Half-year Report

RNS Number : 5907J
JPMorgan European Smaller Co.
06 December 2018
 

LONDON STOCK EXCHANGE ANNOUNCEMENT

 

JPMORGAN EUROPEAN SMALLER COMPANIES TRUST PLC

HALF YEAR REPORT & FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED 30TH SEPTEMBER 2018

 

Legal Entity Identifier: 54930049CEWDI46Y3U28

Information disclosed in accordance with DTR 4.2.2

 

CHAIRMAN'S STATEMENT

Dear Shareholder,

I am pleased to present the Company's results for the six months ended 30th September 2018.

Performance

Net asset value total return of +6.2% in the six months to 30th September 2018 compared with a return of +4.8% over the same period from the Company's benchmark index (the Euromoney Smaller Companies (ex UK) index), an out-performance of 1.4%. The share price return, however, was only +0.3%, resulting from a widening of the discount over the period. As at 30th September 2018, the Company's discount was 12.7% compared to 7.5% at 31st March 2018.

This is another positive result from our Investment Managers in challenging equity market conditions and the main contributor to performance was stock selection, with country allocation being a consequence of the bottom-up investment process.

Their report below reviews the markets and provides more detail on the performance drivers within the portfolio and the stocks and countries in which the Company is invested.

Revenue and Dividends

Gross revenue return for the six months to 30th September 2018 was higher than the corresponding period in 2017 at £13.9 million (2017: £11.5 million) and was the result of an increase in dividend receipts. The Board has decided to pay an interim dividend of 1.2 pence (2017: 1.2 pence) per share which will be paid on 18th January 2019 to shareholders on the register as at 14th December 2018 (the ex-dividend date will be 13th December 2018).

Share Repurchases

The Board continues to monitor the level of the discount of the Company's share price to net asset value carefully. It seeks to use its ability to repurchase shares to minimise the short term volatility and the absolute level of the discount. Whilst no shares were repurchased in the period to 30th September 2018, 200,000 shares were purchased in November at an average discount of 12.6%. Equity market volatility, as described in the Managers' report, in addition to Brexit-related uncertainty, led to discounts widening across a range of investment trusts, including those companies investing in European markets.

The Board

As part of the Board's succession planning, and outlined in the Annual Report, I will step down as Chairman and a Director at the Annual General Meeting in 2019. I am pleased that Marc van Gelder has agreed to succeed me and I would like to wish him every success in his new role. The Board has started a recruitment process with a view to appointing a new director.

 

Outlook

At the time of writing the outcome of the Brexit negotiations remains uncertain and that is creating volatility in the UK stock market. However, the underlying European companies in which the Company invests continue to offer good prospects for growth.

 

Carolan Dobson

Chairman                                                                                                                                 5th December 2018

 

INVESTMENT MANAGERS' REPORT

Review

Following a sharp correction at the start of the calendar year, equity markets rebounded between April and September 2018. However the period saw significant volatility due to concerns around slowing global economic growth, margin pressure from rising costs, the threat of a global trade war, political uncertainty in the UK and Italy and the approaching end of quantitative easing and the start of quantitative tightening.

The portfolio rose by 6.2% during the period, outperforming the benchmark Euromoney Smaller European Companies (ex UK) Index, which rose by 4.8%.

Portfolio

With a return of 6.2% over the six months to 30th September 2018, the portfolio outperformed its benchmark. Top performers included Dutch speciality chemicals and food ingredients distributor, IMCD, as it continued to gain scale in North America following a number of accretive acquisitions, Danish brewer, Royal Unibrew, as prolonged good weather over the summer increased demand for its products, and Austrian industrial Internet of Things expert, S&T, due to structurally growing end markets and improving revenue mix. Detractors included French liquid and gas storage and distribution specialist, Rubis, as the business suffered from political disruptions in Turkey and Iran, Swedish cosmetics retailer, Oriflame, as it faced significant foreign exchange headwinds and increasing pricing pressure from competitors, and Finnish consumer packaging manufacturer, Huhtamaki, following raw material price inflation and price pressure from major customers.

As economic momentum weakened, we reduced the portfolio's exposure to companies with more cyclical business models. Many of the companies we sold were manufacturing companies based in Germany such as light construction machinery manufacturer, Wacker Neuson, forklift truck manufacturer, Jungheinrich, automotive LED lighting specialist, Hella, automotive components supplier, Stabilus, truck and trailer components supplier, SAF-Holland, and printing press machine manufacturer, Koenig & Bauer, all due to slowing operational momentum driven by the deteriorating outlook for global growth.

The proceeds from these divestments were used to build positions in companies with more defensive business models. These included the market leading Swiss pharmaceuticals retailer, Galenica, due to its ability to consolidate the Swiss market and expansion opportunities within its own-brand OTC product portfolio, Swedish speciality vegetable oils producer, AAK, as the global trend towards healthier eating continues to increase demand for its plant-based oils, Dutch glasses retailer GrandVision, where the new CEO appears to be successfully executing on his business strategy, and French care home operator, Korian, as the benefits of portfolio repositioning strategy began to feed through to better than expected profitability. We added a number of oil services companies including Austrian Schoeller-Bleckmann, Dutch SBM Offshore, and Italian Saipem as the sector's outlook improved due to the rising oil price and historic underinvestment.

As a result of these changes, Healthcare became the largest sector overweight and the Oil sector moved from an underweight to an overweight position. Conversely, the Industrial Engineering sector moved to an underweight position having been the largest sector overweight at the start of the period. The Netherlands remained the portfolio's largest country overweight while Germany became the largest country underweight. We further de-risked the portfolio by moving from 7.9% geared to 2.4% cash over the period.

Outlook

Nevertheless, long term inflationary expectations remain anchored at around 2% and the US mid-term elections resulted in a split congress, meaning the loose fiscal policies may be reined in. With Italian 2 year yields close to 1% and sterling weak but stable it seems that the bond and currency markets expect political risks in Europe to be manageable. One interpretation could be that the market has concluded that individual counties have far more to lose from confrontation with the EU than the block as a whole and consequently are likely to pare down their demands.

The recent rise in the US 10 year bond, at one point to above a 3.2% yield, reduced the appetite for stocks across all geographies, including Europe. On this side of the Atlantic, fears about the Italian budget and continued uncertainty around Brexit added to the general malaise. The US mid-term elections in the US resulted in a split Congress, meaning the recent loosening of fiscal policy, through tax cuts, is unlikely to be repeated. This has been a driver of higher US interest rates, and therefore we see a standstill here as a positive. In Europe, with Italian 2 year yields close to 1%, bond markets are signalling that political risks are manageable. In summary, we believe the volatility in October was a long overdue correction, rather than start of a more prolonged downturn in markets.

As valuations became more attractive by the end of October we started raising our gearing, finding opportunities in the industrial and automotive sectors in particular.

Francesco Conte

Edward Greaves

Investment Managers                                                                                                                 5th December 2018

 

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; operational; cyber crime, financial and corporate governance and shareholder relations. Information on each of these areas is given in the Business Review within the Annual Report and Accounts for the year ended 31st March 2018.

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 2018, 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                                                                                                                              5th December 2018

 

STATEMENT OF COMPREHENSIVE INCOME

FOR THE SIX MONTHS ENDED 30TH SEPTEMBER 2018


(Unaudited)

(Unaudited)

(Audited)


Six months ended

Six months ended

Year ended


30th September 2018

30th September 2017

31st March 2018


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

-

 34,781

34,781

-

 81,304

 81,304

-

82,036

82,036

 

Net foreign currency gains

-

266

 266

-

 1,426

 1,426

-

2,099

2,099

 

Income from investments

13,798

-

13,798

 11,445

-

 11,445

13,129

-

13,129

 

Interest receivable and










 

  similar income

 88

-

 88

60

-

60

122

-

122

 

Gross return

13,886

 35,047

48,933

 11,505

 82,730

 94,235

13,251

84,135

97,386

 

Management fee

 (1,013)

(2,364)

 (3,377)

 (927)

 (2,162)

 (3,089)

(1,931)

(4,506)

(6,437)

 

Other administrative expenses

(409)

-

(409)

 (391)

-

 (391)

(739)

-

(739)

 

Net return on ordinary










 

  activities before finance










 

  costs and taxation

12,464

 32,683

45,147

 10,187

 80,568

 90,755

10,581

79,629

90,210

 

Finance costs

(130)

 (305)

(435)

 (61)

 (143)

 (204)

(153)

(356)

(509)

 

Net return on ordinary










 

  activities before taxation

12,334

 32,378

44,712

 10,126

 80,425

 90,551

10,428

79,273

89,701

 

Taxation

 (1,065)

-

 (1,065)

 (750)

-

 (750)

(853)

-

(853)

 

Net return on ordinary










 

  activities after taxation

11,269

 32,378

43,647

 9,376

 80,425

 89,801

9,575

79,273

88,848

 

Return per share (note 3)

7.04p

 20.24p

27.28p

 5.86p

 50.27p

 56.13p

5.98p

49.55p

55.53p

 

 

STATEMENT OF CHANGES IN EQUITY

FOR THE SIX MONTHS ENDED 30TH SEPTEMBER 2018


Called up


Capital





share

Share

redemption

Capital

Revenue



capital

premium

reserve

reserves

reserve1

Total


£'000

£'000

£'000

£'000

£'000

£'000

Six months ended 30th September 2018







(Unaudited)







At 31st March 2018

8,000

1,312

 7,636

673,600

11,627

702,175

Net return on ordinary activities

-

-

-

32,378

11,269

43,647

Dividend paid in the period (note 4)

-

-

-

-

 (8,799)

 (8,799)

At 30th September 2018

8,000

1,312

 7,636

705,978

14,097

737,023

Six months ended 30th September 2017







(Unaudited)







At 31st March 2017

8,000

 1,312

 7,636

 594,327

 9,571

 620,846

Net return on ordinary activities

-

-

-

 80,425

 9,376

 89,801

Dividend paid in the period (note 4)

-

-

-

-

 (5,600)

 (5,600)

At 30th September 2017

 8,000

 1,312

 7,636

 674,752

 13,347

 705,047

Year ended 31st March 2018 (Audited)







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 4)

-

-

-

-

 (7,519)

 (7,519)

At 31st March 2018

8,000

 1,312

 7,636

 673,600

 11,627

 702,175

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

STATEMENT OF FINANCIAL POSITION

AT 30TH SEPTEMBER 2018


(Unaudited)

(Unaudited)

(Audited)


30th September 2018

30th September 2017

31st March 2018


£'000

£'000

£'000

Fixed assets




Investments held at fair value through profit or loss

719,228

722,190

757,861

Current assets




Derivative financial assets

 6

-

-

Debtors

13,087

966

18,186

Cash and cash equivalents

37,615

20,798

21,998


50,708

21,764

40,184

Current liabilities




Creditors: amounts falling due within one year

 (8,864)

(38,907)

(3,805)

Derivative financial liabilities

-

-

(10)

Net current assets/(liabilities)

41,844

(17,143)

36,369

Total assets less current liabilities

761,072

705,047

794,230

Creditors: amounts falling due after more than one year

 (24,049)

-

(92,055)

Net assets

737,023

705,047

702,175

Capital and reserves




Called up share capital

8,000

8,000

8,000

Share premium

1,312

1,312

1,312

Capital redemption reserve

7,636

7,636

7,636

Capital reserves

705,978

674,752

673,600

Revenue reserve

14,097

13,347

11,627

Total shareholders' funds

737,023

705,047

702,175

Net asset value per share (note 5)

460.7p

440.7p

438.9p

 

STATEMENT OF CASH FLOWS

FOR THE SIX MONTHS ENDED 30TH SEPTEMBER 2018


(Unaudited)

(Unaudited)

(Audited)


Six months ended

Six months ended

Year ended


30th September 2018

30th September 2017

31st March 2018


£'000

£'000

£'000

Net cash (outflow)/inflow from operations
   before dividends and




  interest

 (2,365)

 199

 (3,591)

Dividends received

11,448

10,666

12,377

Overseas tax recovered

 80

 51

 66

Interest paid

(372)

(257)

(459)

Net cash inflow from operating activities

8,791

10,659

8,393

Purchases of investments and derivatives

 (451,295)

 (234,636)

 (597,508)

Sales of investments and derivatives

536,093

252,894

563,457

Settlement of forward currency contracts

(204)

 142

 291

Net cash inflow/(outflow) from investing activities

84,594

18,400

 (33,760)

Dividends paid

 (8,799)

 (5,600)

 (7,519)

Drawdown of bank loans

-

22,000

79,613

Repayment of bank loans

 (68,969)

 (49,015)

 (49,015)

Net cash (outflow)/inflow from financing activities

 (77,768)

 (32,615)

23,079

Increase/(decrease) in cash and cash equivalents

15,617

 (3,556)

 (2,288)

Cash and cash equivalents at start of period

21,998

24,285

24,285

Exchange movements

-

 69

 1

Cash and cash equivalents at end of period

37,615

20,798

21,998

Increase/(decrease) in cash and cash equivalents

15,617

 (3,556)

 (2,288)

Cash and cash equivalents consist of:




Cash and short term deposits

 285

 271

2,175

Cash held in JPMorgan Euro Liquidity Fund

37,330

20,527

19,823

Total

37,615

20,798

21,998

 

 

 

 

NOTES TO THE FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED 30TH SEPTEMBER 2018

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 2018 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, 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 November 2014 and updated in February 2018.

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 2018.

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 2018.

3.  Return per share


(Unaudited)

(Unaudited)

(Audited)


Six months ended

Six months ended

Year ended


30th September 2018

30th September 2017

31st March 2018


£'000

£'000

£'000

Return per share is based on the following:




Revenue return

11,269

9,376

9,575

Capital return

32,378

80,425

79,273

Total return

43,647

89,801

88,848

Weighted average number of shares in issue

 159,987,885

159,987,885

159,987,885

Revenue return per share

7.04p

5.86p

5.98p

Capital return per share

20.24p

50.27p

49.55p

Total return per share

27.28p

56.13p

55.53p

 

4.  Dividends paid


(Unaudited)

(Unaudited)

(Audited)


Six months ended

Six months ended

Year ended


30th September 2018

30th September 2017

31st March 2018


£'000

£'000

£'000

2018 final dividend of 5.5p (2017: 3.5p) per share

8,799

5,600

5,600

2018 interim dividend of 1.2p per share

-

-

1,919

Total dividends paid in the period/year

8,799

5,600

7,519

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

An interim dividend of 1.2p (2018: 1.2p) has been declared in respect of the six months ended 30th September 2018, amounting to £1,920,000.

5.  Net asset value per share


                 (Unaudited)

              (Unaudited)

                (Audited)


Six months ended

Six months ended

Year ended


30th September 2018

30th September 2017

31st March 2018

Net assets (£'000)

737,023

705,047

702,175

Number of shares in issue

 159,987,885

159,987,885

159,987,885

Net asset value per share

460.7p

440.7p

438.9p

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.

 

For further information, please contact:

Faith Pengelly

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 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.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.

 


This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
 
END
 
 
IR LLFLDFSLEIIT
UK 100