Half Yearly Report

RNS Number : 4798X

Jupiter European Opps. Trust PLC

21 February 2017

 

Jupiter European Opportunities Trust PLC

Half Yearly Financial Report for the six months to 30 November 2016 (unaudited)

Financial Highlights

Capital Performance

	30 November 2016	31 May 2016	% change
Total assets less current liabilities (£'000)	619,154	613,922	+0.9

Ordinary Share Performance

	30 November 2016	31 May 2016	% change
Net asset value (pence)	554.92	550.23	+0.9
Net asset value total return (pence)	560.42	554.03	+1.2
Middle market price (pence)	523.75	530.00	-1.2
FTSE World Europe ex UK Total Return Index*	1,083.76	977.23	+10.90
Discount to net asset value (%)	(5.6)	(3.7)	-
Ongoing charges figure (%)	1.10	1.08	-

*   This document contains information based on the FTSE World Europe ex UK Total Return Index. 'FTSE®' is a trade mark owned by the London Stock Exchange Plc 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. 

Performance since launch

			Year-
			on-year
		Net Asset	change in	Year-
	Total 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
30 November 2016	619,154	554.92	+0.9	+10.9

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

Chairman's Statement

Over the six months to 30 November 2016 the Net Asset Value per share of your Company rose by 1.2 per cent. This performance was behind the return on the Company's benchmark, the FTSE World Europe ex UK Total Return Index, which increased by 10.9 per cent. over the same period.

Since the end of November 2016 the Net Asset Value per share has increased by 5.8 per cent. to 592.83 pence (as at 31 January 2017), which compares with a return of 7.7 per cent. for the benchmark over the same period.

The background to your Company's recent underperformance is considered in depth by our portfolio manager, Alexander Darwall, in his Investment Adviser's report below and I will not seek to cover the same ground here except to observe that your Company has experienced similar periods of underperformance in earlier investment cycles. Nevertheless, it is pertinent to note that the return on the net asset value per share of your Company has significantly outperformed the Company's benchmark over three and five years. Since the Company's launch in November 2000 the total return on the net asset value per share, with dividends reinvested on their payment dates, has been 603.7 per cent. (as at 30 November 2016), which compares with a total return of 120.0 per cent. by the Company's benchmark over the same period.

Gearing

At the end of the period under review the gearing level on the Company's investment portfolio had increased to 15 per cent.

Our portfolio manager tends to increase gearing at times of perceived low valuations, while reducing it as markets recover. This approach has added sustained value over the course of your Company's history and we continue to encourage the portfolio manager to consider the use of gearing as a tactical tool to improve returns.

Outlook

All companies in our investment universe have to face the challenges arising from technological advances, changing fashion, the rising tide of regulation, and other developments too numerous to mention. Some will adapt successfully, and their shareholders will be amply rewarded for backing them. Others, lacking the necessary vision to override such challenges, will fail. Your manager seeks to identify successful managements, in a variety of different spheres, ahead of the majority of investors. Success is not guaranteed; but the long term record speaks for itself.

Hugh Priestley

Chairman

21 February 2017

Investment Adviser's Review

Performance was poor in the period under review. Whilst the FTSE World Europe ex UK Total Return Index, your Company's benchmark, rose by 10.9 per cent., Sterling adjusted, the Net Asset Value of the Company's Ordinary shares returned 1.2 per cent. during the six months to 30 November 2016. The Company's total borrowings rose during the period under review to £106.4m at 30 November, representing gearing of 15 per cent.

The FTSE World Index was up by 20.8 per cent., Sterling adjusted, a better performance than Europe largely because America's S&P 500 Index was up 23.1 per cent. Other markets advanced strongly. The MSCI Latin America Index was 34.1 per cent. higher; the MSCI AC Asia ex-Japan Index was up by 25.8 per cent.; and the Japanese Nikkei 225 Index advanced by 20.8 per cent.

Whilst the obvious explanation for the relatively disappointing performance of the European equity markets is political events - the European Union (EU) crisis and the perceived threat of the new US Administration - the real explanation lies in Europe's economic policies. The core of the policy is Quantitative Easing, a cheap money policy. The European Central Bank's (ECB) main refinancing rate was reduced to 0 per cent. early in 2016. It is questionable whether this, together with a marked reluctance to reform the labour markets, is a successful policy. Growth rates remain low in Europe. The International Monetary Fund's latest forecasts (October 2016) are for 1.9 per cent. growth in the EU in 2016 and 1.7 per cent. in 2017; they forecast 3.1 per cent. and 3.4 per cent. world growth in 2016 and 2017 respectively. Clearly Europe is falling behind. Corporate borrowing growth has been moderate as companies are reluctant to commit more capital in Europe. As far as the banks are concerned there is a further challenge. More companies are going directly to the capital markets for funding, disintermediating the banks.

The macro backdrop neither explains nor excuses investment performance. Sector weightings, the underweight positions in oil and gas, basic materials and to a lesser extent financials all penalised performance and partly explain the outcome. But as always stock selection is the key. We aim to identify companies that should benefit from 'super-macro' drivers: regulatory changes, technology developments, changes in consumer or customer behaviour, or a shifting competitive landscape. We seek evidence that these drivers have indeed started to unlock multi-year, 'micro' opportunities for a given company. When we are correct these drivers can override the impact of macro factors. Equally, where we suffer reverses it is usually because our analysis of these drivers was mistaken.

Although the list of 'winners' is an eclectic one with a huge diversity of activities, we can identify which of the drivers explains success. Thus Marine Harvest, the largest salmon farming company in the world, is clearly a beneficiary of changing consumer habits, in this case increasing consumption of salmon in the West; BioMerieux, a French diagnostics company, is enjoying a technological advantage over its competitors; and RELX, the Anglo-Dutch provider of information and risk analytics, benefits from its use of digital technology and regulatory changes. Amadeus, another 'winner', is using its industry leading technology in airline bookings to develop in the hotel booking segment.

Of the underperforming stocks there is a distinction to be made between those where we have concerns and those where we don't. The biggest single negative impact was NovoNordisk: we are concerned. Our confidence in robust US pricing for their insulin products was misplaced. The shock of NovoNordisk's near term challenges has caused us to reconsider our investment. We have concluded that there are many reasons why we believe that the company has good prospects: the development of a new class of drug to treat diabetes, steady demand growth, and scope for innovation and differentiation.

For these and other reasons we have retained a significant position. Ingenico and Novozymes also detracted significantly from performance. The former, a world leader in the electronic payments business, has suffered from a slowdown in growth in the US. We consider their problems to be temporary rather than structural. In fact we believe that new opportunities for Ingenico present themselves in countries like India where the authorities are encouraging electronic money transactions. We have therefore maintained our investment. The growth rate at Novozymes has declined. The company's prospects appear to be to a certain extent dependent on energy prices. We are reviewing this position. Amongst the other notable underperformers were Grenke and ALK Abello. Neither of these gives us cause for concern. Both companies continue to generate good profits growth and we remain encouraged by their prospects. Inmarsat was another disappointing performer. In both its maritime and aviation operations the news flow has as yet failed to justify management's bullish assertions. The coming months are critical in seeing whether or not this optimism is well founded.

Of the outright sales, ARM Holdings was sold following an offer to purchase the company. Leonteq too was sold. Only a 1.4 per cent. position at peak this was sold as we lost confidence in the management's ability to grow the business. Autoliv, another small holding, was sold as we considered that there were better ways to profit from the substantial innovation in the automotive sector. Instead we initiated a position in Umicore, a global materials technology and recycling group. Its rechargeable battery materials put it in a leading place to benefit from the development of electrification of cars. This was one of only a few new positions and none was big. The largest new investment was that of Edenred, constituting barely 1 per cent. of the portfolio at the period end. Edenred is the world leader in prepaid corporate services. These services include government funded benefits and corporate expense management mainly in Europe and Brazil. Under new management we consider that the company will extend its reach, benefitting from digital technology. We added to existing holdings in Syngenta (because there was substantial upside assuming that the bid goes through as agreed). Of particular note was the substantial addition to the holding in Carnival. A good industry structure combined with growing demand for cruising, especially in China, should lead to healthy profits growth.

The political and other macro events in 2016 presage great changes. Further upheavals in Europe can reasonably be expected in 2017. Yet we do not anticipate what those changes will be. It is too soon to tell. There will be challenges and opportunities. Our strategy remains entirely consistent, focusing on individual company opportunities which can prosper in a range of macro-economic scenarios. Correctly identifying 'winners' from the range of 'drivers', as described above, should shape prospects for your Company more than macro vicissitudes. In any case, the broad geographic exposure of 'our' companies operating across the world mitigates much of the regional macro risk. We remain confident that plenty of good investment opportunities exist and that our process for identifying such opportunities is an appropriate one.

Alexander Darwall

Fund Manager

Jupiter Asset Management Limited

21 February 2017

Investment Portfolio as at 30 November 2016

		30 November 2016		31 May 2016
		Market	Percentage	Market	Percentage
		value	of	value	of
Company	Country of Listing	£'000	portfolio	£'000	portfolio
Syngenta	Switzerland	63,813	8.8	54,524	7.7
Wirecard	Germany	57,368	7.9	46,812	6.6
RELX	Netherlands	54,872	7.6	48,733	6.9
Provident Financial	UK	50,978	7.0	48,015	6.8
Novo Nordisk	Denmark	47,682	6.6	62,788	8.9
Inmarsat	UK	42,722	5.9	33,427	4.7
Deutsche Börse	Germany	39,652	5.5	31,779	4.5
Amadeus	Spain	37,526	5.2	31,316	4.4
Fresenius	Germany	37,019	5.1	33,418	4.7
Experian	UK	35,124	4.9	30,355	4.3
Carnival	UK	27,061	3.7	6,028	0.9
Grenke	Germany	26,650	3.7	31,659	4.5
Ryanair	Ireland	18,302	2.5	16,732	2.4
Grifols	Spain	16,807	2.3	16,658	2.4
Ingenico	France	16,214	2.2	21,703	3.1
BioMerieux	France	14,652	2.0	6,729	0.9
Novozymes	Denmark	14,254	2.0	45,999	6.6
Coloplast	Denmark	13,238	1.8	18,953	2.7
Royal Caribbean Cruises	Liberia	12,125	1.7	9,944	1.4
Dassault Systemes	France	9,567	1.3	8,511	1.2
Luxottica Group	Italy	8,887	1.2	10,957	1.5
Intrum Justitia	Sweden	8,502	1.2	6,015	0.8
Worldpay Group	UK	7,833	1.1	8,063	1.1
ALK-Abello	Denmark	7,826	1.1	7,666	1.1
Arrow Global Group	UK	7,756	1.1	1,398	0.2
Edenred	France	7,661	1.1	-	-
Gemalto	Netherlands	6,740	0.9	2,310	0.3
Saga	UK	5,362	0.7	8,740	1.2
Lonza Group	Switzerland	4,991	0.7	2,963	0.4
Marine Harvest	Norway	4,694	0.7	14,305	2.0
KWS Saat	Germany	4,588	0.6	4,494	0.6
Essilor International	France	3,349	0.5	4,486	0.6
Umicore	Belgium	2,880	0.4	2,598	0.4
Genus	UK	2,812	0.4	-	-
Ossur	Denmark	1,944	0.3	1,836	0.3
Elementis	UK	1,550	0.2	4,003	0.6
Alfa Laval	Sweden	602	0.1	-	-
Total		723,603	100.0

Cross Holdings in other Investment Companies

As at 30 November 2016 and 31 May 2016, 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 listed closed-ended investment companies.

Interim Management Report

Related Party Transactions

During the first six months of the current financial year no transactions with related parties have taken place which have materially affected the financial position or performance of the Company. Details of related party transactions are contained in the Annual Report and Accounts of the Company for the year ended 31 May 2016.

Principal Risks and Uncertainties

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. Other key risks faced by the Company relate to foreign currency movements, interest rates, liquidity risk, gearing risk, the discount to Net Asset Value, regulatory risk, loss of key personnel, operational and financial risks. A detailed explanation of the Risks and Uncertainties facing the Company can be found in the Annual Report and Accounts for the year ended 31 May 2016.

Going Concern

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

Directors' Responsibility Statement

We, the Directors of Jupiter European Opportunities Trust PLC, confirm to the best of our knowledge that:

(a) The condensed set of financial statements have been prepared in accordance with the Accounting Standards Board's statement 'Half-Yearly Financial Reports' and give a true and fair view of the assets, liabilities, financial position and profit of the Company for the period ended 30 November 2016;

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

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

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

By Order of the Board

H M Priestley

Chairman

21 February 2017

Statement of Comprehensive Income

For the six months to 30 November 2016 (unaudited)

	30 November 2016			30 November 2015
Revenue		Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Gain on investments at fair
value through profit or loss	-	15,048	15,048	-	30,701	30,701
Foreign exchange (loss)/gain on loan	-	(5,676)	(5,676)	-	1,218	1,218
Currency exchange gain/(loss)	-	354	354	-	(108)	(108)
Income	4,703	-	4,703	3,161	-	3,161
Total income	4,703	9,726	14,429	3,161	31,811	34,972
Investment management fee	(2,823)	-	(2,823)	(2,455)	-	(2,455)
Investment performance fee	-	(23)	(23)	-	(8,806)	(8,806)
Other expenses	(316)	-	(316)	(327)	-	(327)
Total expenses	(3,139)	(23)	(3,162)	(2,782)	(8,806)	(11,588)
Net return before finance costs and taxation	1,564	9,703	11,267	379	23,005	23,384
Finance costs	(475)	-	(475)	(286)	-	(286)
Return before taxation	1,089	9,703	10,792	93	23,005	23,098
Taxation	(475)	-	571	198	-	198
Net return after taxation	1,660	9,703	11,363	291	23,005	23,296
Return per Ordinary share	1.49p	8.70p	10.19p	0.27p	21.57p	21.84p

The total column of this statement is the income statement of the Company prepared in accordance with International Financial Reporting Standards (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.

The return after taxation is also the total comprehensive profit for the year.

All income is attributable to the equity holders of Jupiter European Opportunities Trust PLC.

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

Statement of Financial Position

As at 30 November 2016

	30 November	31 May
	2016	2016
	(unaudited)	(audited)
	£'000	£'000
Non current assets
Investments held at fair value through profit or loss	723,603	707,402
Current assets
Other receivables	5,331	4,279
Cash and cash equivalents	4,517	6,091
	9,848	10,370
Total assets	733,451	717,772
Current liabilities
Other payables	(114,297)	(103,850)
Total net assets less current liabilities	619,154	613,922
Capital and reserves
Called up share capital	1,116	1,116
Share premium	193,561	193,555
Special reserve	33,687	33,687
Capital redemption reserve	45	45
Retained earnings	390,745	385,519
Total equity shareholders' funds	619,154	613,922
Net Asset Value per Ordinary share	554.92p	550.23p

Statement of Changes in Equity

For the six months to 30 November 2016

				Capital
	Share	Share	Special	Redemption	Retained
For the six months to	Capital	Premium	Reserve	Earnings	Earnings	Total
30 November 2016 (unaudited)	£'000	£'000	£'000	£'000	£'000	£'000
Balance at 1 June 2016	1,116	193,555	33,687	45	385,519	613,922
Net profit for the period	-	-	-	-	11,363	11,363
Ordinary shares issue	-	6	-	-	-	6
Dividends declared	-	-	-	-	(6,137)	(6,137)
Balance at 30 November 2016	1,116	193,561	33,687	45	390,745	619,154
				Capital
	Share	Share	Special	Redemption	Retained
For the six months to	Capital	Premium	Reserve	Reserve	Earnings	Total
30 November 2015 (unaudited)	£'000	£'000	£'000	£'000	£'000	£'000
Balance at 1 June 2015	1,022	142,988	33,687	45	380,647	558,389
Net profit for the period	-	-	-	-	23,296	23,296
Ordinary shares issue	66	34,683	-	-	-	34,749
Dividends declared and paid *	-	-	-	-	(4,133)	(4,133)
Balance at 30 November 2015	1,088	177,671	33,687	45	399,810	612,301

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

Cash Flow Statement

For the six months to 30 November 2016 (unaudited)

	2016	2015
	£'000	£'000
Cash flows from operating activities
Investment income received (gross)	6,605	4,633
Investment management fee paid	(2,794)	(2,317)
Investment performance fee paid	(5,325)	(12,609)
Other cash expenses	(308)	(307)
Net cash outflow from operating activities before taxation and interest	(1,822)	(10,600)
Interest paid	(418)	(218)
Taxation	262	232
Net cash outflow from operating activities	(1,978)	(10,586)
Cash flows from investing activities
Purchases of investments	(95,078)	(98,961)
Sales of investments	91,298	52,126
Net cash outflow from investing activities	(3,780)	(46,835)
Cash flows from financing activities
Ordinary shares issued	6	34,749
Net drawdown of loan	3,824	24,847
Net cash inflow from financing activities	3,830	59,596
(Decrease)/increase in cash	(1,928)	2,175
Cash and cash equivalents at start of period	6,091	5,669
Realised gain/(loss) on foreign currency	354	(108)
Cash and cash equivalents at end of period	4,517	7,736

Notes to the Financial Statements

1.   Accounting Policies

The Accounts comprise the unaudited financial results of the Company for the period to 30 November 2016. The Accounts are presented in pounds Sterling, as this is the functional currency of the Company.

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.

2.  Gains on investments

	Six months to	Six months to
	30 November 2016	30 November 2015
	£'000	£'000
Net gain realised on sale of investments	28,054	19,196
Movement in unrealised (losses)/gains	(13,006)	11,505
Gains on investments	15,048	30,701

3.   Return per Ordinary share

	Six months to	Six months to
	30 November 2016	30 November 2015
	£'000	£'000
Net revenue profit	1,660	291
Net capital profit	9,703	23,005
Net total profit	11,363	23,296
Weighted average number of Ordinary
shares in issue during the period	111,575,331	106,657,219
Revenue earnings per Ordinary share (p)	1.49	0.27
Capital return per Ordinary share (p)	8.70	21.57
Total return per Ordinary share (p)	10.19	21.84

4.   Net Asset Value per Ordinary share

The Net Asset Value per Ordinary share is based on the net assets attributable to the Ordinary shareholders of £619,154,000 (31 May 2016: £613,922,000) and on 111,575,331 (31 May 2016: 111,575,331) Ordinary shares, being the number of Ordinary shares in issue at the period 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 investment management fees as set out below.

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

The management fee payable to JUTM for the period 1 June 2016 to 30 November 2016 was £2,823,000 (31 May 2016: £5,102,000) with £1,372,000 (31 May 2016: £1,343,000) outstanding at period 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. No performance fee is payable in respect of the period under review.

The Company has invested from time to time in funds managed by Jupiter Investment Management Group Limited or its subsidiaries. There was no such holding as at 30 November 2016 (31 May 2016: Nil). No investment management fee is payable by the Company to Jupiter Asset Management Limited in respect of the Company's holdings in investment trusts, open-ended funds and investment companies in respect of which Jupiter Investment Management Group Limited, or any subsidiary undertaking of Jupiter Investment Management Group Limited, receives fees as investment manager or investment adviser.

A copy of the Half-Yearly Financial Report will shortly be available for download from the Company'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

21 February 2017

 

END

 

 

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