Annual Financial Report

RNS Number : 1366B

JPMorgan European Smaller Co.

05 June 2019

 

LONDON STOCK EXCHANGE ANNOUNCEMENT

JPMORGAN EUROPEAN SMALLER COMPANIES TRUST PLC

FINAL RESULTS FOR THE YEAR ENDED
31st MARCH 2019

Legal Entity Identifier: 54930049CEWDI46Y3U28

Information disclosed in accordance with DTR 4.1.3

CHAIRMAN'S STATEMENT

Performance

The year under review proved to be a volatile period for equity investors both in Europe and in global stock markets. Whilst I was able to report a positive return on both the Company's net assets and relative performance to the benchmark index (the Euromoney Smaller European Companies (ex UK) index) in the first half of this year, this positive market return and relative outperformance sharply reversed in the second half of the year. Disappointingly, for the year to 31st March 2019 the Company's net asset total return was -7.5% while the return from the Company's benchmark index was -3.6%. Active management goes through periods of volatility, but the Trust's excellent longer term performance remains intact with the five year total return on net assets rising 56.7% whilst the benchmark total return rose 46.7%.

The Investment Managers' Report below reviews the markets and provides more detail on performance and the stocks in which the Company is invested.

Revenue and Dividends

The Board's dividend policy is to pay out the majority of the revenue available each year. This is set against the Company's objective of maximising capital growth and the investment managers are therefore not constrained to deliver income in any one financial year.

Net revenue return for the year increased to £11.6 million (2018: £9.8 million), reflecting an increase in dividend receipts as well as exchange rate differences. An interim dividend of 1.2 pence per share was paid on 18th January 2019. Subject to shareholder approval at the forthcoming Annual General Meeting, a final dividend of 5.5 pence per share will be paid on 18th July 2019 to shareholders on the register as at the close of business on 14th June 2019 (ex-dividend date 13th June 2019).

Discount Management and Share Repurchases

The discount of the Company's share price to net asset value widened over the year from 7.5% to 12.8% at the year end as Europe remained out of favour with investors. In line with the Board's policy to monitor the level of the discount carefully and seek to use its ability to repurchase shares to minimise the short term volatility and the absolute level of the discount the Board took steps to repurchase shares at a time when the discount widened. 525,000 shares were repurchased between mid November and mid January 2019 at an average discount of 12.7%. No shares have been repurchased since the year end.

Manager Evaluation

During the year, the Management Engagement Committee undertook a formal review of the Manager, covering the investment management, company secretarial, administrative and marketing services provided to the Company. The review took into account the Manager's investment performance record, management processes, investment style, resources and risk control mechanisms. The Board agreed with the Committee's recommendation that the continued appointment of the Manager is in the interests of shareholders as a whole.

Environmental, Social and Governance ('ESG')

While the investment managers have always considered environmental, social and governance ('ESG') issues in their investment process, over the last 12 months it has been rigorously integrated into their investment process so that ESG issues are considered at every stage along the decision making process. Company reporting on ESG issues is at an early shape of development so that the investment managers use their regular company meetings with potential and existing investments to discuss and challenge management on their adherence to best practice.

Gearing

The Board believes that gearing can be beneficial to performance and sets the overall strategic gearing policy and guidelines and reviews these at each Board meeting. Taking into account borrowings, net of cash balances held, the Company ended the year holding approximately 5.2% net cash. Gearing is managed actively and during the year varied between 7.9% geared and 5.2% net cash. Borrowings consisted of a revolving credit facility of €105 million, of which none was drawn down at the year end. Over most time periods this active use of gearing has added considerably to performance.

Change of Auditor

The current auditor firm PricewaterhouseCoopers LLP has audited the Company's financial statements since 1998. An audit tender was undertaken during the year and Ernst & Young LLP has been selected as the new auditor on the basis of the experience demonstrated of the investment trust business and the strength of the audit team. Approval will be put to shareholders at the forthcoming Annual General Meeting.

Board of Directors

It has been an honour to be a Director and subsequently Chairman of the Company for the last nine years, and in line with good corporate governance principles, I will step down as Chairman at the Annual General Meeting. I would like to thank my fellow Directors for their commitment and skill in managing our company and to all the JP Morgan team, particularly the fund managers that have made chairing this company such a pleasure. I am pleased that Marc van Gelder has agreed to replace me. A recruitment process is underway to appoint a new non-executive Director and it is expected that an announcement will be made shortly in relation to the appointment. All Directors, other than myself, will stand for re-appointment at the Annual General Meeting.

Annual General Meeting

The Company's Annual General Meeting will be held at 60 Victoria Embankment, London EC4Y 0JP on Wednesday, 10th July 2019 at 12.00 noon. The Investment Managers will make a presentation covering the past year and give their outlook for the current year. Shareholders are invited to join the Investment Managers and the Board for lunch following the Annual General Meeting when there will be an opportunity for informal questions.

If you have any detailed or technical questions, it would be helpful if you could raise them in advance with the Company Secretary at 60 Victoria Embankment, London EC4Y 0JP or via the 'Ask a Question' link on the Company's website. Shareholders who are unable to attend the Annual General Meeting are encouraged to use their proxy votes.

Outlook

Valuations for European smaller companies are around their long term average and our companies earnings prospects continue to look strong. However globally there are a number of issues such as the trade friction between the US and China, the Brexit negotiations and the sheer length of the economic upturn that warrant caution so our managers are maintaining a prudent stance.

Carolan Dobson

Chairman                                                                                                                                     4th June 2019

INVESTMENT MANAGERS' REPORT

Investment Scope and Process

The objective of the Company is to achieve capital growth from a portfolio of quoted smaller companies in Europe, excluding the United Kingdom. The investment universe is defined at the time of purchase by the countries and market capitalisation range of the constituents of the benchmark index, the Euromoney Smaller European Companies (ex UK) Total Return Index. At the end of March 2019 the index consisted of 1,036 companies with a market value of between £83 million and £5.3 billion across 14 countries. This universe of potential investments is screened using a proprietary multi-factor model, and to these results we apply fundamental analysis.

The investment process is driven by bottom-up stock selection with a focus on identifying market leading growth companies with a catalyst for outperformance. Stock position sizing is determined by investment conviction and trading liquidity. Investments are sold when there is a fundamental deterioration in business prospects or the market capitalisation has significantly outgrown the benchmark index. The Board has set a liquidity range of between 20% cash and 20% gearing within which the Managers may operate. The policy is not to hedge the currency exposure of the portfolio's assets.

While the investment managers have always considered environmental, social and governance ('ESG') issues in their investment process, over the last 12 months it has been rigorously integrated into their investment process so that ESG issues are considered at every stage along the decision making process.

To assess a company's ESG characteristics, the investment managers use a proprietary methodology to rank companies that examines both the exposure to, and performance against, sustainability issues. The Investment managers focus on those issues that are material to a firm's business activities on a company by company basis, using a combination of third-party research and data, in-house proprietary models, fundamental analysis, and information gained from meeting and engaging with company management throughout our investment process.

Market Review

2018 started in ebullient mood as the world celebrated the first synchronised global recovery since the mid-noughties. However, by late summer 2018 the mood became progressively more cautious - US tax cuts risked overheating an already strong US economy, a trade war between the US and China curtailed corporate investment and central banks not only ended quantitative easing ('QE') but in some cases began raising interest rates. Optimism unravelled with fears of a synchronised global slowdown taking hold. In the final quarter of 2018, the Company's benchmark Euromoney Smaller European Companies (ex UK) Total Return Index fell by 16%, peak to trough.

With negative economic data accumulating, the Chinese authorities began aggressive monetary and fiscal easing, which combined with dovish statements by the US Fed Chair about limiting rate rises, reversed the market falls. By the end of the first quarter of 2019, the US S&P 500 index all but recovered the near 20% fall experienced during the final quarter of 2018, making it one of the strongest first quarters on record.

Despite these violent market gyrations, in the twelve months to March 2019, the MSCI Europe (ex UK) Net Return Index rose by a muted 2.2% and the Company's benchmark Euromoney Smaller European Companies (ex UK) Total Return Index fell by 3.6%.

Portfolio Performance

Over the financial year the return on assets of the Company fell by 7.5%, underperforming its benchmark by 3.9%, primarily due to stock selection. While an overweight position in defensive stocks helped mitigate the market weakness of the fourth quarter of 2018, some of our poor stock selections more than outweighed this. Moreover, the overweight position in healthcare had a negative impact in the first quarter of 2019 as markets became increasingly optimistic about the economic outlook.

Top performers over the period included Dutch specialty chemicals distributor, IMCD, as it continued to consolidate its fragmented end markets, generating significant network effect scale benefits, Norwegian recycling and sorting solutions provider, Tomra, due to rising demand for its reverse vending recycling systems as governments attempt to reduce the environmental damage caused by single use plastics. In addition Danish brewer, Royal Unibrew, was a top performer as the company continued its track record of excellent operational execution and accretive bolt-on acquisitions.

Detractors from performance included French IT services provider, Sopra, following execution difficulties in its high margin banking software segment, Dutch agricultural feed supplier, ForFarmers, as a result of raw material price inflation and higher logistics costs, due to the exceptionally hot summer weather in 2018, and Austrian oilfield services provider, Schoeller-Bleckmann, which saw activity in the important US Permian basin depressed due to infrastructure bottlenecks. Another factor for Schoeller-Bleckmann was the sharp fall in the oil price at the end of 2018 which led to reduced capital expenditure expectations generally across the sector.

Set out below is further detail on the performance attribution.

PERFORMANCE ATTRIBUTION

YEAR ENDED 31ST MARCH 2019

	%	%
Contributions to total returns
Benchmark return		-3.6
Asset allocation	0.3
Stock selection	-3.0
Gearing/cash effect	-0.1
Currency effect	-0.1
Investment Managers' added contribution		-2.9
Portfolio return		-6.5
Management fee/other expenses	-1.0
Other effects		-1.0
Return on net assetsA		-7.5
Return to shareholdersA		-12.6

Source: Datastream/JPMAM/Morningstar.

All figures are on a total return basis.

Performance attribution analyses how the Company achieved its recorded performance relative to its benchmark.

^A Alternative Performance Measures ('APM')

Portfolio Positioning

Over the period, Health Care Equipment & Services became the largest sector overweight position. We increased our exposure through purchases including French care home operator, Korian, as the benefits of the company's portfolio repositioning strategy began to feed through to better than expected profitability, and Danish audio solutions provider, GN Store Nord, as new product launches in both the hearing aid and consumer audio divisions supported the momentum in the company's market share growth. Software & Computer Services remained the second largest sector overweight position, although the magnitude of the position relative to the benchmark fell as we took profits in a number of positions.

Through 2018 we financed these purchases by reducing our exposure to companies with more cyclical business models including German companies such as forklift truck manufacturer, Jungheinrich, automotive components supplier, Stabilus, and truck and trailer components supplier, SAF Holland, all due to slowing operational momentum.

As economic leading indicators have been improving into 2019 we have been selectively adding cyclical companies back into the portfolio where valuations have become more attractive following underperformance in 2018. An example is the German automotive supplier, Hella, which is significantly outgrowing its depressed automotive end markets as a result of market share gains of LED lighting - where Hella is a market leader - versus traditional lamps.

The Netherlands remained the largest overweight country position as we added new positions including semiconductor equipment manufacturer, BE Semiconductor, the construction firms BAM, and Volkerwessels. Profits were taken in existing holdings.

Sweden became the second largest overweight country position as we found a number of investment opportunities including AAK, a manufacturer of speciality vegetable oils which is benefitting from the global trend towards healthier eating, Bravida, a commercial building technical installation specialist with strong operational momentum and high free cash flow generation, and Coor, a facility management services supplier which continues to consolidate its fragmented end markets, driving margin expansion through economics of scale.

Spain remained the largest underweight country position, while Germany became the second largest underweight country position because we believe that the country is dominated by more cyclical industrial companies that suffered as the global economic outlook deteriorated. France became the third largest underweight country position, after being the second largest overweight country position at the start of the period, as we sold positions with declining operational momentum including Rubis, a liquid and gas storage company, Remy Cointreau, a premium spirit producer, and Vilmorin, an agricultural seed supplier.

The level of gearing fell from 7.9% geared at the start of the period to 5.2% cash by the end of the period as we reduced gearing due to the uncertain economic environment.

Outlook

European equity markets have made a strong start to 2019 after the weak performance seen in 2018. This has been driven primarily by falling inflation expectations which have reduced the risk of excessive interest rate tightening by the US and by the Chinese economic stimulus which has cemented the view that we could be nearing the bottom of the current economic downturn. Additionally, valuations remain close to their long term averages which we believe are attractive given the continued strong earnings growth outlook for European smaller companies. As such we have reduced our underweight sector positions to industrials and automotive components.

However, we are remaining ungeared as risks remain. Should US economic growth continue to beat expectations it could lead to renewed fears of excessive interest rate rises. Trade war concerns could also resurface between the US and China or even break out between the US and European Union. Finally, the outcome of the UK's vote to leave the European Union remains very uncertain.

On balance, we believe that the balance of risk is to the upside but we prefer to remain prudent at this stage.

Francesco Conte

Edward Greaves

Investment Managers                                                                                                                           4th June 2019

PRINCIPAL RISKS

The Directors confirm that they have carried out a robust assessment of the principal risks facing the Company, including those that would threaten its business model, future performance, solvency or liquidity.

With the assistance of the Manager, the Board has drawn up a risk matrix, which identifies the key risks to the Company. In assessing the risks and how they can be mitigated, the Board has given particular attention to those risks that might threaten the viability of the Company. These key risks fall broadly under the following categories:

•        Investment Underperformance and Strategy: Investment performance could be adversely affected by the loss of one or more of the investment management team. To reduce the likelihood of such an event, the Manager ensures appropriate succession planning and adopts a team-based approach as well as special efforts to retain key personnel.

          An inappropriate investment strategy, for example excessive concentration of investments, asset allocation, the level of gearing or the degree of portfolio risk, may lead to underperformance against the Company's benchmark index and peer companies.

          The Board manages these risks by diversification of investments through its investment restrictions and guidelines which are monitored and reported on by the Manager. JPMF provides the Directors with timely and accurate management information, including performance data and attribution analyses, revenue estimates, liquidity reports and shareholder analyses. The Board monitors the implementation and results of the investment process with the Investment Managers, who attend all Board meetings, and reviews data which show statistical measures of the Company's risk profile. The Board sets strategic guidelines for gearing as well as investments. Once those are agreed, decisions on levels of gearing are delegated to the Investment Managers, whose decisions are subject to challenge by the Board. The Board holds a separate meeting devoted to strategy each year.

          A disproportionate widening of the discount relative to the Company's peers could result in loss of value for shareholders. The Board regularly discusses discount management policy and has set parameters for the Manager and the Company's broker to follow.

•        Market and Currency: Market risk arises from uncertainty about the future prices of the Company's investments. It represents the potential loss that the Company might suffer through holding investments in the face of negative market movements. Investing in smaller companies is inherently more risky and volatile, partly due to the potential lack of liquidity in some shares. The Board discusses these risk factors at each Board meeting and has placed investment restrictions and guidelines to limit these risks.

          The Board considers asset allocation, stock selection and levels of gearing on a regular basis and has set investment restrictions and guidelines which are monitored and reported on by JPMF. The Board monitors the implementation and results of the investment process with the Manager. The majority of the Company's assets, liabilities and income are denominated in Euros rather than in the Company's functional currency of sterling (in which it reports). As a result, movements in the Euro:sterling exchange rate may affect the sterling value of those items. Therefore, there is an inherent risk from these exchange rate movements. The fair value or future cash flows of a financial instrument held by the Company may fluctuate because of changes in market prices. This market risk comprises three elements - currency risk, interest rate risk and other price risk. Information to enable an evaluation of the nature and extent of these three elements of market risk is given in note 22(a) of the Financial Statements, together with details of how the Board manages these risks.

          The Board has considered, and continues to keep under review the political, economic and investment risks to the Company, associated with the UK's decision to leave the European Union and the associated Brexit process. The outcome of the UK's Brexit negotiations with the European Union remain uncertain at the time of writing. Continued lack of clarity as to the Brexit outcome might lead to a reduced or increased demand for the Company's shares as a result of investor sentiment, which may be reflected in a widening or narrowing of the discount.

•        Accounting, Legal and Regulatory: In order to qualify as an investment trust, the Company must comply with Section 1158 of the Corporation Tax Act 2010 ('Section 1158'). Details of the Company's approval are given under 'Business of the Company' in the Annual Report. Were the Company to breach Section 1158, it may lose investment trust status and, as a consequence, gains within the Company's portfolio would be subject to capital gains tax. The Section 1158 qualification criteria are continually monitored by JPMF and the results reported to the Board each month. The Company must also comply with the provisions of the Companies Act 2006 and, since its shares are listed on the London Stock Exchange, the UKLA Listing Rules, the Market Abuse Regulations ('MAR'), Disclosure Guidance and Transparency Rules ('DTRs') and, as an investment trust, the Alternative Investment Fund Managers Directive ('AIFMD'). A breach of the Companies Act could result in the Company and/or the Directors being fined or the subject of criminal proceedings. Breach of the UKLA Listing Rules or DTRs could result in the Company's shares being suspended from listing which in turn would breach Section 1158. Failure of the Manager to comply with the AIFMD could lead to the Manager losing its status as an Alternative Investment Fund Manager ('AIFM') and the Company would then need to change its AIFM. The Board relies on the services of its Company Secretary, the Manager and its professional advisers to ensure compliance with the Companies Act, the UKLA Listing Rules, MAR, DTRs and AIFMD.

•        Operational: Disruption to, or failure of, the Manager's accounting, dealing or payments systems or the Depositary or Custodian's records may prevent accurate reporting and monitoring of the Company's financial position. Under the terms of its agreement, the Depositary has strict liability for the loss or misappropriation of assets held in custody. See note 22 of the Financial Statements for further details on the responsibilities of the Depositary. Details of how the Board monitors the services provided by JPMF and its associates and the key elements designed to provide effective risk management and internal control are included within the Risk Management and Internal Control section of the Corporate Governance Statement in the Annual Report.

          The risk of fraud or other control failures or weaknesses within the Manager or other service providers could result in losses to the Company. The Audit Committee receives independently audited reports on the Managers and other service providers' internal controls, as well as a report from the Manager's Compliance function. The Company's management agreement obliges the Manager to report on the detection of fraud relating to the Company's investments and the Company is afforded protection through its various contracts with suppliers, of which one of the key protections is the Depositary's indemnification for loss or misappropriation of the Company's assets held in custody.

•        Cyber Crime: The threat of cyber attack, in all its guises, is regarded as at least as important as more traditional physical threats to business continuity and security. The Board has received the cyber security policies for its key third party service providers and JPMF has provided assurance to the Directors that the Company benefits directly or indirectly from all elements of JPMorgan's Cyber Security programme. The information technology controls around the physical security of JPMorgan's data centres, security of its networks and security of its trading applications are tested and reported on every six months against the AAF Standard.

•        Financial: The financial risks arising from the Company's financial instruments include market price risk, interest rate risk, liquidity risk and credit risk. Further details are disclosed in note 22 of the Financial Statements.

          Poor control of expenses can lead to an escalation of costs and high ongoing charges. The Board monitors the expenses of the Trust and is provided with detailed financial information.

•        Corporate Governance and Shareholder Relations: Details of the Company's compliance with corporate governance best practice, including information on relations with shareholders, are set out in the Corporate Governance Statement in the Annual Report.

TRANSACTIONS WITH THE MANAGER AND RELATED PARTIES

Details of the management contract are set out in the Directors' Report in the Annual Report. The management fee payable to the Manager for the year was £6,458,000 (2018: £6,437,000) of which £nil (2018: £nil) was outstanding at the year end.

During the year £51,000 (2018: £nil), including VAT, was payable to JPMAM for the administration of savings scheme products, of which £nil (2018: £11,000) was outstanding at the year end.

Included in administration expenses in note 6 of the Annual Report are safe custody fees payable to JPMorgan Chase amounting to £90,000 (2018: £93,000) excluding VAT of which £14,000 (2018: £25,000) was outstanding at the year end.

The Manager may carry out some of its dealing transactions through group subsidiaries. These transactions are carried out at arm's length. The commission payable to JPMorgan Securities Limited for the year was £nil (2018: £26,000) of which £nil (2018: £nil) was outstanding at the year end.

The Company also holds cash in JPMorgan Euro Liquidity Fund, which is managed by JPMF. At the year end, this was valued at £28.3 million (2018: £19.8 million). Interest amounting to £160,000 were payable (2018: £133,000) during the year of which £nil (2018: £nil) was outstanding at the year end. This is included in other administrative expenses in note 6.

Stock lending income amounting to £120,000 (2018: £122,000) were receivable by the Company during the year. JPMAM commissions in respect of such transactions amounted to £21,000 (2018: £21,000).

Handling charges on dealing transactions amounting to £97,000 (2018: £42,000) were payable to JPMorgan Chase during the year of which £10,000 (2018: £9,000) was outstanding at the year end.

At the year end, a bank balance of £266,000 (2018: £2,175,000) was held with JPMorgan Chase Bank N.A. A net amount of interest of £nil (2018: £nil) was receivable by the Company during the year from JPMorgan Chase of which £nil (2018: £nil) was outstanding at the year end.

Full details of Directors' remuneration and shareholdings can be found in the Annual Report.

STATEMENT OF DIRECTORS' RESPONSIBILITIES

The Directors are responsible for preparing the Annual Report and Accounts in accordance with applicable law and regulations.

Company law requires the Directors to prepare financial statements for each financial year. Under that law, the Directors have elected to prepare the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). Under company law the Directors must not approve the financial statements unless they are satisfied that, taken as a whole, the Annual Report and Accounts are fair, balanced and understandable, provide the information necessary for shareholders to assess the Company's position and performance, business model and strategy and that they give a true and fair view of the state of affairs of the Company and of the total return or loss of the Company for that period. In order to provide these confirmations, and in preparing these financial statements, the Directors are required to:

•        select suitable accounting policies and then apply them consistently;

•        make judgements and accounting estimates that are reasonable and prudent;

•        state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements; and

•        prepare the financial statements on a going concern basis unless it is inappropriate to presume that the Company will continue in business

and the Directors confirm that they have done so.

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

The financial statements are published on the www.jpmeuropeansmallercompanies.co.uk website, which is maintained by the Company's Manager. The maintenance and integrity of the website maintained by the Manager is, so far as it relates to the Company, the responsibility of the Manager. The work carried out by the Auditors does not involve consideration of the maintenance and integrity of this website and, accordingly, the Auditors accept no responsibility for any changes that have occurred to the financial statements since they were initially presented on the website. The financial statements are prepared in accordance with UK legislation, which may differ from legislation in other jurisdictions.

Under applicable law and regulations the Directors are also responsible for preparing a Directors' Report, Strategic Report, Statement of Corporate Governance and Directors' Remuneration Report that comply with that law and those regulations.

Each of the Directors, whose names and functions are listed in the Annual Report confirm that, to the best of their knowledge:

•        the financial statements, which have been prepared in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law), give a true and fair view of the assets, liabilities, financial position and return or loss of the Company; and

•        the Strategic Report includes a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that it faces.

The Board confirms that it is satisfied that the Annual Report and Accounts taken as a whole are fair, balanced and understandable and provide the information necessary for shareholders to assess the strategy and business model of the Company.

The Board also confirms that it is satisfied that the Strategic Report and Directors' Report include a fair review of the development and performance of the business, and the position of the Company, together with a description of the principal risks and uncertainties that the Company faces.

For and on behalf of the Board

Carolan Dobson

Chairman

4th June 2019

STATEMENT OF COMPREHENSIVE INCOME

FOR THE YEAR ENDED 31ST MARCH 2019

	2019			2018
	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000
(Losses)/gains on investments held at
fair value through profit or loss	-	(57,332)	(57,332)	-	82,036	82,036
Net foreign currency (losses)/gains	-	(1,194)	(1,194)	-	2,099	2,099
Income from investments	15,717	-	15,717	13,129	-	13,129
Interest receivable and similar income	120	-	120	122	-	122
Gross return/(loss)	15,837	(58,526)	(42,689)	13,251	84,135	97,386
Management fee	(1,938)	(4,520)	(6,458)	(1,931)	(4,506)	(6,437)
Other administrative expenses	(863)	-	(863)	(739)	-	(739)
Net return/(loss) on ordinary activities
before finance costs and taxation	13,036	(63,046)	(50,010)	10,581	79,629	90,210
Finance costs	(183)	(428)	(611)	(153)	(356)	(509)
Net return/(loss) on ordinary activities
before taxation	12,853	(63,474)	(50,621)	10,428	79,273	89,701
Taxation	(1,173)	-	(1,173)	(853)	-	(853)
Net return/(loss) on ordinary activities
after taxation	11,680	(63,474)	(51,794)	9,575	79,273	88,848
Return/(loss) per share (note 2)	7.31p	(39.71)p	(32.40)p	5.98p	49.55p	55.53p

STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 31ST MARCH 2019

	Called up		Capital
	share	Share	redemption	Capital	Revenue
	capital	premium	reserve	reserves	Reserve1	Total
	£'000	£'000	£'000	£'000	£'000	£'000
At 31st March 2017	8,000	1,312	7,636	594,327	9,571	620,846
Net return on ordinary activities	-	-	-	79,273	9,575	88,848
Dividends paid in the year (note 3)	-	-	-	-	(7,519)	(7,519)
At 31st March 2018	8,000	1,312	7,636	673,600	11,627	702,175
Repurchase and cancellation of the
Company's own shares	(26)	-	26	(1,857)	-	(1,857)
Net (loss)/return on ordinary activities	-	-	-	(63,474)	11,680	(51,794)
Dividends paid in the year (note 3)	-	-	-	-	(10,716)	(10,716)
At 31st March 2019	7,974	1,312	7,662	608,269	12,591	637,808

This reservc forms the distributable reserve of the Company and may be used to fund distribution to investors via dividend payments.

STATEMENT OF FINANCIAL POSITION

AT 31ST MARCH 2019

	2019	2018
	£'000	£'000
Fixed assets
Investments held at fair value through profit or loss	604,429	757,861
Current assets
Debtors	7,871	18,186
Cash and cash equivalents	28,596	21,998
	36,467	40,184
Current liabilities
Creditors: amounts falling due within one year	(3,084)	(3,805)
Derivative financial liabilities	(4)	(10)
Net current assets	33,379	36,369
Total assets less current liabilities	637,808	794,230
Creditors: amounts falling due after more than one year	-	(92,055)
Net assets	637,808	702,175
Capital and reserves
Called up share capital	7,974	8,000
Share premium	1,312	1,312
Capital redemption reserve	7,662	7,636
Capital reserves	608,269	673,600
Revenue reserve	12,591	11,627
Total shareholders' funds	637,808	702,175
Net asset value per share (note 4)	400.0p	438.9p

STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED 31ST MARCH 2019

	2019	2018
	£'000	£'000
Net cash outflow from operations before dividends and interest	(6,805)	(3,591)
Dividends received	12,613	12,377
Overseas tax recovered	168	66
Interest paid	(659)	(459)
Net cash inflow from operating activities	5,317	8,393
Purchases of investments and derivatives	(1,035,910)	(597,508)
Sales of investments and derivatives	1,143,506	563,457
Settlement of forward currency contracts	(133)	291
Net cash inflow/(outflow) from investing activities	107,463	(33,760)
Dividends paid	(10,716)	(7,519)
Repurchase and cancellation of the Company's own shares	(1,857)	-
Drawdown of bank loans	66,704	79,613
Repayment of bank loans	(160,313)	(49,015)
Net cash (outflow)/inflow from financing activities	(106,182)	23,079
Increase/(decrease) in cash and cash equivalents	6,598	(2,288)
Cash and cash equivalents at start of year	21,998	24,285
Exchange movements	-	1
Cash and cash equivalents at end of year	28,596	21,998
Decrease in cash and cash equivalents	6,598	(2,288)
Cash and cash equivalents consist of:
Cash and short term deposits	266	2,175
Cash held in JPMorgan Euro Liquidity Fund	28,330	19,823
Total	28,596	21,998

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31ST MARCH 2019

1.       Accounting policies

Basis of accounting

The financial statements are prepared under the historical cost convention, modified to include fixed asset investments at fair value, and in accordance with the Companies Act 2006, United Kingdom Generally Accepted Accounting Practice ('UK GAAP'), including FRS 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland' and with the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' (the 'SORP') issued by the Association of Investment Companies in November 2014, and updated in February 2018.

All of the Company's operations are of a continuing nature.

The financial statements have been prepared on a going concern basis. The disclosures on going concern on page 34 of the Directors' Report form part of these financial statements.

The policies applied in these financial statements are consistent with those applied in the preceding year.

2.       Return/(loss) per share

	2019	2018
	£'000	£'000
Revenue return	11,680	9,575
Capital (loss)/return	(63,474)	79,273
Total (loss)/return	(51,794)	88,848
Weighted average number of shares in issue during the year	159,839,186	159,987,885
Revenue return per share	7.31p	5.98p
Capital (loss)/return per share	(39.71)p	49.55p
Total (loss)/return per share	(32.40)p	55.53p

3.       Dividends

(a)     Dividends paid and proposed

	2019	2018
	£'000	£'000
Dividends paid
2018 final dividend of 5.5p (2017: 3.5p) per share	8,799	5,600
2019 Interim dividend of 1.2p (2018: 1.2p) per share	1,917	1,919
Total dividends paid in the year	10,716	7,519
Dividend proposed
2019 final dividend of 5.5p (2018: 5.5p) per share	8,770	8,799

All dividends paid and declared in the period have been funded from the revenue reserve.

The final dividend has been proposed in respect of the year ended 31st March 2019 and is subject to approval at the forthcoming Annual General Meeting. In accordance with the accounting policy of the Company, this dividend will be reflected in the financial statements for the year ending 31st March 2019.

(b)    Dividends for the purposes of Section 1158 of the Corporation Tax Act 2010 ('Section 1158')

The requirements of Section 1158 are considered on the basis of dividends declared in respect of the financial year, shown below. The revenue available for distribution by way of dividend for the year is £11,680,000 (2018: £9,575,000). The revenue reserve after payment of the final dividend will amount to £8,770,000 (2018: £2,828,000).

	2019	2018
	£'000	£'000
Interim dividend of 1.2p (2018: 1.2p) per share	1,917	1,919
Final dividend of 5.5p (2018: 5.5p) per share	8,770	8,799
	1,917	10,718

4.       Net asset value per share

	2019	2018
Net assets (£'000)	637,808	702,175
Number of shares in issue	159,462,885	159,987,885
Net asset value per share	400.0p	438.9p

JPMORGAN FUNDS LIMITED

4th June 2019

For further information:

Faith Pengelly,

JPMorgan Funds Limited

ENDS

A copy of the annual report will shortly be submitted to the National Storage Mechanism and will be available for inspection at www.morningstar.co.uk/uk/NSM

The annual report will also shortly be available on the Company's website at www.jpmeuropeansmallercompanies.co.uk where up to date information on the Company, including daily NAV and share prices, factsheets and portfolio information can also be found.

JPMORGAN FUNDS LIMITED

 

END

 

 

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