Jupiter European Opportunities Trust PLC : Fina...
Jupiter European Opportunities trust Plc
Annual Financial Report for the year ended 31 May 2012
The following is an extract from the Company's Annual Report and Accounts for the year ended 31 May 2012. The full Annual Report will shortly be available to be viewed on or downloaded from the Company's website at www.jupiteronline.co.uk.
CHAIRMAN'S STATEMENT
Performance
Net asset value per share, or NAV - the proportion of your Company's total assets which backs each of the shares of your Company which you own - dipped by 8.1 per cent., from 316.73p to 291.05p, in the year under review. At the same time your Company's benchmark, the FTSE World Europe ex UK Total Return Index, slumped by no less than 24.2 per cent., reflecting the problems which have beset the eurozone and continue to do so. It is always pleasant to report on an absolute, as opposed to a relative, degree of outperformance, but I hope you will agree that such a strong relative outperformance is a cause of congratulation to Alexander Darwall and to his team. Most fund managers can perform reasonably well in a rising market, but conditions as unhelpful as we have recently experienced provide the real test of investment skill. Sadly, from our manager's point of view, the net asset value per share ended below the previous year's all time high point of 316.73p, which thereby becomes known as the "high watermark", and no performance fee is payable unless the year-end NAV is in excess of that figure. As at 26 July 2012, the latest time prior to the release of the accounts, the NAV was 315.98p per share which is a rise of 8.6 per cent. since your Company's year-end and compares favourably with your Company's benchmark index which rose by 5.0 per cent.
Dividends
Longstanding shareholders will know that it is not our intention to pay dividends, but inasmuch as we end the year with surplus income, that surplus is paid out to shareholders. Two years ago we paid out 2.1p per share and last year 5.3p per share; this time the distribution has dropped back to 1.85p per share. Under new taxation rules for investment trusts we could, if we felt it was in shareholders' best interests, pay out part of your Company's capital by way of income in order to achieve a predictable and growing level of dividend. Given that at least one of our largest shareholders would be severely disadvantaged by such a move, we are unlikely to undertake it for the time being. In principle, we do not favour paying dividends out of capital given that the Company's investment objective is to achieve capital growth.
Gearing
Last September we renewed our borrowing facilities, this time by way of a revolving bank loan with Scotiabank Europe PLC for a term of 1 year up to a maximum of £60 million, since your Board felt that it was imperative to have the new facility in place, if necessary before the expiry date of the old one. At the year end the bulk of the new facility was drawn in euros and the rate of interest on various portions of the debt ranged from 1.7 to 2.1 per cent., marginally less than the overall yield on the portfolio. At that date the gearing ratio stood at 22 per cent., up from 13 per cent. a year earlier.
Discount Management
Over the year the discount - the gap between NAV and the price of your Company's shares - widened from 8.4 to 11.3 per cent., in line with investment trust discounts in general. During the year 250,000 shares were bought in for cancellation at a discount to NAV of 12.0 per cent. For most of the year the discount was less than 10 per cent., and lower than the average for our peer group - a reflection of active marketing by our manager and, dare I say it, a history of excellent performance (most of the time, at least; there have been some uncomfortable patches).
The Board
We were delighted when Andrew Sutch, senior partner of City solicitors Stephenson Harwood, agreed to join us in succession to Jack Robinson. Andrew has helped a number of investment trusts and their managers with flotations, share issues and corporate advice in general, and his knowledge of the investment trust industry is profound. Amongst other aspects, we look to him to keep us on the straight and narrow in the matter of corporate governance. It is worth noting that there was no executive search fee paid to bring Andrew Sutch onto the board.
Retail Distribution Review
From 1 January next, independent financial advisers (IFA's) are debarred from earning commission for the advice they give to their private clients. In the past they have favoured unit trusts and insurance products, which generate a degree of commission income, and have ignored investment trusts, which do not. In theory, therefore, they may now start to recommend investment trusts on the grounds of their lower charging structure and superior long term performance over unit trusts. In practice they may find that explaining the share structure of investments trusts, the prevalence of discounts to NAV, and gearing, to their client base is a step too far, especially if investment trusts do not feature on the majority of the investment "platforms" which IFA's extensively use. Moreover, while investment trusts carry lower charges than their unit trust counterparts, their Ongoing Charges figure is higher than that of tracker or Exchange Traded Funds (ETFs).
As it happens, your Company's Ongoing Charges figure for the year just ended was 1.17 per cent. We will provide this figure in future Annual Reports.
Outlook
Reading the final paragraph of my Statement a year ago, it would seem that not a lot has changed on the European scene; we lurch from one bailout to the next, European politicians (and indeed our own) promise much but deliver little, and the global economy seems to be losing what little momentum it had. On the other hand there does seem to be a recognition that Something Must Be Done, even if no one is quite sure what it is; and companies themselves enjoy higher margins - having cut costs following the Lehman Brothers failure in 2008 - and strong balance sheets. The companies represented in your Company's portfolio are in many cases offering essential products and services, often in niche areas where they enjoy a dominant market share and pricing power, and should deliver whatever eventually comes about in the eurozone.
H.M. Priestley
Chairman
3 August 2012
MANAGER'S REVIEW
The Net Asset Value of the Company's Ordinary shares fell 8.1 per cent. during the twelve months to 31 May 2012. This compares with a 24.2 per cent. fall, in sterling, of the FTSE World Europe ex UK index (total return).
The level of the Company's borrowings (including overdraft) increased to £52.4 million from £34.8 million over the period under review. These borrowings, representing 22.4 per cent. of net assets at year end, detracted from returns. Borrowing costs were low at barely 2 per cent. and were comfortably covered by the increasing dividends of 'our' companies. We increased borrowings as new investment opportunities arose.
The FTSE World (total return) index was down by 5.5 per cent. in sterling. The Company's benchmark, the FTSE World Europe ex UK total return index declined 24.2 per cent. The MSCI Latin America index was down 16.3 per cent.; the MSCI AC Asia ex-Japan index was likewise lower, by 12.4 per cent. Exceptionally, the S&P 500 returned 6.1 per cent. in sterling. The obvious reason for the European markets' poor absolute and relative performance is the macro challenges of the Eurozone. According to the IMF, after 1.6 per cent. growth in the European Union economy in 2011, a further expansion of 1.3 per cent. is expected in 2013 after zero growth in 2012. Developing Asia (26 countries including China and India) continues to outperform, growing by an estimated 7.8 per cent. in 2011; further growth of 7.3 per cent. is forecast in 2012. The rate of growth in Latin America has slowed. Nevertheless, the IMF expects the Brazilian economy to have grown by 2.7 per cent. in 2011; a further 3 per cent. expansion in GDP is forecast for 2012.
The correlation between national economic growth and stock market performance is not always a good one: there are many distortions between broad economic growth and shareholder returns. This time, however, Europe's macro problems and banking crisis explain the underperformance of the equity markets. Corporate profitability has remained impressively robust in Europe despite the deterioration in public finances and weaker growth. Corporate profits in Europe, ex financials, according to the investment bank UBS, improved by 2.6 per cent. in 2011; they forecast 6 per cent. profits growth in 2012. However, a more complex pattern emerges when looking at the detail. There has been a bifurcation in earnings performance between 'captive' companies - those that cannot escape the difficulties of the Eurozone - and 'flexible' companies that can escape. Broadly speaking, earnings from 'captive' companies such as banks and utilities have been disappointing. 'Flexible' companies, on the other hand, which have been able to take advantage of global markets (and global costs) have produced good results.
Whilst your Company's performance was satisfactory relative to the benchmark index, in absolute terms a fall of 8.1 per cent. is disappointing. To an unusual extent our individual holdings polarised clearly into 'winners' and 'losers'- there was not much in between. The majority of holdings made positive absolute returns. The bulk of our winners were companies that we describe as 'flexible', global companies. Intertek Group, the UK listed testing and inspection company, and Vopak the Dutch based chemical and oil storage company are 'plays' on increasing world trade. Experian, the credit and marketing services company, Croda (specialist chemicals), Syngenta (a world leader in crop protection and seeds) and NovoNordisk (the leading insulin manufacturer) have successful multinational businesses. The exceptions to our 'flexible', global winners were Thrane & Thrane (a Danish technology company that was the subject of a takeover bid) and a few companies which, whilst totally European based, have business models that are flourishing. Grenkeleasing (the German leasing company) is a beneficiary of the mainstream banks' problems; Provident Financial (which serves the non-standard lending market in the UK) is, too, enjoying demand for its services; and Telecity provides datacentre services, mainly in the UK. Unfortunately the good progress made by some of our stock-picks was offset by disappointments elsewhere. Aixtron designs and manufactures equipment for the semiconductor industry. Its profits fell sharply as overcapacity choked demand. Marine Harvest also suffered from overcapacity in its industry, salmon farming. Overcapacity and increasing competition in its key market, Russia, explains Oriflame's poor performance. Other disappointing performers include DNB, the Norwegian bank, and Modern Times Group (MTG), the Scandinavian broadcaster. The former has not adequately exploited its position as one of the stronger banks in Europe, and MTG has seen a fall in its market share.
We sold three large positions Aixtron, Marine Harvest and Oriflame, our principal mistakes. In all cases we had misunderstood the robustness and quality of the different business models. Moreover, in all cases we were disappointed by management response to the challenges. The holding in Inmarsat was sold as we believed that it is facing increasing competition; likewise the investment in Qiagen was sold as its sales continued to disappoint. Holdings in Essilor, Fugro, Neopost and Vopak were all reduced for portfolio management reasons. There was an unusually high number of new purchases, a reflection that this time of great challenges and change can also be a time of great opportunity for some companies. The two most significant new purchases were Edenred, the world leader in prepaid services (such as childcare vouchers), and Amadeus, the world's leading technology provider to the travel industry, providing marketing, distribution and IT services worldwide. Edenred, we believe, will be a significant beneficiary of digital technology which enables them to reach new markets and develop new products. Amadeus is Spanish-listed though its business is truly global: its strong share price performance proves that the 'fundamentals' are vital, the country of listing is not. Another important fresh investment was that of adidas, the sporting goods company, which is benefiting from positive developments in new markets.
We increased the holding in Provident Financial as its profits development confirmed the strength of its business model. The investment in Fresenius SE (the German healthcare group) was also increased as secular trends boost demand for its products such as generic drugs and clinical nutrition.
Outlook
The deleveraging process in Europe has a long way to go. It is tempting for governments to increase money supply as a way of easing the debt burden at the expense of savers. Clearly the shift in economic power away from Europe will continue for some time. Accordingly, more than ever it is vital that we invest in companies that deliver demonstrably good, differentiated and profitable products and services. Those companies that can successfully tap into both the revenue and cost opportunities afforded globally can continue to flourish. Such companies exist. Our investments are held across a broad range of activities where we identify secular growth opportunities. We remain confident that our investment approach is an appropriate one.
Alexander Darwall
Fund Manager
Jupiter Asset Management Limited
3 August 2012
OBJECTIVE
The objective of the Company is to invest in securities of European companies and in sectors or geographical areas which are considered by the investment manager to offer good prospects for capital growth, taking into account economic trends and business development.
INVESTMENT POLICY
The Investment Manager 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. This understanding begins with identifying those companies where the ownership structure and incumbent management are conducive to the realisation of the aim of achieving superior long-term earnings growth. The Investment Manager will seek to identify companies which enjoy certain key business characteristics including some or all of the following:
· a strong management record and team, and the confidence that the Investment Manager has in that management's ability to explain and account for its actions;
· proprietary technology and other factors which indicate a sustainable competitive advantage;
· a reasonable expectation that demand for their products or services will enjoy long-term growth; and
· an understanding that structural changes are likely to benefit rather than negatively impact that company's prospects.
There may be sectors which do not enjoy the business characteristics described above and in such circumstances the Investment Manager will seek to identify companies that are expected to generate superior earnings growth within that sector.
In analysing potential investments, the Investment Manager will employ differing valuation techniques depending on their relevance to the business characteristics of a particular company. However, the underlying feature will be the sustainability and growth of free cashflow in the long-term.
Any material change in the investment policy of the Company described above may only be made with the approval of Shareholders by an ordinary resolution.
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. There can be no assurances that appreciation in the value of the Company's investments will occur but the Board seeks to reduce this risk.
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.
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 than 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.
Liquidity Risk - This risk can be viewed 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 Fund manager 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 turbulent market conditions when setting 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 buy back programme 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 Manager 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 and the UKLA Listing Rules.
Loss of Key Personnel - The day-to-day management of the Company has been delegated to the Investment Manager. The person at Jupiter Asset Management Limited who manages the assets of the Company on a daily basis is Alexander Darwall. Loss of the Manager's key staff members could affect investment return. The Board is aware that Jupiter Fund Management plc 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 Manager's core accounting systems, or a disastrous disruption to its business, could lead to an inability to provide accurate reporting and monitoring. The Manager is contractually obliged to ensure that its conduct of business conforms to applicable laws and regulations. The Manager has confirmed that reliable back-up systems are in place.
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 Manager's statements on its internal controls and procedures.
Consolidated Statement of Comprehensive Income for the year ended 31 May 2012
| 31 May 2012 | 31 May 2011 | |||||
| Revenue Return £'000 | Capital Return £'000 | Total £'000 | Revenue Return £'000 | Capital Return £'000 | Total £'000 | |
| (Loss)/gain on investments at fair value through profit or loss | - | (19,068) | (19,068) | - | 67,971 | 67,971 |
| Foreign exchange gain on loan | - | 666 | 666 | - | - | - |
| Other exchange (loss)/gain | (70) | (237) | (307) | 89 | (209) | (120) |
| Investment income | 6,375 | - | 6,375 | 8,810 | - | 8,810 |
| Other income | 4 | - | 4 | 2 | - | 2 |
| Total income | 6,309 | (18,639) | (12,330) | 8,901 | 67,762 | 76,663 |
| Investment management fee | (2,038) | - | (2,038) | (1,910) | - | (1,910) |
| Investment performance fee | - | - | - | - | (4,237) | (4,237) |
| Other expenses | (555) | - | (555) | (477) | - | (477) |
| Total expenses | (2,593) | - | (2,593) | (2,387) | (4,237) | (6,624) |
| Return before finance costs and tax | 3,716 | (18,639) | (14,923) | 6,514 | 63,525 | 70,039 |
| Finance costs | (936) | - | (936) | (354) | - | (354) |
| Return before taxation | 2,780 | (18,639) | (15,859) | 6,160 | 63,525 | 69,685 |
| Taxation | (464) | - | (464) | (700) | - | (700) |
| Return after taxation | 2,316 | (18,639) | (16,323) | 5,460 | 63,525 | 68,985 |
| Return per Ordinary share | 2.91p | (23.42)p | (20.51)p | 6.84p | 79.58p | 86.42p |
The total column of this statement is the statement of comprehensive income of the Group 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 loss for the year.
All revenue and capital items in the above statement derive from continuing operations. No operations were acquired or discontinued during the year.
Consolidated Statement of Financial Position as at 31 May 2012
| 2012 | 2011 | |
| £'000 | £'000 | |
| Non current assets | ||
| Investments held at fair value through profit or loss | 280,022 | 290,438 |
| Current assets | ||
| Receivables | 4,892 | 2,238 |
| Cash at bank | 659 | 488 |
| 5,551 | 2,726 | |
| Total assets | 285,573 | 293,164 |
| Current liabilities | (53,989) | (40,351) |
| Total assets less current liabilities | 231,584 | 252,813 |
| Capital and reserves | ||
| Called up share capital | 795 | 798 |
| Share premium | 41,286 | 41,286 |
| Special reserve | 33,687 | 34,376 |
| Capital redemption reserve | 45 | 42 |
| Retained earnings | 155,771 | 176,311 |
| Total equity | 231,584 | 252,813 |
| Net Asset Value per Ordinary share | 291.05p | 316.73p |
Company Statement of Financial Position as at 31 May 2012
| 2012 | 2011 | |
| £'000 | £'000 | |
| Non current assets | ||
| Investments held at fair value through profit or loss | 280,022 | 290,438 |
| Current assets | ||
| Receivables | 4,892 | 2,238 |
| Cash at bank | 659 | 488 |
| 5,551 | 2,726 | |
| Total assets | 285,573 | 293,164 |
| Current liabilities | (57,520) | (43,882) |
| Total assets less current liabilities | 228,053 | 249,282 |
| Capital and reserves | ||
| Called up share capital | 795 | 798 |
| Share premium | 41,286 | 41,286 |
| Special reserve | 33,687 | 34,376 |
| Capital redemption reserve | 45 | 42 |
| Retained earnings | 152,240 | 172,780 |
| Total equity | 228,053 | 249,282 |
Consolidated Statement of Changes in Equity
| Capital | ||||||||
| Share | Share | Special | Redemption | Retained | ||||
| For the year ended | Capital | Premium | Reserve | Reserve | Earnings | Total | ||
| 31 May 2012 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | ||
| 1 June 2011 | 798 | 41,286 | 34,376 | 42 | 176,311 | 252,813 | ||
| Net loss for the year | - | - | - | - | (16,323) | (16,323) | ||
| Ordinary share cancellation | (3) | - | (689) | 3 | - | (689) | ||
| Dividends declared and paid | - | - | - | - | (4,217) | (4,217) | ||
| Balance at 31 May 2012 | 795 | 41,286 | 33,687 | 45 | 155,771 | 231,584 | ||
| Capital | ||||||
| Share | Share | Special | Redemption | Retained | ||
| For the year ended | Capital | Premium | Reserve | Reserve | Earnings | Total |
| 31 May 2011 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 |
| 1 June 2010 | 798 | 41,286 | 34,376 | 42 | 109,002 | 185,504 |
| Net profit for the year | - | - | - | - | 68,985 | 68,985 |
| Dividends declared and paid | - | - | - | - | (1,676) | (1,676) |
| Balance at 31 May 2011 | 798 | 41,286 | 34,376 | 42 | 176,311 | 252,813 |
Company Statement of Changes in Equity
| Capital | ||||||
| Share | Share | Special | Redemption | Retained | ||
| For the year ended | Capital | Premium | Reserve | Reserve | Earnings | Total |
| 31 May 2012 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 |
| 1 June 2011 | 798 | 41,286 | 34,376 | 42 | 172,780 | 249,282 |
| Net loss for the year | - | - | - | - | (16,323) | (16,323) |
| Ordinary share cancellation | (3) | - | (689) | 3 | - | (689) |
| Dividends declared and paid | - | - | - | - | (4,217) | (4,217) |
| Balance at 31 May 2012 | 795 | 41,286 | 33,687 | 45 | 152,240 | 228,053 |
| Capital | ||||||
| Share | Share | Special | Redemption | Retained | ||
| For the year ended | Capital | Premium | Reserve | Reserve | Earnings | Total |
| 31 May 2011 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 |
| 1 June 2010 | 798 | 41,286 | 34,376 | 42 | 105,471 | 181,973 |
| Net profit for the year | - | - | - | - | 68,985 | 68,985 |
| Dividends declared and paid | - | - | - | - | (1,676) | (1,676) |
| Balance at 31 May 2011 | 798 | 41,286 | 34,376 | 42 | 172,780 | 249,282 |
Consolidated Cash Flow Statement for the year ended 31 May 2012
| 2012 | 2011 | |
| £'000 | £'000 | |
| Cash flows from operating activities | ||
| Purchases of investments | (88,353) | (58,320) |
| Sales of investments | 75,089 | 49,455 |
| Realised (loss) / gain on foreign currency | (307) | (120) |
| Investment income received | 6,165 | 8,538 |
| Interest received | 5 | 1 |
| Investment management fee paid | (2,559) | (1,257) |
| Investment performance fee paid | (4,237) | - |
| Other cash expenses | (597) | (400) |
| Cash (outflow) / inflow from operating activities before finance costs and taxation | (14,794) | (2,103) |
| Finance costs paid | (868) | (353) |
| Taxation paid | (332) | (1,613) |
| Net cash (outflow) / inflow from operating activities | (15,994) | (4,069) |
| Financing activities | ||
| Ordinary shares cancelled | (689) | - |
| Dividend paid | (4,217) | (1,676) |
| Short term loans received | 241,080 | 113,000 |
| Short term loans repaid | (221,052) | (108,000) |
| Decrease in cash | (872) | (745) |
| Cash and cash equivalents at start of year | 488 | 1,233 |
| Cash and cash equivalents at end of year | (384) | 488 |
Company Cash Flow Statement for the year ended 31 May 2012
| 2012 | 2011 | |
| £'000 | £'000 | |
| Cash flows from operating activities | ||
| Purchases of investments | (88,353) | (58,320) |
| Sales of investments | 75,089 | 49,455 |
| Realised (loss) / gain on foreign currency | (307) | (120) |
| Investment income received | 6,165 | 8,538 |
| Interest received | 5 | 1 |
| Investment management fee paid | (2,559) | (1,257) |
| Investment performance fee paid | (4,237) | - |
| Other cash expenses | (597) | (400) |
| Cash (outflow) / inflow from operating activities before finance costs and taxation | (14,794) | (2,103) |
| Finance costs | (868) | (353) |
| Taxation | (332) | (1,613) |
| Net cash (outflow) / inflow from operating activities | (15,994) | (4,069) |
| Financing activities | ||
| Ordinary shares cancelled | (689) | - |
| Dividend paid | (4,217) | (1,676) |
| Short term loans received | 241,080 | 113,000 |
| Short term loans repaid | (221,052) | (108,000) |
| Decrease in cash | (872) | (745) |
| Cash and cash equivalents at start of year | 488 | 1,233 |
| Cash and cash equivalents at end of year | (384) | 488 |
NOTES:
1. Income
| 2012 Group £'000 | 2011 Group £'000 | |
| Income from investments | ||
| Dividends from United Kingdom companies | 2,434 | 1,585 |
| Dividends from overseas companies | 3,941 | 7,225 |
| 6,375 | 8,810 | |
| Other income | ||
| Deposit interest | 4 | 2 |
| Foreign exchange gains | (70) | 89 |
| (66) | 91 | |
| Total income | 6,309 | 8,901 |
| Total income comprises | ||
| Dividends | 6,375 | 8,810 |
| Interest | 4 | 2 |
| Other income | (70) | 89 |
| 6,309 | 8,901 | |
| Income from investments | ||
| Listed in the UK | 2,434 | 1,819 |
| Listed overseas | 3,941 | 6,991 |
| 6,375 | 8,810 |
2 Reconciliation of profit before finance costs and taxation to net cash inflow from operating activities
| 2012 | 2011 | |
| Group | Group | |
| £'000 | £'000 | |
| Net return before finance costs and taxation | (14,923) | 70,039 |
| Loss/(gain) on non current asset investments | 19,068 | (67,971) |
| Foreign exchange gain on loans | (666) | - |
| Purchases of non current asset investments | (88,353) | (58,320) |
| Sales of non current asset investments | 75,089 | 49,455 |
| Increase in prepayments and accrued income | (209) | (277) |
| (Decrease)/Increase in other creditors and accruals | (4,800) | 4,971 |
| Net cash outflow from operating activities before interest and taxation | (14,794) | (2,103) |
Related parties
Mr Darwall is an employee of Jupiter Asset Management Limited. Jupiter Asset Management Limited and Jupiter Administration Services Limited, a company within the same group as Jupiter Asset Management Limited, receive investment management and administration fees as set out below.
Jupiter Asset Management Limited is 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 per cent. of the total assets of the Group, 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 £2,038,000 (2011: £1,910,000) with £529,000 outstanding as at 31 May 2012 (2011: £1,049,350).
Jupiter Asset Management Limited is 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 per cent. 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 per cent. of the Total Assets of the Company. No performance fee was payable for the year ended 31 May 2012 (2011: £4,236,703).
Jupiter Administration Services Limited is contracted to provide secretarial, accounting and administrative services to the Company for an annual fee of £69,000 adjusted each year in line with the Retail Price Index payable quarterly (2011: £65,459). None of the fee payable for the year ended 31 May 2012 was outstanding at the year end (2011: Nil).
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 2012 was East European Food Fund representing 0.1 per cent. of total investments (2011: 0.2 per cent. of total investments).
4. Going Concern
The Company's business activities, capital structure and borrowing facilities, together with the factors likely to affect its future development, performance and position are set out in the Manager's Review and the Report of the Directors of the full Report and Accounts.
The Company's assets consist mainly of securities which are readily realisable, its ongoing expenses are low relative to its net assets and therefore the Directors consider that the Company has appropriate financial resources to enable it to meet its day-to-day working capital requirements.
The Directors consider that the Company has adequate resources to continue in operational existence for the foreseeable future. Thus they continue to adopt the going concern basis of accounting in preparing the annual financial statements.
5. Directors' Responsibilities For 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 ('IFRS') as adopted by the European Union.
Under Company law the Directors must not approve the Company and Group financial statements unless they are satisfied that they present fairly the financial position of the Company and the Group and the financial performance and cash flows of the Company and of the Company and Group for that period. In preparing the Group 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 IFRS 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 Group has complied with IFRS, 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 proper accounting records that are sufficient to show and explain the Group's transactions and disclose with reasonable accuracy at any time the financial position of the Group and enable them to ensure that the Group 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 Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. The work carried out by the Auditor does not include consideration of the maintenance and integrity of the website and accordingly the Auditor accepts no responsibility for any changes that have occurred to the financial statements when they are presented on the website. Visitors to the website need to be aware that legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
The Directors confirm to the best of their knowledge that:
the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company, and the consolidation taken as a whole; and
the Report of the Directors includes a fair view of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that the Company faces.
By Order of the Board
H M Priestley
Chairman
3 August 2012
The annual report will be sent to those registered shareholders who have elected to receive a copy. Copies may be obtained from the registered office of the Company at 1 Grosvenor Place, London, SW1X 7JJ.
The Annual General Meeting of the Company is scheduled to take place at 12.00 noon on 9 October 2012 at the Company's registered office.
By order of the Board
Jupiter Asset Management Limited
Secretaries
Enquiries:
Jenny Thompson
Jupiter Asset Management Limited
020 7412 0703
Richard Pavry
Jupiter Asset Management Limited
020 7412 0703
The owner of this announcement warrants that:
(i) the releases contained herein are protected by copyright and other applicable laws; and
(ii) they are solely responsible for the content, accuracy and originality of the
information contained therein.
Source: Jupiter European Opportunities Trust PLC via Thomson Reuters ONE
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