Half Yearly Report

RNS Number : 8723F

Jupiter US Smaller Companies PLC

25 February 2015

 



Jupiter US Smaller Companies PLC

Half Yearly Financial Report for the six months to 31 December 2014

Financial Highlights

Performance

	31.12.14	30.06.14	% Change
Net Assets (£'000)	172,732	164,957	+4.7
Russell 2000 Index (Sterling adjusted)	772.61	697.70	+10.7

Ordinary Share Performance

	31.12.14	30.06.14	% Change
Mid-market price (pence)	670.00	668.00	+0.3
Net Asset Value (pence)	718.69	686.34	+4.7
(Discount) to Net Asset Value (%)	(6.8)	(2.7)

Chairman's Statement

I am pleased to be able to report another gain in Net Asset Value ("NAV") per share in the six months to 31 December 2014.

The US stock market made a small advance and there was a rally in the dollar-sterling exchange rate, enhancing gains for sterling investors.

Performance

The NAV per share of your Company rose 4.7% in the six month period to 31 December 2014, compared to a gain of 10.7% in the Company's benchmark, the sterling-adjusted Russell 2000 Index.

Although it is disappointing that the NAV performance lagged that of the benchmark, the Company's conservative investment style means that this can happen when the market is led by high risk areas, such as biotechnology, as it was in this period. Over the long term, however, the approach has produced good returns.

Market review

The Russell 2000 Index rose 1.0% in dollar terms. The dollar's rise against sterling meant that this was increased to 10.7% in sterling terms. Investors gained from the exchange rate movement because the Company's assets are valued in sterling.

The market experienced significant volatility as uncertainty about economies outside the US increased. US stocks rallied from their lows in October when investors became more optimistic about interest rates and the benefits of falling gasoline prices. Smaller companies underperformed large ones in the period but this occurred early on when the market was weak and they recovered some ground in the subsequent rally.

During the period, the US economy seemed to expand steadily, notwithstanding continuing poor performance from the housing sector.

Three of the more significant market events were the collapse in oil prices, and strong rallies in US Treasuries and biotechnology stocks. Saudi Arabia's attempt to recapture market share wrong-footed the oil market and caused a sharp sell-off in the energy sector. The US Treasury market benefited from a flight to safety as deflationary worries abounded, especially about the impact of a strong dollar, falling commodity prices, the problems of emerging economies and troubles in the Euro Zone. Biotechnology stocks have been market leaders for several years because of investor excitement about new biological therapies. They performed strongly again in the period, however, the rally took on a worryingly frenzied aspect towards the end of 2014.

Portfolio Review

Although there was some good stock performance especially from consumer stocks, a number of our stocks performed poorly, particularly in energy, as the portfolio's exploration and production stocks suffered badly from the weakness in oil prices. Goodrich Petroleum and Resolute Energy were the worst contributors. In addition, Conn's, the Texas-based retailer was another poor performer as the company was slow to get to grips with customer credit problems. Not holding biotechnology stocks also detracted from performance but this area of the market does not suit the Company's conservative investment style. On the positive side, America's Car-Mart, the small town retailer of used cars, which provides its own credit, performed well. It benefited from a pullback in lending by banks to car buyers. Bally Technologies, a supplier of gaming machines and software, received an agreed takeover bid from Scientific Games.

New purchases were concentrated on out of favour stocks in two areas with recovery potential, namely, housing related and the consumer. The housing sector has struggled for almost a decade and share valuations have now become more attractive. An example of a new purchase in this area was Installed Building Products, which installs residential insulation. Consumer spending should benefit from lower gasoline prices and improving employment trends. An example of a new purchase of a stock that should receive a boost from increased disposable income was Penn National Gaming, a regional casino operator. New purchases were also made where stocks seemed to have been unfairly penalised by the fall in energy prices. An example was Clean Harbors, a hazardous waste treatment company. Sales were made where stocks performed well and further upside was thought to be limited such as Vail Resorts. Disposals also occurred where there were concerns that growth would be disappointing, for example MSC Industrial Direct, an industrial distributor serving metalworking industries. Stocks that were thought to be major beneficiaries of the oil shale boom were sold too, such as Kirby, the leading US operator of barges.

Share price and discount

The price of the shares increased 0.3% to 670.0p over the period. The discount to NAV was 6.8% at the end of the period compared to a discount of 2.7% at 30 June 2014. As at 19 February 2015, the discount was 9.8%.

The Company neither bought back nor issued shares in the period.

The Board will continue to apply its long standing policy of buying back shares at appropriate times with a view to limiting any discount in the longer term to around 10%.

Outlook

There is considerable uncertainty concerning economic growth outside the US. The US economy has held up well compared to others and this should provide a helpful backdrop for long-term equity investors The US smaller company sector is an attractive and interesting one for investors especially in view of the enormous range of potential investments it offers. Shareholders should benefit from the Company's conservative approach that focuses on buying good companies when they are out of favour.

Gordon Grender

Chairman

25 February 2015

Twenty largest equity holdings as at 31 December 2014

		Stock	% of total	Value
	Company Description	Exchange	investments	£'000s
1	America's Car-Mart
	Sells and finances used cars.	NASDAQ	2.8	4,735
2	The Chefs' Warehouse
	Distributor of gourmet foods.	NASDAQ	2.6	4,339
3	Airgas
	Distributor of bottled gases.	NYSE	2.4	4,029
4	Sotheby's
	A leading auctioneer.	NYSE	2.4	4,026
5	Universal Truckload Services
	Provider of non-asset based transport services.	NASDAQ	2.3	3,966
6	Cardinal Financial
	Regional bank operating in the Washington DC suburbs.	NASDAQ	2.3	3,944
7	Acxiom
	Provider of database marketing services.	NASDAQ	2.3	3,901
8	Genesee & Wyoming
	Operator of short line railroads.	NYSE	2.2	3,796
9	DeVry Education Group
	Provider of post-secondary education.	NYSE	2.2	3,777
10	INTL FCStone
	Provider of commodity hedging and other financial services.	NASDAQ	2.2	3,769
11	Roper Industries
	Diversified high value-added manufacturer, and provider of software and systems.	NYSE	2.2	3,768
12	Granite Construction
	Civil construction contractor.	NYSE	2.2	3,695
13	LKQ
	Distributor of alternative car parts.	NASDAQ	2.2	3,674
14	CoreLogic
	Provider of residential property information and analytics	NYSE	2.2	3,674
15	State Bank Financial
	Regional bank operating in and around Atlanta.	NASDAQ	2.2	3,664
16	Tanger Factory Outlet Center
	A leading REIT-owner of factory outlet malls.	NYSE	2.2	3,662
17	Calix
	Provider of communications access systems.	NYSE	2.2	3,660
18	ACI Worldwide
	Provider of software for electronic funds transfer for banks.	NASDAQ	2.1	3,607
19	Tejon Ranch
	Owner and developer of land north of Los Angeles.	NYSE	2.1	3,592
20	Allscripts Healthcare Solutions
	Provider of health care IT systems.	NASDAQ	2.1	3,588

The value of the twenty largest holdings represents 45.4% (30 June 2014: 44.9%) of the Company's total investments.

Cross Holdings in other Investment Companies

As at 30 June 2014 and 31 December 2014, none of the Company's assets were invested in the securities of other listed closed-ended investment companies.

Directors' Statement of Principal Risks and Uncertainties

The principal risks and uncertainties associated with the Company's business are set out on page 14 of the 2014 Annual Report & Accounts.

In the view of the Board these principal risks and uncertainties are as applicable to the remaining six months of the financial year as they were to the six months under review.

Going Concern

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

Directors' Statement of Responsibilities in Respect of the Financial Statements

Directors' Responsibility Statement

The Directors of Jupiter US Smaller Companies PLC, confirm to the best of their knowledge that:

(a)   the condensed set of financial statements has been prepared in accordance with the Accounting Standards Board's statement 'Half-Yearly Financial Reports' and gives a true and fair view of the assets, liabilities, financial position and profit of the Company for the period ended 31 December 2014;

(b)   the Chairman's Statement and the Interim Management Report include a fair review of the information required by Disclosure and Transparency Rule 4.2.7R; and

(c) the Interim Management Report includes a fair review of the information required by Disclosure and Transparency Rule 4.2.8R on related party transactions.

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

By Order of the Board

Gordon Grender

Chairman

25 February 2015

Income Statement

for the six months to 31 December 2014 (unaudited)
	Six months to 31.12.14			Six months to 31.12.13
	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Gains on investments held at fair value
through profit of loss	-	7,494	7,494	-	13,355	13,355
Net foreign currently gains/( losses)	-	368	368	(1)	(677)	(678)
Income	900	-	900	404	-	404
Gross Return	900	7,862	8,762	403	12,678	13,081
Investment management fee	(666)	-	(666)	(621)	-	(621)
Other expenses	(157)	-	(157)	(135)	(2)	(137)
Net return/(loss) on ordinary activities before taxation	77	7,862	7,939	(353)	12,676	12,323
Taxation on ordinary activities	(164)	-	(164)	(60)	-	(60)
Net (loss)/return on ordinary activities after taxation	(87)	7,862	7,775	(413)	12,676	12,263
Net (loss)/return per Ordinary share	(0.36)p	32.71p	32.35p	(1.73)p	53.01p	51.28p

The total column of this statement is the profit and loss account of the Company prepared in accordance with UK Generally Accepted Accounting Practice ('UK GAAP').

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

No operations were acquired or discontinued in the period.

A Statement of Total Recognised Gains and Losses is not required as all gains and losses of the Company have been reflected in the above statement.

The financial information does not constitute 'accounts' as defined in section 434 of the Companies Act 2006.

Balance Sheet

As at 31 December 2014	31.12.14	30.06.14
	(unaudited)	(audited)
	£'000s	£'000s
Fixed asset investments
Investments at fair value through profit or loss	169,103	160,742
Current assets
Debtors	327	518
Cash at bank	4,332	4,537
	4,659	5,055
Creditors: amounts falling due within one year	(1,030)	(840)
Net current assets	3,629	4,215
Net assets	172,732	164,957
Capital and reserves
Called up share capital	6,008	6,008
Share premium	19,550	19,550
Non-distributable reserve	841	841
Capital redemption reserve	8,175	8,175
Retained earnings	138,158	130,383
Total shareholders' funds	172,732	164,957
Net Asset Value per Ordinary share	718.69p	686.34p

 Reconciliation of Movements in Shareholders' Funds

For the six months to 31 December 2014 (unaudited)
	Called up		Non-	Capital
	share	Share	distributable	Redemption	Retained
	Capital	Premium	Reserve	Reserve	Earnings	Total
For the six months to 31 December 2014	£'000s	£'000s	£'000	£'000	£'000	£'000
Balance at 1 July 2014	6,008	19,550	841	8,175	130,383	164,957
Net return for the period	-	-	-	-	7,775	7,775
Balance at 31 December 2014	6,008	19,550	841	8,175	138,158	172,732
	Called up		Non-	Capital
	share	Share	distributable	Redemption	Retained
	Capital	Premium	Reserve	Reserve	Earnings	Total
For the six months to 31 December 2013	£'000s	£'000s	£'000	£'000	£'000	£'000
Balance at 1 July 2013	5,971	18,598	841	8,175	114,103	147,688
Net return for the period	-	-	-	-	12,263	12,263
Ordinary share issue	38	951	-	-	-	989
Balance at 31 December 2013	6,009	19,549	841	8,175	126,366	160,940

Cash Flow Statement

For the six months to 31 December 2014 (unaudited)
	Six months	Six months
	to	to
	31.12.14	31.12.13
	£'000	£'000
Operating activities
Net cash inflow/(outflow) from operating activities	316	(466)
Net cash flows from investing activities
Purchases of investments	(52,155)	(20,909)
Sales of investments	51,266	20,755
Net cash outflow from investment activities	(889)	(154)
Net cash outflow before financing	(573)	(620)
Issue of Ordinary shares	-	989
(Decrease)/increase in cash in the period	(573)	369
Reconciliation of net cash flow movement in net funds
(Decrease)/increase in cash in the period	(573)	369
Net foreign currency gains/(losses)	368	(679)
Movement in net funds for the period	(205)	(310)

Notes

1    Accounting policies

These financial statements have been prepared on the basis of the accounting policies set out in the Company's financial statements at 30 June 2014. These accounting policies are expected to be followed throughout the year ending 30 June 2015.

2    Gains on investments

	Six months to 31.12.14	Six months to 31.12.13
	£'000	£'000
Net gains realised on sale of investments	11,825	4,865
Movement in investment holdings gains	(4,331)	8,490
Gains on investments	7,494	13,355

3    Return per share

	Six months to 31.12.14	Six months to 31.12.13
	£'000	£'000
Net revenue return	(87)	(413)
Net capital return	7,862	12,676
Net total return	7,775	12,263
Weighted average number of shares in issue	24,034,135	23,914,162
Net revenue return per share	(0.36)p	(1.73)p
Net capital return per share	32.71p	53.01p
Net return per Ordinary share	32.35p	51.28p

4    Net Asset Value per Ordinary share

The Net Asset Value per Ordinary Income share as at 31 December 2014, calculated in accordance with the Articles of Association, was as follows:

		31.12.14		30.06.14
	Net
	Asset Value		Asset Value
	per share	Net assets	per share	Net assets
	attributable	attributable	attributable	attributable
	(p)	£'000	(p)	£'000
Ordinary shares	718.69	172,732	686.34p	164,957

Net Asset Value per Ordinary share on the balance sheet is based on net assets of £172,732,000 (30 June 2014: £164,957,000) and on 24,034,135 (30 June 2014: 24,034,135) Ordinary shares, being the number of Ordinary shares in issue at the end of the period.

5    Related Parties

The following are considered to be related parties: the Board, the Investment Manager and the Investment Adviser. There are no transactions with the Board other than remuneration paid to the Directors as disclosed in the Directors' Remuneration Report on page 23 and as set out in note 5 to the accounts and the beneficial interests of the Directors in the ordinary shares of the Company as disclosed on page 24 of the 2014 Annual Report.

Jupiter Unit Trust Managers Limited is contracted to provide investment management services to the Company (subject to termination by not less than one year's 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.

During the period under review, the Investment Manager was also eligible for a performance related management 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.

At 31 December 2014, no performance fee has been accrued.

6    Report and accounts

A copy of the Half-Yearly Financial Report will shortly be available for download from the Company's website www.jupiteram.com/JUSC.

By order of the Board

Jupiter Asset Management Limited, Secretary

1 Grosvenor Place, London, SW1X 7JJ

25 February 2015

 

END

 

 

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