853,231 1,882,658 58,093,189
-------- ----------- ------------ ----------- ------------ ------------
Net Assets
at 30th
November
2009 257,909 277,760 34,821,631 20,853,231 1,882,658 58,093,189
Revenue
Return - - - - 1,012,805 1,012,805
Shares
repurchased
during the
year (7,120) 7,120 (2,415,042) - - (2,415,042)
Dividends on
Ordinary
Shares - - - - (946,502) (946,502)
Capital
Return - - - (310,129) - (310,129)
-------- -------- ------------ ----------- ---------- ------------
Net Assets
at 30th
November
2010 250,789 284,880 32,406,589 20,543,102 1,948,961 55,434,321
-------- -------- ------------ ----------- ---------- ------------
CASH FLOW STATEMENT
for the year ended 30th November 2009 and 30th November 2010
2010 2010 2009
GBP GBP GBP
Net cash inflow from operating
activities 476,412 856,934
Return on investment and servicing of
finance
Interest paid (21,402) (2,505)
Capital expenditure and financial
investment
------------
Purchase of fixed asset investments (66,723,692) (63,413,740)
Sale of fixed asset investments 73,601,370 61,333,697
------------ ------------
Net cash inflow (outflow) from
capital expenditure and financial
investment 6,877,678 (2,080,043)
Equity dividends paid (946,502) (1,030,763)
----------- ------------
Net cash inflow (outflow) before
financing 6,386,186 (2,256,377)
Financing
------------
Purchase of Ordinary Shares for
cancellation and holding in
treasury (2,414,327) (1,118,394)
Drawdown (Repayment) of loan (2,784,818) 2,992,764
Net cash (outflow) inflow from
financing (5,199,145) 1,874,370
Increase (Decrease) in cash 1,187,041 (382,007)
----------- ------------
EQUITY HOLDINGS as at 30th November 2010
% of
Total
Invested
Value (GBP) Funds Sector
--------------------------- ----------- -------- --------------------------
Roche Holdings Pharmaceuticals &
(Switzerland) 2,798,702 5.2 Biotechnology
Compagnie Financiere
Richemont (Switzerland) 2,335,202 4.3 Personal Goods
Inmarsat (UK) 2,334,589 4.3 Mobile Telecommunications
Total (France) 2,285,780 4.3 Oil & Gas Producers
Pharmaceuticals &
Sanofi-Aventis (France) 2,219,300 4.1 Biotechnology
Michelin (France) 2,167,575 4.0 Automobiles & Parts
Sodexo (France) 2,163,231 4.0 Travel & Leisure
Bwin Interactive (Austria) 2,106,660 3.9 Travel & Leisure
Technology Hardware &
Aixtron (Germany) 2,096,753 3.9 Equipment
Yara International (Norway) 2,089,751 3.9 Chemicals
----------- --------
Value of ten largest
holdings 22,597,543 41.9 % of Total Invested Funds
----------- --------
Credit Suisse Group
(Switzerland) 1,999,711 3.7 Banks
Fresenius Medical Care Healthcare Equipment &
(Germany) 1,774,471 3.3 Services
CSM (Netherlands) 1,769,358 3.3 Food Producers
D'Ieteren (Belgium) 1,768,861 3.3 General Retailers
Galp Energia (Portugal) 1,758,441 3.3 Oil & Gas Producers
Electronic & Electrical
Barco (Belgium) 1,757,766 3.3 Equipment
GFK (Germany) 1,714,997 3.2 Media
Koninklijke DSM
(Netherlands) 1,644,985 3.1 Chemicals
Pandora (Denmark) 1,637,661 3.1 Personal Goods
Borders & Southern
Petroleum (UK) 1,601,178 3.0 Oil & Gas Producers
ASM International Technology Hardware &
(Netherlands) 1,508,729 2.8 Equipment
Ryanair (Ireland) 1,504,791 2.8 Travel & Leisure
Siemens (Germany) 1,415,976 2.7 General Industrials
EVS Broadcast Equipment Electronic & Electrical
(Belgium) 1,406,158 2.6 Equipment
Hochtief (Germany) 1,404,207 2.6 Construction & Materials
GEA Group (Germany) 1,394,033 2.6 Industrial Engineering
Bayer (Germany) 1,164,685 2.2 Chemicals
BG Group (UK) 1,132,451 2.1 Oil & Gas Producers
Randgold Resources (UK) 1,097,205 2.0 Mining
EDP Renovaveis (Portugal) 834,478 1.6 Electricity
Vestas Wind Systems
(Denmark) 820,804 1.5 Alternative Energy
53,708,489 100.0 % of Total Invested Funds
----------- --------
Note A
The financial statements have been prepared under the historical
cost convention, except for the measurement at fair value of
investments, and in accordance with United Kingdom law, United
Kingdom Generally Accepted Accounting Practice (UK GAAP) and the
Statement of Recommended Practice - Financial Statements of
Investment Trust Companies and Venture Capital Trusts (SORP) issued
in January 2009 by the Association of Investment Companies.
Note B
The return per Ordinary Share has been calculated using a
weighted average number of Ordinary Shares in issue during the year
of 23,191,456 shares (2009 - 23,922,184 shares).
Note C
The financial information set out in this announcement does not
constitute the Company's statutory accounts for the years ended
30th November 2010 or 30th November 2009. The financial information
for the year ended 30th November 2009 has been extracted from the
statutory accounts for that year, which were filed with the
Registrar of Companies on 31st March 2010. The auditors' report on
those accounts was unqualified, and did not contain a statement
under either section 498(2) or (3) of the Companies Act 2006. The
statutory accounts for the year ended 30th November 2010 will be
finalised on the basis of the financial information presented by
the Directors in this announcement and will be delivered to the
Registrar of Companies following the Company's Annual General
Meeting.
For further information please contact:
Peter Ingram
Company Secretary
Telephone: 020 7065 1467
This information is provided by RNS
The company news service from the London Stock Exchange
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