Half-year Report

RNS Number : 6416H

JPMorgan European Grwth & Inc PLC

25 November 2022

 

LONDON STOCK EXCHANGE ANNOUNCEMENT

JPMORGAN EUROPEAN GROWTH & INCOME PLC

UNAUDITED HALF YEAR RESULTS FOR THE SIX MONTHS ENDED
30TH SEPTEMBER 2022

Legal Entity Identifier: 549300D8SPJFHBDGXS57

Information disclosed in accordance with DTR 4.1.

Chairman's Statement

Introduction

This six month reporting period to 30th September 2022 is the Company's first full reporting period under its new simplified single portfolio and single share structure which, as detailed in the Company's annual report, was approved by shareholders in February 2022. Your Board believes the distinctive proposition offers the best of capital growth combined with a resilient income.

During this reporting period the markets that the Company invests in have experienced a turbulent half year period. The devastating conflict in Ukraine and continuing effects of the Covid-19 pandemic have combined to create an increasingly fragile geopolitical situation and negative economic pressures. Global energy prices increased dramatically and supply chain issues added to inflationary pressures across major economies. Central banks have acted to curb inflation by increasing interest rates but against a background of declining consumer confidence and increasing likelihood of a global wide recession.

Performance

Return to shareholders and return on net assets

It is disappointing to report a negative return for the period under review, however the Company outperformed its benchmark by 1.1% in the period under review. The total return to shareholders for the Company's Ordinary shares was -9.7%.

The total return on net assets for the Company's Ordinary shares was -9.4% (debt at par value) and -7.7% (debt at fair value). Both of these returns compare well with the benchmark which recorded a total return in sterling terms of -10.5%. The main reason for the out-performance of the benchmark was strong stock selection.

In their Report on page 11 of the Company's half year report and financial statements, the Investment Managers comment in more detail on some of the factors underlying the performance of the Company, as well as commenting on the economic and market background.

The restructuring has resulted in some of the performance and dividend data for periods prior to this reporting period being calculated on a transitional basis as detailed in various footnotes throughout this report.

Dividends

As detailed in the Company's previous annual report, an aim of the Company's restructuring was to provide shareholders with a predictable dividend income at a level that is consistent and frequent, based on 4% of preceding year NAV payable in July, October, January and March.

In line with the above aim, in respect of the year ending 31st March 2023, the Company has paid the first interim dividend of 1 pence per Ordinary share and declared the second interim dividend of 1 pence per Ordinary share. Between the end of this six month reporting period and the release of this report, the Company's Board declared a third interim dividend of 1 pence per Ordinary share. The Board is expecting to declare the fourth interim dividend in February 2023.

Gearing

There has been no change in the Investment Manager's permitted gearing range, as previously set by the Board, of between 10% net cash to 20% geared. At 30th September 2022 the Company was 3.2% geared (31st March 2022: 2.7%).

Discounts, Share Issuance and Repurchase

During the period under review, discounts across the Investment Trust sector have widened indiscriminately and the sector in which your Company operates has not been immune. The Board will continue to address imbalances in the supply of and demand for the Company's shares. The Board does not wish to see the discount widen beyond 10% under normal market conditions (using the cum-income NAV with debt at fair) on an ongoing basis. The precise level and timing of repurchases through an active buy back of shares is dependent on a range of factors including the prevailing market conditions. In the period under review, 300,000 Ordinary shares were bought back for cancellation and 1,164,567 Ordinary shares were bought into Treasury. From 1st October 2022 to 23rd November 2022, 411,042 Ordinary shares were bought into Treasury. No Ordinary shares were issued.

The Company's Ordinary share discount as at 30th September 2022 was 16.0%. The average discount of a peer group of six companies as at the same date was 13.1%. On 23rd November, 2022, the Company's Ordinary share discount was 10.4%, which compares to the average discount of the same peer group of 8.3% as some differentiation between investment opportunities is occurring.

Board of Directors

As this is my first Chairman's Statement, I would like to thank the Board for deciding to appoint me as the Chairman on the retirement of Josephine Dixon, in line with the Board's succession plan. I very much look forward to continuing my predecessor's skilful leadership of the Company's Board.

Outlook

The general market continues to be buffeted by significant challenges. The duration of inflationary pressures is uncertain despite the reduction in energy prices in recent months. The extent of interest rate rises by the European Central Bank, along with counterparts elsewhere in the world leaves commentators unclear as to the impact on consumer confidence and the potential severity of a looming global recession exacerbated by supply chain issues. We hope to see an easing in the tragic events taking place in Ukraine but it seems likely that the future will offer much uncertainty and continued volatility in asset markets.

Despite these challenges, your Board has confidence that our fund managers have the requisite experience to navigate such a tricky environment by continuing to stick to a proven investment process. The new structure and objective of the Company is now clear and provides a good basis for shareholders to maintain a core long term holding in European equities whilst providing an enhanced income. Together that provides some assurance to shareholders in these uncertain times.

Rita Dhut

Chairman

24th November 2022

INVESTMENT MANAGERS' REPORT

Market Background

Continental European equity markets fell just over 10% in the six months to 30th September 2022 as inflation rates, both in the US and Europe, surged to the highest levels for forty years. Central Banks retreated from their view that inflation was transitory and started to hike aggressively, particularly in the US. High food and energy prices, both exacerbated by the Russian invasion of Ukraine, have led to a collapse in consumer confidence despite the ongoing strength in the labour market. Coupled with ongoing supply chain issues especially in semiconductor heavy sectors such as car production and China's zero tolerance approach to Covid-19, the market increasingly started to worry that Central Banks would tip economies into recession as they tightened monetary policy.

By mid-summer signs of economic weakness, for example falling PMIs, led to lower bond yields and investors started to wonder if inflation had peaked. The subsequent rally was short lived as Jay Powell, Chairman of the Federal Reserve, explicitly pushed back on the idea that the Fed was about to pivot to cutting rates again. Optimism evaporated and equity markets finished the half year on a low.

Portfolio performance

The Company outperformed its benchmark by 1.1% in the period under review helped by relative performance across various sectors. Within Pharmaceuticals, Novo Nordisk, a manufacturer of drugs for diabetes and obesity, was a key performer as the stock rallied ahead of anticipated catalysts which could increase the potential for peak sales in their obesity/diabetes franchise and the durability of this franchise into the next decade. Utilities exposed to European power prices and the growth in renewables rallied over this period. Acciona Energies Renewables was one of the stocks which benefitted the most in the portfolio. The company remains well-positioned to double gross capacity in renewables to 20GW by 2025.

We continued to increase the weight of defensive companies over the first half of the year. This included Pharmaceuticals such as Bayer and Novartis as well as Food companies such as Danone, all of which have earnings which are less sensitive to macro gyrations. We also selectively added to some value stocks such as Unicredit, an Italian bank. The stock had de-rated while management remained focused on improving efficiency and profitability through reducing costs, improving the balance sheet and asset quality, and remaining sensitive to a rising interest rate environment.

Overall, the portfolio remains relatively defensively positioned and is cheaper than the benchmark, with better quality and momentum characteristics.

Outlook

Turning to the future it is clear that the rate of growth in European economies has slowed sharply. Recent corporate earnings reports have seen a rise in the number of companies citing weaker demand and growing margin pressures. Earnings forecasts are almost certainly still too optimistic for next year. Much of this has already been discounted by equity markets with valuations now back at levels last seen during the Great Financial Crisis in 2007-2008. Provided there is no serious escalation in the Ukrainian situation investors will start to look through the downturn to the next upcycle, suggesting that at some stage we will need to become less defensive in our portfolio positioning.

Alexander Fitzalan Howard

Zenah Shuhaiber

Tim Lewis

Investment Managers

24th November 2022

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 fall into the following broad categories: investment and strategy; accounting, legal and regulatory; corporate governance and shareholder relations; operational; financial; and the risk of geopolitical events and global pandemics. Information on each of these areas is given in the Business Review within the Annual Report and Accounts for the year ended 31st March 2022.

Related Parties 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 and the economic and operational impact of Russia's invasion of Ukraine and Covid-19 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 and, more specifically, that there are no material uncertainties relating to the Company that would prevent its ability to continue in such operation existence for at least 12 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 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 FRS 104 'Interim Financial Reporting' 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 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

Rita Dhut
Chairman

24th November 2022

statement of comprehensive income

For the six months ended 30th September 2022

	(Unaudited) Six months ended 30th September 2022			(Unaudited) Six months ended 30th September 2021			(Audited) Year ended 31st March 2022
	Revenue	Capital	Total	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
(Losses)/gains on investments and derivatives held at fair value through profit or loss	-	(47,326)	(47,326)	-	31,826	31,826	-	25,076	25,076
Foreign exchange gains/(losses) on liquidity fund	-	877	877	-	89	89	-	(206)	(206)
Net foreign currency (losses)/gains	-	(2,268)	(2,268)	-	(186)	(186)	-	332	332
Income from investments	10,942	-	10,942	9,559	-	9,559	15,568	-	15,568
Interest receivable and similar income	34	-	34	52	-	52	76	-	76
Gross return/(loss)	10,976	(48,717)	(37,741)	9,611	31,729	41,340	15,644	25,202	40,846
Management fee	(332)	(775)	(1,107)	(586)	(1,162)	(1,748)	(1,170)	(2,173)	(3,343)
Other administrative expenses	(239)	-	(239)	(211)	-	(211)	(649)	-	(649)
Net return/(loss) before finance costs and taxation	10,405	(49,492)	(39,087)	8,814	30,567	39,381	13,825	23,029	36,854
Finance costs	(178)	(416)	(594)	(201)	(396)	(597)	(405)	(751)	(1,156)
Net return/(loss) before taxation	10,227	(49,908)	(39,681)	8,613	30,171	38,784	13,420	22,278	35,698
Taxation	(1,127)	-	(1,127)	(1,308)	-	(1,308)	(1,636)	-	(1,636)
Net return/(loss) after taxation	9,100	(49,908)	(40,808)	7,305	30,171	37,476	11,784	22,278	34,062
Return/(loss) per share: Growth & Income share (note 3)	2.08p	(11.43)p	(9.35)p	-	-	-	2.69p	5.08p	7.77p
Return per share: Growth share	n/a	n/a	n/a	5.88p	31.53p	37.41p	n/a	n/a	n/a
Return per share: Income share	n/a	n/a	n/a	3.56p	8.60p	12.16p	n/a	n/a	n/a

statement of changes in equity

	Called up		Capital
	share	Share	redemption	Capital	Revenue
	capital	premium	reserve	reserves1	reserve1	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Six months ended 30th September 2022 (Unaudited)
At 31st March 2022	4,605	131,163	15,853	273,876	13,837	439,334
Repurchase and cancellation of the Company's own shares	(2)	-	2	(258)	-	(258)
Repurchase of shares into Treasury	-	-	-	(940)	-	(940)
Net (loss)/return	-	-	-	(49,908)	9,100	(40,808)
Dividends paid in the period (note 4)	-	-	-	-	(9,181)	(9,181)
At 30th September 2022	4,603	131,163	15,855	222,770	13,756	388,147
Six months ended 30th September 2021 (Unaudited)
At 31st March 2021	4,667	131,528	15,791	255,912	11,705	419,603
Repurchase and cancellation of the Company's own shares	(46)	-	46	(3,165)	-	(3,165)
Net return	-	-	-	30,171	7,305	37,476
Dividends paid in the period (note 4)	-	-	-	-	(5,450)	(5,450)
At 30th September 2021	4,621	131,528	15,837	282,918	13,560	448,464
Year ended 31st March 2021 (Audited)
At 31st March 2021	4,667	131,528	15,791	255,912	11,705	419,603
Repurchase and cancellation of the Company's own shares	(62)	-	62	(4,314)	-	(4,314)
Project costs in relation to restructure	-	(365)	-	-	-	(365)
Net return	-	-	-	22,278	11,784	34,062
Dividends paid in the year (note 4)	-	-	-	-	(9,652)	(9,652)
At 31st March 2022	4,605	131,163	15,853	273,876	13,837	439,334

¹   These reserves form the distributable reserve of the Company and may be used to fund distribution of profits to investors.

statement of financial position

At 30th September 2022

	(Unaudited) 30th September 2022 Total £'000	(Unaudited) 30th September 2021 Total £'000	(Audited) 31st March 2022
			Total £'000
Fixed assets
Investments held at fair value through profit or loss	400,475	463,826	451,154
Current assets
Derivative financial assets	292	349	137
Debtors	3,813	4,939	3,926
Cash and cash equivalents	28,881	26,885	29,685
	32,986	32,173	33,748
Current liabilities
Creditors: amounts falling due within one year	(1,576)	(4,682)	(3,334)
Derivative financial liabilities	(20)	(47)	(142)
Net current liabilities	31,390	27,444	30,272
Total assets less current liabilities	431,865	491,270	481,426
Creditors: amounts falling due after more than one year	(43,718)	(42,806)	(42,092)
Net assets	388,147	448,464	439,334
Capital and reserves
Called up share capital	4,603	4,621	4,605
Share premium	131,163	131,528	131,163
Capital redemption reserve	15,855	15,837	15,853
Capital reserves	222,770	282,918	273,876
Revenue reserve	13,756	13,560	13,837
Total shareholders' funds	388,147	448,464	439,334
Net asset values per share: Growth & Income share (note 5)	89.1p	n/a	100.5p
Net asset value per Growth share	n/a	414.3p	n/a
Net asset value per Income share	n/a	175.4p	n/a

statement of cash flows

For the six months ended 30th September 2022

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	30th September	30th September	31st March
	2022	2021	2022
	£'000	£'000	£'000
Net cash outflow from operations before dividends and interest	(1,380)	(1,801)	(4,347)
Dividends received	9,733	7,856	11,921
Interest received	1	2	2
Overseas tax recovered	47	1,896	2,073
Net cash inflow from operating activities	8,401	7,953	9,649
Purchases of investments	(51,977)	(84,296)	(229,228)
Sales of investments	53,707	82,323	234,721
Settlement of future contracts	-	(633)	(874)
Settlement of foreign currency contracts	(887)	(234)	(338)
Net cash inflow/(outflow) from investing activities	843	(2,840)	4,281
Dividends paid	(9,181)	(5,450)	(9,652)
Shares repurchased into Treasury	(940)	-	-
Repurchase and cancellation of the Company's own shares	(258)	(3,483)	(4,632)
Interest paid	(571)	(584)	(1,156)
Net cash outflow from financing activities	(10,950)	(9,517)	(15,805)
Decrease in cash and cash equivalents	(1,706)	(4,404)	(1,875)
Cash and cash equivalents at start of period/year	29,685	31,032	31,032
Exchange movements	902	257	528
Cash and cash equivalents at end of period/year	28,881	26,885	29,685
Decrease in cash and cash equivalents	(1,706)	(4,404)	(1,875)
Cash and cash equivalents consist of:
Cash and short term deposits	670	2,100	5,402
JPMorgan Euro Liquidity Fund	28,211	24,785	24,283
Total	28,881	26,885	29,685

Reconciliation of net debt

	As at 31st March 2022 £'000	Cash flows £'000	Exchange movement £'000	Other non-cash charges £'000	As at 30th September 2022 £'000
Cash and cash equivalents
Cash	5,402	(4,731)	(1)	-	670
Cash equivalents	24,283	3,025	903	-	28,211
	29,685	(1,706)	902	-	28,881
Borrowings
Debt due after more than one year	(42,092)	-	(1,620)	(6)	(43,718)
Total	(12,407)	(1,706)	(718)	(6)	(14,837)

Notes to the financial statements

For the six months ended 30th September 2022

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 2022 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 including 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 have been prepared in accordance with the Companies Act 2006, FRS 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland' of the 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' (the revised 'SORP') issued by the Association of Investment Companies in July 2022.

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 2022.

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 2022.

3.  Return per share¹

		Growth & Income Share (Unaudited) Six months ended 30th September 2022 £'000	Growth Share (Unaudited) Six months ended 30th September 2021 £'000	Income Share (Unaudited) Six months ended 30th September 2021 £'000	Growth & Income Share (Audited) Year ended 31st March 2022 £'000
	Return per share is based on the following:
	Revenue return	9,100	4,248	3,057	11,784
	Capital (loss)/return	(49,908)	22,782	7,389	22,278
	Total (loss)/return	(40,808)	27,030	10,446	34,062
	Weighted average number of shares in issue	436,629,740	72,253,257	85,878,685	438,868,316
	Revenue return per share	2.08p	5.88p	3.56p	2.69p
	Capital (loss)/return per share	(11.43)p	31.53p	8.60p	5.08p
	Total (loss)/return per share	(9.35)p	37.41p	12.16p	7.77p

¹ A transitional basis has been adopted for the calculation of the Return per share for the year ended 31st March 2022.

4.  Dividends paid

		(Unaudited)	(Unaudited)	(Audited)
		Six months ended	Six months ended	Year ended
		30th September	30th September	31st March
		2022	2021	2022
		£'000	£'000	£'000
	Dividends paid
	Unclaimed Growth dividends refunded to the Company	-	(304)	(304)
	2021 Growth second interim dividend of nil (2021: 3.20p) per share	-	2,348	2,348
	2022 Growth first interim dividend of nil (2022: 2.50p) per share	-	-	1,801
	2021 Income fourth quarterly dividend of nil (2021: 2.50p) per share	-	2,211	2,211
	2022 Income first quarterly dividend of nil (2022: 1.40p) per share	-	1,195	1,195
	2022 Income second quarterly dividend of nil (2022: 1.40p) per share	-	-	1,202
	2022 Income third quarterly dividend of nil (2022: 1.40p) per share	-	-	1,199
	2022 Growth & Income first quarterly dividend of 1.10p (2021: nil) per share	4,812	-	-
	2023 Growth & Income first quarterly dividend of 1.00p (2021: nil) per share	4,369	-	-
	Total dividends paid in the period	9,181	5,450	9,652

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

The Company's second interim dividend of 1.00p per share was paid on 14th October 2022. The Company's third interim dividend of 1.00p per share was declared on 17th November 2022.

5.  Net asset value per share

		Growth & Income Share (Unaudited) Six months ended 30th September 2022	Growth Share (Unaudited) Six months ended 30th September 2021	Income Share (Unaudited) Six months ended 30th September 2021	Growth & Income Share (Audited) Six months ended 31st March 2022
	Ordinary shareholders' funds (£'000)
	Net assets (£'000)	388,147	298,112	150,352	439,334
	Number of shares in issue	435,821,962	71,962,866	85,734,405	437,286,529
	Net asset value per share	89.1p	414.3p	175.4p	100.5p

JPMORGAN FUNDS LIMITED

25^th November 2022

For further information, please contact:

Paul Winship

For and on behalf of

JPMorgan Funds Limited

020 7742 4000

ENDS

A copy of the half year will be submitted to the National Storage Mechanism and will shortly be available for inspection at www.hemscott.com/nsm.do

The half year will also shortly be available on the Company's website at www.jpmeuropeangrowthandincome.com 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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