JEO.L Regulatory News (JEO)

Jupiter European Opportunities Trust plc (the 'Company')

Legal Entity Identifier: 549300XN7RXQWHN18849

Half Yearly Financial Report for the six months to 30 November 2018 (unaudited)

Financial Highlights

Capital Performance

Ordinary Share Performance

1 This document contains information based on the FTSE World Europe ex UK Total Return Index. 'FTSE®' is a trade mark owned by the London Stock Exchange Plc and The Financial Times Limited and is used by FTSE International Limited ('FTSE') under licence. The FTSE World Europe ex UK Total Return Index is calculated by FTSE. FTSE does not sponsor, endorse or promote the product referred to in this document and is not in any way connected to it and does not accept any liability in relation to its issue, operation and trading. All copyright and database rights in the index values and constituent list vest in FTSE. 

2 Excluding finance costs (interest on the Company's loan facility)

Performance since launch

*Prior to 2005, financial information was prepared under UK GAAP. From 2006 all information is prepared under IFRS.

Chairman's Statement

It is with pleasure that I present your Company's interim report for the six months to 30 November 2018. As at 15 February 2019 your Company had total assets (with loans added back) of £890 million.

Investment Performance

Over the six months to 30 November 2018 the total return on the NAV per share of your Company was -4.5 per cent. This performance was slightly behind the return on the Company's benchmark, the FTSE World Europe ex-UK Total Return Index, which decreased by -3.4 per cent. over the same period. As at 15 February 2019 the NAV per share was 735.89p, a 1.1 per cent decrease since the end of November 2018, and the middle market price per share on the London Stock Exchange was 701.00p, representing a modest discount to its NAV.

The background to your Company's recent performance is considered in depth by our portfolio manager, Alexander Darwall, in his report overleaf. Market conditions have been difficult during the last few months and the Company has underperformed, on both a NAV and a share price basis, against its benchmark. However, long term performance continues to be strong; since the Company's launch in November 2000 to 15 February 2019 the total return on the NAV per share, with dividends added back, has been 719 per cent, which compares with a total return of 279 per cent. by the Company's benchmark over the same period.

Discount management

The board implements a discount and premium policy under which it uses share buybacks and new issues of shares with the intention of ensuring that, in normal market conditions, the market price of the Company's shares will track their underlying NAV. The board believes that this commitment to the active removal of discount and premium risk will improve liquidity for both buyers and sellers of the Company's shares. During the period under review the Company has issued a total of 700,000 shares at a small premium to their attributable NAV.

Gearing

At the end of the period under review the gearing level on the Company's investments was 6.3 per cent. The investment adviser tends to increase gearing at times of perceived low valuations, while reducing it as markets recover. This approach has added sustained value over the course of your Company's history and we continue to encourage the investment adviser to consider the use of gearing as a tactical tool to improve returns. The Company retains its loan facility which is drawable to a maximum amount of £100 million

Outlook

While the investment adviser concentrates on identifying strong companies, with good management and market-leading advantages, rather than investing on the basis of macro-economic considerations, we are not immune from wider economic and market developments. There will continue to be uncertainties and challenges in the months and years ahead but the investment adviser has shown over time that the companies in which it invests produce long-term outperformance for your Company.

Andrew Sutch

Chairman

25 February 2019

Investment Adviser's Review

Performance in the period under review was slightly worse than the FTSE World Europe ex UK Index, your Company's benchmark. The Net Asset Value of the Company's Ordinary shares declined by 4.5% in Sterling terms, while the benchmark fell by 3.4%, during the six months to 30th November 2018. The Company's net borrowings were c. £42.7 million at the start of the reporting period, representing gearing of 4.9%. Borrowing was initially reduced during the period but, as stock prices went down, we increased borrowings so that at 30th November they were around £52.6 million, representing gearing of 6.3%

While the FTSE World index was up by 1.6%, sterling adjusted, the backdrop for equities was less benign than in 2017. A number of positive market drivers reversed; the inchoate trade disputes between China and the US have dampened spirits and investment. The end of Quantitative Easing in Europe and the prospect of higher interest rates in the US also had a negative effect. In Europe the benchmark 3 month Euribor rate was -0.316% at the period end, an historic low level. However, in America the key US Federal Funds Effective Rate climbed to just over 2% having been barely above 0% in recent years.

'World GDP' increased by 3.7% in 2018 according to IMF forecasts. The engines for this growth were 'Developing Asia' (estimated growth of 6.5%), India (7.3%), China (6.6%) and the US (estimated growth of 2.9%). On the other hand, laggards included Brazil (1.4%) and the European Union (2.2%). The outlook, according to recent IMF forecasts, is not much better for the European Union in 2019 as they project a growth rate of 2% as against a 'World GDP' rate of 3.7%. The obvious reason for lower GDP growth in Europe is lower corporate earnings growth. UBS, the investment bank, estimates that profits increased by 7.8% in 2018 (a worse outcome than previously expected) and forecast a further 7% improvement in 2019. Other forecasters such as Bernstein Research expect only 4.5% in 2019. Political worries, ever more regulation and trade disputes are often cited as reasons for Europe's lacklustre performance. To this list we would add the high energy cost policies of European Union countries and the increasing size of the public sector.

Your Company's relatively poor short-term performance could be explained by having almost no exposure to strongly performing sectors such as telecommunications, oil and gas, and utilities. A better explanation is that some of the holdings suffered sharp price declines, declines which, in our opinion, do not reflect the strong fundamentals of the companies concerned. Many of the worst performers in the six months are companies which had in previous reporting periods been the best performing. In most cases the business models remain strong; the price declines are more due to short term valuation considerations. This being the case we have retained and, in some cases, increased holdings. The greatest detractor to the portfolio's performance was Grenke, the German leasing business. It continues to deliver high growth and strong results. It has proved to be a more agile and responsive partner than the banks to corporate customers; for this reason we believe that it will continue to succeed. BioMerieux, a global leader in vitro diagnostics, was another poor performer. It has enjoyed a strong position in syndromic testing where it has been hitherto almost unchallenged. But new competitors and a less benign pricing environment in the US are a source of concern. Notwithstanding these concerns we retain confidence in this investment. Ryanair, too, performed poorly. In accepting unionisation, Ryanair has become more like other airlines. The authorities continue to pursue Ryanair for what they believe are anti-competitive practices. Ryanair's distinctive advantages are being eroded. Accordingly, we sold our holding. Though not one of the largest positions in the portfolio, Bayer's shares' very poor performance markedly impacted the portfolio. The company suffered an adverse decision in a Californian court concerning the use of Roundup, Bayer's glyphosate-based herbicide. This decision seems to have been less about the science and more about negative sentiment towards Monsanto, the company acquired by Bayer and the owner of the Roundup brand. This represents a considerable liability. Other parts of Bayer's businesses have not been performing well. We acknowledge that this has been a costly investment mistake. Nevertheless, we have decided to retain our holding in Bayer believing that eventually merging Bayer and Monsanto's agri-technology businesses will create a highly profitable global leader. Finally, we note the underperformance of Amadeus, a major Spanish IT provider for the global travel and tourism industry. For many years the airlines have tried and failed to disintermediate the GDS (Amadeus' principal offering). Where the airlines have succeeded in so doing, Amadeus' technical services are needed to provide alternative solutions. We think that the airlines will continue to need Amadeus' services and that demand for these services should increase.

The list of 'winners' is diverse. In all cases we seek to invest in companies with sustainable and advantageous points of differentiation. When this proves to be correct and the companies deliver superior results the shares should outperform. The largest single contributor to performance was Marine Harvest (now named Mowi). As the world's largest salmon farmer it benefits from a growing demand for healthy eating. Its vertically integrated business (producing fish feed, processing and selling value added products) marks it out from competitors. Novo Nordisk, another significant contributor to performance, benefits from the problems of unhealthy eating. Commoditisation of insulins and concomitant pricing pressures represent serious threats to the company's prospects. But the new class of drug, GLP-1 agonists, offers scope for greater therapeutic success and differentiation. Moreover, diabetes and its comorbidities, obesity and cardiovascular damage, are on the rise across the world. The 'target market' is increasing at around 6% annually. RELX, a world-leading provider of information and analytics for professional and business customers, was another major contributor to the portfolio. In this age of 'big data' and more regulations RELX is well placed. It is a 'winner' from digital trends. RELX has some unique data sets; it has built advantages into its business model which competitors struggle to match; and it is well embedded with customers. This is not necessarily the case with digital 'plays' where the technology can lower barriers to entry and reduce scope for differentiation. The other notable contributor in the period under review is Edenred, a French company specialised in prepaid corporate services including luncheon vouchers (its historic business), other corporate benefits and expense management. It, too, is a beneficiary from 'digital'. It allows the company to extend the range of its offering; it can reach more customers and does so in a way that is more convenient for customers and users alike. Our largest investment, Wirecard, reported excellent results for 2018. However, after the end of the period under review, the share price fell significantly following a journalist alleging serious wrong doing by the company. Wirecard deny the allegations. We have never had cause to doubt the company. Until and unless there are substantive and substantiated charges we remain confident that the company is strong and well placed to prosper.

There were two sales of significant, long standing positions: Fresenius SE and Ryanair (as explained above). The former was sold as we anticipated greater political interference in their German hospitals business and sensed new challenges to operating their dialysis clinics in the US. We also sold shares in Wartsila, the Finnish manufacturer of engines for power plants and ships. This company is well placed to benefit from trends such as ship automation, tighter maritime environmental legislation and increasing demand for distributed power. However, demand for Wartsila's products and services has not developed as we expected.

New purchases included shares in companies that we have followed for many years and in some cases have been previously owned by your Company. Principal amongst these is Hexagon, a global leader in digital solutions that create autonomous connected ecosystems (ACE) across manufacturing, infrastructure, safety and mobility. It is flourishing in the Chinese market. It is a beneficiary of the move to 'smart' factories and manufacturing. We also purchased shares in the London Stock Exchange Group, a diversified financial markets infrastructure company. It continues to benefit as the market (prompted by the regulator) moves away from OTC (over the counter) trading to 'exchange traded'. Critically, we do not see its major activities as being directly threatened by BREXIT. Another purchase was that of shares in Barry Callebaut, one of the world's largest cocoa producers and grinders. The greater demands coming from customers for traceability and quality is squeezing out some of the smaller competitors, notably Asian grinders. This should improve the operating environment for Barry Callebaut. We also bought shares in Wolters Kluwer, the Dutch global information services company. Digital and cloud technologies should strengthen their position and allow them to increase the scale of their activities. Finally, we bought more shares in Intermediate Capital Group, the UK listed private debt and equity asset manager. Its business is well placed to grow. First, its niche, specialist positioning in private debt and equity is increasingly attracting mainstream clients; and second, the privately owned sector has advantages over the publicly listed sector. This is apparent to corporates and individuals alike. As a result, there is a flow of resources into the private equity space which underpins ICG's prospects.

Outlook

The more difficult investment conditions are not unexpected. Our positioning for this development has not changed the portfolio. We endeavour to invest in companies that can flourish in a range of market conditions. Indeed, more difficult economic conditions will doubtless throw up opportunities for strong companies. The test is whether companies can strengthen through the cycle. There are serious challenges that go beyond the normal cyclical ones. The publicly quoted companies are assailed by insidious challenges to capitalism which subvert the proper purpose of business. It probably explains why capital and 'talent' is flowing from public to private equity. Good governance where directors act in the best interests of the company as distinct from acting to satisfy outside parties is vital to our investment process. Protectionism in its many forms (including 'localism', increasing regulations and government interference) leads to distortions in incentives and resource allocation. Yet for all these challenges, there are undoubtedly companies that have the skills and agility to respond to changing demand. Companies that develop new technologies, or can harness such technologies, to shape new business models which effectively serve customer needs, will prosper. There are still good rewards for companies that innovate to meet customer needs; have the flexibility and mindset to embrace change; and work hard to stay ahead. Our process for uncovering and understanding such opportunities has not changed. We believe that our investment process is still appropriate for current conditions thereby sustaining our confidence for the future.

Alexander Darwall

25 February 2019

Investment Portfolio as at 30 November 2018

Cross Holdings in other Investment Companies

As at 30 November 2018 and 31 May 2018, none of the Company's assets were invested in the securities of other listed closed-ended investment companies. It is the Company's stated policy that it will not invest in other listed closed-ended investment companies.

Interim Management Report

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 performance of the Company. Details of related party transactions are contained in the Annual Report and Accounts of the Company for the year ended 31 May 2018 and the Half Yearly Financial Report for the six months to 30 November 2018.

Principal Risks and Uncertainties

The Company is exposed to the effect of variations in the price of its investments. A fall in the value of its portfolio will have an adverse effect on shareholders' funds. It is not the aim of the board to eliminate entirely the risk of capital loss, rather it is its aim to seek capital growth. Other key risks faced by the Company relate to foreign currency movements, interest rates, liquidity risk, gearing risk, the discount to NAV, regulatory risk, loss of key personnel, operational and financial risks. A detailed explanation of the Risks and Uncertainties facing the Company can be found on page 14 under the heading 'Principal Risks and Uncertainties' in the Annual Report and Accounts for the year ended 31 May 2018.

Going Concern

The Half Yearly Financial Report has been prepared on a going concern basis. The directors consider that this is the appropriate basis as they have a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future. In considering this, the directors took into account the Company's investment objective, risk management policies and capital management policies, the diversified portfolio of readily realisable securities which can be used to meet short-term funding commitments and the ability of the Company to meet all of its liabilities and ongoing expenses. Thus the directors continue to adopt the going concern basis of accounting in preparing the financial statements.

Directors' Responsibility Statement

We, the directors of Jupiter European Opportunities Trust PLC, confirm to the best of our knowledge that:

(a) The condensed set of financial statements have been prepared in accordance with the Accounting Standards Board's statement 'Half Yearly Financial Reports' and give a true and fair view of the assets, liabilities, financial position and profit of the Company for the period ended 30 November 2018;

(b) The Chairman's Statement, the Investment Adviser's Review and the Interim Management Report include a fair review of the information required by Disclosure and Transparency Rule 4.2.7R; and

(c) The Interim Management Report includes a fair review of the information required by Disclosure and Transparency Rule 4.2.8R on related party transactions. The Half Yearly Financial Report has not been audited or reviewed by the Company's auditors.

By Order of the Board

Andrew Sutch

Chairman

25 February 2019

Statement of Comprehensive Income

For the six months to 30 November 2018 (unaudited)

The total column of this statement is the income statement of the Company prepared in accordance with International Financial Reporting Standards (IFRS). The supplementary revenue return and capital return columns are both prepared under guidance produced by the Association of Investment Companies (AIC).

All items in the above statement derive from continuing operations.

The return after taxation is also the total comprehensive profit for the year.

All income is attributable to the equity holders of Jupiter European Opportunities Trust PLC.

The financial information does not constitute 'accounts' as defined in section 434 of the Companies Act 2006.

Statement of Financial Position

As at 30 November 2018

Statement of Changes in Equity

For the six months to 30 November 2018

Cash Flow Statement

For the six months to 30 November 2018 (unaudited)

Notes to the Financial Statements

1. Accounting Policies

The Accounts comprise the unaudited financial results of the Company for the period to 30 November 2018. The functional and reporting currency of the Company is pound sterling because that is the currency of the prime economic environment in which the Company operates.

The Accounts have been prepared in accordance with International Financial Reporting Standards (IFRS), which comprise standards and interpretations approved by the International Accounting Standards Board (IASB) and International Accounting Standards Committee (IASC), as adopted by the European Union (EU). Where presentational guidance set out in the Statement of Recommended Practice (SORP) for Investment Trusts issued by the Association of Investment Companies (AIC) in November 2014 is consistent with the requirements of IFRS, the directors have sought to prepare the financial statements on a basis compliant with the recommendations of the SORP.

The board continues to adopt the going concern basis in the preparation of the financial statements.

2. (Losses)/Gains on investments

3. (Loss)/Return per ordinary share

4. Net Asset Value per Ordinary share

The NAV per ordinary share is based on the net assets attributable to the ordinary shareholders of £839,453,000 (31 May 2018: £873,195,000) and on 112,800,331 (31 May 2018: 112,100,331) ordinary shares, being the number of ordinary shares in issue at the period end.

5. Related Parties

Jupiter Unit Trust Managers Limited ('JUTM'), the Alternative Investment Fund Manager, is a company within the same group as Jupiter Asset Management Limited, the investment adviser.

JUTM is contracted to provide investment management services to the Company (subject to termination by not less than twelve months' notice by either party) for an annual investment management fee of 0.75 per cent, payable quarterly in arrears, of the total assets of the Company including drawn down borrowings, less current liabilities and after deduction of the value of any funds managed by Jupiter Fund Management PLC or its subsidiaries.

The investment management fee payable to JUTM for the period 1 June 2018 to 30 November 2018 was £3,661,000 (31 May 2018: £6,705,000) with £1,687,000 (31 May 2018: £1,775,000) outstanding at period end.

JUTM is also entitled to an investment performance fee which is based on the out-performance of the NAV per ordinary share over the total return on the Benchmark Index, the FTSE World Europe ex UK Total Return Index in an accounting period. Any performance fee payable will equal 15 per cent of the amount by which the increase in the NAV per ordinary share (plus any dividends per ordinary share paid or payable and any accrual for unpaid performance fees for the period) exceeds the higher of (a) the NAV per ordinary share on the last business day of the previous accounting period; (b) the NAV per ordinary share on the last day of a period in respect of which a performance fee was last paid: and (c) 100p. In each case the values of (a), (b) and (c) are increased or decreased by the percentage by which the total return of the Benchmark Index increases or decreases during the calculation period. The aggregate of the investment management fee together with any performance fee payable in respect of one accounting period is limited to 4.99 per cent of the net assets of the Company.

Availability of Half Yearly Financial Report

The Half Yearly Financial Report will shortly be available for download from the Company's website www.jupiteram.com/JEOT

By order of the Board

Jupiter Asset Management Limited, Company Secretary

The Zig Zag Building

70 Victoria Street

London SW1E 6SQ

25 February 2019

For further information, please contact:

Richard Pavry

Head of Investment Trusts

Jupiter Asset Management Limited, Company Secretary

investmentcompanies@jupiteram.com

020 3817 1000

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