Annual Report & Accounts to 31 May 2015

RNS Number : 1644Z

Jupiter European Opps. Trust PLC

15 September 2015

 

Jupiter European Opportunities Trust plc (the "Company")

Annual Financial Report for the year ended 31 May 2015

This announcement contains regulated information

Financial Highlights for the year ended 31 May 2015

Capital Performance	31 May 2015	31 May 2014	% change
Total assets less current liabilities (£'000)	558,389	409,191	+36.5
Ordinary Share Performance	31 May 2015	31 May 2014	% change
Net asset value (pence)	546.27	451.26	+21.1***
Middle market price (pence)	551.00	460.00	+19.8
FTSE World Europe ex UK Total Return Index*	1,014.49	969.03	+4.7
Premium to net asset value (%)	0.9	1.9	-

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) **	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

*   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 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.

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

***Ongoing Charges figure for the year was 0.96% (2014: 1.09%).

Strategic Report

Chairman's Statement

Over the course of the financial year under review the Net Asset Value per share of your Company rose from 451.26p to 546.27p, an increase of 21.1 per cent. This strong performance exceeded the gains made by the Company's benchmark, the FTSE World Europe Ex-UK Index, which returned 4.7 per cent over the same period. Meanwhile the market price of your shares rose by 19.8 per cent. This outperformance has given rise to a performance fee payable to Jupiter Asset Management Limited. The last occasion since the Company's launch in November 2000 on which a performance fee was paid by the Company was in 2011.

The background to your Company's strong performance is considered by our portfolio manager, Alexander Darwall, in his Investment Adviser's report below and I will not seek to cover the same ground here. Nonetheless, in contrast to the first six months of the financial year under review, it seems relevant to note that the second half of your Company's financial year to 31 May 2015 was a heartening period for investors in European equities and for your Company in particular.

Growing Your Company

During the financial year under review a total of 11,541,207 new shares were issued at a premium to their Net Asset Value under our existing block-listing authority, raising a total of £57,962,810 for your Company and achieving an uplift in net assets of £395,103 for existing Shareholders through the premium price at which they were issued. The premium to NAV at which new shares were issued varied from 1 per cent to 3 per cent.

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% of eligible investment income arising during any given financial year. Accordingly a resolution to declare a final dividend of 3.8p per share will be proposed at the Company's AGM on 3 November 2015, payable on 11 December 2015 to shareholders on the Register of Members on 13 November 2015.

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 such a resolution at the AGM to pay an equivalent 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

In October 2014 your Company renewed its £75 million flexible loan agreement with Scotiabank Europe PLC which will again be extended for the current financial year in a few weeks' time. Gearing is used strategically by the portfolio manager in order to enhance the Company's returns when markets are expected to rise. As at 31 May 2015, £35.9 million was drawn down under the facility. The proportionate level of gearing had fallen from 10 to 6 per cent of Total Assets during the year under review.

Board composition

Three of your directors (myself, John Wallinger and Alexander Darwall), have now served on your board for in excess of nine years. We do not believe that this length of service, of itself, has any bearing on our independence or our ability to fulfil our fiduciary duties towards our shareholders. However, we recognise the need to refresh the composition of the Board from time to time and we were therefore pleased to invite the Rt. Hon the Lord Lamont of Lerwick to join our board as a new director in June 2015. As a former Chancellor of the Exchequer who successfully negotiated to keep the UK from joining the euro, his views on the current situation will be most valuable. I myself plan to retire as your Chairman and as a director of the Company at the Annual General Meeting in 2017.

All of your 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 3 November 2015 at the offices of Jupiter Asset Management Limited, 1 Grosvenor Place, London SW1X 7JJ.

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

The investing environment and your Company are subject to the usual macro and cyclical challenges. After the good equity markets of recent years - at time of writing, the Europe ex UK index is up 73% in sterling from its low in 2011 - and the better performance of your Company, it would not be unreasonable to anticipate some setbacks. Nevertheless, patient investors have been rewarded for sticking with a successful investment strategy. One of the great advantages of investment trusts is that we can take advantage of lower share prices by gearing the fund.

At the period end the gearing level was low. In the past the Board has increased gearing in weak markets and decreased gearing on higher valuations, although it must be admitted that gearing was too high at the time of the 2008 credit crisis. Still, this approach has added value over the years; we continue to use gearing as a tactical tool to improve returns. There is no need to change the investing style of your Company and you can expect an eclectic collection of companies which have strong business characteristics and which, in the opinion of your Manager, can benefit from structural trends.

Your portfolio manager has demonstrated his ability to achieve above average returns even in conditions where not all boats are lifted by a rising tide.

Hugh Priestley

Chairman

15 September 2015

Investment Adviser's Review

The Net Asset Value of the Company's Ordinary shares rose by 21.1% during the twelve months to 31 May 2015. This compares with a 4.7% rise, in sterling, of the FTSE World Europe ex UK index. The level of the Company's borrowings at year end was £35.9m (2014: £47.0m). These borrowings, representing 6% of net assets at year end, improved returns. The reduction in borrowings and the issue of new shares has meant that gearing drifted down to 6% by the period end, as low a level of gearing as at any time since the Company's launch in 2000. Borrowing costs were low at barely 1%, unchanged from the previous year. The FTSE World (total return) index was up 15.8% in sterling. The MSCI Latin America index retreated 13.1%; the Asian markets (including China and Japan) were all markedly higher; in the US the S&P500 returned 22.8% in sterling terms.

Europe's underperformance is explained by the lack of effectiveness of Quantitative Easing; a failing energy policy in Europe; and the chronic reluctance to undertake supply side reforms. To put it another way, even though interest rates were at record lows and the US dollar price of oil fell 41.3% over the period under review, growth in Europe remained stubbornly below the global growth rate. The IMF recently forecast growth of 1.5% in 2015 and 1.6% in 2016 for Europe. These compare with 3.5% and 3.8% for world growth rates.

The relatively low portfolio turnover (14% over the last financial year) is often an indication that our investments performed satisfactorily. Indeed it was pleasing that 'our' companies delivered good results and this was reflected in share prices. Amongst the biggest positive contributors to performance were a collection of companies that can be described as 'alternative financials'. These included Provident Financial (non-standard lending), Leonteq (structured products), Deutsche Börse (stock exchange services) and Grenkeleasing (small ticket leasing). They are beneficiaries of the new regulatory and market challenges faced by the mainstream banks. Capital constraints, higher regulatory costs and antiquated cost bases are some of the problems faced by the mainstream banks. Yet demand for financial services - basic lending, for instance - remains. This represents a considerable opportunity for newer companies which are unencumbered by these legacy burdens. A second group, Wirecard, Ingenico and Inmarsat are all, in different ways, 'winners' from digital opportunities. The first two are leaders in digital payments where there is a great deal of innovation and new solutions including mobile payments. Inmarsat is a world leader in mobile satellite services, providing data and voice connectivity. This company should benefit from increasing maritime connectivity. Other companies that contributed positively to performance were global winners: Fresenius (healthcare including dialysis), Novo Nordisk (diabetes treatment), Reed Elsevier (publisher and information provider) and Luxottica (manufacturer and retailer of eyewear). These businesses were tested by tougher conditions in emerging markets, notably China and Brazil, and yet they flourished. This contrasts with the experience of companies in other sectors such as luxury goods and pharmaceuticals operating in China, where conditions became much more challenging.

On the negative side, the biggest single detractor to performance was Gemalto, a leader in the provision of security software and systems to manage data and secure transactions. We sold this position as the technology threats to this business are hard to predict with certainty. Another disappointing performer was Edenred, the vouchers business. A much tougher market in Brazil, its largest market, has stymied near term growth. We have also sold this position partly because the recent change in management is likely to lead to some hesitancy in executing the strategy.

The most significant new holding was that of Royal Caribbean, one of the two leading global cruise companies. A favourable industry structure and a good long-term record underpin our confidence in the business model. The development of the Chinese cruising market represents a potentially huge opportunity; this development is underway, thus there are realistic grounds for optimism. Other purchases included Grifols, a Spanish company, that develops, manufactures and markets plasma derivatives. The market structure is favourable; demand is growing consistently; there is product innovation and it is well rewarded. There were other noteworthy purchases. Saga is a UK listed company offering travel, insurance and other financial services. This company is well placed to develop further its differentiated offer for the market segment it serves. The only other new holding of note was Marine Harvest. The world's foremost salmon farmer, this company should benefit both from industry growth and from the advantages that it derives from its vertically integrated structure. There were thirteen outright sales. Yet these represented less than 10% of the portfolio: some were tiny holdings where we had reversed our investment decision before building a meaningful position. The other noteworthy sales were Edenred, Gemalto and Tomra.

Outlook

There is little sense in attempting to forecast the outlook for share prices. Threats to the equity markets are a constant; likewise there are always good investment opportunities with successful individual companies. Technology advances, changing consumer behaviour, regulatory interventions, liberalisation and entrepreneurial flair are some of the necessary ingredients for creating a good environment for investment. Viewed in this way we are confident that there are good medium term opportunities. Moreover, we continue to believe that our process for understanding the threats and opportunities remains valid.

Alexander Darwall

Fund Manager

Jupiter Asset Management Limited

Investment Adviser

15 September 2015

Investments as at 31 May 2015

		31 May 2015			31 May 2015
	Country of	Market value	Percentage	Market value	Percentage
Company	Listing	£'000	of Portfolio	£'000	of Portfolio
Provident Financial	UK	47,839	8.0	34,230	7.6
Novo Nordisk	Denmark	47,334	7.9	32,247	7.2
Syngenta	Switzerland	42,387	7.1	29,491	6.6
Wirecard	Germany	40,075	6.7	33,898	7.6
Reed Elsevier	Netherlands	35,104	5.8	28,203	6.3
Inmarsat	UK	33,140	5.5	13,916	3.1
Novozymes	Denmark	31,463	5.2	27,711	6.2
Fresenius	Germany	28,830	4.8	21,811	4.9
Experian	UK	28,524	4.7	23,736	5.3
Leonteq	Switzerland	27,974	4.7	7,768	1.7
Amadeus	Spain	24,787	4.1	16,645	3.7
Ingenico	France	20,842	3.5	10,617	2.4
Johnson Matthey	UK	19,388	3.2	17,710	3.9
Grenkeleasing	Germany	17,476	2.9	12,032	2.7
Coloplast	Denmark	16,272	2.7	13,891	3.1
Intertek Group	UK	15,876	2.6	18,517	4.1
Deutsche Börse	Germany	14,144	2.4	5,483	1.2
DnB NOR	Norway	13,163	2.2	11,208	2.5
Luxottica Group	Italy	11,841	2.0	995	0.2
Ryanair	Ireland	10,807	1.8	5,253	1.2
Zodiac Aerospace	France	9,568	1.6	7,990	1.8
Hexagon	Sweden	7,560	1.3	5,912	1.3
Borregaard	Norway	6,997	1.2	2,131	0.5
Saga	UK	6,806	1.1	-	-
Marine Harvest	Norway	5,725	0.9	-	-
Royal Caribbean Cruises	Norway	4,935	0.8	-	-
UPM-Kymmene	Finland	4,983	0.8	1,575	0.4
Grifols	Spain	4,601	0.8	-	-
Intrum Justitia	Sweden	4,492	0.7	-	-
Dassault Systemes	France	4,090	0.7	3,027	0.7
Elementis	UK	3,667	0.6	1,859	0.4
KWS Saat	Germany	2,889	0.5	3,004	0.7
Royal Caribbean Cruises	Liberia	2,489	0.4	-	-
Bayer	Germany	1,856	0.3	-	-
Ossur	Denmark	1,614	0.3	-	-
CGG	France	1,314	0.2	2,794	0.6
Total		600,852	100.0

Cross Holdings in other Investment Companies

As at 31 May 2015 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 2015 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 next scheduled continuation vote will be at the 2017 AGM.

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.

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% 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. Further details of the Company's arrangements with Jupiter Asset Management Limited and the Alternative Investment Fund Manager (AIFM)*, Jupiter Unit Trust Managers Limited can be found in Note 22 to the accounts.

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.

* With effect from 22 July 2014.

Gearing

Gearing is defined as the ratio of a Company's total loan liability, expressed as a percentage of net 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 Europe PLC for amounts up to £75 million. Further details of the Scotiabank Europe PLC's loan facility can be found in Note 12 to the accounts.

On 29 September 2015 the Company's existing £75 million multi currency revolving loan facility is due to expire. The Board will be seeking to renew the loan facility.

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 limits or restrictions on the Company's loan facility other than the £75 million limit of the Company's current loan facility with Scotiabank Europe PLC. 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

·      Funds in/outflows of the retail investment wrapper products managed by the Investment Adviser.

A history of the Net Asset Value and benchmark is shown on 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.

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 cancelled 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% of the average of the middle market quotations for the Ordinary shares for the five business days immediately preceding the date of repurchase. The minimum price will be the nominal value of the Ordinary shares.

The Board is proposing that its authority to repurchase up to approximately 14.99% of its issued share capital should be renewed at the Annual General Meeting. The new authority to repurchase will last until the conclusion of the Annual General Meeting of the Company in 2016 (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.

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. It is not the aim of the Board to eliminate entirely the risk of capital loss, rather it is its aim to seek capital growth. The Board reviews the Company's investment strategy and the risk of adverse share price movements at its quarterly board meetings taking into account the economic climate, market conditions and other factors that may have an effect on the sectors in which the Company invests.

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. At its quarterly meetings the Board considers the current liquidity in the Company's investments when setting restrictions on the Company's exposure. The Board also reviews on a quarterly basis the Company's buy back programme and in doing so it 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 capital gains on portfolio movements. Breaches of other regulations, such as the UKLA Listing Rules, could lead to a number of detrimental outcomes and reputational damage. Breaches of controls by service providers 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. Details of how the Board monitors the services provided by Jupiter Asset Management Limited and its associates are included within the Internal Control section of the Corporate Governance review.

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.

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.

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 6 male directors.

Statement of Directors' Responsibilities in Relation to the Financial Statements

The Directors are responsible for preparing the Annual Report and financial statements in accordance with applicable United Kingdom law and those International Financial Reporting Standards ('IFRSs') as adopted by the European Union. Under Company Law the directors must not approve the financial statements unless they are satisfied that they present a fair, balanced and understandable report and provide the information necessary for shareholders to assess the Company's performance, business model and strategy. In preparing the financial statements the directors are required to:

•  select suitable accounting policies in accordance with IAS 8: Accounting Policies, Changes in Accounting Estimates and Errors and then apply them consistently;

•    present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;

•    provide additional disclosures when compliance with the specific requirements in IFRSs is insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity's financial position and financial performance;

•    state that the Company has complied with IFRSs, subject to any material departures disclosed and explained in the financial statements; and

•    make judgements and estimates that are reasonable and prudent.

The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies Act 2006 and Article 4 of the IAS Regulation. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The financial statements are published on www.jupiteram.com which is a website maintained by the Investment Adviser.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Responsibility statements under the Disclosure and Transparency Rules

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

•    the financial statements, prepared in accordance with IFRS as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and profit of the Company and the undertakings included in the consolidation taken as a whole; and

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

•    that, in the opinion of the Board, the Annual Report and Accounts taken as a whole is fair, balanced and understandable and it provides the information necessary to assess the Company's performance, business model and strategy.

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

•    There is no relevant audit information of which the Company's auditors are unaware; and

•    The Directors have taken all steps that they ought to have taken to make themselves aware of any relevant audit information and to establish that the auditors are aware of that information.

By Order of the Board

H M Priestley

Chairman

15 September 2015

Statement of Comprehensive Income for the year ended 31 May 2015

		31 May 2015			31 May 2014
	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	-	98,318	98,318	-	39,363	39,363
Gain on contracts for difference	-	-	-	-	51	51
Foreign exchange gain on loan	-	4,780	4,780	-	2,133	2,133
Other exchange loss	(86)	(177)	(263)	(83)	(93)	(176)
Investment income	10,523	-	10,523	9,208	-	9,208
Other income	-	-	-	4	-	4
Total income	10,437	102,921	113,358	9,129	41,454	50,583
Investment management fee	(4,069)	-	(4,069)	(3,075)	-	(3,075)
Investment performance fee	-	(12,597)	(12,597)	-	-	-
Other expenses	(749)	(85)	(834)	(891)	-	(891)
Total expenses	(4,818)	(12,682)	(17,500)	(3,966)	-	(3,966)
Return before finance costs and tax	5,619	90,239	95,858	5,163	41,454	46,617
Finance costs	(452)	-	(452)	(505)	-	(505)
Return before taxation	5,167	90,239	95,406	4,658	41,454	46,112
Taxation	(650)	-	(650)	(637)	-	(637)
Return after taxation	4,517	90,239	94,756	4,021	41,454	45,475
Return per Ordinary share	4.80p	95.93p	100.73p	4.54p	46.79p	51.33p

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 2015

	2015	2014
	£'000	£'000
Non current assets
Investments held at fair value through profit or loss	600,852	448,497
Current assets
Receivables	3,103	3,748
Cash at bank	5,669	5,056
	8,772	8,804
Total assets	609,624	457,301
Current liabilities	(51,235)	(48,110)
Total assets less current liabilities	558,389	409,191
Capital and reserves
Called up share capital	1,022	907
Share premium	142,988	85,486
Special reserve	33,687	33,687
Capital redemption reserve	45	45
Retained earnings	380,647	289,066
Total equity	558,389	409,191
Net Asset Value per Ordinary share	546.27p	451.26p

Approved by the Board of Directors and authorised for issue on 15 September 2015.

H M Priestley

Chairman

Company Registration Number 4056870

Statement of Changes in Equity for the year ended 31 May 2015

For the year ended	Share Capital	Share Premium	Special Reserve	Capital Redemption Reserve	Retained Earnings	Total
31 May 2015	£'000	£'000	£'000	£'000	£'000	£'000
1 June 2014	907	85,486	33,687	45	289,066	409,191
Net profit for the year	-	-	-	-	94,756	94,756
Ordinary share issue	115	57,502	-	-	-	57,617
Dividends declared and paid*	-	-	-	-	(3,175)	(3,175)
Balance at 31 May 2015	1,022	142,988	33,687	45	380,647	558,389

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

For the year ended	Share Capital	Share Premium	Special Reserve	Capital Redemption Reserve	Retained Earnings	Total
31 May 2014	£'000	£'000	£'000	£'000	£'000	£'000
1 June 2013	844	59,589	33,687	45	246,636	340,801
Net profit for the year	-	-	-	-	45,475	45,475
Ordinary share issue	63	25,897	-	-	-	25,960
Dividends declared and paid*	-	-	-	-	(3,045)	(3,045)
Balance at 31 May 2014	907	85,486	33,687	45	289,066	409,191

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

Cash Flow Statement for the year ended 31 May 2015

	2015	2014
	£'000	£'000
Cash flows from operating activities
Purchases of investments	(116,673)	(99,376)
Sales of investments	63,896	70,963
Investment income received	10,555	8,731
Interest received	-	4
Investment management fee paid	(3,786)	(2,958)
Payment from CFD counterparty	-	346
Other cash expenses paid	(782)	(810)
Cash outflow from operating activities before finance costs and taxation	(46,790)	(23,100)
Finance costs paid	(473)	(551)
Taxation paid	(948)	(123)
Net cash outflow from operating activities	(48,211)	(23,774)
Financing activities
Ordinary shares issued	58,535	25,042
Dividend paid	(3,175)	(3,045)
Short-term loans received	12,000	252,425
Short-term loans repaid	(18,273)	(257,425)
Increase/(decrease) in cash	876	(6,777)
Cash and cash equivalents at start of year	5,056	12,009
Realised loss on foreign currency	(263)	(176)
Cash and cash equivalents at end of year	5,669	5,056

Notes to the Accounts for the year ended 31 May 2015

1.     Accounting policies

The accounts comprise the financial results of the Company for the year to 31 May 2015. The accounts are presented in pounds sterling, as this is the functional currency of the Company. The accounts were authorised for issue in accordance with a resolution of the directors on 15 September 2015. 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 January 2009 and replaced 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.

New standards, amendments and interpretations issued but not yet effective

The following standards and interpretations have been issued and are expected to be relevant to the Company in future periods, which will be effective for this Company's accounts after 1 June 2015.

Amendments to IAS 19, 'Defined Benefit Plans: Employee Contributions' (with effect from 1 July 2015)

IFRS 15 'Revenue from Contracts with Customers' (with effect from 1 January 2018)

IFRS 9 'Financial Instruments' (with effect from 1 January 2018)

The Directors are currently reviewing these standards with a view to implementation on their effective date.

Early Adoption of standards

The Company did not early adopt new or amended standards/interpretations for the year ended 31 May 2015.

A summary of the principal accounting policies, all of which have been applied consistently in the current and preceding years, is set out below:

(a)    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 AIC, supplementary information which analyses the statement of comprehensive income between items of a revenue and capital nature has been presented alongside the Statement of Comprehensive Income. In accordance with the Company's Articles of Association, net capital returns may not be distributed by way of dividend.

An analysis of retained earnings broken down into revenue items, which may be distributed as dividends and capital items is given in Note 18. In arriving at this breakdown, expenses have been presented as revenue items except for that part of any Investment performance fee which is deemed by the Directors to relate to the capital outperformance of the Company's investments. Any such amount is charged to capital.

(b)    Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for goods and services provided in the normal course of business.

Revenue includes dividends from investments quoted ex-dividend on or before the date of the Statement of Financial Position.

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

(c)    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.

(d)    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 cost, being the consideration given.

All investments are classified as held at fair value through profit or loss. Changes in the fair value of investments held at fair value through profit or loss and gains and losses on disposal are recognised in the statement of comprehensive income as 'Gains on investments at fair value through profit or loss'. The fair value of listed investments is based on their quoted bid market price at the statement of financial position 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.

(e)    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.

(f)     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.

(g)    Foreign currencies

Transactions in currencies other than pounds sterling are recorded at the rates of exchange prevailing on the dates of the transactions. At each reporting date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing on the reporting 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 revenue for the period.

Any gains or losses are included within capital apart from the retranslation of foreign withholding tax which is included within revenue.

The Company has exposure to foreign currency through its overseas investments. All gains and losses arising on retranslation of foreign dividends received are included in net revenue for the period.

(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 years 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 reporting date.

Deferred tax is recognised in respect of all temporary differences at the reporting date, where transactions or events that result in an obligation to pay more tax in the future or right to pay less tax in the future have occurred at the reporting date. This is subject to deferred tax assets only being recognised if it is considered more likely than not that there will be suitable profits from which the future reversal of the temporary differences can be deducted. Deferred tax assets and liabilities are measured at the rates applicable to the legal jurisdictions in which they arise.

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

(i)     Use of estimates

The preparation of financial statements requires the Company to make estimates and assumptions that affect items reported in the statement of financial position and statement of comprehensive income and disclosure of contingent assets and liabilities at the date of financial statements. Although these estimates are based on management's best knowledge of current facts, circumstances and, to some extent, future events and actions, actual results ultimately may differ from those estimates, possibly significantly. There are no material estimates in the current or prior year.

2.     Income

		2015	2014
		£'000	£'000
Income from investments
Dividends from United Kingdom companies		3,188	3,496
Dividends from overseas companies		7,335	5,712
		10,523	9,208
Other income
Deposit interest		-	4
Foreign exchange loss		(86)	(83)
		(86)	(79)
Total income		10,437	9,129
Total income comprises
Dividends		10,523	9,208
Interest		-	4
Foreign exchange loss		(86)	(83)
		10,437	9,129

8.     Return per Ordinary share

The return per Ordinary share figure is based on the net profit for the year of £94,756,000 (2014: Profit £45,475,000), and on 94,068,185 (2014: 88,595,150) 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.

	2015	2014
	£'000	£'000
Net revenue profit	4,517	4,021
Net capital profit	90,239	41,454
Net total profit	94,756	45,475
Weighted average number of Ordinary shares in issue during the year	94,068,185	88,595,150
Revenue return per Ordinary share	4.80p	4.54p
Capital return per Ordinary share	95.93p	46.79p
Total return per Ordinary share	100.73p	51.33p

19.  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 £558,389,000 (2014: £409,191,000) and on 102,217,681 (2014: 90,676,474) Ordinary shares, being the number of Ordinary shares in issue at the year end.

22.  Related parties

Alexander Darwall, the fund manager is an employee of the Investment Adviser, Jupiter Asset Management Limited ('JAM'), a company within the same group as the Alternative Investment Fund Manager ('AIFM'), Jupiter Unit Trust Managers Limited ('JUTM').

Further details of directors remuneration and shareholdings can be found in the Directors' Remuneration Report (fees of £22,000 were outstanding at the year end).

The Company appointed Jupiter Unit Trust Managers Limited ('JUTM') as its Alternative Investment Fund Manager ('AIFM') with effect from 22 July 2014. In order to facilitate this appointment, the Company terminated the investment management agreement (the 'IMA') with Jupiter Asset Management Limited ('JAM') and entered into a new investment management agreement with JUTM ('the new IMA'). The new IMA contains no substantive changes to the previous IMA other than to reflect regulatory changes, changes to service providers to the Company and to update the agreement to reflect current market practice. Under these new arrangements, certain investment management functions have been delegated from JUTM to JAM. Furthermore, any high water mark accrued under the Company's performance fee with JAM has been carried forward into the new investment management agreement with JUTM.

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% of total assets less current liabilities payable quarterly in arrears.

The management fee paid to JAM for the period 1 June 2014 to 21 July 2014 was £646,095 and to JUTM for the period 22 July 2014 to 31 May 2015 was £3,423,249 respectively.

Management fees of £1,138,000 were outstanding as at 31 May 2015 (2014: £856,000).

JAM was also entitled to receive a 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% 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% of the Total Assets of the Company. The performance fee payable for the year end 31 May 2015 was £12,597,000 (2014: £nil).

The Company has invested from time to time in funds managed by Jupiter Investment Management Group Limited or its subsidiaries. There were no such holdings as at 31 May 2015 (2014: 0.006% of total investments).

23.  Contingent liabilities and capital commitments

There were no contingent liabilities or capital commitments outstanding as at 31 May 2015 (2014: nil).

24.  Post balance sheet event

Since the year end an additional 5,257,650 Ordinary shares have been issued.

The Rt Hon Lord Lamont of Lerwick was appointed as a new independent non-executive Director of the Company on 24 June 2015.

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 1 Grosvenor Place, London SW1X 7JJ. 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

15 September 2015

 

END

 

 

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