Half Yearly Report

RNS Number : 9689X

JPMorgan European Smaller Co.

25 November 2014

 

LONDON STOCK EXCHANGE ANNOUNCEMENT

JPMORGAN EUROPEAN SMALLER COMPANIES TRUST PLC

UNAUDITED HALF YEAR RESULTS FOR THE SIX MONTHS ENDED

30^TH SEPTEMBER 2014

Chairman's Statement

Performance

The past six months were a difficult period for European markets and also your Company. For the six months ended 30th September 2014, the Company produced a total return on net assets of -16.6%, underperforming the benchmark index, the Euromoney Smaller European Companies (ex UK) Index in sterling terms by 7.1%. The discount on the Company's shares widened from 11.3% to 12.9% over this reporting period. The total return to shareholders was -17.9%.

Longer term performance remains very positive, with a total return on net assets of +262.5% against the benchmark total return of +172.1% over the ten years ended 30th September 2014 (+43.2% versus +36.2% over five years). 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 2014, 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 2014 was slightly higher than the corresponding period in 2013 at £7.6 million (2013: £7.5 million).

The Board has decided to pay an interim dividend of 1.2 pence per share (2013: 6.0 pence; or 1.2 pence adjusted for the stock split), which will be paid on 14th January 2015 to shareholders on the register as at 19th December 2014 (ex‑dividend date 18th December 2014). The reduction in the level of interim dividend compared with last year is due to the stock split detailed below.

Stock Split

Following shareholder approval at the Annual General Meeting held on 8th July 2014, each of the Company's ordinary shares of 25 pence each were sub-divided into five ordinary shares of 5 pence each, effective 23rd July 2014.

Management Fees

The Board has agreed a reduction in the Company's management fees from 1.3% of market capitalisation to 1.0% of net assets. This change will be effective from 1st April 2015.

Alternative Investment Fund Managers Directive ('AIFMD')

As required under AIFMD, with effect from 1st July 2014, the Company appointed JPMorgan Funds Limited as its Alternative Investment Fund Manager under a new investment management agreement. Portfolio management is delegated by JPMorgan Funds Limited to JPMorgan Asset Management (UK) Limited, thus retaining previous portfolio management arrangements. The management fee and notice period arrangements remain unchanged. The Company appointed BNY Mellon Trust & Depositary (UK) Limited to act as the Company's Depositary, a new requirement under AIFMD. JPMorgan Chase Bank, NA remains the Company's Custodian, but as a delegate of the Depositary. JPMorgan Funds Limited was also appointed as Company Secretary to the Company on 1st July 2014.

Outlook

Despite the recent disappointing economic news from Europe, company results are meeting expectations and our Investment Managers report that company management remain positive about their companies' future profit prospects.

Carolan Dobson

Chairman

25th November 2014

Investment Managers' Report

Review

The first six months of the Company's 2014/15 year proved a frustrating time for investors in European equities as the nascent economic recovery began to stall and there was a sharp reversal of the previous twelve months' positive flows into the asset class. There was no shortage of headlines to stoke investor fears: deflation, collapsing oil price, the outbreak of Ebola, turmoil in the Middle East and economic sanctions against Russia. However, it is the last of these which has had the most immediate impact, driving a drop in both exports and industrial production in Germany in August. This prompted the German government to cut its GDP growth outlook for this year from 1.8% to 1.2% and for next year from 2.0% to 1.3%. In response, German bond yields continued to collapse to a new record low, ending the period at just 0.95%. Over the six months to 30th September 2014, the large company MSCI Europe (ex UK) Index declined by 2.3% in sterling terms. Smaller companies suffered most from the market sell-off and the benchmark Euromoney Smaller European Companies (ex UK) Index fell by 9.5%.

Portfolio

Following exceptionally strong absolute and relative returns in the fiscal year to 31st March 2014, the first half of the new year was challenging for the portfolio on both fronts with a decline in the net asset value of 16.6%, 7.1% behind the return of the benchmark index. Whilst there was a small negative contribution from both asset allocation - being underweight defensive sectors, and holding gearing in a falling market, stock selection was the principal detractor. The re-emergent initial public offering market in Europe proved particularly disappointing with new holdings in online travel businesses Edreams Odigeo in Spain and Bravofly Rumbo in Switzerland both issuing significant profit warnings with their debut quarterly results. Italian auto components business Sogefi suffered from its exposure to the slowing Brazilian economy and Dutch construction group Royal Bam experienced cost over-runs on a number of projects.

The major shift in portfolio positioning was a reduction in gearing from 12.6% at the end of March to net cash of 2.5% at the end of September as economic uncertainty and the set‑back in markets in Europe offset the benign messages we have been receiving from corporate management. Sectorally, the biggest shift has been a reduction in the large overweight in engineering following a significant re‑rating and with earnings momentum slowing; disposals included Lindab, Nibe and Trelleborg in Sweden and Jungheinrich and Wacker Neuson in Germany and Bucher Industries in Switzerland. Geographically, Sweden has offered some of the most attractive opportunities and new purchases included online gaming businesses Betsson, Net Entertainment and Unibet, credit management services supplier Intrum Justitia, cash management specialist Loomis and outdoor maintenance equipment producer Husqvarna. The weak oil price has led us to move further underweight in Norway.

Outlook

The good news is that the financial performance of corporate Europe continues to outpace significantly that of sovereign Europe. October Purchasing Managers Indices for the Euro area were encouragingly ahead of expectations, for both services and manufacturing, and the third quarter reporting season has produced the highest share of companies exceeding forecasts in four years, according to Deutsche Bank. Even on reduced expectations, Euro area gross domestic product is forecast to grow by close to 1.0% this year and next whilst in the US growth is expected to accelerate from around 2.0% this year to 3.0% in 2015. Moreover, the October Bank Lending Survey showed that overall credit conditions (supply and demand) for the Euro area are easing at the fastest pace since 2006. The greatest risk, perhaps, is that the negative news headlines become a self-fulfilling prophecy in Europe and that financially flush corporates, and somewhat less flush consumers, hold off investing and spending; with a Euro area interest rate of just 0.05%, the European Central Bank's options for stimulus are becoming more limited.

In spite of the macro background, European earnings have been recovering since the first quarter of 2013 and smaller company earnings have been growing fastest. We continue to find well managed businesses with strong franchises, sound balance sheets, positive operating momentum and attractive valuations in which to invest.

Jim Campbell

Francesco Conte

Investment Managers

25th November 2014

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 going concern 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 2014.

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 2014, 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

25th November 2014

Income Statement

for the six months ended 30th September 2014

	(Unaudited) Six months ended 30th September 2014			(Unaudited) Six months ended 30th September 2013			(Audited) Year ended 31st March 2014
	Revenue	Capital	Total	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
(Losses)/gains on investments held at fair value through profit or loss	-	(78,193)	(78,193)	-	54,137	54,137	-	126,985	126,985
Net foreign currency gains/(losses)	-	3,200	3,200	-	(148)	(148)	-	1,261	1,261
Income from investments	7,478	-	7,478	7,450	-	7,450	7,986	-	7,986
Other interest receivable and similar income	133	-	133	25	-	25	30	-	30
Gross return/(loss)	7,611	(74,993)	(67,382)	7,475	53,989	61,464	8,016	128,246	136,262
Management fee	(697)	(1,625)	(2,322)	(601)	(1,403)	(2,004)	(1,314)	(3,067)	(4,381)
Other administrative expenses	(306)	-	(306)	(306)	-	(306)	(762)	-	(762)
Net return/(loss) on ordinary activities before finance costs and taxation	6,608	(76,618)	(70,010)	6,568	52,586	59,154	5,940	125,179	131,119
Finance costs	(175)	(408)	(583)	(115)	(268)	(383)	(267)	(623)	(890)
Net return/(loss) on ordinary activities before taxation	6,433	(77,026)	(70,593)	6,453	52,318	58,771	5,673	124,556	130,229
Taxation	(751)	-	(751)	(384)	-	(384)	(626)	-	(626)
Net return/(loss) on ordinary activities after taxation	5,682	(77,026)	(71,344)	6,069	52,318	58,387	5,047	124,556	129,603
Return/(loss) per share (note 4)	3.55p	(48.10)p	(44.55)p	3.47p	29.90p	33.37p	2.99p	73.76p	76.75p

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 2014	capital	premium	reserve	reserves	reserve	Total
(Unaudited)	£'000	£'000	£'000	£'000	£'000	£'000
At 31st March 2014	8,008	1,312	7,628	411,139	5,406	433,493
Expenses incurred due to stock split	-	-	-	(16)	-	(16)
Net (loss)/return on ordinary activities	-	-	-	(77,026)	5,682	(71,344)
Dividends appropriated in the period	-	-	-	-	(2,723)	(2,723)
At 30th September 2014	8,008	1,312	7,628	334,097	8,365	359,410
	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
Year ended	share	Share	redemption	Capital	Revenue
31st March 2014	capital	premium	reserve	reserves	reserve	Total
(Audited)	£'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	(938)	-	938	(39,893)	-	(39,893)
Net return on ordinary activities	-	-	-	124,556	5,047	129,603
Dividends appropriated in the year	-	-	-	-	(5,324)	(5,324)
At 31st March 2014	8,008	1,312	7,628	411,139	5,406	433,493

Balance Sheet at 30th September 2014

	(Unaudited)	(Unaudited)	(Audited)
	30th September 2014	30th September 2013	31st March 2014
	£'000	£'000	£'000
Fixed assets
Investments held at fair value through profit or loss	350,686	382,789	487,344
Investments in liquidity funds held at fair value through profit or loss	31,356	37,657	10,003
Total investments	382,042	420,446	497,347
Current assets
Derivative financial instruments	-	2	3
Debtors	9,095	16,423	19,179
Cash and short term deposits	8,792	1,419	5,434
	17,887	17,844	24,616
Creditors: amounts falling due within one year	(1,540)	(33,515)	(47,134)
Derivative financial instruments	(18)	(2)	-
Net current assets/(liabilities)	16,329	(15,673)	(22,518)
Total assets less current liabilities	398,371	404,773	474,829
Creditors: amounts falling due after more than one year	(38,961)	(25,077)	(41,336)
Net assets	359,410	379,696	433,493
Capital and reserves
Called up share capital	8,008	8,358	8,008
Share premium	1,312	1,312	1,312
Capital redemption reserve	7,628	7,278	7,628
Capital reserves	334,097	354,374	411,139
Revenue reserve	8,365	8,374	5,406
Equity shareholders' funds	359,410	379,696	433,493
Net asset value per share (note 5)	224.4p	227.2p	270.7p

Company registration number: 2431143

Cash Flow Statement

for the six months ended 30th September 2014

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	30th September 2014	30th September 2013	31st March 2014
	£'000	£'000	£'000
Net cash inflow from operating activities (note 6)	3,798	4,024	1,491
Net cash outflow from returns on investments and servicing of finance	(580)	(382)	(879)
Overseas tax recovered	223	297	389
Net cash inflow from capital expenditure and financial investment	30,745	34,125	36,957
Dividend paid	(2,723)	(3,378)	(5,324)
Net cash outflow from financing	(27,836)	(32,743)	(27,212)
Increase in cash in the period	3,627	1,943	5,422
Reconciliation of net cash flow to movement in net debt
Net cash movement	3,627	1,943	5,422
Net loans drawn down/(repaid) in the period	27,820	8,322	(12,682)
Exchange movements	3,221	(150)	1,273
Movement in net funds in the period	34,668	10,115	(5,987)
Net debt at the beginning of the period	(64,837)	(58,850)	(58,850)
Net debt at the end of the period	(30,169)	(48,735)	(64,837)
Represented by:
Cash and short term deposits and bank overdrafts	8,792	1,419	5,434
Debt falling due within one year	-	(25,077)	(28,935)
Debt falling due in more than two years but not more than five years	(38,961)	(25,077)	(41,336)
Net debt at the end of the period	(30,169)	(48,735)	(64,837)

Notes to the Accounts

for the six months ended 30th September 2014

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 2014 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 2014.

3.   Dividends

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	30th September 2014	30th September 2013	31st March 2014
	£'000	£'000	£'000
Final dividend in respect of the year ended 31st March 2014 of 8.5p (2013: 10.0p)	2,723	3,378	3,378
Interim dividend in respect of the year ended 31st March 2013 of 6.0p	-	-	1,946
Total dividends paid in the year	2,723	3,378	5,324

An interim dividend of 1.2p (2013: 6.0p) has been declared in respect of the six months ended 30th September 2014, amounting to £1,922,000.

4.   Return/(loss) per share¹

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	30th September 2014	30th September 2013	31st March 2014
	£'000	£'000	£'000
Return/(loss) per share is based on the following:
Revenue return	5,682	6,069	5,047
Capital (loss)/return	(77,026)	52,318	124,556
Total (loss)/return	(71,344)	58,387	129,603
Weighted average number of shares in issue	160,147,885	174,945,995	168,859,770
Revenue return per share	3.55p	3.47p	2.99p
Capital (loss)/return per share	(48.10)p	29.90p	73.76p
Total (loss)/return per share	(44.55)p	33.37p	76.75p

1        Comparative figures for 30th September 2013 and 31st March 2014 have been restated following the stock split of each existing ordinary share of 25 pence into five ordinary shares of 5 pence each, effective 23rd July 2014. Original comparative figures for 30th September 2013 are: 17.39p revenue return per share, 149.92p capital return per share and 167.31p total return per share. Original comparative figures for 31st March 2014 are: 14.94p revenue return per share, 368.82p capital return per share and 383.76p total return per share.

5.   Net asset value per share¹

The net asset value per share is calculated by dividing shareholders' funds of £359,410,000 (30th September 2013: £379,696,000 and 31st March 2014: £433,493,000) by the number of shares in issue at 30th September 2014 of 160,147,885 (30th September 2013: 33,429,577 and 31st March 2014: 32,029,577).

1        Comparative figures for 30th September 2013 and 31st March 2014 have been restated following the stock split of each existing ordinary share of 25 pence into five ordinary shares of 5 pence each, effective 23rd July 2014. Original comparative figures are 1,135.8p net asset value per share as at 30th September 2013 and 1,353.4p net asset value per share as at 31st March 2014.

6.  Reconciliation of total (loss)/return 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 2014	30th September 2013	31st March 2014
	£'000	£'000	£'000
Net (loss)/return on ordinary activities before finance costs and taxation	(70,010)	59,154	131,119
Add capital loss/(return) before finance costs and taxation	76,618	(52,586)	(125,179)
Scrip dividends received as income	-	(1,415)	(1,415)
(Increase)/decrease in accrued income	(56)	846	906
Decrease in other debtors	10	14	1
(Decrease)/increase in accrued expenses	(36)	(32)	24
Overseas withholding tax	(1,103)	(554)	(898)
Management fee charged to capital	(1,625)	(1,403)	(3,067)
Net cash inflow from operating activities	3,798	4,024	1,491

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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