7 Jun 2019 14:46
LONDON STOCK EXCHANGE ANNOUNCEMENT
JPMORGAN EUROPEAN INVESTMENT TRUST PLC
FINAL RESULTS FOR THE YEAR ENDED31ST MARCH 2019
The Directors of JPMorgan European Investment Trust plc announce the Company's results
for the year ended 31st March 2019
Legal Entity Identifier: 549300D8SPJFHBDGXS57
Information disclosed in accordance with DTR 4.1.
CHAIRMAN'S STATEMENT
Performance
In the year ended 31st March 2019, the percentage changes in the Company's Growth (JETG) and Income (JETI) net asset value (NAV) were -2.3% and +1.4% respectively. The discount on both Growth and Income share price to NAV widened during the reporting period, reflecting deteriorating market sentiment towards Europe. As a result, the total returns to shareholders with net dividends reinvested in the Company's Growth and Income portfolios were -7.9% and -4.7% respectively. Returns on both measures for the two portfolios underperformed the benchmark (the MSCI Europe ex UK index in sterling) of +2.2%. The results for the period under review are somewhat disappointing and reflect volatile market conditions. However, over the longer periods of five and ten years the performance of both portfolios on a NAV basis was ahead of benchmark.
In their Report on pages 8 to 12 of the Company's Annual Report and Financial Statements, the Investment Managers comment on some of the factors underlying the performance of the two portfolios including performance against the benchmark over the Company's financial year, as well as commenting on the economic and market background.
Revenue and Dividends
On the Growth shares the Board's aim is that annual dividend payments continue to be broadly in line with revenues received on the underlying portfolio. In the period the dividend paid per Growth share was 8.85 pence (2018: 6.85 pence). On the year-end share price of 265.0 pence (2018: 297.0 pence), this represents a yield of 3.3% (2018: 2.3%). Revenue per share on the Growth portfolio for the year to 31st March 2019 (calculated by reference to the average number of shares in issue over the period) amounted to 10.68 pence per share (2018: 8.56 pence per share).
As regards the Income shares, the Board's aim is to provide a regular stream of dividend income on a quarterly basis, subject to the availability of distributable reserves. JETI's four dividend payments are spread over the Company's financial year. The Company's fourth interim dividend may be larger than the previous three, depending on the results for the year.
In the period under review, the dividend paid per Income share was 6.25 pence (2018: 5.80 pence). On the year-end share price of 144.0 pence (2018: 157.5 pence) this represents a yield of 4.3% (2018: 3.7%). Revenue per share on the Income portfolio for the year (again, calculated by reference to the average number of shares in issue over the period) amounted to 6.79 pence per share (2018: 6.65 pence per share).
The timing of the dividend payments for both share classes are expected to be maintained with Growth shares dividends paid bi-annually in April and October and Income shares paid quarterly in April, July, October and January.
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 31st March 2019 the Growth portfolio was 7.7% geared and the Income portfolio was 2.5% geared. The levels of gearing quoted in the Company's Annual Report are before the application of derivatives, such as futures, which can be used by the Investment Managers to either increase or decrease the effective rate of the Company's gearing, according to market conditions.
Conversions
The Company's annual share conversion on 15th March 2019 resulted in a relatively small shift out of Income shares and into Growth shares. See page 35 of the Company's Annual Report and Financial Statements for further details.
Share Issuance and Repurchase
At the forthcoming Annual General Meeting (AGM) on 15th July 2019 as referred to below, the Company will seek to renew its permission to allot new equity in order to manage the balance between the supply of and demand for its shares, subject to the requirements and conditions as detailed in the notice to the AGM on page 94 of the Company's Annual Report and Financial Statements. Such allotments benefit all shareholders not least by increasing the liquidity of the Company's shares. The Board has a proactive approach to the use of its share issuance and repurchase powers.
The Board 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 thereby minimise the volatility and absolute level of the discount to net asset value at which the Company's shares trade. The Board do not wish to see the discounts widen beyond 10% (using the cum-income NAV) on an ongoing basis. The precise level and timing of repurchases pursuant to this policy depend upon prevailing market conditions. Over the year under review the discount levels have averaged 11.7% for the Growth shares and 10.7% for Income shares (at fair value). During the year, the Board was active in implementing its buyback policy and purchased a total of 992,424 Growth shares and 342,064 Income shares. Since the year end 125,000 Growth shares and 15,439 Income shares have been repurchased. On the 6th June 2019 the discount on the Growth and Income shares was 12.2% and 11.1% respectively (at fair value).
Board of Directors
On 28th January 2019, the Board announced the sad news that Andrew Adcock, the Company's Chairman had passed away. Andrew battled bravely with ill health for the past couple of years with a courage, humour and determination that was truly inspirational. Andrew Adcock was a talented Chairman and Director of the Company and greatly respected by all members of the Board, Shareholders and the Company's Manager, JPMorgan Asset Management. The Board send their sincere condolences to Andrew Adcock's family. Since the 13th December 2018, I had acted as interim Chair of the Board and Jutta af Rosenborg had acted as interim Chair of the Audit Committee. With agreement of the Board, these positions were made permanent following the sad loss of Andrew Adcock.
In order to bring the complement of Board members back up to five, an independent third party search consultant was engaged to identify a suitable person for appointment as a Director of the Board. After consideration of a strong selection of candidates, the Board is very pleased to announce that Rita Dhut was appointed to the Board on 4th June 2019. Rita Dhut has 18 years' asset management experience in UK and continental European equities with roles including Director of European Equities at M&G and Head of Pan European Equity Value Investing at Aviva Investors.
During the year, the Board carried out its customary evaluation of the Directors, the Chairman, the Committees and the working of the Board as a whole. It was concluded that all aspects of the Board and its procedures were operating effectively. In accordance with corporate governance best practice, all of the Directors retire by rotation at this year's AGM and will offer themselves for re-election. There has been no increase in the Directors remuneration since the increase effective from 1st April 2018. Detail of this increase was included in the Chairman's Statement for the Company's Annual Report and Financial Statements to 31st March 2018.
Investment Managers
The performance of the Investment Managers is formally evaluated by the Board annually. Following this review for the period ended 31st March 2019 the Board concluded that the performance of the Manager had been satisfactory and that their services should be retained.
Transfer of Reserves between the Growth and Income Portfolios
As referred to in the Chairman's Statement included in the Company's Half Year Report and Financial Statements to 30th September 2018, the Board 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, as in previous years. £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.
Annual General Meeting
The Company's ninetieth AGM will take place at J.P.Morgan's offices at 60 Victoria Embankment, London EC4Y 0JP on Monday, 15th July 2019 at 2.30 p.m. In addition to the formal proceedings there will, as usual, be a presentation by the Investment Managers, followed by tea when shareholders, who are always most welcome, can meet the Directors and the Investment Managers for more informal discussions. It would be helpful if shareholders seeking answers to detailed questions put them in writing beforehand, addressed to the Company Secretary at 60 Victoria Embankment, London EC4Y 0JP. Alternatively, questions may be submitted via the Company's website www.jpmeuropean.co.uk.
Outlook
The Board and Managers are mindful of the political uncertainties of investing in Europe which currently include Brexit and the influence of populist parties, together with ongoing trade tensions between the U.S.A. and China, which impacts global stock markets. However, we believe that, within the Company's risk parameters, 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
Josephine Dixon
Chairman
7th June 2019
INVESTMENT MANAGERS' REPORT
Introduction
During the Company's financial year ended 31st March 2019, one of the key features was the underperformance of value investing as a style. Given that our Income shares invest in stocks with a high dividend yield and that our Growth shares invest in stocks at cheap valuations, the underperformance of these cheap stocks was a headwind for us during the year. The Company's benchmark managed a small positive return, although it was also a year of volatility with the benchmark up 10% at its best and down 6% at its worst. Performance is analysed later in this report.
Economic Overview
The economic background deteriorated as 2018 went on, despite starting with a vertiginous rise in stock markets around the world in January, which then gave way to a correction into the beginning of the company's financial year. The driver for the correction was a reaction to the deceleration from what had been a particularly positive growth environment in late 2017 and early 2018 around the world. Most developed markets had been growing above trend, and emerging markets economies were continuing to recover from the fall in commodities prices that had negatively affected them two years previously. This positive growth environment deteriorated during the year under review, largely as a result of an uncertain political background. The United States of America decided to implement tariffs and other measures on trade with most of its major trading partners. In the case of Mexico and Canada a new trade agreement was reached fairly quickly, but the attention of the USA then switched to other markets such as China and the Eurozone. Again in the case of the Eurozone, an initial agreement was reached fairly quickly, but in the case of China, a fairly aggressive stance was taken by the USA and this seems to have undermined confidence among companies involved in global trade and also to have undermined confidence about capital investment outside the USA. The indicator for this fall in confidence was purchasing manager indices which came off their best and outside the USA continued to fall. The rate of growth of global trade also contracted, and uncertainty about the global supply chain appears to have led to a deferral of investment decisions by global companies. Global equity markets improved in the first quarter of 2019, although since then sentiment has weakened following faltering U.S.A-China trade relations.
The fall in confidence was particularly marked in the European Autos industry, which is a substantial employer in Germany and a key player in the European economy. New emission standards led to an accelerated inventory cycle but at the same time it became clear that demand from China was decelerating fast.
Political Overview
Elsewhere in the political sphere we had the continuing negotiations between the United Kingdom and the European Union about the UK's withdrawal, and we also saw the appointment of a new Italian government comprised of two populist parties who announced their determination to adjust the spending limit imposed by the Stability and Growth Pact which had been agreed by all Eurozone countries. In France, Emmanuel Macron faced protest from the gilets jaunes movement, triggered by his introduction of taxes on fuel, which were designed to meet France's undertakings under the Paris accord on climate change.
The impact of the slowdown in industrial confidence, and of heightened political risk in Italy made itself felt in bond markets, where supposedly safe assets saw yields moving down to zero or into negative territory, while Italian government bonds began to attract a growing risk premium against other Eurozone assets. Falling long-term interest rates and flattening yield curves are a classic indicator of a challenging growth environment, and given all of the uncertainty it would not have been unreasonable to expect analysts to slash their expectations for company profitability. In the event though, while analysts revised modestly lower their predictions of profits we actually saw a year of positive earnings growth in Europe which meant that the decline in equities prices made valuations more attractive. If anything, this phenomenon of falling valuations was at its most acute in the USA, where the stock market finished 2018 flat or slightly down despite the fact that earnings were growing by around 20%. In Europe, in 2018, the stock market fell by 10% despite earnings growing by around 7%. Dividend payments also grew in Europe and combined with falling equity prices this meant that dividend yield became considerably more attractive, especially when comparing the yield available on equities to those available on government bonds or in cash.
During the year the European Central Bank adjusted its program of support for the economy, committing to keep interest-rates low for the foreseeable future, but backing away from purchases of sovereign debt. Despite the absence of the European Central Bank as a buyer, yields remained extremely low. One of the features of the regulatory environment that has been put in place since the financial crisis of 2008 and 2009 is a huge appetite among banks, pension funds and insurance companies for what are referred to as safe assets. In addition, savers in Japan, which runs a large current-account surplus, are keen to invest money in other bond markets around the world which might give them a positive yield compared to what is available to them on domestic Japanese bonds, and this competition to buy safe assets seems to be keeping yields at an ultra low level, even though central banks in the USA, UK and the Euro zone are no longer buying.
In an uncertain growth environment profits are expected to grow further in 2019, on top of the growth experienced in 2018, and an optimist would say that if trade tensions can be defused the global economy may be due another leg up. For that to happen though we probably need a more stable political environment, and it is clear that political incumbents on the Continent are under pressure. During the year, we saw Chancellor Merkel's power eclipsed in Germany as she suffered a string of local election setbacks. This precipitated her announcement that she would be standing down as leader of her party which is widely viewed as presaging her standing down as Chancellor. The European Parliamentary elections presage a wholesale changing of the guard at European institutions. The Presidents of the European Council, the European Commission, the European Parliament, and the European Central Bank will all be standing down before the end of the year, and especially in the case of European Central Bank, investors will scrutinise any potential appointees for clues as to the likely direction that policy will take in the next few years. Mr Draghi famously stated that the European Central Bank would do whatever it takes to preserve the Euro and this opened the door to extraordinary monetary policy in the shape of zero interest rates and purchases of sovereign bonds. His replacement will have to reconcile the pressure from some European countries for a loosening of fiscal rules in an attempt to boost domestic demand against the demands of others for an end to ultra low interest rates which they view as penalising savers.
Earnings
Against this background European companies continue to make progress in profitability terms. Earnings for our investable universe struggled to grow in the aftermath of the financial crisis and we have discussed this in previous annual reports. In many cases this was because of factors which specifically affected certain sectors such as banks, and energy and other commodity companies. Consensus profits in 2019 are expected to be a little over 10% below their historical peak having been at their worst 50% below that peak in 2010 and very nearly as bad again in 2016. Margins, which are a good indication of the underlying health of the business are also recovering. Outside the financial sector margins are within touching distance of their historic highs, and this against a background in which growth in most parts of the world outside the USA has been disappointing. Balance sheets also look respectably healthy: for instance in the financial sector, banks look very well capitalised as a result of the pressure put on them by regulators, and outside the financial sector, although net debt has drifted higher the low interest environment means that the affordability of debt is good.
Sector Performance
During the year under review, there was a substantial spread of return between individual sectors. The best performing sector in Europe was Utilities, followed closely by Consumer Staples (this includes companies in Food and Beverages and Personal and Household Products). Healthcare also did well and one of the key characteristics of these three sectors is that they are all viewed as beneficiaries of lower interest rates, so in an environment in which long-term interest rates were falling it is not a surprise to find these sectors in favour with investors. It raises the question, though, of how they would behave in an environment in which interest rates normalise. At the other end of the performance table, we had Financials where in particular, Bank stock prices came under pressure because the low interest rate environment was viewed as putting pressure on their ability to make a return from lending (when lending rates are very close to funding rates it is difficult to extract a decent margin on new loans). Autos also came under pressure for reasons described above, although valuations in the auto sector are now very close to levels that we see at the trough in the cycle rather than towards the peak in the economic cycle.
Stock Contributors - Growth
Given the background described above it is no surprise that, within the Growth portfolio, the investments that performed best during the year were concentrated in the defensive end of the market. Pharmaceuticals in particular stand out. For example Roche, the Swiss healthcare company, enjoyed strong growth in both its drug and diagnostic divisions as sales rose 7% and operating profits 9%. New drug launches to tackle cancer, multiple sclerosis and haemophilia helped drive this growth, but at the same time Roche invested 11bn CHF in developing its product pipeline for the future. The shares rose more than 30% during the year. Despite the favourable backdrop for the sector as a whole stock selection remained crucial. In relative terms at least it was helpful to be underweight Bayer which fell more than 35% as its recent acquisition Monsanto was successfully sued in the US courts over allegations that its Roundup weed killer was carcinogenic. There was a similar divergence within the food and beverage sector. The portfolio's holding in Nestle, owner of well-known brands such as Nescafe, Kit Kat and San Pellegrino, appreciated 30% while Anheuser-Busch, which we did not own, maker of Budweiser, fell 15% as the global beer market slowed.
In contrast to last year the growth portfolio's cyclical exposure was a hindrance. Particularly in the second half of 2018 performance was hurt by holdings in BE Semiconductor, which makes machines for packaging and attaching semiconductors. After rising more than 5x in 2016 and 2017 the stock fell 50% as investors lost confidence in the company's earnings prospects. It was a similar story at Fiat Chrysler which lost its CEO Sergio Marchionne to cancer in the middle of the year. Coupled with fears that a trade war with China would hit global auto sales, Fiat's share price fell 20%.
Stock Contributors - Income
Turning to the income portfolio, performance was helped by two non benchmark positions in the energy sector. Gaztransport & Technigaz which makes containers for liquefied natural gas, rose more than 60% and Aker BP which is a Norwegian exploration and production company whose share price climbed nearly 50%. As in previous years much of the relative performance came from avoiding poor benchmark stocks. The two biggest contributors were Bayer and Anheuser-Busch which have already been mentioned above. Elsewhere a number of banks that we did not own, including UniCredit, BNP Paribas, Societe Generale and Deutsche Bank performed badly.
Given the yield requirements of the income portfolio some stocks do not qualify for inclusion on the grounds of their low yield alone. This is particularly true in the growth end of the market which was a particular hindrance in the year under review. Key examples include Nestle, the software company SAP and the luxury goods companies L'Oreal and LVMH. Not owning these stocks held performance back by almost 2%.
Outlook
We live in politically turbulent times, and making predictions about the outcome of trade policy is challenging in the environment in which many of the previous norms are being overturned. Assuming that the policies of increasing liberalisation of trade which have bought prosperity to many on lower incomes both in developed economies and in emerging economies are likely to continue to be pursued by politicians, there is scope for the investing background to improve. In this environment we also expect that returns to Value investing will improve, especially since the underperformance of cheap stocks has meant that the spread between cheap and expensive stocks is now as extended as it ever gets.
Stephen Macklow-Smith
Alexander Fitzalan Howard
Michael Barakos
Thomas Buckingham
Investment Managers
7th June 2019
Principal Risks
The Directors have carried out a robust assessment of the principal risks facing the Company including those that would threaten its business model, future performance, solvency or liquidity. With the assistance of the Manager, the Board has drawn up a risk matrix, which identifies the key risks to the Company These key risks fall broadly under the following categories:
Investment
The Board recognises that performance of the trust's investment portfolio is fundamental to the success of the Company. In order to achieve the objectives given the risks inherent in investment such as market, gearing, currency and interest rates, investment guidelines, policies and processes are in place which aim to mitigate these risks. They are designed to ensure that the portfolios are managed in a way which is aimed at identifying the best stocks and diversifying risk. Regular reports are received by the Board from the Manager on stock selection, asset allocation, gearing, hedging and costs of running the Company and these are reviewed at each Board meeting in detail. Compliance with investment guidelines and policies are reviewed by the Manager and the Board, and discussed at each board meeting in detail together with an analysis of market parameters affecting the business.
Investment includes market risk and this arises from uncertainty about the future prices of the Company's investments. It represents the potential loss the Company might suffer through holding investments in the face of negative market movements. The Board considers asset allocation, stock selection and levels of gearing on a regular basis and has set Investment Restrictions and Guidelines which are monitored and reported on by JPMF. The Board monitors the implementation and results of the investment process with the Manager.
Further details regarding financial instruments are disclosed in note 22 on pages 80 to 84 of the Company's Annual Report and Financial Statements.
Operational
In common with most investment trusts the Board delegates the operation of the business to third parties, the principal delegate being the Manager JPFM. Disruption to, failure of, or fraud in JPMF's accounting, dealing or payments systems or the Depositary or Custodian's records could prevent timely implementation of investment decisions, and potentially shortfalls in the accuracy of reporting and monitoring of the Company's financial position and loss. Cyber crime is a threat to businesses continuity and security. The Board has received the cyber security policies of its key third party service providers and JPMF has provided assurance to the Directors that the Company benefits directly or indirectly from all elements of JPMorgan's cyber security programme. The information technology controls around the physical security of JPMorgan's data centres, security of its networks and trading applications are tested and reported on every six months against the AAF standard. Details of how the Board monitors the services provided by JPMF and its associates and the Depositary and Custodian and the key elements designed to provide effective internal control are included within the Internal Control section of the Corporate Governance report on page 44 of the Company's Annual Report and Financial Statements.
Regulatory
The Company operates in an environment with significant regulation including the UKLA Listing Rules, The UK Companies Act, the Corporation Taxes Act, Market Abuse Regulation, Disclosure Guidance and Transparency Regulations and the Alternative Investment Fund Managers Directive (AIFMD).
There has been no significant change to this risk during the year though the environment as a whole is considered to be one of increasing costs for compliance. The Company also operates under the requirements of the Bribery Act 2010 as referred to in the Directors Report on page 42 of the Company's Annual Report and Financial Statements.
Discount premium to NAV
Share price discount or premium to net asset value per share could lead to high levels of uncertainty and reduced shareholder confidence. For further details of the Company's action in addressing this risk and its buyback activity and discount, please see the Share Issuance and Repurchase section of the Chairman's Statement on page 6 of the Company's Annual Report and Financial Statements.
Strategy
The Board reviews the overall strategy and structure of the Company in comparison to performance against benchmark, peer group and share activity. The Board holds a separate meeting devoted to strategy each year which includes consideration of whether the Company's objectives and structures are appropriate for the long term interests of shareholders.
Transactions with the Manager and related parties
Details of the management contract are set out in the Directors' Report on page 40 of the Company's Annual Report and Financial Statements. The management fee payable to the Manager for the year was £3,451,000 (2018: £3,573,000), of which £nil (2018: £nil) was outstanding at the year end.
During the year £68,000 (2018: £nil) was payable to the Manager for the administration of savings scheme products, of which £nil (2018: £nil) was outstanding at the year end.
Included in administration expenses in note 6 on page 69 of the Company's Annual Report and Financial Statements, are safe custody fees amounting to £64,000 (2018: £50,000) payable to JPMorgan Chase of which £9,000 (2018: £6,000) was outstanding at the year end.
The Manager may carry out some of its dealing transactions through group subsidiaries. These transactions are carried out at arm's length. Commission amounting to £nil (2018: £4,000) was payable to JPMorgan Securities Limited for the year of which £nil (2018: £nil) was outstanding at the year end.
The Company holds investments in funds managed by JPMAM. At 31st March 2019 these were valued at £13.8 million (2018: £15.6 million) and represented 3.2% (2018: 3.5%) of the Company's investment portfolio. During the year the Company made £nil purchases of such investments (2018: £nil) and sales with a total value of £nil (2018: £1.2 million).
Income amounting to £205,000 (2018: £213,000) was receivable from these investments during the year of which £nil (2018: £nil) was outstanding at the year end.
The Company also holds cash in the JPMorgan Euro Liquidity Fund, managed by JPMF. At the year end this was valued at £22.6 million (2018: £23.9 million). Interest amounting to £89,000 (2018: £85,000) was payable during the year of which £nil (2018: £nil) was outstanding at the year end.
Stock lending income amounting to £116,000 (2018: £53,000) was receivable by the Company during the year. JPMAM commissions in respect of such transactions amounted to £20,000 (2018: £9,000).
Handling charges on dealing transactions amounting to £69,000 (2018: £53,000) were payable to JPMorgan Chase Bank N.A. during the year of which £8,000 (2018: £8,000) was outstanding at the year end.
At the year end, total cash of £5.1 million (2018: £5.9 million) was held with JPMorgan ChaseBank N.A. A net amount of interest of £4,000 (2018: £nil) was receivable by the Company during the year from JPMorgan Chase of which £nil (2018: £nil) was outstanding at the year end.
Full details of Directors' remuneration and shareholdings can be found on page 48 and in note 6 on page 69 of the Company's Annual Report and Financial Statements.
Statement of Directors' Responsibilities
The Directors are responsible for preparing the annual report and financial statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each financial year. Under that law, the Directors have elected to prepare the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards) including FRS 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland' and applicable law. Under Company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period. In preparing these financial statements, the Directors are required to:
• select suitable accounting policies and then apply them consistently;
• make judgements and 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;
• prepare the financial statements on a 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.
The Directors are responsible for keeping proper accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and to enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The annual report and financial statements are published on the www.jpmeuropean.co.uk website, which is maintained by the Company's Manager, JPMorgan Funds Limited. The maintenance and integrity of the website maintained by the Manager is, so far as it relates to the Company, the responsibility of the Manager. The work carried out by the auditors does not involve consideration of the maintenance and integrity of this website and, accordingly, the auditors accept no responsibility for any changes that have occurred to the accounts since they were initially presented on the website. The annual report and financial statements are prepared in accordance with UK legislation, which may differ from legislation in other jurisdictions.
Under applicable law and regulations the Directors are also responsible for preparing a Strategic Report, a Directors' Report and a Directors' Remuneration Report that comply with that law. The Strategic Report and the Directors' report include a fair review of the development and performance of the business and the position of the issuer, together with a description of the principal risks and uncertainties that they face.
Each of the Directors, whose names and functions are listed on page 39 of the Company's Annual Report and Financial Statements, confirm that, to the best of their knowledge the financial statements, which have been prepared in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law), give a true and fair view of the assets, liabilities, financial position and return or loss of the Company.
The Board confirms that it is satisfied that the annual report and financial statements taken as a whole are fair, balanced and understandable and provide the information necessary for shareholders to assess the strategy and business model of the Company.
For and on behalf of the BoardJosephine DixonChairman
7th June 2019
statement of comprehensive income (unaudited) - growth
for the year ended 31st March 2019
2019 | 2018 | |||||
Revenue | Capital | Total | Revenue | Capital | Total | |
£'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
(Losses)/gains on investments and derivatives held at fair value through profit or loss | - | (12,016) | (12,016) | - | 13,771 | 13,771 |
Net foreign currency gains/(losses) | - | 335 | 335 | - | (150) | (150) |
Income from investments | 9,158 | - | 9,158 | 8,049 | - | 8,049 |
Interest receivable and similar income | 50 | - | 50 | 19 | - | 19 |
Gross return/(loss) | 9,208 | (11,681) | (2,473) | 8,068 | 13,621 | 21,689 |
Management fee | (584) | (1,362) | (1,946) | (642) | (1,499) | (2,141) |
Other administrative expenses | (478) | - | (478) | (436) | - | (436) |
Net return/(loss) on ordinary activities before finance costs and taxation | 8,146 | (13,043) | (4,897) | 6,990 | 12,122 | 19,112 |
Finance costs | (223) | (522) | (745) | (241) | (563) | (804) |
Net return/(loss) on ordinary activities before taxation | 7,923 | (13,565) | (5,642) | 6,749 | 11,559 | 18,308 |
Taxation | (176) | - | (176) | (160) | - | (160) |
Net return/(loss) on ordinary activities after taxation | 7,747 | (13,565) | (5,818) | 6,589 | 11,559 | 18,148 |
Return/(loss) per Growth share | 10.68p | (18.71)p | (8.03)p | 8.56p | 15.01p | 23.57p |
statement of financial position (unaudited) - growth
at 31st March 2019
2019 | 2018 | |
£'000 | £'000 | |
Fixed assets | ||
Investments held at fair value through profit or loss | 252,446 | 261,864 |
Current assets | ||
Derivative financial assets | 99 | 111 |
Debtors | 1,416 | 760 |
Cash and cash equivalents | 13,408 | 17,586 |
14,923 | 18,457 | |
Current liabilities | ||
Creditors: amounts falling due within one year | (7,669) | (7,816) |
Derivative financial liabilities | (419) | (93) |
Net current assets | 6,835 | 10,548 |
Total assets less current liabilities | 259,281 | 272,412 |
Creditors: amounts falling due after more than one year | (24,990) | (25,418) |
Net assets | 234,291 | 246,994 |
Net asset value per Growth share | 324.0p | 338.5p |
statement of comprehensive income (unaudited) - income
for the year ended 31st March 2019
2019 | 2018 | |||||
Revenue | Capital | Total | Revenue | Capital | Total | |
£'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
(Losses)/gains on investments and derivatives held at fair value through profit or loss | - | (4,486) | (4,486) | - | 6,017 | 6,017 |
Net foreign currency gains/(losses) | - | 931 | 931 | - | (1,003) | (1,003) |
Income from investments | 8,706 | - | 8,706 | 7,501 | - | 7,501 |
Interest receivable and similar income | 70 | - | 70 | 34 | - | 34 |
Gross return/(loss) | 8,776 | (3,555) | 5,221 | 7,535 | 5,014 | 12,549 |
Management fee | (602) | (903) | (1,505) | (573) | (859) | (1,432) |
Other administrative expenses | (362) | - | (362) | (263) | - | (263) |
Net return/(loss) on ordinary activities before finance costs and taxation | 7,812 | (4,458) | 3,354 | 6,699 | 4,155 | 10,854 |
Finance costs | (218) | (328) | (546) | (209) | (311) | (520) |
Net return/(loss) on ordinary activities before taxation | 7,594 | (4,786) | 2,808 | 6,490 | 3,844 | 10,334 |
Taxation | (696) | - | (696) | (231) | - | (231) |
Net return/(loss) on ordinary activities after taxation | 6,898 | (4,786) | 2,112 | 6,259 | 3,844 | 10,103 |
Return/(loss) per Income share | 6.79p | (4.71)p | 2.08p | 6.65p | 4.08p | 10.73p |
statement of financial position (unaudited) - income
at 31st March 2019
2019 | 2018 | |
£'000 | £'000 | |
Fixed assets | ||
Investments held at fair value through profit or loss | 177,920 | 189,182 |
Current assets | ||
Derivative financial assets | 298 | 204 |
Debtors | 3,142 | 1,580 |
Cash and cash equivalents | 15,779 | 12,492 |
19,219 | 14,276 | |
Current liabilities | ||
Creditors: amounts falling due within one year | (5,500) | (5,784) |
Derivative financial liabilities | (206) | (330) |
Net current assets | 13,513 | 8,162 |
Total assets less current liabilities | 191,433 | 197,344 |
Creditors: amounts falling due after more than one year | (17,894) | (18,201) |
Net assets | 173,539 | 179,143 |
Net asset value per Income share | 172.0p | 175.8p |
Statement of Comprehensive income
For the year ended 31st March 2019
2019 | 2018 | |||||
Revenue | Capital | Total | Revenue | Capital | Total | |
£'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
(Losses)/gains on investments and derivatives held at fair value through profit or loss | - | (16,502) | (16,502) | - | 19,788 | 19,788 |
Net foreign currency gains/(losses) | - | 1,266 | 1,266 | - | (1,153) | (1,153) |
Income from investments | 17,864 | - | 17,864 | 15,550 | - | 15,550 |
Interest receivable and similar income | 120 | - | 120 | 53 | - | 53 |
Gross return/(loss) | 17,984 | (15,236) | 2,748 | 15,603 | 18,635 | 34,238 |
Management fee | (1,186) | (2,265) | (3,451) | (1,215) | (2,358) | (3,573) |
Other administrative expenses | (840) | - | (840) | (699) | - | (699) |
Net return/(loss) on ordinary activities before finance costs and taxation | 15,958 | (17,501) | (1,543) | 13,689 | 16,277 | 29,966 |
Finance costs | (441) | (850) | (1,291) | (450) | (874) | (1,324) |
Net return/(loss) on ordinary activities before taxation | 15,517 | (18,351) | (2,834) | 13,239 | 15,403 | 28,642 |
Taxation | (872) | - | (872) | (391) | - | (391) |
Net return/(loss) on ordinary activities after taxation | 14,645 | (18,351) | (3,706) | 12,848 | 15,403 | 28,251 |
Return/(loss) per share: (note 2) | ||||||
Growth share | 10.68p | (18.71)p | (8.03)p | 8.56p | 15.01p | 23.57p |
Income share | 6.79p | (4.71)p | 2.08p | 6.65p | 4.08p | 10.73p |
statement of changes in equity
for the year ended 31st March 2019
Called up | Capital | |||||
share | Share | redemption | Capital | Revenue | ||
capital | premium | reserve | reserves1 | reserve1 | Total | |
£'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
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 3) | - | - | - | - | (9,978) | (9,978) |
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 | (48) | - | 48 | (3,381) | - | (3,381) |
Share conversions during the year | - | 3,053 | 39 | (3,092) | - | - |
Net (loss)/return on ordinary activities | - | - | - | (18,351) | 14,645 | (3,706) |
Dividends paid in the year (note 3) | - | - | - | - | (11,220) | (11,220) |
At 31st March 2019 | 4,975 | 103,826 | 15,149 | 271,714 | 12,166 | 407,830 |
1 These reserves form the distributable reserve of the Company and may be used to fund distribution of profits to investors via dividend payments.
statement of financial position
at 31st March 2019
2019 | ||||
Growth | Income | 2018 | ||
(unaudited) | (unaudited) | Total | Total | |
£'000 | £'000 | £'000 | £'000 | |
Fixed assets | ||||
Investments held at fair value through profit or loss | 252,446 | 177,920 | 430,366 | 451,046 |
Current assets | ||||
Derivative financial assets | 99 | 298 | 397 | 315 |
Debtors | 1,416 | 3,142 | 4,558 | 2,340 |
Cash and cash equivalents | 13,408 | 15,779 | 29,187 | 30,078 |
14,923 | 19,219 | 34,142 | 32,733 | |
Current liabilities | ||||
Creditors: amounts falling due within one year | (7,669) | (5,500) | (13,169) | (13,600) |
Derivative financial liabilities | (419) | (206) | (625) | (423) |
Net current assets | 6,835 | 13,513 | 20,348 | 18,710 |
Total assets less current liabilities | 259,281 | 191,433 | 450,714 | 469,756 |
Creditors: amounts falling due after more than one year | (24,990) | (17,894) | (42,884) | (43,619) |
Net assets | 234,291 | 173,539 | 407,830 | 426,137 |
Capital and reserves | ||||
Called up share capital | 2,872 | 2,103 | 4,975 | 5,023 |
Share premium | 14,709 | 89,117 | 103,826 | 100,773 |
Capital redemption reserve | 13,734 | 1,415 | 15,149 | 15,062 |
Capital reserves | 198,748 | 72,966 | 271,714 | 296,538 |
Revenue reserve | 4,228 | 7,938 | 12,166 | 8,741 |
Total shareholders' funds | 234,291 | 173,539 | 407,830 | 426,137 |
Net asset values (note 4) | ||||
Net asset value per Growth share | 324.0p | 338.5p | ||
Net asset value per Income share | 172.0p | 175.8p | ||
statement of cash flows
for the year ended 31st March 2019
2019 | 2018 | |
£'000 | £'000 | |
Net cash outflow from operations before dividends and interest | (4,526) | (3,959) |
Dividends received | 14,277 | 13,637 |
Interest received | 4 | - |
Overseas tax recovered | 1,388 | 1,255 |
Net cash inflow from operating activities | 11,143 | 10,933 |
Purchases of investments | (248,805) | (273,101) |
Sales of investments | 251,740 | 277,797 |
Settlement of future contracts | 424 | (259) |
Settlement of foreign currency contracts | 438 | 456 |
Net cash inflow from investing activities | 3,797 | 4,893 |
Dividends paid | (11,220) | (9,978) |
Repayment of bank loans | (13,477) | - |
Drawdown of bank loans | 13,528 | - |
Interest paid | (1,291) | (1,312) |
Repurchase and cancellation of the Company's own shares | (3,381) | (354) |
Net cash outflow from financing activities | (15,841) | (11,644) |
(Decrease)/increase in cash and cash equivalents | (901) | 4,182 |
Cash and cash equivalents at the start of the year | 30,078 | 25,920 |
Exchange movements | 10 | (24) |
Cash and cash equivalents at the end of the year | 29,187 | 30,078 |
(Decrease)/increase in cash and cash equivalents | (901) | 4,182 |
Cash and cash equivalents consist of: | ||
Cash and short term deposits | 6,547 | 6,219 |
JPMorgan Euro Liquidity Fund | 22,640 | 23,859 |
Total | 29,187 | 30,078 |
Notes to the financial statements
for the year ended 31st March 2019
1. Accounting policies
Basis of accounting
The financial statements are prepared in accordance with the Companies Act 2006, United Kingdom Generally Accepted Accounting Practice ('UK GAAP'), including FRS 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland' and with the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' (the 'SORP') issued by the Association of Investment Companies in November 2014 and updated in February 2018.
All of the Company's operations are of a continuing nature.
The financial statements have been prepared on a going concern basis. The disclosures on going concern on page 46 of the Directors' Report of the Company's Annual Report and Financial Statements form part of these financial statements.
2. (Loss)/return per share
2019 | 2018 | ||
£'000 | £'000 | ||
Growth share | |||
Return per share is based on the following: | |||
Revenue return | 7,747 | 6,589 | |
Capital (loss)/return | (13,565) | 11,559 | |
Total (loss)/return | (5,818) | 18,148 | |
Weighted average number of shares in issue | 72,515,547 | 76,996,832 | |
Revenue return per share | 10.68p | 8.56p | |
Capital (loss)/return per share | (18.71)p | 15.01p | |
Total (loss)/return per share | (8.03)p | 23.57p | |
Income share | |||
Return per share is based on the following: | |||
Revenue return | 6,898 | 6,259 | |
Capital (loss)/return | (4,786) | 3,844 | |
Total return | 2,112 | 10,103 | |
Weighted average number of shares in issue | 101,651,495 | 94,147,254 | |
Revenue return per share | 6.79p | 6.65p | |
Capital (loss)/return per share | (4.71)p | 4.08p | |
Total return per share | 2.08p | 10.73p |
3. Dividends
Dividends paid and declared
2019 | 2018 | ||
£'000 | £'000 | ||
Dividends paid | |||
Unclaimed Growth dividends refunded to the Company | (1) | (1) | |
Growth 2018 second interim dividend of 2.00p (2017: 2.00p) per share | 1,544 | 1,549 | |
Growth first interim dividend of 4.85p (2018: 4.85p) per share | 3,520 | 3,744 | |
Income 2018 fourth interim dividend of 2.50p (2017: 1.70p) per share | 2,344 | 1,593 | |
Income first interim dividend of 1.25p (2018: 1.10p) per share | 1,272 | 1,031 | |
Income second interim dividend of 1.25p (2018: 1.10p) per share | 1,271 | 1,031 | |
Income third interim dividend of 1.25p (2018: 1.10p) per share | 1,270 | 1,031 | |
Total dividends paid in the year | 11,220 | 9,978 | |
Dividends declared | |||
Growth second interim dividend of 4.00p (2018: 2.00p) per share | 2,879 | 1,544 | |
Income fourth quarterly dividend of 2.50p (2018: 2.50p) per share | 2,538 | 2,344 | |
Total dividends declared1 | 5,417 | 3,888 |
1 In accordance with the accounting policy of the Company, these dividends will be reflected in the financial statements of the year ending 31st March 2020.
All dividends paid and declared in the period have been funded from the Revenue Reserve.
4. Net asset value per share
2019 | 2018 | ||
Growth share | |||
Ordinary shareholders' funds (£'000) | 234,291 | 246,994 | |
Number of shares in issue | 72,306,030 | 72,972,275 | |
Net asset value per share | 324.0p | 338.5p | |
Income share | |||
Ordinary shareholders' funds (£'000) | 173,539 | 179,143 | |
Number of shares in issue | 100,914,066 | 101,880,214 | |
Net asset value per share | 172.0p | 175.8p |
5. Status of announcement
2018 Financial Information
The figures and financial information for 2018 are extracted from the published Annual Report and Financial Statements for the year ended 31st March 2018 and do not constitute the statutory accounts for that year. The Annual Report and Financial Statements has been delivered to the Registrar of Companies and included the Report of the Independent Auditors which was unqualified and did not contain a statement under either section 498(2) or section 498(3) of the Companies Act 2006.
2019 Financial Information
The figures and financial information for 2019 are extracted from the Annual Report and Financial Statements for the year ended 31st March 2019 and do not constitute the statutory accounts for the year. The Annual Report and Financial Statements includes the Report of the Independent Auditors which is unqualified and does not contain a statement under either section 498(2) or section 498(3) of the Companies Act 2006. The Annual Report and Financial Statements will be delivered to the Registrar of Companies in due course.
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
Annual Report and Financial Statements
The Annual Report and Financial Statements will be posted to shareholders on or around 20th June 2019 and will shortly be available on the Company's website www.jpmeuropean.co.uk or in hard copy format from the Company's Registered Office, 60 Victoria Embankment London EC4Y 0JP.
A copy of the annual report will also be shortly submitted to the National Storage Mechanism and will be available for inspection at www.morningstar.co.uk/uk/NSM
Up to date information on the Company, including daily NAV and share prices, factsheets and portfolio information can also be found on the Company's website at www.jpmeuropean.co.uk
For further information:
Paul Winship,
JPMorgan Funds Limited, Secretary - 020 7742 4000
7th June 2019