The European Investment Trust Plc - Annual Financial Report

PR Newswire

London, November 27

THE EUROPEAN INVESTMENT TRUST PLC
(to be renamed Baillie Gifford European Growth Trust plc. The Company changed its name by resolution of the Board to Baillie Gifford European Growth Trust plc to take effect following the appointment of Baillie Gifford & Co Limited, subject to the registration of the relevant Companies House filings.)

Annual Financial Report for the year ended 30 September 2019

The full Annual Report and Financial Statements can be accessed via the Company's website at www.eitplc.com or by contacting the Company Secretary by telephone on 0131 270 3800.

FINANCIAL SUMMARY

Results for year	30 September 2019	30 September 2018	Change

Shareholders' funds	373.9m	£414.3m	(9.8)%
Net asset value per ordinary share ("NAV")	929.0p	1004.3p	(7.5)%
Share price per ordinary share	810.0p	908.0p	(10.8)%
Share price discount to NAV	12.8%	9.6%

	Year to 30 September 2019	Year to 30 September 2018

Revenue return per ordinary share¹	31.0p	27.4p
Capital return per ordinary share¹	(82.8)p	(50.3)p
Total return per ordinary share¹	(51.8)p	(22.9)p
Interim dividend per ordinary share	9.5p	9.0p
Final dividend per ordinary share	21.5p²	18.0p
Total dividend per ordinary share	31.0p	27.0p

¹ Based on the weighted average number of shares in issue during the year.

² Proposed final dividend for the year.

Year's high/low		Year to 30 September 2019	Year to 30 September 2018

NAV	- high	996.0p	1069.6p
	- low	845.9p	971.9p
Share price	- high	906.0p	974.0p
	- low	754.0p	866.0p
Share price discount to NAV	- low	6.6%	7.1%
	- high	14.5%	12.1%

Performance	Year to 30 September 2019	Year to 30 September 2018

NAV total return¹	(4.6)%	(2.1)%
Share price total return¹	(7.6)%	1.2%
FTSE All-World Europe ex UK Index total return^{2, 3}	6.9%	2.4%

¹ The NAV total returns and share price total returns are sourced from Edinburgh Partners Limited ("Edinburgh Partners" or the "Investment Manager") and include dividends reinvested.

² In sterling.

³ The index performance figures are sourced from Refinitiv Datastream.

Cost of running the Company	Year to 30 September 2019	Year to 30 September 2018

Ongoing charges¹	0.62%	0.61%

¹ Based on total expenses, excluding finance costs, transaction costs and certain non-recurring items for the year, as a percentage of the average monthly net asset value.

Past performance is not a guide to future performance.

CHAIRMAN'S STATEMENT

PERFORMANCE
In the year to 30 September 2019, the NAV total return was -4.6% compared to a total return of 6.9% for the FTSE All-World Europe ex UK Index, adjusted to sterling. The share price total return over the year of -7.6% was lower than the NAV total return, as a consequence of the share price discount to NAV increasing from 9.6% to 12.8%. The Board continues to believe that longer term returns are more important than any one year's performance. That notwithstanding, it must be conceded that medium and longer term investment results have also been disappointing: over the three and five years to 30 September 2019, the NAV total returns were 21.4% and 31.7% respectively, against 34.2% and 60.4% for the Index.

Our Investment Manager, Edinburgh Partners, has maintained a concentrated portfolio with low turnover and high active share (low overlap with the benchmark index), consistent with its philosophy. Consistency does not, unfortunately, guarantee success, though it almost invariably accompanies it. The Investment Manager's Report below contains detailed commentary on the economic background, the portfolio and performance for the year.

CHANGE OF INVESTMENT MANAGER
In view both of disappointing long and medium term results and the Board's diminishing confidence in our Investment Manager's process, on 23 May 2019 the Company announced that it would undertake a review of the Company's investment management arrangements. A wide range of prospective investment managers, in addition to Edinburgh Partners, were asked to submit proposals. After careful consideration and subsequent inquisition of a short list, the Board decided to appoint Baillie Gifford & Co Limited ("Baillie Gifford") as the Company's new alternative investment fund manager ("AIFM"), company secretary and administrator. Our overriding concern in making this decision is to optimise the chances of generating strong absolute and relative future investment returns and for the Company to offer a distinctive and attractive proposition to both existing and prospective shareholders.

On 9 October 2019, the Board served notice on Edinburgh Partners, terminating its appointment as the Company's AIFM, company secretary and administrator with effect from 9 January 2020, or earlier should the Company elect. The intention is for the appointment of Baillie Gifford to take effect from 29 November 2019. Following the appointment of Baillie Gifford, the Company's registered office will be changed to Grimaldi House, 28 St James's Square, St James's, London, SW1Y 4JH.

Baillie Gifford is an independent fund manager with approximately £206bn under management (as at 30 September 2019) and is the largest manager of UK-listed investment trusts and companies by assets, managing nine investment trusts and one investment company. The Company's portfolio will be co-managed by Stephen Paice and Moritz Sitte.

Baillie Gifford will be paid an annual management fee of 0.55% of the lower of (i) the Company's market capitalisation and (ii) the Company's net asset value (which shall include income), in either case up to £500 million; and 0.50% of the amount of the lower of the Company's market capitalisation or net asset value above £500 million. Currently the management is paid on market capitalisation only. Baillie Gifford has agreed to waive its management fee for a period of six months as a contribution to costs borne by the Company for the change of management arrangements.

The Board wishes to thank Edinburgh Partners and their staff for all their efforts in managing the Company since 1 February 2010 and wishes them well for the future. The Board also acknowledges the input from Link Alternative Fund Administrators Limited, who provide accounting, administrative and secretarial support services to Edinburgh Partners.

OBJECTIVE AND INVESTMENT POLICY
Subject to the approval of shareholders at the Annual General Meeting ("AGM") of the Company, to be held on 23 January 2020, the objective and investment policy of the company will change, targeting investment returns primarily from capital growth, rather than capital and income growth, to reflect better the style, process and stock-picking of the incoming Investment Manager and correspond, therefore, with the likely nature of future investment returns. The proposed new objective and investment policy are detailed in full below and a summary of the proposed changes can be found in the Directors' Report in the full Annual Report and Financial Statements.

COMPANY NAME
Following the appointment of Baillie Gifford, the name of the Company will change to Baillie Gifford European Growth Trust plc and its London Stock Exchange ticker will change to BGEU.

TENDER OFFER
Following discussion with the Company's largest shareholders in connection with the appointment of Baillie Gifford, the Board is proposing a tender offer for up to 10% of its ordinary shares in issue at a 2% discount to the prevailing NAV. The tender offer will require the approval of Shareholders at a General Meeting of the Company to be held on 23 January 2020 following the AGM and a separate circular will be issued to shareholders in the course of December 2019.

REVENUE, DIVIDEND AND DIVIDEND POLICY
Revenue per share for the year was 31.0p, an increase of 13.1% over the prior year figure of 27.4p. The principal reason for the increase was that dividend income increased from £13.8 million in 2018 to £14.5 million in 2019, attributable to a combination of a move into higher yielding stocks, dividend increases from portfolio companies and the weakness of sterling against European currencies during the year under review.

An interim dividend of 9.5p was paid in July 2019 and the Board is now recommending a final dividend of 21.5p per share to give a total dividend for the year of 31.0p per share. This represents a 14.8% increase compared to the previous year's figure of 27.0p per share. Subject to the approval of shareholders at the AGM of the Company to be held on Tuesday, 23 January 2020, the dividend will be paid on Friday, 31 January 2020 to shareholders on the register at Friday, 3 January 2019. The ex-dividend date will be Thursday, 2 January 2020.

Following the payment of the proposed final dividend for the year to 30 September 2019 detailed above, the Company will change its dividend policy such that no interim dividend will be paid and any annual dividend will be paid only to the extent needed for the Company to maintain its investment trust status.

The Board intends to review the allocation of the management fee and finance costs related to borrowings following the change of AIFM.

BORROWINGS
The Company currently has a €30 million bank overdraft facility with The Northern Trust Company. At the year end, the facility was unutilised. Under normal circumstances, your Board believes that the portfolio should have a modest level of gearing and the current facility has provided the Investment Manager with flexibility to take advantage of opportunities when they arise. It is therefore intended to maintain similar lending arrangements following the appointment of Baillie Gifford as AIFM.

COSTS
The ongoing charges figure for the year was 0.62%, which compares favourably with other actively-managed investment funds and particularly well against other European-focused investment trusts. The comparable figure for last year was 0.61%.

DISCOUNT AND SHARE BUY BACKS
We do not have a formal discount target, but we monitor the discount closely. We are prepared to buy back shares opportunistically, taking into account the level of the discount. During the year, we purchased for cancellation 1,011,900 shares at an average share price discount to NAV of 11.4% at a total cost of £8.2 million. This enhanced the NAV by 2.4p.

The increase in the share price discount to NAV from 9.6% at the start of the year to 12.8% at the end of the year was in part a result of the suspension of share buy backs between 23 May 2019 and 10 October 2019 when the Company's investment management arrangements were being reviewed. As at 22 November 2019, the discount was 10.0%.

THE BOARD
As detailed in the Annual Report for the year ended 30 September 2018 and the Half-Yearly Report to 31 March 2019, the Company announced a number of changes to the Board. Following the conclusion of the AGM held on 22 January 2019, William Eason retired as a non-executive Director of the Company. Mr Eason joined the Board in 2007 and the Board wishes to thank him wholeheartedly for his wise counsel, experience and commitment to the Company over his 11 years of service.

On 1 January 2019, Sue Inglis and Andrew Watkins became Directors of the Company and members of the Audit Committee. We were delighted to welcome two such experienced directors to the Board. Sue Inglis, until June 2018, was a senior corporate financier in Cantor Fitzgerald's investment companies team. She is non-executive chairman of The Bankers Investment Trust PLC, the senior independent director of Baillie Gifford US Growth Trust plc and a non-executive director BMO Managed Portfolio Trust plc, Next Energy Solar Fund Limited and Seneca Global Income & Growth Trust plc.

Andrew Watkins, until his retirement in June 2017, was head of client relations, sales and marketing for Invesco Perpetual's listed investment funds business. He is currently non-executive chairman of Ashoka India Equity Investment Trust plc and a non-executive director of BMO UK High Income Trust plc, Chelverton UK Dividend Trust plc and Consistent Unit Trust Management Company Limited.

Sue Inglis has informed the Company that, owing to her position as the senior independent director of Baillie Gifford US Growth Trust plc, she will step down from the Board of the Company prior to Baillie Gifford's appointment becoming effective. She further recused herself for this reason from the Board's decision to appoint Baillie Gifford as AIFM to the Company. It is a source of considerable regret to the Board that we are to lose Sue's excellent services after such a short time. The Board would like to thank her profusely for her hard work and expertise.

Michael Moule, our longest serving director, was due to retire at the 2020 AGM; however, given the move to Baillie Gifford and consequent loss of Sue Inglis we feel it would be beneficial to retain his expertise for one further year so that we are not rushed into finding immediate replacements. The Board intends to appoint at least one new Director in 2020.

STOCKBROKER
In 2019, the Board completed a review of the Company's stockbroking arrangements. A number of stockbrokers were invited to tender and there then followed a transparent and competitive process, which included written submissions, presentations and discussions with a selected shortlist of candidate firms. The Board decided that, with effect from 1 March 2019, Peel Hunt LLP, who have extensive experience in the investment trust sector, be appointed as the Company's sole corporate broker. The Board wishes to thank J.P. Morgan Securities who, with their predecessor companies, had been the stockbroker to the Company since its launch in 1972.

NEW WEBSITE AND FACTSHEET
In February 2019 the Company launched its new website at www.eitplc.com, incorporating improved features and additional functionality. At the same time, the Company updated its monthly factsheet which was subsequently awarded the Best Factsheet in the AIC Shareholder Communication Awards in May 2019. In the previous year's AIC Awards, following an upgrading of the Company's Annual Report, the Company received a special mention in the Best Report and Accounts - Specialist section. We would like to thank all concerned, including Edinburgh Partners and the Union Advertising Agency, for their efforts on the Company's behalf in achieving these improvements. The Board anticipates that, with the appointment of Baillie Gifford, the Company's online presence will be further expanded and enhanced. The Company's new website will be www.bgeuropeangrowth.com

ANNUAL GENERAL MEETING
The AGM will be held at 11.00am on Thursday, 23 January 2020 at The Institute of Directors, 116 Pall Mall, London, SW1Y 5ED. Baillie Gifford will make a presentation and I look forward to meeting shareholders who are able to attend.

OUTLOOK
Economic conditions remain fragile. Debt outstanding has reached new highs. Inflation continues to be muted despite fairly full employment in the developed world. Monetary conditions remain extreme, with persistent sub-zero interest rates and Central Banks reaching the limits of easing potential. Politics and trade relationships are up in the air. Fiscal stimulus may be required next. How does this translate to the stock market?

Human ingenuity as reflected in corporate endeavour is being sorely tested, though has not yet proved wanting. Corporate profits are high. Disruption and innovation are everywhere increasingly apparent. Some of the very largest companies are yet surprisingly young. Large sectors with legacy assets and limited scope to react to change are under sustained attack. This is an unsettling though natural process that seems most unlikely to have yet run its course. The change in the business landscape or, for example, in the physical landscape of our high streets is driven by factors largely unrelated to the monetary conditions by which we are unsurprisingly transfixed. This business change relates to underlying shifts in competitive advantage. Imaginative, intelligent analysis of that in each specific instance is likely, as ever, to be more reliably rewarding to investors than disquisitions on economics or other generalities.

Michael MacPhee
Chairman

27 November 2019

Past performance is not a guide to future performance.

INVESTMENT MANAGER'S REPORT

OUR INVESTMENT APPROACH
At Edinburgh Partners, we believe that time horizon is the key market imperfection and that investors spend too much time focusing on short-term quarterly and annual data. Empirical research on markets undertaken by our investment team supports the common sense contention that the value of a business depends upon its long-term ability to generate profits. This strongly indicates that company analysis should be concentrated on a longer-term, five-year horizon.

As a result, our investment approach is to forecast individual company earnings five years into the future. We aim to identify and buy undervalued companies and have the patience to hold them until share prices reflect their long-term earnings potential. Instead of being pushed off course by short-term reactions, fear of being different from the crowd or a particular index, our judgments are based purely on long-term analysis of prospective risk and reward. This approach is, by definition, contrarian but, for the patient investor, we believe it is the most reliable way to achieve superior returns over the long term.

Since the financial crisis of 2008, our valuation-led approach has been out of favour. The monetary policies adopted by central banks were designed to support economic growth and avoid recession and, in this respect, they appear to have succeeded. However, markets have become reliant on monetary policy and valuations have become distorted by artificially suppressed interest rates. In this environment, investment strategies focussed on perceived "growth" and "quality" have worked well, whereas "value" strategies have lagged. This has led to investors crowding into areas of the market such as consumer staples which are regarded as defensive irrespective of the absolute valuation levels. We have avoided these stocks, as we believe they are trading on expensive valuations which represent a significant risk to shareholders' capital.

PERFORMANCE
The year under review to 30 September 2019 delivered a NAV total return of -4.6% compared to -2.1% in the previous year. We lagged our benchmark by 11.5%. While our contrarian style often leads to periods of over and under performance against the index, we are naturally disappointed with this outcome.

Performance this year has been heavily influenced by the evolution of the US/China trade and technology conflict. The uncertainty over the outcome has weighed on investor sentiment and raised fears that a slowdown in growth could lead to a global recession. Central banks responded by resorting to monetary easing again and estimates of negative yielding debt of US$17 trillion across the world indicate the extent of investors' fears about where the global economy is heading. Equity markets, which are reliant on monetary policy response are certainly vulnerable to poor economic data and geopolitical uncertainty. The debate over whether there will be an economic slowdown or a recession continues, but we remain of the view that in the long term valuations matter. Owning so-called defensive stocks or "bond proxies" at premium valuations does not provide protection in a world of either slower growth or an economic downturn.

Within our overall framework of risk management we focus on individual stocks. An analysis of the performance in the year ended 30 September 2019 in terms of significant contributors and detractors, at both a sector and individual stock level, is set out below.

SIGNIFICANT CONTRIBUTIONS TO ABSOLUTEPERFORMANCE - YEAR TO 30 SEPTEMBER 2019

Sector	Contribution
Health Care	+3.4%
Communication Services	+1.9%
Utilities	+0.2%
Industrials	-2.2%
Energy	-2.4%
Financial	-3.1%

Stocks	Contribution
Roche	+1.1%
Getinge	+1.1%
Sopra Steria	+0.9%
Commerzbank	-1.3%
Leoni	-1.6%
Petroleum Geo-Services	-1.7%

The largest positive sector contribution came from Health Care, which now comprises two industrial groupings, the first is: Pharmaceuticals, Biotechnology & Life Sciences; and the second is: Health Care Equipment & Services. The best performing stock was Roche, the Swiss-based industry leader, where pipeline success has filtered through to the earnings outlook. Close behind was Swedish-based medical equipment supplier, Getinge, where there is increasing evidence that a recovery in operating margins is underway. After the year end, Getinge's share price continued to rise and, with the valuation now discounting a robust margin recovery, we sold the shares. Within the Communication Services sector, the Polish-based Cyfrowy Polsat performed well. In the Information Technology sector, Sopra Steria, the French-based group, was another good performer as it continued to deliver growth in its core IT services business.

Banking stocks were an area of continuing weakness as the combination of low interest rates and recessionary fears weighed on their prospects. Commerzbank was the most severely impacted, reflecting its acute interest rate sensitivity and weakness within the German Industrial sector, where it is a significant lender. All of the portfolio's bank holdings delivered negative returns, apart from Italian financial conglomerate, Mediobanca. As noted below, we sold a number of bank holdings during the period, but at the end of year under review 9.7% of the portfolio was held in banking stocks, reflecting our belief that the stocks still held remain undervalued.

Energy stocks were weak, in contrast to the previous year. The share price of Petroleum Geo-Services fell sharply when it delayed its planned bank refinancing. After the year end, the company announced good results and the share price staged a sharp recovery.

The weakness in the Industrials sector was largely driven by PostNL, due to regulatory uncertainty over its proposed takeover of its main competitor in mail delivery, Sandd. The Dutch Government approved the transaction in October 2019 and the share price has started to recover. There was continued weakness in the share price of auto supplier, Leoni, despite the appointment of a new chief executive officer who has implemented a recovery plan which appears to be stabilising the business.

TRANSACTIONS
During the year, we disposed of seven holdings and acquired positions in six new stocks. The stocks that were sold were DNB, Airbus, Alcon, Mediobanca, DIA, Danske Bank and Nordea Bank.

DNB had benefitted from the recovery in energy prices and we took advantage of this and disposed of the holding. Airbus was sold on valuation grounds after strong performance, as was Alcon, a spin out from the holding in Novartis. Mediobanca's share price had recovered, despite weak domestic growth and a highly unstable political situation, and the holding was sold. As detailed in last year's Annual Report, we sold the holding in DIA at the start of the year under review, ahead of an anticipated cash call which duly emerged. We sold the holding in Danske Bank due to concerns over its involvement in money laundering activities in the Baltic region and its potential exposure to the associated financial penalties. We considered that the valuation of Nordea Bank might be impacted, given its presence in the region, and therefore sold the position.

The purchases made during the year were Sopra Steria, Gerresheimer, Valeo, Stora Enso, United Internet and Fresenius Medical Care. These stocks all contributed positively to the year's results since purchase, particularly Sopra Steria, which we bought after the market over-reacted to news of delays in the roll-out of its banking software. Detailed below are brief comments on these stocks.

Sopra Steria is a French-based IT services business. The principal focus is on traditional IT services, but it also develops software for banking, human resources and property markets. The company should benefit from the current structural tailwind underpinning IT spending.

Gerresheimer is a manufacturer of glass and plastic packaging (e.g. inhalers, insulin pens, syringes) for the Health Care sector. This is a growing market, where high quality standards and regulatory expertise create barriers to entry.

Valeo is an auto parts supplier which is well positioned in growth areas such as emissions reduction, safety and hybrid/electric vehicles, which should allow it to grow revenues and profits despite a weak vehicle market.

Stora Enso is an integrated paper and packaging producer, based in Finland, which also owns significant forestry assets. The company has shifted its operations from the declining paper market to the growing packaging market and provides clear exposure to structural growth in demand for renewable alternatives to replace non-renewable materials.

United Internet is a German telecommunications and internet services provider. Its key subsidiary, 1&1 Drillisch, has carved out a solid competitive position in the German telecommunications market, underpinned by a long-term wholesale access agreement with Telefonica Deutschland. It is now planning to establish a physical 5G network. The company's valuation had fallen sharply on fears that this transition would be poorly executed, despite the strong track record of the experienced management team, and we took advantage of the share price weakness to acquire a holding.

Fresenius Medical Care is a leading provider of equipment and services for kidney dialysis. Its major market is currently North America but there are significant growth opportunities around the world, especially in China. There will be a partial shift towards services being provided at home rather than in clinics. Following the purchase of NxStage Medical, based in the USA, Fresenius Medical Care is well positioned for this shift.

A common feature of the purchases made this year has been a combination of strong balance sheets and sustainable dividends. Going forward we expect this feature to become even more important for the existing portfolio¹.

PORTFOLIO
Over the course of the year, the most significant change in the composition of the portfolio has been the reduction in exposure to Banking stocks, which represented 9.7% of the portfolio at year end, a reduction from 20.7% a year earlier, primarily due to the sale of four holdings. The Communication Services exposure increased over the year to 14.1%, principally due to the purchase of United Internet and our Health Care exposure rose slightly to reach 19.7%. We continued to reduce our Cyclical exposure and our portfolio changes were heavily influenced by balance sheet strength and dividend sustainability.

At the year end, the Company had net cash balances amounting to 1.3% of net assets, compared to net borrowings of 2.7% at the start of the financial year. We believe this is a prudent position to adopt given the uncertainties facing equity markets.

OUTLOOK¹
Uncertainty over the US/China trade and technology conflict continues to weigh on investor sentiment and confidence. Economic data has highlighted a weaker economic outlook and in Europe many areas of the Industrial sector are in recession. The global economy seems set for a period of lower growth, despite the best efforts of central banks to stimulate activity through monetary easing. Positive news on political issues such as the trade conflict or Brexit would provide a boost to investor sentiment. However, in the longer-term, we have concerns about the levels of accumulated debt and the increasing ineffectiveness of monetary easing without meaningful fiscal stimulus. It seems likely that governments will need to invest more to support growth and in Europe this represents a challenge which Germany is reluctant to embrace.

We continue to adhere to our principles regarding valuation, avoiding popular widely-owned stocks with high valuations. We have become increasingly cautious about the economic outlook and have been gradually reducing risk in the portfolio. Whether or not the current slowdown deteriorates into a downturn, we believe that the valuation anomalies in the market will unwind. Hindsight is likely to view the issuance of negative yielding debt as the peak of the bond market and for equity market equivalents. Hence, we believe that the premium valuations being attached to growth stocks will deflate and that the attractions of value stocks will become self-evident. We believe that the improvement in recent performance of the existing portfolio provides an indication of how this shift will unfold.

Craig Armour
Edinburgh Partners

27 November 2019

¹ These comments apply in relation to the portfolio as managed by Edinburgh Partners prior to the termination of its appointment as the Company's AIFM, and should be read accordingly. From termination the portfolio will be managed by the new AIFM applying a different investment approach, following this there are likely to be significant changes to the portfolio.

Past performance is not a guide to future performance.

PORTFOLIO OF INVESTMENTS

as at 30 September 2019

Rank 2019	Rank 2018	Company	Sector	Country	Valuation £'000	% ofnet assets 2019	% of net assets 2018

1	2	Sanofi	Health Care	France	16,414	4.4	3.6
2	1	Roche¹	Health Care	Switzerland	13,028	3.5	4.0
3	17	Deutsche Post	Industrials	Germany	12,862	3.4	2.7
4	5	Royal Dutch Shell²	Energy	Netherlands	12,607	3.4	3.4
5	11	Telefonica	Communication Services	Spain	12,312	3.3	2.9
6	8	Nokia	Information Technology	Finland	11,872	3.2	3.0
7	35	Orange	Communication Services	France	11,464	3.1	2.0
8	29	Adecco	Industrials	Switzerland	11,324	3.0	2.2
9	-	Gerresheimer	Health Care	Germany	10,885	2.9	-
10	-	Stora Enso	Materials	Finland	10,803	2.9	-
11	22	Ipsos	Communication Services	France	10,728	2.9	2.5
12	7	Total	Energy	France	10,518	2.8	3.0
13	9	ING	Financials	Netherlands	10,467	2.8	3.0
14	4	Novartis	Health Care	Switzerland	10,408	2.8	3.4
15	10	ENI	Energy	Italy	10,397	2.8	2.9
16	-	Sopra Steria	Information Technology	France	10,378	2.8	-
17	30	Michelin	Consumer Discretionary	France	9,941	2.7	2.2
18	15	BNP Paribas	Financials	France	9,837	2.6	2.8
19	37	Cyfrowy Polsat	Consumer Services	Poland	9,418	2.5	1.9
20	3	PostNL	Industrials	Netherlands	9,278	2.5	3.4
21	20	BBVA	Financials	Spain	9,025	2.4	2.5
22	24	Siemens	Industrials	Germany	9,018	2.4	2.4
23	21	Indra Sistemas	Information Technology	Spain	8,867	2.4	2.5
24	14	ISS	Industrials	Denmark	8,828	2.4	2.9
25	-	Valeo	Consumer Directory	France	8,705	2.3	-
26	25	E.ON	Utilities	Germany	8,665	2.3	2.4
27	23	Bayer	Health Care	Germany	8,576	2.3	2.5
28	-	United Internet	Communications Services	Germany	8,527	2.3	-
29	19	Ryanair	Industrials	Ireland	8,476	2.3	2.6
30	16	Ahold Delhaize	Consumer Staples	Netherlands	8,396	2.2	2.7
31	26	Rocket Internet	Consumer Discretionary	Germany	8,393	2.2	2.3
32	6	Getinge	Health Care	Sweden	7,731	2.1	3.1
33	18	Glanbia	Consumer Staples	Ireland	7,239	1.9	2.7
34	12	Commerzbank	Financials	Germany	7,071	1.9	2.9
35	38	Outotec	Industrials	Finland	6,922	1.8	1.8
36	39	Ontex	Consumer Staples	Belgium	6,692	1.8	1.7
37	-	Fresenius Medical Care	Health Care	Germany	6,621	1.8	-
38	31	Petroleum Geo Services	Energy	Norway	3,588	0.9	2.1
39	33	Leoni	Consumer Discretionary	Germany	2,783	0.7	2.1

Prior year investments sold during the year					-	-	14.6

Total equity investments					369,064	98.7	102.7
Cash and other net current assets					4,793	1.3	0.4
Borrowings³					-	-	(3.1)

Net assets					373,857	100.0	100.0

¹ The investment is in non-voting preference shares.

² The investment is in A Shares.

³ For details regarding the Company's borrowings, please see note 6 to the Financial Statements below.

Of the ten largest portfolio investments as at 30 September 2019, the valuations at the previous year end, 30 September 2018, were Sanofi £14,873,000; Roche £16,510,000; Deutsche Post £11,199,000; Telefonica £12,066,000; Nokia £12,299,000; Orange £8,460,000; Adecco £9,064,000, Gerresheimer £nil and Stora Enso £nil.

Distribution of Investments
as at 30 September 2019 (% of net assets)

Sector distribution

Sector	%
Health Care	19.8
Industrials	17.8
Communication Services	14.1
Energy	9.9
Financials	9.7
Information Technology	8.4
Consumer Discretionary	7.9
Consumer Staples	5.9
Materials	2.9
Utilities	2.3
Cash and other net current assets	1.3
	100.0

Geographical distribution

Country	%
France	23.6
Germany	22.2
Netherlands	10.9
Switzerland	9.3
Spain	8.1
Finland	7.9
Ireland	4.2
Italy	2.8
Poland	2.5
Denmark	2.4
Sweden	2.1
Belgium	1.8
Norway	0.9
Cash and other net current assets	1.3
	100.0

As at 30 September 2019 the net assets of the Company were £373,857,000.

DIRECTORS

All of the Directors are non-executive and independent of the AIFM and the Investment Manager.

Michael MacPhee (Chairman)
Michael Moule (Senior Independent Director)
Dr Michael Woodward (Chairman of Audit Committee)
Sue Inglis
Andrew Watkins

INVESTMENT MANAGER

Edinburgh Partners
Craig Armour LLB, CA

STRATEGIC OVERVIEW

STRATEGY AND BUSINESS MODEL
Current objective and investment policy

The current objective and investment policy of the Company is detailed below:

Objective
The objective of the Company is to achieve attractive investment returns over the long term from a diversified portfolio of European securities.

Investment policy
The Board believes that investment in the diverse markets of the region promises attractive long-term capital and income growth. It further considers that the structure of the Company as a UK listed investment trust, with an independent Board of Directors, is well suited to meeting this aim.

The Company is invested in a diversified portfolio which is expected to consist of approximately 30 to 50 securities. The Company may not invest more than 10% of the value of the portfolio in any one individual stock at the time of investment.

The Board recognises that investment in some European countries can be riskier than in others. Investment risks are diversified through holding a wide range of securities in different countries and industrial sectors. No more than 10% of the value of the portfolio in aggregate may be held in securities in those countries which are not included in the FTSE All-World European indices.

The Board has the authority to hedge the Company's exposure to movements in the rate of exchange of currencies, principally the euro, in which the Company's investments are denominated, against Sterling, its reporting currency. However, it is not generally the Board's practice to do this and the portfolio is not currently hedged.

No investments in unquoted stocks can be made without the prior approval of the Board. The level of gearing within the portfolio is agreed by the Board and should not exceed 20% in normal market conditions.

No more than 10% of the total assets of the Company may be invested in other listed investment companies (including investment trusts) except in those that have stated that they will invest no more than 15% of their total assets in other listed investment companies. In this case, the limit is 15%.

Changes to the objective and investment policy

As detailed in the Chairman's Statement above, the Board is proposing to change the Company's objective and investment policy. If resolution 11 is approved at the AGM, the objective and investment policy will be as follows:

Objective
The objective of the Company is to achieve capital growth over the long term from a diversified portfolio of European securities.

Investment policy
The Company is invested in a diversified portfolio of between 30 to 60 European securities.

The Company may not invest more than 10% of total assets in any one individual stock at the time of investment.

The Board recognises that investment in some European countries can be riskier than in others. Investment risks are diversified through holding a wide range of securities in different countries and industrial sectors. The Company has the ability to invest in securities that are listed in countries which are not included in the FTSE All-World European ex UK indices, where these securities have a meaningful connection with continental Europe.

Up to 10% of total assets, as measured at the time of initial investment, can be invested in unlisted investments.

The level of gearing within the portfolio is agreed by the Board and the absolute amount of any gearing should not exceed 20% of net assets at time of drawdown, excluding any unlisted investments in the calculation of net assets.

The Investment Manager's compliance with the limits set out in the investment policy is monitored by the Board and the AIFM.

Investment strategy
Following the appointment of Baillie Gifford as the Company's new alternative investment fund manager, the Board expects the investment strategy to be to select high quality companies with strong competitive positions which have the prospect of delivering strong earnings growth over a number of years. Baillie Gifford believes that companies providing a combination of revenue growth, margin expansion and reinvestment of surplus cash flows at attractive rates of return offer the best chance of outperforming over long periods of time.

Business and status of the Company
The principal activity of the Company is to carry on the business of an investment trust company.

The Company is registered as a public limited company and is an investment company within the terms of Section 833 of the Companies Act 2006 as amended (the "Act"). The Company has been approved by HM Revenue & Customs as an investment trust under Sections 1158 and 1159 of the Corporation Tax Act 2010 as amended ("CTA"), subject to there being no subsequent serious breaches of the regulations. In the opinion of the Board, the Company has directed its affairs so as to enable it to continue to qualify for such approval.

The Company's shares have a premium listing on the Official List of the UK's Financial Conduct Authority ("FCA") and are traded on the main market of the London Stock Exchange.

The Company is a member of the Association of Investment Companies ("AIC"), a trade body which promotes investment companies and also develops best practice for its members.

Portfolio analysis
A detailed review of how the Company's assets have been invested is contained in the Investment Manager's Report above. A detailed list of all the Company's investments is contained in the Portfolio of Investments above. The portfolio consisted of 39 investments, excluding cash and other net current assets, as at 30 September 2019, thus ensuring that the Company has a suitable spread of investment risk. The sector and geographical distributions of investments as at 30 September 2019 are detailed above.

RESULTS AND DIVIDENDS

The results for the year are set out in the Income Statement and the Statement of Changes in Equity below.

For the year ended 30 September 2019, the net revenue return attributable to shareholders was £12.6 million (2018: £11.5 million) and the net capital return was negative £33.7 million (2018: a negative £21.0 million). Total shareholders' funds decreased by 9.8% to £373.9 million (2018: £414.3 million).

Details of the interim dividend paid and the final dividend recommended by the Board are set out below.

KEY PERFORMANCE INDICATORS
At each Board meeting, the Directors consider a number of performance measures to assess the Company's success in achieving its objective. The key performance indicators used to measure progress and performance of the Company over time are established industry measures and are as follows:

Net asset value
In the year to 30 September 2019, the NAV decreased by 7.5% from 1004.3p to 929.0p. After taking account of dividends paid in the year of 27.5p, the NAV total return was -4.6% (2018: -2.1%) as detailed in the Investment Manager's Report above. This compares with the total return of 6.9% (2018: 2.4%) from the FTSE All-World Europe ex UK Index, adjusted to sterling.

The NAV total return since the appointment of Edinburgh Partners as Investment Manager on 1 February 2010 to 30 September 2019 was 92.6%. This compares with the total return of 123.5% from the FTSE All-World Europe ex UK Index, adjusted to sterling.

Share price
In the year to 30 September 2019, the Company's share price decreased by 10.8% from 908.0p to 810.0p. The share price total return, taking account of the 27.5p of dividends paid in the year, was -7.6% (2018: 1.2%).

The share price total return since the appointment of Edinburgh Partners as Investment Manager on 1 February 2010 to 30 September 2019 was 100.8%. This compares with the total return of 123.5% from the FTSE All-World Europe ex UK Index, adjusted to sterling.

Share price discount to NAV
The share price discount to NAV widened from 9.6% to 12.8% in the year to 30 September 2019.

As a consequence of the review of the management arrangements, as detailed in the Chairman's statement above, from 23 May 2019 to 10 October 2019 the Company suspended buying back shares.

Revenue return per ordinary share
There was an increase in the revenue per share in the year to 30 September 2019 of 13.1% from 27.4p to 31.0p.

Dividends per ordinary share
The Directors are recommending a final dividend of 21.5p per ordinary share. After including the interim dividend of 9.5p per ordinary share, this makes a total dividend of 31.0p per ordinary share for the year. This compares to the previous year's figure of 27.0p per ordinary share.

Subject to approval by shareholders at the AGM to be held on Thursday, 23 January 2020, the final dividend will be payable on Friday, 31 January 2020 to all shareholders on the register at the close of business on Friday, 3 January 2020. The ex-dividend date will be Thursday, 2 January 2020.

Ongoing charges
The Company continues to have low expenses. The ongoing charges figure was 0.62% in the year to 30 September 2019 (2018: 0.61%).

The longer-term records of the key performance indicators are shown in the Ten Year Record in the full Annual Report and Financial Statements.

The Board also takes into consideration how the Company performs compared to other investment trusts investing in Europe.

MANAGEMENT AGREEMENT
In order to comply with the Alternative Investment Fund Managers' Directive ("AIFMD"), the Company appointed Edinburgh Partners AIFM Limited as its AIFM with effect from 17 July 2014. Edinburgh Partners AIFM Limited has been approved as an AIFM by the FCA. With the approval of the Board, the AIFM appointed Edinburgh Partners as Investment Manager to the Company pursuant to a delegation agreement with effect from 17 July 2014.

The AIFM receives a management fee of 0.55% per annum of the Company's equity market capitalisation up to £500 million and 0.50% per annum on the equity market capitalisation above £500 million, payable monthly in arrears. Prior to 1 June 2018, the management fee was set at a rate of 0.55% per annum of the Company's equity market capitalisation, irrespective of the level of the equity market capitalisation.

The Management Agreement may be terminated by either party giving three months' written notice. No additional compensation is payable to the AIFM on the termination of this agreement other than the fees payable during the notice period. No performance fee will be paid.

As a consequence of the revised rules under MiFID II, research costs were required to be unbundled from trading commission on the purchase and sale of investments with effect from 3 January 2018. During the year ended 30 September 2019, the Company agreed to pay £9,000 as a contribution to research costs incurred by the Investment Manager (2018: £12,000). This cost has been included in other expenses as detailed in note 4 to the Financial Statements below, with £3,000 (2018: £4,000) allocated to revenue and £6,000 (2018: £8,000) to capital.

Change of Investment Manager
On 23 May 2019, the Company announced that it would undertake a review of the Company's investment management arrangements. A wide range of prospective investment managers was asked to submit proposals. Following careful consideration, the Board decided to appoint Baillie Gifford & Co Limited as the Company's new alternative investment fund manager, company secretary and administrator. The Board served notice on Edinburgh Partners in respect of its appointment as Investment Manager and AIFM to the Company on 9 October 2019 with effect from 9 January 2020, or earlier should the Company elect. The intention is for the appointment of Baillie Gifford to take effect from 29 November 2019.

Baillie Gifford is an independent fund manager and is the manager of nine other investment trusts. The Company's portfolio will be co-managed by Stephen Paice and Moritz Sitte.

As set out in the heads of terms signed by the Company and Baillie Gifford, Baillie Gifford will be paid an annual management fee of 0.55% of the lower of (i) the Company's market capitalisation and (ii) the Company's net asset value (which shall include income), in either case up to £500 million; and 0.50% of the amount of the lower of the Company's market capitalisation or net asset value above £500 million.

In order to offset any payment to the existing AIFM in respect of the termination of its appointment and to contribute towards the other costs of implementing the proposals set out in the heads of terms (including portfolio transition costs), Baillie Gifford has agreed to waive the management fee payable to it for the aggregate period of six months from its appointment as AIFM.

Baillie Gifford will also contribute £100,000 in relation to the Company's approximate contribution to the marketing programme undertaken by Baillie Gifford for all of its managed investment trusts (for the period to 31 December 2020) and has committed to directly spending a minimum of £100,000 on marketing the Company during this period. The Company shall bear all the remaining costs associated with the change of investment manager.

The new investment management agreement shall be terminable by either party serving three months' notice.

CONTINUING APPOINTMENT OF THE AIFM
The Board keeps the performance of the AIFM under review on a regular basis. As the AIFM had delegated the investment management function to Edinburgh Partners, the performance of the Investment Manager is also regularly reviewed. Following an extensive review of the Company's investment management arrangements, the Board resolved to terminate the arrangements with the AIFM and to appoint Baillie Gifford & Co Limited as the Company's new alternative investment fund manager, company secretary and administrator. It is the opinion of the Directors that the appointment of Baillie Gifford & Co Limited is in the interests of shareholders as a whole.

AIFM REMUNERATION DISCLOSURE
In accordance with the AIFMD, information in relation to the remuneration of the Company's AIFM, Edinburgh Partners AIFM Limited, is required to be made available to investors. The AIFM's remuneration policy is incorporated within a group policy which is available at www.edinburghpartners.com The disclosure also includes those remuneration disclosures in respect of the AIFM's staff and 'identified staff' for the reporting period.

Baillie Gifford's AIFM remuneration policy is incorporated within a group policy which is available at www.bailliegifford.com/en/uk/about-us/important-disclosures/

RISK MANAGEMENT BY THE AIFM
As required under the AIFMD, the AIFM has established and maintains a permanent and independent risk management function to ensure that there is a comprehensive and effective risk management policy in place and to monitor compliance with risk limits. This risk policy covers the risks associated with the management of the investment portfolio, and the AIFM reviews and approves the adequacy and effectiveness of the policy on at least an annual basis, including the risk management processes and controls and limits for each risk area.

The AIFM sets risk limits that take into account the risk profile of the Company's investment portfolio, as well as its objective and strategy. The AIFM monitors the risk limits, including leverage, and periodically assesses the portfolio's sensitivity to key risks.

PRINCIPAL RISKS AND UNCERTAINTIES
The Board considers that the following are the principal financial risks associated with investing in the Company: investment and strategy risk, discount volatility risk, market risk (comprising interest rate risk, currency risk and price risk), liquidity risk, credit risk and gearing risk. An explanation of these risks and how they are managed and the policy and practice with regard to financial instruments are contained in note 17 to the Financial Statements below.

In addition, the Board also considers the following as principal risks:

Regulatory risk
Relevant legislation and regulations which apply to the Company include, but are not limited to, the Act, the CTA, the Listing Rules and the Disclosure Guidance and Transparency Rules of the FCA, the AIFMD, the General Data Protection Regulation ("GDPR"), the Foreign Account Tax Compliance Act and the Common Reporting Standard.

A breach of the CTA could result in the Company losing its status as an investment trust and becoming subject to capital gains tax, whilst a breach of the Listing Rules might result in censure by the FCA and suspension of the trading of the Company's shares on the London Stock Exchange.

The Directors note the corporate offence of failure to prevent tax evasion and believe all necessary steps have been taken to prevent facilitation of tax evasion.

The implementation of GDPR provides for greater data privacy. While the risk to the Company is deemed to be low, the impact of fines should they occur could be significant. The Directors are satisfied that all necessary steps have been taken to prevent any breach of GDPR, including ensuring that all third party service providers have appropriate GDPR policies in place.

At each Board meeting, the status of the Company is considered and discussed, so as to ensure that all applicable regulations are being adhered to by the Company and its service providers.

The Board is not aware of any breaches of laws or regulations during the year under review and up to the date of this Report.

Although not considered to be a principal risk for the Company, the Board continues to monitor developments around the UK's departure from the European Union. Any portfolio of European equities will be exposed to the outcome of the Brexit negotiations, positively or negatively. The Company's portfolio has a relatively modest indirect exposure to the UK, but the Board and Investment Manager remain alert to developments at both a macro-economic and a stock-specific level.

Operational risk
In common with most other investment companies, the Company has no employees. The Company therefore relies upon the services provided by third parties. There are a number of operational risks associated with the fact that third parties undertake the Company's administration, depositary and custody functions. The main risk is that the third parties may fail to ensure that statutory requirements, such as compliance with the Act and the Listing Rules and the Disclosure Guidance and Transparency Rules of the FCA, are met. In addition, the Company's service providers are exposed to the possibility of cyber security and fraud risks.

The Board regularly receives and reviews management information from third parties which the Company Secretary compiles. In addition, each of the third parties provides a copy of its report on internal controls (ISAE 3402, SSAE 16 or equivalent) to the Board, through the Audit Committee, each year to evidence that adequate controls are in place and are operating satisfactorily.

Other financial risk
It is possible that inappropriate accounting policies or failure to comply with current or new accounting standards may lead to a breach of regulations.

The AIFM utilises the services of an independent administrator to prepare all financial statements and the Audit Committee meets with the independent Auditor at least once a year to discuss audit issues, including appropriate accounting policies.

The above summary of risks does not purport to be an exhaustive list of all the risk factors relating to an investment in the Company. Various other risks may apply and investors may wish to obtain independent financial advice in this regard.

The Board undertakes a robust annual assessment and review of all the risks stated above and in note 17 to the Financial Statements below, together with a review of any new risks which may have arisen during the year, including those that could threaten the Company's business model, future performance, solvency or liquidity. These risks are formalised within the Company's risk assessment matrix.

INTERNAL FINANCIAL CONTROL
In accordance with the guidance issued to directors of listed companies, the Directors confirm that they have carried out a review of the effectiveness of the systems of internal financial control during the year ended 30 September 2019. There were no matters arising from this review that required further investigation and no significant failings or weaknesses were identified.

LEVERAGE
Leverage is defined in the AIFMD as any method by which the Company increases its exposure, whether through borrowing of cash or securities, or leverage embedded in derivative positions or by any other means. As detailed in the Chairman's Statement below and notes 5 and 6 to the Financial Statements below, during the year ended 30 September 2019, the Company utilised a borrowing facility. The Company did not use any derivative instruments during the year ended 30 September 2019.

In accordance with the detailed requirements of the AIFMD, leverage has been measured in terms of the Company's exposure and is expressed as a ratio of net asset value. The AIFMD requires this ratio to be calculated in accordance with both the Gross Method and the Commitment Method. Details of these methods of calculation can be found by referring to the AIFMD. In summary, these methods express leverage as a ratio of the exposure of debt, non-sterling currency, equity or currency hedging and derivatives exposure against the net asset value. The principal difference between the two methods is that the Commitment Method enables derivative instruments to be netted off to reflect hedging arrangements and the exposure is effectively reduced, while the Gross Method aggregates the exposure.

The AIFMD introduced a requirement for the AIFM to set maximum levels of leverage for the Company. The Company's AIFM has set a maximum limit of 1.20 for both the Gross and Commitment Methods of calculating leverage. However, the AIFM anticipates that the figures are likely to be lower than this under normal market conditions. At 30 September 2019, the Company's Gross ratio was 1.00 and its Commitment ratio was 1.00. In accordance with the AIFMD, any changes to the maximum level of leverage set by the Company will be communicated to shareholders.

DEPOSITORY AGREEMENT
The Board appointed Northern Trust Global Services Limited to act as its depositary (the "Depositary") with effect from 18 July 2014. On 3 April 2018, Northern Trust Global Services Limited was re-registered under the Companies Act 2006 as a public limited company under the name of Northern Trust Global Services PLC. Northern Trust Global Services PLC subsequently converted to a Societas Europaea on 8 October 2018 and its name was changed to Northern Trust Global Services SE ("NTGS SE"). On 1 March 2019, NTGS SE transferred its corporate headquarters from the United Kingdom to Luxembourg. As a result of the re-domicile, NTGS SE is now an authorised credit institution in Luxembourg under Chapter 1 of Part 1 of the Luxembourg law of 5 April 1993 on the financial sector. It is authorised by the European Central Bank ("ECB") and subject to the prudential supervision of the ECB and the Luxembourg Commission de Surveillance du Secteur Financier. The UK offices of NTGS SE have become a UK branch of NTGS SE and the branch continues to be regulated by the UK Financial Conduct Authority in the conduct of its UK depositary activities. Custody services are provided by The Northern Trust Company (as a delegate of the Depositary). A fee of 0.01% per annum of the net assets of the Company, plus fees in relation to safekeeping and other activities undertaken to facilitate the investment activity of the Company, are payable to the Depositary. The Company and the Depositary may terminate the Depositary Agreement at any time by giving six months' written notice. The Depositary may only be removed from office when a new depositary is appointed by the Company.

MAIN TRENDS AND FUTURE DEVELOPMENTS
A review of the main features of the year and the outlook for the coming year can be found in the Chairman's Statement and the Investment Manager's Report on the pages above. The Board's main focus is on the investment return and approach, with attention paid to the integrity and success of the investment approach and on factors which may have an impact on this approach.

FORWARD LOOKING STATEMENTS
This Strategic Report contains "forward-looking statements" with respect to the Company's plans and its current goals and expectations relating to its future financial condition, performance and results. By their nature, all forward-looking statements involve risk and uncertainty because they relate to future events that are beyond the Company's control. Factors that could cause actual results to differ materially from those estimated by the forward-looking statements include, but are not limited to:

global economic conditions and equity market performance and process, particularly those in Europe;
changes in government policies and monetary and interest rate policies worldwide, particularly those in Europe;
changes to regulations and taxes worldwide, particularly in Europe;
currency exchange rates;
use of gearing; and
the Company's success in managing its assets and business to mitigate the impact of the above factors.

As a result, the Company's actual future condition, performance and results may differ materially from the plans set out in the Company's forward-looking statements. The Company undertakes no obligation to update the forward-looking statements contained within the Strategic Report or any other forward-looking statements it makes.

EMPLOYEES, HUMAN RIGHTS AND COMMUNITY ISSUES
The Board recognises the requirement under the Act to detail information about employees, human rights and community issues, including information about any policies it has in relation to these matters and the effectiveness of these policies. These requirements do not apply to the Company as it has no employees, all the Directors are non-executive and it has outsourced all its functions to third party service providers. The Company has therefore not reported further in respect of these provisions.

GENDER DIVERSITY
As at 30 September 2019, the Board of Directors of the Company comprised four male Directors and one female Director. The appointment of any new Director is made on the basis of merit.

SOCIAL, ENVIRONMENTAL AND ETHICAL POLICY
The Investment Manager on behalf of the Company seeks to invest in companies that are well managed, with high standards of corporate governance, as the Directors believe this creates the proper conditions to enhance long-term value for shareholders. The Company adopts a positive approach to corporate governance and engagement with companies.

In pursuit of the above objective, the Directors believe that proxy voting is an important part of the corporate governance process. It is the policy of the Company to vote, as far as is practicable, at all shareholder meetings of investee companies. The Company follows the relevant regulatory and legislative requirements, with the guiding principles being to make proxy voting decisions which favour proposals that will lead to maximising shareholder value while avoiding any conflicts of interest. To this end, voting decisions take into account corporate governance, including disclosure and transparency, board composition and independence, control structures, remuneration, and social and environmental issues.

The day-to-day management of the Company's business has been delegated by the AIFM to the Company's Investment Manager, Edinburgh Partners, which has an Environmental, SRI and Corporate Governance ("ESG") policy in place. The ESG policy statement, which can be found on the website at www.edinburghpartners.com, describes the manner in which the principles of the UK Stewardship Code are incorporated within the investment process. The ESG policy is fully consistent with the guidance and principles set out within the UK Stewardship Code and the United Nations-backed Principles for Responsible Investment.

Baillie Gifford's governance and sustainability report, environmental policy and UK Stewardship Code compliance document are available at www.bailliegifford.com/en/uk/about-us/governance-sustainability/

The assessment of the quality of investee companies in relation to environmental considerations, socially responsible investment and corporate governance is embedded in the Investment Manager's stock selection process.

APPROVAL
This Strategic Report has been approved by the Board and signed on its behalf by:

Michael MacPhee
Chairman

27 November 2019

Past performance is not a guide to future performance.

EXTRACTS FROM THE DIRECTORS' REPORT

Share capital
As at 30 September 2019, the Company had 40,244,369 ordinary shares of 25p each in issue. No shares were held in treasury during the year or as at the date of this Report as all shares purchased are cancelled.

At general meetings of the Company, ordinary shareholders are entitled to one vote on a show of hands and on a poll, one vote for each ordinary share held.

Issue of shares
No shares were issued during the year.

Purchase of shares
The Board continued to monitor the discount at which the ordinary shares of the Company trade relative to the NAV per share. During the year ended 30 September 2019, the Company purchased in the stock market 1,011,900 ordinary shares (with a nominal value of £252,975) for cancellation, at a total cost of £8,200,000. This represented 2.45% of the issued share capital at 30 September 2018.

As a consequence of the review of the management arrangements, as detailed in the Chairman's statement above, from 23 May 2019 to 10 October 2019, the Company suspended buying back shares.

Subsequent to the year end and up to the date of this Report, there have been no share buybacks.

GOING CONCERN
The Company's business activities, together with the factors likely to affect its future development, performance and position, are set out in the Strategic Report above. In addition, notes 17 and 18 to the Financial Statements below include the Company's objectives, policies and processes for managing its capital; its financial risk management objectives; details of its financial instruments; and its risk exposure. The Company's principal risks are detailed in the Strategic Overview above The Company's assets consist principally of a diversified portfolio of listed European equity shares, which in most circumstances are realisable within a short period of time and exceed its liabilities to creditors by a significant amount.

The Directors have concluded that the Company has adequate resources to continue in operational existence for the foreseeable future, being a period of at least twelve months from the date of this Annual Report is approved. For this reason, they have adopted the going concern basis in preparing the Financial Statements.

LONG-TERM VIABILITY STATEMENT
In accordance with the AIC Code, the Directors have assessed the prospects of the Company over a longer period than the one year required by the 'Going Concern' provision of the AIC Code. The Board considers that, for a company investing in European securities, a period of five years is an appropriate period to consider for the purpose of the Long-term Viability Statement.

The Board has undertaken an assessment of the Company's future prospects in order for it to have a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the period of their assessment.

In making its assessment, the Board considered a number of factors, including those detailed below:

the Company's current financial position;
the principal risks the Company faces, as detailed in the Strategic Report above;
that the portfolio comprises principally of investments traded on major European stock markets and that there is a satisfactory spread of investments. There is no expectation that the nature of the investments held within the portfolio will be materially different in the future;
that the expenses of the Company are predictable and modest in comparison with the assets and there are no capital commitments foreseen which would alter that position; and
that the Company has no employees and all Directors are non-executive and consequently do not have redundancy or other employment-related liabilities or responsibilities.

The Board's assessment was based on the following assumptions:

that European stock markets will continue to be a significant component of international stock markets and that investors will still wish to have an exposure to such investments;
that there will continue to be a demand for closed-ended investment trusts from investors;
that regulation will not increase to a level that makes the running of the Company uneconomical in comparison to other competitive products; and
that, should the performance be less than the Board considers to be acceptable, it has appropriate powers to replace the AIFM.

As a consequence of its assessment, the Board considers 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 five-year period of their assessment.

Directors' Responsibility Statement
The Directors are responsible for preparing the Annual Report and the Financial Statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare Financial Statements for each financial year. Under that law, the Directors have prepared the Financial Statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards, comprising Financial Reporting Standard (FRS) 102 "The Financial Reporting Standard applicable in the UK and Republic of Ireland" and applicable law). Under company law, the Directors must not approve the Financial Statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period. In preparing these Financial Statements, the Directors are required to:

select suitable accounting policies and then apply them consistently;
make judgements and accounting estimates that are reasonable and prudent;
state whether applicable UK Accounting Standards, comprising FRS 102, have been followed, subject to any material departures disclosed and explained in the Financial Statements respectively;
prepare the Financial Statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business; and
prepare a Strategic Report, Directors' Report, Directors' Remuneration Report and Corporate Governance Statement that comply with the applicable law and regulations.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the Financial Statements comply with the Companies Act 2006 and include the information required by the Listing Rules of the FCA. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

Each of the Directors, whose names are set out above, confirms that, to the best of his or her knowledge:

the Financial Statements, which have been prepared in accordance with UK Accounting Standards, give a true and fair view of the assets, liabilities, financial position and net return of the Company; and

the Strategic Report and the Directors' Report include a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that it faces.

The Annual Report and Financial Statements, taken as a whole, are considered by the Board to be fair, balanced and understandable and provide the information necessary for shareholders to assess the Company's position and performance, business model and strategy.

The Directors are responsible for ensuring the Annual Report and Financial Statements are made available on a website. Financial statements are published on the Company's website in accordance with legislation in the United Kingdom governing the preparation and dissemination of financial statements, which may vary from legislation in other jurisdictions. The maintenance and integrity of the Company's website is the responsibility of the Directors. The Directors' responsibility also extends to the ongoing integrity of the Financial Statements contained therein.

On behalf of the Board

Michael MacPhee
Chairman

27 November 2019

NON-STATUTORY ACCOUNTS

The financial information set out below does not constitute the Company's statutory Financial Statements for the year ended 30 September 2019 but is derived from those Financial Statements. Statutory Financial Statements for the year ended 30 September 2019 will be delivered to the Registrar of Companies in due course. The Auditors have reported on those Financial Statements; their report was (i) unqualified, (ii) did not include a reference to any matters to which the Auditors drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under Section 498 (2) or (3) of the Companies Act 2006. The text of the Auditors' report can be found in the Company's full Annual Report and Financial Statements on the Company's website.

INCOME STATEMENT
for the year ended 30 September 2019

		2019			2018
	Notes	Revenue £'000	Capital £'000	Total £'000	Revenue £'000	Capital £'000	Total £'000

Losses on investments at fair value	10	-	(32,508)	(32,508)	-	(19,648)	(19,648)
Foreign exchange gains		24	80	104	37	47	84
Income	2	14,523	-	14,523	13,775	-	13,775
Management fee	3	(600)	(1,199)	(1,799)	(706)	(1,412)	(2,118)
Other expenses	4	(484)	(6)	(490)	(504)	(8)	(512)

Net return before finance costs and taxation		13,463	(33,633)	(20,170)	12,602	(21,021)	(8,419)

Finance costs	5	(21)	(24)	(45)	(20)	(11)	(31)

Net return before taxation		13,422	(33,657)	(20,215)	12,582	(21,032)	(8,450)

Tax on ordinary activities	7	(837)	-	(837)	(1,121)	-	(1,121)

Net return attributable to shareholders		12,605	(33,657)	(21,052)	11,461	(21,032)	(9,571)

		pence	pence	pence	pence	pence	pence
Net return per ordinary share¹	9	31.0	(82.8)	(51.8)	27.4	(50.3)	(22.9)

¹ Based on the weighted average number of shares in issue during the year. The return per ordinary share is both the basic and diluted return per ordinary share.

All revenue and capital items in the above statement derive from continuing operations.

The total column of this statement is the Income Statement of the Company. The revenue and capital columns are prepared under guidance published by the AIC.

There were no items of other comprehensive income in the year and therefore the net return for the year is also the total comprehensive income for the year.

The notes form part of these Financial Statements.

BALANCE SHEET
as at 30 September 2019

	Notes	2019 £'000	2018 £'000
Fixed asset investments:
Investments at fair value through profit or loss	10	369,064	425,493

Current assets:
Debtors	12	2,729	2,177
Cash at bank and short-term deposits		2,301	63

		5,030	2,240

Current liabilities:
Creditors	13	237	759
Bank overdraft	6	-	12,655

		237	13,414

Net current assets/(liabilities)		4,793	(11,174)

Net assets		373,857	414,319

Capital and reserves:
Called-up share capital	14	10,061	10,314
Share premium account		123,749	123,749
Capital redemption reserve		8,750	8,497
Capital reserve		217,985	259,842
Revenue reserve		13,312	11,917

Total shareholders' funds		373,857	414,319

		pence	pence
Net asset value per ordinary share	15	929.0	1004.3

The Financial Statements were approved and authorised for issue by the Board of Directors of The European Investment Trust plc on 27 November 2019 and were signed on its behalf by:

Michael MacPhee
Chairman

Registered in England and Wales No. 01055384

The notes form part of these Financial Statements.

STATEMENT OF CHANGES IN EQUITY
for the year ended 30 September 2019

	Notes	Called-up share capital £'000	Share premium account £'000	Capital redemption reserve £'000	Capital reserve £'000	Revenue reserve £'000	Total £'000
Year ended 30 September 2019
At 1 October 2018		10,314	123,749	8,497	259,842	11,917	414,319

Net return after taxation for the year		-	-	-	(33,657)	12,605	(21,052)
Dividends paid	8	-	-	-	-	(11,210)	(11,210)
Shares purchased for cancellation	14	(253)	-	253	(8,200)	-	(8,200)

At 30 September 2019		10,061	123,749	8,750	217,985	13,312	373,587

Year ended 30 September 2018
At 1 October 2017		10,501	123,749	8,310	287,758	9,882	440,200

Net return after taxation for the year		-	-	-	(21,032)	11,461	(9,571)
Dividends paid	8	-	-	-	-	(9,426)	(9,426)
Shares purchased for cancellation	14	(187)	-	187	(6,884)	-	(6,884)

At 30 September 2018		10,314	123,749	8,497	259,842	11,917	414,319

The notes form part of these Financial Statements.

NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 September 2019

1. Accounting policies

Basis of accounting
These Financial Statements are prepared under FRS 102 "The Financial Reporting Standard applicable in the UK and Republic of Ireland" and in accordance with the AIC SORP.

The Company has applied the exemption detailed in FRS 102 Section 7.1A, electing to exclude the Cash Flow Statement for the year ended 30 September 2019.

The principal accounting policies detailed below have been applied consistently throughout the period. As detailed in the extracts from the Directors' report above, the Directors consider that it is appropriate for the Financial Statements to be prepared on a going concern basis, being a period of at least twelve months from the date these Financial Statements were approved.

Income recognition
Dividend and other investment income is included as revenue (except where, in the opinion of the Directors, its nature indicates it should be recognised as capital) on the ex-dividend date or, where no ex-dividend date is quoted, when the Company's right to receive payment is established. Income arising on holdings of fixed income securities is recognised on a time apportionment basis so as to reflect the effective interest rate on that security. Deposit and other interest is included on an accruals basis.

Dividends are accounted for on the basis of income actually receivable. Dividends from overseas companies are shown gross of withholding tax.

Where the Company has elected to receive its dividends in the form of additional shares rather than in cash (scrip dividends), the amount of the cash dividend foregone is recognised as income. Any excess or shortfall in the value of the shares received over the amount of the cash dividend foregone is recognised in the capital reserve.

Borrowings
Loans and overdrafts are recorded at the proceeds received, net of issue costs, irrespective of the duration of the instrument.

Finance costs, including interest, are accrued using the effective interest rate method. See below for allocation of finance costs within the Income Statement.

Expenses and finance costs
All expenses are accounted for on an accruals basis. Management fees, detailed in note 3, and finance costs related to borrowings, detailed in note 5, are apportioned between revenue and capital in the Income Statement, with one-third to revenue and two-thirds to capital. No performance fees are charged by the AIFM.

All other operating expenses are charged to revenue in the Income Statement, except the Company's contribution to the Investment Manager's research costs, as detailed in note 4, which is charged between capital and revenue in the Income Statement on the same basis as the management fees and finance costs related to borrowings, being one-third to revenue and two-thirds to capital. With effect from 1 January 2019, the Investment Manager agreed to fund such payments out of its own resources. Other transaction costs are included within the gains and losses on investment sales, as disclosed in the Income Statement. The Board reviews the expense allocation policy on a yearly basis and considers whether it remains appropriate.

Investments
All investments held by the Company are classified as 'fair value through profit or loss'. Investments are initially recognised at cost, being the fair value of the consideration given. Interest accrued on fixed interest rate securities at the date of purchase or sale is accounted for separately as accrued income, so that the value or purchase price or sale proceeds is shown net of such items.

After initial recognition, investments are measured at fair value, with changes in the fair value of investments recognised in the Income Statement and allocated to capital. Gains and losses on investments sold are calculated as the difference between sales proceeds and cost.

For investments actively traded in organised financial markets, fair value is generally determined by reference to stock exchange quoted market bid prices at the close of business on the Balance Sheet date, without adjustment for transaction costs necessary to realise the asset. Investments which are not quoted or which are not frequently traded are stated at Directors' best estimate of fair value, using the guidelines on valuation published by the International Private Equity and Venture Capital Association. This represents the Directors' view of the amount for which an asset could be exchanged between knowledgeable willing parties in an arm's length transaction. This does not assume that the underlying business is saleable at the reporting date or that its current shareholders have any intention to sell their holding in the near future. Where no reliable fair value can be estimated, investments may be carried at cost less any provision for impairment.

Cash at bank and short-term deposits
Cash at bank and short-term deposits comprise cash in hand and demand deposits that mature within three months. The carrying value of cash at bank and short-term deposits is equal to its fair value.

Foreign currency
The functional and presentational currency of the Company is sterling because that is the currency of the primary economic environment in which the Company operates.

Transactions denominated in foreign currencies are converted to sterling at the actual exchange rate as at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies and non-monetary items that are measured at fair value in a foreign currency are reported at the rate of exchange to sterling at the Balance Sheet date. Any gain or loss arising from a change in exchange rate subsequent to the date of the transaction is included as an exchange gain or loss in the capital reserve or in revenue depending on whether the gain or loss is of a capital or revenue nature.

Taxation
The charge for taxation is based on the net return for the year and takes into account taxation deferred or accelerated because of timing differences between the treatment of certain items for accounting and taxation purposes. Full provision for deferred taxation is made under the liability method, without discounting, on all timing differences that have arisen but not been reversed by the Balance Sheet date, unless such provision is not permitted by FRS 102. This is subject to deferred tax assets only being recognised if it is considered more likely than not that there will be suitable profits from which the future reversal of the underlying timing differences can be deducted. Timing differences are differences arising between the Company's taxable profits and its results as stated in the Financial Statements which are capable of reversal in one or more subsequent years.

Share premium
The share premium reserve represents the excess of the issue price over the nominal value of shares issued less transaction costs incurred on the issue of the shares.

Capital redemption reserve
The nominal value of ordinary share capital purchased and cancelled is transferred out of called-up share capital and into the capital redemption reserve on the relevant trade date.

Capital reserve

The following are accounted for in this reserve:

gains and losses on the realisation of investments;
increases and decreases in the valuation of investments held at the year end;
realised foreign exchange differences of a capital nature;
unrealised foreign exchange differences of a capital nature;
two-thirds of the management fee and finance costs related to borrowings;
two-thirds of the Company's contribution to the Investment Manager's research costs;
costs of professional advice (including related irrecoverable VAT) relating to the capital structure of the Company;
other capital charges and credits charged or credited to this account in accordance with the above policies; and
costs of purchasing ordinary share capital.

Revenue reserve
The revenue reserve represents the surplus of accumulated profits and is distributable by way of a dividend.

Dividends payable to shareholders
Final dividends are recognised as a liability in the year in which they have been approved by shareholders in a general meeting. Interim dividends are recognised as a liability in the period in which they have been declared and paid.

2. Income

	2019 £'000	2018 £'000
Income from investments:
Overseas dividends	14,519	13,775
Other income	4	-

Total income	14,523	13,775

Other income in the year ended 30 September 2019 relates to interest received on reclaims of withholding tax.

3. Management fee

	2019			2018
	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000

Management fee	600	1,199	1,799	706	1,412	2,118

On 17 July 2014, the Company appointed Edinburgh Partners AIFM Limited as its AIFM. With effect from 1 June 2018, the AIFM receives a management fee of 0.55% per annum of the Company's equity market capitalisation up to £500 million and 0.50% per annum on the equity market capitalisation above £500 million, payable monthly in arrears. Prior to this, the management fee was set at a rate of 0.55% per annum of the Company's equity market capitalisation, irrespective of the level of the equity market capitalisation.

Management fees are apportioned between revenue and capital on the basis of one-third to revenue and two-thirds to capital.

During the year ended 30 September 2019, the management fees payable to the AIFM totalled £1,799,000 (2018: £2,118,000). At 30 September 2019, there was £152,000 outstanding payable to the AIFM (2018: £346,000) in relation to management fees.

As a consequence of the new MiFID II regulations which became effective on 3 January 2018, an unbundling of research costs from trading commission on the purchase and sale of investments was required to be made. During the year ended 30 September 2019, the Company agreed to pay £9,000 as a contribution to research costs incurred by the Investment Manager (2018: £12,000). The cost has been included in other expenses as detailed below, with £3,000 (2018: £4,000) allocated to revenue and £6,000 (2018: £8,000) to capital. With effect from 1 January 2019, the Investment Manager agreed to fund such payments out of its own resources.

4. Other expenses

	2019			2018
	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000

Audit fees and expenses (net of VAT)¹	17	-	17	17	-	17

Directors' remuneration²	122	-	122	104	-	104
Directors' national insurance	7	-	7	8	-	8
Directors' expenses	12	-	12	2	-	2
		-
Depositary and custodian fees	108	-	108	119	-	119
Marketing and website costs	54	-	54	54	-	54
Legal and professional fees	30	-	30	29	-	29
Irrecoverable VAT	26	-	26	27	-	27
London Stock Exchange and FCA fees	26	-	26	23	-	23
Registrar fees	21	-	21	32	-	32
AIC membership fee	21	-	21	20	-	20
Printing costs	12	-	12	35	-	35
New Zealand listing fee³	-	-	-	8	-	8
Other costs⁴	28	6	34	26	8	34

	484	6	490	504	8	512

1 Comprises an audit fee of £16,000 (2018: £16,000) and expenses incurred during the audit of £1,000 (2018: £1,000).

2 See the Directors' Remuneration Report in the full Annual Report and Financial Statements.

3 The Company delisted from the New Zealand stock exchange on 2 November 2017.

4 Includes the Company's contribution to the Investment Manager's research costs of £3,000 (2018: £4,000) to revenue and £6,000 (£8,000) to capital.

5. Finance costs

	2019			2018
	Revenue £'000	Capital £'000	Total £'000	Revenue £'000	Capital £'000	Total £'000

Negative interest on cash balances	9	-	9	15	-	15
Loan arrangement fee	1	2	3	1	2	3
Revolving credit facility interest	11	22	33	4	9	13

	21	24	45	20	11	31

Finance costs related to borrowings are apportioned between revenue and capital, on the basis of one-third to revenue and two-thirds to capital.

6. Borrowings

	2019 £'000	2018 £'000

Bank overdraft	-	12,655

The Company has a euro 30,000,000 bank overdraft credit facility agreement with The Northern Trust Company (the "Bank") for the purpose of pursuing its investment objective. As at 30 September 2019, none of the facility had been drawn down (2018: 12,655,000). The facility is uncommitted. Interest, detailed in note 5, is charged at 1.25% above the euro overnight index average ("EONIA") rate.

The maximum aggregate principal amount which may be outstanding under the facility at any time is the lower of euro 30,000,000 or 20% of the aggregated value of unencumbered assets acceptable to the Bank. The facility contains covenants preventing the Company from creating any security interest over any assets of the Company held by the Bank or incurring any other financial indebtedness without the express permission of the Bank. The Company is required to maintain its status as an investment trust authorised by HMRC and to maintain the appointment of Northern Trust Global Services SE, as its Depositary. The facility also demands automatic repayment in the event of an unremedied breach by the Company or should the Company become insolvent or subject to insolvency, winding-up or administrative proceedings.

7. Tax on ordinary activities

a) Analysis of charge for the year	2019			2018
	Revenue £'000	Capital £'000	Total £'000	Revenue £'000	Capital £'000	Total £'000
Current tax:
UK corporation tax	-	-	-	-	-	-
Overseas tax suffered	837	-	837	1,140	-	1,140
Overseas tax recovered previously written off	-	-	-	(19)	-	(19)

	837	-	837	1,121	-	1,121

The Company has nil corporation tax liability for the year ended 30 September 2019 (2018: nil).

The standard rate of corporation tax in the UK ("corporation tax rate") was 19% in the year to 31 March 2019 and is 19% in the year to 31 March 2020. It was 19% in the year to 31 March 2018. Accordingly, the Company's profits for the year ended 30 September 2019 are taxed at an effective rate of 19% (2018: 19%).

The taxation charge for the Company for the year ended 30 September 2019 is equal (2018: lower) than the enacted rate of 19% (2018: 19%). The differences are explained below:

	2019			2018
	Revenue £'000	Capital £'000	Total £'000	Revenue £'000	Capital £'000	Total £'000

Net return before taxation	13,442	(33,657)	(20,215)	12,582	(21,032)	(8,450)

Theoretical tax at UK corporation tax rate of 19% (2018: 19%)	2,554	(6,395)	(3,841)	2,391	(3,996)	(1,605)
Effects of:
- Foreign dividends that are not taxable	(2,764)	-	(2,764)	(2,624)	-	(2,624)
- Non-taxable investment losses	-	6,161	6,161	-	3,724	3,724
- Disallowable expenses	1	-	1	1	-	1
- Deferred tax not recognised	209	234	443	232	272	504
- Overseas tax suffered	837	-	837	1,140	-	1,140
- Overseas tax recovered previously written off	-	-	-	(19)	-	(19)

	837	-	837	1,121	-	1,121

b) Factors that may affect future tax charges

At 30 September 2019 the Company had unrelieved management expenses of £15,418,000 (2018: £13,091,000) that are available to offset future taxable revenue. A deferred tax asset of £2,621,000 (2018: £2,225,000) has not been recognised because the Company is not expected to generate sufficient taxable income in future periods in excess of the available deductible expenses and, accordingly, the Company is unlikely to be able to reduce future tax liabilities through the use of existing surplus losses.

Deferred tax is not provided on capital gains and losses arising on the revaluation or disposal of investments because the Company meets (and intends to continue for the foreseeable future to meet) the conditions for approval as an investment trust company.

c) Contingent assets

The Company is currently pursuing two potential reclaims of tax. The first relates to Franked Investment Group (FII GLO) computational based claims, filed on the basis that the tax treatment of dividends received from EU-resident companies is contrary to Article 43 (freedom of establishment) and/or Article 56 (free movement of capital and payments) of the European Community Treaty. The second relates to retrospective reclaims for overseas withholding tax suffered above treaty rates. Potential tax reclaims which remain outstanding are treated as contingent assets. Contingent assets have not been recognised in these Financial Statements as in all instances at the Balance Sheet date the amounts receivable were neither certain not quantifiable.

8. Dividends

Declared and paid	Payment date	2019 £'000	2018 £'000

Interim dividend for the year ended 30 September 2019 of 9.5p	31 July 2019	3,823	-
Final dividend for the year ended 30 September 2018 of 18.0p	31 January 2019	7,387	-
Interim dividend for the year ended 30 September 2018 of 9.0p	31 July 2018	-	3,755
Final dividend for the year ended 30 September 2017 of 13.5p	31 January 2018	-	5,671

		11,210	9,426

The Directors recommend a final dividend in respect of the year ended 30 September 2019 of 21.5p which is payable on Friday, 31 January 2020 to all shareholders on the register at the close of business on Friday, 3 January 2020. The ex-dividend date will be Thursday, 2 January 2020. The recommended final dividend is subject to approval by shareholders at the AGM to be held on Thursday, 23 January 2020. At the date of this Annual Report, the total dividend payment will amount to £8,653,000 as detailed below.

Proposed	2019 £'000	2018 £'000

2019 final dividend of 21.5p (2018: 18.0p) per ordinary share¹	8,653	7,410

1 Based on 40,244,369 shares in issue at 27 November 2019.

The total dividend for the year ended 30 September 2019 is 31.0p (2018: 27.0p), consisting of the interim dividend of 9.5p and the proposed final dividend of 21.5p (2018: interim dividend of 9.0p and final dividend of 18.0p)

9. Return per ordinary share

	2019			2018
	Net return £'000	Ordinary shares¹	Per share Pence	Net return £'000	Ordinary shares¹	Per share Pence

Net revenue return after taxation	12,605	40,626,941	31.0	11,461	41,849,606	27.4
Net capital return after taxation	(33,657)	40,626,941	(82.8)	(21,032)	41,849,606	(50.3)

Total return	(21,052)	40,626,941	(51.8)	(9,571)	41,849,606	(22.9)

¹ Weighted average number of ordinary shares in issue during the year.

10. Listed investments

	2019 £'000	2018 £'000
Analysis of investment portfolio movements
Opening book cost	405,797	369,691
Opening investment holdings gains	19,696	61,846

Opening valuation	425,493	431,537

Movements in the year:
Purchases at cost	66,810	115,182
Sales - proceeds	(90,731)	(101,578)
Losses on investments	(32,508)	(19,648)

Closing valuation	369,064	425,493

Closing book cost	385,104	405,797
Closing investment holding (losses)/gains	(16,040)	19,696

Closing valuation	369,064	425,493

	2019 £'000	2018 £'000
Analysis of capital gains/(losses)
Gains on sales	3,228	22,502
Investment holding losses	(35,736)	(42,150)

Losses on investments	(32,508)	(19,648)

Fair value hierarchy
In accordance with FRS 102, the Company must disclose the fair value hierarchy that classifies financial instruments measured at fair value at one of three levels according to the relative reliability of the inputs used to estimate the fair values.

Classification	Input
Level 1	The unadjusted quoted price in an active market for identical assets or liabilities that the entity can access at the measurement date.

Level 2	Inputs other than quoted prices included within Level 1 that are observable (ie developed using market data) for the asset or liability, either directly or indirectly.

Level 3	Inputs are unobservable (ie for which market data is unavailable) for the asset or liability.

Categorisation within the hierarchy has been determined on the basis of the lowest level input that is significant to the fair value measurement of the relevant asset. The valuation techniques used by the Company are explained in note 1. All of the Company's investments fall into Level 1, being valued at quoted prices in active markets.

Transaction costs
During the year ended 30 September 2019, the Company incurred transaction costs of £42,000 (2018: £76,000) and £57,000 (2018: £57,000) on purchases and sales of investments respectively. During the year ended 30 September 2019, additional costs of £86,000 (2018: £177,000) relating to stamp duty and financial transaction taxes were charged on purchases of investments. These amounts are included in losses on investments at fair value, as disclosed in the Income Statement above.

11. Significant holdings

The Company had no holdings of 3% or more of the share capital of any portfolio companies as at 30 September 2019.

12. Debtors

	2019 £'000	2018 £'000

Taxation recoverable	2,333	1,935
Prepayments and accrued income	396	242

	2,729	2,177

13. Creditors

	2019 £'000	2018 £'000

Management fee accrued	152	346
Other creditors and accruals	85	413

	237	759

14. Called-up share capital

	2019 £'000	2018 £'000
Allotted, called-up and fully paid:
Brought forward	10,314	10,501
Cancelled ordinary shares of 25p	(253)	(187)

40,244,369 (2018: 41,256,269) ordinary shares of 25p each	10,061	10,314

During the year ended 30 September 2019, 1,011,900 (2018: 750,500) ordinary shares were purchased and cancelled at a total cost of £8,200,000 (2018: £6,884,000).

Duration of the Company
The Company neither has a termination date nor the requirement for any periodic continuation votes.

15. Net asset value per ordinary share

	2019 pence	2018 pence
Net asset value per ordinary share	929.0	1004.3

The net asset value per ordinary share is based on net assets of £373,857,000 (2018: £414,319,000) and on 40,244,369 (2018: 41,256,269) ordinary shares, being the number of ordinary shares in issue at the year end.

16. Analysis of financial assets and liabilities

Currency profile
The currency profile of the Company's financial assets and liabilities was:

		Cash at
		bank and
	Equity	short-term
	shares	deposits	Debtors	Borrowings	Creditors	Total
	£'000	£'000	£'000	£'000	£'000	£'000

2019
Euro	304,739	2,239	1,011	-	(2)	307,987
Swiss franc	34,760	-	1,023	-	-	35,783
Polish zloty	9,418	-	193	-	-	9,611
Danish kroner	8,828	-	208	-	-	9,036
Swedish krona	7,731	-	137	-	-	7,868
Norwegian krone	3,588	-	134	-	-	3,722
Sterling	-	62	23	-	(235)	(150)

Total	369,064	2,301	2,729	-	(237)	373,857


2018
Euro	304,819	-	957	(12,655)	(5)	293,116
Swiss franc	48,079	-	878	-	-	48,957
Swedish krona	24,937	-	-	-	-	24,937
Danish kroner	21,412	-	186	-	-	21,598
Norwegian krone	18,307	-	129	-	-	18,436
Polish zloty	7,939	-	-	-	-	7,939
Sterling	-	63	27	-	(754)	(664)

Total	425,493	63	2,117	(12,655)	(759)	414,319

	2019	2018
Foreign exchange rates¹
Euro	1.1300	1.1227
Swiss franc	1.2286	1.2734
Polish zloty	4.9399	4.8064
Danish kroner	8.4380	8.3727
Swedish krona	12.1164	11.5986
Norwegian krone	11.1947	10.6200

¹ Sourced from WM/Reuters spot exchange rates.

17. Risk analysis
The Company is an investment company, whose shares are traded on the London Stock Exchange. It conducts its affairs so as to qualify in the UK as an investment trust under the provisions of Sections 1158 and 1159 of the CTA. In so qualifying, the Company is exempted in the UK from corporation tax on capital gains on its portfolio of investments.

As an investment trust, the Company invests in equities and makes other investments so as to achieve its objective. In pursuing its objective, the Company is exposed to risks which could result in a reduction of either or both of the value of the net assets and the profits available for distribution by way of dividend. The Board, together with the AIFM, is responsible for the Company's risk management, as set out in the Strategic Report above.

The principal risks the Company faces are:

investment and strategy risk;
discount volatility risk;
market risk (comprising interest rate risk, currency risk and price risk);
liquidity risk;
credit risk; and
gearing risk.

The AIFM monitors the risks affecting the Company on an ongoing basis within the policies and guidelines determined by the Board. The Directors receive financial information, which is used to identify and monitor risk, quarterly. The Company may enter into derivative contracts to manage risk but has not done so to date. A description of the principal risks the Company faces is detailed below and in the Strategic Report above.

Investment and strategy risk
There can be no guarantee that the objective of the Company will be achieved due to the possibility of poor stock selection or as a result of being geared in a falling market.

The Investment Manager meets regularly with the Board to discuss the portfolio performance and strategy. The Board receives regular reports from the Investment Manager detailing all portfolio transactions and any other significant changes in the market or stock outlooks. Details of the investment policy are given above.

Discount volatility risk
The Board recognises that it is in the long-term interests of shareholders to reduce discount volatility in order to ensure that movements in the Company's share price reflect as closely as possible movements in the NAV and believes that the prime driver of discounts over the longer term is investment performance. The Company is permitted to employ gearing, a process whereby funds are borrowed principally for the purpose of purchasing securities, should the Board consider that it is appropriate to do so. The use of gearing can magnify discount volatility.

The Board actively monitors the discount at which the Company's shares trade but it does not intend to issue a precise discount target at which shares will be bought back as it believes that the announcement of specific targets is likely to hinder rather than help the successful execution of a buy back policy. Equally, the Company will issue shares in order to meet demand as it arises.

The Board's commitment to allot or repurchase ordinary shares is subject to the Directors being satisfied that any offer to allot or to purchase shares is in the best interests of shareholders of the Company as a whole.

Details of share buy backs and cancellations can be found in note 14.

Market Risk

Interest rate risk
The Company's interest rate exposure as at 30 September 2019 is disclosed in note 16. It comprises cash at bank and short-term deposits, and borrowings (the euro bank overdraft credit facility). Details of the euro bank overdraft facility can be found in note 6.

The majority of the Company's assets were non-interest bearing during the year ended and as at 30 September 2019. Some of the Company's cash at bank and short-term deposits were subject to a negative interest charge during the year ended and as at 30 September 2019. There was exposure to interest bearing liabilities during the year ended 30 September 2019 through the bank overdraft credit facility agreement.

If interest rates had reduced by 0.25% (2018: 0.25%) from those obtained as at 30 September 2019, it would have the effect, with all other variables held constant, of decreasing the net return before taxation and therefore decreasing net assets on an annualised basis by £6,000 (2018: £31,000 increase in net return and net assets). If there had been an increase in interest rates of 0.25% (2018: 0.25%), there would have been an equal and opposite effect in the net return before taxation. The calculations are based on cash at bank, short-term deposits and bank overdrafts as at 30 September 2019 and these may not be representative of the year as a whole. This level of change is considered to be reasonable based on observation of current market conditions.

Currency risk
The base currency of the Company is sterling. The international nature of the Company's investment activities gives rise to a currency risk which is inherent in the performance of its overseas investments. The Company's overseas income is also subject to currency fluctuations.

It is not the Company's policy to hedge this risk on a continuing basis.

The Company's foreign currency risk exposure as at 30 September 2019 is disclosed in note 16. It comprises equity shares, cash at bank and short-term deposits, debtors, borrowings (the euro bank overdraft credit facility) and creditors.

If sterling had strengthened by 10% against all other currencies on 30 September 2019, with all other variables held constant, it would have had the effect of reducing the net capital return before taxation by £37,401,000 (2018: £41,498,000) and the net revenue return before taxation by £1,450,000 (2018: £1,376,000) and therefore would have reduced net assets by £38,851,000 (2018: £42,875,000). If sterling had weakened by 10% against all other currencies, there would have been an equal and opposite effect on both the net capital return and net revenue return before taxation. This level of change is considered to be reasonable based on observation of current market conditions.

Price risk
The Company is exposed to market risk due to fluctuations in the market prices of its investments. Market price risk arises mainly from uncertainty about future prices of financial instruments used in the Company's business. It represents the potential loss the Company might suffer through holding market positions in the face of price movements. The Investment Manager monitors the prices of financial instruments held by the Company on an ongoing basis.

The Investment Manager actively monitors market and economic data and reports to the Board, which considers investment policy on a regular basis. The NAV of the Company is released daily to the London Stock Exchange and is also available on the Company's website.

Fixed asset investments are valued at their fair value. Details of the Company's investment portfolio as at 30 September 2019 are disclosed above. In addition, an analysis of the investment portfolio by sector and geographical distribution is detailed above.

The maximum exposure to price risk at 30 September 2019 is the fair value of investments of £369,064,000 (2018: £425,493,000).

If the investment portfolio valuation decreased by 20% from the amount detailed in the Financial Statements as at 30 September 2019, it would have the effect, with all other variables held constant, of reducing the net capital return before taxation and therefore reducing net assets by £73,813,000 (2018: £85,099,000). An increase of 20% in the investment portfolio valuation would have an equal and opposite effect on the net capital return before taxation. The calculations are based on the Company's price risk at 30 September 2019 and may not be representative of the year as a whole. This level of change is considered to be reasonable based on observation of current market conditions.

Liquidity risk
Liquidity risk is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities. The Company's policy with regard to liquidity is to ensure continuity of funding. Short-term flexibility is achieved through cash management and increased borrowing, including the use of overdraft facilities.

Liquidity risk is not considered significant as the Company's assets comprise of readily realisable securities which are industrially and geographically diverse and which can be sold freely to meet funding requirements if necessary. Securities listed on a recognised stock exchange have been valued at bid prices and exchange rates ruling at the close of business on 30 September 2019. In certain circumstances, the market prices at which investments are valued may not represent the realisable value of those investments, taking into account both the size of the Company's holding and the frequency with which such investments are traded. Liquidity risk is mitigated by the fact that the Company had £2,301,000 (2018: £63,000) cash at bank, the assets are readily realisable and further short term flexibility is available through the use of bank borrowings. The Company is a closed-end fund, assets do not need to be liquidated to meet redemptions, and sufficient liquidity is maintained to meet obligations as they fall due. The Company does not normally invest in derivative products. The Investment Manager reviews liquidity at the time of making each investment decision. The Board reviews liquidity risk at each meeting.

The contractual payments of the Company's financial liabilities at 30 September 2019, based on the earliest date on which payment can be required and using exchange rates at the Balance Sheet date are £237,000 (2018: £13,414,000) and are required to be paid within one year or less.

Credit risk
Credit risk is the risk of financial loss to the Company if the contractual party to a financial instrument fails to meet its contractual obligations.

The carrying amounts of cash and debtors best represent the maximum credit risk exposure at the Balance Sheet date. There are no financial assets which are either past due or impaired.

The Company's listed investments are held on its behalf by The Northern Trust Company acting as the Company's custodian. Bankruptcy or insolvency of the custodian may cause the Company's rights with respect to securities held by the custodian to be delayed. The Board monitors the Company's risk by reviewing the custodian's internal controls reports.

Investment transactions are carried out with a number of brokers, whose creditworthiness is reviewed by the Investment Manager. Transactions are ordinarily undertaken on a delivery versus payment basis whereby the Company's custodian ensures that the counterparty to any transaction entered into by the Company has delivered in its obligations before any transfer of cash or securities away from the Company is completed.

Cash is only held at banks that have been identified by the Board as reputable and of high credit quality. As at 30 September 2019, The Northern Trust Company London Branch had a long-term rating from Standard and Poor's of AA-.

The maximum exposure to credit risk as at 30 September 2019 was £5,030,000 (2018: £2,240,000). The calculation is based on the Company's credit risk exposure as at 30 September 2019 and this may not be representative of the year as a whole.

Gearing risk
The aim of gearing is to enhance long-term returns to shareholders by investing borrowed funds in equities and other assets. The Company is permitted to employ gearing should the Board consider it appropriate to do so. The Board's policy is that the level of gearing should not exceed 20% of net assets in normal market conditions. The use of gearing can cause both gains and losses in the asset value of the Company to be magnified.

As detailed in notes 5 and 6, during the year ended 30 September 2019, the Company utilised a borrowing facility.

The Board undertakes an annual assessment and review of all the risks stated in this note 17 and in the Strategic Report above together with a review of any new risks which may have arisen during the year. These risks are formalised within the Company's risk assessment matrix.

18. Capital management policies
The Board has a responsibility for ensuring the Company's ability to continue as a going concern. It must therefore maintain an optimal capital structure through varying market conditions. This involves the ability to: issue and buy back share capital within limits set by the shareholders in general meeting; borrow monies in the short and long-term; and pay dividends to shareholders out of current year revenue earnings as well as out of brought-forward revenue reserves.

The Company is subject to externally imposed capital requirements, including the requirement as a public company to have a minimum share capital of £50,000, which have been met throughout the year.

Any changes to the ordinary share capital are set out in note 14 and in the Directors' Report above. Dividend payments are set out in note 8.

The Company's capital comprises:

	2019 £'000	2018 £'000

Called-up share capital	10,061	10,314
Share premium account	123,749	123,749
Capital redemption reserve	8,750	8,497
Capital reserve	217,985	259,842
Revenue reserve	13,312	11,917

Total shareholders' funds	373,857	414,319

The capital reserve consists of realised capital reserves of £234,025,000 and unrealised capital losses of £16,040,000 (2018: realised capital reserves of £240,146,000 and unrealised capital gains of £19,696,000). The unrealised capital losses of £16,040,000 consist wholly of unrealised investment holding losses (2018: unrealised investment holding gains of £19,696,000). Capital reserves are non-distributable.

The Company's objectives for managing capital are the same as the previous year and have been complied with throughout the year.

19. Transactions with the AIFM and the Investment Manager
Information with respect to transactions with the AIFM and the Investment Manager is detailed in the Strategic Report and in note 3.

20. Related parties
The Directors, who are considered to be key management personnel, received fees for the year as detailed in the Directors' Remuneration Report in the full Annual Report and Financial Statements and note 14. Under the AIC SORP, an investment manager is not considered to be a related party of the Company.

21. Post balance sheet events
On 9 October 2019, the Company announced a change of AIFM, investment manager, company secretary and a change of Company name. It also announced a proposed change of objective and investment policy and a tender offer. Details of the changes are included in the Chairman's Statement above.

Annual General Meeting
The Company's forty-seventh Annual General Meeting will be held at 11.00am on Thursday, 23 January 2020 at The Institute of Directors, 116 Pall Mall, London SW1Y 5ED.

National Storage Mechanism

A copy of the Annual Report and Financial Statements will be submitted shortly to the National Storage Mechanism ("NSM") and will be available for inspection at the NSM, which is situated at www.morningstar.co.uk/uk/NSM

A copy of the Annual Report and Financial Statements and Notice of Annual General Meeting will be delivered to shareholders shortly and can also be found on the Company's website.

Enquiries:

Craig Armour
Kenneth J Greig
Edinburgh Partners AIFM Limited
Telephone: 0131 270 3800

The Company's registered office address is:

Beaufort House
51 New North Road
Exeter
EX4 4EP

27 November 2019

Neither the contents of the Company's website nor the contents of any website accessible from hyperlinks on this announcement (or any other website) is incorporated into, or forms part of this announcement.

LEI: 213800QNN9EHZ4SC1R12

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