Annual Report & Accounts to 31 May 2016

RNS Number : 2510K

Jupiter European Opps. Trust PLC

19 September 2016

 

Jupiter European Opportunities Trust plc (the "Company")

Annual Financial Report for the year ended 31 May 2016

This announcement contains regulated information

Financial Highlights for the year ended 31 May 2016

Capital Performance	31 May 2016	31 May 2015	% change
Total assets less current liabilities (£'000)	613,922	558,389	+9.9
Ordinary Share Performance	31 May 2016	31 May 2015	% change
Net asset value (pence)	550.23	546.27	+0.7
Net asset value total return (pence)	554.03	549.77	+0.8
Middle market price (pence)	530.00	551.00	-3.8
FTSE World Europe ex UK Total Return Index*	977.23	1,014.49	-3.7
(Discount)/premium to net asset value (%)	(3.7)	0.9	-
Ongoing charges figure (%)	1.08	1.20	-

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
2016		613,922	550.23	+0.7	-3.7

*   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.

 

 

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 2016.

The total return on the net asset value per share of your Company was 0.8 per cent. during the twelve months under review, which compares with a fall of 3.7 per cent. in the Company's benchmark, the FTSE World Europe ex UK Index during the same period. Meanwhile the market price of your Company's shares fell by 3.8 per cent.

Since the financial year end the total return on the net asset value per share of your Company was 10.0 per cent. up to 8 September 2016, which compares with a total return of 12.8 per cent. from the Company's benchmark, the FTSE World Europe ex UK Index during the same period. The market price of your Company's shares rose by 7.8 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. However, it seems pertinent to note that while trading conditions in the second half of the financial year were more challenging than in the first half, the value of your Company's assets remained resilient in volatile markets, outperforming the wider market and the Company's benchmark.

Growing Your Company

During the financial year under review a total of 9,357,650 new shares were issued at a premium to their Net Asset Value under the Company's block-listing authority, raising a total of £50,660,513 for your Company and achieving an uplift in net assets of £1,083,232 for existing Shareholders through the premium price at which these shares were issued. The premium to NAV at which new shares were issued varied from 1 per cent. to 9 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 per cent. of eligible investment income arising during any given financial year. Accordingly a resolution to declare a final dividend of 5.5p per share will be proposed at the Company's AGM on 2 November 2016, payable on 9 December 2016 to shareholders on the Register of Members on 11 November 2016.

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

In March 2016 your Company renewed its flexible loan agreement with Scotiabank Europe PLC which will again be extended for the current financial year in September in a maximum drawable amount of £125 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 period the gearing level remained modest, at 14 per cent. of net assets as at 31 May 2016. 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. During the period under review, your Company's gearing increased from a historically low level of 3 per cent. of net assets to a level of 14 per cent. of net assets at financial year end. The increase reflected the fund manager's confidence in the prospects of a number of specific investment opportunities rather than in the general investment environment.

Board composition

Two of your directors, John Wallinger and I, 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 I have previously indicated that I plan to retire as your Chairman and as a director of the Company at the Annual General Meeting in 2017. The Board anticipates that Andrew Sutch will take over from me as Chairman upon my retirement.

Alexander Darwall resigned from the Board in February 2016 and I should also like to take this opportunity to thank him for his contribution to the Board during his 15 year term of office. Alexander continues to act as your Company's portfolio manager on behalf of Jupiter Asset Management Limited.

All of your 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 2 November 2016 at 11.30 am at the new 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

Given the events which took place in the UK over the summer, it seems safe to assume that few investors need reminding that the world never fails to throw up political and economic surprises. As the new financial year begins, investors in equity markets must, as ever, contend with a variety of risks. Given the uncertain world we must inhabit, it is in my view worth reiterating the enviable long term track record of your Company, which has generated consistent relative and absolute returns for its owners over many years. As you will read elsewhere in this Report, your Manager's investment approach has not altered amid the recent volatility in markets. He remains focused on seeking out world-leading companies which in his view are able to exploit structural growth trends, and whose business models enable them to deliver attractive returns across the business cycle.

Hugh Priestley

Chairman

19 September 2016

Investment Adviser's Review

The Net Asset Value of the Company's Ordinary shares increased by 0.8% during the twelve months to 31 May 2016. This compares with a 3.7% decline, in sterling, of the FTSE World Europe ex UK Index. The level of the Company's borrowings at the year-end was £97m (2015: £36m), representing 14% of net assets at year end. The average rate of interest charged on our borrowings over the course of the year was low at 1.1%, unchanged from the previous year. The FTSE World (total return) Index was up 0.6% in sterling. The MSCI Latin America Index retreated 11.6% (having been sharply lower in the previous year also); the Asian markets (excluding Japan) were all markedly lower; the S&P500 Index returned 7.0% in sterling.

Interest rates are at record lows. The ECB's main refinancing rate was 0%; and 3 month Euribor was -0.26% at the end of May 2016. Further growth stimulus should also come from lower oil prices: the US dollar price of oil fell 18.6% over the period under review (having fallen by 41.3% in the previous twelve months). Yet growth in Europe remains chronically below the global growth rate. The IMF reported growth of 1.6% for Europe in 2015 and recently forecast 1.5% for 2016 and 1.6% for 2017. These figures compare with 3.1%, 3.2% and 3.5% respectively for world growth rates. The lack of supply side reform continues to hamper the willingness of corporates to invest and thereby dampens economic growth. In 2000, the European Union devised the Lisbon Strategy, a plan to make the EU "the most competitive and dynamic knowledge-based economy in the world capable of sustainable economic growth with more and better jobs and greater social cohesion", by 2010. It is not too soon to say that it has failed.

The relatively low portfolio turnover (14% over the last financial year, the same figure as in the previous year) is often an indication that our investments performed satisfactorily. The list of our best performing stocks is an eclectic one reflecting our aim to find 'special' companies across a range of activities. Grenke, the German leasing company, continued to grow strongly as the mainstream banks retreated from what for them are non-core areas of their lending businesses. Grenke, with its clear, consistent and focussed strategy has clearly been a beneficiary of the significant challenges faced by the European banks. The other standout performer was Marine Harvest, the world's largest salmon farming company. Its success is explained by increasing demand for salmon, especially in Europe, which has driven prices higher. Other notable contributors to performance were RELX and Fresenius. RELX (formerly Reed Elsevier, the publisher and information provider) grows as it builds on its strong technology platform and customers' need for better information. Fresenius (healthcare including dialysis) continues to flourish especially in North America where pricing for its drugs remain very good. Two other contributors to performance illustrate an interesting macro point. The continuing success of Ryanair reflects not only a strong business model, but, along with other airlines, the benefits of lower oil prices. It is consumer spending rather than investment spending that is growing currently. The corollary of this is the poor performance of the banking sector. Your Company has no direct exposure to the mainstream banks, a sector that has significantly underperformed. The lack of corporate lending growth combined with the ECB's ultra low (or negative) interest rate policy has exposed the flaws in many of the banks across Europe. The German banking system, with its many subscale lenders, is in urgent need of reform.

On the negative side, the biggest single detractor to performance was Leonteq, the Swiss based provider of structured products and pensions solutions. Management problems together with slower revenue growth than expected have highlighted the challenges of this business. We have retained this position in the expectation that news flow, specifically new partnership agreements, will improve. Inmarsat was another significant negative performer. It is the leading mobile satellite operator in the world. The weakness of the maritime market, its core business, partly explains slightly slower earnings growth. However, the bigger factor weighing on the share price is the concern that Inmarsat will fail to win a good share of new aviation contracts. We retain confidence in the company and its strategy for winning aviation business. Syngenta's shares performed poorly during the year however there was a significant improvement in the share price after the Company's year-end, following the clearance of an agreed bid from ChemChina by the US committee which reviews national security implications of foreign investments in the US.

Outright sales included the position in DNB. This has been a longstanding holding. In the aftermath of the 2008/9 financial crisis DNB, Norway's leading bank, should have thrived with its strong balance sheet and robust business model. However, a stream of new regulations has largely nullified their advantages. Our sale follows a belated realisation of this and the understanding that the bank's prospects are overly dependent on the oil price. The holding in Johnson Matthey was sold. The company is a world leader in the manufacture of catalysts for the automotive and truck industry with world leading technology. However, other parts of their business have stalled, making them more dependent than before on the prospects for their core catalysis business. The other sale of note was that of Zodiac, a French company that manufactures aeronautical equipment including passenger seats and cabin systems. We sold when it became apparent that management had failed satisfactorily to tackle significant organisational and manufacturing problems.

Amongst the new purchases, two - Essilor and Lonza - are companies in which we have previously been invested. Essilor continues to succeed as a world leader in the manufacture of ophthalmic lenses where the trend to more sophisticated products is good for the company. Lonza is a leading supplier to the pharmaceutical industry. It manufactures active ingredients and as the regulatory demands and technical complexity increase so customers need their services more. Another new purchase was that of ALK-Abello, a Danish immunotherapy company producing allergy vaccinations. Their clinically proven products treat allergies such as hay fever and the associated condition asthma. The other new investment of note was that of Continental, the German automotive supplier and tyre maker. This company is well placed to benefit from the disruption to the car manufacturing industry as electric power increases at the expenses of petrol and diesel engines.

Outlook

Change and disruption - necessary ingredients for our investment strategy to work - abound. Political turmoil, technology developments, changes in regulation and shifting consumer habits and behaviour can certainly present significant challenges. Favourable industry characteristics and a differentiated product or service are important defensive factors. But in virtually every case where there is disruption there is a 'silver lining', a company that can profit from others' discomfort. For example many alternative finance companies are growing just as the mainstream banks suffer; digital or online services present new opportunities even as high street retailers, for example, are in retreat; and consumer tastes are constantly evolving so that some companies can still grow irrespective of the general economic conditions. We seek to find the exception to the rule, the 'special' company that benefits from change and disruption. Given the scale of change and disruption the outlook for our investment strategy is favourable.

Alexander Darwall

Fund Manager

Jupiter Asset Management Limited

Investment Adviser

19 September 2016

Investments as at 31 May 2016

			31 May 2016		31 May 2015
	Country of	Market value	Percentage	Market value	Percentage
Company	Listing	£'000	of Portfolio	£'000	of Portfolio
Novo Nordisk	Denmark	62,788	8.9	47,334	7.9
Syngenta	Switzerland	54,524	7.7	42,387	7.1
RELX	Netherlands	48,733	6.9	35,104	5.8
Provident Financial	UK	48,015	6.8	47,839	8.0
Wirecard	Germany	46,812	6.6	40,075	6.7
Novozymes	Denmark	45,999	6.6	31,463	5.2
Inmarsat	UK	33,427	4.7	33,140	5.5
Fresenius	Germany	33,418	4.7	28,830	4.8
Deutsche Börse	Germany	31,779	4.5	14,144	2.4
Grenke	Germany	31,659	4.5	17,476	2.9
Amadeus	Spain	31,316	4.4	24,787	4.1
Experian	UK	30,355	4.3	28,524	4.7
Ingenico	France	21,703	3.1	20,842	3.5
Coloplast	Denmark	18,953	2.7	16,272	2.7
Grifols	Spain	16,658	2.4	4,601	0.8
Ryanair	Ireland	16,732	2.4	10,807	1.8
Marine Harvest	Norway	14,305	2.0	5,725	0.9
Luxottica	Italy	10,957	1.5	11,841	2.0
Royal Caribbean Cruises	Liberia	9,944	1.4	2,489	0.4
Leonteq	Switzerland	9,852	1.4	27,974	4.7
Saga	UK	8,740	1.2	6,806	1.1
Dassault Systèmes	France	8,511	1.2	4,090	0.7
Worldpay Group	UK	8,063	1.1	-	-
ALK-Abello	Denmark	7,666	1.1	-	-
BioMerieux	France	6,729	0.9	-	-
Carnival	UK	6,028	0.9	-	-
Intrum Justitia	Sweden	6,015	0.8	4,492	0.7
ARM	UK	4,934	0.7	-	-
KWS Saat	Germany	4,494	0.6	2,889	0.5
Essilor International	France	4,486	0.6	-	-
Continental	Germany	4,418	0.6	-	-
Elementis	UK	4,003	0.6	3,667	0.6
Lonza Group	Switzerland	2,963	0.4	-	-
Umicore	Belgium	2,598	0.4	-	-
Intertrust	Netherlands	2,586	0.4	-	-
Gemalto	Netherlands	2,310	0.3	-	-
Ossur	Denmark	1,836	0.3	1,614	0.3
Autoliv	Sweden	1,423	0.2	-	-
Arrow Global Group	UK	1,398	0.2	-	-
SES	France	272	0.0	-	-
Total		707,402	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 2016 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.

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. 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 23 of the Annual Report.

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.

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 post the date of the continuation vote. 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. As part of its assessment, 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; 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 Europe PLC for amounts up to £100 million. During the accounting year, the existing facility of £75 million was increased to £85 million on 29 September 2015; and was further increased to £100 million on 29 March 2016. Further details of the Scotiabank Europe PLC's loan facility can be found in Note 13 of the Annual Report.

On 27 September 2016 the Company's existing £100 million multi currency revolving loan facility was due to expire. Accordingly, on 12 September 2016 the Board agreed to renew the facility at an increased size of £125 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 £125 million 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.*

* The Jupiter ISA/Savings scheme closed on 30 November 2015.

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 2016. 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 2016, of those companies within the Europe sector, the Company was ranked 3rd over one year, 1st over three and 1st 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 2016 (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 2017 (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. 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. Further details of the buy back programme can be found above under the heading 'Premium/Discount to Net Asset Value'.

Regulatory Risk - The Company operates in a complex regulatory environment and faces a number of regulatory risks. A breach of section 1158 of the 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 within the Annual Report.

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.

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 5 male directors.

For and on behalf of the Board

H M Priestley

Chairman

19 September 2016

Statement of Comprehensive Income for the year ended 31 May 2016

		31 May 2016			31 May 2015
	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	-	9,701	9,701	-	98,318	98,318
Foreign exchange (loss)/gain on loan	-	(2,734)	(2,734)	-	4,780	4,780
Other exchange loss	-	(93)	(93)	-	(177)	(177)
Income	14,272	-	14,272	10,523	-	10,523
Total income	14,272	6,874	21,146	10,523	102,921	113,444
Investment management fee	(5,102)	-	(5,102)	(4,069)	-	(4,069)
Investment performance fee	-	(5,314)	(5,314	-	(12,597)	(12,597)
Other expenses	(673)	-	(673)	(749)	(85)	(834)
Total expenses	(5,775)	(5,314)	(11,089)	(4,818)	(12,682)	(17,500)
Net return before finance costs and taxation	8,497	1,560	10,057	5,705	90,239	95,944
Finance costs	(594)	-	(594)	(452)	-	(452)
Return before taxation	7,903	1,560	9,463	5,253	90,239	95,492
Taxation	(458)	-	(458)	(736)	-	(736)
Net return after taxation	7,445	1,560	9,005	4,517	90,239	94,756
Return per Ordinary share	6.84p	1.43p	8.27p	4.80p	95.93p	100.73p

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 2016

	2016	2015
	£'000	£'000
Non current assets
Investments held at fair value through profit or loss	707,402	600,852
Current assets
Other receivables	4,279	3,103
Cash and cash equivalents	6,091	5,669
	10,370	8,772
Total assets	717,772	609,624
Current liabilities	(103,850)	(51,235)
Total assets less current liabilities	613,922	558,389
Capital and reserves
Called up share capital	1,116	1,022
Share premium	193,555	142,988
Special reserve	33,687	33,687
Capital redemption reserve	45	45
Retained earnings	385,519	380,647
Total equity shareholders' funds	613,922	558,389
Net Asset Value per Ordinary share	550.23p	546.27p

Approved by the Board of Directors and authorised for issue on 19 September 2016.

H M Priestley

Chairman

Company Registration Number 4056870

Statement of Changes in Equity for the year ended 31 May 2016

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
Ordinary share issue	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

*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 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.

Cash Flow Statement for the year ended 31 May 2016

	2016	2015
	£'000	£'000
Cash flows from operating activities
Investment income received (gross)	13,655	10,555
Investment management fee paid	(4,897)	(3,786)
Investment performance fee paid	(12,609)	-
Other cash expenses	(827)	(782)
Net cash (outflow)/inflow from operating activities before taxation and interest	(4,678)	5,987
Interest paid	(501)	(473)
Tax paid	(1,001)	(1,034)
Net cash (outflow)/inflow from operating activities	(6,180)	4,480
Cash flows from investing activities
Purchases of investments	(175,142)	(116,673)
Sales of investments	77,033	63,896
Net cash outflow from investing activities	(98,109)	(52,777)
Cash flows from financing activities
Ordinary shares issued	50,661	58,535
Equity dividends paid	(4,133)	(3,175)
Net drawdown/(repayment) of loan	58,276	(6,273)
Net cash inflow from financing activities	104,804	49,087
Increase in cash	515	790
Change in cash and cash equivalents
Cash and cash equivalents at start of year	5,669	5,056
Realised loss on foreign currency	(93)	(177)
Cash and cash equivalents at end of year	6,091	5,669

Notes to the Accounts for the year ended 31 May 2016

1.     Accounting policies

The Accounts comprise the financial results of the Company for the year to 31 May 2016. 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 19 September 2016. 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 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.

An analysis of retained earnings broken down into revenue (distributable) items, and capital items (non-distributable) is given in Note 19. All other operational costs including administration expenses and finance costs (but with the exception of any investment performance fees which are charged to capital) are charged to revenue.

(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.

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 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 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.

(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)   Reserves

Share Capital

This reserve is the nominal value of the shares in issue.

Share Premium

The share premium may be used to pay up unissued shares to be allotted to members credited as fully paid.

Special Reserve

The special reserve may be used to finance the Company's share buy-back facility.

Capital Redemption

The nominal value of ordinary share capital purchased and cancelled is transferred out of called-up share capital and into the capital redemption reserve.

Retained Earnings

Capital reserve

The capital reserve is not available for the payments of dividends. The following are accounted for in this reserve:

-      Gains and losses on the realisation of investments,

-      Changes in fair value of investments held at the year-end,

-      Performance fee relating to capital out-performance and transaction costs,

-      Foreign currency difference.

Revenue Reserve

The revenue profit or loss for the year is taken to or from this reserve.

The revenue reserve may be used to fund the distribution of profits to investors via dividend payments.

(k)  Accounting developments

The following standards, amendments and interpretations have been published by IASB but are not yet effective for year ended 31 May 2016:

International Accounting Standards (IAS/IFRS's)

IFRS 9 Financial Investments Classification and Measurement

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
			2016	2015
			£'000	£'000
Income from investments
Dividends from United Kingdom companies			4,425	3,188
Dividends from overseas companies			9,847	7,335
Total income			14,272	10,523

3.     Earnings per Ordinary share

The return per Ordinary share figure is based on the net profit for the year of £9,005,000 (2015: Profit £94,756,000), and on 108,822,901 (2015: 94,068,185) 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.

	2016	2015
	£'000	£'000
Net revenue profit	7,445	4,517
Net capital profit	1,560	90,239
Net total profit	9,005	94,756
Weighted average number of Ordinary shares in issue during the year	108,822,901	94,068,185
Revenue return per Ordinary share	6.84p	4.80p
Capital return per Ordinary share	1.43p	95.93p
Total return per Ordinary share	8.27p	100.73p

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 £613,922,000 (2015: £558,389,000) and on 111,575,331 (2015: 102,217,681) 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 2015 to 31 May 2016 was £5,102,000 with £1,343,000 outstanding at year end.

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 2016 was £5,314,000 (2015: £12,597,000).

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 2016 (2015: nil).

6.  Contingent liabilities and capital commitments

There were no contingent liabilities or capital commitments outstanding as at 31 May 2016 (2015: 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

19 September 2016

 

END

 

 

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