Annual Financial Report

RNS Number : 6557C

Jupiter US Smaller Companies PLC

20 October 2020

 

Jupiter US Smaller Companies plc (the 'Company')

Legal Entity Identifier: 549300HKKL9K1NY4TW55

Annual Financial Results for the year ended 30 June 2020

Financial Highlights for the year ended 30 June 2020

Ordinary Share Performance		30 June	30 June
		2020	2019	% change
Net asset value (pence)		1,116.35	1,152.66	-3.2
Middle market price (pence)		942.00	1,045.00	-9.9
Russell 2000 Total Return Index (sterling adjusted)*		5,942.78	6,178.90	-3.8
Discount to net asset value (%)		(15.6)	(9.3)	-
Ongoing charges ratio (%)		0.98	0.93	-
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	%	%
2011	96,201	464.6	+24.5	-
2012	99,248	468.3	+0.8	+0.2
2013	147,688	618.4	+32.1	+28.4
2014	164,957	686.3	+11.0	+9.8
2015	174,033	724.1	+5.5	+15.8
2016	174,163	787.3	+8.7	+9.7
2017	181,687	911.1	+15.7	+28.2
2018	163,339	1,103.4	+21.1	+15.7
2019	161,520	1,152.7	+4.5	+0.3
2020*	145,011	1,116.3	-3.2	-3.8

* With effect from 11 March 2020, the Company retrospectively changed its benchmark from the Russell 2000 Index to the Russell 2000 Total Return Index, both expressed in sterling terms, and has been restated accordingly.

Chairman's Statement

Dear fellow shareholder

It was a disappointing year for the US smaller companies market and consequently for the Company. Net asset value (NAV) per share fell 3.2% to 1,116.35 pence from 1,152.66 pence in the twelve months to 30 June 2020.

During the year the Company bought back 1,023,002 shares at an average discount of 9.4% which enhanced the asset value by £1,132,132 equivalent to 8.72 pence per share.

The 3.2% fall in NAV compares to a fall of 3.8% in the Company's benchmark, the sterling adjusted Russell 2000 Total Return Index.

Although we outperformed the benchmark the performance in absolute terms was disappointing as our conservative value style approach fell out of favour over the past year as investors preferred to chase after large cap growth companies, particularly in the technology sector.

Looking at the market indices in dollar terms the Russell 2000 TR index fell by 6.7% while the Standard & Poors's Composite Index rose by 7.5% and the more technologically focused NASDAQ Composite Index rose by 27.1%.

COVID-19

The COVID-19 outbreak had little effect on the running of the Company. Our manager was able to work from home with access to the usual systems and the Board met remotely.

Planned retirement of fund manager

For family reasons our fund manager, Robert Siddles, has decided to retire in April 2021. Whilst this is disappointing to us as shareholders, we fully understand his reasons.

We would like to extend our thanks to Robert for the strong long term performance he has delivered to shareholders over the past 19 years across a variety of market conditions and would like to wish him all the best in his retirement.

As a result of Robert's retirement, the Board will review options for the future management of the Company and will make a further announcement in due course.

Market review

The US smaller companies sector made steady, if unspectacular, gains in the first half of the year but fell sharply in March as the threat from COVID-19 became clearer. Having reached a high in mid-January, the sector lost 42% to its low on 18 March 2020. At that point the Federal Reserve slashed interest rates to zero and a recovery began so that, by the year end, smaller companies had climbed back to within 8% of their level a year before.

Investor risk aversion meant that smaller companies lagged behind larger companies. Technology stocks went from strength to strength, reaching new highs in June. The underperformance of value stocks mentioned above seems to reflect investors rushing into "growth at any price" stocks: investors seemed willing to pay extremely high prices for the perceived likelihood of growth from stocks, such as biotech and high tech.

Although markets largely recovered, it was a different story in the real economy. It fell into recession as the ISM Manufacturing (Purchasing Managers) Index, dropped to 41.5 in April (below 47 signifies a general contraction) and the four week moving average of weekly jobless claims reached six million in the same month. For comparison, the peak in the 2008 Financial Crisis was around 660,000, which was a similar level to the deep 1982 recession. Both measures partially recovered, with June's ISM at 52.6 (indicating expansion). Residential construction in particular has proved to be resilient. The recession was worsened by a collapse in oil prices as demand dropped dramatically at a time of burgeoning supply: fracking activity is a significant swing factor in overall US economic growth.

The best-performing sectors were health care and technology, both of which increased in value. The worst sector was energy (halving in value) followed by financial services, banks suffered from low interest rates and fears of credit losses.

Discount management

The Board remains committed to its policy using share buybacks with the intention that over a period and in normal market conditions the market price of its shares is limited to around 10% discount to NAV per share. For the period of exceptional market volatility the Board decided to suspend the buyback programme which was then reinstated.

Gearing

In response to increased volatility in the second half of the year the Company reduced the amount of its borrowing and terminated the facility and repaid the loan on 15 September 2020.

Board composition

Succession plans are in place. We believe that independence of directors and the mix of skills on the Board is critical but tenure alone is not a valid criterion for determining independence. Retaining long serving directors with relevant specialist experience in areas such as investing in the US market can be beneficial to the Company.

We conducted a search for an experienced non- executive to become chairman-designate. I am pleased to confirm our recent announcement that Mr Stephen White joined the Board on 1 October as chairman designate and I welcome him to the Board. Mr White has extensive and relevant experience of investment trusts and overseas investing. It is intended he will take over from me as chairman at the 2021 Annual General Meeting. Stephen has also been appointed as a member of the Audit & Management Engagement Committee.

It is with great personal sadness that I have to report that during the year Mr Norman Bachop had to resign from the Board owing to ill health. With his background as a US investment manager at Mercury Asset Management he made an immensely valuable contribution to the Board following his appointment in February 1999. My fellow directors and I would like to thank him and wish him well for the future.

As noted in the Half Yearly Financial Report Ms Tina Soderlund-Boley joined the Board in January 2020.

Ms Soderlund-Boley and Mr White are automatically subject to election by shareholders at this year's Annual General Meeting ('AGM'). In accordance with corporate governance best practice, all remaining directors will offer themselves for re-election.

Annual General Meeting

This year's AGM will be held on Tuesday, 22 December 2020 at 11:00 a.m. at the offices of Jupiter Asset Management Limited, The Zig Zag Building, 70 Victoria Street, London SW1E 6SQ. However, in consideration of the wellbeing of the Company's shareholders and in light of Government guidance around social distancing, the Board, with the advice of the Company Secretary, have made the decision that shareholders will not be permitted to attend this year's AGM in person.

A short presentation by the Investment Adviser on the performance of the Company over the past year, as well as an outlook for the future will be made available on the Company's website from mid- November. Despite shareholders not being able to attend in person, the Board and Investment Adviser would welcome questions which shareholders may submit to [e-mail]. Subject to confidentiality, we will respond to any questions submitted either directly or by publishing our response on the Company website.

Electronic proxy voting is now available and shareholders are encouraged to submit voting instructions using the web-based voting facility at www.eproxyappointment.com and www.proxymity.io for institutional shareholders. In order to use electronic proxy voting, shareholders will require their shareholder registration number, control number and pin.

Your attention is also drawn to the Report of the Directors where various resolutions relating to special business are explained, including resolution to amend the Company's Articles of Association to allow a 'virtual AGM' to be held in the future. This would allow shareholder attendance and voting using appropriate technology should public health or other measures so require.

PRIIPs Key Information Documents

We are required by new EU regulations introduced at the beginning of 2018 to provide investors with a Key Information Document ("KID") which includes performance projections which are the product of prescribed calculations based on the Company's past performance. The content and format of the KID cannot be amended under the applicable EU regulations. The AIC has stated that these documents are potentially misleading for shareholders. The Board is strongly of the view that these projections are not an appropriate or helpful way to assess the Company's future prospects. Accordingly, the Board urges shareholders to consider the more complete information set out in both the Company's Half Yearly Financial Report and Annual Report & Accounts, together with the monthly fact sheets, and daily NAV announcements, when considering an investment in the Company's shares. These documents are available on the Company's website at www.jupiteram.com/JUS.

Continuation Vote

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

Outlook

At present, the outlook for the US is very concerning. Ordinarily the US election has only limited impact on stock markets, but there is the potential for a Democratic President and control of both houses of Congress.

This may lead to policies that are damaging to the prospects for US corporate profits, such as higher corporate and personal tax rates and greater regulation of labour.

In addition, the spectre of increasing violence and looting has to make one very nervous about the effect of de-funding police forces notwithstanding the uncertainties engendered by COVID-19.

The US smaller company sector, however, is generally an attractive one and interesting for long term investors. 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

19 October 2020

Investment Adviser's Review

The sudden emergence of the novel COVID-19 virus and consequent economic recession made for a difficult year. It was especially tough for managers with a value style of investing, like the Company's Investment Adviser, as, in the second half of the year, value suffered one of its worst periods on record.

Nonetheless, the portfolio marginally beat the benchmark: the Russell 2000 TR index in sterling terms fell 3.8% but NAV per share lost 3.2%. The company's performance against the style headwind was a result of good stock selection, particularly in the portfolio's largest holdings.

We continued to apply the enhancements to the investment process introduced three years ago aimed at increasing the contribution from good stock selection.

Investment approach

There has been no change to the Company's investment philosophy or to the way the Investment Adviser chooses stocks, although the use of Environmental, Social and Governance (ESG) factors was expanded as discussed below. The Company takes a conservative investment approach that aims to preserve capital rather than aggressively chase growth. We take a long-term view of business prospects and buy shares of good quality growing companies when they are trading at valuations that represent limited downside risk. At the same time, we avoid expensive popular growth stocks.

Sustainable Investing

Governance has always been an important area for us, particularly the alignment of management incentives: in investee companies we require that management hold a significant shareholding in their company. During the year, we began placing greater emphasis on other ESG factors as well. the objective of our approach is not to exclude particular industries, although shareholders may notice that new investments this year have a more asset-light flavour than in the past.

Performance

Nine stocks contributed 1% or more to performance and six of these were top ten holdings. The largest contributor was Palomar Holdings (earthquake insurance) which almost tripled. Its intensive use of data to improve underwriting and its customer friendly technology platform produced high margins and rapid growth. Old Dominion Freight Line (regional trucking) saw continued market share gains from its better service, despite a slowing economy. Recently acquired Chegg (online education) directly benefits from the need for social distancing. StoneX Group (formerly INTL FC Stone, a niche investment bank specialising in commodities) also benefited from the crisis as profits were boosted by market volatility. TechTarget (marketing services for technology companies) was not immune to the effects of the crisis, but investors liked the increased proportion of its business that is now under long term contract as well as its strong balance sheet. Addus HomeCare (social care for the elderly poor) saw surprisingly little impact from the virus, but achieved good growth in the year helped by an acquisition that allowed it to enter new adjacent states as well as solidify existing coverage.

As ever in small company investing, there were disappointments. Five stocks detracted from performance by more than one percent. The worst detractor was Hallmark Financial Services (insurance underwriter) which took a large charge in its standard commercial auto business where losses had been running ahead of claims reserves. The timing was unfortunate as this came just as the market took fright from COVID-19. The illiquid position was reduced on a rebound and we await further details of the run-off arrangements. Intrepid Potash (fertiliser and water services to the fracking industry) was hit by the collapse in oil prices and was sold. Virtusa (outsourcing of corporate apps) suffered as projects were delayed post crisis and was sold as a recovery in profits looks distant. Grid Dynamics (enterprise digital transformation) fell as this unseasoned stock - a private company recently acquired by a public special purpose acquisition company - faced a slow down among retail clients. Business is growing in other areas and the position was retained. Reading International (cinemas and real estate development) suffered firstly because of delays in developing its Union Square, NY property and then as a result of virus-fears. It was sold in view of the challenges facing cinemas. Finally, Alleghany (commercial insurance and reinsurance) fell due to anticipated losses from business continuation exposure in its international segment and it was reduced as a precaution.

Portfolio

Before the crisis developed, and with economic growth already slowing, we sold the portfolio's more leveraged positions. This was fortunate given what happened later. Sales included Covanta Holdings (waste to energy services), Lions Gate Entertainment (film and tv production and distribution) and Navigator Holdings (refrigerated LPG carriers). Two large positions were sold for different reasons. Genesee & Wyoming (short line rails) was sold following an agreed bid from private equity. The share price had risen 12 times since its purchase in 2002. Last year's largest position, The Chefs' Warehouse (food distributor to restaurants), which performed well in recent years, was sold because of concerns about margins: unusually for a growing distributor these showed little improvement. The timing of the sale was fortunate as a few weeks later the shares were crushed because of its exposure to restaurants.

New investments in the first half of the financial year emphasised companies that use technology to give them a business edge. Palomar Holdings, our top performer, was one of these. Another was Chegg, the leading provider of online education for students. Its reasonably-priced online courses address major issues such as the very high cost of higher education and the difficulty of studying while working. Slower economic growth in the Far East gave us the opportunity to acquire ON Semiconductor, a leading provider of analogue semiconductors: analogue semis are lower risk than digital because of longer product   cycles. It targets industries such as automobiles where there is growing demand for sensors and power management for electric vehicles. Controversy surrounded ABIOMED (heart assistance pumps), giving us the opportunity to buy one of the medical device companies with outstanding growth potential. The shares were temporarily depressed by a critical study that is now widely discounted for its poor design. The products help patients with serious heart conditions survive medical intervention.

The Pennant Group (home care, hospice and assisted living) is a new portfolio position that was spun out of The Ensign Group (nursing homes). It takes a similar approach to Ensign by buying underperforming businesses, improving them and using the cash generated to make further acquisitions.

When the crisis broke in March, our first response was to sell stocks whose prospects were compromised because of the close proximity of their customers to one another. An example was Allegiant Travel, an ultra-low cost airline. As the crisis unfolded, a thorough review of the portfolio was undertaken to identify stocks whose growth prospects might also be impaired and several positions were sold. An example of this was Colliers Group International (real estate services) because the commercial real estate market is likely to suffer as a result of working from home. The Ensign Group (nursing homes) faces potential for disruption and it was reduced as a precaution.

Stocks with strong balance sheets performed very well and some were trimmed when relative valuations became very stretched, such as Old Dominion Freight Line.

New positions were added which offer growth over the next two to three years that is less dependent on the state of the general economy. Examples were Perficient, an IT services company that has rising exposure to enterprise digital transformation. BioDelivery Sciences addresses the scourge of US opioid addiction: its products deliver an opioid in a safer manner via a film placed inside the cheek. Vectrus is winning contracts to outsource the management of US military and other facilities because of its competitive costs and approach to saving energy. In addition, ON Semiconductor was raised to a top ten holding.

Outlook

The outlook is particularly uncertain with the US COVID-19 situation changing by the day. In addition, instability has entered the political arena and spilled onto the streets, something not widely seen since the Civil Rights and anti-Vietnam War protests of the 1960s. Those then seemingly insurmountable problems were resolved when new political leaders took tough choices: Winston Churchill famously said that you can always count on Americans to do the right thing - after they've tried everything else.

The portfolio has undergone significant change in the last year which I believe puts it in a better position to cope with more uncertain times in the future.

Robert Siddles

Fund Manager

Jupiter Asset Management Limited

Investment Adviser

19 October 2020

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 2020 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.

Investment 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, and 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 primarily 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%.

In accordance with the requirements of the UK Listing Authority, any material changes in the principal investment policies and restrictions of the Company would only be made with the approval of shareholders by ordinary resolution.

Benchmark Index

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

Gearing

Gearing is defined as the ratio of a company's debt less cash held, compared to its equity capital, expressed as a percentage. The effect of gearing is that, in rising markets, the Company will benefit to the extent that the growth of the Company's investment portfolio exceeds the cost of paying interest and charges to lenders and other creditors. Conversely, in falling markets the Company suffers more if the Company's investment portfolio underperforms the cost of such interest and charges.

During the year, in order to improve the potential for capital returns to shareholders the Company has, had in place a flexible loan facility with Scotiabank for up to £20 million (with an option to increase to £30 million if desired).This facility was terminated on 15 September.

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;

· Ordinary share price movement; and

· The Company's ongoing charges ratio.

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

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 will 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 around 10%. The Directors had powers granted to them at the last Annual General Meeting ('AGM') held on 26 November 2019 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 repurchased 1,023,002 Ordinary shares during the year under review at an average discount of 9.4%.

Under the Listing Rules, the maximum price that may 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 be renewed at the AGM. The new authority to repurchase will last until the conclusion of the AGM of the Company in 2021 (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 gives the Company the ability to reissue shares quickly and cost effectively and provides the Company with additional flexibility in the management of its capital.

As at 30 June 2020 there were 5,233,614 Ordinary 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.

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') as Custodian and 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 36 of the Code of Corporate Governance as issued by the Association of Investment Companies in February 2019 (the 'AIC Code'), the Board has assessed the prospects of the Company over a longer period than the twelve months required by the 'Going Concern' provision, reviewing the next three years until the required vote on the continuation of the Company at the 2023 AGM. The Company's investment objective is to achieve capital growth and the Board regards the Company's shares as a long-term investment.

The Board has considered the Company's business model including its investment objective and investment policy as well as the principal and emerging risks and uncertainties that may affect the Company.

In addition, the Board has considered the reporting produced by the Jupiter Investment Risk Team concerning a number of potential future scenarios resulting from the COVID-19 pandemic including a material and prolonged fall in equity markets and a significant rise in operating expenses along with the portfolio's liquidity. The Board continues to monitor income and expense forecasts for the Company. The Board has also assessed the operational resilience of its key service providers in light of COVID-19.

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

· The Company maintains a relatively low level of gearing.

· The Company has maintained a consistent performance and share price discount to NAV.

· The investment management fee is the most significant expense of the Company. It is charged as a percentage of the portfolio value and so would reduce if the market value of the portfolio were to fall. The remaining expenses are more modest in value and are predicable in nature. No significant increase to ongoing charges or operational expenses is anticipated.

· The Board is satisfied that Jupiter and the Company's other key third-party suppliers maintain suitable processes and controls to ensure that they can continue to provide their services to the Company in spite of the COVID-19 pandemic.

The Board has also considered the market outlook, both for US smaller company equities and for investment trusts, and has concluded that these remain an attractive opportunity for investors.

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.

The Investment Adviser and the Company's brokers engage with shareholders on an ongoing basis and the Board, having taken into account the results of previous continuation votes, considers it to be likely, at this juncture, that the Company's continuation vote by shareholders at this year's AGM will be passed.

Principal and Emerging Risks and Uncertainties

The principal and emerging risks and uncertainties that may affect the Company are described below:

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.

Gearing Risk - The Company's gearing can impact the Company's performance by accelerating the decline in value of the Company's net assets at a time when the Company's portfolio is declining. Conversely gearing can have the effect of accelerating the increase in the value of the Company's net assets at a time when the Company's portfolio is rising. The Company's level of gearing is under constant review by the Board who take into account the economic environment and market conditions when reviewing the level.

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 conforms 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.

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.

Details of how the Board monitors the operational services and financial controls of Jupiter and J.P. Morgan are included within the Internal Control section of the Report of the Directors.

Enterprise risk is reviewed twice a year, taking into its remit emerging risks as they become immediate, whist still maintaining a long-term perspective where they are evolving at a fast rate.

COVID-19 - The outbreak of the COVID-19 pandemic poses additional risks to the Company beyond the risks described under market risks above. They include liquidity risks to markets and business continuity risks for the Investment Adviser. Each of these risks is being assessed on a daily basis by the Investment Adviser.

Directors

As at 30 June 2020 the Board comprised two female and three 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 party service providers. There are therefore no disclosures to be made in respect of employees.

Integration of Environmental, Social and Governance ('ESG') considerations into the Investment Adviser's Investment Process

JAM has a 30 year record of integrating ESG factors into the investment process. Its Governance and Sustainability team leverages its relationships with partner organisations such as the UN Principles for Responsible Investment (UN PRI), the Investor Forum and Institutional Investors Group on Climate Change (IIGCC) and regularly engages with these and other industry bodies to ensure it remains at the forefront of ESG integration. Where relevant, lessons learned are disseminated across JAM's wider investment team via its Stewardship Committee.

JAM's Sustainability Investment team considers stewardship to be an integral component of its investment process. Typically, the team does not seek to exclude companies based on headline risk factors, disclosures or practices, instead believing that engagement aimed at enhancing long-term outcomes for investors requires a more rigorous and nuanced approach. Moreover, the Investment Adviser is of the view that compelling opportunities can arise in companies where there is evidence of positive change in the areas of environmental and social risk mitigation and governance practices, but where the market may be yet to reflect this in investee company share prices.

Modern Slavery Act

The Modern Slavery Act 2015 requires certain companies to prepare a slavery and human trafficking statement. As the Company has no employees and does not supply goods and services, it is not required to make such a statement.

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.

Section 172 Statement

Under Section 172 ('S172') of the Companies Act 2006, the Directors have a duty to act in good faith and to promote the success of the Company for the benefit of its shareholders as a whole. This includes taking into consideration the likely consequences of their decisions on the long term and on the Company's stakeholders such as its shareholders, employees and suppliers, while acting fairly between shareholders.

The Directors must also consider the impact of the Company's decisions on the environment, the community and its reputation for maintaining high standards of business conduct.

The Company ensures that the Directors are able to discharge this duty by, amongst other things, providing them with relevant information and training on their duties. The Company also ensures that information pertaining to its stakeholders is provided, as required, to the Directors as part of the information presented in regular Board meetings in order that stakeholder considerations can be factored into the Board's decision making. The Directors' responsibilities are also set out in the schedule of Matters Reserved for the Board and the terms of reference of its committees, both of which are reviewed regularly by the Board. At all times the Directors can access as a Board, or individually, advice from its professional advisers including the Company Secretary and independent external advisers.

The Company's investment objective, to achieve capital growth over the long term, supports the Directors' statutory obligations to consider the long term consequences of the Company's decisions. The Investment Adviser's approach to environmental, social and governance issues is explained in the section entitled Integration of ESG considerations into the Investment Adviser's Investment Process. This approach is fundamental to the Company achieving long-term success for the benefit of all of its stakeholders.

The Company's corporate purpose is to generate a capital return to shareholders by investing in small and medium-sized US companies.

The Company is also aware of its own potential impact on the environment and has a number of practical policies in place to reduce that impact.

Examples include the use and sharing of electronic documents by the Board rather than printing documentation and the provision of electronic copies of the annual report and accounts which are available to shareholders and others on the Company website. Where physical copies of the annual and half yearly financial reports are made, they use materials and processes designed to both minimise the environmental impact and to maximise the recycling potential.

Engagement with suppliers, customers and others and the effect on principal decisions

The Shareholders - The shareholders of the Company are both institutional and retail. The Board believe that shareholders have a vital role in encouraging a higher level of corporate performance and is committed to listening to the views of its shareholders and giving useful and timely information by providing open and accessible channels of communication including those listed below.

The AGM - The Company encourages participation from shareholders at its AGMs where they can communicate directly with the Directors and Investment Adviser. A short presentation by the Investment Adviser on the performance of the Company over the past year, as well as an outlook for the future will be made available on the Company's website from mid-November. Despite shareholders not being able to attend in person, the Board and Investment Adviser would welcome questions which shareholders may submit to Magnus.Spence@ jupiteram.com. Subject to confidentiality, we will respond to any questions submitted either directly or by publishing our response on the Company website. All views of the shareholders will be taken into consideration and action taken where appropriate.

Online Information - The Company website contains the Annual and Half Yearly Financial Report along with monthly factsheets and commentaries from the Investment Adviser. The daily NAV per share, monthly top ten portfolio listings and other regulatory announcements can be found on the regulatory news service of the London Stock Exchange.

Shareholder Communications

Shareholders can raise issues or concerns at any time by writing to the Chairman or the Senior Independent Director at the registered office.

The Investment Adviser

The investment management function is critical to the long-term success of the Company. The Board and the Investment Adviser maintain an open and constructive relationship, with meetings taking place a minimum of four times per annum, with monthly updates and additional meetings as circumstances require. The Audit & Management Engagement Committee meets at least twice a year and as part of its role considers the internal controls put in place by the Investment Adviser.

The day to day responsibilities of the Company are delegated to the Investment Adviser which as the key service provider supplies investment management, administration and company secretarial services. The Investment Adviser oversees the activities of the Company's other third-party suppliers on behalf of the Company and maintains open and collaborative relationships to maintain quality, efficiency and cost control through regular communication with dedicated members of the Investment Adviser's operational teams. The Board regularly reviews reports from its Investment Adviser, the AIFM, the depositary, the Company broker, the investor relations research provider and the Independent Auditors.

These provide vital information concerning changes in market practice or regulation which affect the Company and assist the Board in its decision-making process. Representatives from these providers attend Company Board meetings and give presentations on a regular basis enabling in depth discussions concerning both their findings and their performance.

Other Third-Party Service Providers

As an externally managed investment company with no employees or physical assets, the principal stakeholders of the Company are its shareholders, investment adviser, AIFM, depositary, custodian, administrator and registrar. The continuance, or otherwise, of engagement of key third-party service providers are principal decisions taken by the Board every year.

Principal Decisions

The Directors take into account the S172 considerations in all material decisions of the Company. Examples of this can be seen as follows.

· With the rise in status of COVID-19 to a pandemic, the Board requested that the Investment Adviser increase the frequency of its monitoring of key suppliers to ensure the safety of working conditions and continuity of operational functions.

· The Board decided to increase its monitoring of the portfolio and is in more frequent discussion with the Investment Adviser.

· Succession Planning - following the retirement of Mr Bachop, Ms Soderlund-Boley was appointed as a non-executive director and member of the Audit & Management Engagement Committee of the Company. The Board also announced that it had appointed Nurole Limited to undertake the search for an additional non-executive director who would act as chairman designate with a view to taking over as chairman of the Company from Mr Grender with effect from the 2021 AGM. Mr Stephen White was appointed as non-executive director and member of the Audit & Management Engagement Committee of the Company with effect from 1 October 2020.

· The appointment of Mr Clive Parritt as Senior Independent Director which is in compliance with the AIC Code and governance best practice which states that for a Company to promote long term sustainable success it must be led by an effective Board.

· The Board decided to seek shareholder approval at the forthcoming AGM to take advantage of the provisions of the Companies Act 2006 to allow future general meetings to be held either as a physical meeting or an electronic meeting, or a combination of both. This will provide shareholders with the ability to attend future AGM's remotely if the Company is unable to hold a physical meeting.

In Summary

The structure of the Board and its various committees and the decisions it makes are underpinned by the duties of the Directors under S172 on all matters. The Board firmly believes that the sustainable long-term success of the Company depends upon taking into account the interests of all the Company's key stakeholders.

For and on behalf of the Board

Gordon Grender

Chairman

19 October 2020

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 provide 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

19 October 2020

Income Statement

for the year ended 30 June 2020

	2020			2019
	Revenue	Capital		Revenue	Capital
	Return	Return	Total	Return	Return	Total
	£'000	£'000	£'000	£'000	£'000	£'000
(Loss)/gain on investments at fair value through profit or loss	-	(5,185)	(5,185)	-	7,104	7,104
Foreign exchange loss	-	(325)	(325)	-	(428)	(428)
Exchange (loss)/gain on loan facility	-	(13)	(13)	-	270	270
Investment income	1,857	-	1,857	1,205	-	1,205
Other income	12	-	12	32	-	32
Total income/(loss)	1,869	(5,523)	(3,654)	1,237	6,946	8,183
Investment management fee	(1,108)	-	(1,108)	(1,169)	-	(1,169)
Other expenses	(369)	(2)	(371)	(328)	-	(328)
Total expenses	(1,477)	(2)	(1,479)	(1,497)	-	(1,497)
Return/(loss) before finance costs and taxation	392	(5,525)	(5,133)	(260)	6,946	6,686
Finance costs	(305)	-	(305)	(328)	-	(328)
Return/(loss) before taxation	87	(5,525)	(5,438)	(588)	6,946	6,358
Taxation	(218)	-	(218)	(87)	-	(87)
Net (loss)/return after taxation	(131)	(5,525)	(5,656)	(675)	6,946	6,271
Net (loss)/return per Ordinary share	(0.97p)	(41.22p)	(42.19p)	(4.65p)	47.88p	43.23p

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 2020

	2020	2019
	£'000	£'000
Fixed assets
Investments held at fair value through profit or loss	143,420	163,712
Current assets
Debtors	29	112
Cash at bank and in hand	6,129	9,889
	6,158	10,001
Creditors: amounts falling due within one year	(4,567)	(12,193)
Net current assets/(liabilities)	1,591	(2,192)
Total assets less current liabilities	145,011	161,520
Capital and reserves
Called up share capital	4,555	4,555
Share premium account	19,550	19,550
Non-distributable reserve	841	841
Capital redemption reserve	9,628	9,628
Retained earnings	110,437	126,946
Total shareholders' funds	145,011	161,520
Net Asset Value per Ordinary Share	1,116.35p	1,152.66p

The financial statements were approved by the Board of Directors and signed on its behalf on 19 October 2020.

Gordon Grender

Chairman

Company Registration Number 02781968

Statement of Changes in Equity  

for the year ended 30 June 2020

	Called up		Non-	Capital
	Share	Share	Distributable	Redemption	Retained
For the year ended	Capital	Premium	Reserve	Reserve	Earnings*	Total
30 June 2020	£'000	£'000	£'000	£'000	£'000	£'000
1 July 2019	4,555	19,550	841	9,628	126,946	161,520
Repurchase of Ordinary shares to be held in treasury	-	-	-	-	(10,853)	(10,853)
Net loss for the year	-	-	-	-	(5,656)	(5,656)
Balance at 30 June 2020	4,555	19,550	841	9,628	110,437	145,011
	Called up		Non-	Capital
	Share	Share	Distributable	Redemption	Retained
For the year ended	Capital	Premium	Reserve	Reserve	Earnings	Total
30 June 2019	£'000	£'000	£'000	£'000	£'000	£'000
1 July 2018	4,555	19,550	841	9,628	128,765	163,339
Repurchase of Ordinary shares to be held in Treasury	-	-	-	-	(8,090)	(8,090)
Net return for the year	-	-	-	-	6,271	6,271
Balance at 30 June 2019	4,555	19,550	841	9,628	126,946	161,520

* Dividends are only payable from the Revenue Return element of Retained Earnings.

Notes to the Accounts for the year ended 30 June 2020

1.  Accounting policies

Basis of Preparation

The financial statements for the year ended 30 June 2020 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 October 2019.

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 October 2019.

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.

In accordance with FRS 102, the Company is required to nominate a functional reporting currency in which the company predominantly operates. Having regard to the Company's share capital and the predominant currency in which its shareholders operate, pounds sterling is the nominated functional reporting currency of the Company.

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.

Significant accounting judgements, estimates and assumptions

The  preparation  of  the  Company's  financial  statements on occasion requires management to make judgements, estimates and assumptions that affect the reported amounts in the primary financial statements and the accompanying disclosures. These assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of assets or liabilities affected in the current and future periods, depending on circumstance.

Management do not believe that any significant accounting judgements have been applied to this set of financial statements other than the allocations between capital and revenue.

1.  Income

	2020	2019
	£'000	£'000
Income from investments	1,857	1,205
Dividends from overseas companies	1,857	1,205
Other income
Deposit interest	12	32
	12	32
Total income	1,869	1,237
Total income comprises
Dividends	1,857	1,205
Interest	12	32
	1,869	1,237
Income from investments
Listed overseas	1,857	1,205
	1,857	1,205

2.  Investment management fees

	2020			2019
	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Investment management fee	1,108	-	1,108	1,169	-	1,169
	1,108	-	1,108	1,169	-	1,169

3.  Other expenses

	2020			2019
	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Directors' remuneration	122	-	122	123	-	123
Auditors' remuneration - audit of the Company	35	-	35	38	-	38
Directors' and Officers' liability insurance	9	-	9	8	-	8
Other expenses	203	2	205	159	-	159
	369	2	371	328	-	328

4.  Ongoing charges

	2020	2019
	£'000	£'000
Investment management fees	1,108	1,169
Other expenses	369	328
Total expenses (excluding finance costs)	1,477	1,497
Average net assets	151,492	161,302
Ongoing charges %	0.98	0.93

5.  Net (loss)/return per Ordinary share

	2020	2019
	£'000	£'000
Net revenue loss	(131)	(675)
Net capital (loss)/return	(5,525)	6,946
Net (loss)/return	(5,656)	6,271
Weighted average number of Ordinary shares in issue during the year	13,403,374	14,506,540
Revenue loss per Ordinary share	(0.97p)	(4.65p)
Capital (loss)/return per Ordinary share	(41.22)p	47.88p
Total (loss)/return per Ordinary share	(42.19p)	43.23p

6.  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 £145,011,000 (2019: £161,520,000) and on 12,989,799 (2019: 14,012,801) Ordinary shares, being the number of Ordinary shares in issue at the year end.

7.  Related parties and transactions with the Manager

There are no transactions with the directors other than aggregated remuneration for services as directors as disclosed in the Directors' Remuneration Report 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.

The investment management fee is 0.75% of net assets up to £150 million; plus 0.65% of net assets in excess of £150 million but less than or equal to £200 million; plus 0.55% of net assets in excess of £200 million. The investment management fee is paid on a quarterly basis.

The investment management fee payable to JUTM for the year 1 July 2019 to 30 June 2020 was £1,108,000 (2019: £1,169,000) with £266,000 outstanding as at 30 June 2020 (2019: £289,000).

The portfolio management of the Company is carried out by JAM under delegation from JUTM .

8.  Contingent liabilities and capital commitments

There were no contingent liabilities or capital commitments outstanding as at 30 June 2020 (2019: nil).

9.  Annual Results

This Annual Results announcement does not constitute the Company's statutory accounts for the years ended 30 June 2019 and 30 June 2020 but is derived from those accounts. Statutory accounts for the year ended 30 June 2019 have been delivered to the Registrar of Companies. The statutory accounts for the year ended 30 September 2019 and the year ended 30 September 2020 both received an audit report which was unqualified and did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying the report and did not include statements under Section 498 of the Companies Act 2006 respectively. The statutory accounts for the year ended 30 June 2020 have not yet been delivered to the Registrar of Companies and will be delivered following the Annual General Meeting.

The Annual General Meeting of the Company will be held on Tuesday, 22 December 2020.

A copy of the Annual Report & Accounts will shortly be submitted to the National Storage Mechanism and will be available for inspection at https://data.fca.org.uk/#/nsm/nationalstoragemechanism

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

For further information, please contact:

Magus Spence

Head of Investment Trusts and Alternatives

Jupiter Asset Management Limited, Company Secretary

[e-mail]

020 3817 1000

20 October 2020

[END]

 

END

 

 

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