Half Year Results

RNS Number : 9553W

JPMorgan European Smaller Co.

29 November 2010

 



LODON STOCK EXCHANGE ANNOUNCEMENT

JPMORGAN EUROPEAN SMALLER COMPANIES TRUST PLC

(Formerly JPMorgan European Fledgeling Investment Trust plc)

HALF YEAR RESULTS FOR THE SIX MONTHS ENDED

30TH SEPTEMBER 2010

Chairman's Statement

Performance

The first six months of the Company's financial year have witnessed volatile equity markets. The principal concern in the Eurozone was the sovereign debt crisis in southern Europe, triggering weakness in the Euro in the first part of the six month period.

For the six months to 30th September 2010, the Company produced a total return on net assets of +0.2%. This compares with the return of -3.0% from the benchmark index, the HSBC Smaller European Companies (ex UK) Index. The return to shareholders over the period was +0.5% as the discount on the Company's shares narrowed slightly over the period from 18.7% as at 31st March 2010 to 18.4% as at 30th September 2010.

It is pleasing to report outperformance of the benchmark index over the first half of the financial year. In their report, the Investment Managers provide some insight into the key factors impacting performance during the half year. I would again emphasise that the Board assesses the performance of our Managers over the longer term which shows that the Company's net asset value and share price have outperformed the benchmark over one, three and five years to 30th September 2010.

Revenue and Dividend

Revenue return after tax for the six months to 30th September 2010 was £3.5 million, a little higher than the revenue generated in the corresponding period in 2009 (£3.3 million), reflecting a recovery in corporate earnings.

Share Buybacks and Discount

In the six months to 30th September 2010 the Company bought back a total of 1,388,000 shares, representing 3.0% of the shares in issue on 31st March 2010. All of the shares previously held in Treasury, a total 1,947,914, were cancelled on 8th July, following the Board's decision to withdraw from the AGM the resolution seeking authority to reissue shares from Treasury at a discount to net asset value, in response to views expressed by major shareholders. Despite these actions, the discount of the Company's share price to net asset value has remained wide over the period, ranging from 14.4% to 22.2% and averaging 18.4%. It is currently standing at 16.1%, despite the Company's outperformance.

The Board believes that this relatively high level of discount reflects the cyclical nature of investment inflows into smaller European companies as an asset class. At present, other asset classes, such as emerging markets, are in favour with investors and European equities are currently out of favour. However, shareholders should note that over a fifteen year period, since the investment management team began managing the portfolio, smaller European companies as an asset class have outperformed all of the other major equity asset classes. This is clearly shown in a graph within the Company's half year report, published today, which also includes the performance of the Company over the same period, showing that we have outperformed not only our own benchmark but also the other major equity indices both in terms of net asset value and share price - despite the discount.

Whilst the current high level of discount is clearly out of tune with the Company's performance, and the Board does not believe it will persist indefinitely, it is not complacent and continues to work at ways to reduce the discount. In particular, since the summer there has been a significant marketing of the investment opportunity the Company provides which the Board expects to bear fruit in the form of increased investor appetite. In addition, we continue our programme of buying in the Company's shares to help address any short term imbalances in demand.

Board of Directors

On 1st September 2010, Carolan Dobson was appointed to the Board. She has a wealth of investment experience, having previously been head of pan-European equities at Abbey Asset Managers and a main board director of Murray Johnstone and is currently chairman of QinetiQ Pension Fund, a trustee of Avon Pension Fund, a non-executive director of Shires Smaller Companies plc and member of the Competition Commission and Chairman of the Finance and Regulation Group.

Outlook

Despite the ongoing turbulence in the Eurozone due to continuing concerns over the high levels of sovereign debt, the Company's Investment Managers continue to see opportunities for European companies, particularly those that export to the emerging economies and the Board remains confident of their ability to generate positive returns for shareholders through superior stock selection.

Elisabeth Airey

Chairman

29th November 2010

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 five broad categories: Investment and strategy; 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 2010.

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 during the period.

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

            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.

for and on behalf of the Board

Elisabeth Airey

Chairman

29th November 2010

Investment Managers' Report

Review

In the first half of the Company's financial year, equity markets experienced high levels of volatility. Markets initially panicked over the fate of the Euro as it became apparent that countries such as Greece, Ireland and Portugal would struggle with the financing of their budget deficits. In the period to early July, the small cap index fell by 17%. Much of this fall was currency related as the Euro/sterling exchange rate fell by approximately 8% in the same period. By mid July the weakened Euro was providing a substantial competitive boost to German industrial exports and as this became apparent, the stock markets and the Euro recovered strongly, retracing most of the lost ground by the end of the period. In the six months to the end of September 2010, the large company MSCI World Europe (ex UK) Index declined by 2.5% in sterling terms while the benchmark HSBC Smaller European Companies (ex UK) Index fell by 3.0%. The return on net assets was +0.2%.

Portfolio

Stock selection accounted for all of the outperformance. The best performing stocks in the six months included the Dutch composite manufacturer Ten Cate, which benefited from strong markets in aerospace, defence and artificial football pitches; German luxury goods company Hugo Boss, as it benefited from new management enacting a plan of cost cutting while accelerating its store opening programme especially in China; Belgian steel cord manufacturer Bekaert, as it continues to benefit from Chinese tyre demand; Swiss floor covering company Forbo, as it benefited from recovery in demand; and Swedish TV broadcaster Modern Times Group as it benefits from improved advertising trends.

Broadly the portfolio has three pillars: defensive stable growth, structural growth and emerging market growth. Defensive stable growth includes spirit companies Campari and Remy Cointreau, chocolate producer Barry Callebut, nursing home operator Orpea, cardiac specialist Sorin, food ingredient manufacturer Christian Hansen, radiation equipment company Elekta and discount eyewear retailer Fielmann. Structural growth companies include luxury goods companies Bulgari and Hugo Boss, digital cinema projector producer Barco, bookmaker Paddy Power which has a significant online presence, online luxury retailer Yoox, and airfreight company Panalpina. Emerging market growth comprises companies benefiting from strong exposure to emerging markets. This includes consumer goods companies such as Bic, the manufacturer of pens, lighters, and shavers, Seb, a producer of small domestic electrical appliances, Dufry the largest duty free operator in Latin America, Frigoglass a manufacturer of promotional fridges for Coca Cola, as well as other drinks companies and Outotec, a producer of mining equipment, Andritz, a plant engineering firm and Fuchs Petrolub, a manufacturer of industrial lubricants.

Outlook

Due in large part to Germany's industrial prowess, economic recovery in Europe has been much stronger than economists had expected. Europe's ability to manufacture products that rapidly growing emerging economies need is impressive, whether it be high end cars, luxury goods, consumer products, state of the art capital goods needed in manufacturing processes or infrastructure products such as aeroplanes, trains and power plants. So while European domestic demand is set to remain subdued due to Europe's policy of cutting deficits, exports should continue to bolster growth. Within this framework we are able to find many attractive opportunities. 

Jim Campbell

Francesco Conte

Investment Managers

29th November 2010

For further information, please contact:

Jonathan Latter

For and on behalf of

JPMorgan Asset Management (UK) Limited, Secretary

020 7742 6000

Please note that up to date information on the Company, including daily NAV and share prices, factsheets and portfolio information can be found at www.jpmeuropeansmallercompanies.co.uk.

Income Statement

for the six months ended 30th September 2010

	(Unaudited) Six months ended 30th September 2010			(Unaudited) Six months ended 30th September 2009			(Audited) Year ended 31st March 2010
	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	-	(8,720)	(8,720)	-	120,718	120,718	-	151,221	151,221
Net foreign currency (losses)/gains	-	(379)	(379)	-	(1,365)	(1,365)	-	996	996
Income from investments	6,484	-	6,484	6,348	-	6,348	8,116	-	8,116
Other interest receivable and similar income	194	-	194	27	-	27	315	-	315
Gross return/(loss)	6,678	(9,099)	(2,421)	6,375	119,353	125,728	8,431	152,217	160,648
Management fee	(1,980)	-	(1,980)	(1,617)	-	(1,617)	(3,627)	-	(3,627)
Other administrative expenses	(283)	-	(283)	(267)	-	(267)	(612)	-	(612)
Net return/(loss) on ordinary activities before finance costs and taxation	4,415	(9,099)	(4,684)	4,491	119,353	123,844	4,192	152,217	156,409
Finance costs	(322)	-	(322)	(521)	-	(521)	(1,250)	-	(1,250)
Net return/(loss) on ordinary activities before taxation	4,093	(9,099)	(5,006)	3,970	119,353	123,323	2,942	152,217	155,159
Taxation	(581)	-	(581)	(640)	-	(640)	(775)	-	(775)
Net return/(loss) on ordinary activities after taxation	3,512	(9,099)	(5,587)	3,330	119,353	122,683	2,167	152,217	154,384
Return/(loss) per share (note 3)	7.80p	(20.20)p	(12.40)p	7.08p	253.61p	260.69p	4.63p	325.04p	329.67p

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 2010	capital	premium	reserve	reserves	reserve	Total
(Unaudited)	£'000	£'000	£'000	£'000	£'000	£'000
At 31st March 2010	11,771	1,312	3,865	397,184	1,750	415,882
Repurchase and cancellation of the Company's own shares	(240)	-	240	(6,548)	-	(6,548)
Purchase of shares into Treasury	-	-	-	(4,591)	-	(4,591)
Cancellation of shares held in Treasury	(487)	-	487	-	-	-
Net (loss)/return on ordinary activities	-	-	-	(9,099)	3,512	(5,587)
Dividends appropriated in the period	-	-	-	-	(1,367)	(1,367)
At 30th September 2010	11,044	1,312	4,592	376,946	3,895	397,789

	Called up		Capital
Six months ended	share	Share	redemption	Capital	Revenue
30th September 2009	capital	premium	reserve	reserves	reserve	Total
(Unaudited)	£'000	£'000	£'000	£'000	£'000	£'000
At 31st March 2009	12,178	1,312	3,458	253,547	(417)	270,078
Purchase of shares into Treasury	-	-	-	(124)	-	(124)
Net return on ordinary activities	-	-	-	119,353	3,330	122,683
At 30th September 2009	12,178	1,312	3,458	372,776	2,913	392,637

	Called up		Capital
Year ended	share	Share	redemption	Capital	Revenue
31st March 2010	capital	premium	reserve	reserves	reserve	Total
(Audited)	£'000	£'000	£'000	£'000	£'000	£'000
At 31st March 2009	12,178	1,312	3,458	253,547	(417)	270,078
Purchase of shares into Treasury	-	-	-	(8,580)	-	(8,580)
Cancellation of shares held in Treasury	(407)	-	407	-	-	-
Net return on ordinary activities	-	-	-	152,217	2,167	154,384
At 31st March 2010	11,771	1,312	3,865	397,184	1,750	415,882

Balance Sheet

at 30th September 2010

	(Unaudited)	(Unaudited)	(Audited)
	30th September 2010	30th September 2009	31st March 2010
	£'000	£'000	£'000
Fixed assets
Investments held at fair value through profit or loss	411,406	442,681	416,678
Investments in liquidity funds held at fair value through profit or loss	693	-	12,934
Total investments	412,099	442,681	429,612
Current assets
Debtors	13,593	10,448	14,153
Cash and short term deposits	183	5,850	236
Derivative financial instruments: forward currency contract held at fair value through profit or loss	8	-	18
	13,784	16,298	14,407
Creditors: amounts falling due within one year	(28,088)	(66,342)	(28,137)
Derivative financial instrument: forward currency contract held at fair value through profit or loss	(6)	-	-
Net current liabilities	(14,310)	(50,044)	(13,730)
Total assets less current liabilities	397,789	392,637	415,882
Total net assets	397,789	392,637	415,882
Capital and reserves
Called up share capital	11,044	12,178	11,771
Share premium	1,312	1,312	1,312
Capital redemption reserve	4,592	3,458	3,865
Capital reserves	376,946	372,776	397,184
Revenue reserve	3,895	2,913	1,750
Shareholders' funds	397,789	392,637	415,882
Net asset value per share (note 4)	900.4p	834.3p	907.6p

Cash Flow Statement

for the six months ended 30th September 2010

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	30th September 2010	30th September 2009	31st March 2010
	£'000	£'000	£'000
Net cash inflow from operating activities (note 5)	3,782	4,005	2,676
Net cash outflow from returns on investments and servicing of finance	(330)	(468)	(1,230)
Tax recovered	177	268	450
Net cash inflow/(outflow) from capital expenditure and financial investment	6,280	(49,942)	(11,691)
Dividend paid	(1,367)	-	-
Net cash (outflow)/inflow from financing	(7,985)	48,140	4,881
Increase/(decrease) in cash for the period	557	2,003	(4,914)
Reconciliation of net cash flow to movement in net funds/debt
Net cash movement	557	2,003	(4,914)
Net loans drawn down in the period	(3,947)	(50,266)	(12,857)
Exchange movements	(610)	198	978
Movement in net funds/debt in the period	(4,000)	(48,065)	(16,793)
Net (debt)/funds at the beginning of the period	(13,144)	3,649	3,649
Net debt at the end of the period	(17,144)	(44,416)	(13,144)
Represented by:
Cash and short term deposits	183	5,850	236
Debt falling due within one year	(17,327)	(50,266)	(13,380)
Net debt at the end of the period	(17,144)	(44,416)	(13,144)

Notes to the Accounts

for the six months ended 30th September 2010

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 2010 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 2010.

3.       Return/(loss) per share

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	30th September 2010	30th September 2009	31st March 2010
	£'000	£'000	£'000
Return/(loss) per share is based on the following:
Revenue return	3,512	3,330	2,167
Capital (loss)/return	(9,099)	119,353	152,217
Total (loss)/return	(5,587)	122,683	154,384
Weighted average number of shares in issue	45,036,035	47,060,579	46,829,499
Revenue return per share	7.80p	7.08p	4.63p
Capital (loss)/return per share	(20.20)p	253.61p	325.04p
Total (loss)/return per share	(12.40)p	260.69p	329.67p

4.       Net asset value per share

          The net asset value per share is calculated by dividing shareholders' funds by the number of shares in issue at 30th September 2010 of 44,178,739 (30th September 2009: 47,059,653 and 31st March 2010: 45,821,106 shares, excluding shares held in Treasury). 

5.       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 2010	30th September 2009	31st March 2010
	£'000	£'000	£'000
Total (loss)/return on ordinary activities before finance costs and taxation	(4,684)	123,844	156,409
Capital loss/(return) before finance costs and taxation	9,099	(119,353)	(152,217)
Scrip dividends received as income	(365)	(478)	(478)
Decrease in accrued income	709	843	9
Decrease/(increase) in other debtors	30	28	(17)
(Decrease)/increase in accrued expenses	(44)	7	3
Overseas withholding tax	(963)	(886)	(1,033)
Net cash inflow from operating activities	3,782	4,005	2,676

 

END

 

 

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