23 Nov 2018 12:38
LONDON STOCK EXCHANGE ANNOUNCEMENT
JPMORGAN EUROPEAN INVESTMENT TRUST PLC
UNAUDITED HALF YEAR RESULTS FOR THE SIX MONTHS ENDED30TH SEPTEMBER 2018
Legal Entity Identifier: 549300D8SPJFHBDGXS57
Information disclosed in accordance with the DTR 4.2.2
Chairman's Statement
Performance
In the six months to 30th September 2018 the returns to shareholders with net dividends reinvested in the Company's Growth (JETG) and Income (JETI) Portfolios were 1.0% and 1.5% respectively. Over the same period, the percentage increases in the Company's Growth and Income Net Asset Value (NAV) were 4.7% and 5.4% respectively. The Company's NAVs on both portfolios outperformed the benchmark over one, three and five years.
The discount on both the Growth and Income share prices to NAVs widened during the reporting period, reflecting a general widening of discounts on investment trusts across the market. This widening resulted in the return to shareholders on both portfolios underperforming the benchmark.
In their report below, the Investment Managers comment on some of the factors underlying the performance of the two portfolios over the six month period, as well as commenting on the economic and market background.
Revenue and Dividends
For the Company's Growth shares, the Board's aim is that annual dividend payments continue to be broadly in line with revenues received on the underlying portfolio. Revenue return per share on the Growth portfolio for the six months to 30th September 2018 (calculated by reference to the average number of shares in issue over the period) amounted to 8.01 pence per share (2017: 6.27 pence per share). A first interim dividend of 4.85 pence per share was paid on 12th October 2018 (2017: 4.85 pence per share).
For the Company's Income shares, as referred to in my Chairman's Statement for the Company's Annual Report and Financial Statements to the year ended 31st March 2018, the Board agreed that the amount of JETI's dividend be more evenly spread over the Company's financial year. This has led to an increase in the interim dividends for this financial year. Revenue return per share on the Income portfolio for the half year (again, calculated by reference to the average number of shares in issue over the period) amounted to 5.01 pence per share (2017: 4.59 pence per share). The first quarterly interim dividend of 1.25 pence per share (2017: 1.10 pence per share) was paid on 20th July 2018 and a second quarterly interim dividend also of 1.25 pence per share was paid on 12th October 2018 (2017: 1.10 pence per share). A third quarterly interim dividend of 1.25 pence per share (2017: 1.10 pence per share) was declared on 19th November 2018 for payment on 11th January 2019.
The timing of the dividend declarations for the Growth second interim and Income fourth interim is expected to continue to be made ahead of the annual conversion opportunity in March each year.
Gearing
There has been no change in the Investment Manager's permitted gearing range, as previously set by the Board, of 10% net cash to 20% geared. At 30th September 2018 the Growth portfolio was 9.0% geared and the Income portfolio was 4.5% geared.
Conversions
The Company's next share conversion will be in March 2019 and details of the process will be posted on the Company's website in late January 2019.
Share Repurchases
The Board has a proactive approach to the use of its share repurchase powers. It remains of the view that it is important to seek to address imbalances in the supply of and demand for the Company's shares and to minimise thereby the volatility and absolute level of the discount to net asset value at which the Company's shares trade. The Board does not wish to see the discounts widen beyond 10% (using the ex-income NAV) on an ongoing basis. The precise level and timing of repurchases pursuant to this policy depend upon prevailing market conditions. Over the six months under review the discount levels have averaged 9.8% for the Growth shares and 8.8% for the Income Shares (both at fair value and on an ex-income NAV basis). Over the six month period the Company repurchased a total of 418,178 Growth shares and 234,990 Income shares.
Transfer of Reserves between the Growth and Income Portfolios
As in the previous year, the Board has exercised its power to approve transfers of retained revenue reserves from JETG to JETI in exchange for the equivalent amount of capital reserves from JETI to JETG. £1.301 million, being the amount of JETG's retained revenue reserve as at 31st March 2018, after payment of the JETG 2.00p dividend paid on 6th April 2018, was transferred to JETI in exchange for the equivalent amount of capital reserves from JETI to JETG. This transfer is reflected in these Report and Financial Statements.
Board of Directors
I am pleased that Josephine Dixon has made a good recovery and over the summer resumed her role as Chair of the Audit Committee. The Board thanks Jutta af Rosenborg for her assistance as interim Chair of the Audit Committee during Josephine's absence.
Outlook
The Investment Managers will continue to execute the existing and practised strategy to fulfil and deliver your company's investment objectives. Whilst the Board and Managers are aware of the many uncertainties facing stock markets, we believe that satisfactory returns are achievable given the proven stock selection skills demonstrated consistently over the medium and longer term.
For and on behalf of the Board
Andrew Adcock
Chairman
23rd November 2018
INVESTMENT MANAGERS' REPORT
Review
The company's first half year saw markets in Europe (ex-UK) trade modestly higher in sterling terms, as they recovered from the setbacks witnessed in the first quarter. The Global and European economies continue to grow above trend, and we are also seeing growth in corporate earnings. Markets, however, are digesting a change in interest rate policy as the Federal Reserve in the US raises rates and shrinks its balance sheet, while the ECB, although keeping rates on hold at ultra-low levels, is starting to reduce its Asset Purchase Programme as a prelude to stopping altogether at the year-end. We also saw a heightened sense of political risk as President Trump announced unilateral US tariffs on overseas exporters, while closer to home we are awaiting the outcome of the UK's negotiations to leave the EU, and the new government in Italy, which is a coalition of right- and left-wing populist parties, seeks to defy the EU's rules on budgetary discipline. Italian yields have risen, meaning that interest costs for the Italian government are steeper than for their European neighbours, although the risk of Italy seeking to leave the EU or the Euro are deemed low, partly because opinion polls continue to indicate that the Italian electorate favours continued membership of both.
Bond yields in the rest of the Eurozone fell, while bond yields in the US rose; this interest rate differential supported a rally in the US Dollar, which had weakened for much of 2017. The rally, in turn, caused issues in Emerging Markets, with the Turkish and Argentine currencies coming under particular pressure.
From a corporate viewpoint the year still seems to be progressing positively, as shown by the expectation that earnings will grow by around 7% this year, and by the fact that for all the question marks over global trade and growth in Emerging Markets, analysts are on balance leaving estimated rates of growth more or less unchanged, and they also expect earnings to grow again in 2019. In addition, with share prices rising more slowly than earnings valuations are becoming more attractive.
Against this background both share classes saw NAV performance lag the market slightly. In the Income class dividend paying stocks came under pressure in the earlier part of the year, with yield investing continuing to be out of favour. In the Growth class some companies, particularly cyclicals and financials, trading at cheaper valuations saw sharp underperformance as yield curves flattened, despite that fact that their earnings growth still look encouraging.
Outlook
European growth is expected to be above trend once again in 2019, and this should bring a further fall in unemployment, which will support consumer confidence. Government spending across Europe is anticipated to expand, and increased tightness in the labour market should encourage companies to invest more in capital equipment. The construction sector looks in good health, and with the rest of the world continuing to grow exports should hold up. In theory this should make for a bright future for corporate earnings, but political clouds are likely to remain. There is uncertainty regarding the extent to which the US will apply trade tariffs, particularly whether they will extend to include car manufacturing and component industries. The UK's future trade relationship with the EU has not started to be negotiated formally, although a withdrawal of the type currently being proposed by the UK government would leave the situation very much unchanged for the transition period that would start in April of next year. The Italian government is likely to keep pushing for a budgetary target that exceeds the EU's rules, although here the bond market could temper their ambitions if spreads (and therefore interest costs) continue to rise.
In this environment we are slightly more at the mercy of external forces than is comfortable, but we believe that an adherence to the principles of investing in sound companies with strong balance sheets and attractive valuations will stand us in good stead, as it has done for the last 10 years.
Stephen Macklow-Smith
Alexander Fitzalan Howard
Michael Barakos
Thomas Buckingham
Investment Managers
23rd November 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 fall into the following 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 2018.
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, 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 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 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 at 30th September 2018, 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
Andrew AdcockChairman
23rd November 2018
statement of comprehensive income
For the six months ended 30th September 2018
| (Unaudited) Six months ended 30th September 2018 | (Unaudited) Six months ended 30th September 2017 | (Audited) Year ended 31st March 2018 | ||||||
| |||||||||
| |||||||||
| Revenue | Capital | Total | Revenue | Capital | Total | Revenue | Capital | Total |
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 |
Gains on investments and derivatives held at fair value through profit or loss | - | 11,690 | 11,690 | - | 34,880 | 34,880 | - | 19,788 | 19,788 |
Net foreign currency losses | - | (246) | (246) | - | (1,683) | (1,683) | - | (1,153) | (1,153) |
Income from investments | 13,314 | - | 13,314 | 11,431 | - | 11,431 | 15,550 | - | 15,550 |
Interest receivable and similar income | 37 | - | 37 | 32 | - | 32 | 53 | - | 53 |
Gross return | 13,351 | 11,444 | 24,795 | 11,463 | 33,197 | 44,660 | 15,603 | 18,635 | 34,238 |
Management fee | (613) | (1,171) | (1,784) | (597) | (1,157) | (1,754) | (1,215) | (2,358) | (3,573) |
Other administrative expenses | (461) | - | (461) | (362) | - | (362) | (699) | - | (699) |
Net return on ordinary activities before finance costs and taxation | 12,277 | 10,273 | 22,550 | 10,504 | 32,040 | 42,544 | 13,689 | 16,277 | 29,966 |
Finance costs | (233) | (447) | (680) | (239) | (474) | (713) | (450) | (874) | (1,324) |
Net return on ordinary activities before taxation | 12,044 | 9,826 | 21,870 | 10,265 | 31,566 | 41,831 | 13,239 | 15,403 | 28,642 |
Taxation | (1,120) | - | (1,120) | (1,121) | - | (1,121) | (391) | - | (391) |
Net return on ordinary activities after taxation | 10,924 | 9,826 | 20,750 | 9,144 | 31,566 | 40,710 | 12,848 | 15,403 | 28,251 |
Return per share (note 3): |
|
|
|
|
|
|
|
|
|
Growth share | 8.01p | 7.81p | 15.82p | 6.27p | 26.85p | 33.12p | 8.56p | 15.01p | 23.57p |
Income share | 5.01p | 4.07p | 9.08p | 4.59p | 11.56p | 16.15p | 6.65p | 4.08p | 10.73p |
statement of changes in equity
For the six months ended 30th September 2018
| 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 2018 (Unaudited) |
|
|
|
|
|
|
At 31st March 2018 | 5,023 | 100,773 | 15,062 | 296,538 | 8,741 | 426,137 |
Repurchase and cancellation of the Company's own shares | (27) | - | 27 | (1,657) | - | (1,657) |
Net return on ordinary activities | - | - | - | 9,826 | 10,924 | 20,750 |
Dividends paid in the period (note 4) | - | - | - | - | (5,159) | (5,159) |
At 30th September 2018 | 4,996 | 100,773 | 15,089 | 304,707 | 14,506 | 440,071 |
Six months ended 30th September 2017 (Unaudited) |
|
|
|
|
|
|
At 31st March 2017 | 5,024 | 84,114 | 14,864 | 298,082 | 5,871 | 407,955 |
Repurchase and cancellation of the Company's own shares | (1) | - | 1 | (91) | - | (91) |
Net return on ordinary activities | - | - | - | 31,566 | 9,144 | 40,710 |
Dividends paid in the period (note 4) | - | - | - | - | (4,173) | (4,173) |
At 30th September 2017 | 5,023 | 84,114 | 14,865 | 329,557 | 10,842 | 444,401 |
Year ended 31st March 2018 (Audited) |
|
|
|
|
|
|
At 31st March 2017 | 5,024 | 84,114 | 14,864 | 298,082 | 5,871 | 407,955 |
Repurchase and cancellation of the Company's own shares | (1) | - | 1 | (91) | - | (91) |
Share conversions during the year | - | 16,659 | 197 | (16,856) | - | - |
Net return on ordinary activities | - | - | - | 15,403 | 12,848 | 28,251 |
Dividends paid in the year (note 4) | - | - | - | - | (9,978) | (9,978) |
At 31st March 2018 | 5,023 | 100,773 | 15,062 | 296,538 | 8,741 | 426,137 |
1 These reserves form the distributable reserves of the Company and may be used to fund distributions to investors via dividend payments.
statement of financial position
At 30th September 2018
| (Unaudited) 30th September 2018 | (Unaudited) | (Audited) | ||
| 30th September | 31st March | |||
|
|
|
| 2017 | 2018 |
| Growth | Income | Total | Total | Total |
| £'000 | £'000 | £'000 | £'000 | £'000 |
Fixed assets |
|
|
|
|
|
Investments held at fair value through profit or loss | 278,594 | 192,714 | 471,308 | 483,385 | 451,046 |
Current assets |
|
|
|
|
|
Derivative financial assets | 86 | 203 | 289 | 377 | 315 |
Debtors | 1,294 | 902 | 2,196 | 1,343 | 2,340 |
Cash and cash equivalents | 9,856 | 15,337 | 25,193 | 17,496 | 30,078 |
| 11,236 | 16,442 | 27,678 | 19,216 | 32,733 |
Current liabilities |
|
|
|
|
|
Creditors: amounts falling due within one year | (7,920) | (5,670) | (13,590) | (14,279) | (13,600) |
Derivative financial liabilities | (407) | (598) | (1,005) | (87) | (423) |
Net current assets | 2,909 | 10,174 | 13,083 | 4,850 | 18,710 |
Total assets less current liabilities | 281,503 | 202,888 | 484,391 | 488,235 | 469,756 |
Creditors: amounts falling due after more than one year | (25,827) | (18,493) | (44,320) | (43,834) | (43,619) |
Net assets | 255,676 | 184,395 | 440,071 | 444,401 | 426,137 |
Capital and reserves |
|
|
|
|
|
Called up share capital | 2,877 | 2,119 | 4,996 | 5,023 | 5,023 |
Share premium reserve | 12,675 | 88,098 | 100,773 | 84,114 | 100,773 |
Capital redemption reserve | 13,703 | 1,386 | 15,089 | 14,865 | 15,062 |
Capital reserves | 220,592 | 84,115 | 304,707 | 329,557 | 296,538 |
Revenue reserve | 5,829 | 8,677 | 14,506 | 10,842 | 8,741 |
Total shareholders' funds | 255,676 | 184,395 | 440,071 | 444,401 | 426,137 |
Net asset values (note 5): |
|
|
|
|
|
Net asset value per Growth share |
|
| 352.4p | 353.1p | 338.5p |
Net asset value per Income share |
|
| 181.4p | 183.3p | 175.8p |
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 | 30th September | 31st March |
| 2018 | 2017 | 2018 |
| £'000 | £'000 | £'000 |
Net cash outflow from operations before dividends and interest | (1,571) | (1,609) | (3,959) |
Dividends received | 11,635 | 10,759 | 13,637 |
Overseas tax recovered | 272 | 113 | 1,255 |
Net cash inflow from operating activities | 10,336 | 9,263 | 10,933 |
Purchases of investments and derivatives | (139,145) | (140,132) | (273,101) |
Sales of investments and derivatives | 130,771 | 128,336 | 277,797 |
Settlement of future contracts | 17 | (291) | (259) |
Settlement of foreign currency contracts | 584 | (409) | 456 |
Net cash (outflow)/inflow from investing activities | (7,773) | (12,496) | 4,893 |
Dividends paid | (5,159) | (4,173) | (9,978) |
Repurchase and cancellation of the Company's own shares | (1,657) | (354) | (354) |
Repayment of bank loans | (13,477) | - | - |
Interest paid | (674) | (663) | (1,312) |
Drawdown of bank loans | 13,528 | - | - |
Net cash outflow from financing activities | (7,439) | (5,190) | (11,644) |
(Decrease)/Increase in cash and cash equivalents | (4,876) | (8,423) | 4,182 |
Cash and cash equivalents at start of period/year | 30,078 | 25,920 | 25,920 |
Exchange movements | (9) | (1) | (24) |
Cash and cash equivalents at end of period/year | 25,193 | 17,496 | 30,078 |
(Decrease)/Increase in cash and cash equivalents | (4,876) | (8,423) | 4,182 |
Cash and cash equivalents consist of: |
|
|
|
Cash and short term deposits | 5,032 | 681 | 6,219 |
JPMorgan Euro Liquidity Fund | 20,161 | 16,815 | 23,859 |
Total | 25,193 | 17,496 | 30,078 |
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 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 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 | 30th September | 31st March |
| Growth Share | 2018 | 2017 | 2018 |
| Return per share is based on the following: |
|
|
|
| Revenue return | 5,828 | 4,840 | 6,589 |
| Capital return | 5,681 | 20,726 | 11,559 |
| Total return | 11,509 | 25,566 | 18,148 |
| Weighted average number of shares in issue | 72,767,969 | 77,196,087 | 76,996,832 |
| Revenue return per share | 8.01p | 6.27p | 8.56p |
| Capital return per share | 7.81p | 26.85p | 15.01p |
| Total return per share | 15.82p | 33.12p | 23.57p |
|
| (Unaudited) | (Unaudited) | (Audited) |
|
| Six months ended | Six months ended | Year ended |
|
| 30th September | 30th September | 31st March |
| Income share | 2018 | 2017 | 2018 |
| Return per share is based on the following: |
|
|
|
| Revenue return | 5,096 | 4,304 | 6,259 |
| Capital return | 4,145 | 10,840 | 3,844 |
| Total return | 9,241 | 15,144 | 10,103 |
| Weighted average number of shares in issue | 101,745,485 | 93,769,494 | 94,147,254 |
| Revenue return per share | 5.01p | 4.59p | 6.65p |
| Capital return per share | 4.07p | 11.56p | 4.08p |
| Total return per share | 9.08p | 16.15p | 10.73p |
4. Dividend
|
| (Unaudited) | (Unaudited) | (Audited) |
|
| Six months ended | Six months ended | Year ended |
|
| 30th September | 30th September | 31st March |
|
| 2018 | 2017 | 2018 |
|
| £'000 | £'000 | £'000 |
| Dividends paid |
|
|
|
| Unclaimed Growth dividends refunded to the Company | (1) | - | (1) |
| Growth 2018 second interim dividend of 2.00p (2017: 2.00p) | 1,544 | 1,549 | 1,549 |
| Growth 2018 first interim dividend of 4.85p | - | - | 3,744 |
| Income 2018 fourth interim dividend of 2.50p (2017: 1.70p) | 2,344 | 1,593 | 1,593 |
| Income 2019 first interim dividend of 1.25p (2018: 1.10p) | 1,272 | 1,031 | 1,031 |
| Income 2018 second interim dividend of 1.10p | - | - | 1,031 |
| Income 2018 third interim dividend of 1.10p | - | - | 1,031 |
| Total dividends paid in the period | 5,159 | 4,173 | 9,978 |
| Dividends declared |
|
|
|
| Growth 2018 second interim dividend of 2.00p | - | - | 1,544 |
| Growth 2019 first interim dividend of 4.85p (2018: 4.85p) | 3,520 | 3,744 | - |
| Income 2018 fourth interim dividend of 2.50p | - | - | 2,344 |
| Income 2019 second interim dividend of 1.25p (2018: 1.10p) | 1,272 | 1,031 | - |
| Total dividends declared | 4,792 | 4,775 | 3,888 |
All dividends paid in the period have been funded from the Revenue Reserve.
5. Net asset value per share
|
| (Unaudited) | (Unaudited) | (Audited) |
|
| Six months ended | Six months ended | Year ended |
|
| 30th September | 30th September | 31st March |
|
| 2018 | 2017 | 2018 |
| Growth Share |
|
|
|
| Net assets (£'000) | 255,676 | 272,527 | 246,994 |
| Number of shares in issue | 72,554,097 | 77,190,492 | 72,972,275 |
| Net asset value per share | 352.4p | 353.1p | 338.5p |
| Income Share |
|
|
|
| Net assets (£'000) | 184,395 | 171,874 | 179,143 |
| Number of shares in issue | 101,645,224 | 93,769,494 | 101,880,214 |
| Net asset value per share | 181.4p | 183.3p | 175.8p |
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.
23rd November 2018
For further information, please contact:
Paul Winship
For and on behalf of
JPMorgan Funds Limited, Secretary
020 7742 4000
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.jpmeuropean.co.uk where up to date information on the Company, including daily NAV and share prices, factsheets and portfolio information can also be found.