Half-year Report

RNS Number : 9884P

JPMorgan European Smaller Co.

24 November 2016

 

LONDON STOCK EXCHANGE ANNOUNCEMENT

JPMORGAN EUROPEAN SMALLER COMPANIES TRUST PLC

UNAUDITED HALF YEAR RESULTS FOR THE SIX MONTHS ENDED

30TH SEPTEMBER 2016

CHAIRMAN'S STATEMENT

I am pleased to present the Company's results for the six months ended 30th September 2016.

Performance

Net asset value total return was +17.7% in the six months to 30th September 2016 compared with the benchmark total return of +16.1% over the same period.

When I wrote to shareholders at the end of May, to report on the year ended 31st March 2016, I noted the future uncertainty surrounding the vote in the UK on EU membership. As we now know the result of that vote was to leave the EU and the subsequent period has proved challenging for European investment managers, with significant share price and currency volatility. This has been no different for your Company's investment managers and the resulting out-performance against the benchmark therefore is to be commended.

Shareholder return was also positive despite the widening of the discount over the period. The share price total return was +10.3% (2015: +0.7%). Discounts in the investment trust sector have widened since the result of the EU referendum and this has been reflected in the widening of your Company's discount over the period. As at 30th September 2016 the Company's discount was 16.4% compared to 10.8% at 31st March 2016.

The main contributor to the Investment Managers' relative performance was stock selection, with asset allocation being a consequence of the bottom-up investment process. Their report set out below reviews the market and provides more detail on performance and the stocks and countries in which the Company is invested.

Revenue and Dividends

Gross revenue return for the six months to 30th September 2016 was higher than the corresponding period in 2015 at £7.9 million (2015: £7.4 million), due mainly to exchange rate movements. The Board has decided to pay an interim dividend of 1.2 pence per share (2015: 1.2 pence) which will be paid on 4th January 2017 to shareholders on the register as at 2nd December 2016 (the ex-dividend date will be 1st December 2016).

Share Repurchases

The Board continues to monitor the level of the discount carefully and seeks to use its ability to repurchase shares to minimise the short term volatility and the absolute level of the discount. No shares were repurchased in the six month period. Subsequent to the period end, on 21st November, the Company repurchased 100,000 shares for cancellation.

The Board

Federico Marescotti stepped down as a Director at the AGM at the end of June and I would like to welcome Marc van Gelder as a new member of the Board. Marc joined at the beginning of August and has extensive European business experience.

Outlook

Currently there are an unusually high number of significant economic and political uncertainties. It is unclear how the Brexit negotiations will progress, what the outcome will be for the many elections due to be held in Europe over the next year and what changes the new administration in the US will deliver. However our Managers report that the companies they invest in continue to enjoy reasonable trading conditions and benefit from their own self-help measures. The Managers remain optimistic for the prospects of the companies they invest in.

Carolan Dobson

Chairman                                                                                                                                23rd November 2016

INVESTMENT MANAGERS' REPORT

Review

Fears that the UK's decision to leave the European Union ('Brexit') in late June would have a similar impact as the Greek debt crisis ('Grexit') resulted in a sharp fall in markets. However, given that the spreads between periphery and core bond yields showed little signs of stress, markets quickly recovered. By the end of the period, despite the volatility in local currency terms markets improved marginally. Due to sterling's sharp devaluation markets rose strongly on a reported basis with the MSCI Europe (ex UK) Index and the benchmark Euromoney Smaller European Companies (ex UK) Index rising by 13.9% and 16.1% respectively.

Portfolio

With a total return of 17.7% over the six months to 30th September 2016, the portfolio outperformed its benchmark largely due to stock selection. Top performers included Swedish cosmetics retailer, Oriflame, as a result of continued high growth in Asia, French furniture retailer, Maisons Du Monde, due to strong operational execution since its IPO in May 2016, and Italian branded stationary retailer, Moleskine, following a bid from Belgium company D'Ieteren. Poor performers in the period included Dutch exchange-traded products liquidity provider, Flow Traders, due to concerns around market share losses, German digital advertising company, Stroeer, as an equity research group raised accounting concerns, and Dutch temporary employment services provider, Brunel International, which suffered from a slower than expected recovery in the oil and gas sector and disruption in the Dutch market caused by a one-off tax change.

Over the six months we continued to diversify away from companies that are dependent on general economic growth. We added turnaround stories including French animal medication supplier, Virbac, Swedish apparel retailer, Kappahl, and Danish incumbent telecom operator, TDC. We also continued to focus on companies benefiting from structurally growing end markets such as French retirement homes operator, Korian, which is benefiting from ageing populations, and Norwegian new challenger bank, Skandiabanken, which can offer attractive products to customers as it is unencumbered by the legacy problems faced by older rivals. We bought Swedish cosmetics retailer, Oriflame, as it is benefiting from improving economic conditions in emerging markets following several difficult years. Finally, purchases of defensives included Italian pharmaceutical and food packaging machinery world leader, IMA, and the French pharmaceutical company, Ipsen, following improving results.

These purchases were financed by a reduction in some of the largest positions including the aforementioned Flow Traders and Stroeer, in addition to Swedish gambling software developer, NetEnt, and Swedish credit management solutions provider, Intrum Justitia. German medical products manufacturer Sartorious AG and French small kitchen appliance manufacturer SEB were sold as they became too big following strong share price outperformance.

The overall portfolio continues to be generally pro-cyclical with Industrial Engineering, Support Services and Software and Computer services being the top three overweight sectors. France, Netherlands and Finland continued to be the countries where we found the greatest number of investment opportunities. As of end of September the portfolio was slightly geared at 2.0%, versus 2.6% net cash at the end of March 2016.

Outlook

There are currently no signs that the UK's decision to leave the European Union has negatively impacted European economies, yet markets remain volatile for several reasons. Perceptions are that the era of global loose monetary policy is coming to an end with a possible interest rate increase in the US in December, the potential end of the ECB's quantitative easing programme in March 2017 and China acting to cool its housing market. The impacts will be felt both on the real economy and stock markets via increasing the risk premia.

Following the result of election in the US we expect political uncertainty to continue with the upcoming Italian referendum on constitutional reform, as well as elections in Austria, the Netherlands, Germany and France over the next twelve months. While these risks should not be exaggerated, it is possible that one or more of these events could lead to a market correction. We would welcome such an opportunity to add to high quality companies that are not dependent on the economic cycle.

Jim Campbell

Francesco Conte

Edward Greaves

Investment Managers                                                                                                             23rd November 2016

INTERIM MANAGEMENT REPORT

The Company is required to make the following disclosures in its half year report:

Principal Risks and Uncertainties

The principal risks and uncertainties faced by the Company have not changed and fall into the following broad categories: investment underperformance and strategy; market and currency; accounting, legal and regulatory; corporate governance and shareholder relations; operational and cyber crime and financial. Information on each of these areas is given in the Business Review within the Annual Report and Accounts for the year ended 31st March 2016.

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 the performance of the Company.

Going Concern

The Directors believe that, having considered the Company's investment objective, risk management policies, capital management policies and procedures, the nature of the portfolio and expenditure and cashflow projections, the Company has adequate resources, an appropriate financial structure and suitable management arrangements in place to continue in operational existence for the foreseeable future. More specifically, they believe that there are no material uncertainties pertaining to the Company that would prevent its ability to continue in such operational existence for at least twelve months from the date of the approval of this half yearly financial report. For these reasons, they consider there is reasonable evidence to continue to adopt the going concern basis in preparing the financial statements.

Directors' Responsibilities

The Board of Directors confirms that, to the best of its knowledge:

(i) the condensed set of financial statements contained within the half yearly financial report has been prepared in accordance with FRS 104 'Interim Financial Reports' and gives a true and fair view of the state of affairs of the Company and of the assets, liabilities, financial position and net return of the Company, as at 30th September 2016, as required by the UK Listing Authority Disclosure Guidance and Transparency Rules 4.2.4R; and

(ii)     the interim management report includes a fair review of the information required by 4.2.7R and 4.2.8R of the UK Listing Authority Disclosure Guidance and Transparency Rules.

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 the 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.

For and on behalf of the Board

Carolan Dobson

Chairman                                                                                                                                23rd November 2016

STATEMENT OF COMPREHENSIVE INCOME

FOR THE SIX MONTHS ENDED 30TH SEPTEMBER 2016

	(Unaudited)			(Unaudited)			(Audited)
	Six months ended			Six months ended			Year ended
	30th September 2016			30th September 2015			31st March 2016
	Revenue	Capital	Total	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Gains on investments held at
fair value through profit
or loss	-	81,875	81,875	-	7,214	7,214	-	69,936	69,936
Net foreign currency
gains/(losses)	-	1,144	1,144	-	(1,190)	(1,190)	-	(1,191)	(1,191)
Income from investments	7,884	-	7,884	7,352	-	7,352	8,357	-	8,357
Interest receivable and
similar income	33	-	33	69	-	69	117	-	117
Gross return	7,917	83,019	90,936	7,421	6,024	13,445	8,474	68,745	77,219
Management fee	(772)	(1,801)	(2,573)	(648)	(1,512)	(2,160)	(1,345)	(3,139)	(4,484)
Other administrative expenses	(450)	-	(450)	(341)	-	(341)	(818)	-	(818)
Net return on ordinary
activities before finance
costs and taxation	6,695	81,218	87,913	6,432	4,512	10,944	6,311	65,606	71,917
Finance costs	(120)	(279)	(399)	(122)	(284)	(406)	(240)	(560)	(800)
Net return on ordinary
activities before taxation	6,575	80,939	87,514	6,310	4,228	10,538	6,071	65,046	71,117
Taxation	(402)	-	(402)	(354)	-	(354)	(339)	-	(339)
Net return on ordinary
activities after taxation	6,173	80,939	87,112	5,956	4,228	10,184	5,732	65,046	70,778
Return per share (note 4)	3.85p	50.54p	54.39p	3.72p	2.64p	6.36p	3.58p	40.62p	44.20p

STATEMENT OF CHANGES IN EQUITY

FOR THE SIX MONTHS ENDED 30TH SEPTEMBER 2016

	Called up		Capital
	share	Share	redemption	Capital	Revenue
	capital	premium	reserve	reserves	reserve	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Six months ended 30th September 2016 (Unaudited)
At 31st March 2016	8,008	1,312	7,628	471,545	6,887	495,380
Net return on ordinary activities	-	-	-	80,939	6,173	87,112
Dividend paid in the period	-	-	-	-	(3,203)	(3,203)
At 30th September 2016	8,008	1,312	7,628	552,484	9,857	579,289
Six months ended 30th September 2015 (Unaudited)
At 31st March 2015	8,008	1,312	7,628	406,499	6,280	429,727
Net return on ordinary activities	-	-	-	4,228	5,956	10,184
Dividend paid in the period	-	-	-	-	(3,203)	(3,203)
At 30th September 2015	8,008	1,312	7,628	410,727	9,033	436,708
Year ended 31st March 2016 (Audited)
At 31st March 2015	8,008	1,312	7,628	406,499	6,280	429,727
Net return on ordinary activities	-	-	-	65,046	5,732	70,778
Dividends paid in the year	-	-	-	-	(5,125)	(5,125)
At 31st March 2016	8,008	1,312	7,628	471,545	6,887	495,380

STATEMENT OF FINANCIAL POSITION AT 30TH SEPTEMBER 2016

	(Unaudited)	(Unaudited)	(Audited)
	30th September 2016	30th September 2015	31st March 2016
	£'000	£'000	£'000
Fixed assets
Investments held at fair value through profit
or loss	590,937	438,479	482,590
Current assets
Derivative financial instruments	4	-	1
Debtors	2,877	6,662	2,889
Cash and cash equivalents1	40,776	57,567	53,392
	43,657	64,229	56,282
Current liabilities
Creditors: amounts falling due within one year	(55,301)	(10,728)	(43,492)
Derivative financial liabilities	(4)	(3)	-
Net current (liabilities)/assets	(11,648)	53,498	12,790
Total assets less current liabilities	579,289	491,977	495,380
Creditors: amounts falling due after more than
one year	-	(55,269)	-
Net assets	579,289	436,708	495,380
Capital and reserves
Called up share capital	8,008	8,008	8,008
Share premium	1,312	1,312	1,312
Capital redemption reserve	7,628	7,628	7,628
Capital reserves	552,484	410,727	471,545
Revenue reserve	9,857	9,033	6,887
Total equity shareholders' funds	579,289	436,708	495,380
Net asset value per share (note 5)	361.7p	272.7p	309.3p

¹ This line item combines the two lines of 'Investments in liquidity funds held at fair value through profit or loss' and' Cash and short term deposits' in the financial statements for the period ended 30th September 2015 into one. FRS 102, liquidity funds are considered cash equivalents as they are held for cash management purposes.

STATEMENT OF CASH FLOWS FOR THE SIX MONTHS ENDED 30TH SEPTEMBER 2016

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	30th September 2016	30th September 2015	31st March 2016
	£'000	£'000	£'000
Cash inflow/(outflow) from operations before
dividends and interest (note 6)	1,626	(2,064)	(2,578)
Dividends received	6,607	5,953	6,497
Interest received	-	-	9
Overseas tax recovered	173	117	249
Interest paid	(397)	(402)	(769)
Net cash inflow from operating activities	8,009	3,604	3,408
Purchases of investments and derivatives	(379,646)	(478,324)	(881,746)
Sales of investments and derivatives	362,106	513,898	933,115
Settlement of forward currency contracts	128	(49)	(62)
Net cash (outflow)/inflow from investing activities	(17,412)	35,525	51,307
Dividends paid	(3,203)	(3,203)	(5,125)
Repayment of bank loans	-	(18,281)	(7,520)
Drawdown of bank loans	-	28,622	-
Net cash (outflow)/inflow from financing activities	(3,203)	7,138	(12,645)
(Decrease)/increase in cash and cash equivalents	(12,606)	46,267	42,070
Cash and cash equivalents at start of period	53,392	11,292	11,292
Exchange movements	(10)	8	30
Cash and cash equivalents at end of period	40,776	57,567	53,392
(Decrease)/increase in cash and cash equivalents	(12,606)	46,267	42,070
Cash and cash equivalents consist of:
Cash and short term deposits	267	16,081	6,248
Cash held in JPMorgan Euro Liquidity Fund	40,509	41,486	47,144
	40,776	57,567	53,392

NOTES TO THE FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED 30TH SEPTEMBER 2016

1.  Financial statements

The information contained within the financial statements in this half year report has not been audited or reviewed by the Company's auditors.

The figures and financial information for the year ended 31st March 2016 are extracted from the latest published financial statements of the Company and do not constitute statutory accounts for that year. Those financial statements have been delivered to the Registrar of Companies and included the report of the auditors which was unqualified and did not contain a statement under either section 498(2) or 498(3) of the Companies Act 2006.

2.  Accounting policies

The financial statements are prepared 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 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.

FRS 104, 'Interim Financial Reporting', issued by the Financial Reporting Council ('FRC') in March 2015 has been applied in preparing this condensed set of financial statements for the six months ended 30th September 2016.

In March 2016, the FRC published amendments to FRS 102 concerning fair value hierarchy disclosures. These amendments are effective for accounting periods beginning on or after 1st January 2017. The Company has elected to adopt these amendments early in these interim financial statements. Full disclosure is given in note 7 of the Half Year Report.

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

The accounting policies applied to this condensed set of financial statements are consistent with those applied in the financial statements for the year ended 31st March 2016.

3.  Dividends paid¹

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	30th September 2016	30th September 2015	31st March 2016
	£'000	£'000	£'000
2016 final dividend of 2.0p (2015: 2.0p)	3,203	3,203	3,203
2016 interim dividend of 1.2p (2015: 1.2p)	-	-	1,922
Total dividends paid in the period/year	3,203	3,203	5,125

¹     All dividends paid in the period have been funded from the Revenue Reserve.

An interim dividend of 1.2p (2015: 1.2p) has been declared in respect of the six months ended 30th September 2016, amounting to £1,922,000.

4.  Return per share

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	30th September 2016	30th September 2015	31st March 2016
	£'000	£'000	£'000
Return per share is based on the following:
Revenue return	6,173	5,956	5,732
Capital return	80,939	4,228	65,046
Total return	87,112	10,184	70,778
Weighted average number of shares in issue	160,147,885	160,147,885	160,147,885
Revenue return per share	3.85p	3.72p	3.58p
Capital return per share	50.54p	2.64p	40.62p
Total return per share	54.39p	6.36p	44.20p

5. Net asset value per share

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	30th September 2016	30th September 2015	31st March 2016
	£'000	£'000	£'000
Net assets (£'000)	579,289	436,708	495,380
Number of shares in issue	160,147,885	160,147,885	160,147,885
Net asset value per share	361.7p	272.7p	309.3p

For further information, please contact:

Jonathan Latter

For and on behalf of

JPMorgan Funds Limited, Secretary 020 7742 4000

Neither the contents of the Company's website nor the contents of any website accessible from hyperlinks on the Company's website (or any other website) is incorporated into, or forms part of, this announcement.

JPMORGAN FUNDS LIMITED

ENDS

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

The half yearly report will also 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.

 

END

 

 

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