Annual Report & Accounts to 31 May 2014

RNS Number : 0111R

Jupiter European Opps. Trust PLC

05 September 2014

 



Jupiter European Opportunities Trust plc (the "Company")

Annual Financial Report for the year ended 31 May 2014

This announcement contains regulated information

Financial Highlights

Capital Performance	31 May 2014	31 May 2013	% change
Total assets less current liabilities (£'000)	409,191	340,801	+20.1
Ordinary Share Performance	31 May 2014	31 May 2013	% change
Net asset value (pence)	451.26	403.58	+11.8***
Middle market price (pence)	460.00	410.00	+12.2
FTSE World Europe ex UK Total Return Index*	969.03	854.18	+13.4
Premium to net asset value (%)	1.9	1.6	-

Performance since launch

				Year-
			Net	on-year
		Total	Asset	change in	Year-
		Assets	Value	Net Asset	on-year
		less	per	Value per	change in
		Current	Ordinary	Ordinary	Benchmark
		Liabilities	Share	Share	Index
Year ended 31 May		£'000	p	%	%
20 November 2000	(launch)	93,969	94.66	-	-
2001		83,600	89.29	-5.7	-8.0
2002		91,028	91.12	+2.0	-10.7
2003		84,592	83.82	-8.0	-19.0
2004		97,915	109.25	+30.3	+15.7
2005	(restated)	117,679	133.54	+22.2	+19.3
2006		154,927	167.47	+25.4	+26.2
2007		182,278	224.58	+34.1	+30.0
2008		188,519	230.56	+2.7	-0.1
2009		131,457	162.35	-29.6	-25.3
2010		185,504	232.40	+43.1	+14.4
2011		252,813	316.73	+36.3	+24.2
2012		231,584	291.05	-8.1	-24.2
2013		340,801	403.58	+38.7	+43.3
2014		409,191	451.26	+11.8	+13.4

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

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

***Ongoing Charges figure for the year was 1.09% (2013: 1.17%).

 Strategic Report

Chairman's Statement

Investment Performance

Over the course of the year under review, the Net Asset Value ("NAV")* per share of your Company rose from 403.58p to 451.26p, a gain of 11.8 per cent. While satisfactory, this performance was slightly behind the 13.4 per cent. return of our benchmark, the FTSE World Europe ex UK Total Return Index.

Alexander Darwall, the fund manager, has given a candid appraisal of the past year in the accompanying Investment Adviser's Review. No fund manager gets everything right, and there are times when it is simpler to make money out of bombed-out, second-rate companies than from those with first class managements, strong track records and tested business models. But in my limited experience it is dangerous to change one's management style at a time when different approaches appear, in the short term at least, to be more successful.

Meanwhile, the price of your shares rose by 12.2 per cent. over the year, and for most of that time your shares traded at a premium to NAV.

Growing Your Company

Over the past year a total of 6,231,951 new shares were issued at a premium to NAV, under our existing blocklisting authority, raising a net amount of £25,959,000 (gross £26,115,423) for your Company and achieving an uplift in net assets of £377,516 for existing Shareholders. The premium to NAV at which new shares were issued varied from 1 per cent. to 3.11 per cent. At our year end 25,848,100 shares remained to be issued under the existing authority, which we will invite Shareholders to permit us to renew at this year's Annual General Meeting ('AGM'). At an average price of 419p for the shares issued during the past year, almost all those who bought shares in this way are showing a profit, on paper, at the time of writing.

Dividend

Shareholders will recall that it is not our investment objective to pay dividends, but inasmuch as we end the year with surplus income, that surplus is paid out to shareholders. As was the case last year, in order to retain our status as an investment trust under Section 1158 of the Corporation Tax Act 2010 we are not permitted to retain more than 15% of eligible investment income. Accordingly an interim dividend of 3.50p per Ordinary Share (2013: 3.5p) was declared on 2 September 2014 payable on 10 October 2014 to shareholders on the Register of Members on 12 September 2014.

Gearing

As Alexander notes in his review, the level of gearing has once again fallen, from 16.5 to 11.6 per cent. As equity markets rise, and the level of borrowings remains static, the gearing percentage will reduce; and, as equity markets rise, it makes sense consciously to bring the gearing level down since, as we all know, markets can surprise us on the downside, often for reasons which only become apparent some time later. None of us wishes once again to experience the time when markets were tumbling and the Company's gearing rose above the 40 per cent. level. But at least we are making some use of our gearing facility, the running cost of which is lower than the dividend yield on many of the investments in the portfolio.

Regulatory

Alternative Investment Fund Managers Directive

The Alternative Investment Fund Managers Directive ('AIFMD') came into force on 22 July 2014. The Company has entered into a new Investment Management Agreement ('IMA') with Jupiter Unit Trust Managers Limited ('JUTM'), who have become the Alternative Investment Fund Manager ('AIFM') to the Company pursuant to the requirements of the AIFMD. The fees schedule, calculation of performance fee, and termination provisions are unchanged from those set out in the previous IMA, which was drawn up between the Company and Jupiter Asset Management Limited ('JAM'), except that the wording of certain clauses has been updated to reflect current market practice. JUTM subsequently appointed JAM as Investment Adviser to the Company. JAM had earlier completed negotiations with our Depositary, JP Morgan Europe Limited, for the purpose of compliance with the AIFMD. The new Depositary Agreement was entered into by the Company on 22 July 2014. The Board very much appreciate the hard work of all those involved in preparing both agreements. Shareholders can be assured that the Board has kept the additional costs of implementing the AIFMD as low as it has been able.

New reporting requirements

As a result of recent legislative changes to reporting requirements, shareholders will note that a number of changes have been made to this year's Annual Report & Accounts. These include the provision of a new Strategic Report and Directors' Remuneration Policy as well as an updated Directors' Remuneration Report. The new Strategic Report replaces the Business Review and is designed to enhance shareholders' ability to assess how the directors have performed their duty to promote the success of the Company over the year. The new Directors' Remuneration Policy sets out the remuneration policy that will be adhered to by the Company for the next three years. In addition to shareholders being asked to approve the Directors' Remuneration Report (Resolution 2) at the forthcoming AGM, shareholders will also be asked to approve the Directors' Remuneration Policy (Resolution 3).

New Articles of Association

At the forthcoming AGM, shareholders will be asked to approve new Articles of Association of the Company in substitution for the current Articles of Association. The Board is proposing to make these amendments to the Articles in response to the AIFMD Regulations coming into force.

Annual General Meeting

The Company's AGM will be held on Wednesday, 5 November 2014 at the offices of Jupiter Asset Management Limited, 1 Grosvenor Place, London SW1X 7JJ. The Board would welcome your attendance at the AGM as it provides shareholders with an opportunity to ask questions of the Board and Investment Adviser.

Continuation Vote

In accordance with the current Articles of Association of the Company, the Board is required to put an ordinary resolution to shareholders at this year's AGM proposing that the Company continues as an investment trust. The Board are of the opinion that it is in the interest of shareholders that the Company continues as an investment trust and would encourage all shareholders to vote in favour of this resolution.

Outlook

Fears that "tapering" of monthly asset purchases by the Federal Reserve Bank, America's central bank, would lead to rising bond yields and falling equity prices have so far proved wide of the mark. It may be that when interest rates begin to rise - from an historically low base - the market may see this development as proof of a stronger economy. However, with 10 year German bunds yielding 0.96 per cent., and Spanish bonds yielding less than US Treasuries, the attraction of European bond markets is less than compelling, especially if the authorities take steps to minimise the risk of deflation. Meanwhile, UK and European shares at least offer the prospect of rising dividends as well as capital appreciation.

Hugh Priestley

Chairman

4 September 2014

* As at 29 August 2014, the Net Asset Value per share of your Company was 439.75p.

Investment Adviser's Review

The Net Asset Value of the Company's Ordinary shares rose by 11.8 per cent. during the twelve months to 31 May 2014. This compares with a 13.4 per cent. rise, in sterling, of the FTSE World Europe ex UK Total Return index. The level of the Company's borrowings at the year-end was £47m. These borrowings, representing 11.6 per cent. of net assets at year end, obviously improved returns. Borrowing costs were low at barely 1 per cent. (1.2 per cent. a year ago) and were comfortably covered by the increasing dividends of 'our' companies. The FTSE World (total return) index was up 7 per cent. in sterling. The MSCI Latin America index retreated 13.6 per cent., the Brazilian market being the main reason for this; the Asian markets (including China and Japan) were all lower; the S&P 500 returned 9 per cent. in sterling.

The explanation for European equities' outperformance is not so much positive developments in Europe as a reversal of expectations in emerging markets. According to the IMF's most recent forecasts, whilst expectations for Eurozone growth are almost unchanged at 1.2 per cent., those for the world economy have retreated to 3.6 per cent. The most remarkable setback is in Brazil where estimates for progress this year have fallen to 1.8 per cent. from 4 per cent. a year ago. It is not often the case that these macro drivers are so starkly reflected in stock markets. The advance in European equities is also underpinned by the recommitment to the ECB's 'cheap money' policy, first announced by the ECB President Mario Draghi in 2012. A further positive factor for Europe has been lower corporate tax rates. With the notable exception of France, European governments have reduced corporate taxes to encourage investment.

Your Company's relatively limited exposure to financial and utility companies has hurt performance as both sectors did well in the period under review. Nevertheless, as ever, individual stock performance is more important to understanding our results. On the positive side, the principal contributors were long-standing investments. Provident Financial, the home lending and credit card business, is benefiting from the structural problems of the mainstream banks. Wirecard and Reed Elsevier, respectively payments technology and publishing, are both beneficiaries of digital technology as it leverages further their core skills. Another significant 'winner' was Novo Nordisk, the world's leading insulin supplier, which continues to prosper by treating the diabetes pandemic. Novozymes, another significant holding, was also a strong performer. This company dominates the global industrial enzymes market; the shift to 'greener' solutions plays to its expertise. Leonteq, a Swiss based 'manufacturer' of structured financial products performed well, benefiting from an outsourcing trend in the banking sector. Of the detractors to performance, the most important is Experian. A leader in credit data and analytics, the company has been affected by the marked slowdown in Brazil. Notwithstanding this disappointment, it remains a well-positioned company with good growth potential so we have retained the holding. Likewise, Syngenta's performance has been disappointing but we maintain our confidence in the company as we consider most of the causes of weak results to be temporary. On the other hand, Vopak's business model, which had delivered so much value for us, has stuttered as their service has become commoditised. So we sold it.

The combination of slowing growth in emerging markets and signs of life in the developed economies of North America and Europe tested our companies; many in our portfolio were found wanting. Therefore we sold fourteen holdings. We sold all shares in Essilor, a company which has been a long-standing investment but which now faces challenges, notably the need to develop a more convincing consumer strategy. Another important sale was that of adidas. Having been a 'winner' from the emerging market opportunity, the company is now clearly struggling with some fresh challenges and therefore we decided to sell. In addition to Vopak, we also sold the holding in Schneider Electric, as the company's prospects appear to be overly dependent on macro factors. The list of new investments is shorter, not least because we reinforced a number of existing positions. Chief amongst the new purchases was Inmarsat. This company, a world leader in satellite networks, has multiple growth possibilities building on its unique position. A new position was taken in Gemalto, a leader in data security software, as it enjoys many growth opportunities. We increased the holding in Coloplast, the Danish medical devices company, as results show that it is well rewarded for its innovation. Again, good results were the catalyst for further purchases of Grenkeleasing, a German leasing company that benefits from the structural challenges of the mainstream banks.

Outlook

The continuing commitment to 'cheap money' is the most significant factor underpinning the buoyancy of the equity market. It would be foolish, however, to rely on this as a basis for our borrowings and enthusiasm. Our optimism is grounded on finding companies that can compete and succeed in different macro scenarios and are able to monetise the delivery of special products or services. There are certain ingredients for success that we identify in all our successful investments including pricing power, high barriers to entry, visible and recurrent demand growth, and a favourable competitive landscape. After a period where our businesses have been tested, there are reasonable grounds for confidence that the current portfolio has the key business characteristics that have served your Company well in the past.

Alexander Darwall

Fund Manager

Jupiter Asset Management Limited*

Investment Adviser

4 September 2014

*Appointed as Investment Manager to the Company until 21 July 2014. Subsequently appointed as Investment Adviser to JUTM, who were appointed as AIFM to the Company on 22 July 2014.

Investments as at 31 May 2014

			31 May 2014		31 May 2013
	Country of	Market value	Percentage	Market value	Percentage
Company	Listing	£'000	of Portfolio	£'000	of Portfolio
Provident Financial	UK	34,230	7.6	21,632	5.7
Wirecard	Germany	33,898	7.6	24,620	6.5
Novo Nordisk	Denmark	32,247	7.2	21,225	5.6
Syngenta	Switzerland	29,491	6.6	24,552	6.4
Reed Elsevier	Netherlands	28,203	6.3	22,247	5.8
Novozymes	Denmark	27,711	6.2	21,664	5.7
Experian	UK	23,736	5.3	27,645	7.2
Fresenius	Germany	21,811	4.9	18,866	4.9
Intertek Group	UK	18,517	4.1	20,402	5.3
Johnson Matthey	UK	17,710	3.9	13,992	3.7
Amadeus	Spain	16,645	3.7	9,914	2.6
Croda International	UK	16,563	3.7	20,211	5.3
Inmarsat	UK	13,916	3.1	-	-
Coloplast	Denmark	13,891	3.1	8,461	2.2
Grenkeleasing	Germany	12,032	2.7	9,132	2.4
DnB NOR	Norway	11,208	2.5	12,302	3.2
Ingenico	France	10,617	2.4	450	0.1
Edenred	France	9,383	2.1	10,548	2.8
Gemalto	Netherlands	8,475	1.9	-	-
Zodiac Aerospace	France	7,990	1.8	6,054	1.6
Tomra Systems	Norway	7,969	1.8	9,349	2.5
Leonteq	Switzerland	7,768	1.7	-	-
Biotest	Germany	6,451	1.4	-	-
Hexagon	Sweden	5,912	1.3	6,070	1.6
Deutsche Börse	Germany	5,483	1.2	-	-
Ryanair	Ireland	5,253	1.2	2,050	0.5
Dassault Systemes	France	3,027	0.7	11,609	3.0
KWS Saat	Germany	3,004	0.7	1,093	0.3
Svenska Cellulosa	Sweden	2,908	0.6	2,874	0.8
CGG	France	2,794	0.6	-	-
Borregaard	Norway	2,131	0.5	-	-
Elementis	UK	1,859	0.4	-	-
UPM-Kymmene	Finland	1,575	0.4	-	-
CTS Eventim	Germany	1,102	0.2	-	-
Neopost	France	1,094	0.2	-	-
Luxottica Group	Italy	995	0.2	856	0.2
Fugro	Netherlands	873	0.2	2,827	0.7
East European Food Fund	-	25	-	28	-
Total		448,497	100.0

Cross Holdings in other Investment Companies

As at 31 May 2014 and 2013, none of the Company's total assets were invested in the securities of other UK listed investment companies. It is the Company's stated policy that this exposure should not be permitted to exceed 15 per cent. of total assets.

Strategic Review

The Strategic Report has been prepared in accordance with the Companies Act 2006 (Strategic Report and Directors' Report) Regulations 2013, which the Company is required to comply with for the first time for the year ended 31 May 2014.

The Strategic Report seeks to provide shareholders with the relevant information to enable them to assess the performance of the Directors and the Company during the period under review.

Business and Status

During the year the Company carried on business as an investment trust with its principal activity being portfolio investment. The Company has been approved by HM Revenue & Customs as an investment trust subject to the Company continuing to meet the eligibility conditions of sections 1158 and 1159 of the Corporation Tax Act 2010 and the ongoing requirements for approved companies as detailed in Chapter 3 of Part 2 of the Investment Trust (Approved Company) (Tax) Regulations 2011. In the opinion of the Directors, the Company has conducted its affairs in the appropriate manner to retain its status as an investment trust.

The Company is an investment company within the meaning of section 833 of the Companies Act 2006.

The Company is not a close company within the meaning of the provisions of the Corporation Tax Act 2010 and has no employees.

The Company was incorporated in England & Wales on 28 September 1999 and started trading on 20 November 2000, immediately following the Company's launch.

Reviews of the Company's activities are included in the Chairman's Statement and Investment Adviser's Review.

There has been no significant change in the activities of the Company during the year to 31 May 2014 and the Directors anticipate that the Company will continue to operate in the same manner during the current financial year.

Planned Life of the Company

The Articles of Association provide that at the AGM of the Company to be held in 2014 an ordinary resolution shall be proposed that the Company shall continue in existence as an investment trust. If the resolution is passed, a similar ordinary resolution will be proposed at every third annual general meeting thereafter. If any such resolution is not passed at any of those meetings, the Directors shall, within 90 days of the date of the resolution, put forward to shareholders proposals (which may include proposals to wind up or reconstruct the Company) whereby shareholders are entitled to receive cash in respect of their shares equal as near as practicable to that to which they would be entitled on a liquidation of the Company at that time (and whether or not shareholders are offered other options under the proposals).

Shareholders should note that the valuations used to produce the financial statements on a going concern basis might not be appropriate if the Company were to be liquidated.

During the course of the year, representatives of the Investment Adviser and the Company's Corporate Broker have sought the views of the Company's substantial shareholders in respect of the continuation vote. The Directors have been informed that both parties believe that the resolution on the continuation vote will be passed. Having taken this information into account, the Directors are of the opinion that the going concern valuation basis remains appropriate.

Strategy

In order to achieve the objective of investing in securities of European companies and geographical sectors or areas which offer good prospects for capital growth, the Investment Adviser adopts a stock picking approach, in the belief that a thorough analysis and understanding of a company is the best way to identify long-term superior growth prospects.

Benchmark Index

The Company's benchmark index is the FTSE World Europe ex UK Total Return Index.

Dividend Policy

The Directors intend to manage the Company's affairs to achieve shareholder returns through capital growth rather than income. It is therefore not expected that the Company will pay a regular annual dividend. However, in order to qualify for approval by HM Revenue and Customs as an investment trust, no more than 15% of the income which the Company derives from ordinary shares or securities can be retained in respect of each accounting period. As such, the Company may declare a dividend from time to time.

Management

The Company has no employees and most of its day-to-day responsibilities are delegated to Jupiter Asset Management Limited, who act as the Company's Investment Adviser and Company Secretary respectively. Further details of the Company's arrangements with Jupiter Asset Management Limited and Jupiter Unit Trust Managers Limited can be found in Note 22 to the accounts.

As detailed in the Chairman's Statement, the Company appointed J.P. Morgan Europe Limited as its Depositary with effect from 22 July 2014.

With effect from 1 October 2013, JP Morgan Chase Bank N.A. entered into an outsourcing arrangement with the Company to provide accounting and administration services.

Gearing

Gearing is defined as the ratio of a Company's total loan liability, expressed as a percentage of net assets less cash held. The effect of gearing is that in rising markets a geared share class tends to benefit from any outperformance of the relevant company's investment portfolio above the cost of payment of the prior ranking entitlements of any lenders and other creditors. Conversely, in falling markets the value of the geared share class suffers more if the Company's investment portfolio underperforms the cost of those prior entitlements.

In order to improve the potential for capital returns to shareholders the Company had access to a flexible loan facility with Scotiabank Europe PLC for amounts up to £65 million.

On 30 September 2014 the Company's existing £65 million loan facility is due to expire. The Board will be seeking to renew the loan facility.

The Directors consider it a priority that the Company's level of gearing should be maintained at appropriate levels with sufficient flexibility to enable the Company to adapt at short notice to changes in market conditions.

The Board has not set any limits or restrictions on the Company's loan facility other than the £65 million limit of the Company's current loan facility with Scotiabank Europe PLC. The Board frequently reviews the Company's level of gearing.

Key Performance Indicators

At the quarterly board meetings the Directors consider a number of performance indicators to help assess the Company's success in achieving its objectives. The key performance indicators used to measure the performance of the Company over time are as follows:

•    Net Asset Value changes over time

•    Ordinary share price movement

•    A comparison of the absolute and relative performance of the Ordinary share price to Net Asset Value and the Company's Benchmark Index

•    Discount over varying periods

•    Peer Group comparative performance

•    Funds in/outflows of the retail investment wrapper products managed by the Investment Adviser.

Capital Gains Tax Information

The closing middle market price of Ordinary shares on the first date of dealing (20 November 2000) for Capital Gains Tax purposes was 101.5p.

Discount to Net Asset Value

The Directors review the level of the discount or premium between the middle market price of the Company's Ordinary shares and their Net Asset Value on a regular basis and take the opportunity to issue shares when there is sufficient demand at not less than NAV.

The Directors have powers granted to them at the last annual general meeting to purchase Ordinary shares and hold them in treasury as a method of controlling the discount to Net Asset Value and enhancing shareholder value.

No Ordinary shares were bought back for cancellation or to be held in Treasury during the year.

Under the Listing Rules, the maximum price that may currently be paid by the Company on the repurchase of any Ordinary shares is 105% of the average of the middle market quotations for the Ordinary shares for the five business days immediately preceding the date of repurchase. The minimum price will be the nominal value of the Ordinary shares.

The Board is proposing that its authority to repurchase up to approximately 14.9% of its issued share capital should be renewed at the Annual General Meeting. The new authority to repurchase will last until the conclusion of the Annual General Meeting of the Company in 2015 (unless renewed earlier). Any repurchase made will be at the discretion of the Board in light of prevailing market conditions and within guidelines set from time to time by the Board, the Companies Act, the Listing Rules and Model Code.

Treasury Shares

In accordance with the Companies (Acquisition of Own Shares) (Treasury Shares) Regulations 2003 (the 'Regulations') which came into force on 1 December 2003 any Ordinary shares repurchased, pursuant to the above authority, may be held in Treasury. These Ordinary shares may subsequently be cancelled or sold for cash. This would give the Company the ability to reissue shares quickly and cost effectively and provide the Company with additional flexibility in the management of its capital. The Company may hold in Treasury any of its Ordinary shares that it purchases pursuant to the share buy back authority granted by shareholders.

Risks and Uncertainties

The principal risk factors that may affect the Company and its business can be divided into the following areas:

Investment Strategy and Share Price Movements - The Company is exposed to the effect of variations in the price of its investments. A fall in the value of its portfolio will have an adverse effect on shareholders' funds. It is not the aim of the Board to eliminate entirely the risk of capital loss, rather it is its aim to seek capital growth. The Board reviews the Company's investment strategy and the risk of adverse share price movements at its quarterly board meetings taking into account the economic climate, market conditions and other factors that may have an effect on the sectors in which the Company invests.

Foreign Currency Movements - The Company has exposure to foreign currency through its overseas investments. The Board considers carefully factors which may affect the foreign currency in which the Company has an exposure at its quarterly board meetings taking into account the economic and political climate of various regions and the prospects for sterling.

Interest Rates - The Company has exposure to cash which generates interest through interest bearing accounts. The Board is mindful of interest rates when setting limits on the Company's exposure to cash.

Liquidity Risk - This risk can be viewed both as the liquidity of the securities in which the Company invests and the liquidity of the Company's shares. The Company may invest in securities that have a very limited market which will affect the ability of the Company's Investment Adviser to dispose of securities when he no longer feels they offer the potential for future returns. Likewise the Company's shares may experience liquidity problems when shareholders are unable to realise their investment in the Company because there is a lack of demand for the Company's shares. At its quarterly meetings the Board considers the current liquidity in the Company's investments when setting restrictions on the Company's exposure. The Board also reviews on a quarterly basis the Company's buy back programme and in doing so it is mindful of the liquidity in the Company's shares. In addition, the Board seeks the advice of the Company's brokers, Cenkos, who give advice on ways in which the Board can influence the liquidity in the Company's shares. The Company monitors performance to ensure it is able to meet the financial objectives of the loan repayment.

Gearing Risk - The Company's gearing can impact the Company's performance by accelerating the decline in value of the Company's net assets at a time when the Company's portfolio is declining. Conversely gearing can have the effect of accelerating the increase in the value of the Company's net assets at a time when the Company's portfolio is rising. The Company's level of gearing is under constant review by the Board who take into account the economic environment and market conditions when reviewing the level.

Discount to Net Asset Value - A discount in the price at which the Company's shares trade to Net Asset Value would mean that shareholders would be unable to realise the true underlying value of their investment. As a means of controlling the discount to Net Asset Value the Board has established a discount control policy which is under constant review as market conditions change.

Regulatory Risk - The Company operates in a complex regulatory environment and faces a number of regulatory risks. A breach of section 1158 of the Corporation Tax Act 2010 could result in the Company being subject to capital gains on portfolio movements. Breaches of other regulations, such as the UKLA Listing Rules, could lead to a number of detrimental outcomes and reputational damage. Breaches of controls by service providers such as the Investment Adviser could also lead to reputational damage or loss. The Board relies on the services of its Company Secretary, Jupiter Asset Management Limited, and its professional advisers to ensure compliance with, amongst other regulations, the Companies Act 2006, the UKLA Listing Rules and the Alternative Investment Fund Managers Directive.

Loss of Key Personnel - The day-to-day management of the Company has been delegated to the Investment Adviser. Loss of the Investment Adviser's key staff members could affect investment return. The Board is aware that Jupiter Asset Management Limited recognises the importance of its employees to the success of its business. Its remuneration policy is designed to be market competitive in order to motivate and retain staff and succession planning is regularly reviewed. The Board also believes that suitable alternative experienced personnel could be employed to manage the Company's portfolio in the event of an emergency.

Operational - Failure of the Investment Adviser's core accounting systems, or a disastrous disruption to its business, could lead to an inability to provide accurate reporting and monitoring. The Investment Adviser is contractually obliged to ensure that its conduct of business conforms to applicable laws and regulations. Details of how the Board monitors the services provided by Jupiter Asset Management Limited and its associates are included within the Internal Control section of the Corporate Governance review.

Financial - Inadequate financial controls could result in misappropriation of assets, loss of income and debtor receipts and inaccurate reporting of Net Asset Value per share. The Board annually reviews the Investment Adviser's statements on its internal controls and procedures.

Derivatives - The Company invests in derivatives from time to time. Derivatives may be a riskier investment than equities as they can exaggerate the return that can be achieved compared to investing directly in equities. The Board has set limits on the amount of exposure the Company has to derivatives and it reviews these limits at its quarterly board meetings.

Social and Environmental Matters

The Investment Adviser considers various factors when evaluating potential investments. While an investee company's policy towards the environment and social responsibility, including with regard to human rights, is considered as part of the overall assessment of risk and suitability for the portfolio, the Investment Adviser does not necessarily decide to, or not to, make an investment on environmental and social grounds alone.

All of the Company's activities are outsourced to professional third parties. As such it does not have any physical assets, property, employees or operations of its own and does not generate any greenhouse gas or other emissions.

Global Greenhouse Gas Emissions

The Company has no greenhouse gas emissions to report from its operations as its day-to-day management and administration functions have been outsourced to third parties and it neither owns physical assets, property nor has employees of its own. It therefore does not have responsibility for any other emissions producing sources under the Companies Act 2006 (Strategic Report and Directors' Report) Regulations 2013.

Board Diversity

It is seen as a prerequisite that each member of the Board must have the skills, experience and character that will enable each Director to contribute individually, and as part of the Board team, to the effectiveness of the Board and the success of the Company. Subject to that overriding principle, diversity of experience and approach, including gender diversity, amongst Board members is of great value, and it is the Board's policy to give careful consideration to issues of overall Board balance and diversity in appointing new directors.

The Board currently comprises of 5 male directors.

Statement of Directors' Responsibilities in Relation to the Financial Statements

The Directors are responsible for preparing the Annual Report and financial statements in accordance with applicable United Kingdom law and those International Financial Reporting Standards ('IFRSs') as adopted by the European Union. Under Company Law the directors must not approve the financial statements unless they are satisfied that they present a fair, balanced and understandable report and provide the information necessary for shareholders to assess the Company's performance, business model and strategy. In preparing the financial statements the directors are required to:

•  select suitable accounting policies in accordance with IAS 8: 

Accounting Policies, Changes in Accounting Estimates and Errors and then apply them consistently;

•    present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;

•    provide additional disclosures when compliance with the specific requirements in IFRSs is insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity's financial position and financial performance;

•    state that the Company has complied with IFRSs, subject to any material departures disclosed and explained in the financial statements; and

•    make judgements and estimates that are reasonable and prudent.

The directors are responsible for keeping adequate 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 enable them to ensure that the financial statements comply with the Companies Act 2006 and Article 4 of the IAS Regulation. 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 financial statements are published on www.jupiteronline.com/European which is a website maintained by the Investment Adviser.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Responsibility statements under the Disclosure and Transparency Rules

Each of the Directors confirms that to the best of their knowledge:

•    the financial statements, prepared in accordance with IFRS as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and profit of the Company and the undertakings included in the consolidation taken as a whole; and

•    the Strategic Report and the Report of the Directors include a fair review of the development and performance of the business and the position of the Company together with a description of the principal risks and uncertainties that they face.

By Order of the Board

H M Priestley

Chairman

4 September 2014

Statement of Comprehensive Income for the year ended 31 May 2014

		31 May 2014			31 May 2013
	Revenue	Capital		Revenue	Capital
	Return	Return	Total	Return	Return	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Gain on investments at fair value
through profit or loss	-	39,363	39,363	-	94,682	94,682
Gain/(loss) on contracts for difference	-	51	51	-	(237)	(237)
Foreign exchange gain/(loss) on loan	-	2,133	2,133	-	(2,747)	(2,747)
Other exchange (loss)/gain	(83)	(93)	(176)	165	76	241
Investment income	9,208	-	9,208	8,371	-	8,371
Other income	4	-	4	4	-	4
Total income	9,129	41,454	50,583	8,540	91,774	100,314
Investment management fee	(3,075)	-	(3,075)	(2,654)	-	(2,654)
Other expenses	(891)	-	(891)	(696)	-	(696)
Total expenses	(3,966)	-	(3,966)	(3,350)	-	(3,350)
Return before finance costs and tax	5,163	41,454	46,617	5,190	91,774	96,964
Finance costs	(505)	-	(505)	(630)	-	(630)
Return before taxation	4,658	41,454	46,112	4,560	91,774	96,334
Taxation	(637)	-	(637)	(466)	-	(466)
Return after taxation	4,021	41,454	45,475	4,094	91,774	95,868
Return per Ordinary share	4.54p	46.79p	51.33p	5.05p	113.27p	118.32p

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

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

All revenue and capital items in the above statement derive from continuing operations.

Statement of Financial Position as at 31 May 2014

	2014	2013
	£'000	£'000
Non current assets
Investments held at fair value through profit or loss	448,497	381,838
Current assets
Receivables	3,748	3,268
Cash at bank	5,056	12,009
	8,804	15,277
Total assets	457,301	397,115
Current liabilities	(48,110)	(56,314)
Total assets less current liabilities	409,191	340,801
Capital and reserves
Called up share capital	907	844
Share premium	85,486	59,589
Special reserve	33,687	33,687
Capital redemption reserve	45	45
Retained earnings	289,066	246,636
Total equity	409,191	340,801
Net Asset Value per Ordinary share	451.26p	403.58p

Approved by the Board of Directors and authorised for issue on 4 September 2014.

H M Priestley

Chairman

Company Registration Number 4056870

Statement of Changes in Equity for the year ended 31 May 2014

				Capital
	Share	Share	Special	Redemption	Revenue
For the year ended	Capital	Premium	Reserve	Reserve	Reserve	Total
31 May 2014	£'000	£'000	£'000	£'000	£'000	£'000
1 June 2013	844	59,589	33,687	45	246,636	340,801
Net profit for the year	-	-	-	-	45,475	45,475
Ordinary share issue	63	25,897	-	-	-	25,959
Dividends declared and paid	-	-	-	-	(3,045)	(3,045)
Balance at 31 May 2014	907	85,486	33,687	45	289,066	409,191
				Capital
	Share	Share	Special	Redemption	Revenue
For the year ended	Capital	Premium	Reserve	Reserve	Reserve	Total
31 May 2013	£'000	£'000	£'000	£'000	£'000	£'000
1 June 2012	795	41,286	33,687	45	152,240	228,053
Net profit for the year	-	-	-	-	95,868	95,868
Ordinary share issue	49	18,303	-	-	-	18,352
Dividends declared and paid	-	-	-	-	(1,472)	(1,472)
Balance at 31 May 2013	844	59,589	33,687	45	246,636	340,801

Cash Flow Statement for the year ended 31 May 2014

	2014	2013
	£'000	£'000
Cash flows from operating activities
Purchases of investments	(99,376)	(62,358)
Sales of investments	70,963	54,696
Investment income received	8,731	8,104
Interest received	4	3
Investment management fee paid	(2,958)	(2,444)
Payment from/(to) CFD counterparty	346	(530)
Other cash expenses	(810)	(692)
Cash outflow from operating activities before finance costs and taxation	(23,100)	(3,221)
Finance costs	(551)	(617)
Taxation	(123)	(890)
Net cash outflow from operating activities	(23,774)	(4,728)
Financing activities
Ordinary shares issued	25,042	18,352
Dividend paid	(3,045)	(1,472)
Short-term loans received	252,425	205,541
Short-term loans repaid	(257,425)	(205,541)
(Decrease)/increase in cash	(6,777)	12,152
Cash and cash equivalents at start of year	12,009	(384)
Realised (loss)/gain on foreign currency	(176)	241
Cash and cash equivalents at end of year	5,056	12,009

Notes to the Accounts for the year ended 31 May 2014

1.     Accounting policies

The accounts comprise the financial results of the Company for the year to 31 May 2014. The accounts are presented in pounds sterling, as this is the functional currency of the Company. The accounts were authorised for issue in accordance with a resolution of the Directors on 4 September 2014. All values are rounded to the nearest thousand pounds (£'000) except where indicated.

The accounts have been prepared in accordance with International Financial Reporting Standards (IFRS), which comprise standards and interpretations approved by the International Accounting Standards Board (IASB) and International Accounting Standards Committee (IASC), as adopted by the European Union.

Where presentational guidance set out in the Statement of Recommended Practice (SORP) for investment trusts issued by the Association of Investment Companies (AIC) in January 2009 is consistent with the requirements of IFRSs, the directors have sought to prepare the financial statements on a basis compliant with the recommendations of the SORP.

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

A summary of the principal accounting policies, all of which have been applied consistently in the current and preceding years, is set out below:

(a)    Presentation of statement of comprehensive income

In order to better reflect the activities of an investment trust company and in accordance with guidance issued by the AIC, supplementary information which analyses the statement of comprehensive income between items of a revenue and capital nature has been presented alongside the Statement of Comprehensive Income. In accordance with the Company's Articles of Association, net capital returns may not be distributed by way of dividend.

(b)    Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for goods and services provided in the normal course of business.

Revenue includes dividends from investments quoted ex-dividend on or before the reporting date.

Deposit and other interest receivable is accounted for on an accruals basis.

(c)    Expenses

Expenses are accounted for on an accruals basis. Management fees, administration and other expenses are charged fully to the revenue column of the statement of comprehensive income. That part of any Investment performance fee which is deemed by the Directors to relate to the capital outperformance of the Company's investments will be charged to capital and that part relating to revenue outperformance will be charged to revenue. Expenses which are incidental to the purchase or sale of an investment are charged to capital, along with any foreign exchange gains and losses.

(d)    Investments

Investments are recognised and derecognised on a trade date where a purchase or sale of an investment is under contract whose terms require delivery of the investment within the timeframe established by the market concerned, and are initially measured at cost, being the consideration given.

All investments are classified as held at fair value through profit or loss. Changes in the fair value of investments held at fair value through profit or loss and gains and losses on disposal are recognised in the statement of comprehensive income as 'Gains on investments at fair value through profit or loss'. The fair value of listed investments is based on their quoted bid market price at the statement of financial position date without any deduction for estimated future selling costs.

Foreign exchange gains and losses on fair value through profit or loss investments are included within the changes in the fair value of the investment.

(e)    Finance costs

Interest-bearing bank loans and overdrafts are recorded at the proceeds received, net of direct issue costs and subsequently measured at amortised cost. Finance charges, including premiums payable on settlement or redemption and direct issue costs, are accounted for on an accruals basis in the statement of comprehensive income using the effective interest method and are added to the carrying amount of the instrument to the extent that they are not settled in the period in which they arise.

Finance costs are recognised in the Statement of Comprehensive Income in the period in which they are incurred. All finance costs are directly charged to the revenue column of the statement of comprehensive income.

(f)     Cash and cash equivalents

Cash comprises cash in hand and demand deposits. Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and that are subject to insignificant risks of changes in value.

(g)    Foreign currencies

Transactions in currencies other than pounds sterling are recorded at the rates of exchange prevailing on the dates of the transactions. At each reporting date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing on the reporting date. Non-monetary assets and liabilities carried at fair value that are denominated in foreign currencies are translated at the rates prevailing at the date when the fair value was determined. Gains and losses arising on retranslation are included in net profit or loss for the period.

Any gains or losses are included within capital apart from the retranslation of foreign withholding tax which is included within revenue.

(h)    Taxation

The tax expense represents the sum of the tax currently payable and deferred tax.

The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the statement of comprehensive income because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Company's liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the reporting date.

Deferred tax is recognised in respect of all temporary differences at the reporting date, where transactions or events that result in an obligation to pay more tax in the future or right to pay less tax in the future have occurred at the reporting date. This is subject to deferred tax assets only being recognised if it is considered more likely than not that there will be suitable profits from which the future reversal of the temporary differences can be deducted. Deferred tax assets and liabilities are measured at the rates applicable to the legal jurisdictions in which they arise.

Investment Trusts which have approval under section 1158 of the Corporation Tax Act 2010 are not liable for taxation of capital gains.

(i)     Use of estimates

The preparation of financial statements requires the Company to make estimates and assumptions that affect items reported in the statement of financial position and statement of comprehensive income and disclosure of contingent assets and liabilities at the date of financial statements. Although these estimates are based on management's best knowledge of current facts, circumstances and, to some extent, future events and actions, actual results ultimately may differ from those estimates, possibly significantly. There are no material estimates in the current or prior year.

2.     Income

	2014	2013
	£'000	£'000
Income from investments
Dividends from United Kingdom companies	3,496	3,673
Dividends from overseas companies	5,712	4,698
	9,208	8,371
Other income
Deposit interest	4	4
Foreign exchange (loss)/gain	(83)	165
	(79)	169
Total income	9,129	8,540
Total income comprises
Dividends	9,208	8,371
Interest	4	4
Foreign exchange (loss)/gain	(83)	165
	9,129	8,540
Income from investments
Listed in the UK	3,496	3,673
Listed overseas	5,712	4,698
	9,208	8,371

8.     Return per Ordinary share

The return per Ordinary share figure is based on the net profit for the year of £45,475,000 (2013: Profit £95,868,000), and on 88,595,150 (2013: 81,022,263) Ordinary shares, being the weighted average number of Ordinary shares in issue during the year.

The return per Ordinary share figure detailed above can be further analysed between revenue and capital, as below.

	2014	2013
	£'000	£'000
Net revenue profit	4,021	4,094
Net capital profit	41,454	91,774
Net total profit	45,475	95,868
Weighted average number of Ordinary shares in issue during the year	88,595,150	81,022,263
Revenue return per Ordinary share	4.54p	5.05p
Capital return per Ordinary share	46.79p	113.27p
Total return per Ordinary share	51.33p	118.32p

19.  Net Asset Value per Ordinary share

The Net Asset Value per Ordinary share is based on the net assets attributable to the equity shareholders of £409,191,000 (2013: £340,801,000) and on 90,676,474 (2013: 84,444,523) Ordinary shares, being the number of Ordinary shares in issue at the year end.

22.  Related parties

Alexander Darwall, the fund manager is an employee of the Investment Adviser, Jupiter Asset Management Limited ('JAM'), a company within the same group as the Alternative Investment Fund Manager, Jupiter Unit Trust Managers Limited ('JUTM'), and Jupiter Administration Services Limited. These companies received investment management and administration fees as set out below.

During the financial year under review, Jupiter Asset Management Limited was contracted to provide investment management services to the Company (subject to termination by not less than one year's notice by either party) for a quarterly fee of 0.1875% of the total assets of the Company, excluding the value of any Jupiter managed investments, payable in arrears on 31 May, 31 August, 30 November and the last calendar day of February. The Management fee for the year was £3,075,000 (2013: £2,654,000) with £856,000 outstanding as at 31 May 2014 (2013: £739,000).

Jupiter Asset Management Limited was also entitled to an investment performance fee which is based on the out-performance of the Net Asset Value per Ordinary share over the total return on the Benchmark Index, the FTSE World Europe ex UK Total Return Index in an accounting period. Any performance fee payable will equal 15% of the amount by which the increase in the Net Asset Value per Ordinary share (plus any dividends per Ordinary share paid or payable and any accrual for unpaid performance fees for the period) exceeds the higher of (a) the Net Asset Value per Ordinary share on the last business day of the previous accounting period; (b) the Net Asset Value per Ordinary share on the last day of a period in respect of which a performance fee was last paid: and (c) 100p. In each case the values of (a), (b) and (c) are increased by the percentage by which the total return of the Benchmark Index increases or decreases during the calculation period. The total amount of any performance fee payable in respect of one accounting period is limited to 4.99% of the Total Assets of the Company. No performance fee was payable for the year ended 31 May 2014 (2013: £nil).

The contract to provide accounting and administration services to the company by Jupiter Administration Services Ltd. ended on 30 September 2013 following an outsourcing arrangement with JPMorgan with effect from 1 October 2013. The fee paid to 30 September 2013 was £24,000 (31 March 2013: £91,000).

The Company has invested from time to time in funds managed by Jupiter Investment Management Group Limited or its subsidiaries. The only such holding as at 31 May 2014 was East European Food Fund representing 0.006% of total investments (2013: 0.007% of total investments).

23.  Contingent liabilities and capital commitments

There were no contingent liabilities or capital commitments outstanding as at 31 May 2014 (2013: nil).

24.  Post balance sheet event

Appointment of Alternative Investment Fund Manager

The Company appointed Jupiter Unit Trust Managers Limited ('JUTM') as its Alternative Investment Fund Manager ('AIFM') with effect from 22 July 2014. In order to facilitate this appointment, the Company terminated the investment management agreement (the 'IMA') with Jupiter Asset Management Limited ('JAM') and entered into a new investment management agreement with JUTM ('the new IMA'). The new IMA contains no substantive changes to the previous IMA other than to reflect regulatory changes, changes to service providers to the Company and to update the agreement to reflect current market practice. Under these new arrangements, certain investment management functions have been delegated from JUTM to JAM. Furthermore, any high water mark accrued under the Company's performance fee with JAM has been carried forward into the new investment management agreement with JUTM.

Appointment of Depositary

As required by the Alternative Investment Fund Managers Directive, the Company has appointed J.P. Morgan Europe Limited ('JPM Europe') as its depositary for cash monitoring, the safekeeping of financial instruments, other assets and oversight with effect from 22 July 2014. The Global Custody Agreement with J.P. Morgan Chase Bank N.A. ('JPMCB') will remain in place; JPM Europe will enter into an internal delegation agreement with JPMCB to delegate the custody function to it.

Availability of Annual Report

The Annual Report & Accounts will be posted to shareholders shortly. Copies will also be available from the Company's registered office at 1 Grosvenor Place, London SW1X 7JJ. An electronic version of the Annual Report & Accounts will also be available for download from the Company's section of Jupiter Asset Management's website www.jupiteronline.com/European.

For further information, please contact:

Richard Pavry

Head of Investment Trusts

Jupiter Asset Management Limited, Company Secretary

[e-mail] 

020 7314 4822

5 September 2014

 

END

 

 

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