6 Dec 2018 07:00
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.