Half Yearly Report

RNS Number : 3660Q

Jupiter US Smaller Companies PLC

26 February 2016

 

Jupiter US Smaller Companies PLC

Half Yearly Financial Report for the six months to 31 December 2015

Financial Highlights

Performance

	31.12.15	30.06.15	% Change
Net Assets (£'000)	165,638	174,033	(4.8)
Russell 2000 Index (Sterling adjusted)	770.67	797.32	(3.3)

Ordinary Share Performance

	31.12.15	30.06.15	% Change
Mid-market price (pence)	607.50	662.00	(8.2)
Net Asset Value (pence)	691.20	724.11	(4.5)
Discount to Net Asset Value (%)	(12.1)	(8.6)

Chairman's Statement

Performance

The NAV per share of your Company fell 4.8% in the six month period to 31 December 2015, compared to a drop of 3.3% in the Company's benchmark, the sterling-adjusted Russell 2000.

Although performance was disappointing in the period, once the Biotech sector peaked in August, the Company's performance compared to its benchmark was better. This improvement continued after the period end.

Market review

The Russell 2000 Index declined by 9.4% in dollar terms, but the dollar's rise against sterling meant that this was limited to a fall of 3.3% in sterling terms, that being the currency in which the Company's assets are valued.

The market suffered weakness especially in August as investors became more concerned about slowing economic growth in China and the impact of a rising dollar on emerging market economies with high levels of dollar-denominated debt. Share values steadied subsequently but a rebound was confined mainly to large caps, while small caps made little headway. This kind of behaviour is typical of periods of investor worry about economic growth.

A concerning development was the widening of US corporate bond spreads (these are the difference between the yields on US corporate bonds and US Treasuries). When they widen it indicates that investors have less confidence in future corporate profits growth or are worried about credit strains, such as those in the oil shale industry.

Nevertheless, during the period, the US economy continued to expand but growth in the manufacturing sector seemed to slow almost to a halt as a result of weakness in the energy industry, the impact of the dumping of Chinese steel and a strengthening of the dollar. As a result, shares of manufacturing companies suffered badly.

As equities weakened in the summer, the biotechnology sector collapsed: these stocks have enjoyed a long bull market lasting several years leading to extremely high stock market valuations for the shares. An attack by Hillary Clinton on the pricing practices of the pharmaceutical industry appeared to be a catalyst for the reversal (new biotech therapies are often extremely expensive).

The worst performing sector in the six month period was energy, falling 41% as oil prices collapsed once again, after a rally in the first half of 2015. The materials and processing, and consumer discretionary sectors were also weak. Utilities were the only sector to rise (up 2%); the consumer staples and financials sectors were also relatively resilient.

Portfolio Review

There was good performance in particular from IPC Healthcare (a provider of specialist hospital physicians), Monarch Financial (a regional bank) and Civitas Solutions (the leading provider of community care for the intellectually disabled). The first two were the subject of agreed bids whereas Civitas delivered good profits growth. As ever there were stocks that performed poorly and the worst contributors in the period were CAI International (a lessor of shipping containers), Sotheby's (the auction house) and Pernix Therapeutics (an acquirer and marketer of niche pharmaceuticals). The first was hit by concerns about global trade and a drop in the price of new containers; Sotheby's suffered weak auction commissions and investors were concerned about the guarantees offered to secure the sale of the ex-Chairman's collection; and Pernix fell after a disappointing relaunch of its migraine drug.

New purchases were concentrated on out-of-favour stocks in two areas with recovery potential, namely, agriculture and selected producer durable stocks. An example of a new purchase was Sanderson Farms, a leading niche producer of larger chickens. Sales on the other hand reflected bids, such as IPC Healthcare, or recoveries, for example, in the case of Penn National Gaming. Sales were also made where stocks had failed to deliver on expectations and the original reason for purchase was now less compelling: an example was Tanger Factory Outlet Center.

Share price and discount

The price of the shares fell 8.2% to 607.5p over the period. The discount to NAV was 12.1% at the end of the period compared to a discount of 8.6% at 30 June 2015. The average discount during 2015 was 10.3%. As at 23 February 2016, the discount was 15.4%.

The Company bought back 70,099 shares for cancellation in the period at an average discount of 13.6%. 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

Since the end of the period, conditions in equity markets have deteriorated and US small cap stocks have not been immune to this. Investors fear that a recession in the US is now more of a possibility than it was six months ago. In particular, concerns centre around slowing economic growth in China combined with credit market problems that could develop as a result of overly indebted emerging economies or oil shale companies.

These risks should not be underestimated and it is difficult to forecast their outcome. However, some comfort can be drawn from the importance of consumer spending to the American economy and the beneficial impact of low gasoline prices. In addition, the valuation of US small cap shares has fallen below their long term average and are the cheapest they have been for several years. The US smaller company sector is still an attractive and interesting one for long term investors. It is generally under-researched and offers areas of undiscovered value.

Gordon Grender

Chairman

26 February 2016

Twenty largest equity holdings as at 31 December 2015

		Stock	% of total	Value
	Company Description	Exchange	investments	£'000s
1	Roper Technologies
	Diversified high value-added manufacturer,
	and provider of software and systems.	NYSE	3.0	4,837
2	American Vanguard
	Producer of specialised agrichemicals.	NYSE	2.6	4,283
3	Atlantic Tele-Network
	Holding company for telecommunications
	businesses.	NASDAQ	2.6	4,201
4	HMS Holdings
	Provider of billing analytics services to the
	healthcare industry.	NASDAQ	2.6	4,167
5	Cardinal Financial
	Regional bank operating in the Washington DC
	suburbs.	NASDAQ	2.6	4,148
6	Bottomline Technologies
	Provider of payment automation software.	NASDAQ	2.5	4,032
7	Civitas Solutions
	Provider of care in the community to intellectually
	disabled adults.	NYSE	2.5	3,995
8	Sanderson Farms
	Niche producer of chickens.	NASDAQ	2.3	3,781
9	Telephone & Data Systems
	Provider of cellular and other communication	NYSE	2.3	3,701
	services.
10	Monarch Financial Holdings
	Regional bank operating in southern Virginia.	NASDAQ	2.3	3,635
11	Alleghany
	Specialist insurance underwriter.	NYSE	2.2	3,614
12	State Bank Financial
	Regional bank operating in and around Atlanta.	NASDAQ	2.2	3,582
13	Catchmark Timber Trust "A"
	Timberland REIT.	NYSE	2.2	3,582
14	Healthways
	Provider of population health services.	NASDAQ	2.2	3,581
15	LKQ
	Distributor of alternative car parts.	NASDAQ	2.1	3,447
16	The Chefs' Warehouse
	Distributor of gourmet foods.	NASDAQ	2.1	3,446
17	DeVry Education Group
	Provider of post-secondary education.	NYSE	2.1	3,373
18	Kindred Healthcare
	Diversified operator of healthcare facilities in large
	cities.	NYSE	2.0	3,295
19	REIS
	Provider of real estate data to investors and	NASDAQ	2.0	3,292
	lenders.
20	The Rubicon Project
	Operator of online advertising auctions.	NYSE	2.0	3,280

The value of the twenty largest holdings represents 46.4% (30 June 2015: 44.0%) of the Company's total investments.

Cross Holdings in other Investment Companies

As at 30 June 2015 and 31 December 2015, 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

Related Party Transactions

During the first six months of the current financial year no transactions with related parties have taken place which have materially affected the financial position or performance of the Company. Details of related party transactions are contained in the Annual Report and Accounts for the year to 30 June 2015.

The principal risks and uncertainties associated with the Company's business are set out on page 14 of the 2015 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/(loss) of the Company for the period ended 31 December 2015;

(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

26 February 2016

Income Statement

For the six months to 31 December 2015 (unaudited)
	Six months to 31.12.15			Six months to 31.12.14
	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000
(Loss)/Gain on investments held at fair
value through profit or loss	-	(8,185)	(8,185)	-	7,494	7,494
Net foreign currency gain	-	283	283	-	368	368
Income	802	-	802	900	-	900
Gross (loss)/return	802	(7,902)	(7,100)	900	7,862	8,762
Investment management fee	(647)	-	(647)	(666)	-	(666)
Other expenses	(158)	(1)	(159)	(157)	-	(157)
Net (loss)/return on ordinary activities
before finance costs and taxation	(3)	(7,903)	(7,906)	77	7,862	7,939
Tax on ordinary activities	(67)	-	(67)	(164)	-	(164)
Net (loss)/return on ordinary
activities after taxation	(70)	(7,903)	(7,973)	(87)	7,862	7,775
Net (loss)/return per Ordinary share	(0.29)p	(32.88)p	(33.17)p	(0.36)p	32.71p	32.35p

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.

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

Balance Sheet As at 31 December 2015	31.12.15	30.06.15
	(unaudited)	(audited)
	£'000	£'000
Fixed asset investments
Investments at fair value through profit or loss	162,356	168,890
Current assets
Debtors	211	536
Cash and cash equivalents	3,903	4,264
	4,114	4,800
Creditors: amounts falling due within one year	(832)	(657)
Net current assets	3,282	4,143
Net assets	165,638	174,033
Capital and reserves
Called up share capital	5,990	6,008
Share premium	19,550	19,550
Non-distributable reserve	419	841
Capital redemption reserve	8,193	8,175
Retained earnings+	131,486	139,459
Total shareholders' funds	165,638	174,033
Net Asset Value per Ordinary share	691.20p	724.11p

+ Under the Company's Articles of Association any dividends are distributed only from the revenue element of retained earnings.

Statement of Changes in Equity

For the six months to 31 December 2015 (unaudited)
	Called up		Non-	Capital
	share	Share	distributable	Redemption	Retained
	Capital	Premium	Reserve	Reserve	Earnings	Total
For the six months to 31 December 2015	£'000	£'000	£'000	£'000	£'000	£'000
Balance at 1 July 2015	6,008	19,550	841	8,175	139,459	174,033
Shares bought back and cancelled	(18)	-	(422)	18	-	(422)
Net return from ordinary activities	-	-	-	-	(7,973)	(7,973)
Balance at 31 December 2015	5,990	19,550	419	8,193	131,486	165,638
	Called up		Non-	Capital
	share	Share	distributable	Redemption	Retained
	Capital	Premium	Reserve	Reserve	Earnings	Total
For the six months to 31 December 2014	£'000	£'000	£'000	£'000	£'000	£'000
Balance at 1 July 2014	6,008	19,550	841	8,175	130,383	164,957
Net return from ordinary activities	-	-	-	-	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 year ended to 30 June 2015 (audited)	£'000	£'000	£'000	£'000	£'000	£'000
Balance at 1 July 2014	6,008	19,550	841	8,175	130,383	164,957
Net return from ordinary activities	-	-	-	-	9,076	9,076
Balance at 30 June 2015	6,008	19,550	841	8,175	139,459	174,033

Notes

1    Accounting policies

The significant accounting policies have not been changed and have been applied consistently during the period ended 31 December 2015 (except to align with changes to the AIC SORP and FRS 102).

FRS 104, 'Interim Financial Reporting', issued by the FRC in March 2015 has been applied in preparing the financial statements included in this half yearly report.

2    (Loss)/Gain on investments

	Six months to 31.12.15	Six months to 31.12.14
	£'000	£'000
Net gains realised on sale of investments	7,847	11,825
Movement in investment holdings gains	(16,032)	(4,331)
(Loss)/Gain on investments	(8,185)	7,494

3    Return per share

	Six months to 31.12.15	Six months to 31.12.14
	£'000	£'000
Net revenue loss	(70)	(87)
Net capital (loss)/return	(7,903)	7,862
Net capital (loss)/return	(7,973)	7,775
Weighted average number of Ordinary shares in
issue during the period	24,033,427	24,034,135
Net revenue return per Ordinary share	(0.29)p	(0.36)p
Net capital return per Ordinary share	(32.88)p	32.71p
Net return per Ordinary share	(33.17)p	32.35p

4    Net Asset Value per Ordinary share

The Net Asset Value per Ordinary share as at 31 December 2015, calculated in accordance with the Articles of Association, was as follows:

		31.12.15		30.06.15
	Net		Net
	Asset Value		Asset Value
	per share	Net assets	per share	Net assets
	attributable	attributable	attributable	attributable
	(p)	£'000	(p)	£'000
Ordinary shares	691.20	165,638	724.11	174,033

Net Asset Value per Ordinary share on the balance sheet is based on net assets of £165,638,000 (30 June 2015: £174,033,000) and on 23,964,036 (30 June 2015: 24,034,135) Ordinary shares, being the number of Ordinary shares in issue at the end of the period.

5    Related Parties

Transactions with the Investment Adviser and related parties

There are no transactions with the Board other than remuneration paid to the Directors as disclosed in the Directors' Remuneration Report on page 24 of the 2015 Annual Report & Accounts and as set out in note 5 to the accounts therein and the beneficial interests of the Directors in the ordinary shares of the Company as disclosed on page 25 thereof.

Jupiter Unit Trust Managers Limited ('JUTM') 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.

The management fee payable to JUTM for the period 1 July 2015 to 31 December 2015 was £647,000 with £331,000 outstanding as at 31 December 2015.

JUTM is 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 2015, no performance fee has been accrued (30.06.15: £nil).

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/JUS.

By order of the Board

Jupiter Asset Management Limited, Secretary

The Zig Zag Building

70 Victoria Street

London SW1E 6SQ

 26 February 2016

 

END

 

 

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