European Opportunities Trust PLC (the 'Company')

Legal Entity Identifier: 549300XN7RXQWHN18849

Half Yearly Financial Report for the six months to 30 November 2022

Summary of returns for the six months to 30 November 2022

^*A dividend of 2.5p was paid on 28 November 2022.

Long term track record

Source: MSCI & Devon Equity Management Limited. Past performance is no guide to the future.

To note: Reduction in management fees.

Chairman's Statement

I am pleased to present these interim results to 30th November 2022 and my first statement as Chair since taking over at the last AGM. I would like to take this opportunity to thank my predecessor, Andrew Sutch, for his dedicated service to the Company and its shareholders as a Director for eleven years, and Chair for five.

Our Investment Manager's approach to investment

As your Company's Investment Manager, Alexander Darwall, along with his colleagues at Devon, takes a consciously differentiated approach to investment, one that has been consistently applied since the launch of the Company. In his own words, he describes his approach as thinking and acting as an owner and investor, not as a speculator, and investing in a concentrated portfolio of 'special' companies. Past experience suggests that the earnings of our portfolio companies have tended to be resilient in adverse economic conditions and their share prices have tended to recover strongly in its aftermath. The Board supports the belief that the consistency of this approach over the past twenty-two years has been the key contributor to your Company's significant long-term outperformance since launch relative to its Benchmark, the MSCI Europe Total Return Index in GBP.

Having said that, the concentrated nature of the Company's portfolio, and its high degree of differentiation from the Index can lead to shorter-term periods of underperformance. This has proved true of the six months under review. In particular, the relative absence of exposure to the hydrocarbon energy and financial sectors compared to the benchmark, the MSCI Europe Total Return Index, has weighed on relative returns. While shorter-term factors such as rising interest rates and disruption to energy supplies due to the invasion of Ukraine have supported these sectors, they do not meet the Manager's criteria for superior, visible long-term growth.

On a longer-term basis, our Manager is confident that our portfolio is well-positioned for growth as the world moves on from the trials of recent years. More detailed comments on the portfolio are set out in the Investment Manager's Review.

Investment performance

During the six months to 30 November 2022 the total return on the NAV per share of the Company was -0.4% (with dividends added back). This compares with a total return from the MSCI Europe Total Return Index of 2.1% and a share price total return of -0.1% (with dividends added back) over the same period.

Over the life of the Company (since launch on 20 November 2000 to 30 November 2022), the annualised total return on the NAV per share has been 10.8% and the annualised total return on the share price has been 9.9%. The annualised total return on the MSCI Europe Index over the same period has been 5.5%.

As of the close of business on 21 February 2023, your Company had total assets (with loans added back) of £975 million, the net asset value (NAV) per share was 889p and the middle market price per share on the London Stock Exchange was 766p, representing a 13.8% discount to NAV.

Discount Management

The Board considers that it is not in shareholders' interests for the ordinary shares of the Company to trade at a significant discount to the prevailing net asset value. The Board's policy is to maintain the discount in single digits in normal market conditions.

During the period under review, the discount level has generally been outside the Board's desired parameters, reflecting in part the somewhat abnormal market conditions. However, a total of 1,144,742 shares were repurchased for treasury during the period under review pursuant to the Company's policy. On 16 November, the Board also appointed Singer Capital Markets as broker to the Company, in succession to Cenkos Securities PLC. Our new brokers are working closely with our Investment Manager in marketing the Company and thereby identifying new investors whose demand for shares would also serve to improve the share price.

Continuation Vote

At every third Annual General Meeting ("AGM") an ordinary continuation resolution is proposed. The next such resolution will be proposed at the 2023 AGM (to be held in November).

Gearing

On 30 November 2022, the net gearing level on the Company's investments was 8.7% (after offsetting cash deposits against the £75 million drawn down on that date). Our Investment Manager tends to increase gearing at times of perceived low valuations, whilst reducing it as markets recover. This approach has added sustained value over the course of your Company's history and we continue to encourage the Investment Manager to consider the use of gearing as a tactical tool to improve returns.

The Company renewed its revolving credit facility with The Bank of Nova Scotia, London Branch on 9 September 2022 with a maximum drawable amount of £100 million available until September 2023 and credit approval for an additional 'accordion' amount available upon application for a further £50 million.

Our Investment Manager

In July 2022, our Investment Manager took on responsibility for the regulatory role of Alternative Investment Fund Manager ("AIFM") to the Company in place of Fundrock Partners Limited. This transition followed a detailed review of the Investment Manager's internal controls, compliance and risk environment by both the Board and our depositary, JP Morgan. The Investment Manager continues to build on the robust operational platform established in 2019 and, in terms of the investment team working for your Company, Alexander is now supported and challenged by three other investment professionals in pursuit of our strategy.

Reduction in management fee

The Board continues to keep all costs under careful review and remains focused upon delivering value to shareholders. As part of this oversight, the Board and Devon have agreed a reduction in the level of the investment management fee payable to our Investment Manager. With effect from 1 June 2023, Devon will be entitled to reduced aggregate management fees of 0.80% per annum on net assets up to £1 billion; 0.70% per annum on any net assets over £1 billion up to £1.25 billion; and 0.60% per annum on net assets above £1.25 billion.

Previously the Investment Manager was entitled to 0.90% per annum on net assets up to £1 billion and 0.80% in respect of any net assets above £1 billion.

Outlook

To quote the somewhat over-used proverb, these are certainly "interesting times". It has become a cliché to describe current conditions as unprecedented, but neither can a major war in Europe and inflation in or near double figures be described as entirely normal. 2022 will be remembered as a very difficult time for investors, not just in equities but also in fixed income and a range of other assets.

It is difficult to envisage a speedy resolution to the global geo-political and macro-economic challenges, but as a Board we are supportive of the Manager's focus on a relatively concentrated portfolio of high return, strongly moated and globally oriented businesses. This high conviction approach to investment has been consistently applied to the portfolio since launch and has produced exceptional long-term returns in the past; we believe that your portfolio is well-placed to produce similar returns in the future.

Matthew Dobbs

Chairman

24 February 2023

Investment Manager's Review

The total return on the net asset value of the Company's shares was -0.4% during the six months to 30th November 2022. This compares with an increase of 2.1% in our Benchmark, the MSCI Europe Total Return Index in GBP.

Performance

Whilst our investee companies delivered satisfactory or, in some cases, more than satisfactory results during the period under review, their share prices did not respond as positively and quickly as we had hoped. There were also stock mistakes, notably Grifols and Mowi, which we discuss below. Moreover, the portfolio has a low exposure to oil and gas companies which performed strongly. Nevertheless, if share price performances did not vindicate our investment style, we believe that, in the main, company performances did.

On the back of worsening inflation, the COVID era of 'free' money, or rather artificially low interest rates, has given way to a period of rising interest rates. The ECB's Main Refinancing rate has risen from 0% in November 2021 to 2% at the end of November 2022. The 3 months Euribor interest rate, which was a negative 0.6% in November 2021, was a positive 2.0% a year later. Anticipating further rises in interest rates, markets now price rates to rise to around 3.1% in the summer of 2023. Indeed, the European Central Bank raised interest rates by another 50 basis points in December, taking the deposit rate to 2.5%. Inflation forecasts over the next two years are for about 6.0% in 2023 and 3.4% in 2024. Europe's inflation problems are probably worse than most other regions of the world. The energy transition is being pursued more zealously in Europe than elsewhere, this is proving costly. Moreover, in addition to the headline interest rate increases, Quantitative Easing (QE) giving way to Quantitative Tightening (QT) has the effect of tightening financial conditions still further. Europe's low economic growth is also compounding problems. The IMF forecasts that the EU economy will expand by 0.7% in 2023, as compared with 2.7% for world economic growth. This is mirrored in corporate earnings, with analysts' expectations for Eurozone companies' earnings contracting by around 8-10% in 2023, before recovering in 2024.

This combination of rising interest rates and falling earnings, presented a valuation 'challenge' to highly valued stocks which were caught in a downdraught. However, as earnings resilience and pricing discipline assert themselves, we expect the stock market to reward 'true' growth companies with a rerating. We expect our companies' earnings to benefit both from secular, as opposed to cyclical, drivers and from their global reach. The evidence to support our confidence in the earnings growth of our companies is described below in 'Contribution'. Our 'value not volume' strategy is, we think, well-placed.

Our positioning remained entirely consistent with your Company's long term 'offer'. Our underweight exposure to the energy sector should be seen in this context. We eschew commodity companies, just as we generally avoid utilities (burdened by heavy regulations) and mainstream banks (they have commodity characteristics). The reason is that over time, 'special' companies, those which have strong positions, enjoying good growth, and where supply constraints help keep profitability elevated, should outperform commodity companies. Supply of commodities will usually respond to good profitability and erode that profitability in due course. This is not the case with companies we consider to be 'special'. These, we believe, can grow profits for longer without undue impact from new competitors and without undue attention from regulators.

In selecting our investments, we have other important considerations. Our companies typically have less debt than the average company in our investment universe. We think this is prudent. However, it is not clear that this stance helped performance greatly in the period under review. Another facet of the portfolio is its global exposure. There are many reasons why we like this global exposure: a bigger addressable market, some risk mitigation, success as a form of vindication. However, the turmoil of the last year has not necessarily helped the fund. Lockdowns in China and very high freight costs have probably been negative. On the other hand, our companies' fortunes will have been improved by exposure to markets like the US and Brazil where economic growth was robust.

Contribution

The biggest single contributor to performance was, yet again, Novo Nordisk. In part, of course, as our biggest holding any success is magnified in terms of contribution to the fund's performance. The company reported strong results and increased its guidance. The simple idea remains the same: Novo Nordisk is a world leader, together with one significant competitor, in addressing two massive, global therapeutic areas, the treatment of diabetes and obesity. The company will report progress on important clinical trials in the course of 2023. There is still much to play for. The next most important contributor was also our second biggest holding, Experian. Its relatively good performance is due to issuing strong results and guidance, reflecting both the good conditions for their services in the US and Brazil, and also the new opportunities to develop its consumer facing businesses. Much the same can be said of Edenred, the French-listed 'specific purpose' vouchers business. Here again, Brazil is an important and growing market. Edenred, too, has many opportunities to develop more consumer facing services. Deutsche Boerse, the German-listed exchanges business, was another good contributor to performance. Its revenues have grown faster than previously anticipated on the back of rising interest rates and volatile energy markets. Neste, listed in Finland, is a refiner of oil and producer of renewable diesel products. It benefits from higher energy prices as, typically, they price their renewables products at a premium to conventional diesel. The company is expanding their production to meet demand for Sustainable Aviation Fuel (SAF). We expect the market for SAF to grow rapidly aided by government mandated targets for renewables in the aviation industry. Finally, we highlight the contribution from Infineon, the German-listed world leader in power semiconductors. Infineon has delivered excellent results in 2023 and substantially raised its medium-term guidance. Electric vehicles (EV) have a much higher content of power semiconductors than conventional cars and the company should be a significant beneficiary of the transition to EVs.

The biggest detractor from performance was, once again, Grifols. As one of the world's leaders in the fractionation of blood plasma, Grifols continues to suffer from higher donor costs. Covid concerns kept many would-be donors away from collection centres in the US. They have been slow to return, in part because generous welfare payments had blunted the supply of donors. Moreover, as plasma collections are labour intensive, staff shortages and higher staffing costs have weighed on the company. Another perceived threat to Grifols' business is a new class of drugs which threatens to substitute Grifols' plasma fractionated products. However, we believe that the root of Grifols' problems is poor senior management rather than headwinds for the business itself. We note the company's stated commitment to a deep-rooted reorganisation.

Mowi shares also detracted from performance. Our holding in Mowi, the world's leading salmon farming company, is a good illustration of our policy to have investments in as broad a range of activities as possible, whilst fitting our investment criteria. This portfolio is not built narrowly on a few sectors or ideas, rather it encompasses many diverse, uncorrelated growth opportunities. Mowi's fundamentals are good. Demand for salmon continues to increase; supply growth is constrained; and prices have remained elevated. However, we were taken by surprise by the Norwegian government's proposals to impose new, high taxes on the sector, effectively a form of nationalisation without compensation. We await the final, we hope modified, proposals before finalising our decision.

Another underperformer was Bayer. Although it reported good results and raised its profit forecasts, the shares are still held back by its legal travails in the US. The principal driver of its profits' growth is the Crop Science division, which benefits from the buoyancy of the arable crop markets worldwide. We believe that the legal liabilities for its glyphosate product (Roundup) are adequately provisioned in the accounts and more than reflected in the share price. Consequently, we continue to see this as a good investment.

Our holding in Intermediate Capital Group (ICG) also reduced our returns. Its position as a well-diversified private equity and private debt manager means that it should benefit from the structural growth of 'Alternatives'. However, concerns about the indebtedness of the private equity sector in general weighed on its shares. We like the high visibility of ICG's revenues. Investors' money is locked up in funds run by ICG for many years. Critically, we think that ICG have avoided the riskiest areas of private equity and have the added protection of having less risky debt.

Finally, we note the underperformance of our holding in Dassault Systèmes. The company is a world leader in computer aided design and computer aided manufacturing technologies. It is constantly innovating and exploring new opportunities; their ambitions are impressive and well-founded. We remain confident that this is a high-quality investment.

Activity and gearing

The main effect, and one of the aims, of our trading activity was to reduce our borrowings by approximately £15 million to £75 million. This has had the effect of reducing gearing from 9.4% at the end of the last financial year to 8.7% at the end of the period under review. A feature of the portfolio is that our investee companies have, in general, less debt and stronger balance sheets than the average. This allows us a little leeway in gearing the portfolio. Our confidence in our holdings explains the decision to gear the fund. However, borrowing rates have increased, currently about 2.64%. This is an important consideration in determining the Company's borrowings and for this reason, all other things being equal, we are more inclined to reduce the Company's borrowings.

The biggest sale was that of our entire holding in the Swiss-listed Barry Callebaut, the world's leading manufacturer of high- quality chocolate and cocoa products. This is a fine company. However, we concluded that there were better opportunities elsewhere and sold. We trimmed holdings of Mowi (before the Norwegian government's tax proposals), GTT, Worldline, Infineon, bioMérieux and Pets At Home on valuation grounds. The bigger sales of Novo Nordisk and RELX were prompted by strong performance, reducing already significant weightings.

The only new purchase of significance was Genmab, a Danish biotech company, focussed primarily on oncology, producing monoclonal and bispecific antibodies. It has leadership in the most complex aspects of antibodies production and an impressive pipeline. We see opportunities for the company to develop in other therapeutic areas. Their potential addressable market is huge. We also took a very small position in Elkem, the Norwegian-listed producer of silicones and silicon products, operating worldwide. We believe that the company enjoys a sustainably favourable cost position which will ensure that it remains a leader as demand grows. Other purchases added to existing positions where we were prompted by good results and news.

Outlook

The challenges faced by Europe are well-known: the energy crisis, inflation, higher interest rates, weak demand in China for Europe's exports, and dysfunctional labour markets. European equities are out of fashion and international investors have been substantial sellers of European equities. Where there is optimism, it might be unfounded in that the energy crisis is likely to remain a blight on Europe for years, and interest rates are likely to remain high for years. Europe's energy transformation, exacerbated by the conflict in Ukraine, massively increases Europe's energy bill. By some estimates power and gas costs are increasing by around EUR500bn between 2022 and 2024, something like 3% of the EU's GDP. Consumer spending has remained remarkably robust, perhaps indicating an expectation that the authorities will, once again, come to the rescue with cheap or 'free' money. We think this is unlikely. Inflation has set in, and the authorities will have to keep interest rates high in an attempt to bring it down. Inflation impairs the prospects for almost all asset classes including equities. Moreover, the policy direction is Quantitative Tightening ("QT") not Quantitative Easing ("QE"), meaning that interest rates are likely to remain high.

Against this sobering macro background, we remain confident about our strategy. We identify significant value creating opportunities with our investments which trump these macro concerns. We would hope that proof of progress in capturing these opportunities will come in 2023 with, variously, the results of clinical trials and drug approvals, new customer wins, profits growth and technology breakthroughs. Innovations which deliver value for customers will continue to be rewarded. Our strategy is based on identifying companies which serve their customers with such value adding innovations. In most cases, our companies compete and succeed on the world stage, hugely increasing their addressable markets. Moreover, our selection of companies with 'measurable, monetisable and collectable' business models is, we think, a less risky strategy. Our companies, typically, have data to show the superiority of their products or services; they can price for the value delivered; and they are serving customers who can and will pay. This approach contrasts with more consumer-facing and fashion-orientated strategies, which we believe are vulnerable to a further squeeze on consumers' disposable incomes. We look forward with confidence.

Alexander Darwall

Devon Equity Management Limited

24 February 2023

Contributors to Performance

The following tables detail which stock positions had the greatest impact on performance during the six months to 30 November 2022 on an absolute basis, both positive and negative. The Benchmark MSCI Europe Total Return Index in GBP increased by 2.1% during the period under review:

Contributors to Performance

The following tables detail which sectors had the greatest impact on performance during the period on an absolute basis, both positive and negative:

Statement of Directors' Responsibilities in Relation to the Financial Statements

Going Concern

The Half Yearly Financial Report has been prepared on a going concern basis. The Directors consider that this is the appropriate basis as they have a reasonable expectation that the Company has adequate resources to continue in operational existence and meet its financial commitments as they fall due for a period of at least twelve months from the date of approval of the unaudited financial statements. In considering this, the Directors took into account the Company's investment objective, risk management policies and capital management policies, the diversified portfolio of readily realisable securities which can be used to meet short-term funding commitments and the ability of the Company to meet all of its liabilities and ongoing expenses.

The Directors continue to pay particular attention to the operational resilience and ongoing viability of the Investment Manager and the Company's other key service providers. Following review, the Directors are satisfied that Devon and the Company's other key service providers, notably JP Morgan, have the necessary contingency planning measures in place to ensure that operational functionality continues to be maintained.

The Directors continue to adopt the going concern basis of accounting in preparing the unaudited financial statements while recognising that the Articles of Association of the Company require a continuation vote at every third AGM, the next of which will take place at this year's AGM in November.

Principal and emerging risks and uncertainties

The principal risks facing the Company are investment strategy risk, market risk, operational risk and legal and regulatory risk. Full details of these risks and how they are managed are set out on pages 22 to 23 of the Company's Annual Report for the year ended 31 May 2022 which is available on the Company's website at www.europeanopportunitiestrust.com. The principal risks have not changed since those detailed in the Annual Report. The Board continues to monitor the principal risks facing the Company.

In addition, the Board monitors emerging risks. No new emerging risks were identified during the period under review. As part of its assessment of the viability of the Company, the Board has reviewed and considered the principal risks and uncertainties that may affect the Company, including emerging risks and ongoing matters relating to the COVID-19 pandemic, the economic turmoil following the invasion of Ukraine, rises in energy prices, inflation and higher taxes. The Board has also considered the Company's business model including its investment objective and investment policy, a forecast of the Company's projected income and expenses and the liquidity of the Company's portfolio to ensure that it will be able to meet its liabilities as they fall due.

Related Party Transactions

Devon is considered to be a related party of the Company under the Listing Rules. As such, its appointment as the Company's AIFM and its entry into a new investment management agreement (the 'Transaction') amounted to a small related party transaction under Listing Rule 11.1.10 R. On 1 July 2022 Cenkos Securities PLC, the Company's sponsor, provided written confirmation to the Company that the Transaction was fair and reasonable as far as the shareholders of the Company are concerned.

Directors' Responsibility Statement

We, the directors of European Opportunities Trust PLC, confirm to the best of our knowledge that:

(a)  the condensed set of financial statements have been prepared in accordance with the Accounting Standards Board's statement 'Half Yearly Financial Reports' and give a true and fair view of the assets, liabilities, financial position and profit/(loss) of the Company for the period ended 30 November 2022;

(b)  the Half-Yearly Financial Report includes a fair review of the information required by Disclosure Guidance and Transparency Rule 4.2.7R; and

(c)  the Half-Yearly Financial Report includes a fair review of the information required by Disclosure Guidance and Transparency Rule 4.2.8R on related party transactions.

The Half-Yearly Financial Report has not been audited or reviewed by the Company's auditors.

By Order of the Board

Matthew Dobbs

Chairman

24 February 2023

Income Statement

for the six months ended 30 November 2022

* There is no other comprehensive income and therefore the 'Net return/(loss) after taxation' is the total comprehensive income/(loss) for the financial period.

The total column of this statement is the income statement of the Company, prepared in accordance with IFRS.

The supplementary revenue return and capital return columns are both prepared under guidance produced by the Association of Investment Companies (AIC). All items in the above statement derive from continuing operations.

No operations were acquired or discontinued during the period.

Statement of Financial Position

as at 30 November 2022

Statement of Changes in Equity

for the six months to 30 November 2022

Cash Flow Statement

for the six months to 30 November 2022

Notes to the Financial Statements

1.   Accounting Policies

The accounts comprise the unaudited financial results of the Company for the period to 30 November 2022. The functional and reporting currency of the Company is sterling because that is the currency of the prime economic environment in which the Company operates.

The accounts have been prepared in accordance with International Financial Reporting Standards (IFRS), which comprise

standards and interpretations approved by the International Accounting Standards Board (IASB) and International Accounting Standards Committee (IASC), as adopted by the European Union (EU). 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 (as amended in February 2018 and again in October 2019) is consistent with the requirements of IFRS, the Directors have sought to prepare the financial statements on a basis compliant with the recommendations of the SORP. The accounts have also been prepared in accordance with the Disclosure and Transparency Rules issued by the Financial Conduct Authority (FCA). The accounting policies applied are consistent with those of the audited annual financial statements for the year ended 31 May 2022 and are described in those financial statements. In this regard, comparative figures from previous periods are prepared to the same standards as the current period, unless otherwise stated.

The Board continues to adopt the going concern basis in the preparation of the financial statements.

2.   Return/(loss) per ordinary share

3.   Retained earnings

The table below shows the movement in the retained earnings analysed between revenue and capital items.

* These reserves form the distributable reserves of the Company and may be used to fund distribution of profits to investors via dividend payments.

4.   Net asset value per ordinary share

The NAV per ordinary share is based on the net assets attributable to the ordinary shareholders of £856,605,000 (31 May 2022: £872,617,000) and on 101,439,098 (31 May 2022: 102,583,840) ordinary shares, being the number of ordinary shares in issue at the period end.

5.   Comparative information

The financial information contained in this interim report does not constitute statutory accounts as defined in section 434 of the Companies Act 2006. The financial information for the six months to 30 November 2022 and 30 November 2021 has not been audited. The information for the year ended 31 May 2022 has been extracted from the latest published audited financial statements. The audited financial statements for the year ended 31 May 2022 have been filed with the Register of Companies. The report of the auditors on those accounts contained no qualification or statement under section 498(2) of the Companies Act 2006.

6.   Related parties

Devon Equity Management Limited ('Devon') has served as Investment Manager to the Company since 15 November 2019 and became AIFM on 1 July 2022.

With effect from 1 June 2020, Devon has been entitled to aggregate management fees of 0.90% per annum of net assets (i.e. excluding drawn down borrowings under the Company's loan facilities) up to £1 billion and 0.80% per annum on any net assets over this amount.

With effect from 1 June 2023, Devon will be entitled to reduced aggregate management fees of 0.80% per annum of net assets up to £1 billion; 0.70% per annum on any net assets over £1 billion up to £1.25 billion; and 0.60% per annum on any net assets over this amount. All other terms and conditions in the investment management agreement remain unaltered. No performance fee is payable to Devon.

Although Devon Equity Management Limited is named as our Company Secretary at Companies House, J.P. Morgan Europe Limited provides company secretarial services to the Company as part of its mandate to provide fund administration services. In line with good governance practice and fostered by the independence between key suppliers, the Company has put safeguards in place to ensure effective shareholder communication and direct shareholder engagement for the Board.

J.P. Morgan Europe Limited has been appointed to provide secretarial and fund administration services to the Company, albeit that Devon is the Company's named company secretary at Companies House. In line with good governance practice and fostered by the independence between key suppliers, the Company has put safeguards in place to ensure effective shareholder communication and engagement.

7.   Availability of Half Yearly Financial Report

The Half Yearly Financial Report will shortly be available for download from the Company's website www.europeanopportunitiestrust.com

A copy of the Half Yearly Financial Report will also be submitted to the FCA's National Storage Mechanism and will soon be available for inspection at https://data.fca.org.uk/#/nsm/nationalstoragemechanism

For further information, please contact:

Devon Equity Management Limited

Company Secretaries to European Opportunities Trust PLC

Richard Pavry

020 3985 0445

enquiries@devonem.com       

24 February 2023        

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