European Opportunities Trust plc (the "Company")

Legal Entity Identifier: 549300XN7RXQWHN18849

Annual Results for the year ended 31 May 2020

*  Alternative Performance Measure

^{1  For definitions please refer to the Calculation of Alternative Performance Measures and Glossary of Terms in the Annual Financial Report.}

^{2  Excluding finance costs (interest on the Company's loan facility).}

Strategic Report

Chairman's Statement

The financial year ended 31 May 2020 coincided with one of the most turbulent periods in living memory. The humanitarian and economic crisis engendered by the COVID-19 pandemic has caused great volatility in financial markets across the world. February and March 2020 saw sharp declines in stock market values. Investors have since been grappling with the severity of the economic downturn to come and the shape of a recovery.

During the twelve months to 31 May 2020 the total return on the net asset value per share of your Company was 0.1% (with dividends added back). This compares with a fall in the Company's Benchmark Index, the MSCI Europe Total Return Index, of -1.9% and a total return on the middle market price of the Company's shares of -6.9% (again with dividends added back) during the same period.

Since 31 May 2020, the return on the net asset value per share of your Company has been impacted by the sale of its former holding in Wirecard AG, of which more below, in the Investment Manager's report and in note 23 of the notes to the accounts. The net asset value had fallen by 7.5% between 1 June and 31 August 2020, whereas the Benchmark Index had risen by 3.8%. The market price of the Company's shares was 681p as at 31 August 2020.

Over the life of the Company the annualised total return on the net asset value has been 11.4% and 10.6% on the Company's share price (as at 31 August 2020).

Wirecard

The Company's shareholders may be aware that the Company formerly had a large investment in Wirecard AG, a German payments company which we had held for the past 13 years. The Company's recent performance has been adversely impacted by the disclosure of a suspected fraud at Wirecard when its auditors, Ernst & Young, declined to sign off on its year end accounts in June 2020. The entire holding was sold by our Investment Manager on 18 June soon after the public disclosure by the company of those circumstances. We nevertheless realised a profit, over the term of this investment, despite the price at which those shares were sold.

As a Board we undertake a review of the risk represented in each of the portfolio holdings with the Investment Manager at each of our regular board meetings. When the Wirecard share price increased from EUR 60 to EUR 83 in the third quarter of 2017 its proportion of the Company's total assets increased from 9% to 13%, at which point the Board encouraged our Investment Manager to begin selling down the position. Some 570,000 shares were sold between then and October 2018 in a period when the share price continued to rise towards its peak of EUR 198 in the autumn of 2018.

After a setback in the price at the end of 2018 the Investment Manager requested the Board's consent to continue to hold the position at between 10 and 20% of total assets. There was further Board debate on the subject at our quarterly meetings and, in early 2019, the Board requested that no further shares should be added to the position. A hard policy was adopted by the Board that no position should be acquired or added to which represented more than 10% of total assets on the date of purchase (I refer to the expanded investment policy printed on page 14 of this report). This restriction has been adhered to and is also hard coded into our Investment Manager's order management system. However, we acknowledge that a potential advantage of investment trusts is the ability to allow holdings to run to levels above 10% of total assets through share price improvement. The holding in Wirecard had touched higher levels since that decision.

Our Investment Manager engaged not only with the management and supervisory boards of Wirecard, but also with research analysts, market commentators and fellow investors in its research. Specifically, it had satisfied itself that the control shortcomings identified by the forensic accounting team at KPMG in March 2020 and other concerns identified in the press had been or were being addressed on the basis of that research. It appears, nevertheless, that investors in Wirecard were the victim of a highly sophisticated fraud which eluded not only our Investment Manager, but also the German regulator (BAFIN), Wirecard's auditors (Ernst & Young), KPMG, its brokers and many others over a period of a number of years.

Changes in our management arrangements

On 14 November 2019, the date of our last Annual General Meeting, the management of the Company's portfolio was transferred to Devon Equity Management Limited ("Devon"), an FCA regulated business founded by Alexander Darwall, Luca Emo (his assistant fund manager on our portfolio) and Richard Pavry, the former head of investment trusts at Jupiter Asset Management ("Jupiter"). Devon has established middle office, trading and risk functions and is overseen by an independent chairman, Simon Troughton, the former deputy chairman of Standard Life Aberdeen PLC. Devon acts as our Investment Manager and FundRock Management Company SA ("FundRock") acts as our Alternative Investment Manager ("AIFM"), with responsibility for additional risk oversight in accordance with the requirements of European law. In order to position the Company for any change in the regulatory environment in the United Kingdom post Brexit, the Board proposes to switch the entity within the FundRock group that acts as its AIFM from FundRock to its wholly owned and UK regulated entity, FundRock Partners Ltd. There will be no change to the terms of engagement or fees payable to the AIFM nor any cost of transition for the Company.

The Board pays particular attention to the control procedures and processes in place at Devon and FundRock to ensure that the investment management operations for the Company continue to be handled with the appropriate level of resource and professionalism. There was no change in the Company's depositary, custodian, administrator, fund accounting or registrar arrangements.

The Board would like to take this opportunity to thank the team at Jupiter who have supported the Company throughout the past twenty years and for their assistance in facilitating the orderly transition of our management arrangements to Devon and FundRock.

Management fees and removal of performance fee

In November 2019, the Board reached an agreement with Jupiter regarding the termination of the former management arrangements whereby Jupiter continued to receive their base management fee of 0.1875% per quarter (equivalent to 0.75% per annum) of the total assets of the Company (including drawn down borrowings under the Company's loan facilities) up to and including 31 May 2020. Jupiter nevertheless agreed to waive its former entitlement to a performance fee from the termination date.

Under the new management arrangements, effective as from 1 June 2020, Devon and FundRock will be paid 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 FundRock's fee being deducted from amounts due to Devon). Performance fees have represented a significant proportion of the Company's costs in the past. Under the new arrangements with Devon, no performance fee will be payable.

In the interim period from the date of their appointment on 15 November 2019 up to and including 31 May 2020, the Board agreed to pay a fee of 0.03% per annum of net assets to FundRock as AIFM and a base management fee of 0.10% per annum of net assets to Devon.

Board composition

John Wallinger has served on your Board since the launch of the Company in November 2000. The Board does not believe that his length of service, of itself, has any bearing on his independence or ability to fulfil his fiduciary duties towards our shareholders. However, we recognise the need to refresh the composition of the Board from time to time and John is therefore not seeking re-election as a Director of the Company at the Annual General Meeting in 2020. On behalf of the Board and our shareholders I would like to thank John for his huge contribution to the Company throughout his many years of service.

On 1 August 2019, the Board announced the appointment of Sharon Brown as an additional non-executive Director. Sharon is a qualified accountant and she succeeded Philip Best as Chair of the Audit Committee in November 2019.

Philip Best, who has served as a Director since 2009 and I, who have served as a Director since 2011, each intend to retire from the Board at the Annual General Meetings in 2021 and 2022 respectively, with the intention of providing continuity for the Board through the transition from Jupiter to Devon and permitting a period of handover to such new Board members as may be appointed in the interim.

With the exception of John Wallinger, all of your current Directors are offering themselves for re-election at the forthcoming Annual General Meeting and we would welcome your support for our resolutions.

Dividend

A resolution to declare a final dividend of 3.5p per share will be proposed at the Annual General Meeting on 16 November 2020, payable on 27 November 2020 to shareholders on the Register of Members on 23 October 2020. The ex-dividend date is 22 October 2020. The cost of this dividend is covered by the Company's distributable revenues during the financial year under review and represents slightly in excess of the minimum that the Company is obliged to distribute under applicable law.

The Company's objective is to achieve shareholder returns through capital growth rather than income. However, in order to qualify for approval as an investment trust, the Company is not permitted to retain more than 15% of eligible investment income arising during any accounting period. Accordingly, the Board's policy is to propose a modest annual dividend and one at least sufficient to enable the Company to maintain its investment trust status.

The declaration of the dividend as a final dividend will provide shareholders with an opportunity to express their approval on the matter, in line with corporate governance guidelines. In the unlikely event that shareholders were to vote against the resolution at the Annual General Meeting to pay a final dividend then the Directors would pay an equivalent interim dividend, as otherwise the Company would be likely to lose investment trust status, with potentially disastrous tax consequences for a large number of its shareholders.

Gearing

At the end of the financial year under review, the net gearing level on the Company's investments was nil (after offsetting cash deposits against the £15 million drawn down on that date). The Investment Manager tends to increase gearing at times of perceived low valuations, while 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 loan facility on 11 September 2020 with a maximum drawable amount of £75 million available until September 2021.

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.

Whilst the Board believes that the most effective means of minimising any discount at which its ordinary shares may trade is for the Company to deliver strong, consistent, long-term performance from the investment portfolio (in both absolute and relative terms), wider market conditions and other considerations will affect the rating of the ordinary shares from time to time. The Board is therefore committed to seeking to limit the level of volatility of the discount to net asset value at which the ordinary shares may trade by seeking to repurchase ordinary shares when they believe it to be in the interests of shareholders to do so.

In determining whether a share purchase would enhance shareholder value, the Board will take into account the market, the Company's performance, any known third-party investors or sellers, the impact on liquidity and total expense ratios and of course the level of discount to net asset value at which the shares are trading. Any purchases will be made only at prices below the prevailing net asset value and where the Board believes that such purchases will enhance shareholder value.

A total of 11,020 shares were repurchased for treasury on 9 March 2020 and, since the financial year end, the Company has repurchased a further 270,000 shares for treasury (as at 18 September 2020) pursuant to its discount management policy. Ordinary shares held in treasury may only be reissued by the Company at prices representing a premium to the net asset value per ordinary share as at the date of re-issue.

Continuation Vote

Under its Articles of Association the Company is required to put forward to shareholders a resolution every three years to approve the Company continuing in being as an investment trust. Accordingly, an ordinary resolution to that effect will be proposed at this year's Annual General Meeting. Your Board considers that, given the long-term outperformance of the Company over its life, the continuance of the Company is in shareholders' interests and therefore recommends that you vote in favour of the resolution at the Annual General Meeting.

Annual General Meeting

The Company's Annual General Meeting will be held on 16 November 2020 at 11:00 a.m. Notice of the Annual General Meeting, containing full details of the business to be conducted at the meeting, is set out in the Annual Report & Accounts. Your attention is also drawn to the Directors' Report, where various resolutions relating to special business are explained.

The UK government has introduced measures to limit the impact and spread of COVID-19. These measures include restrictions on gatherings of people in public, thereby limiting the ability of shareholders to attend the Annual General Meeting.

In normal circumstances, the Board values very highly the opportunity to meet shareholders in person at the Annual General Meeting. However, the health and safety of the Company's shareholders, advisers and Directors are of paramount importance. On this basis, and assuming the continuation of containment and/or distancing measures, shareholders will not be able to attend the Company's 2020 Annual General Meeting in person.

In order to comply with relevant legal requirements, the Annual General Meeting will be convened with the minimum necessary quorum of two shareholders. This will be facilitated by the Company through the attendance of Directors of the Company who are shareholders. Only the statutory and formal business to meet the minimum legal requirements will be conducted at the Annual General Meeting and there will be no presentations.

The outcome of the resolutions will be determined by shareholder vote as usual, based on the proxy votes received. Shareholders are strongly encouraged to vote by proxy, appointing the "Chairman of the Meeting" as their proxy rather than any other person who will not be permitted to attend.

Please note that we have removed paper from the voting process so as to reduce the environmental impact of the Company. Shareholders may submit electronic voting instructions using the web-based voting facility at www.signalshares.com. In order to register to vote electronically shareholders will need an Investor Code which can be found on their share certificate. Once registered, shareholders will be able to vote immediately by selecting 'Proxy Voting' from the menu. If shareholders are unable to submit voting instructions electronically they may obtain a paper proxy form from the Company's registrar, Link Asset Services, whose contact details are set out in the Annual Report & Accounts.

The voting results will be posted on the website following the Annual General Meeting and the Board will also make the customary announcement to the London Stock Exchange. Shareholders are invited to submit questions to the Board in advance of the meeting. Questions should be sent by email to enquiries@devonem.com before 5pm on Friday, 13 November 2020 and the Board will endeavour to respond to shareholders' questions as soon as practicable after the Annual General Meeting.

Outlook

Since the financial year end there has been some renewed optimism for the outlook for the global economy and stock markets. However, there continue to be concerns around some European economies which may result in ongoing volatility in European stock markets over the coming year. In addition, there is now an increase of cases of COVID-19 in Europe, which may hamper economic recovery.

Notwithstanding the recent underperformance, caused principally by our former investment in Wirecard, I believe that the longer term success of our Investment Manager's investment style means that the Company is well-positioned for short-term recovery and long-term outperformance.

Andrew Sutch

Chairman

23 September 2020

Investment Adviser's Review

Performance

The net asset value total return (with dividends added back) of the Company's ordinary shares was 0.1% during the twelve months to 31 May 2020. This compares with a decline of 1.9%, in sterling, of the MSCI Europe Index. This modest outperformance has been overtaken by subsequent events, specifically the fraud at Wirecard, a major holding, and subsequent disposal of all of the Company's shares in it. The steady performance belies an exceptionally turbulent period. The impact of COVID-19 has been devastating. Arguably, the policy responses will be even more damaging. The sharp deterioration in economies will not easily be reversed. Yet markets have proved remarkably resilient to this unprecedented assault on economies and businesses. The explanation lies in a confidence that low interest rates will fuel asset inflation and that in an era of low, even negative interest rates, the best defence is to hold equities. Notwithstanding the merits or otherwise of this thinking, there are reasons to believe that European economies will emerge from this crisis weaker relative to the rest of the world. This is reflected in the performance of many other stock markets in the period under review. The MSCI World (total return) Index, in sterling, was up 10.1%; the S&P 500 returned 15.7% in sterling; and Japan's Nikkei-225 was up 12.0% in sterling terms. On the other hand, the MSCI Latin America Index was down by 29.9% reflecting, in part, Brazil's dependence on the oil industry which is suffering from the collapse in the oil price. The Hang Seng Index, too, declined by 9%, weighed down by severe political challenges.

The relatively stable performance of the portfolio is the outcome of both the devastating impact of COVID-19 and a glimpse of some opportunities that have arisen because of it. The perceived economic consequences of the pandemic were reflected, in sector terms, by the strong performance of technology and healthcare sectors and the weakness in leisure, travel and energy sectors. The stocks which detracted most from performance were obviously impacted by the pandemic. Carnival, the world's largest cruise company, was an early casualty of travel restrictions and an 'experience' which falls foul of social distancing requirements. We sold all our shares as the business model depends to a great extent on a return to their normal way of operating: freedom to travel, high occupancy levels and ancillary revenue opportunities. With high fixed costs the company is vulnerable to any demand weakness and any 'trading down'. Another poor performer was Arrow Global, the UK listed debt collection business. Such businesses are always economically sensitive. Not only does it have impaired portfolios that were bought in happier times, but collecting debts is harder in straitened times. However, we have retained this holding, indeed bought more shares, because we believe that the company will survive and flourish as its strong platforms and services will be sorely needed by customers.

Lockdown had an immediately damaging effect on adidas' retail activities. Though its ecommerce business has thrived in lockdown, it has not been enough to offset the sharp deterioration in trading through physical stores. This explains the underperformance of adidas shares. We sold all our holdings as we anticipate a severe squeeze on consumers' finances. Any demand weakness, including 'trading down', will have a marked impact on adidas' profitability. Another negative contributor to performance was the German leasing company, Grenke, which has been held in the portfolio since 2011. Its business of leasing equipment to small and medium sized enterprises (SMEs) has suffered as economic conditions deteriorated. On 15 September we sold the whole of our position in Grenke in response to corporate governance concerns. We will continue to review the investment case for Grenke as the facts emerge. Finally, amongst those stocks which detracted from performance, we note CGG, the French listed integrated geoscience company. The collapse in the oil price and concomitant impact on CGG's business led us to sell the shares.

The most significant contributors to performance fall easily into two categories: healthcare and digital. The best two stocks in the period under review were both healthcare companies, namely BioMerieux and Novo Nordisk. The former, the French in vitro diagnostics company, has benefitted from the wider understanding of the value of diagnostics in healthcare; they have developed COVID-19 tests which have further enhanced this understanding. Novo Nordisk results vindicate our confidence in the company. The new class of drugs to combat diabetes and obesity, GLP-1 (Glucagon-Like Peptide 1 (GLP-1) agonists), expands the company's addressable market. Moreover, the clinical evidence underpins our view that Novo Nordisk's GLP-1 drugs are sufficiently and positively differentiated to give them a strong market position with good long-term visibility of success.

Deutsche Boerse shares have performed well and made another significant contribution to performance. As the leading continental European provider of financial exchange services (including market data, services for trading, clearing, and post-trading of investment instruments), Deutsche Boerse has flourished amidst the volatility caused by the COVID-19 pandemic; there is a regulatory trend to 'on exchange trading'; and, as a digital business, the company has none of the normal supply chain problems associated with other, more 'physical' companies.

Experian, too, is a digital business. It provides credit data and analytics primarily to other businesses for consumer credit purposes but also directly to consumers. Demand for Experian's services continues unabated. Another good contributor was Grifols, a company whose principal activity is the production of plasma-derived medicines. Demand for these medicines, such as albumin and immunoglobulins, is increasing and new indications are discovered. Their expertise in blood plasma is recognised as being useful in combating COVID-19.

Wirecard

Since the period end the Company was struck by the news that Wirecard, at that time the largest investment in the portfolio, had been the subject of a massive fraud. When, in June, the company announced serious accounting irregularities, we immediately sold the shares. The sale is a very disappointing end to a long term holding. It appears that executives in the company and third parties were in cahoots and defrauded the company over many years. Until the company admitted this fraud, there had been no substantive concerns expressed by regulators or the company's auditors, EY. This shocking episode is an extreme example of the risks of investing.

Portfolio Changes

The profound impact of COVID-19 is causing significant changes to economies and business. Consequently, we have made more changes to the portfolio. We sold our holding in Amadeus, the world's leading global distribution system. The obvious disruption in the travel industry is particularly damaging for Amadeus. The company's profitability depends not only on high volumes of air travellers, but the highest margins are made in the business travel segment, long haul and complex travel arrangements. It will take a long time for these conditions to return; the risk is that a reorganisation of the airlines, their customers, will not be to Amadeus' advantage. As mentioned above, we also sold our holding in Carnival. The company is now carrying a very heavy debt burden which will weigh heavily on results even when it re-starts its operations. The other significant sale was that of CGG, the French company providing geological, geophysical and reservoir capabilities. The collapse in the oil price has an indirect but marked impact on CGG's prospects. WTI crude oil fell by 33.7% (in US dollars) over the period under review. At the time of writing, the WTI price of $40 per barrel is still too low, we believe, to incentivise oil companies to raise exploration activity and enable CGG to flourish. There is little exposure in the portfolio to energy related companies. The EU's stimulus package has as one of its aims to encourage the transition to low carbon energy. However, we have not identified many companies that are obvious beneficiaries of this spending and which meet our investment criteria. 'Green' energy is currently more costly than conventional energies. Its growth depends more on government action as consumers have not embraced 'green' with their discretionary spending.

One of our new investments, Gaztransport et Technigaz ('GTT'), is an energy related company. GTT is a world leading engineering company that designs containment systems for the shipping and storage of liquefied natural gas ('LNG'). It is a 'play' on the growth in demand for LNG worldwide. The main opportunity lies in the shipping of LNG from North America to Asia where there is considerable potential to replace nuclear and coal power with LNG. The other purchase of note is that of ASML, the Dutch listed company. It makes equipment for the semiconductor industry, machines which are used in the production of semiconductor chips using lithography. ASML has a uniquely strong position in its field of expertise. Demand for its systems appears to be assured; and there is no sign as yet of significant competition. We also added to an existing small position in Knorr-Bremse. This German-listed company produces braking systems and associated products for rail and commercial vehicles. Its prospects depend to an extent on its continuing success in China where it is well established and where the rail and metro market remains buoyant.

Gearing

One important characteristic of the Company has changed. Earlier this year we removed gearing from the Company. Borrowings, at the end of the previous financial year, had represented 6.5% of net assets. The Company is fully invested but has no net borrowings. The uncertainties caused by the pandemic is the main reason behind our decision to remove gearing. Were circumstances to change, we can draw down borrowings instantly.

Opportunities

The squeeze on consumer spending and the expansion of state aid and spending has slightly reduced the range of investment opportunities which meet our investment criteria. The specific challenges caused by COVID-19 have weakened the business models of certain companies which depend on high volumes and discretionary spending. The greater involvement of the state in certain sectors, such as airlines, makes us wary of investing, as our aims are different from those of investing governments. European states are 'crowding out' private investment.

The other characteristics of the portfolio have not changed: concentrated, with ca.30 holdings; a collection of 'special' companies; more 'global' than the average European listed company, they are also typically less capital-intensive businesses with more intellectual property and higher margins to match. The positioning, however, has tilted slightly away from consumer related and more towards business to business ('B2B') companies. In weaker economies, with discretionary spending squeezed, we believe that those companies which deliver products and services to their customers with quantifiable and differentiated superiority are better placed. This 'rational' element is more easily found in corporate as opposed to consumer spending. One such example is Bayer, the German conglomerate. The bulk of its revenues can be described as B2B. Its crop science business is embroiled in the US courts as its well-known herbicide, Roundup, is alleged to cause cancer. The active ingredient of this product is not, according to the scientific studies, a carcinogen. We expect the company to prevail, in due course, when its superior range of products will be properly recognised. Another example of a B2B investment is Wolter Kluwer, the Dutch information company. It provides services to the legal, business, tax, accounting, finance, audit, risk, compliance, and healthcare markets. One of the effects of the pandemic is to accelerate the use of cloud services. Wolters Kluwer is a clear beneficiary of this trend as their corporate customers embrace this trend. Infineon, also a B2B company, is benefitting from increasing demand for their 'power' semiconductors, critical to developments in telecommunications, 'clean electricity' and the cloud. The company's results over the last year have vindicated our decision to retain and increase this holding after a period of share price weakness

Outlook

The economic backdrop has changed. The IMF's April 2020 forecasts underscore the view that Europe has been more badly damaged than other regions of the world. The IMF expects world GDP to contract by 3% in 2020; and it expects a 5.8% bounce in 2021. Their forecasts for the European Union ('EU') are a 7.1% contraction in 2020 and a 4.8% improvement in 2021. To judge from the IMF's forecasts, the big winners are China and other Asian economies. These, according to the IMF, will grow their economies by more than 1% this year and by more than Europe again next year. We anticipate a severe squeeze on consumer spending in the West. In its place, government spending and intervention is increasing. The EU has agreed a stimulus package of €750 billion. Individual states are also boosting their spending. Negative interest rates reflect both governments' need to finance huge spending programmes and the difficulties of the private sector. The ECB's main refinancing rate remains 0% as it has been for the last four years; and 3-month Euribor was -0.31% at the end of May 2020, almost the same figure as a year earlier. There is an expectation that European corporate earnings will collapse this year; most analysts' forecasts are in a range of -20% to -30%. There is greater uncertainty about the earnings recovery in 2021, which is currently forecast to be in the range of 10%-25%. Any recovery is challenged by the duration and intensity of the COVID-19 crisis. There are many industries where pricing discipline is holding well. However, this discipline will be tested without a marked economic recovery. We seek to identify businesses where pricing power is more assured.

In many respects we are entering a new era. COVID-19 increases costs for businesses and consumers; debt levels are very high; interest rates are likely to remain low in the near term; the public sector is expanding; and protectionist instincts are intensifying. Our investment strategy attempts to mitigate these risks and in so doing tap into seams of growth. Our companies typically have greater geographic reach than most European companies; and our 'digital' companies should benefit from increasing demand. 'Rational' purchasing by corporates will favour those companies with products and services which are sustainably superior. We believe that our portfolio of companies is well placed to succeed and we remain confident that our investment process is an appropriate one to find these winning companies.

Alexander Darwall

Chief Investment Officer

Devon Equity Management Limited

23 September 2020

   Investments Portfolio as at 31 May 2020

Strategic Report

The Strategic Report has been prepared in accordance with the Companies Act 2006 (Strategic Report and Directors' Report) Regulations 2013. The Strategic Report seeks to provide shareholders with the relevant information to enable them to assess the performance of the Directors and the Company during the period under review.

Business and Status

During the year, the Company carried on business as an investment trust with its principal activity being portfolio investment. The Company has been approved by HM Revenue & Customs as an investment trust subject to the Company continuing to meet the eligibility conditions of sections 1158 and 1159 of the Corporation Tax Act 2010 and the ongoing requirements for approved companies as detailed in Chapter 3 of Part 2 of the Investment Trust (Approved Company) (Tax) Regulations 2011. In the opinion of the Directors, the Company has conducted its affairs in the appropriate manner to retain its status as an investment trust.

The Company is an investment company within the meaning of section 833 of the Companies Act 2006..

The Company is not a close company within the meaning of the provisions of the Corporation Tax Act 2010 and has no employees.

The Company is domiciled in the United Kingdom and was incorporated in England & Wales on 16 August 2000. The Company started trading on 20 November 2000.

Reviews of the Company's activities are included in the Chairman's Statement and Investment Manager's Review above.

There has been no significant change in the activities of the Company during the year to 31 May 2020 and the Directors anticipate that the Company will continue to operate in the same manner during the current financial year.

Investment policy

The Company will, at all times, invest and manage its assets, with the objective of spreading risk and in accordance with the following investment restrictions:

Notwithstanding the broad powers of investment available to the Company as a closed-ended fund, the Board has adopted the following investment restrictions:

·      no single holding shall constitute more than 10% of the Company's total assets (calculated at the time of investment). The Board will pay particular attention to holdings which grow to represent more than 10% of total assets;

·      the Company will not invest in unlisted securities;

·      the Company's will not invest in derivative instruments, whether for efficient portfolio management, gearing or investment purposes;

·      the Company will not invest in other listed closed-ended investment funds;

·      the Company shall not take legal or management control over any investments in its portfolio; and

·      not more than 50% of the Company's investments may be in securities which are not qualifying securities or government securities for the purposes of the UK ISA Regulations.

Any material change in the investment policy of the Company described above may only be made with the approval of shareholders by an ordinary resolution.

Investment Approach

The Investment Manager adopts a stock picking approach in the belief that a thorough analysis and understanding of a company is the best way to identify long-term superior growth prospects. This understanding begins with identifying those companies where the ownership structure and incumbent management are conducive to the realisation of the aim of achieving superior long-term earnings growth.

The Investment Manager will seek to identify companies which enjoy certain key business characteristics including some or all of the following:

·      a strong management record and team, and the confidence that the Investment Manager has in that management's ability to explain and account for its actions;

·      proprietary technology and other factors which indicate a sustainable competitive advantage;

·      a reasonable expectation that demand for their products or services will enjoy long-term growth; and

·      an understanding that structural changes are likely to benefit rather than negatively impact that company's prospects.

In analysing potential investments, the Investment Manager will employ differing valuation techniques depending on their relevance to the business characteristics of a particular company. However, the underlying feature will be the sustainability and growth of free cashflow in the long-term.

Portfolio risk

Portfolio risk is mitigated by investment in a diversified spread of investments. The Investment Manager is not constrained by benchmark weightings, sector, geographical location within Europe or market capitalisation or size of investee companies.

Borrowing Limits

The Board considers that long-term capital growth can be enhanced by the use of gearing through bank borrowings. The Board considers that the Company's level of gearing should be maintained at appropriate levels, with sufficient flexibility to enable the Company to adapt at short notice to changes in market conditions.

The Board oversees the level of gearing in the Company and reviews the position with the Investment Manager on a regular basis. In normal circumstances the Board does not expect the level of gearing to exceed 20% of the Company's total assets (calculated at the time of borrowing).

The Company renewed its loan facility with Scotiabank Europe PLC on 11 September 2020 with a maximum drawable amount of £75 million available until September 2021. The amount of £15 million was drawn down as at financial year end 31 May 2020.

Future Developments

It is the Board's ambition to grow the asset base of the Company through a combination of organic growth and new issuance of shares with a view to achieving the critical mass necessary to attract broader demand from wealth managers, IFAs and other institutional buyers of investment trust shares. The Investment Manager continues to be encouraged to use the particular advantages of an investment trust structure to enhance potential returns to shareholders, including the use of gearing and the freedom to hold high conviction positions through periods of sharp market fluctuations.

Planned Life of the Company

The Articles of Association of the Company provide that at every third Annual General Meeting an ordinary resolution shall be proposed that the Company shall continue in existence as an investment trust. If any such resolution is not passed at any of those meetings, the Directors shall, within 90 days of the date of the resolution, put forward to shareholders proposals (which may include proposals to wind up or reconstruct the Company) whereby shareholders are entitled to receive cash in respect of their shares equal as near as practicable to that to which they would be entitled on a liquidation of the Company at that time (and whether or not shareholders are offered other options under the proposals).

As a resolution to that effect was passed at the 2017 Annual General Meeting, the next scheduled continuation vote will be at the forthcoming 2020 Annual General Meeting.

Shareholders should note that the valuations used to produce the accounts on a going concern basis might not be appropriate if the Company were to be liquidated.

Benchmark Index

During the year, the Company changed its benchmark from FTSE World Europe ex-UK Index to MSCI Europe Total Return Index in GBP following a reassessment of suitability of the previous benchmark as a comparator to the returns of the Company's portfolio. The change was proposed given the Company's meaningful exposure to UK listed stocks in recent years. It also compares performance against the MSCI Europe ex-UK Total Return Index in GBP. The change of benchmark was communicated to shareholders following the 2019 Annual General Meeting.

Dividend Policy

The Company's objective is to achieve shareholder returns through capital growth rather than income. However, in order to qualify for approval as an investment trust, the Company is not permitted to retain more than 15% of eligible investment income arising during any accounting period. Accordingly, the Board's policy is to propose a modest annual dividend and one at least sufficient to enable the Company to maintain its investment trust status.

Management

The Company has no employees and most of its day-to-day responsibilities are delegated to the Company's Investment Manager and Company Secretary.

J.P. Morgan Europe Limited acts as the Company's Depositary and the Company has entered into an outsourcing arrangement with J.P. Morgan Chase Bank N.A. for the provision of accounting and administration services.

Although Devon Equity Management Limited is named as the Company Secretary, J.P. Morgan Europe Limited provides administrative support to the Company Secretary as part of its formal mandate to provide broader fund administration services to the Company.

Risk Management & Internal Controls

The Board has established an ongoing process for identifying, evaluating and managing significant risks faced by the Company.

Viability Statement

In accordance with the Code of Corporate Governance issued by the Association of Investment Companies ('AIC') in February 2019 (the 'AIC Code'), the Board has assessed the longer term prospects for the Company beyond the twelve months required by the going concern basis of accounting. The period assessed is for five years to 31 May 2025.

Following review, the Board, on recommendation from the Audit Committee, has extended the period of assessment from three years to five years. The Company's investment objective is to achieve long-term capital growth and the Board regards the Company's shares as a long-term investment. On review, the Board agreed that a period of five years is considered a reasonable period for investment in equities and is appropriate for the composition of the Company's portfolio. As part of its assessment, the Board has noted that shareholders are required to vote on the continuation of the Company at three-year intervals, the next vote being at the forthcoming Annual General Meeting. The Board has sought and received feedback from shareholders and is confident that the continuation vote will be passed.

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 matters relating to the COVID-19 pandemic as set out in the Annual Report & Accounts. The Board has also considered the Company's business model including its investment objective and investment policy, a quarterly 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.

The Board have taken into account an assessment of the liquidity of the portfolio and considered the viability of the Company under various scenarios. Using historic market crashes and economic crises as base cases, the tests modelled the effects of severe stock market volatility on the Company's NAV and its ability to meet its liabilities. Based on the results of the tests, the Board concluded that the schedule of investment limits and restrictions put in place by the Board and the mitigating actions for the principal risks would protect the value of the Company's assets to a sufficient degree.

The Board has noted that:

·      The Company holds a highly liquid portfolio invested predominantly in listed equities;

·      European equities remain an attractive opportunity for investors;

·      The Company has outperformed its Benchmark Index, the MSCI Europe Total Return Index, over 3, 5 and 10 years and since its launch in November 2000;

·      The Company maintains a relatively low level of gearing and has at all times been comfortably compliant with its loan to value and other covenant obligations to its lender Scotiabank Europe PLC;

·      The Company's ongoing charges and operational expenses are well covered by the expected levels of return and revenue and no significant increase to ongoing charges or operational expenses is anticipated; and

·      The Investment Manager and other key service providers have suitable arrangements in place to ensure that they can continue to provide their services to the Company despite the COVID-19 pandemic.

The Board has also considered the Company's prospects over the next five years, the predicted demand for the Company's shares as well as market outlook, both for equity shares and investment trusts. These considerations assume:

·      The Investment Manager's compliance with the Company's investment objective, its investment strategy and asset allocation;

·      That the portfolio comprises sufficient readily realisable securities which can be sold to meet funding requirements if necessary;

·      The continuation of the Board's discount management policy; and

·      The ongoing processes for monitoring operating costs and income which are considered to be reasonable in comparison to the Company's total assets.

The Board has concluded that there is a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the next five years.

The Directors' assessment of the Company's ability to operate in the foreseeable future is included in the Going Concern Statement in the Directors' Report.

Key Performance Indicators

At the quarterly board meetings the Directors consider a number of performance indicators to help assess the Company's success in achieving its objectives. The key performance indicators used to measure the performance of the company over time are as follows:

*The AIC Europe peer group is available at www.theaic.co.uk 

There were 8 investment trusts in the AIC Europe sector as at 31 May 2020. The Board monitors the Company's performance in relation to both the sector as a whole and the companies within the sector which the Board considers to be its peer group.

Discount to Net Asset Value

The Company's Discount Management Policy is set out in the Chairman's Statement above.

Under the Listing Rules, the maximum price that may currently be paid by the Company on the repurchase of any ordinary shares is 105% of the average of the middle market quotations for the ordinary shares for the five business days immediately preceding the date of repurchase. The minimum price is the nominal value of the ordinary shares.

The Board is proposing that its authority to repurchase up to approximately 14.99% of its issued share capital should be renewed at the Annual General Meeting. The new authority to repurchase will last until the conclusion of the Annual General Meeting of the Company in 2021 (unless renewed earlier). Any repurchase made will be at the discretion of the Board considering prevailing market conditions and within guidelines set from time to time by the Board, the Companies Act, the Listing Rules and Model Code.

Treasury Shares

In accordance with the Companies (Acquisition of Own Shares) (Treasury Shares) Regulations 2003 which came into force on 1 December 2003 any ordinary shares repurchased, pursuant to the above authority, may be held in treasury. These ordinary shares may subsequently be cancelled or sold for cash. This gives the Company the ability to reissue shares quickly and cost effectively and provide the Company with additional flexibility in the management of its capital. The Company may hold in treasury any of its ordinary shares that it purchases pursuant to the share buyback authority granted by shareholders. During the financial year the Company repurchased 11,020 shares to be held in treasury at a discount of 12.72%.

Ordinary shares held in treasury may only be reissued by the Company at prices representing a premium to the net asset value per ordinary share as at the date of re-issue.

Principal Risks and Uncertainties

In accordance with the AIC Code, the Board is responsible for establishing procedures to manage risk, oversee the internal control framework, and determine the nature and extent of principal risks the Company is willing to take in order to achieve its long-term strategic objectives. The Board has overall responsibility for the Company's systems of internal controls and for reviewing their effectiveness. The Board, with the support of the Audit Committee and the Investment Manager, has carried out a robust assessment of the principal and emerging risks which may impact the Company. The principal risk factors that may affect the Company and its business can be divided into the following areas:  

In accordance with the AIC Code, the Board has carried out a review of the effectiveness of the system of internal control as it has operated over the year and up to the date of approval of the Annual Report & Accounts. Further information on the principal risks the Company faces in its portfolio management activities is disclosed in the note 19 of the Annual Report & Accounts.

Directors

Biographical details of the Directors and the Board's policy on diversity can be found in the Annual Report & Accounts. The Board currently comprises four male Directors and two female Directors.

Modern Slavery Statement

The Modern Slavery Act 2015 requires certain companies to prepare a slavery and human trafficking statement. The Company does not fall within the scope of the Modern Slavery Act 2015 and therefore no slavery and human trafficking statement is included in the Annual Report & Accounts.

Environmental, Social and Governance ("ESG") Matters

The Company follows the ESG policies of the Investment Manager, for whom ESG issues are integrated into the investment process. The Board and the Investment Manager believe that companies with good practices are better placed to achieve good investment outcomes for investors over the longer term.

The Investment Manager's investment decisions are primarily driven by business and financial considerations. They are looking for companies with distinctive characteristics which they expect to yield substantial benefits to shareholders over the long term. As such, they recognise that political, environmental, and social issues are likely to have a material impact on future financial performance.

Given the Investment Manager's lengthy holding periods for investee companies, sustainability of growth is a critical consideration in assessing prospective investments. Companies which depend on unsustainable business practices are unlikely to meet the threshold required for investment. For example, the Investment Manager places great emphasis on corporate culture and the integrity of management (and undertakes extensive research in this area prior to any investment). A strong corporate culture demands a high level of employee satisfaction and is unlikely to tolerate exploitative labour, uneconomic wages, negligent or dangerous business practices. Similarly, they believe the end consumer of goods or services to be a powerful arbiter. If a company compromises on raw material quality, abuses their supply chain, or underinvests in their workforce, product and/or service quality is likely to suffer. This would have the effect of turning consumers away from the product, damaging the brand, and lowering future growth prospects. Such considerations are central to the Investment Manager's investment process.

The Investment Manager recognises that certain industries and countries with weak environmental or governance structures present additional business risks for prospective investee companies. As part of its diligence process it will become aware of where and how such risks exist. However, provided that all applicable laws and regulations are applied and adhered to, the Investment Manager defers to the judgement of management teams as to the appropriateness of operating in any such industry or jurisdiction. If such activities change the Investment Manager's risk perception of an industry or company, they may preclude an investment. To provide some context of how this might apply to the Investment Manager's view of risk, over the past 23 years funds managed by Alexander Darwall (CIO) have invested in commodity related companies extremely rarely and have always been structurally underweight relative to the Benchmark.

The Investment Manager is compliant with the UK Stewardship Code and will seek to become a signatory in 2021. The Code's principles of management and emphasis on active engagement are closely aligned with the Investment Manager's investment philosophy. The Investment Manager's concentrated, long term approach affords ample scope to engage with investee management teams on issues relating to culture, governance, and enduring sustainability. It is their belief that these core characteristics of its investment approach are the most effective way for the Investment Manager to uphold high standards of governance.

The Investment Manager obtains third party ESG rankings for all current and prospective investments. Their aim in doing so is to identify risks that might have been overlooked or underestimated in their proprietary research process. Where the ranking is low, they conduct additional due diligence to understand the drivers, and consider (i) whether these deficiencies represent a material risk to the investment case and (ii) whether the investee company's management team have a credible strategy to improve in the key areas identified.

Where the Investment Manager considers shortcomings to be within the control of the investee company (rather than due to a quirk or technical flaw in the ratings process), they will engage directly with the investee company's management team to address the issues. Their engagement has two aims: (1) to understand why the investee company currently falls short on certain performance metrics and (2) to learn of the remedial measures the company has in place to address these shortcomings.

In situations where the Investment Manager fails to see a clear and credible plan they will, in the first instance, write to the investee company's management team expressing their concerns and urging remedial action. If the deficiencies persist, the Investment Manager may vote against management on certain resolutions at the annual general meeting. Those resolutions may include director remuneration and/or re-election.

The Investment Manager will report via its website, www.devonem.com, on an annual basis with an ESG analysis of its client investment portfolios, details of its engagement with investee management teams and a summary of its voting history, specifically highlighting where it has voted against management resolutions.

Sector 172 Statement

Under section 172 of the Companies Act 2006, the Directors have a duty to act in good faith and to promote the success of the Company for the benefit of its shareholders as a whole. In doing so, the Directors must have regard to:

(i)         the long term impact of any decision;

(ii)         the need to foster the Company's relationship with stakeholders, including its shareholders, service providers and investee companies;

(iii)        the impact of the Company's operations on the wider community and the environment;

(iv)        the desirability of the Company maintaining a reputation for high standards of business conduct; and

(v)        the need to act fairly between members of the Company.

As an investment trust, the Company has no employees or physical assets; our stakeholders include our shareholders and service providers, such as the Investment Manager, AIFM and other third party service providers such as the Depositary, Custodian, Lender, Registrar, Auditors, Broker and Administrator.

The Board is responsible for promoting the long-term sustainable success of the Company for the benefit of its shareholders. The Board ensures that Directors are able to discharge their duties by, amongst other things, providing them with relevant information and training on their duties. At all times, the Directors can access as a Board, or individually, advice from its professional advisers including the Company Secretary, lawyers and Auditors.

Whilst certain responsibilities are delegated, the Board has established terms of reference for its Committees which are reviewed regularly by the Board. The Board has set the parameters within which the AIFM and Investment Manager operate and these are set out under the terms of agreements with FundRock and Devon and minutes of board meetings.

Shareholders

The Board encourages communications with all shareholders. Annual and Half-Yearly reports are issued to shareholders and the Company publishes regular updates and monthly fact sheets to its website www.europeanopportunitiestrust.com. The Board regularly reviews shareholder feedback to ensure that shareholder views are taken into consideration as part of any decisions taken by the Board. The Chairman actively seeks to engage with shareholders and attended meetings with investors during the year.

In normal circumstances, the Board values very highly the opportunity to meet shareholders in person at its Annual General Meeting. However, the health and safety of the Company's shareholders, advisers and Directors are of paramount importance. On this basis, and assuming the continuation of containment and/or distancing measures, shareholders will not be able to attend this year's Annual General Meeting in person. Shareholders are invited to submit questions to the Board in advance of the meeting. Further information on the arrangements for this year's Annual General Meeting can be found in the Chairman's Statement and in the Notice of Annual General Meeting and accompanying notes in the Annual Report & Accounts.

Investment Manager & AIFM

On 15 November 2019, the management of the Company's portfolio was transferred to Devon, an FCA regulated business founded by Alexander Darwall, Luca Emo (his assistant fund manager on our portfolio) and Richard Pavry, the former head of investment trusts at Jupiter Asset Management. Devon acts as Investment Manager and FundRock acts as the Company's AIFM with responsibility for additional risk oversight in accordance with the requirements of European law. The Board regularly meets with senior representatives from Devon and FundRock and pays particular attention to the control procedures and processes in place at Devon and FundRock to ensure that the investment management operations for the Company continue to be handled with the appropriate level of resource and professionalism.

Other service providers

The Board, with the support of its Management Engagement Committee, reviews the terms of appointment and performance of the Company's service providers to ensure that services provided to the Company are managed efficiently and effectively for the benefit of the Company's shareholders. The Investment Manager and AIFM oversee the activities of the Company's other service providers and the Board receives regular updates and reports from service providers at its board meetings. The Audit Committee serves as the primary point of contact for the Company's Auditors and is responsible for reviewing the performance of the Auditors on an annual basis.

Principal Decisions

The Directors take into account s.172 considerations in all material decisions of the Company. Examples of this can be seen as follows:

·      During the financial year, the Board was informed that Alexander Darwall had taken preparatory steps to launch a new investment management company, Devon. The Board decided to investigate the possibility of appointing Devon to advise on its investment portfolio. During this process, the Board consulted with major shareholders and also appointed a firm of specialist professional advisers to conduct a due diligence exercise on both Devon and a proposed new AIFM, FundRock. The Board negotiated new fee arrangements with Devon and FundRock, including the removal of a performance fee entitlement and sought to reduce costs for shareholders as part of the transition process. The Board pays particular attention to the control procedures and processes in place at Devon and FundRock to ensure that the investment management operations for the Company continue to be handled with the appropriate level of resource and professionalism.

·      The Board established a Management Engagement Committee with responsibility for reviewing management arrangements and the performance of the Investment Manager, AIFM and other service providers. The Board's decision to establish a dedicated committee for oversight of the performance of the Investment Manager, AIFM and other key service providers was informed by the recommendations of the AIC Code. The Management Engagement Committee will serve to support the Board in its engagement with and oversight of the Company's service providers to ensure that high standards of service are maintained for the benefit for the Company and its shareholders.

·      During the financial year, the Board approved the appointment of Sharon Brown as an independent non-executive Director and Chairman of the Audit Committee. During the selection process, the Board sought to identify a candidate with in depth knowledge and experience of financial reporting in order to enhance the overall balance of skills and experience of the Board and its Audit Committee. The Board, with the support of its Nomination Committee, continues to consider future succession planning and reviews the performance of the Board and its Directors on an annual basis to ensure that the Board and its Committees have a combination of skills, experience and knowledge and that the membership of the Board is regularly refreshed.

·      On 10 June 2020, the Board, on recommendation from its Nomination Committee, approved the appointment of Philip Best as Senior Independent Director to serve as a sounding board for the Chairman and an intermediary for the other Directors and shareholders. The appointment of a Senior Independent Director will service to enhance the effectiveness of the Board and is in keeping with the recommendations of the AIC Code.

·      The Board engaged an external consultant to conduct an evaluation of the Board, the Chairman and individual Directors during 2020. An externally facilitated evaluation will serve to provide an independent view on the performance of the Board and to identify any strengths and weaknesses which can be taken into consideration to enhance the overall effectiveness of the Board.

The structure of the Board and its Committees and the decisions it makes are underpinned by the duties of the Directors under the Companies Act, 2006 and the provisions of the AIC Code.

Capital Gains Tax information

The closing middle market price of ordinary shares on the first date of dealing (20 November 2000) for Capital Gains Tax purposes was 101.5p.

For and on behalf of the Board

Andrew Sutch

Chairman

23 September 2020

Income Statement for the year ended 31 May 2020

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

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 year.

Balance Sheet as at 31 May 2020

Approved by the Board of Directors on 23 September 2020 and signed on its behalf by:

Andrew Sutch

Chairman

Company Registration Number 4056870

Statement of Changes in Equity for the year ended 31 May 2020

*Dividends paid during the financial year were paid out of revenue reserves.

Cash Flow Statement for the year ended 31 May 2020

*Performance fee paid this period in relation to previous financial year.

Notes to the Accounts for the year ended 31 May 2020

1.     Accounting policies

The Accounts comprise the financial results of the Company for the year to 31 May 2020. The functional and reporting currency of the Company is pounds sterling because that is the currency of the prime economic environment in which the Company operates. The accounts were authorised for issue in accordance with a resolution of the Directors on 23 September 2020. All values are rounded to the nearest thousand pounds (£'000) except where indicated.

The Accounts have been prepared in accordance with IFRS Interpretations Committee (IFRS IC) interpretation, 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 accounts 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 Accounts have been prepared under the historic cost modified by revaluation of financial assets and financial liabilities held at fair value through profit and loss. The accounting policies have been consistently applied throughout the year ended 31 May 2020 and in the prior year other than where new policies have been adopted.

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

(a)    Income recognition

Ordinary dividends from investments are recognised when the investment is quoted ex-dividend on or before the date of the Balance Sheet. All overseas dividend income is disclosed net of withholding tax.

Ordinary dividends receivable from equity shares are taken to the revenue return column of the Income Statement.

Deposit and other interest receivable are accounted for on an accruals basis. These are classified within operating activities in the Cash Flow Statement.

Special dividends are reviewed on a case by case basis to determine if the dividend is to be treated as revenue or capital.

(b)    Presentation of Statement of Comprehensive Income

In order to better reflect the activities of an investment trust company and in accordance with guidance issued by the Association of Investment Companies (AIC), supplementary information which analyses the Income Statement between items of a revenue and capital nature has been presented. In accordance with the Company's Articles of Association, net capital returns may not be distributed by way of dividend.

An analysis of reserves broken down into revenue (distributable) items, and capital items (non-distributable) is given in the notes to the Annual Report & Accounts.

All other operational costs (but with the exception of any investment performance fees which are charged to capital) are charged to revenue.

(c)    Basis of valuation of investments

Investments are recognised and derecognised on a trade date where a purchase or sale of an investment is under contract whose terms require delivery of the investment within the timeframe established by the market concerned. Investments are included initially at fair value which is taken to be their cost, excluding expenses incidental to purchase which are written off to capital at the time of acquisition.

The investments are designated as fair value through profit or loss on initial recognition as these investments are held for trading. This is consistent with the Company's documented investment strategy.

All investments are classified as held at fair value through profit or loss. All investments are measured at fair value with changes in their fair value recognised in the Income Statement in the period in which they arise. The fair value of listed investments is based on their quoted bid price at the reporting date without any deduction for estimated future selling costs.

Foreign exchange gains and losses on fair value through profit or loss investments are included within the changes in the fair value of the investment.

For investments that are not actively traded and/or where active stock exchange quoted bid prices are not available, fair value is determined by reference to a variety of valuation techniques.

These techniques may draw, without limitation, on one or more of: the latest arm's length traded prices for the instrument concerned; financial modelling based on other observable market data; independent broker research; or the published accounts relating to the issuer of the investment concerned.

(d)    Cash and cash equivalents

Cash comprises cash in hand and demand deposits. Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and that are subject to insignificant risks of changes in value.

(e)    Foreign currencies

Transactions in currencies other than pounds sterling are recorded at the rates of exchange prevailing on the dates of the transactions. At the Balance Sheet date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing on that date. Non-monetary assets and liabilities carried at fair value that are denominated in foreign currencies are translated at the rates prevailing at the date when the fair value was determined. Gains and losses arising on retranslation are included in the Income Statement in the revenue or capital column depending on the nature of the underlying item.

(f)     Borrowing and finance costs

Interest bearing bank loans and overdrafts are recorded at the proceeds received, net of direct issue costs and subsequently measured at amortised cost.

Interest on the loan facility is accrued at the rate specified by the lender on renewal date.

Bank interest is recognised in the Income Statement in the period in which they are incurred.

All finance costs are directly charged to the revenue column of the Income Statement.

(g)    Expenses

Expenses are accounted for on an accruals basis. Management fees, administration and other expenses are charged fully to the revenue column of the Income Statement. Due to changes to management arrangements during the financial year, performance fees are no longer payable by the Company from 15 November 2019 onwards. Expenses which are incidental to the purchase or sale of an investment are charged to capital, along with any foreign exchange gains and losses.

(h)  Taxation

The tax expense represents the sum of the tax currently payable and deferred tax.

The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the Income Statement because it excludes items of income or expense that are taxable or deductible in other periods and it further excludes items that are never taxable or deductible. The Company's liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the date of the Balance Sheet.

Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the accounts and the corresponding tax bases used in the computation of taxable profit, and is accounted   for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profit will be available against which deductible temporary differences can be utilised.

Investment trusts which have approval under Section 1158 of the Corporation Tax Act 2010 are not liable for taxation of capital gains.

Irrecoverable VAT is included in the expense on which it has been suffered. Recoverable VAT is calculated using the partial exemption method based on the proportion of zero-rated supplies to total supplies.

Accounting developments

The following standards, amendments and interpretations are applicable to the Company.

New standards, amendments, and interpretations effective after 1 June 2019 and have not been early adopted

Several new standards, amendments to standards and interpretations are effective for annual periods beginning after 1 June 2019 and have not been early adopted in preparing these accounts. None of these are expected to have a material effect on the accounts of the Company.

IFRS 16 Leases

IFRS 16 specifies how an IFRS reporter will recognise, measure, present and disclose leases. The standard provides a single lessee accounting model, requiring lessees to recognise assets and liabilities for all leases unless the lease term is 12 months or less or the underlying asset has a low value. Lessors continue to classify leases as operating or finance, with IFRS 16's approach to lessor accounting substantially unchanged from its predecessor, IAS 17.

IFRS 16 was issued in January 2016 and applies to annual reporting periods beginning on or after 1 January 2019. The new standard has not had any significant impact on the Company's financial position or performance.

International Financial Reporting Interpretations Committee ("IFRIC") 23 Uncertainty over Income Tax Treatments

IIFRIC 23 sets out how to determine the accounting tax position when there is uncertainty over income tax treatments. The interpretation requires an entity to:

·      determine whether uncertain tax positions are assessed separately or as a group; and

·      assess whether it is probable that a tax authority will accept an uncertain tax treatment used, or  

        proposed to be used, by an entity in its income tax filings:

If yes, the entity should determine its accounting tax position consistently with the tax treatment used or planned to be used in its income tax filings.

If no, the entity should reflect the effect of uncertainty in determining its accounting tax position.

The interpretation is effective for annual periods beginning on or after 1 January 2019. Entities can apply the interpretation with either full retrospective application or modified retrospective application without restatement of comparatives retrospectively or prospectively.

The new interpretation has not had any significant impact on the Company's financial position or performance.

Standards issued but not yet effective

There are no accounting standards, amendments, or interpretations effective in the year and issued but not effective, that have or will have material impact on these accounts. Furthermore, the Company has not early adopted any such standards, amendments, and interpretations to existing standards prior to their effective date.

Significant accounting judgements, estimates and assumptions

Management have not applied any accounting judgements, which would have a significant impact on this set of accounts or those of the prior financial year.

2.   Income

3.   Return per share

The returns per share figure is based on the net return for the year of £1,075,000 (2019: net return £55,633,000), and on 112,868,089 (2019: 112,598,345) ordinary shares, being the weighted average number of ordinary shares in issue during the year.

The return per share figure detailed above can be further analysed between revenue and capital, as below.

4.  Net Asset Value per ordinary share

The net asset value per ordinary share is based on the net assets attributable to the equity shareholders of £922,917,000 (2019: £927,482,000) and on 112,864,311 (2019: 112,800,331) ordinary shares, being the number of ordinary shares in issue at the year end.

5.  Related parties

With effect from 15  November  2019  the  Company  appointed  FundRock  Management  Company  SA  ('FundRock')  as its Alternative Investment Fund Manager ('AIFM') in place of Jupiter Unit Trust Managers Limited ('JUTM'). Devon Equity Management Limited ('Devon') was appointed as delegated Investment Manager to FundRock in substitution for the Company's former investment manager, Jupiter Asset Management Limited.

JUTM was previously contracted to provide investment management services to the Company for a quarterly base management fee of 0.1875% (equivalent to 0.75% per annum) of the total assets of the Company (including drawn down borrowings under the Company's loan facilities) plus an annual performance fee equal to 15% of the outperformance of the then Benchmark Index (subject to a high water mark and an annual cap). Under the early termination arrangements agreed with Jupiter, the base management fee continued to accrue and be payable to Jupiter after termination but only up until 31 May 2020. It was also agreed that Jupiter would waive any entitlement to a performance fee from the termination date. No performance fee was accrued in relation to the period 1 June 2019 to 31 May 2020.

The investment management fee payable to JUTM for the period 1 June 2019 to 31 May 2020 was £7,677,000 (2019: £7,162,000) with £1,712,000 outstanding at year end (31 May 2019: £1,784,000).

In the period from 15 November 2019 up to and including 31 May 2020, in addition to the fee payable to Jupiter, the Company has agreed to pay a fee of 0.03% per annum of net assets to FundRock, as AIFM, and also a management fee of 0.10% per annum of net assets to Devon.

The fee payable to Devon for the period 15 November 2019 to 31 May 2020 was £505,000 with £228,000 outstanding at year end. The fee payable to FundRock for the period 15 November 2019 to 31 May 2020 was £149,000 with £56,000 outstanding at year end.

Under the new management arrangements, with effect from 1 June 2020, Devon and FundRock will be paid 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 FundRock's fee being deducted from amounts due to Devon). No performance fee will be payable to either Devon or FundRock.

Fees payable to the Directors for the year ended 31 May 2020 were £159,000 (2019: £138,000) with £31,000 outstanding at year end (31 May 2019: £23,000). Fees paid to Directors and their interests in shares of the Company are disclosed within the Directors' Remuneration Report in the Annual Report & Accounts.

Devon Equity Management Limited is the Investment Manager with secretarial and fund administration services delegated to J.P. Morgan Europe. 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.

6.  Contingent liabilities and capital commitments

There were no contingent liabilities or capital commitments outstanding as at 31 May 2020 (2019: nil).

7.  Post balance sheet events

On 18 June 2020 the Company sold its entire former position in Wirecard AG following publication of information relating to accounting irregularities, as further described in the Chairman's statement and in the Investment Manager's review above. While the price realised on the sale of the Company's former position in Wirecard AG represented a profit relative to their original purchase prices, the sale resulted in a reduction of approximately 7.5 % in the Company's estimated net asset value per share relative to the previous day's estimated net asset value per share. The sale of Wirecard AG post year end is a non-adjusting post balance sheet event.

On 15 September 2020 the Company sold its entire former position in Grenke AG in response to corporate governance concerns. The price realised on the sale of the position in Grenke AG represented a profit relative to their original purchase price in 2011. The sale of Grenke AG post year end is a non-adjusting post balance sheet event.

Since 1 June 2020 a total of 270,000 ordinary shares have been repurchased to be held in treasury (as at 18 September 2020).

Availability of Annual Report & Accounts

The Annual Report & Accounts will be posted to those shareholders who have elected to receive hard copies shortly. Copies will also be available from the Company's registered office at 123 Victoria Street, London, SW1E 6DE. An electronic version of the Annual Report & Accounts will also be available on the Company's website at: www.europeanopportunitiestrust.com and on the National Storage Mechanism 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

enquiries@devonem.com                 

020 3985 0445

23 September 2020

www.europeanopportunitiestrust.com