Annual Financial Report

RNS Number : 2142T

Jupiter US Smaller Companies PLC

10 October 2017

 

Jupiter US Smaller Companies plc (the 'Company')

Annual Financial Report for the year ended 30 June 2017

This announcement contains regulated information

Chairman's Statement

Dear fellow shareholders

The net asset value ("NAV") per share of your Company increased by 15.7% in the twelve months to 30 June 2017, which compares to a rise of 26.5% for the Company's benchmark, the sterling adjusted Russell 2000 Index. Since the current manager took over the management of the Company's portfolio, the NAV per share has risen 301% compared to 237% for the benchmark and since the Company's formation in March 1993, the NAV per share has increased 844% compared with a gain of 591% for the benchmark.

Although NAV per share rose, the comparison with the benchmark over the year under review is disappointing and requires an explanation.

The Company takes a risk averse approach to investment and aims to achieve long term capital growth with capital preservation. This approach was successful in preserving capital during the bear market of 2008 and adding value in the early years of the economic recovery (2009-12).

To achieve this the Company avoids areas of the stock market that are high risk, such as technology and biotech, as well as shares that we believe to be expensive. As a result of taking this approach, asset value growth failed to match the growth in the index. In the year under review, the Russell 2000 Technology sector rose 41% in sterling terms, an exceptional performance which contributed to the substantial increase in the Russell 2000 index.

After a long year of low interest rates and a bond bull market that has pushed bond yields to unprecedented low levels, many growth stocks and so-called "bond surrogates" (stocks that move up and down with bonds, such as utilities and real estate) are now trading at what we believe to be unsustainable levels. Many US retail investors now use sector-specific Exchange Traded Funds to implement trend-following investment strategies and this kind of investing has exaggerated recent market moves.

In the second half of the year, the market became disenchanted with the pace of the new US President's reflationary agenda and investors rotated into high risk stocks that appeared to offer visible growth, with the result that value stocks (those which are cheaper than average) underperformed in the last six months of the financial year. This meant that although the Company's NAV per share underperformed the benchmark by 5% in the second half of the year, it matched the performance of the Russell 2000 Value Index (the "value index"). 

Discount management

The Company's total asset base is currently smaller than the minimum size preferred for prospective investment by many institutional and wealth management investors. The Board and the Manager are committed to growing the Company over time with an objective of achieving an asset base of at least £200 million within two to three years.

The Board remains committed to its stated policy of using share buy-backs and new issues of shares with the intention of ensuring that, in normal market conditions, the market price of the Company's shares should trade at a discount of less than 10 per cent to their underlying net asset value. The Board believes that this commitment to the active removal of discount and premium risk will improve liquidity for both buyers and sellers of the Company's shares.

During the 12 months to 30 June 2017, the Company repurchased a total of 2,178,884 shares. The discount to NAV per share was 8.7% at the end of the year compared to 11.3% on 30 June 2016. As at 29 September 2017 the price stood at a discount of 7.8%.

Reduction in our running costs

I am pleased to report that the Company and the Manager have agreed to remove the existing performance fee arrangements with retrospective effect from the beginning of the current financial year. Furthermore, the base management fee charged to the Company has also been reduced, with effect from 1 October 2017, from 0.80% of total assets per annum to a tiered fee amounting to 0.75% of adjusted net assets up to £150 million (being the Company's net assets adjusted to exclude any drawn down bank debt), reducing to 0.65% for adjusted net assets over £150 million and up to £250 million, and reducing further to 0.55% for adjusted net assets in excess of £250 million.

These changes are intended to ensure that the Company's charges are competitive with those for comparable investment trusts and also the institutional unit class of the Jupiter US Small & MidCap Fund which is also managed by Robert Siddles.

New Gearing Facility

Gearing is defined as the ratio of a company's long-term debt less cash held compared to its equity capital, expressed as a percentage. The effect of gearing is that, in rising markets, the Company tends to benefit from any growth of the Company's investment portfolio above the cost of payment of the prior ranking entitlements of any lenders and other creditors. Conversely, in falling markets the Company suffers more if the Company's investment portfolio underperforms the cost of those prior entitlements.

In order to improve the potential for capital returns to shareholders the Company has, with effect from 29 September 2017, negotiated a flexible loan facility with Scotiabank (Ireland) Designated Activity Company for up to £20 million (with an option to increase to £30 million if desired). It is intended that the use of this facility should be a clear differentiator for the Company relative to the open-ended Jupiter US Small & MidCap Fund, which is prevented by the applicable FCA rules from applying any gearing to its portfolio.

The Directors consider it a priority that the Company's level of gearing should be maintained at appropriate levels with sufficient flexibility to enable the Company to adapt at short notice to changes in market conditions. The Board reviews the Company's level of gearing on a regular basis. The current maximum that has been set is 20% of the Company's total assets. Robert Siddles will be encouraged to use the gearing facility and the Company's cash reserves in order to enhance returns for shareholders.

Annual general meeting

The Annual general meeting will be held at 11.30 am on Tuesday 21 November 2017 and I hope that you will attend. The meeting will be held in the offices of Jupiter Asset Management Limited at The Zig Zag Building, 70 Victoria Street, London, SW1E 6SQ. In addition to the formal business, the Investment Adviser will provide a short presentation to shareholders.

Continuation Vote

The Board considers that the proposal to be considered at the Annual General Meeting for the continuation of the Company as an investment trust is in the best interests of the Company and its shareholders as a whole.

The Directors intend to vote in favour of the Resolutions in respect of their holdings of Shares amounting to 105,813 shares in aggregate (representing approximately 0.6% of the voting rights in the Company as at today's date) and I would like to encourage shareholders to vote with us.

Board independence

Four of your Directors (myself, Norman Bachop, Peter Barton and Clive Parritt) have now served on your board for more than nine years. We believe, as does the Association of Investment Companies ("AIC") that length of service, of itself, has no bearing on our independence or ability to fulfil our fiduciary duties towards our fellow shareholders.

Your board consists of two investment professionals, two corporate lawyers (one of whom also has many years of investment banking and banking experience) and a chartered accountant, which we believe represents a good balance of expertise to hold the Manager to account.

The Board's policy on refreshment is to add Directors, with similar expertise, in anticipation of retirements. We believe however, that five Directors is adequate for the size of our Company.

As in previous years, all our Directors are putting themselves forward for re-election at the Annual General Meeting and we would welcome your support for the resolutions.

Outlook

Although there are many macro uncertainties, corporate profits continue to grow and the Federal Reserve seems in no hurry to raise interest rates aggressively. The US smaller company sector is an attractive one and interesting for long term investors. In general it is under-researched and offers areas of undiscovered value. Shareholders should benefit from the Company's conservative investment approach that focuses on buying good companies when their shares are out of favour.

Gordon Grender

Chairman

10 October 2017

Financial Highlights for the year ended 30 June 2017

Performance

		30 June	30 June
		2017	2016	% change
Net Assets (£'000)		181,687	174,163	+4.3
Ordinary Share Performance
		30 June	30 June
		2017	2016	% change
Net Asset Value (pence)		911.08	787.33	+15.7
Middle Market Price (pence)		832.00	698.00	+19.2
Russell 2000 Index (sterling adjusted)		1,089.62	861.70	+26.5
Discount to Net Asset Value (%)		(8.7)	(11.3)	-
Ongoing charges ratio (%)		1.01	1.03	-1.9
Ten year record
			Year-
		Net	on-year
		Asset	change in	Year-
		Value	Net Asset	on-year
		per	Value per	change in
	Net	Ordinary	Ordinary	Benchmark
	Assets	Share	Share	Index
Year ended 30 June	£'000	p	%	%
2007	73,177	336.1	-	-
2008	55,982	269.3	-19.9	-16.6
2009	60,607	292.7	+8.7	-10.9
2010	77,298	373.3	+27.5	+32.0
2011	96,201	464.6	+24.5	+26.5
2012	99,248	468.3	+0.8	-1.2
2013	147,688	618.4	+32.1	+26.6
2014	164,957	686.3	+11.0	+8.3
2015	174,033	724.1	+5.5	+14.3
2016	174,163	787.3	+8.7	+8.1
2017	181,687	911.1	+15.7	+26.5

Investment Adviser's Review

NAV per share rose in the year but performance significantly lagged the benchmark. It was a difficult year for a conservative investment approach aiming for capital preservation as well as capital growth, as explained in the Chairman's Statement. In particular, a strong rise in the market and leadership by high risk stocks such as technology made for a "perfect storm" as far as comparison with the benchmark was concerned. There was one takeover in the portfolio but the best contributions came from healthcare and consumer discretionary stocks, two areas of focus recently. Poor contributors came from technology holdings where two stocks were hit badly by what appeared to be self-inflicted wounds. Elsewhere in technology, low tech stocks did not participate in the rally of leading-edge shares. New investments were mainly in the laggard consumer discretionary and energy sectors although individual underappreciated healthcare stocks were also bought. Selling concentrated on recovery stocks that had reached their price objective, strongly performing financials and earlier on in the period, energy.

Investment approach

The Company's investment approach is not particularly fashionable and does not necessarily produce good results every year but over time has tended to produce superior long-term returns. This approach concentrates on taking a long-term view of company business prospects, buying shares when they are cheap and have substantial appreciation potential. As a result, the portfolio tends to emphasise areas of the market that are out of favour or where companies have lower risk businesses. Conversely, popular market sectors tend to be shunned and stocks that can offer steady, if unspectacular, returns are preferred. An example of this is companies that can compound growth in book value per share, such as, disciplined insurance underwriters.

Performance

NAV per share rose strongly but significantly lagged the benchmark. The biggest impact on the comparison with the benchmark was stock selection in the technology sector. The technology stocks held in the portfolio are low tech users of technology rather than those at the leading edge. As a result, these stocks did not participate in the 40% plus rally in the technology sector. In the first half of the year it was the strength of the market rally, the leadership of technology and a surge in the least liquid stocks that made it difficult for a conservative manager to match the benchmark. In the second half, it was the underperformance of value stocks. The manager's value investment approach will underperform when value stocks perform poorly.

The best contributions to performance came from healthcare service stocks that help reduce healthcare costs. Tivity Health (previously Healthways, a provider of exercise programs for elderly members of health plans) more than tripled as the company returned to profitable growth following a change of management and a restructuring. Addus Homecare, a provider of home social services to frail individuals who are at risk of hospitalization, more than doubled as profits improved when new management addressed cost pressures and resumed acquisitions. Big 5 Sporting Goods, acquired as a recovery stock, doubled as a competitor's liquidation sale ended. Ollie's Bargain Outlet Holdings reported better than expected same store sales as Amazon's continuing growth led to more retail bankruptcies and therefore greater availability of stock for Ollie's. KLX benefited from recovery in its energy service subsidiary. The positions in both KLX and Big 5 were sold.

Poor contributions to performance came primarily from technology stocks and two in particular owing to management failings. The Rubicon Project suffered badly when the company missed the market move last year to header bidding ("HB" - a means of increasing the prices realised by publishers). In any case, the late launch of an HB product resulted in their traditional business declining and the shares fell 62%. The position was retained because cash per share is approximately 75% of the share price and the company's HB product is now growing quickly. Synchronoss Technologies halved following the acquisition of a provider of outsourced cloud storage services for commercial customers and the appointment of the acquired company's CEO to run the combined company. The new management team was fired and the company announced a profit warning followed by a revenue restatement. The position was sold when an offer made to take the company private led to a bounce. Amplify Snack Brands lost about a third in value after profit disappointments. Management appeared to lose focus on the core business following the acquisition of UK-based Tyrrells Potato Crisps. There were problems at Tyrrells but management appear to have taken decisive action and the stock is beginning to recover. The position was increased on weakness. Mednax lost 16% as profit growth slowed following a decline in births, fewer acquisitions and problems with an acquisition in "distance radiology". There are signs of improvement in radiology and the shares seem too cheap given the continued good revenue growth. Civitas Solutions fell 12% following disappointing third quarter results. We held on because the company is managing costs well and, as the only provider of scale, has good prospects to grow by acquisition.

There was only one bid this year, by United Bankshares for its Virginia- based neighbour Cardinal Financial.

Portfolio

Over the last year buying activity focused on laggard sectors such as consumer discretionary, where several compounders were acquired and energy. Elsewhere individual new purchases of stocks that had underperformed were mainly in healthcare services and IT services.

The Company's conservative investment approach tends to lead the portfolio to own broadly four kinds of stocks. These are a) "compounders", that is, companies capable of delivering reliable growth over a long period, where the stock price, at purchase, is very cheap compared to the underlying business value; b) "valuable assets", where the company owns an asset that can be exploited to increase overall share value; c) recovery stocks, where the shares are deeply depressed and very cheap in absolute terms; and d) turnarounds, in other words, troubled companies that require new management to set them back on the right track.

The consumer discretionary sector has lagged since 2013 on concerns about pressures on disposable income and rising interest rates. The opportunity was taken to acquire compounders that were under-valued by the market but offered reliable long term growth. An example was Service Corp International (the leading operator of funeral homes in North America), a beneficiary of demographic change which suffered last year when profits were affected by a mild winter. Murphy USA (an operator of gas stations and convenience stores) is benefiting from a secular shift in spending to convenience as well as industry consolidation. It was temporarily affected by concerns about the loss of fuel credits for retailers. Within media two stocks were acquired for recovery. Lions Gate Entertainment A (movie and TV production) was down because of depressed production results following the 'Hunger Games' movie success and a high level of debt. Its merger with Starz boosts cash flow and offers deleveraging of the balance sheet, smoother results as well as a platform for future acquisitions.

Although energy stocks were initially sold into strength as the oil price rallied (see discussion of sales below) these were later increased. Firstly, FMC Technologies (subsea equipment manufacturer, now TechnipFMC) was acquired for recovery: it is a strong operator with a clean balance sheet and is still profitable despite the depressed state of offshore energy. Purchases were made that will benefit from the intensification of completions and the recovery of fracking. One was RPC (oil field completion services) where insiders control 72% of this $4bn market cap stock and which is unique in its area in having a clean balance sheet.

Weakness in two individual healthcare service stocks with good long-term growth strategies was used to add them to the portfolio. Acadia Healthcare has grown by acquisition in the behavioural health industry, first improving and then expanding acquired facilities. Management has long experience in doing this, having previously built up then sold another company, Psychiatric Solutions. The shares had been too expensive until its purchase of the Priory Group attracted a competition review and suffered from a fall in sterling post-Brexit. The company continues to grow however and the shares are now improving.

In technology, IT service stocks were hit by economic uncertainty and regulatory change as customers delayed outsourcing projects. Virtusa, a leader in outsourcing corporate apps was acquired. Despite the slowdown it continues to generate free cash flow and has been able to make acquisitions that extend its potential market.

Significant additions were made to Navigator Holdings after the stock had weakened on concerns about Liquified Petroleum Gas ("LPG") shipping rates. We view these as temporary given the growth of US LPG exports. As mentioned above, Amplified Snack Brands, one of the year's worst performers was also increased.

The complete sale of a holding normally results from one of four circumstances: a) confidence is lost in management or the company's franchise; b) the price objective is met and future prospects are uncertain; c) the investment thesis no longer applies; or d) the stock is the subject of a bid. This year disposals were mainly in the first two categories. Examples of the first were the turnaround stock Kindred Healthcare (facility based healthcare services in major cities), where a reversal of its "one-stop shop" strategy was confusing and Safeguard Scientifics (a venture capital investment company) where a disappointing pace of investment realisations meant that the cost of running the business began to eat significantly into the balance sheet. Stocks that were considered fully valued included KLX (distributor of aircraft fasteners), Big 5 Sporting Goods (neighbourhood sports goods retailer) both amongst this year's best performers and EW Scripps A (TV broadcaster) one of the media recovery stocks acquired this year, which recovered far more quickly than expected. An example of a sale where the thesis no longer applied was PBF Energy (refinery operator): a rise in the dollar exposed it to greater import competition. Cardinal Financial was the subject of a bid: the position was reduced but shares of the acquiring company United Bankshares were accepted as part of the consideration for the acquisition.

Elsewhere, reductions were made mainly in healthcare service stocks which performed strongly, such as HMS Holdings and Addus Homecare.

Outlook

Although there are macro concerns about the stock market, the outlook for value stocks of the kind that the Company invests in is much better. After many years of underperformance compared to growth stocks, value stocks should benefit as rising interest rates derail growth stocks, many of which now look very over-valued.

The portfolio holds many exciting undervalued entrepreneurial companies with excellent long term prospects where insiders have substantial "skin in the game". These should benefit shareholders in the future.

Robert Siddles

Fund Manager

Jupiter Asset Management Limited

Investment Adviser

10 October 2017

Strategic Review

The Strategic Report has been prepared in accordance with the Companies Act 2006 (Strategic Report and Directors' Report) Regulations 2013.

The Strategic Report seeks to provide shareholders with the relevant information to enable them to assess the performance of the Directors of the Company during the period under review.

Business and Status

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

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

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

The Company was incorporated in England & Wales on 15 January 1993.

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

There has been no significant change in the activities of the Company during the year to 30 June 2017 and the Directors anticipate that the Company will continue to operate in the same manner during the current financial year.

Investment Objective

The Company's investment objective is to achieve long-term capital growth by investing in a diversified portfolio of primarily quoted US smaller and medium-sized companies.

Strategy

The Board recognises that by its nature the US smaller companies sector can be a risky asset class in which to invest. The sector is highly diversified with a great many companies from which to choose. Many companies are relatively immature, whether financially or operationally or in terms of management or market position. They tend to be highly geared to growth and are particularly vulnerable to market and other changes. Against this background, the Company has adopted a disciplined and relatively conservative investment style that focuses on companies with a strong franchise, free cash flow, insider ownership by management and whose shares are considered by the Investment Adviser to be cheap at the time of investment. Whilst shares in these companies will not always be the best performing, the Directors believe that this is an excellent approach to long-term investment in this sector.

Investment Policy

The investment policy of the Company is to invest in quoted US smaller and medium-sized companies and its objective is achieved through diversification of holdings across a variety of economic/industrial sectors.

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

Benchmark Index

The Company's benchmark index is the sterling adjusted Russell 2000 Index.

Gearing

The Company is not geared currently.

Gearing is defined as the ratio of a company's long-term debt less cash held compared to its equity capital, expressed as a percentage. The effect of gearing is that, in rising markets, the Company tends to benefit from any growth of the Company's investment portfolio above the cost of payment of the prior ranking entitlements of any lenders and other creditors. Conversely, in falling markets the Company suffers more if the Company's investment portfolio underperforms the cost of those prior entitlements.

In order to improve the potential for capital returns to shareholders the Company has, with effect from 29 September 2017, negotiated a flexible loan facility with Scotiabank (Ireland) Designated Activity Company for up to £20 million (with an option to increase to £30 million if desired). It is intended that the use of this facility should be a clear differentiator for the Company relative to the open-ended Jupiter US Small & MidCap Fund, which is prevented by the applicable FCA rules from applying any gearing to its portfolio.

Key Performance Indicators

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

·      Net Asset Value changes;

·      The premium or discount of share price to Net Asset Value over time;

·      A comparison of the absolute and relative performance of the Ordinary share price and the Net Asset Value per share relative to the return on the Company's Benchmark Index and of our peers; and

·      Ordinary share price movement.

Information on these Key Performance Indicators and how the Company has performed against them can be found within the Chairman's Statement above.

In addition, a history of the Net Asset Value, Ordinary share price and Benchmark Index are shown on the monthly factsheets which can be viewed on the Investment Adviser's website www.jupiteram.com/JUS and which are available on request from the Company Secretary.

Discount to Net Asset Value

The Directors review the level of the discount or premium between the middle market price of the Company's Ordinary shares and their Net Asset Value on a regular basis. The Directors have taken the opportunity to issue shares when there is sufficient demand. Such issues are always at a price which is in excess of the NAV. No shares were issued during the year under review.

The Board will continue to apply its policy of buying back shares at appropriate times with a view to limiting any discount in the longer term to less than 10%. The Directors had powers granted to them at the last Annual General Meeting ('AGM') to purchase Ordinary shares and either cancel or hold them in treasury as a method of controlling the discount to Net Asset Value and enhancing shareholder value.

The Company has repurchased 2,178,884 Ordinary shares for cancellation during the year under review at an average discount of 12.07%.

Under the Listing Rules, the maximum price that may currently be paid by the Company on the repurchase of any Ordinary shares is 105% of the average of the middle market quotations for the Ordinary shares for the five business days immediately preceding the date of repurchase. The minimum price will be the nominal value of the Ordinary shares. The Board is proposing that its authority to repurchase up to approximately 14.99% of its issued share capital should be renewed at the AGM. The new authority to repurchase will last until the conclusion of the AGM of the Company in 2018 (unless renewed earlier). Any repurchase made will be at the discretion of the Board in light of prevailing market conditions and within guidelines set from time to time by the Board, the Companies Act, the Listing Rules and the Market Abuse Regulation.

Treasury Shares

In accordance with the Companies (Acquisition of Own Shares) (Treasury Shares) Regulations 2003 (the 'Regulations') which came into force on 1 December 2003 any Ordinary shares repurchased, pursuant to the above authority, may be held in treasury. These Ordinary shares may subsequently be cancelled or sold for cash. This would give the Company the ability to reissue shares quickly and cost effectively and provide the Company with additional flexibility in the management of its capital.

As at 29 September 2017 there were 21,306 shares held in treasury.

Management

The Company has no employees and most of its day to day responsibilities are delegated to Jupiter Asset Management Limited ('JAM'), which acts as the Company's Investment Adviser and Company Secretary. Further details of the Company's arrangement with JAM and the Alternative Investment Fund Manager ('AIFM'), Jupiter Unit Trust Managers Limited ('JUTM'), can be found in Note 5 to the Accounts below.

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

Although JAM is named as the Company Secretary, JPMEL provides administrative support to the Company Secretary as part of its formal mandate to provide broader fund administration services to the Company.

Viability Statement

In accordance with provision C.2.2 of the UK Corporate Governance Code as issued by the Financial Reporting Council ('FRC') in April 2016, the Board has assessed the viability of the Company over the next three years. The Company's investment objective is to achieve long-term capital growth and the Board regards the Company's shares as a long-term investment. As part of its assessment, the Board has noted that shareholders will be required to vote on the continuation of the Company at the 2017 AGM. Three years is also considered a reasonable period for investment in equities and is appropriate for the composition of the Company's portfolio. The Board has selected that period under review on the assumption that a vote on the continuation of the Company put to shareholders at the 2017 AGM will be passed. The Board is of the opinion that this is an appropriate timeframe as it will provide shareholders with assurances on the viability of the Company post the date of the continuation vote.

In carrying out its assessment, the Board has also considered the Company's business model including its investment objective and investment policy as well as the principal risks and uncertainties that may affect the Company as detailed below.

The Board has noted that:

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

·      No significant increase to ongoing charges or operational expenses is anticipated.

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

Principal Risks and Uncertainties

The principal risk factors that may affect the Company and its business can be divided into the following areas:

Investment policy and process -  Inappropriate investment policies and processes may result in under performance against the prescribed Benchmark Index and the Company's peer group. The Board manages these risks by ensuring a diversification of investments and regularly reviewing the portfolio asset allocation and investment process.

Investment Strategy and Share Price Movement - The Company is exposed to the effect of variations in the price of its investments. A fall in the value of its portfolio will have an adverse effect on shareholders' funds. It is not the aim of the Board to eliminate entirely the risk of capital loss, rather it is its aim to seek capital growth. The Board reviews the Company's investment strategy and the risk of adverse share price movements at its quarterly board meetings taking into account the economic climate, market conditions and other factors that may have an effect on the sectors in which the Company invests.

Liquidity Risk - The Company may invest in securities that have a very limited market which will affect the ability of the Investment Adviser to dispose of securities when it is no longer felt that they offer the potential for future returns. Likewise the Company's shares may experience liquidity problems when shareholders are unable to realise their investment in the Company because there is a lack of demand for the Company's shares. At its quarterly meetings the Board considers the current liquidity in the Company's investments when setting restrictions on the Company's exposure. The Board also reviews, on a quarterly basis, the Company's buy back programme and in doing so is mindful of the liquidity in the Company's shares.

Discount to Net Asset Value -  A discount in the price at which the Company's shares trade to Net Asset Value would mean that shareholders would be unable to realise the true underlying value of their investment. The Directors had powers granted to them at the last Annual General Meeting to purchase Ordinary shares as a method of controlling the discount to Net Asset Value and enhancing shareholder value.

Regulatory Risk - The Company operates in a complex regulatory environment and faces a number of regulatory risks. A breach of section 1158 of the CTA 2010 could result in the Company being subject to capital gains tax on portfolio movements. Breaches of other regulations such as the UKLA Listing rules, could lead to a number of detrimental outcomes and reputational damage. Breaches of controls by service providers such as the Investment Adviser could also lead to reputational damage or loss. The Board relies on the services of its Company Secretary, JAM, and its professional advisers to ensure compliance with, amongst other regulations, the Companies Act 2006, the UKLA Listing Rules, the FCA's Disclosure and Transparency Rules and the Alternative Investment Fund Managers Directive. The Investment Adviser is contractually obliged to ensure that its conduct of business confirms to applicable laws and regulations.

Credit and Counterparty Risk - The failure of the counterparty to a transaction to discharge its obligations under that transaction could result in the Company suffering a loss.

Loss of Key Personnel - The day-to-day management of the Company has been delegated to the Investment Adviser. Loss of the Investment Adviser's key staff members could affect investment return. The Board is aware that JAM recognises the importance of its employees to the success of its business. Its remuneration policy is designed to be market competitive in order to motivate and retain staff and succession planning is regularly reviewed. The Board also believes that suitable alternative experienced personnel could be employed to manage the Company's portfolio in the event of an emergency.

Operational - Failure of the core accounting systems, or a disastrous disruption to the Investment Adviser's business or that of the administration provider, JPMCB, could lead to an inability to provide accurate reporting and monitoring. Details of how the Board monitors the services provided by JAM and its associates are included within the Internal Controls section of the Report of the Directors in the Annual Financial Report.

Financial - Inadequate financial controls could result in misappropriation of assets, loss of income and debtor receipts and inaccurate reporting of Net Asset Value per share. The Board annually reviews the Investment Adviser's report on its internal controls and procedures.

Directors

Details of the Directors of the Company and their biographies are set out in the Annual Financial Report.

The Company's policy on Board diversity is included in the Corporate Governance section of the Annual Financial Report.

As at 30 June 2017, the Board comprises one female and four male directors.

Employees, Environmental, Social and Human Rights issues

The Company has no employees as the Board has delegated the day to day management and administration functions to JUTM, JAM and other third parties. There are therefore no disclosures to be made in respect of employees.

The Board has noted its Investment Adviser's policy on Environmental, Social and Human Rights issues as detailed below:

The Investment Adviser considers various factors when evaluating potential investments. While an investee company's policy towards its environmental and social responsibility, including with regard to human rights, is considered as part of the overall assessment of risk and suitability for the portfolio, the Investment Adviser does not necessarily decide to, or not to, make an investment on environmental and social grounds alone.

All of the Company's activities are outsourced to third parties.

Global Greenhouse Gas Emissions

The Company has no greenhouse gas emissions to report from its operations as its day to day management and administration functions have been outsourced to third parties and it neither owns physical assets or property nor has employees of its own. It therefore does not have responsibility for any other emissions producing sources under the Companies Act 2006 (Strategic Report on Directors' Reports) Regulations 2013.

For and on behalf of the Board

Gordon Grender

Chairman

10 October 2017

Statement of Directors' Responsibilities

The Directors are responsible for preparing the Annual Report and financial statements in accordance with applicable law and regulation.

Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have elected to prepare financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable laws) including Financial Reporting Standard 102, the financial reporting standard applicable in the UK and the Republic of Ireland.

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 return or loss of the Company for that period. In preparing those financial statements, the Directors are required to:

(a)  select suitable accounting policies and then apply them consistently;

(b)  make judgments and accounting estimates that are reasonable and prudent;

(c)  state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements; and

(d)  prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.

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. 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.

Under applicable law and regulations, the Directors are also responsible for preparing a Strategic Report, Report of the Directors, Directors' Remuneration Report and Statement of Corporate Governance that comply with that law and those regulations.

The work carried out by the Auditors does not include consideration of the maintenance and integrity of the website and accordingly the Auditors accept no responsibility for any changes that have occurred to the financial statements when they are presented on the website.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website www.jupiteram.com/JUS, which is a website maintained by Jupiter Asset Management Limited. Visitors to the website need to be aware that legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Each of the Directors confirms to the best of their knowledge that:

(a)  the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company; and

(b)  the Strategic Report and Report of the Directors include a fair review of the development and performance of the Company, together with a description of the principal risks and uncertainties that the Company faces; and

(c)  in their opinion the Annual Report & Accounts, taken as a whole, is fair, balanced and understandable and it provides the information necessary to assess the Company's position and performance, business model and strategy.

So far as each Director is aware at the time the report is approved:

(a)  There is no relevant audit information of which the Company's Auditors are unaware; and

(b)  The Directors have taken all steps required of a company director to make themselves aware of any relevant audit information and to establish that the Company's Auditors have been made aware of that information.

For and on behalf of the Board

Gordon Grender

Chairman

10 October 2017

Income Statement for the year ended 30 June 2017

		2017			2016
	Revenue	Capital		Revenue	Capital
	Return	Return	Total	Return	Return	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Gain on investments at fair value
through profit or loss	-	25,131	25,131	-	12,118	12,118
Foreign exchange gain	-	72	72	-	851	851
Investment income	1,314	-	1,314	1,332	-	1,332
Total income	1,314	25,203	26,517	1,332	12,969	14,301
Investment management fee	(1,508)	-	(1,508)	(1,334)	-	(1,334)
Other expenses	(387)	(3)	(390)	(353)	(2)	(355)
Total expenses	(1,895)	(3)	(1,898)	(1,687)	(2)	(1,689)
(Loss)/return before taxation	(581)	25,200	24,619	(355)	12,967	12,612
Taxation	(222)	-	(222)	(200)	-	(200)
Net (loss)/return after taxation	(803)	25,200	24,397	(555)	12,967	12,412
Net (loss)/return per Ordinary Share	(3.85p)	120.81p	116.96p	(2.34p)	54.68p	52.34p

The total column of this statement is the profit and loss account of the Company.

All revenue and capital items in the above statement derive from continuing operations. No operations were acquired or discontinued in the year.

Statement of Financial Position as at 30 June 2017

	2017	2016
	£'000	£'000
Fixed assets
Investments held at fair value through profit or loss	173,938	169,432
Current assets
Debtors	1,645	117
Cash at bank	7,454	5,821
	9,099	5,938
Creditors: amounts falling due within one year	(1,350)	(1,207)
Net current assets	7,749	4,731
Net assets	181,687	174,163
Capital and reserves
Called up share capital	4,985	5,530
Share premium	19,550	19,550
Non-distributable reserve	841	841
Capital redemption reserve	9,198	8,653
Retained earnings	147,113	139,589
Total shareholders' funds	181,687	174,163
Net Asset Value per Ordinary Share	911.08p	787.33p

Approved by the Board of Directors and authorised for issue on 10 October 2017.

Company Registration Number 02781968

Gordon Grender

Chairman

Statement of Changes in Equity for the year ended 30 June 2017

	Called up Share Capital	Share Premium	Non- distributable Reserve	Capital Redemption Reserve	Retained Earnings	Total
For the year ended	£'000	£'000	£'000	£'000	£'000	£'000
30 June 2017
1 July 2016	5,530	19,550	841	8,653	139,589	174,163
Repurchase of Ordinary shares for cancellation	(545)	-	-	545	(16,873)	(16,873)
Net return for the year	-	-	-	-	24,397	24,397
Balance at 30 June 2017	4,985	19,550	841	9,198	147,113	181,687
	Called up Share Capital	Share Premium	Non- distributable Reserve	Capital Redemption Reserve	Retained Earnings	Total
For the year ended	£'000	£'000	£'000	£'000	£'000	£'000
30 June 2016
1 July 2015	6,008	19,550	841	8,175	139,459	174,033
Repurchase of Ordinary shares for cancellation	(478)	-	-	478	(12,282)	(12,282)
Net return for the year	-	-	-	-	12,412	12,412
Balance at 30 June 2016	5,530	19,550	841	8,653	139,589	174,163

Notes to the Accounts for the year ended 30 June 2017

1.   Accounting policies

(a)  Basis of Preparation

The financial statements for the year ended 30 June 2017 have been prepared in accordance with UK Generally Accepted Accounting Practice ('UK GAAP') including Financial Reporting Standard 102 ('FRS 102'), the financial reporting standard applicable in the UK and Republic of Ireland and with the Statement of Recommended Practice ('SORP') for Investment Trust Companies and Venture Capital Trusts issued by the Association of Investment Companies ('AIC') in November 2014 and updated in January 2017.

The Company continues to adopt the going concern basis in the preparation of the financial statements. The financial statements have been prepared in accordance with the Company's accounting policies as set out below. They are presented in accordance with the Companies Act 2006 (the 'Act') and the requirements of the SORP 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' issued in November 2014.

The Company has taken advantage of the exemption from preparing a Cash Flow Statement under FRS 102, as it is an investment fund and the investments are substantially all highly liquid and carried at fair (market) value.

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

Statement of Compliance

The financial statements of the Company have been prepared in compliance with United Kingdom Accounting Standards, including FRS 102 and the Companies Act 2006.

(b)  Principal accounting policies

(i)   Financial instruments

Financial instruments include fixed asset investments, derivative assets and liabilities and long-term debt instruments.

Accounting standards recognise a hierarchy of fair value measurements for financial instruments which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1) and the lowest priority to unobservable inputs (level 3). The classification of financial instruments depends on the lowest significant applicable input, as follows:

Level 1 - Unadjusted, fully accessible and current quoted prices in active markets for identical assets or liabilities. Included within this category are investments listed on any recognised stock exchange.

Level 2 - Quoted prices for similar assets or liabilities, or other directly or indirectly observable inputs which exist for the duration of the period of investment. Examples of such instruments would be those for which the quoted price has been recently suspended, forward exchange contracts and certain other derivative instruments.

Level 3 - External inputs are unobservable. Value is the Directors' best estimate, based on advice from relevant knowledgeable experts, use of recognised valuation techniques and on assumptions as to what inputs other market participants would apply in pricing the same or similar instruments. Included within this category are unquoted investments.

(ii)   Fixed asset investments

As an investment trust, the Company measures its fixed asset investments at "fair value through profit or loss" and treats all transactions on the realisation and revaluation of investments as transactions on the capital account. Purchases are recognised on the relevant trade date, inclusive of expenses which are incidental to their acquisition. Sales are also recognised on the trade date, after deducting expenses incidental to the sales. Quoted investments are valued at bid value at the close of business on the relevant date on the exchange on which the investment is quoted.

(iii)  Foreign currency

Monetary assets, monetary liabilities and equity investments denominated in a foreign currency are expressed in sterling at rates of exchange ruling at the Statement of Financial Position date. Purchases and sales of investment securities, dividend income, interest income and expenses are translated at the rates of exchange prevailing at the respective dates of such transactions.

Foreign exchange profits and losses on fixed asset investments are included within the changes in fair value in the capital account. Foreign exchange profits and losses on other currency balances are separately credited or charged to the capital account except where they relate to revenue items when they are credited or charged to the revenue account.

(iv)  Income

Income from equity shares is brought into the revenue account (except where, in the opinion of the Directors, its nature indicates it should be recognised within the capital account) on the ex-dividend date or, where no ex-dividend date is quoted, when the Company's right to receive payment is established.

Dividends are accounted for on the basis of income actually receivable, without adjustment for the tax credit attaching to the dividends. 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 in the value of the shares received over the amount of the cash dividend foregone is recognised in the capital account.

(v)   Expenses, including finance charges

Expenses are charged to the revenue account of the Income Statement, except as noted below:

- expenses incidental to the acquisition or disposal of fixed asset investments are included within the cost of the investments or deducted from the disposal proceeds of investments and are thus charged to the capital element of retained earnings - arising on investments sold via the capital account; and

- performance fees insofar as they relate to capital performance are allocated to the capital element of retained earnings - arising on investments held.

All expenses are accounted for on an accruals basis. Finance charges are accrued using the effective interest rate method.

(vi)  Taxation

Withholding tax deducted at source from income received is treated as part of the taxation charge in the income account, in instances where it cannot be recovered.

Deferred tax is provided in accordance with FRS102, on an undiscounted basis, on all timing differences that have originated but not reversed by the Statement of Financial Position date, based on the tax rates that are expected to apply in the period when the liability is settled or the asset realised. Deferred tax assets are only recognised if it is considered more likely than not that there will be suitable profits from which the future reversal of timing differences can be deducted. In line with the recommendations of the SORP, the allocation method used to calculate the tax relief on expenses charged to capital is the "marginal" basis. Under this basis, if taxable income is capable of being offset entirely by expenses charged through the revenue account, then no tax relief is transferred to the capital account.

(vii) 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.

(viii)  Retained earnings

Capital reserve is not available for the payments of dividends.

The following are accounted for in this reserve:

- gains and losses on the realisation of fixed asset investments;

- increases and decreases in the valuation of fixed asset investments held at the year end;

- realised foreign exchange differences of a capital nature;

- unrealised foreign exchange differences of a capital nature;

- performance fee payable to the AIFM;

- 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

- the costs of purchasing ordinary share capital.

Reserve

- the income return or loss for the year is taken to the income element of this reserve.

This element of the retained earnings reserve may be used to fund the distribution of profits to investors via dividend payments only when this is in a surplus position. Currently there is an accumulated loss and therefore no distributions can be paid.

2.   Investment Income

						2017	2016
						£'000	£'000
Income from investments
Dividends from overseas companies						1,314	1,332
Total income						1,314	1,332
Total income comprises
Dividends						1,314	1,332
						1,314	1,332
Income from investments
Listed overseas						1,314	1,332
						1,314	1,332

3.   Return per Ordinary share

		2017	2016
		£'000	£'000
Net revenue loss		(803)	(555)
Net capital return		25,200	12,967
Net return		24,397	12,412
Weighted average number of Ordinary shares in issue during the year		20,859,319	23,712,096
Revenue loss per Ordinary share		(3.85p)	(2.34p)
Capital return per Ordinary share		120.81p	54.68p
Total return per Ordinary share		116.96p	52.34p

4.   Net Asset Value per Ordinary share

The Net Asset Value per Ordinary share is based on the net assets attributable to the equity shareholders of £181,687,000 (2016: £174,163,000) and on 19,941,928 (2016: 22,120,812) Ordinary shares, being the number of Ordinary shares in issue at the year end.

5.   Related parties

There are no transactions with the Directors other than aggregated remuneration for services as Directors and the beneficial interests of the Directors in the Ordinary shares of the Company.

JUTM is contracted to provide investment management services to the Company (subject to termination by not less than twelve months' notice by either party) for a quarterly fee of 0.20% of the net assets of the Company, excluding the value of any Jupiter managed investments. The investment management fee payable to JUTM for the year 1 July 2016 to 30 June 2017 was £1,508,000 (2016: £1,334,000) with £364,000 outstanding as at 30 June 2017 (2016: £349,000).

JUTM is also eligible for a performance related fee, charged through the capital account, of 5% of any annual out-performance by the net asset value ("NAV") per share of "target performance", defined as a margin of 2% over the Russell 2000 Index (in both cases converted to sterling). If the NAV per Ordinary share performance (adjusted to exclude the relevant performance-related fee) exceeds the target, the performance-related fee is payable on the excess. If the NAV per Ordinary share underperforms the Russell 2000 Index by 2% or more, the under-performance will be carried forward and no further performance-related fee will be payable until the NAV per ordinary share has both recovered the accumulated under-performance and exceeded the target performance for the year. The maximum performance-related fee which may be payable in respect of any year is 0.7% of gross assets.

The portfolio management of the Company is carried out by Jupiter Asset Management Limited ("JAM") under delegation from JUTM.

The performance related fee payable at the year end was £nil (2016: £nil).

6.   Contingent liabilities and capital commitments

There were no contingent liabilities or capital commitments outstanding as at 30 June 2017 (2016: nil).

7  Post Statement of Financial Position Events

Since the year end (1 July 2017 to 29 September 2017) an additional 1,739,821 Ordinary Shares were repurchased for prices between 803.00p and 875.88p per share.

With effect from 1 July 2017, JUTM and the Board have agreed to terminate the performance related fee.

With effect from 1 October 2017, JUTM and the Board have agreed to a revised investment management fee from 0.80% per annum to the following tiered base fee which will be paid quarterly in arrears:

0.75% on net assets up to £150 million

0.65% on assets over £150 million and up to £250 million

0.55% on assets over £250 million.

With effect from 29 September 2017, the Board have negotiated a flexible loan facility with Scotiabank (Ireland) Designated Activity Company for up to £20 million (with an option to increase to £30 million if desired). This facility is currently un-utilised.

Availability of Annual Report

A copy of the Annual Report & Accounts will shortly be submitted to the National Storage Mechanism and will be available for inspection at www.morningstar.co.uk/uk/NSM.

The Annual Report & Accounts will also be available for download from the Company's section of Jupiter Asset Management's website www.jupiteram.com/JUS

Hard copies of the Annual Report & Accounts will also be available upon request from the registered office of the Company at The Zig Zag Building, 70 Victoria Street, London SW1E 6SQ

For further information, please contact:

Richard Pavry

Head of Investment Trusts

Jupiter Asset Management Limited, Company Secretary

[e-mail]

020 3817 1496

10 October 2017

 

END

 

 

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