Half-yearly report
Jupiter European Opportunities Trust PLC
Announcement of Unaudited Interim Results for the half year to 30th November 2006
CHAIRMAN'S STATEMENT
Your Company's Net Asset Value per share rose by 12.1 per cent. in the period
under review, comfortably ahead of the 10.0 per cent. return from the FTSE World
Europe ex-UK Total Return Index, our benchmark. At 187.7 pence the Net Asset
Value on 30th November 2006 was just short of double your Company's initial post-
launch value, six years previously, of 94.7p per share. As at 6th February 2007
the Net Asset Value per share had increased to 202.02 pence.
The Company's share price did not quite keep pace with the rising asset value,
resulting in some widening of the discount (the difference between the Net Asset
Value and the share price) to 6.5 per cent. Since the half-year the discount has
narrowed once more and at the time of writing is down to 3.1 per cent. on the
basis of a middle market price of 195.75 pence (as at 6th February 2007).
No shares were bought in by the Company for treasury or cancellation during the
period under review, but we will make full use of this facility as and when
necessary in order to maintain the discount at a reasonable level.
During the period your Company's borrowing arrangements were renegotiated on
more favourable terms and the investment portfolio was geared throughout the
period. Since the period-end your Manager has increased the amount drawn down
under the loan facility to €43.4 million and £5 million (as at 22nd January
2007). Alex Darwall's Manager's review is to be found below.
It is a tribute to Alex, and to his track record of performance, that a vote for
the continuation of your Company was passed in November by an overwhelming
majority of shareholders. Your Board is most grateful to you, our shareholders,
for this vote of confidence, and also to the investment trust team at Jupiter
and to our new brokers, Cenkos Securities PLC, for the hard work which they all
put in. We are now required to ask for your approval of the continuation of the
Company at the Annual General Meeting in 2008 and at every third anniversary of
that AGM thereafter. We will do our best to deserve it.
Equity markets are currently pausing after what, to some commentators, was a
surprisingly impressive performance in 2006. One dog which did not bark was a
recession in the United States; the housing market was hit but appears to be
stabilising, and consumer spending generally held up well. A positive factor
was the almost frenetic level of merger and acquisition activity, financed by
cheap money. Your Company benefited, in the short term, from these developments
although we had to relinquish some investments which, in the fullness of time,
could have proved still more rewarding.
Looking ahead, to quote one Treasury memorandum, `the majority of uncertainties
lie in the future'; we are cautiously optimistic that the select group of
companies which your Manager has identified, shares in which comprise your
Company's portfolio, will demonstrate the robust nature of their business
franchises over the coming months, whatever happens to market levels. In short,
we hope that you will not regret your decision to prolong the life of this
Company in which you in turn are shareholders.
H.M. Priestley
Chairman
14th February 2007
MANAGER'S REVIEW
For the six months to the end of November 2006 your Company's Net Asset Value
per Ordinary share rose by 12.1 per cent. compared with the Company's benchmark
(the FTSE World Europe ex-UK Total Return Index) which increased by 10.0 per
cent. JEOT Securities, the trading subsidiary, made a profit of £284,780.
Equity markets continued to perform well. European equities again outperformed
`the world' (the FTSE World index was up 6.2 per cent.). The European market
hit its highest levels in 5½ years. The antipathy of many asset allocators to
European equities shows a failure to distinguish between the political problems
of Europe and the excellent opportunities that may be found.
There were two interlinked components to the good performance of equities. The
principal one was good earnings growth. The motor behind corporate earnings
growth (and GDP-growth in Europe is above trend for the first time in 5 years)
has been the productivity `story'. If the internet bubble of the late 1990s was
founded on a belief in technology for its own sake, this bull market is based on
the benefits that accrue from the effective application of technologies. The
impact of technology has been amazingly powerful, effectively enfranchising
large parts of the world into the global economy. The second component has been
liquidity. Of course, the productivity improvement is a key factor behind
investor confidence and thereby liquidity. This has led to a slight revaluation
of equity earnings. But it has been much more obvious in the credit markets
where there has been a marked contraction in the spreads payable for corporate
credit risks over low-risk government debt. The effect of this has been to fuel
liquidity, underpinning the boom in mergers and acquisitions (M&A). Private
equity has been to the fore in all this.
This favourable macro background is reflected in the performance of different
sectors. The best performing sector was utilities. An interest rate sensitive
sector, this time it has benefited from narrowing of credit spreads and rising
energy prices. The basic materials sector was driven by commodity prices
reflecting strong growth across the world. The commodities boom that started in
2002 started to fragment. In particular the oil and gas sector underperformed
with the fall in oil prices, a problem exacerbated by the structural problems of
the European oil majors. The worst performing sector was technology. The real
winners are those companies that apply technology well, rather than the
technology companies themselves.
The fund's positive performance was due mainly to strong showings from AB Ports,
Neopost, Euler Hermes, Syngenta, Halfords, and NovoNordisk. In a rising market
the Company's gearing obviously helped returns. We increased borrowings from
@22.2 million at the beginning of the period under review to €36m at the end.
The main drags on performance, in terms of stocks, were Carphone Warehouse,
Eurofins Scientific, DNB, Dassault Systemes and Essilor. Notwithstanding their
disappointing performance we retain confidence in the investment potential of
all of these companies. The more tactical `mistake' was to continue our policy
of investing in high quality, well established companies with strong balance
sheets. Such companies were not, typically, the best performing. On the
contrary: the narrowing of credit spreads was mirrored in the equity markets by
the outperformance of `lower' quality assets, companies with weaker balance
sheets. Nevertheless, we are confident that our preference for better quality
assets and stronger business models will be justified in the medium term.
Turnover in the fund was higher than usual. We `lost' two companies to private
equity, AB Ports (the UK ports owner) and Quick (the Franco Belgian fast food
chain). In neither case did we believe that the price offered was adequate, but
as the vast majority of shareholders accepted the terms offered we were
effectively forced to sell out. Ironically, we sold the position in Techem
before a bid that valued the company well above our estimates. This was a
painful experience. Other sales included that of Ypsomed which was sold as
fundamentals deteriorated; Wienerberger was sold as we were concerned by the
fall in housing starts in the US; Ten Cate was sold as the `story' changed; we
also sold Clarins for the same reason. A number of other holdings were
lightened where valuations were less attractive than in new holdings.
We bought shares in Air France-KLM as we believe it is the best placed airline
to take advantage of the consolidation process in the sector. The other main
new purchase in France was that of Geophysique, the world leader in seismic
equipment and services. This, a notoriously cyclical activity, may now be a
structurally better industry in which to operate; demand looks well assured in
the coming years. And we took advantage of share price weakness to buy, and
subsequently sell, shares in Veolia Environment the French-based environmental
services group. We increased positions in Barry Callebaut. In Germany we took
a small position in Vossloh, the German railway supplies business. As a leader
in a niche area of railway supplies Vossloh is well placed to benefit from the
strong growth in China. We bought shares in Sartorius, a supplier of key
equipment to the biotech industry. We increased holdings of Vopak, the Dutch
oil and chemicals storage company. It is a long term beneficiary of the
increasing need for storage expertise. We bought back a holding in SES Global,
the satellite business, as the valuation became more attractive. A new
investment was made in Munters, the Swedish-based technology company. Its
energy saving technology makes it well positioned. Elsewhere in Scandinavia we
increased the position in NovoNordisk as it reinforced its pre-eminent position
in diabetes care. And we bought back a holding in Nokian Tyres on share price
weakness. Other existing holdings that were reinforced included Euler Hermes
(following good results) and Fimalac, the owner of Fitch, the world's third
largest credit ratings agency. In the UK we bought Halfords, the automotive
parts retailer, Carphone Warehouse, the mobile phone retailer and Carter &
Carter the business services company. These are all well differentiated
business with, we believe, significant and durable advantages.
Investment outlook
The fact that your Company's borrowings currently stand at €43.4 million and £5
million is a mark of our confidence in prospects for investing in Europe. This
confidence is founded on our belief that valuations are reasonable and that
earnings growth looks to be well underpinned by the `productivity story'. The
liquidity in markets looks to be good and there is some reassurance from the
fact that as interest rates have risen in America and Europe (now 3.5 per cent.
in Europe) there is some scope for easing monetary policy if necessary. It is
obvious that, as always, significant challenges remain. But it is our view that
the strength of the secular productivity theme is such that it would survive
negative developments such as a modest widening of credit spreads.
Alex Darwall
Manager
Jupiter Asset Management Limited
14th February 2007
LIST OF TOP TWENTY INVESTMENTS
as at 30th November 2006
Company Country of Listing* Market Value Percentage
£'000 of Portfolio
Novozymes Denmark 13,969 8.0
Numico Netherlands 11,788 6.7
Neopost France 11,642 6.6
Elsevier Netherlands 10,943 6.2
Novo-Nordisk Denmark 9,426 5.4
Euler Hermes France 8,779 5.0
Intertek Group United Kingdom 7,720 4.4
Carphone Warehouse United Kingdom 7,628 4.3
DNB Holdings Norway 6,577 3.8
Halfords Group United Kingdom 5,665 3.2
Dassault Systemes France 5,501 3.1
Johnson Matthey United Kingdom 5,203 3.0
Royal Caribbean Norway 4,992 2.8
Syngenta Switzerland 4,855 2.8
Geophysique France 4,605 2.6
Eurofins Scientific France 4,407 2.5
Fimalac France 3,928 2.2
Vopak Netherlands 3,602 2.0
Essilor International France 3,279 1.9
Carter & Carter United Kingdom 2,931 1.7
_______ ____
137,440 78.2
* The country of listing does not necessarily reflect the geographical location
of the activities of the company concerned.
CROSS HOLDINGS IN OTHER INVESTMENT COMPANIES
The Company had no exposure to the shares of other UK listed investment
companies on 30th November 2006. It is the Company's stated policy that this
exposure should not be permitted to exceed 15 per cent. of total assets.
CONSOLIDATED INCOME STATEMENT
for the six months to 30th November 2006 (unaudited)
Six months to Six months to
30th November 2006 30th November 2005
Revenue Capital Total Revenue Capital Total
return return return return return return
£'000 £'000 £'000 £'000 £'000 £'000
Gains on investments at fair value - 16,115 16,115 - 14,316 14,316
Foreign exchange gains/(losses) on
loan - 364 364 - (97) (97)
Other exchange (losses)/gains - (17) (17) - (29) (29)
______ _____ _____ ______ _____ _____
- 16,462 16,462 - 14,190 14,190
Income 1,288 - 1,288 988 - 988
Dealing profits of subsidiary 256 - 256 167 - 167
Foreign exchange (losses)/gains by
subsidiary (11) - (11) 21 - 21
______ _____ _____ ______ _____ _____
Total income 1,533 16,462 17,995 1,176 14,190 15,366
______ _____ _____ ______ _____ _____
Investment management fee (686) - (686) (574) - (574)
Other expenses (266) - (266) (97) - (97)
Interest payable (528) - (528) (203) - (203)
______ _____ _____ ______ _____ _____
Total expenses (1,480) - (1480) (874) - (874)
______ _____ _____ ______ _____ _____
Net return before taxation 53 16,462 16,515 302 14,190 14,492
Taxation (205) - (205) (129) - (129)
______ _____ _____ ______ _____ _____
Net return after taxation (152) 16,462 16,310 173 14,190 14,363
______ _____ _____ ______ _____ _____
Earnings per Ordinary share (0.19p) 20.41p 20.22p 0.22p 17.59p 17.81p
The total column of this statement is the income statement of the Group,
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. All items in the above statement derive from continuing
operations.
The financial information does not constitute `accounts' as defined in section
240 of the Companies Act 1985.
CONSOLIDATED BALANCE SHEET
as at 30th November 2006 (unaudited)
30 November2006 31st May 2006
(Unaudited) (Audited
£'000 £'000
Non current assets
Investments held at fair value through profit or
loss 175,806 154,390
_______ _______
Current assets
Investments 7,626 3,194
Prepayments and accrued income 169 589
Sales awaiting settlement 1,039 1,223
Taxation recoverable 256 409
Cash and cash equivalents 143 -
_______ _______
9,233 5,415
_______ _______
Total assets 185,039 159,805
_______ _______
Current liabilities
Bank overdraft (302) (4,015)
Bank loan (29,269) -
Interest payable (205) (83)
Accruals (485) (780)
Purchases awaiting settlement (3,376) -
_______ _______
(33,637) (4,878)
_______ _______
Total assets less current liabilities 151,402 154,927
Non current liabilities
Bank loan - (19,835)
_______ _______
Net Assets 151,402 135,092
======= =======
Capital and reserves
Called up share capital 807 807
Share premium 38,843 38,843
Special reserve 37,597 37,597
Redemption reserve 22 22
Retained earnings 74,133 57,823
_______ _______
Total equity 151,402 135,092
======= =======
Net Asset Value per Ordinary share 187.69p 167.47p
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the six months to 30th November 2006 (unaudited)
Share Share Special Redemption Retained
Capital Premium Reserve Reserve Earnings Total
£'000 £'000 £'000 £'000 £'000 £'000
For the six months to 30th November
2006
31st May 2006 807 38,843 37,597 22 57,823 135,092
Net profit for the period - - - - 16,310 16,310
______ _____ _____ ______ _______ _______
Balance at 30th November 2006 807 38,843 37,597 22 74,133 151,402
______ _____ _____ ______ _______ _______
CONSOLIDATED CASH FLOW STATEMENT
for the six months to 30th November 2006 (unaudited)
Six months to 30th Six months to 30th
November 2006 November 2005
£'000 £'000
Cash flows from operating activities
Purchases of investments (47,465) (22,379)
Sales of investments 44,758 22,885
Realised losses on foreign currency (17) (29)
Investment income received 1,248 1,025
Deposit interest received 14 7
Investment management fee paid (993) (785)
Sales less purchases of dealing subsidiary (3,014) (283)
Other cash receipts 245 21
Other cash expenses (260) (1,683)
_______ _______
Cash outflow from operating activities before finance
costs and taxation (5,484) (1,221)
Finance costs (405) (163)
Taxation (52) (94)
_______ _______
Net cash outflow from operating activities (5,941) (1,478)
Financing activities
Short-term loan received 29,245 -
Long-term loan received - 5,070
Long-term loan repaid (19,448) -
_______ _______
Increase in cash 3,856 3,592
_______ _______
Change in cash and cash equivalents 3,856 3,592
Cash and cash equivalents at start of period (4,015) (520)
_______ _______
Cash and cash equivalents at end of period (159) 3,072
_______ _______
Notes to the Financial Statements
1 Accounting Policies
The Consolidated accounts have been prepared in accordance with comprise the
unaudited financial results of the Company and its subsidiary JEOT Securities
Limited for the six months to 30th November 2006. The accounts are presented in
pounds sterling, as this is the functional currency of the Group.
The Consolidated accounts have been prepared in accordance with International
Financial Reporting Standards (IFRS) adopted by the International Accounting
Standards Board (IASB), and interpretations issued by the International
Financial Reporting Interpretations Committee of the IASB (IFRIC).
A summary of the principal accounting policies, all of which have been applied
consistently throughout the period, is set out below:
Revenue, Expenses and Interest Payable
Revenue includes dividends from investments quoted ex-dividend on or before the
balance sheet date. Income on fixed income securities is recognised on a time
apportionment basis according to the period for which these investments are
held. Deposit and other interest receivable, expenses and interest payable are
accounted for on an accruals basis. An analysis of retained earnings broken
down into revenue (distributable) items and capital (non-distributable) items is
given in note 5. In arriving at this breakdown, expenses have been presented as
revenue items except any performance fees payable are allocated wholly to
capital, reflecting the fact that, although they are calculated on a total
return basis, they are expected to be attributable largely, if not wholly, to
capital performance.
Investments
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 income statement. The fair value of listed investments is
based on their quoted bid market price at the balance sheet date without any
deduction for estimated future selling costs. Unquoted investments are valued
by the Directors at the balance sheet date based on dealing prices or
stockbrokers' valuations where available, Net Asset Values or other relevant
information, in accordance with International Private Equity and Venture Capital
valuation guidelines.
2 Gains on Investments
Six months to 30th Six months to 30th
November 2006 November 2005
£'000 £'000
Net gains realised on sale of investments 15,643 7,277
Movement in unrealised gains 472 7,039
________ ________
Gains on investments 16,115 14,316
======== ========
3 Earnings per Ordinary share
The earnings per Ordinary share figure is based on the net gain for the six
months of £16,310,000 (six months to 30th November 2005: £14,363,000) and on
80,664,723 (six months to 30th November 2005: 80,664,723) Ordinary shares,
being the number of Ordinary shares in issue during the period.
The earnings per Ordinary share figure detailed above can be further analysed
between revenue and
capital, as below.
Six months to 30th Six months to 30th November
November 2006 2005
£'000 £,000
Net revenue (loss)/profit (152) 173
Net capital profit 16,462 14,190
________ ________
Net total profit 16,310 14,363
======== ========
Number of Ordinary shares in issue during the
period 80,664,723 80,664,723
pence pence
Revenue earnings per Ordinary share (0.19) 0.22
Capital earnings per Ordinary share 20.41 17.59
________ ________
Total earnings per Ordinary share 20.22 17.81
======== ========
4 Comparative Information
The financial information contained in this interim report does not constitute
statutory accounts as defined in section 240 of the Companies Act 1985. The
financial information for the six months to 30th November 2006 and 30th November
2005 has not been audited.
The information for the year ended 31st May 2006 has been extracted from the
latest published audited financial statements. The audited financial statements
for the year ended 31st May 2006 have been filed with the Registrar of
Companies. The report of the auditors on those accounts contained no
qualification or statement under section 237(2) or (3) of the Companies Act
1985.
5 Retained earnings
The table below shows the movement in the retained earnings analysed between
revenue and capital items.
Revenue Capital Total
£'000 £'000 £'000
At 31st May 2006 1,490 56,333 57,823
Movement during the period:
Net income for the period (152) 16,462 16,310
________ ________ ________
At 30th November 2006 1,338 72,795 74,133
======== ======== ========
6 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 £151,402,000 (31st May 2006: £135,092,000) and on
80,664,723 (31st May 2006: 80,664,723) Ordinary shares, being the number of
Ordinary shares in issue at the period end.
The interim report will be sent to all shareholders and copies may be obtained from
the registered office of the Company at 1 Grosvenor Place, London, SW1X 7JJ.
BY ORDER OF THE BOARD
JUPITER ASSET MANAGEMENT LIMITED
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