Half-year Report

RNS Number : 6549V

JPMorgan European Smaller Co.

04 December 2019

 

LONDON STOCK EXCHANGE ANNOUNCEMENT

JPMORGAN EUROPEAN SMALLER COMPANIES TRUST PLC

HALF YEAR REPORT & FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED 30TH SEPTEMBER 2019

Legal Entity Identifier: 54930049CEWDI46Y3U28

Information disclosed in accordance with DTR 4.2.2

CHAIRMAN'S STATEMENT

Dear Shareholder,

This is my first statement to you since becoming Chairman of your Company in July this year.

Performance

Net asset value total return was +6.0% in the six months to 30th September 2019. Whilst this is a positive result from our Investment Managers in challenging equity market conditions, it is a little disappointing when compared with the Company's benchmark index total return of +6.3% over the same period (the Euromoney Smaller Companies (ex UK) index). The share price return of +4.1%, was positive, but resulted in a widening of the discount over the period.

I would emphasise the Trust's long term performance. Over the five and ten year period to 30th September 2019 total return on net assets rose by +99.1% and +185.0%, respectively, outperforming the benchmark index total return by +26.7% and 50.1%, respectively.

The investment managers' report below reviews the markets and provides more detail on the performance drivers within the portfolio and the stocks and countries in which the Company is invested.

Revenue and Dividends

Gross revenue return for the six months to 30th September 2019 was marginally lower than the corresponding period in 2018 at £13.8 million (2018: £13.9 million). The Board has decided to pay an interim dividend of 1.2 pence (2018: 1.2 pence) per share which will be paid on 17th January 2020 to shareholders on the register as at 13th December 2019 (the ex-dividend date will be 12th December 2019).

Change in Benchmark

With effect from 1st April 2020 the benchmark will change from the Euromoney Smaller European Companies (ex UK) total return index to the MSCI Europe ex UK small cap net total return index. This index better reflects the underlying portfolio constituency.

Discount Management and Share Repurchases

The discount of the Company's share price to net asset value widened over the period from 12.6% to 14.5%. The Board continues to monitor the level of the discount carefully and seeks to use its ability to repurchase shares to minimise the short term volatility and the absolute level of the discount. No shares were repurchased in the six months to 30th September 2019.

The Board

Carolan Dobson stepped down as Chairman and a Director at the AGM in July and I would like to welcome Tanya Cordrey as a new member of the Board. Tanya joined at the beginning of July and has a strong background in the digital environment.

Environmental, Social and Governance ('ESG')

As highlighted in the Half Year Report environmental, social and governance issues have been rigorously integrated in to the investment managers' investment processes and as a result ESG issues are considered at every stage of the decision making process.

Outlook

The prospects for European equity markets remain unpredictable given the continuing global political uncertainty. Despite this background our investment managers continue to believe that the long term growth outlook for European companies remains positive.

Marc van Gelder

Chairman                                                                                                                               4th December 2019

INVESTMENT MANAGERS' REPORT

Review

The six month period to 30th September 2019, saw difficult and volatile markets due to conflicting messages surrounding the US-China trade war. In May, President Trump unexpectedly escalated the dispute by announcing additional tariffs on Chinese products before de-escalating it following the June G20 summit where he agreed with President Xi to restart trade negotiations. With companies increasingly unwilling to invest in such an uncertain climate and with the Purchasing Managers Indices (PMIs) falling sharply around the world, central banks stepped in to support global growth by loosening monetary policy - effectively providing a supportive environment for financial markets.

The MSCI Europe (ex UK) Index rose by 10.2% during the period, outperforming our benchmark Euromoney Smaller European Companies (ex UK) Index which rose by 6.3%.

Portfolio

With a return of 6.0% over the six months to September 2019, the portfolio slightly underperformed its benchmark. Detractors from performance included Danish IT consultant, NNIT, after the company announced pricing pressure and the loss of several key contracts, German optical systems manufacturer, Jenoptik, as weaker industrial end markets led to management lowering expectations for 2019, and Swiss 3D vision semiconductor provider, AMS, after management launched a hostile takeover bid for German LED lighting manufacturer, Osram, which would require a capital increase if successful. Top performers included German lithium-ion battery manufacturer, Varta, as the company increased guidance a number of times due to very strong end market growth for wireless in-ear headphones, French R&D consultant, Altran, after the company received a takeover bid from the French IT services consultant, Capgemini, and French payment systems provider, Ingenico, after the new management team's initiatives to accelerate growth in their payment terminals business started to gain traction.

During the period we selectively invested in a number of opportunities with attractive valuations and improving operational momentum. For instance, we increased our exposure to the renewable energy sector by adding German listed Encavis, Italian listed ERG and Spanish listed Solaria. These companies are benefitting from increasing demand for clean energy and rapidly falling technology costs. We also invested in two high voltage cable manufactures, the Italian listed Prysmian and French listed Nexans. Both are successfully recovering from previous operational issues and are set to benefit from the increasing investment in energy infrastructure which is required to integrate new renewable energy sources into national energy grids.

We participated in two IPOs: German speciality packaging company, Aluflexpack, which is benefitting from the trend towards flexible aluminium packaging due to its premium branding opportunities and recycling ease versus paper based packaging, and Swedish private equity house, EQT, on the expectations of strong assets under management growth due to their ability to up-size future fund raising rounds.

To fund these investments, we divested from companies with deteriorating operational momentum including the Italian manufacturer of barcode readers and handheld computers, Datalogic, as weak end markets led to management lowering guidance, Portuguese telecommunication company, NOS, after it reported slower than expected network rollout numbers leading to market maturity worries, Danish hearing aid and headphone manufacturer, GN Store Nord, on concerns that the company was seeing increasing levels of competition in the headphone space from rivals with better known brands, and Swiss manufacturer of agricultural and municipal equipment, Bucher, as agricultural end markets continued to be impacted by soft commodity prices. We also divested entirely from two recipients of takeover bids, the aforementioned French R&D consultant, Altran, and Dutch optician, GrandVision.

As a result of these changes, Support Services became the largest sector overweight as Health Care Equipment & Services fell to second largest overweight. Financial Services remained the largest sector underweight, followed by the Real Estate sector. Switzerland and Italy became the largest country overweights with the Netherlands dropping to third largest country overweight. Spain remained the portfolio's largest country underweight. The portfolio ended the period with a net geared position of 0.4%, having begun with a 5.2% net cash position.

Outlook

While economies remain weak, due to elevated trade uncertainty, markets have been resilient believing that central banks' aggressive loosening of monetary policy should suffice to stem the increasingly negative economic newsflow. Whether this really turns out to be the case will only be evident next year, but for now the glass appears half full. As such, post the end of the six months we have reintroduced gearing in our portfolio, which currently stands at circa 4%.

Francesco Conte

Edward Greaves

Investment Managers                                                                                                                 4th December 2019

INTERIM MANAGEMENT REPORT

The Company is required to make the following disclosures in its half year report:

Principal Risks and Uncertainties

The principal risks and uncertainties faced by the Company have not changed and fall into the following broad categories: investment underperformance and strategy; market and currency; accounting, legal and regulatory; operational; cyber crime, financial and corporate governance and shareholder relations. Information on each of these areas is given in the Business Review within the Annual Report and Accounts for the year ended 31st March 2019.

Related Party Transactions

During the first six months of the current financial year, no transactions with related parties have taken place which have materially affected the financial position or the performance of the Company.

Going Concern

The Directors believe that, having considered the Company's investment objective, risk management policies, capital management policies and procedures, the nature of the portfolio and expenditure and cashflow projections, the Company has adequate resources, an appropriate financial structure and suitable management arrangements in place to continue in operational existence for the foreseeable future. More specifically, they believe that there are no material uncertainties pertaining to the Company that would prevent its ability to continue in such operational existence for at least twelve months from the date of the approval of this half yearly financial report. For these reasons, they consider there is reasonable evidence to continue to adopt the going concern basis in preparing the financial statements.

Directors' Responsibilities

The Board of Directors confirms that, to the best of its knowledge:

(i)        he condensed set of financial statements contained within the half-yearly financial report has been prepared in accordance with FRS 104 'Interim Financial Reports' and gives a true and fair view of the state of affairs of the Company and of the assets, liabilities, financial position and net return of the Company, as at 30th September 2019, as required by the UK Listing Authority Disclosure Guidance and Transparency Rules 4.2.4R; and

(ii)       the interim management report includes a fair review of the information required by 4.2.7R and 4.2.8R of the UK Listing Authority Disclosure Guidance and Transparency Rules.

In order to provide these confirmations, and in preparing these financial statements, the Directors are required to:

•   select suitable accounting policies and then apply them consistently;

•   make judgements and accounting estimates that are reasonable and prudent;

•   state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements; and

•   prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business;

and the Directors confirm that they have done so.

For and on behalf of the Board

Marc van Gelder

Chairman                                                                                                                                    4th December 2019

STATEMENT OF COMPREHENSIVE INCOME

FOR THE SIX MONTHS ENDED 30TH SEPTEMBER 2019

		(Unaudited)				(Unaudited)			(Audited)
		Six months ended				Six months ended			Year ended
		30th September 2019				30th September 2018			31st March 2019
	Revenue		Capital	Total	Revenue		Capital	Total	Revenue	Capital	Total
	£'000		£'000	£'000	£'000		£'000	£'000	£'000	£'000	£'000
Gains/(losses) on investments
held at fair value through
profit or loss	-		29,815	29,815	-		34,781	34,781	-	(57,332)	(57,332)
(Losses)/gains on
liquidity fund1	-		(102)	(102)	-		720	720	-	(946)	(946)
Net foreign currency losses	-		(103)	(103)	-		(454)	(454)	-	(248)	(248)
Income from investments	13,642		-	13,642	13,798		-	13,798	15,717	-	15,717
Interest receivable and
similar income	117		-	117	88		-	88	120	-	120
Gross return/(loss)	13,759		29,610	43,369	13,886		35,047	48,933	15,837	(58,526)	(42,689)
Management fee	(937)		(2,186)	(3,123)	(1,013)		(2,364)	(3,377)	(1,938)	(4,520)	(6,458)
Other administrative expenses1	(358)		-	(358)	(409)		-	(409)	(863)	-	(863)
Net return/(loss) before
finance costs and taxation	12,464		27,424	39,888	12,464		32,683	45,147	13,036	(63,046)	(50,010)
Finance costs	(31)		(72)	(103)	(130)		(305)	(435)	(183)	(428)	(611)
Net return/(loss)
before taxation	12,433		27,352	39,785	12,334		32,378	44,712	12,853	(63,474)	(50,621)
Taxation	(1,421)		-	(1,421)	(1,065)		-	(1,065)	(1,173)	-	(1,173)
Net return/(loss)
after taxation	11,012		27,352	38,364	11,269		32,378	43,647	11,680	(63,474)	(51,794)
Return/(loss) per share (note 3)	6.91p		17.15p	24.06p	7.04p		20.24p	27.28p	7.31p	(39.71)p	(32.40)p

1        JPMorgan Euro Liquidity Fund: Due to change in EU Money Market Fund Regulations, effective from 18th March 2019, negative interest is no longer charged explicity. Instead, it causes the NAV per share to fall. Therefore for the six months ended 30th September 2019, negative interest was included over (losses)/gains on liquidity fund. In the comparative period/year, this was included in other administrative expenses.

STATEMENT OF CHANGES IN EQUITY

FOR THE SIX MONTHS ENDED 30TH SEPTEMBER 2019

	Called up		Capital
	share	Share	redemption	Capital	Revenue
	capital	premium	reserve	reserves	reserve1	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Six months ended 30th September 2019
(Unaudited)
At 31st March 2019	7,974	1,312	7,662	608,269	12,591	637,808
Net return	-	-	-	27,352	11,012	38,364
Dividend paid in the period (note 4)	-	-	-	-	(8,771)	(8,771)
At 30th September 2019	7,974	1,312	7,662	635,621	14,832	667,401
Six months ended 30th September 2018
(Unaudited)
At 31st March 2018	8,000	1,312	7,636	673,600	11,627	702,175
Net return	-	-	-	32,378	11,269	43,647
Dividend paid in the period (note 4)	-	-	-	-	(8,799)	(8,799)
At 30th September 2018	8,000	1,312	7,636	705,978	14,097	737,023
Year ended 31st March 2019 (Audited)
At 31st March 2018	8,000	1,312	7,636	673,600	11,627	702,175
Repurchase and cancellation of the
Company's own shares	(26)	-	26	(1,857)	-	(1,857)
Net (loss)/return	-	-	-	(63,474)	11,680	(51,794)
Dividends paid in the year (note 4)	-	-	-	-	(10,716)	(10,716)
At 31st March 2019	7,974	1,312	7,662	608,269	12,591	637,808

1          This reserve forms the distributable reserve of the Company and may be used to fund the distribution to investors via dividend payments.

STATEMENT OF FINANCIAL POSITION

AT 30TH SEPTEMBER 2019

	(Unaudited)	(Unaudited)	(Audited)
	30th September 2019	30th September 2018	31st March 2019
	£'000	£'000	£'000
Fixed assets
Investments held at fair value through profit or loss	670,087	719,228	604,429
Current assets
Derivative financial assets	-	6	-
Debtors	1,748	13,087	7,871
Cash and cash equivalents	18,214	37,615	28,596
	19,962	50,708	36,467
Current liabilities
Creditors: amounts falling due within one year	(22,647)	(8,864)	(3,084)
Derivative financial liabilities	(1)	-	(4)
Net current (liabilities)/assets	(2,686)	41,844	33,379
Total assets less current liabilities	667,401	761,072	637,808
Creditors: amounts falling due after more than one year	-	(24,049)	-
Net assets	667,401	737,023	637,808
Capital and reserves
Called up share capital	7,974	8,000	7,974
Share premium	1,312	1,312	1,312
Capital redemption reserve	7,662	7,636	7,662
Capital reserves	635,621	705,978	608,269
Revenue reserve	14,832	14,097	12,591
Total shareholders' funds	667,401	737,023	637,808
Net asset value per share	418.5p	460.7p	400.0p

STATEMENT OF CASH FLOWS

FOR THE SIX MONTHS ENDED 30TH SEPTEMBER 2019

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	30th September 2019	30th September 2018	31st March 2019
	£'000	£'000	£'000
Net cash outflow from operations before dividends
and interest	(3,901)	(2,365)	(6,805)
Dividends received	11,892	11,448	12,613
Interest received	1	-	-
Overseas tax recovered	455	80	168
Interest paid	(158)	(372)	(659)
Net cash inflow from operating activities	8,289	8,791	5,317
Purchases of investments and derivatives	(493,898)	(451,295)	(1,035,910)
Sales of investments and derivatives	470,427	536,093	1,143,506
Settlement of forward currency contracts	197	(204)	(133)
Net cash (outflow)/inflow from investing activities	(23,274)	84,594	107,463
Dividends paid	(8,771)	(8,799)	(10,716)
Repurchase and cancellation of the Company's own shares	-	-	(1,857)
Drawdown of bank loans	13,377	-	66,704
Repayment of bank loans	-	(68,969)	(160,313)
Net cash inflow/(outflow) from financing activities	4,606	(77,768)	(106,182)
(Decrease)/increase in cash and cash equivalents	(10,379)	15,617	6,598
Cash and cash equivalents at start of period	28,596	21,998	21,998
Exchange movements	(3)	-	-
Cash and cash equivalents at end of period	18,214	37,615	28,596
(Decrease)/increase in cash and cash equivalents	(10,379)	15,617	6,598
Cash and cash equivalents consist of:
Cash and short term deposits	926	285	266
Cash held in JPMorgan Euro Liquidity Fund	17,288	37,330	28,330
Total	18,214	37,615	28,596

NOTES TO THE FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED 30TH SEPTEMBER 2019

1.  Financial statements

The information contained within the financial statements in this half year report has not been audited or reviewed by the Company's auditors.

The figures and financial information for the year ended 31st March 2019 are extracted from the latest published financial statements of the Company and do not constitute statutory accounts for that year. Those financial statements have been delivered to the Registrar of Companies, including the report of the auditors which was unqualified and did not contain a statement under either section 498(2) or 498(3) of the Companies Act 2006.

2.  Accounting policies

The financial statements have been prepared in accordance with the Companies Act 2006, FRS 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland' of the United Kingdom Generally Accepted Accounting Practice ('UK GAAP') and with the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' (the revised 'SORP') issued by the Association of Investment Companies in November 2014 and updated in October 2019.

FRS 104, 'Interim Financial Reporting', issued by the Financial Reporting Council ('FRC') in March 2015 has been applied in preparing this condensed set of financial statements for the six months ended 30th September 2019.

All of the Company's operations are of a continuing nature.

The accounting policies applied to this condensed set of financial statements are consistent with those applied in the financial statements for the year ended 31st March 2019.

3.  Return/(loss) per share

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	30th September 2019	30th September 2018	31st March 2019
	£'000	£'000	£'000
Return/(loss) per share is based on the following:
Revenue return	11,012	11,269	11,680
Capital return/(loss)	27,352	32,378	(63,474)
Total return/(loss)	38,364	43,647	(51,794)
Weighted average number of shares in issue	159,462,885	159,987,885	159,839,186
Revenue return per share	6.91p	7.04p	7.31p
Capital return/(loss) per share	17.15p	20.24p	(39.71)p
Total return/(loss) per share	24.06p	27.28p	(32.40)p

4.  Dividends paid

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	30th September 2019	30th September 2018	31st March 2019
	£'000	£'000	£'000
2019 final dividend of 5.5p (2018: 5.5p) per share	8,771	8,799	8,799
2019 interim dividend of 1.2p per share	-	-	1,917
Total dividends paid in the period/year	8,771	8,799	10,716

All dividends paid in the period/year have been funded from the revenue reserve.

An interim dividend of 1.2p (2019: 1.2p) has been declared in respect of the six months ended 30th September 2019, amounting to £1,917,000.

5. Net asset value per share

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	30th September 2019	30th September 2018	31st March 2019
Net assets (£'000)	667,401	737,023	637,808
Number of shares in issue	159,462,885	159,987,885	159,462,885
Net asset value per share	418.5p	460.7p	400.0p

JPMORGAN FUNDS LIMITED

ENDS

A copy of the half year will be submitted to the National Storage Mechanism and will shortly be available for inspection at www.hemscott.com/nsm.do

The half year will also shortly be available on the Company's website at www.jpmeuropean.co.uk where up to date information on the Company, including daily NAV and share prices, factsheets and portfolio information can also be found.

For further information, please contact:

Faith Pengelly

For and on behalf of

JPMorgan Funds Limited, Secretary 020 7742 4000

Neither the contents of the Company's website nor the contents of any website accessible from hyperlinks on the Company's website (or any other website) is incorporated into, or forms part of, this announcement.

 

END

 

 

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