Half Yearly Report

RNS Number : 9478T

JPMorgan European Smaller Co.

26 November 2013

 

LONDON STOCK EXCHANGE ANNOUNCEMENT

JPMORGAN EUROPEAN SMALLER COMPANIES TRUST PLC

HALF YEAR RESULTS FOR THE SIX MONTHS ENDED

30TH SEPTEMBER 2013

Chairman's Statement

Performance

For the six months ended 30th September 2013, the Company produced a total return on net assets of +17.4%, significantly outperforming the benchmark index, the Euromoney Smaller European Companies (ex UK) Index (formerly known as the HSBC Smaller European Companies (ex UK) Index) in sterling terms by +4.3%. As highlighted in our annual report and accounts, your Board and Investment Managers have been working actively to increase broader awareness of the Company and it is pleasing to see initial rewards for this effort, with the discount on the Company's shares decreasing from 13.0% to 10.5% over this reporting period.  The total return to shareholders was +21.0%.

Longer term performance remains very positive, with a total return on net assets of +348.6% against the benchmark total return of +212.9% over the ten years ended 30th September 2013. In their report, the Investment Managers provide details of the key factors driving performance during the first six months of the Company's financial year.

Revenue and Dividend

As detailed in my Chairman's Statement for the year ended 31st March 2013, the Board's dividend policy is to pay out the vast majority of revenue available each year. However, shareholders are reminded that the Company's objective is to achieve capital growth and management of the portfolio is not constrained to deliver income in any one period. Gross revenue return for the six months to 30th September 2013 was higher than the corresponding period in 2012 at £7.5 million (2012: £6.5 million). The Board has decided to pay an interim dividend of 6.0 pence per share (2012: 6.0 pence), which will be paid on 15th January 2014 to shareholders on the register as at 20th December 2013 (ex-dividend date 18th December 2013).

Tender Offer, Share Buybacks and Discount

During the six months ended 30th September 2013, a total of 570,000 shares were repurchased for cancellation. In addition, as a result of a tender offer for up to 5% of the Company's issued share capital, a total of 1,782,346 shares were successfully tendered and bought in by the Company for cancellation at a price of 1,055.69 pence per share in July 2013. The tender offer met its principal objective of providing a liquidity event to shareholders seeking a full or partial exit from the Company, whilst at the same time enhancing the net asset value for ongoing shareholders by 0.2% during the six months under review. Ongoing shareholders also received a final dividend of 10.0 pence per share in late August. The Company has not bought back any further shares for cancellation since the period end and the Board continues to monitor closely the level of the discount.

Alternative Investment Fund Managers Directive ('AIFMD')

The Board is progressing the implementation of AIFMD, taking advice on the implications for the Company and working closely with JPMorgan. To comply with the requirements of the new regulations, the Board has agreed in principle to appoint JPMorgan as its Manager. A Depositary will also be required to fulfil the newly required role of overseeing the Company's custody and cash management operations.

Outlook

Our Investment Managers are reporting that many of the companies in which they invest are starting to see signs of a recovery in the European economy and they expect earnings recovery to be rapid next year after company cost cutting efforts of the recession years.

Carolan Dobson

Chairman                                                                                                                                                                                           

26th November 2013

Investment Managers' Report

Review

Despite a weak first quarter earnings season, markets pressed ahead on expectations that the European economies were no longer deteriorating. Many macroeconomic leading indicators, such as consumer confidence and purchasing managers indices, suggested that consumption and manufacturing would improve later in the year. In particular, there were green shoots in some of the most depressed economies such as Greece and Spain, indicating that, having regained their competitiveness, the worst of austerity is behind them. By the end of September 2013 the large company MSCI World Europe (ex UK) Index rose by 8.3% in sterling terms. Smaller companies did better still with the benchmark Euromoney Smaller European Companies (ex UK) Index (formerly known as the HSBC Smaller European Companies (ex UK) Index) rising by 13.1%.

Portfolio

The net asset value of the portfolio rose by 17.4% in the first half of the Company's year comfortably outperforming its benchmark index due to positive stock selection and asset allocation. The portfolio's best performing stocks were companies that benefit from improving economies such as the Italian luxury goods internet retailer Yoox, and French automotive suppliers Plastic-Omnium and Faurecia. Companies undergoing heavy restructuring such as Spanish wind turbine manufacturer Gamesa and Danish jewellery company Pandora (the latter no longer in the portfolio) were also amongst our top performers for the period.

Given how well some of the aforementioned had performed, we have taken some profits and reinvested the cash in what we believe will be the next stocks to drive performance. Notably, after a prolonged absence, we have invested once again in Greek companies as the economy is stabilising. Although early days, Jumbo the leading Greek retailer and the Hellenic Exchanges have thus far proven to be successful investments. We have also invested in media companies Modern Times Group in Sweden and (since the half year end) M6-Metropole Television in France as consumer demand is improving across the region. We have also found attractive investments in industries that have experienced a prolonged downturn due to the financial crisis such as textile machinery, on evidence that fundamentals are finally improving.

Due to a timing difference between the selling down of some aforementioned successful investments and the purchasing of new ones gearing, which has been in the mid teens for much of the last two years, temporarily fell to 0.8%. However, as the new purchases have come through it has once again risen and now stands at about 10%.

Outlook

For the first time in several years, we are relieved to report that we have not had to look over our shoulder at an impending Eurozone crisis, but have been able to do what we do best, namely stock picking. On the contrary, there are encouraging signs that the periphery of Europe has made tremendous progress. Ireland, which was the first country to go into a Eurozone rescue programme, is likely to be the first to come out some time next year. It is very pleasing to see that the years of extreme economic hardship should finally be a thing of the past. Other countries like Greece, Portugal and Spain appear to be following in Ireland's footsteps and we hope to be able to report similarly good news in the future.

Companies are generally reporting that the European economy is finally improving and, given that in many cases they have cut costs aggressively, we expect the earnings recovery to be rapid next year. The first year after a recession is usually the best year for earnings growth as companies cost structures lag improving sales. The largest cloud on the horizon is whether central banks will reduce the extremely loose monetary policies of the last few years; but they are likely to err on the side of caution, reticent to bring a nascent recovery to a halt as the Japanese central bank did so many years ago. Finally, we find investor interest in Europe has picked up dramatically and we would expect the recent increased flows into European equities to be sustained into next year.

Jim Campbell

Francesco Conte

Investment Managers                                                                                                                                                                  

26th November 2013

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 and strategy; market; accounting, legal and regulatory; corporate governance and shareholder relations; operational 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 2013.

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, having considered the Company's investment objectives, risk management policies, capital management policies and procedures, nature of the portfolio and expenditure projections, that the Company has adequate resources, an appropriate financial structure and suitable management arrangements in place to continue in operational existence for the foreseeable future. For these reasons, they consider there is reasonable evidence to continue to adopt the going concern basis in preparing the accounts.

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 the Accounting Standards Board's Statement 'Half Yearly 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 2013, as required by the UK Listing Authority Disclosure 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 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                                                                                                                                                                                    

26th November 2013

Income Statement

for the six months ended 30th September 2013

	(Unaudited)			(Unaudited)			(Audited)
	Six months ended			Six months ended			Year ended
	30th September 2013			30th September 2012			31st March 2013
	Revenue	Capital	Total	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Gains/(losses) on investments
held at fair value through
profit or loss	-	54,137	54,137	-	(26,775)	(26,775)	-	40,908	40,908
Net foreign currency (losses)/gains	-	(148)	(148)	-	2,550	2,550	-	(1,276)	(1,276)
Income from investments	7,450	-	7,450	6,388	-	6,388	8,240	-	8,240
Other interest receivable and
similar income	25	-	25	118	-	118	241	-	241
Gross return/(loss)	7,475	53,989	61,464	6,506	(24,225)	(17,719)	8,481	39,632	48,113
Management fee	(601)	(1,403)	(2,004)	(490)	(1,142)	(1,632)	(1,008)	(2,353)	(3,361)
Other administrative expenses	(306)	-	(306)	(250)	-	(250)	(570)	-	(570)
Net return/(loss) on ordinary
activities before finance costs
and taxation	6,568	52,586	59,154	5,766	(25,367)	(19,601)	6,903	37,279	44,182
Finance costs	(115)	(268)	(383)	(94)	(219)	(313)	(197)	(461)	(658)
Net return/(loss) on ordinary
activities before taxation	6,453	52,318	58,771	5,672	(25,586)	(19,914)	6,706	36,818	43,524
Taxation	(384)	-	(384)	(450)	-	(450)	(572)	-	(572)
Net return/(loss) on ordinary
activities after taxation	6,069	52,318	58,387	5,222	(25,586)	(20,364)	6,134	36,818	42,952
Return/(loss) per share (note 4)	17.39p	149.92p	167.31p	13.53p	(66.28)p	(52.75)p	16.47p	98.88p	115.35p

All revenue and capital items in the above statement derive from continuing operations. No operations were acquired or discontinued in the period.

The 'Total' column of this statement is the profit and loss account of the Company and the 'Revenue' and 'Capital' columns represent supplementary information prepared under guidance issued by The Association of Investment Companies. The Total column represents all the information that is required to be disclosed in a Statement of Total Recognised Gains and Losses ('STRGL'). For this reason a STRGL has not been presented.

Reconciliation of Movements in Shareholders' Funds

	Called up		Capital
Six months ended	share	Share	redemption	Capital	Revenue
30th September 2013	capital	premium	reserve	reserves	reserve	Total
(Unaudited)	£'000	£'000	£'000	£'000	£'000	£'000
At 31st March 2013	8,946	1,312	6,690	326,476	5,683	349,107
Repurchase and cancellation of the Company's
own shares	(588)	-	588	(24,420)	-	(24,420)
Net return on ordinary activities	-	-	-	52,318	6,069	58,387
Dividends appropriated in the period	-	-	-	-	(3,378)	(3,378)
At 30th September 2013	8,358	1,312	7,278	354,374	8,374	379,696
	Called up		Capital
Six months ended	share	Share	redemption	Capital	Revenue
30th September 2012	capital	premium	reserve	reserves	reserve	Total
(Unaudited)	£'000	£'000	£'000	£'000	£'000	£'000
At 31st March 2012	10,021	1,312	5,615	319,700	5,651	342,299
Repurchase and cancellation of the Company's
own shares	(1,039)	-	1,039	(28,943)	-	(28,943)
Net (loss)/return on ordinary activities	-	-	-	(25,586)	5,222	(20,364)
Dividends appropriated in the period	-	-	-	-	(3,952)	(3,952)
At 30th September 2012	8,982	1,312	6,654	265,171	6,921	289,040
	Called up		Capital
Year ended	share	Share	redemption	Capital	Revenue
31st March 2013	capital	premium	reserve	reserves	reserve	Total
(Audited)	£'000	£'000	£'000	£'000	£'000	£'000
At 31st March 2012	10,021	1,312	5,615	319,700	5,651	342,299
Repurchase and cancellation of the Company's
own shares	(1,075)	-	1,075	(30,042)	-	(30,042)
Net return on ordinary activities	-	-	-	36,818	6,134	42,952
Dividends appropriated in the year	-	-	-	-	(6,102)	(6,102)
At 31st March 2013	8,946	1,312	6,690	326,476	5,683	349,107

Balance Sheet

at 30th September 2013

	(Unaudited)	(Unaudited)	(Audited)
	30th September 2013	30th September 2012	31st March 2013
	£'000	£'000	£'000
Fixed assets
Investments held at fair value through profit or loss	382,789	299,223	394,223
Investments in liquidity funds held at fair value
through profit or loss	37,657	25,558	13,911
Total investments	420,446	324,781	408,134
Current assets
Debtors	16,423	5,559	7,971
Cash and short term deposits	1,419	7,152	347
Derivative financial instruments: forward currency
contracts held at fair value through profit or loss	2	2	-
	17,844	12,713	8,318
Creditors: amounts falling due within one year	(33,515)	(48,454)	(50,429)
Derivative financial instruments: forward currency
contracts held at fair value through profit or loss	(2)	-	(3)
Net current liabilities	(15,673)	(35,741)	(42,114)
Total assets less current liabilities	404,773	289,040	366,020
Creditors: amounts falling due after more than
one year	(25,077)	-	(16,913)
Net assets	379,696	289,040	349,107
Capital and reserves
Called up share capital	8,358	8,982	8,946
Share premium	1,312	1,312	1,312
Capital redemption reserve	7,278	6,654	6,690
Capital reserves	354,374	265,171	326,476
Revenue reserve	8,374	6,921	5,683
Equity shareholders' funds	379,696	289,040	349,107
Net asset value per share (note 5)	1,135.8p	804.5p	975.7p

Company registration number: 2431143

Cash Flow Statement

for the six months ended 30th September 2013

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	30th September 2013	30th September 2012	31st March 2013
	£'000	£'000	£'000
Net cash inflow from operating activities (note 6)	4,024	4,123	3,033
Net cash outflow from returns on investments
and servicing of finance	(382)	(339)	(712)
Overseas tax recovered	297	84	107
Net cash inflow from capital expenditure
and financial investment	34,125	35,264	17,607
Dividend paid	(3,378)	(3,952)	(6,102)
Net cash outflow from financing	(32,743)	(29,305)	(13,019)
Increase in cash in the period	1,943	5,875	914
Reconciliation of net cash flow to movement in
net debt
Net cash movement	1,943	5,875	914
Net loans drawn down/(repaid) in the period	8,322	-	(17,384)
Exchange movements	(150)	2,549	(1,274)
Movement in net funds in the period	10,115	8,424	(17,744)
Net debt at the beginning of the period	(58,850)	(41,106)	(41,106)
Net debt at the end of the period	(48,735)	(32,682)	(58,850)
Represented by:
Cash and short term deposits and bank overdrafts	1,419	7,152	347
Debt falling due within one year	(25,077)	(39,834)	(42,284)
Debt falling due in more than two years but not
more than five years	(25,077)	-	(16,913)
Net debt at the end of the period	(48,735)	(32,682)	(58,850)

Notes to the Accounts

for the six months ended 30th September 2013

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 2013 are extracted from the latest published accounts of the Company and do not constitute statutory accounts for that year. Those accounts 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 accounts have been prepared in accordance with United Kingdom Generally Accepted Accounting Practice ('UK GAAP') and with the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' issued by the Association of Investment Companies in January 2009.

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

      The accounting policies applied to these half year accounts are consistent with those applied in the accounts for the year ended 31st March 2013.

3.   Dividends

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	30th September 2013	30th September 2012	31st March 2013
	£'000	£'000	£'000
Final dividend in respect of the year ended
31st March 2013 of 10.0p (2012: 11.0p)	3,578	3,952	3,578

      An interim dividend of 6.0p (2012: 6.0p) has been declared in respect of the six months ended 30th September 2013, amounting to £2,006,000.

4.   Return/(loss) per share

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	30th September 2013	30th September 2012	31st March 2013
	£'000	£'000	£'000
Return/(loss) per share is based on the following:
Revenue return	6,069	5,222	6,134
Capital return/(loss)	52,318	(25,586)	36,818
Total return/(loss)	58,387	(20,364)	42,952
Weighted average number of shares in issue	34,898,199	38,601,926	37,234,966
Revenue return per share	17.39p	13.53p	16.47p
Capital return/(loss) per share	149.92p	(66.28)p	98.88p
Total return/(loss) per share	167.31p	(52.75)p	115.35p

5.   Net asset value per share

      The net asset value per share is calculated by dividing shareholders' funds of £379,696,000 (30th September 2012: £289,040,000 and 31st March 2013: £349,107,000) by the number of shares in issue at 30th September 2013 of 33,429,577 (30th September 2012: 35,926,923 and 31st March 2013: 35,781,923).

6.   Reconciliation of total return/(loss) on ordinary activities before finance costs and taxation to net cash inflow from operating activities

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	30th September 2013	30th September 2012	31st March 2013
	£'000	£'000	£'000
Total return/(loss) on ordinary activities before finance
costs and taxation	59,154	(19,601)	44,182
Less capital (return)/loss before finance costs and taxation	(52,586)	25,367	(37,279)
Scrip dividends received as income	(1,415)	(442)	(441)
Decrease/(increase) in accrued income	846	631	(272)
Decrease/(increase) in other debtors	14	(3)	9
(Decrease)/increase in accrued expenses	(32)	(36)	3
Overseas withholding tax	(554)	(651)	(816)
Management fee charged to capital	(1,403)	(1,142)	(2,353)
Net cash inflow from operating activities	4,024	4,123	3,033

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 ASSET MANAGEMENT (UK) LIMITED

ENDS

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

The half year 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.

 

END

 

 

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