Annual Financial Report

RNS Number : 1259S

Jupiter European Opps. Trust PLC

28 September 2017

 

Jupiter European Opportunities Trust plc (the "Company")

Annual Financial Report for the year ended 31 May 2017

This announcement contains regulated information

Financial Highlights for the year ended 31 May 2017

Capital Performance	31 May 2017	31 May 2016	% change
Total assets less current liabilities (£'000)	795,012	613,922	+29.5
Ordinary Share Performance	31 May 2017	31 May 2016	% change
Net asset value (pence)	712.53	550.23	+29.5
Net asset value total return (with dividends added back) (pence)	718.03	550.23	+30.5
Middle market price (pence)	692.00	530.00	+30.6
FTSE World Europe ex UK Total Return Index1	1,326.57	977.23	+35.7
(Discount)/premium to net asset value (%)	(2.9)	(3.7)	-
Ongoing charges figure (%)2	0.99	0.98	-

Performance Since Launch

				Year-
			Net	on-year
		Total	Asset	change in	Year-
		Assets	Value	Net Asset	on-year
		less	per	Value per	change in
		Current	Ordinary	Ordinary	Benchmark
		Liabilities	Share	Share	Index
Year ended 31 May		£'000	p	%	%
20 November 2000	(launch)	93,969	94.66	-	-
2001		83,600	89.29	-5.7	-8.0
2002		91,028	91.12	+2.0	-10.7
2003		84,592	83.82	-8.0	-19.0
2004		97,915	109.25	+30.3	+15.7
2005	(restated)3	117,679	133.54	+22.2	+19.3
2006		154,927	167.47	+25.4	+26.2
2007		182,278	224.58	+34.1	+30.0
2008		188,519	230.56	+2.7	-0.1
2009		131,457	162.35	-29.6	-25.3
2010		185,504	232.40	+43.1	+14.4
2011		252,813	316.73	+36.3	+24.2
2012		231,584	291.05	-8.1	-24.2
2013		340,801	403.58	+38.7	+43.3
2014		409,191	451.26	+11.8	+13.4
2015		558,389	546.27	+21.1	+4.7
2016 2017		613,922 795,012	550.23 712.53	+0.7 +29.5	-3.7 +35.7

1      This document contains information based on the FTSE World Europe ex UK Total Return Index. FTSE is a trade mark jointly owned by the London Stock Exchange Plc and The Financial Times Limited and is used by FTSE International Limited (FTSE) under licence. The FTSE World Europe ex UK Total Return Index is calculated by the FTSE. FTSE does not sponsor, endorse or promote the product referred to in this document and is not in any way connected to it and does not accept any liability in relation to its issue, operation and trading. All copyright and database rights in the index values and constituent list vest in FTSE.

2      Excluding finance costs (interest on the company's loan facility).

3      Prior to 2005, financial information was prepared under UK GAAP. From 2006 all information is prepared under IFRS.

Strategic Report

Chairman's Statement

It is with pleasure that I present the Annual Report for the Jupiter European Opportunities Trust PLC for the financial year to 31 May 2017.

The total return on the net asset value per share of your Company was 30.5 per cent. during the twelve months under review (with dividends added back), which compares with an increase of 35.7 per cent. in the Company's benchmark, the FTSE World Europe ex UK Total Return Index over the same period. Meanwhile the total return on the market price of your Company's shares increased by 30.6 per cent. (again with dividends added back).

Since the financial year end the total return on the net asset value per share of your Company was minus 1.6 per cent. up to 18 September 2017, which compares with a total return of 1.1 per cent. from the Company's benchmark, the FTSE World Europe ex UK Total Return Index during the same period. The market price of your Company's shares has fallen by 2.9 per cent.

The background to the performance of your Company over the course of the financial year is discussed in detail by your portfolio manager, Alexander Darwall in his Investment Adviser's report overleaf and I will not seek to cover the same ground here.

Dividend

It is not our investment policy to pay dividends. However, as was the case last year, in order to retain our status as an investment trust under Section 1158 of the Corporation Tax Act 2010 we are not permitted to retain more than 15 per cent. of eligible investment income arising during any given financial year. Accordingly a resolution to declare a final dividend of 6.5p per share will be proposed at the Company's Annual General Meeting (AGM) on 7 November 2017, payable on 17 December 2017 to shareholders on the Register of Shareholders on 17 November 2017.

This dividend is being declared for the sole reason that the Company has no choice under Section 1158 of the Corporation Tax Act 2010 other than to make this payment in relation to the financial year under review. The declaration of the dividend as a final dividend will also provide shareholders with an opportunity to express their approval on the matter, in line with corporate governance guidelines. In the unlikely event that Shareholders were to vote against the resolution at the AGM to pay a final dividend then the Directors would pay an equivalent interim dividend, as otherwise the Company would be likely to lose investment trust status, with potentially disastrous tax consequences for a large number of its shareholders.

Gearing

Your Company has again renewed its flexible loan agreement with Scotiabank (Ireland) Designated Activity Company for the current financial year in a maximum drawable amount of £135 million.

One of the advantages of being an investment trust is that we can take advantage of lower share prices by gearing. At the end of the accounting year the gearing level was 7.7 per cent. of net assets less cash held. In the past, the Company has tended to increase gearing at times of low valuations while decreasing gearing in strong markets. This approach has added value over the course of your Company's history. Following the successful cash bid by ChemChina for Syngenta in May 2017, at the time one of your Company's largest investments, the level of gearing was reduced to approximately 7.1 per cent. as at 31 August 2017.

Fees

The Board has come under some pressure - not, may I say, from institutional investors - to consider abolishing the performance element of the fees charged by our Managers. Accordingly, I invited our Managers to produce facts and figures which would help the Board in its deliberations. This is what they found.

Over the ten year period to 31 May 2017, an investment of £10,000 in your Company would have grown to £33,680. This compares with an average return of £22,816 for the eight investment trusts (including your Company) in the relevant peer group. Interestingly, the three trusts (again including your Company) charging performance fees at the same level are the three top performers in that group.

In terms of consistency of performance, as at 31 August 2017, your Company has outperformed its benchmark in 94 per cent of the rolling three year periods which have elapsed since your Company was launched, considerably more than for its peer group. In other words, an investor in your Company has historically had a 94 per cent chance of outperforming the benchmark over the ensuing three years. In spite of this, a performance fee has been earned in only five discrete years out of the seventeen full years since launch.

The past, we are told, is no guide to the future, but your Board feels that retention of the performance fee structure is fair and reasonable. They will nonetheless keep the current arrangements under review with reference to guidance from the Financial Conduct Authority (FCA) on best practice.

Board composition

As stated in last year's Report, I will be standing down as Chairman (and as a Director) at the forthcoming Annual General Meeting, and I am delighted that Andrew Sutch will succeed me as Chairman. Further changes to Board composition are planned and will be announced in due course. In this context I take issue with the assumption that any Director who has served nine years or more must be deemed to be no longer independent. In my experience, Board members of long standing, and great experience, are no less questioning than newer entrants, and in some cases considerably more so.

All the current directors are putting themselves forward for re-election at the forthcoming Annual General Meeting and we would welcome your support for our resolutions.

Annual General Meeting

The Company's AGM will be held on 7 November 2017 at 11.00 am at the offices of Jupiter Asset Management Limited at The Zig Zag Building, 70 Victoria Street, London SW1E 6SQ.

In addition to the formal business, the Investment Manager will provide a short presentation to shareholders on the performance of the Company over the past year as well as an outlook for the future. The Board would welcome your attendance at the AGM as it provides shareholders with an opportunity to ask questions of the Board and Investment Adviser.

Outlook

I recall a past Chairman's Statement from (I suspect) the 1960's to the effect that 'the outlook has never appeared more uncertain'. It is tempting to adduce a similarly unhelpful comment at the current juncture. Yet, having been involved with investment markets for over 50 years (with varying degrees of success) I know that there will always be companies which thrive, while others fall by the wayside. I have every confidence that our Investment Adviser and his team will continue to produce the outstanding performance they have consistently achieved to date.

Hugh Priestley

Chairman

28 September 2017

Investment Adviser's Review

The total return on the net asset value per share of your Company was 30.5 per cent. during the twelve months to 31 May 2017. This compares with a 35.7 per cent. rise, in sterling, of the FTSE World Europe ex UK Total Return Index. The level of the Company's borrowings at the financial year-end was £117.9 million (2016: £96.9 million). Borrowings represented 7.7 per cent. of net assets less cash held at the period end, having been 14 per cent. twelve months earlier. Borrowing rates were low at around 0.9 per cent., slightly down on the previous year's rate. In comparison, the FTSE World Total Return Index was up 33.0 per cent. in sterling during the twelve months under review. The MSCI Latin America Index advanced 43.8 per cent. (reversing losses of the two previous years); the Asian markets (excluding Japan) posted similar returns; the S&P500 Index returned 32.3 per cent. in sterling.

The economic backdrop has clearly improved for European companies. According to the latest estimates from the International Monetary Fund, world economic growth is expected to be 3.5 per cent. in 2017. In virtually every region of the world, growth is forecast to be higher in 2017 than it was in 2016. The forecast for the European Union is 2.0 per cent. This growth can be explained partly by the effects of lower energy costs and record low interest rates. Energy costs for businesses have remained low. The US dollar oil price declined slightly: at the end of the reporting period the price for WTI oil was down 1.6 per cent. to $48. The European Central Bank's main refinancing rate was 0 per cent.; and 3 month Euribor was -0.33 per cent. at the end of May 2017. These historically low, negative interest rates are central to the policymakers' aim to stimulate investment. The outcome appears to have been slightly different to that which was intended. It does not appear to have increased capital expenditure. In fact, low interest rates helped drive a revaluation of the stock markets; helped increase corporate earnings; and emboldened more ambitious and bigger Mergers and Acquisitions (M&A). The increase in M&A activity reflects, in our opinion, a lack of confidence in organic growth opportunities; however, it does present opportunities to save costs. The approach by Kraft Heinz for Unilever is a case in point. Lacking its own organic opportunities, Kraft Heinz believed the takeover of Unilever could be justified by significant cost savings. Interestingly, there has been more resistance to these big deals from the European Commission. Lower capital expenditure as a proportion of GDP is explained by the shift to less capital intensive business models; moreover, there is still overcapacity in many businesses. Thus, without the need to invest more in fixed assets, the mix of improving demand, lower interest charges and efficiency savings is driving strong earnings growth. This is indeed expected in 2017: UBS, the investment bank, forecast European companies earnings to grow by 18.9 per cent. this year. More than ever it is important to invest in companies which do not need big acquisitions to succeed.

The underperformance of the portfolio is partly explained by sector weightings - notably the overweight position in Healthcare, a sector which underperformed - but as always individual stock performance is more important. The most significant detractor during the period under review was NovoNordisk. Their US business has suffered significant price pressure as its insulin drugs became commoditised and as the buyers have consolidated and in so doing have become stronger. The decision to retain and indeed increase this holding is based on two beliefs: that the company will be able to demonstrate differentiation in its new class of drugs; and that it will be able to monetise these differentiated products. The news flow has been good and we remain confident in this investment. Other poorly performing stocks included Ingenico. This company combines hardware and services in the payments sector. The hardware activity has been particularly disappointing. It is not yet clear whether this business is in structural decline or whether it has simply suffered a short term cyclical downturn.

Inmarsat was another poor performer. The world leader in maritime satellite services has been impacted by the downturn in international shipping. At the same time the company is investing heavily to gain a position in the inchoate passenger in-flight satellite market. Despite the challenges we believe that Inmarsat has a strong core maritime business and will succeed in the emerging aviation business.

Subsequent to the financial year end, the value of the Company's holding in Provident Financial was significantly affected as a consequence of profit warnings attributed to its recent change in business strategy.

On the positive side, the biggest single contributor to performance was Wirecard, the German listed payment services company. It continues to produce strong earnings growth on the back of its internet expertise and global reach. BioMerieux too performed well. This French company has developed new disruptive technology in its field of in vitro diagnostics for medical and industrial uses. It is successfully translating its innovation into strong profits growth. Carnival, the owner and operator of cruise ships, was another significant positive contributor. As the world leader, Carnival is well placed to exploit the favourable characteristics of this sector. Demand for cruise holidays is growing all over the world; China is a new, rapidly growing market; and improving the holiday experience is stimulating fresh demand. Another important contributor to performance was RELX, the publisher and information provider. It continues to build on its strong technology platform and customers need for better information. We believe that it is a 'winner' from more stringent regulatory requirements and from its use of digital technology.

Portfolio turnover was unusually high. This was due mainly to the takeover of two holdings, Syngenta and ARM. Syngenta, which was the biggest holding in the portfolio, having been an investment since 2002/03, has returned our outlay many times over. It is a good example of what we seek to do: identify businesses which operate in a favourable competitive landscape, where they can monetise their differentiated products and which enjoy long term structural growth. In the case of Syngenta we eschewed the many opportunities over the years to panic because of short term hiccoughs. The reward for patience was an exceptional return on investment. All the shares in Royal Caribbean, the world's second largest operator of cruise ships, were sold for technical reasons (it delisted from a European exchange) and the proceeds were reinvested in its bigger competitor Carnival. We significantly reduced the holding in Novozymes, the industrial enzymes leader, as growth has stalled. Likewise we reduced the holding in Fresenius, the German healthcare group. Fresenius has been one of the best managed and successful of our investments in recent years. However, we reduced the position on valuation grounds. Slowing growth prompted our decision to reduce the holding in Essilor, the world leader in ophthalmic lenses. Subsequently Essilor announced a merger with Luxottica in which we have a small position, a leading designer and retailer of spectacles and sunglasses. This merger is a drastic and costly attempt to try to stimulate growth. We also sold a small position in Gemalto following a string of profit warnings.

Most purchases were reinforcing existing positions, chiefly Carnival and BioMerieux. We bought more shares as our confidence in and understanding of these investment opportunities increased. There were no significant new positions taken. The largest new one was Edenred, a company in which we have previously invested. Edenred offers prepaid vouchers for products and services. Its use of digital technology extends its reach and the breadth of services it can offer. We took a position in Bayer, one of the world's leading agricultural products and technology companies. Its planned takeover of Monsanto will, if successful, make it uniquely well placed to benefit from growth in agriculture worldwide. We also bought shares in Umicore. It is a leading manufacturer of catalysts for the automotive industry. In addition, it looks to be well placed to grow rapidly in providing battery materials for the emerging electric car market. Finally, we built a position in the UK listed Arrow Global, a debt collector in the UK and on the Continent. The huge and growing stock of bad debt provides ample opportunities for the business as banks outsource collections to agencies such as Arrow.

Outlook

It is unlikely that the exceptionally benign investment conditions - particularly low interest rates - will persist. Policymakers have signalled that interest rates will have to rise as inflationary pressures increase. Further, the evident tensions in the West between capital and labour are likely to lead to less business-friendly policies. Yet there will be good investment opportunities. Sidestepping politically vulnerable areas, there will be rewards for companies which can exploit opportunities presented by technology advances and changing customer needs. As much as ever we focus on companies that operate in a favourable industry landscape and where their business models are robust. Where these companies compete and succeed on the world stage the rewards can be commensurately greater. There is no doubt that new opportunities will present themselves and we are confident that our investment process remains appropriate.

Alexander Darwall

Fund Manager

Jupiter Asset Management Limited

Investment Adviser

28 September 2017

Investments as at 31 May 2017

			31 May 2017	31 May 2017			31 May 2016	31 May 2016
		Country of	Market value	Percentage			Market value	Percentage
Company		Listing	£'000	of Portfolio			£'000	of Portfolio
Wirecard	Germany		85,794		10.1	46,812		6.6
RELX	Netherlands		75,669		8.9	48,733		6.9
Inmarsat	UK		61,195		7.2	33,427		4.7
Novo Nordisk	Denmark		61,167		7.2	62,788		8.9
Carnival	UK		54,831		6.4	6,028		0.9
Deutsche Bӧrse	Germany		54,596		6.4	31,779		4.5
Provident Financial	UK		53,375		6.2	48,015		6.8
Amadeus	Spain		46,671		5.5	31,316		4.4
Grenke	Germany		38,358		4.5	31,659		4.5
Experian	UK		37,636		4.4	30,355		4.3
BioMerieux	France		36,968		4.3	6,729		0.9
Grifols	Spain		32,797		3.8	16,658		2.4
Ryanair	Ireland		26,705		3.1	16,732		2.4
Arrow Global Group	UK		22,234		2.6	1,398		0.2
Dassault Systèmes	France		20,146		2.4	8,511		1.2
Ingenico	France		19,579		2.3	21,703		3.1
Intrum Justitia	Sweden		14,483		1.7	6,015		0.8
Marine Harvest	Norway		12,601		1.5	14,305		2.0
Edenred	France		11,818		1.4	-		-
Luxottica Group	Italy		11,576		1.3	10,957		1.5
Bayer	Germany		11,129		1.3	-		-
Umicore	Belgium		10,785		1.3	2,598		0.4
ALK-Abello	Denmark		9,786		1.1	7,666		1.1
Coloplast	Denmark		8,271		1.0	18,953		2.7
Fresenius	Germany		7,873		0.9	33,418		4.7
KWS Saat	Germany		6,201		0.7	4,494		0.6
Lonza Group	Switzerland		4,818		0.6	2,963		0.4
Novozymes	Denmark		3,516		0.4	45,999		6.6
Genus	UK		3,322		0.4	-		-
Alfa Laval	Sweden		3,125		0.4	-		-
Abcam	UK		2,741		0.3	-		-
Ossur	Denmark		2,542		0.3	1,836		0.3
UDG Healthcare	Ireland		455		0.1	-		-
Total			852,763	100.0

Cross Holdings in other Investment Companies

As at 31 May 2017 none of the Company's assets were invested in the securities of other listed closed-ended investment companies. It is the Company's stated policy that it will not invest in other closed-ended investment companies.

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 and 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 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 Corporation Tax Act 2010 and has no employees.

The Company was incorporated in England & Wales on 28 September 1999 and started trading on 20 November 2000, immediately following the Company's launch.

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

There has been no significant change in the activities of the Company during the year to 31 May 2017 and the Directors anticipate that the Company will continue to operate in the same manner during the current financial year.

Planned Life of the Company

The Articles of Association of the Company provide that at every third Annual General Meeting (AGM) an ordinary resolution shall be proposed that the Company shall continue in existence as an investment trust. If any such resolution is not passed at any of those meetings, the Directors shall, within 90 days of the date of the resolution, put forward to shareholders proposals (which may include proposals to wind up or reconstruct the Company) whereby shareholders are entitled to receive cash in respect of their shares equal as near as practicable to that to which they would be entitled on a liquidation of the Company at that time (and whether or not shareholders are offered other options under the proposals).

As a resolution to that effect was passed at the 2014 AGM, the Directors will propose an ordinary resolution for the continuation of the Company in its current form at the AGM of the Company to be held on 7 November 2017. If such a resolution is not passed, the Directors will formulate proposals to be put to shareholders to reorganise or reconstruct the Company, or for the Company to be wound up.

Shareholders should note that the valuations used to produce the financial statements on a going concern basis might not be appropriate if the Company were to be liquidated.

Investment Strategy

In order to achieve the objective of investing in securities of European companies and geographical sectors or areas which offer good prospects for capital growth, the Investment Adviser adopts a stock picking approach, in the belief that a thorough analysis and understanding of a company is the best way to identify long-term superior growth prospects.

Benchmark Index

The Company's benchmark index is the FTSE World Europe ex UK Total Return Index.

Dividend Policy

The Directors intend to manage the Company's affairs to achieve shareholder returns through capital growth rather than income. It is therefore not expected that the Company will pay a regular annual dividend. However, in order to qualify for approval by HM Revenue and Customs as an investment trust, no more than 15 per cent. of the income which the Company derives from ordinary shares or securities can be retained in respect of each accounting period. As such, the Company may declare a dividend from time to time.

Management

The Company has no employees and most of its day-to-day responsibilities are delegated to Jupiter Asset Management Limited, who act as the Company's Investment Adviser and Company Secretary.

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

Although Jupiter Asset Management Limited is named as the Company Secretary, J.P. Morgan Europe Limited provides administrative support to the Company Secretary as part of its formal mandate to provide broader fund administration services to the Company.

Internal Controls and Risk Management Systems

The Board has established an ongoing process for identifying, evaluating and managing significant risks faced by the Company.

Viability Statement

In accordance with provision C.2.2. of the UK Corporate Governance Code as issued by the Financial Reporting Council in September 2014, the Board has assessed the prospects of the Company over the next three years. The Company's investment objective is to achieve long-term capital growth and the Board regards the Company as a long-term investment. As part of its assessment, the Board has noted that shareholders will be required to vote on the continuation of the Company at the 2017 AGM. The Board is of the opinion that this is an appropriate timeframe as it will provide shareholders with assurances on the viability of the Company until the date of the continuation vote to be held at the 2020 AGM. Three years is also considered to be a reasonable period of time for investment in equities and is appropriate for the composition of the Company's portfolio. The Board has considered the Company's business model including its investment objective and investment policy as well as the principal risks and uncertainties that may affect the Company as detailed below.

The Board has noted that:

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

·      The Company maintains a relatively low level of gearing;

·      The Company's ongoing charges and operational expenses are well covered by the expected levels of return and revenue;

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

·      European equities remain an attractive opportunity for investors; and

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

The Board has also considered the Company's prospects over the next three years, its principal risks, its level of gearing, the predicted demand for the Company's shares as well as market outlook, both for equity shares and investment trusts.

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.

Gearing

Gearing is defined as the ratio of a Company's total loan liability, expressed as a percentage of total assets less cash held. The effect of gearing is that in rising markets a geared share class tends to benefit from any outperformance of the relevant company's investment portfolio above the cost of payment of the prior ranking entitlements of any lenders and other creditors. Conversely, in falling markets the value of the geared share class suffers more if the Company's investment portfolio underperforms the cost of those prior entitlements.

In order to improve the potential for capital returns to shareholders the Company had access to a flexible loan facility with Scotiabank (Ireland) Designated Activity Company for amounts up to £125 million. During the accounting year, the existing facility of £100 million was increased to £125 million on 12 September 2016.

On 14 September 2017 the Company's existing £125 million multi currency revolving loan facility was due to expire. Accordingly, on 14 September 2017 the Board agreed to renew the facility at £135 million.

The Directors consider it a priority that the Company's level of gearing should be maintained at appropriate levels with sufficient flexibility to enable the Company to adapt at short notice to changes in market conditions.

The Board has not set any additional limits or restrictions on the Company's £135 million loan facility with Scotiabank (Ireland) Designated Activity Company. The Board regularly reviews the Company's level of gearing

Key Performance Indicators

At the 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 over time

•     Ordinary share price movement

•     A comparison of the absolute and relative performance of the Ordinary share price to Net Asset Value and the Company's Benchmark Index

•     Discount over varying periods

•     Peer Group comparative performance.

A history of the Net Asset Value and benchmark is shown above under the heading Performance Since Launch and in the monthly factsheets which can be viewed on the Company's section of the Investment Adviser's website www.jupiteram.com/JEO and which are available on request from the Company Secretary.

Peer Group Performance

There were 8 investment trusts in the Europe sector as at 31 May 2017. The Board monitors the Company's performance in relation to both the sector as a whole and the companies within the sector which the Board considers to be its peer group.

As at 31 May 2017, of those companies within the Europe sector, the Company was ranked 7th over one year, 1st over three and 2nd over five years respectively by NAV performance. The Company was ranked 2nd in the peer group in terms of discount to NAV as at 31 May 2017 (source: JP Morgan Cazenove).

Capital Gains Tax Information

The closing middle market price of Ordinary shares on the first date of dealing (20 November 2000) for Capital Gains Tax purposes was 101.5p.

Premium/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 and take the opportunity to issue shares when there is sufficient demand at not less than NAV.

The Directors have powers granted to them at the last annual general meeting to purchase Ordinary shares and hold them in treasury or for cancellation as a method of controlling the discount to Net Asset Value and enhancing shareholder value.

No Ordinary shares were bought back during the year.

Under the Listing Rules, the maximum price that may currently be paid by the Company on the repurchase of any Ordinary shares is 105 per cent. 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 per cent. of its issued share capital should be renewed at the Annual General Meeting. The new authority to repurchase will last until the conclusion of the Annual General Meeting of the Company in 2018 (unless renewed earlier). Any repurchase made will be at the discretion of the Board in light of prevailing market conditions and within guidelines set from time to time by the Board, the Companies Act, the Listing Rules and Model Code.

Treasury Shares

In accordance with the relevant provisions of the Companies Act 2006 any Ordinary shares repurchased, pursuant to the above authority, may be held in treasury. These Ordinary shares may subsequently be cancelled or sold for cash. This would give the Company the ability to reissue shares quickly and cost effectively and provide the Company with additional flexibility in the management of its capital. The Company may hold in treasury any of its Ordinary shares that it purchases pursuant to the share buy back authority granted by shareholders. At present there are no shares held in treasury.

Principal Risks and Uncertainties

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

Investment Strategy and Share Price Movements - 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. The aim of the Board is to favour capital growth wherever possible, but it is inevitable that from time to time losses may be incurred. 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.

Foreign Currency Movements - The Company has exposure to foreign currency through its investments. The Board considers carefully factors which may affect the foreign currency in which the Company has an exposure at its quarterly board meetings taking into account the economic and political climate of various regions and the prospects for sterling.

Interest Rates - The Company has exposure to cash which generates interest through interest bearing accounts. The Board is mindful of interest rates when setting limits on the Company's exposure to cash.

Liquidity Risk - This risk can be viewed both as the liquidity of the securities in which the Company invests and the liquidity of the Company's shares. The Company may invest in securities that have a very limited market which will affect the ability of the Company's Investment Adviser to dispose of securities when he no longer feels 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. The Board is mindful of the liquidity in the Company's shares. In addition, the Board seeks the advice of the Company's brokers, Cenkos, who give advice on ways in which the Board can influence the liquidity in the Company's shares. The Company monitors performance to ensure it is able to meet the financial objectives of the loan repayment.

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. As a means of controlling the discount to Net Asset Value the Board has established a discount control policy which is under constant review as market conditions change.

Regulatory Risk - The Company operates in a complex regulatory environment and faces a number of regulatory risks. A breach of section 1158 of the Corporation Tax Act 2010 could result in the Company being subject to tax on capital gains in the portfolio. 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 could also lead to reputational damage or loss. The Board relies on the services of its Company Secretary, Jupiter Asset Management Limited, and its professional advisers to ensure compliance with, amongst other regulations, the Companies Act 2006, the UKLA Listing Rules and the Alternative Investment Fund Managers Directive.

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 Jupiter Asset Management Limited 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 Investment Adviser's core accounting systems, or a disastrous disruption to its business, could lead to an inability to provide accurate reporting and monitoring. The Investment Adviser is contractually obliged to ensure that its conduct of business conforms to applicable laws and regulations.

Custody - The Board receives quarterly reports from the Depositary confirming safe custody of the Company's assets and cash and holdings are reconciled to the Custodian's records. The Depositary's internal controls reports are reviewed by the Investment Adviser and the Company's Directors and concerns are discussed as and when they may occur.

The Depositary is specifically liable for loss of any of the Company's securities or cash held in custody.

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 statements on its internal controls and procedures in addition to any financial reporting by the Company.

Derivatives - The Company invests in derivatives from time to time. Derivatives may be a riskier investment than equities as they can exaggerate the return that can be achieved compared to investing directly in equities. The Board has set limits on the amount of exposure the Company has to derivatives and it reviews these limits at its quarterly board meetings. The Company did not invest in derivatives during the year.

In accordance with the AIC and the UK Corporate Governance Code, the Directors have carried out a review of the effectiveness of the system of internal control as it has operated over the year and up to the date of approval of the report and accounts.

Social and Environmental Matters

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

Global Greenhouse Gas Emissions

All of the Company's activities are outsourced to professional third parties. As such it does not have any physical assets, property, employees or operations of its own and does not generate any greenhouse gas or other 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, 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 and Directors' Report) Regulations 2013.

Board Diversity

It is seen as a prerequisite that each member of the Board must have the skills, experience and character that will enable each Director to contribute individually, and as part of the Board team, to the effectiveness of the Board and the success of the Company. Subject to that overriding principle, diversity of experience and approach, including gender diversity, amongst Board members is of great value, and it is the Board's policy to give careful consideration to issues of overall Board balance and diversity in appointing new directors.

The Board currently comprises five male directors.

For and on behalf of the Board

H M Priestley

Chairman

28 September 2017

Statement of Comprehensive Income for the year ended 31 May 2017

		31 May 2017			31 May 2016
	Revenue	Capital		Revenue	Capital
	Return	Return	Total	Return	Return	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Gain on investments at fair value through profit or loss	-	185,664	185,664	-	9,701	9,701
Foreign exchange loss on loan	-	(7,140)	(7,140)	-	(2,734)	(2,734)
Other exchange loss	-	(44)	(44)	-	(93)	(93)
Income	16,544	-	16,544	14,272	-	14,272
Total income	16,544	178,480	195,024	14,272	6,874	21,146
Investment management fee	(6,020)	-	(6,020)	(5,102)	-	(5,102)
Investment performance fee	-	(23)	(23)	-	(5,314)	(5,314)
Other expenses	(645)	(1)	(646)	(673)	-	(673)
Total expenses	(6,665)	(24)	(6,689)	(5,775)	(5,314)	(11,089)
Net return before finance costs and taxation	9,879	178,456	188,335	8,497	1,560	10,057
Finance costs	(937)	-	(937)	(594)	-	(594)
Return on ordinary activities before taxation	8,942	178,456	187,398	7,903	1,560	9,463
Taxation	(177)	-	(177)	(458)	-	(458)
Net return after taxation	8,756	178,456	187,221	7,445	1,560	9,005
Return per Ordinary share	7.86p	159.94p	167.80p	6.84p	1.43p	8.27p

The total column of this statement is the income statement of the Company, prepared in accordance with IFRS. The supplementary revenue return and capital return columns are both prepared under guidance produced by the Association of Investment Companies (AIC). All items in the above statement derive from continuing operations.

No operations were acquired or discontinued during the year.

Statement of Financial Position as at 31 May 2017

	2017	2016
	£'000	£'000
Non current assets
Investments held at fair value through profit or loss	852,763	707,402
Current assets Other receivables	7,280	4,279
Cash and cash equivalents	55,343	6,091
	62,623	10,370
Total assets	915,386	717,772
Current liabilities Other payables	(120,374)	(103,850)
Total assets less current liabilities	795,012	613,922
Capital and reserves
Called up share capital	1,116	1,116
Share premium	193,561	193,555
Special reserve	33,687	33,687
Capital redemption reserve	45	45
Retained earnings	566,603	385,519
Total equity shareholders' funds	795,012	613,922
Net Asset Value per Ordinary share	712.53p	550.23p

Approved by the Board of Directors and authorised for issue on 28 September 2017.

H M Priestley

Chairman

Company Registration Number 4056870

Statement of Changes in Equity for the year ended 31 May 2017

For the year ended	Share Capital	Share Premium	Special Reserve	Capital Redemption Reserve	Retained Earnings	Total
31 May 2017	£'000	£'000	£'000	£'000	£'000	£'000
1 June 2016	1,116	193,555	33,687	45	385,519	613,922
Net profit for the year	-	-	-	-	187,221	187,221
Refund of share issue costs*	-	6	-	-	-	6
Dividends declared and paid**	-	-	-	-	(6,137)	(6,137)
Balance at 31 May 2017	1,116	193,561	33,687	45	566,603	795,012

For the year ended	Share Capital	Share Premium	Special Reserve	Capital Redemption Reserve	Retained Earnings	Total
31 May 2016	£'000	£'000	£'000	£'000	£'000	£'000
1 June 2015	1,022	142,988	33,687	45	380,647	558,389
Net profit for the year	-	-	-	-	9,005	9,005
Refund of share issue costs*	94	50,567	-	-	-	50,661
Dividends declared and paid**	-	-	-	-	(4,133)	(4,133)
Balance at 31 May 2016	1,116	193,555	33,687	45	385,519	613,922

* This represents a prior year refund from the Company's registrar. No shares were issued during the accounting year.

 **Dividends paid during the period were paid out of revenue reserves.

Cash Flow Statement for the year ended 31 May 2017

	2017	2016
	£'000	£'000
Cash flows from operating activities
Investment income received (gross)	15,776	13,655
Investment management fee paid	(5,651)	(4,897)
Investment performance fee paid	(5,325)	(12,609)
Other cash expenses	(596)	(827)
Net cash inflow/(outflow) from operating activities before taxation and interest	4,204	(4,678)
Interest paid	(928)	(501)
Tax paid	(698)	(1,001)
Net cash inflow/(outflow) from operating activities	2,578	(6,180)
Cash flows from investing activities
Purchases of investments	(231,190)	(175,142)
Sales of investments	270,215	77,033
Net cash inflow/(outflow) from investing activities	39,025	(98,109)
Cash flows from financing activities
Ordinary shares issued	6*	50,661
Equity dividends paid	(6,137)	(4,133)
Net drawdown of loan	13,824	58,276
Net cash inflow from financing activities	7,693	104,804
Increase in cash	49,296	515
Change in cash and cash equivalents
Cash and cash equivalents at start of year	6,091	5,669
Realised loss on foreign currency	(44)	(93)
Cash and cash equivalents at end of year	55,343	6,091

*This represents a prior year refund from the Company's registrar. No shares were issued during the accounting year.

Notes to the Accounts for the year ended 31 May 2017

1.     Accounting policies

The Accounts comprise the financial results of the Company for the year to 31 May 2017. The functional and reporting currency of the Company is pounds sterling because that is the currency of the prime economic environment in which the Company operates. The Accounts were authorised for issue in accordance with a resolution of the directors on 28 September 2017. All values are rounded to the nearest thousand pounds (£'000) except where indicated.

The Accounts have been prepared in accordance with International Financial Reporting Standards (IFRS), which comprise standards and interpretations approved by the International Accounting Standards Board (IASB) and International Accounting Standards Committee (IASC), as adopted by the European Union (EU).

Where presentational guidance set out in the Statement of Recommended Practice (SORP) for Investment Trusts issued by the Association of Investment Companies (AIC) in November 2014 is consistent with the requirements of IFRS, the directors have sought to prepare the financial statements on a basis compliant with the recommendations of the SORP.

The Company continues to adopt the going concern basis in the preparation of the financial statements.

(a)    Income

Dividends from investments are recognised when the investment is quoted ex-dividend on or before the date of the Statement of Financial Position.

Dividends receivable from equity shares are taken to the revenue return column of the Statement of Comprehensive Income.

Deposit and other interest receivable are accounted for on an accruals basis. These are classified within operating activities in the cash flow statement.

Special dividends are reviewed on a case by case basis to determine if the dividend is to be treated as revenue or capital.

(b)    Presentation of Statement of Comprehensive Income

In order to better reflect the activities of an investment trust company and in accordance with guidance issued by the Association of Investment Companies (AIC), supplementary information which analyses the Statement of Comprehensive Income between items of a revenue and capital nature has been presented alongside the statement. In accordance with the Company's Articles of Association, net capital returns may not be distributed by way of dividend.

(c)    Basis of valuation of investments

Investments are recognised and derecognised on a trade date where a purchase or sale of an investment is under contract whose terms require delivery of the investment within the timeframe established by the market concerned, and are initially measured at the fair value, being the consideration given.

The investments are designated as fair value through profit or loss on initial recognition as this is consistent with the company's documented investment strategy.

All investments are classified as held at fair value through profit or loss. All investments are measured at fair value with changes in their fair value recognised in the Statement of Comprehensive Income in the period in which they arise. The fair value of listed investments is based on their quoted bid price at the reporting date without any deduction for estimated future selling costs.

Foreign exchange gains and losses on fair value through profit or loss investments are included within the changes in the fair value of the investment.

For investments that are not actively traded and/or where active stock exchange quoted bid prices are not available, fair value is determined by reference to a variety of valuation techniques. These techniques may draw, without limitation, on one or more of: the latest arm's length traded prices for the instrument concerned; financial modelling based on other observable market data; independent broker research; or the published accounts relating to the issuer of the investment concerned.

(d)    Cash and cash equivalents

Cash comprises cash in hand and demand deposits. Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and that are subject to insignificant risks of changes in value.

(e)    Foreign currencies

Transactions in currencies other than pounds sterling are recorded at the rates of exchange prevailing on the dates of the transactions. At the date of each Statement of Financial Position, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing on that date. Non-monetary assets and liabilities carried at fair value that are denominated in foreign currencies are translated at the rates prevailing at the date when the fair value was determined. Gains and losses arising on retranslation are included in net profit or loss for the year.

(f)     Borrowing and finance costs

Interest-bearing bank loans and overdrafts are recorded at the proceeds received, net of direct issue costs and subsequently measured at amortised cost. Finance charges, including premiums payable on settlement or redemption and direct issue costs, are accounted for on an accruals basis in the Statement of Comprehensive Income using the effective interest method and are added to the carrying amount of the instrument to the extent that they are not settled in the period in which they arise.

Finance costs are recognised in the Statement of Comprehensive Income in the period in which they are incurred. All finance costs are directly charged to the revenue column of the Statement of Comprehensive Income.

(g)    Expenses

Expenses are accounted for on an accruals basis. Management fees, administration and other expenses are charged fully to the revenue column of the Statement of Comprehensive Income. That part of any investment performance fee which is deemed by the Directors to relate to the capital outperformance of the Company's investments will be charged to capital and that part relating to revenue outperformance will be charged to revenue. Expenses which are incidental to the purchase or sale of an investment are charged to capital, along with any foreign exchange gains and losses.

(h)  Taxation

The tax expense represents the sum of the tax currently payable and deferred tax.

The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the Statement of Comprehensive Income because it excludes items of income or expense that are taxable or deductible in other periods and it further excludes items that are never taxable or deductible. The Company's liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the date of the Statement of Financial Position.

Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profit will be available against which deductible temporary differences can be utilised.

Investment trusts which have approval under Section 1158 of the Corporation Tax Act 2010 are not liable for taxation of capital gains.

Irrecoverable VAT is included in the expense on which it has been suffered. Recoverable VAT is calculated using the partial exemption method based on the proportion of zero rated supplies to total supplies.

(i)   Ongoing Charges Figure

The Ongoing Charges Figure (OCF) is calculated as the ratio of the total ongoing charges to the average net asset value of the Company over the year. The OCF is made up of the Investment Management fee and other operating costs deducted from the Company during the year, except for those payments that are explicitly excluded (performance fees).

(j)   Accounting developments

The following standards, amendments and interpretations have been published by IASB but are not yet effective for year ended 31 May 2017:

International Accounting Standards (IAS/IFRS's)

IFRS 9 Financial Instruments

Effective date: 1 January 2018

Amendments to IAS 7 Statement of Cashflows

Effective date: 1 January 2017

The Directors anticipate that the adoption of the above standards and interpretations in future periods will have no material impact on the financial statements of the Company. The Company intends to adopt the standards in the reporting period when they become effective.

2.   Income

			Year ended	Year ended
			31 May	31 May
			2017	2016
			£'000	£'000
Income from investments
Dividends from United Kingdom companies			6,173	4,425
Dividends from overseas companies			10,371	9,847
Total income			16,544	14,272

3.   Earnings per Ordinary share

The earnings per Ordinary share figure is based on the net profit for the year of £187,221,000 (2016: Profit £9,005,000), and on 111,575,331 (2016: 108,822,901) Ordinary shares, being the weighted average number of Ordinary shares in issue during the year.

The return per Ordinary share figure detailed above can be further analysed between revenue and capital, as below.

	Year ended 31 May 2017	Year ended 31 May 2016
	£'000	£'000
Net revenue profit	8,765	7,445
Net capital profit	178,456	1,560
Net total profit	187,221	9,005
Weighted average number of Ordinary shares in issue during the year	111,575,331	108,822,901
Revenue return per Ordinary share	7.86p	6.84p
Capital return per Ordinary share	159.94p	1.43p
Total return per Ordinary share	167.80p	8.27p

4.  Net Asset Value per Ordinary share

The Net Asset Value per Ordinary share is based on the net assets attributable to the equity shareholders of £795,012,000 (2016: £613,922,000) and on 111,575,331 (2016: 111,575,331) Ordinary shares, being the number of Ordinary shares in issue at the year end.

5.  Related parties

Jupiter Unit Trust Managers Limited ('JUTM'), the Alternative Investment Fund Manager, is a company within the same group as Jupiter Asset Management Limited, the Investment Adviser. JUTM receives an investment management fee as set out below.

JUTM is contracted to provide investment management services to the Company (subject to termination by not less than twelve months' notice by either party) for an annual fee of 0.75 per cent. of the net assets of the Company after deduction of the value of any Jupiter managed investments, payable quarterly in arrears.

The Management fee payable to JUTM for the period 1 June 2016 to 31 May 2017 was £6,020,000 (2016: £5,102,000) with £1,712,000 outstanding at year end (31 May 2016: £1,343,000).

JUTM is also entitled to an investment performance fee which is based on the out-performance of the Net Asset Value per Ordinary share over the total return on the Benchmark Index, the FTSE World Europe ex UK Total Return Index in an accounting period. Any performance fee payable will equal 15 per cent of the amount by which the increase in the Net Asset Value per Ordinary share (plus any dividends per Ordinary share paid or payable and any accrual for unpaid performance fees for the period) exceeds the higher of (a) the Net Asset Value per Ordinary share on the last business day of the previous accounting period; (b) the Net Asset Value per Ordinary share on the last day of a period in respect of which a performance fee was last paid: and (c) 100p. In each case the values of (a), (b) and (c) are increased by the percentage by which the total return of the Benchmark Index increases or decreases during the calculation period. The total amount of any performance fee payable in respect of one accounting period is limited to 4.99 per cent of the Total Assets of the Company. The performance fee payable for the year end 31 May 2017 was £nil (2016: £5,314,000).

The Company has invested from time to time in funds managed by Jupiter Investment Management Group Limited or its subsidiaries. There were no such holding as at 31 May 2017 (31 May 2016: Nil). No investment management fee is payable by the Company to Jupiter Asset Management Limited in respect of the Company's holdings in investment trusts, open-ended funds and investment companies in respect of which Jupiter Investment Management Group Limited, or any subsidiary undertaking of Jupiter Investment Management Group Limited, receives fees as investment manager or investment adviser.

Fees payable to the Directors for the year ended 31 May 2017 were £121,000 (2016: £135,000) with £20,000 outstanding at year end (31 May 2016: £24,000).

6.  Contingent liabilities and capital commitments

There were no contingent liabilities or capital commitments outstanding as at 31 May 2017 (2016: nil).

7.  Post balance sheet event

Since the year end no additional Ordinary shares have been issued.

Availability of Annual Report

The Annual Report & Accounts will be posted to shareholders shortly. Copies will also be available from the Company's registered office at The Zig Zag Building, 70 Victoria Street, London SW1E 6SQ. An electronic version of the Annual Report & Accounts will also be available for download from the Company's section of Jupiter Asset Management's website www.jupiteram.com/JEO.

For further information, please contact:

Richard Pavry

Head of Investment Trusts

Jupiter Asset Management Limited, Company Secretary

[e-mail] 

020 3817 1496

28 September 2017

 

END

 

 

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